4.4 Legal risk - Scor

The hedged item may be an asset, a liability, a firm commitment, a highly probable scheduled transaction or a net
investment in a foreign operation exposing the Group to fluctuations in fair value or future cash flows, and which is
designated as being hedged.
Hedge effectiveness is monitored periodically by comparing changes in the fair value or cash flows of the hedged item to the
changes in the fair value or cash flows of the hedge instrument in order to determine the degree of effectiveness.
A derivative instrument designated as fair value hedge is initially recognized at fair value on the date on which the derivative
contract is entered into. The carrying amount of the hedged item is adjusted for gains and losses attributable to the risk
being hedged. The derivative is remeasured at fair value and gains and losses are recognized in the income statement.
A derivative instrument designated as cash flow hedge is initially recognized at fair value on the date on which the derivative
contract is entered into. The effective portion of the gain or loss on the hedging instrument is recognized in other
comprehensive income in the cash flow hedge reserve, while the ineffective portion is recognized in the income statement.
Amounts taken to other comprehensive income are transferred to the income statement when the hedged transaction
effects the income statement, such as when hedged financial income or financial expense is recognised or when the
forecast sale or purchase occurs.
For hedges of net investments in a foreign operation the portion of gains or loss on the hedging instrument considered as
the effective portion of the hedge is recorded directly in shareholders’ equity. Any ineffective portion of the hedge is
recognized in the statement of income.
Valuation of financial assets
The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to
quoted market bid prices, at the close of business on the balance sheet date. If quoted market prices are not available,
reference can also be made to broker or dealer price quotations.
For units in unit linked-trusts, shares in open-ended investment companies and derivative financial instruments (including
real estate, interest rate and mortality swaps, options, etc.), fair value is determined by reference to either published bidvalues,
or modeled values which incorporate market inputs within the valuation assumptions.
The Group has certain investments which are valued based on models prepared by internal and external third parties using
market inputs. These primarily comprise structured products, other than securities issued by government agencies for which
the market is considered active, as well as hybrid, tier 1 and tier 2 corporate debt and hedge funds.
As the Group is responsible for determining the fair value of its investments, regular analysis is performed to determine
whether prices received from third parties are reasonable estimates of fair value. The Group’s analysis includes: (i) a review
of price changes made in the investment management systems; (ii) a regular review of pricing deviations between dates
exceeding predefined pricing thresholds per investment categories; and (iii) a review and approval of extraordinary valuation
changes noted.
The Group may conclude the prices received from third parties are not reflective of current market conditions. In those
instances, SCOR may request additional pricing quotes or apply internally developed valuations. Similarly, the Group values
certain derivative investments, namely the mortality and real estate swaps, using internal valuation techniques based on
observable market data.
For unlisted equity instruments, fair value is determined according to commonly used valuation techniques.
The fair value of floating rate and overnight deposits with credit institutions is their carrying value.
If, as a result of a change in intention or ability or in the circumstance that a reliable measure of fair value is no longer
available, it becomes appropriate to carry a financial instrument at cost or amortized cost, then the last reliable fair value
available is taken as the new cost or amortized cost, as applicable.
The Group provides disclosures over the measurements of those financial instruments held at fair value, using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the
following levels:
• quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• models prepared by internal and external third parties using market inputs (Level 2); and
• inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the fair value measurement is categorized is determined on the basis of the
lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input
is assessed against the fair value measurement. If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement requires judgment, considering factors specific to the asset or liability.
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