4.4 Legal risk - Scor

(c) Contracts not meeting risk transfer criteria
Reserves for investment contract liabilities are recognized for reinsurance contracts, either life or non-life, that do not meet
the risk transfer criteria described in IFRS 4.
Cedant accounts
The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. At year end,
estimates are made for those accounts not yet received from ceding companies. Under this method, the amounts recorded
in the financial statements reflect as closely as possible the actual reinsurance commitments of the Group. This method
relates to the majority of the contracts signed during the year.
Premium estimates
Non-Life gross premiums written and earned are based upon reports received from ceding companies, supplemented by the
Group’s own estimates of premiums written and earned for which ceding company reports that have not yet been received.
Differences between such estimates and actual amounts are recorded in the period in which the estimates are changed or
the actual amounts are determined. The difference between ultimate estimated premiums, net of commissions, and
premiums reported by ceding companies, is recorded under accounts receivable arising from assumed reinsurance
transactions. Premiums are earned on a basis that is consistent with the risks covered under the terms of the reinsurance
contracts, which is generally one to two years. For certain U.S. and Japanese catastrophe risks, agriculture risks in Brazil
and certain other risks, premiums are earned commensurate with the seasonality of the underlying exposure.
The reserve for unearned premiums represents the portion of premiums written that relate to the unexpired terms of
contracts and policies in force. Such reserves are computed by pro-rata methods based on statistical data or reports
received from ceding companies. Reinstatement premiums are estimated after the occurrence of a significant loss and are
recorded in accordance with the contract terms based upon paid losses and case reserves reported in the period.
Reinstatement premiums are earned when written.
For Life reinsurance contracts qualifying as “insurance contracts” the estimation method consists of estimating ceding
companies’ outstanding accounts for the current year in addition to information actually received and recorded.
Acquisition expenses of reinsurance activities (Deferred acquisition costs or “DAC”)
In reinsurance, the costs directly associated with the acquisition of new contracts, mainly comprising commissions, are
recorded as assets on the balance sheet, to the extent that contracts are profitable. They are amortized on the basis of the
residual term of the contracts in Non-Life, and on the basis of the expected recognition of future margins for Life contracts.
Liability adequacy test
Assets and liabilities relating to reinsurance contracts are subjected each year to a liability adequacy test under IFRS 4.
For the Non-Life segment, the test is performed in the event the ultimate underwriting combined ratio is in excess of 100% to
the unearned premium reserve, net of deferred acquisition costs. The liability adequacy test is performed on the level of the
actuarial segment and then aggregated at the entity level.
The liability adequacy test for the Life segment compares the carrying value of the reserves less deferred acquisition costs
and value of business acquired with the fair value of the liabilities from the reinsurance portfolio recognized. The fair value is
calculated as the present value of the projected future cash flow using current actuarial assumptions and parameters. In
case of deficiency, SCOR would impair deferred acquisition costs and value of business acquired and increase reserves.
The liability adequacy test is performed at the level of portfolios that are managed together and are subject to broadly similar
risks.
Reinsurance ceded
Premiums payable in respect of reinsurance ceded are recognized in the period in which the reinsurance contract is entered
into and includes estimates where the amounts are not determined at the balance sheet date. Ceded premiums are
expensed over the period of the reinsurance contract in the same manner as assumed business.
A reinsurance asset is recognized to reflect the amount estimated to be recoverable under the reinsurance contracts in
respect of the outstanding claims reported under reinsurance liabilities assumed. The amount recoverable from reinsurers is
initially valued on the same basis as the underlying claims provision except in the case of non-proportional
retrocession whether by risk or by event, where it is SCOR policy to only recognize case or IBNR recoveries upon
confirmation of the occurrence of a loss booked which triggers the retrocession contract.
The amount of recoverable is reduced in the form of a bad debt provision when there is an event arising that provides
objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably
measurable impact on the expected amount that will be recovered from the reinsurer.
SCOR contracts with Atlas vehicles which meet the criteria of risk transfer according to IFRS 4 are accounted for as
reinsurance ceded.
209