Yet again, CIAM has hit out against the governance quality of Scor and urged the Board members to protect the interest of its shareholders from the practices of Mr Denis Kessler. The activist fund is clearly preparing for the next general meeting, by putting the CEO and all the Board under pressure. We expect that CIAM will reiterate the same resolution it proposed at the last shareholders’ meeting.

CIAM, the activist investor has addressed a new letter to the management of Scor, but this time to the leading Director Mr Augustin de Romanet and not to the CEO Mr Denis Kessler, accusing the latter of ignoring shareholders’ interest and pursuing destructive governance strategies in his negotiations with Covéa last year.

The manager of CIAM is asking Mr de Romanet to act as a mediator between Mr Kessler and Mr Thierry Derez (CEO of Covéa) and urged all Board members to take the necessary steps to ensure that the essential principles of good governance are respected, mentioning potential conflicts of interest and unacceptable levels of remuneration. CIAM also considers that the new strategic plan Quantum Leap is too similar to the previous one

The reaction by CIAM was not a surprise. In our comment of the reinsurer’s strategic plan, we mentioned that it failed to bring exceptional big news to investors. Quantum Leap is focusing on the digitalisation of processes and the integration of the ILS business. Scor is clearly looking to keep its current level of profitability with targets which are very similar to Vision in Action’s one. It is true that the momentum is not extremely favourable in the industry, with continuous low interest rates and deep accounting changes with IFRS 9 and 17, but the absence of plans to increase scale would keep Scor in the viewfinder of the bigger players.

CIAM is aware of this, and the fact that its stake moved from 0.94% in March to 1.34% currently shows that the activist fund still considers Scor as a good investment opportunity. The consolidation movement within the reinsurance industry should continue in the coming years and, with its current size, the French operator should certainly generate interest. Valued at €7bn by the market, Scor offerd an interesting 17.5% potential upside according to our estimates.

In our opinion, CIAM has attempted to reach two main aims in this letter.

The first is to put Scor’s CEO under pressure. We recall that the fund added a resolution at the last annual general meeting asking Mr Kessler to step down from his role as Chairman and continue just as a CEO without a position on the Board. While we are still convinced that Mr Kessler is protected from any attempt of ejection, mainly as he is assured by his last mandate, CIAM seems to be trying to influence the identity of his successor. At the last general meeting, it was announced that the appointment of the new top manager will be made nine months before the completion of the current CEO mandate, to avoid destabilising the company. CIAM would hope for the nomination of a more flexible CEO who is not obsessed by keeping the reinsurer independent.

The second one is to announce, indirectly, that it will contest the remuneration level of the CEO at the next general meeting and will probably renew its demand of removing Mr Kessler from the Board. While 74% of shareholders supported to keep Mr Kessler as a Chairman, there was no real unanimity about his remuneration with 45.5% of opposition. If the share price continues to disappoint, relative to its peers, the next meeting would more complicated for the CEO. Convincing new shareholders of this opinion requires early mobilisation and this is what the fund is doing.

This should not be a complicated affair. According to AlphaValue’s criteria, the governance score stands at 4.75 vs. 6.14 for the sector. The reinsurer has no independent director, which is unique in our coverage. In terms of remuneration, Mr Kessler doesn’t have the highest compensation either in our coverage.

However, converted into a percentage of attributable net profit, it is the highest at 0.76% of FY 18 net profit, whereas this ratio is limited to 0.65% for Swiss Re, 0.17% for Muenchener Rueck and 0.15% for Hannover Rueck. Mr Kessler may face a most difficult shareholders’ meeting in 2020.

The governance issues of Scor continue and CIAM seems to have not yet digested what happened last year with Covéa and blames Mr Kessler’s decision for causing it and the loss of earnings. This is just the beginning of a long battle between the two parties.