Annual Report - Scor

SCOR aims to provide attractive long-term returns and a
transparent level of earnings volatility for its shareholders, through
the careful management of diversified risk portfolios and the
capital allocated to the risks they contain. This can be particularly
challenging during periods of extreme stress, such as the one we
have been experiencing since 2008. Nevertheless, the Group has
been able to demonstrate that it is successfully managing the
financial market crisis with no impact on solvency, while still
delivering profitability in line with its strategic plans.
scOR’s eRm stRategy is built aROund
the capital shield pOlicy, which deteRmines
the RisK appetite Of the gROup
The cornerstone of the SCOR group’s ERM Framework is the
“Capital Shield” policy. The purpose of the Capital Shield policy is
to ensure that the Group reconciles its risk and return objectives,
risk objectives being measured in terms of earnings volatility and
Group solvency. The policy is based on an economic value approach
in order to take into account all potential profits and losses, some
of which are not immediately recognisable from an accounting
point of view.
The Capital Shield policy is based on two concepts. Firstly, our
gross exposure is mitigated through retrocession and other
hedging mechanisms to achieve an acceptable net risk exposure.
Secondly, through the device of Buffer Capital, SCOR calibrates
the amount of target capital necessary to respect the Group’s riskreturn
objectives.
SCOR’s Board and Executive Management team regularly review
the Group’s Risk Profile to ensure that it remains aligned with the
Group’s Risk Appetite. SCOR uses various mechanisms within its
comprehensive ERM Framework to manage the Group's Risk
Profile. These mechanisms enable SCOR to identify, assess, control
and monitor specific risks in order to:
■ take mitigating action to reduce the Group’s retained exposure
to specific risks and to ensure that the Risk Tolerance limits
defined above are not breached,
■ take optimising action to capitalise on the risk-return ratio.
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Annual Report SCOR 2009
Identifying and controlling risks
scOR’s enteRpRise RisK management
pOlicy is Rated favOuRably
by the Rating agencies
The stability of SCOR’s results confirms the success of our strategic
risk management, which was recognised in September 2009 by
Standard & Poor's when they upgraded SCOR’s Enterprise Risk
Management (ERM) rating from “adequate" to “strong".
According to Standard & Poor’s, the ERM rating upgrade reflects
the Group’s excellent risk management culture, excellent emerging
risk management, strong strategic risk management and strong
or at least adequate risk controls for the Group’s major risks. The
rating agency further noted that SCOR’s risk appetite, product and
investment mix and financial targets should produce strong
earnings, with lower volatility than many of its peers in the
reinsurance sector. The ERM upgrade by S&P is a further testimony
to the extensive efforts that the Group has made at all levels, and
will enhance the Group’s strong franchise even further.
Recent pRactical examples
Of RisK management actiOns:
■ The Group has a policy of pursuing “gardening deals” by
evaluating the potential acquisition of small to medium sized
portfolios, for instance from insurers or reinsurers who are exiting
a line of business. These can frequently represent attractive riskreturn
opportunities and often provide the added benefit of
increased diversification to the Group’s Risk Profile.
This policy led to the purchase of the French reinsurance company
Prévoyance Re in 2008 and of XLRe’s USA Life portfolio in 2009.
■ In terms of managing its assets, SCOR pursues a conservative
strategy and as a consequence has limited exposure to illiquid
assets. The majority of the portfolio is invested in high quality
securities, mainly in bonds with a small part in equities.
Decisions taken during the global economic crisis were aimed
at protecting the value of the Group against a possible collapse
in asset prices and systemic counterparty risks. The Group’s
Executive Management decided to convert as many assets as
possible into cash and highly liquid assets, resulting in a lower
return on investments but with the benefit of immunization
against market difficulties.