4.4 Legal risk - Scor

It should be noted that regulatory filings in the majority of countries in which the Group operates are not prepared on an
IFRS basis. The statutory basis of accounting in various countries is very often different from IFRS giving rise to potential
differences between IFRS capital and statutory capital.
REGULATORY FRAMEWORK
Regulators are primarily interested in protecting the interests of policyholders. At the same time regulators are also
interested in ensuring that the Group maintains an appropriate solvency position to meet unforeseen liabilities arising from
economic shocks or natural disasters.
The operations of the Group are subject to regulatory requirements within the countries where entities of the Group
underwrite. Such regulations not only prescribe approval and monitoring of activities, but also impose certain obligations
related to level of capital (e.g. capital adequacy) to cover the risk of default and insolvency on the part of the reinsurance
companies and insurance companies to meet unforeseen liabilities.
The Group actively monitors the regulatory capital requirements of each of its operating subsidiaries within this capital
management framework. The Group is subject to applicable government regulation in each of the jurisdictions in which it
conducts business, particularly in France, Switzerland, the U.S., the U.K., Singapore, Hong Kong, Ireland, Germany and
Sweden. Regulatory agencies have broad supervisory and administrative powers over many aspects of the insurance and
reinsurance industries.
Failure of an operating company to meet the local regulatory capital requirements of the jurisdiction in which it operates
could lead to regulatory supervision or administration of the affairs of the operating company.
The Group aims to achieve full compliance in respect of all regulatory and solvency requirements in the countries in which it
operates.
Group solvency
Under the European Directive relating to reinsurance, as adopted in France in late 2008, the Group is subject to the control
of insurance regulators in the various European countries in which it operates. The Group calculated its solvency based on
consolidated IFRS financial statements adjusted to be consistent with French Generally Accepted Accounting Procedure
(GAAP) requirements. This was first performed by the Group in 2008 and subsequently an update was performed at the end
of 2009, 2010 and 2011 . The results of these assessments confirm that the Group meets the requirements of the “Solvency
I” directive. The results for the 2012 assessment are not currently available since the Group performs such assessments to
coincide with statutory filing requirements which fall due after the publication of this document.
INFORMATION ON RESERVES INCLUDED IN THE STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Revaluation reserves
The asset revaluation reserves are used to account for the changes in fair value of the available-for-sale financial assets
adjusted to reflect the effects of “shadow accounting”, if any.
Translation adjustment
The translation adjustment caption records the differences in exchange rates resulting from the conversion of the financial
statements of foreign subsidiaries and branches.
The movement in the translation adjustment is primarily due to the translation of accounts of the subsidiaries and branches
not using EUR as the functional currency. In 2012, the Group hedged itself against certain movements in the net asset value
of its U.S. dollar denominated subsidiaries. These hedges were effective and resulted in a total negative foreign exchange
impact of EUR 13 million within equity in 2012 (2011: EUR 13 million, 2010: EUR 22 million). As at 31 December 2012, the
Group does have one hedge of net investment remaining in place. See Note 8 – Derivative instruments.
The Group reviews the functional currency of its entities on an ongoing basis to ensure they appropriately reflect the
currency of the primary economic environment in which they operate. As at 1 January 2010, the functional currencies of two
of the Group’s subsidiaries; SCOR Switzerland AG, and SCOR Holding Switzerland, were changed with prospective
application from USD to EUR. As at 1 January 2011, the functional currencies of the UK branches of SCOR Global P&C SE,
SCOR Global Life SE and SCOR SE were changed with prospective application from GBP to EUR. As at 1 January 2012,
the functional currencies of two of the Group’s subsidiaries, Finimo Realty Pte Ltd and SCOR Reinsurance Asia Pacific Pte
Ltd, were changed with prospective application from USD to SGD and from USD to KRW respectively. Also as at 1 January
2012, Zurich branch of SCOR SE changed its functional currency with prospective application from CHF to EUR.
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