4.4 Legal risk - Scor

INTERDEPENDENCE OF THE NON-LIFE AND LIFE REINSURANCE BUSINESSES
The Group takes into account the effect of the diversification between its two divisions: Life and Non-Life, in its internal
model, by setting parameters for the interdependence of the various lines of business.
Non-Life and Life reinsurance activities take place in two different market environments. They are subject to heterogeneous
external constraints, which generally have only very limited correlation with each other. The diversification and the overall
balance between these two business areas provide stability. However, in some cases evolutions of the Non-Life and Life
activities are linked together as well as to those of the financial market risks. This exposes SCOR to accumulation and/or
correlation risks which are difficult to quantify.
Unforeseen events, such as natural catastrophes or terrorist attacks, can cause significant damage. These types of risk
primarily affect Non-Life business areas. However, in cases where SCOR faces a large number of casualties, the possibility
of the losses also affecting its Life lines of business as well cannot be excluded.
In the event of a very large natural catastrophe with many victims, the losses generated in Life and Non-Life could
potentially accumulate, with losses on financial assets related to the potential reaction of markets (e.g., interest rates,
exchange rates and equity market prices). In the same way, a major pandemic event may cause financial market turmoil or
business interruptions.
SCOR’s ability to grow or maintain its portfolios in the Life and Non-Life reinsurance divisions may be subject to correlated
external factors, such as economic and political risks.
Economic risks are related to slowdowns in economic growth or recessions in the major markets. This may lead households
and companies to take out less insurance, to suspend certain premium payments, or to terminate the insurance policies
underlying the existing Life and Non-Life treaties earlier than anticipated.
Political risks, which are characterized by social and political instability in certain countries, are particularly significant in
emerging markets. These risks could lead to significantly reduced business growth in the Group’s markets.
There is no guarantee that SCOR is protected from unexpected changes in Life or Non-Life claims frequency or severity or
erroneous assumptions in the underwriting and pricing that could have a material adverse impact on its business, present
and future revenues, net income, cash flows, financial position, and potentially, on the price of its securities.
SCOR manages its exposure to catastrophes through careful business selection, limiting its exposure to certain geographic
areas, monitoring the aggregation of risks per geographic area, and retroceding part of these risks to other reinsurers
selected on the basis of public information on their financial strength, or to financial markets.
CREDIT RISK
Credit risk is the risk that one party to a financial instrument or other asset (such as retrocessionaires) will cause a financial
loss to the other party by failing to discharge an obligation. SCOR is mainly exposed to the following credit risks:
(a) Fixed income portfolios
Credit risks on fixed and variable income securities cover two areas at risk.
Firstly, a deterioration in the financial situation of an issuer (sovereign, public or private) may result in an increase in the
relative cost of refinancing and a reduction in the liquidity of the securities issued leading to a reduction in the value of such
securities. Secondly, the borrower’s financial situation can cause it to become insolvent and lead to the partial or total loss of
coupons and of the principal the Group invested.
The risk of losing all or part of bonds the Group owns could have a material adverse impact on its business, present and
future revenues, net income, cash flows, financial position, and potentially, on the price of its securities.
SCOR mitigates these risks by implementing a policy of geographic and sector diversification. Limits by counterparty
exposure and by rating are also defined. An a posteriori quarterly analysis by segment (business sector, geographical area,
counterparty, rating) enables critical risks to be identified and evaluated in order to take appropriate actions.
The Group has a prudent investment policy and puts great importance on several selection criteria including internal
assessments, the rating provided by the rating agencies to the issuer and the liquidity of the securities purchased.
Fixed income investments are managed by SCOR Global Investments SE or by external managers. In all cases, investment
guidelines are provided to managers and strict monitoring is carried out over the global portfolio by the respective Group
entities. Whether managed internally or externally, each entity monitors, either directly or via an intermediary, the changes in
value of the investment assets. In general, the tactical allocation of the global portfolio is defined by the Group Investment
Committee which meets each quarter. It is chaired by the Group’s Chief Executive Officer and is composed of the Group
Chief Financial Officer, the Group Chief Risk Officer, the Chief Economist, the Chief Executive Officer of SCOR Global P&C
and the Chief Executive Officer of SCOR Global Life, the Chief Executive Officer of SCOR Global Investments SE and other
representatives of SCOR Global Investments.
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