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Future regulatory prospects
The “Seveso II” European directive aims at preventing major
chemical hazards at industrial sites and at limiting their
consequences for man and the environment. It classifies sites based
on storage of hazardous substances. The level of regulatory
disclosure requirements and prevention measures is based
on this classification. At end 2004, out of more than 40 Michelin
European sites, a single one was classified “high-level”
and 6 “low-level”.
Upon entry into force of the Seveso 2003 amendment in 2005,
inventory volumes subject to classification are to be cut by a
factor of 2 to 4. For Michelin sites, the main impact relates
to inclusion of zinc and zinc compounds in the list of hazardous
substances with respect to the aquatic environment.
As a result, and for an unchanged level of actual hazard, the
number of Michelin classified sites could increase significantly in
2005.
Coverage of non-financial risk
In addition to a proactive protection and prevention policy, the
Group’s insurance strategy is based on the following three
planks:
• Risk assessment
Risk appraisal by the “Audit” and “Environment and Prevention”
departments serves to determine the proper level of guarantee
required.
• Transfer of high-intensity risk
Michelin has contracted integrated global insurance programs
covering the major risks, based on the types and levels of cover
available in the insurance and reinsurance market. These involve
mainly “property” and “civil liability” cover.
Property
A €500 million insurance program was contracted under the best
financial terms to ensure continued operations in case of
emergency; this program includes a €40 million Incremental
Operating Costs cover.
Civil Liability
This program includes three key aspects:
• product civil liability;
• operating costs; this has direct application for EC countries in
addition to underwritten contracts;
• environmental emergency cover for all Group companies.
The guarantee does not cover legal fees and product recall
expenses.
Other insurance programs cover lower-level risk.
• Group Captive Insurance Companies
The Group owns several captive insurance companies whose role
is to cover medium-level risk. This involves risk pooling and helps
control Group insurance costs.
These captive companies, with ceilings that are commensurate
with their resources, are mainly involved in:
• the “property liability” program, with a €30 million ceiling per
event.
• the USA and Canada product civil liability program with a
US$5 million per hazard.
The aggregate premiums for financial year 2004 amounted to
€65.4 million, against €74.5 million in 2003.
Legal risk
Michelin ensures compliance of all legal provisions and
regulations applicable to its relationships with its partners.
It is not subject to any specific tax law or other regulation
or provision, or prior authorization for the conduct of its operations
likely to have a significant impact on its financial standing.
Group legal liabilities flow from its operations as tire designer,
manufacturer and distributor. Owing to the Group's on-going
customer-orientated research in the area of product safety and
quality, it should be reasonably well placed to prevent and
control such legal liabilities.
The Group is generally exposed to product liability claims, chiefly
in the USA, and to liability in connection with the distribution
and marketing of its products, and to risks in connection with its
social obligations, especially in the area of post-retirement
benefits. As part of their day-to-day management business,
certain Group companies are involved in legal proceedings.
As at December 31, 2004 there existed no claim, arbitration
proceedings or recent exceptional event likely to have or having
had a significant impact on Group financial standing, earnings,
business or assets.
Michelin, however, has filed arbitration proceedings at the end
of 2003 against the seller of the Viborg group of companies
acquired by the Group (see Note to the consolidated accounts
page 76 ).