sain t-gobain annu al report 2008 annual report

calculated at the rate of 5.25% from March 9, 2009.
The necessary steps have been taken to set up this bond
within the required timeframe.
As a result of these developments, the €694 million provision
set aside at December 31, 2007, which was reduced to €560
million at June 30, 2008 following payment of the €134 million
fine, was increased to €960 million at December 31, 2008
to cover the €896 million fine, together with the cost
of the bond and the estimated legal costs over the appeal
period. The additional €400 million set aside in the second
half of 2008 was recorded in “Other business expense”.
To the best of the company’s knowledge, no other litigation
or arbitration has recently had, or is likely to have, a material
impact on the financial position, operations or results
of Compagnie de Saint-Gobain or on the Saint-Gobain Group.
Insurance - coverage of potential risks
The Group transfers its risks to the insurance market when
this is the most efficient solution. Default by one or more
of the Group’s insurers could lead to financial losses.
The Group implements preventive programs and purchases
insurance cover to protect its assets and revenue. The policy
is determined, coordinated and overseen by the Risks
and Insurance Department based on conditions in the
insurance market. It defines insurance criteria for the most
significant risks, such as property & casualty, business
interruption, and business and product liability. For other types
of cover, such as automobile fleet insurance, the Risks
and Insurance Department advises the individual operating
units on policy content, broker selection and which market
to consult. These represent high frequency risks, allowing
claims to be monitored internally and appropriate preventive
action to be taken.
The 2007 policies were renewed in 2008 with improved cover
at lower premium rates.
The captive insurance company set up to cover property risks
delivered real benefits.
Companies acquired during the year have been integrated
into existing insurance programs.
Property & casualty
and business interruption insurance
The Group has a worldwide insurance program covering
non-excluded property & casualty risks and business
interruption risks arising from accidental damage to insured
assets. The program does not cover operations in Brazil
which are insured under a local program under the Risks
and Insurance Department’s supervision.
The programs meet the insurance criteria laid down
by the Risks and Insurance Department:
• All policies are “all risks” policies with named exclusions.
• Claims ceilings are based on worst-case scenarios
where safety systems operate effectively.
• Deductibles are proportionate to the size of the site
concerned and cannot be qualified as self-insurance.
These criteria take into account current insurance offerings,
which exclude certain risks, such as computer viruses and
their impact on operations, and cover natural disasters like
floods or storms only up to a certain amount. In extreme
scenarios, such events could have a substantial uninsured
financial impact in terms of both reconstruction costs
and lost production costs.
The Risks and Insurance Department’s policy is based on
the findings of the annual audits carried out by prevention
experts recognized by the Group’s insurers. These audits give
a clear picture of the main sites’ risk exposure in the event
of a fire or other incident and provide an estimate
of the financial consequences in a worst-case scenario.
Individual claims in excess of €12.5 million are transferred
to the insurance market. Claims representing less than this
amount are self-insured through the Group’s captive insurance
company, which purchases reinsurance cover against increases
in frequency or severity rates.
Liability insurance
Two programs provide coverage for third-party personal injury
and property damage claims.
The first covers all subsidiaries except those located
in the geographic area covered by the United States & Canada
Delegation. In order to satisfy local regulatory requirements,
a policy is taken out in each country in which the Group has
a significant presence. Local policies are backed up by first line
insurance issued in Paris, which can be activated when local
cover proves inadequate.
Altogether, the level of coverage is considered as compatible
with the Group’s business. The program’s exclusions are
consistent with market practice and concern in particular
potentially carcinogenic substances and gradual pollution.
The second program covers subsidiaries located
in the geographic area covered by the United States & Canada
Delegation. This program is structured differently to deal
with the specific nature of liability risks in the United States.
It is divided into several lines of coverage, allowing it to be
placed on insurance markets in both London and Bermuda.
MANAGEMENT REPORT
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Saint-Gobain - 2008 Annual Report