4.4 Legal risk - Scor

Shadow accounting
For the measurement of deferred acquisition costs, value of business acquired and reserves recognized for different
insurance portfolios, SCOR applies the shadow accounting principles stipulated in IFRS 4. As the amortization of DAC (for
Life) and VOBA is calculated using expectations for estimated revenues from investments and the measurement of reserves
is based on the discount rate reflecting directly the performance of assets, relevant parts of the recognized unrealized gains
and losses from financial investments are considered as shadow DAC, shadow VOBA and shadow reserves and offset
directly in equity.
Impairment of shadow DAC and shadow VOBA for the life business is included within the liability adequacy testing
conducted by SCOR Global Life.
Participation at Lloyd’s
Participations in syndicates operating at Lloyd’s of London are accounted for on an annual accounting basis with a delay
due to the transmission of information from syndicates that the Group does not control. The Group recognizes its
proportionate share of the syndicates insurance and reinsurance premiums as revenue over the policy term, and claims,
including an estimate of claims incurred but not reported. On the closure of an underwriting year, typically three years after
its inception, syndicates reinsure all remaining unsettled liabilities into the following underwriting year, a mechanism known
as Re-Insurance To Close (“RITC”). If the Group participates on both the accepting and ceding years of account and has
increased its participation, RITC paid is eliminated, as a result of this offset, leaving an element of the RITC receivable. This
reflects the fact that the Group has assumed a greater proportion of the business of the syndicates. If the Group has
reduced its participation from one year of account to the next, the RITC receivable is eliminated, leaving an element of RITC
payable. This reflects the reduction in the Group’s exposure to risks previously written by the syndicates. The Group
recognizes Lloyd’s RITC in claims and policy benefits to ensure consistency with similar transactions recognized in
accordance with IFRS and, present a true and fair view.
Embedded derivatives
IFRS 4 provides for the separation of embedded derivatives in insurance contracts, when these hybrid contracts are not
assessed at fair value through income, and when the features of the embedded derivatives are not closely linked with the
features and risks of the host contract, and when the embedded derivative meets the definition of a derivative instrument.
Embedded derivatives which meet the definition of an insurance contract are not separated.
(O) PROVISIONS FOR EMPLOYEE BENEFITS
Pension liabilities
The Group provides retirement benefits to its employees, in accordance with the laws and practices of each country. The
main plans are in France, Switzerland, the U.K., the U.S. and Germany. Group employees in certain countries receive
additional pension payments, paid as an annuity or in capital upon retirement. The benefits granted to Group employees are
either in the form of defined contribution or defined benefit plans. Plan assets are generally held separately from the Group’s
assets.
For defined contribution plans the employer pays fixed contributions into a separate entity, with no legal or constructive
obligation to pay further contributions. As a result, only contributions paid or due for the financial year are charged to the
Group’s statement of income as administrative expenses.
Defined benefit plans are those where a sum is paid to the employee upon retirement, which is dependent upon one or
several factors such as age, years of service and salary. Defined benefit obligations and contributions are calculated
annually by independent qualified actuaries using the projected unit credit method. The obligation recognized on the balance
sheet represents the present value of the defined benefit obligation at the balance sheet date, less the market value of any
plan assets, where appropriate, both adjusted for actuarial gains and losses and unrecognized past service cost.
In assessing the Group’s liability for these plans, the Group uses external actuarial valuations which involve critical
judgments and estimates of mortality rates, rates of employment turnover, disability, early retirement, discount rates,
expected long-term rates of return on plan assets, future salary increases and future pension increases. These assumptions
may differ from actual results due to changing economic conditions, higher or lower withdrawal rates or longer or shorter life
spans of participants. These differences may result in variability of pension income or expense recorded in future years.
Actuarial gains and losses arising from experience adjustments and the effects of changes in actuarial assumptions are
reflected in shareholders’ equity.
Past service costs generated at the adoption or modification of a defined benefit plan are recorded as an expense, on a
straight-line basis over the average period until the benefits become vested. When benefit rights are acquired upon the
adoption of a plan or its modification, past service cost is immediately recognized as an expense.
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