4.4 Legal risk - Scor

Other long-term benefits
In some countries, the Group rewards employees for length of service by granting them a lump sum after certain periods of
service. The primary country providing this benefit is France. For France, the present value of the obligation is calculated
annually by an independent actuary using the projected unit credit method and is recognized on the balance sheet.
(P) PROVISIONS AND CONTINGENCIES
Management assesses provisions, contingent assets and contingent liabilities and the likely outcome of pending or probable
events, for example from lawsuits or tax disputes, on an ongoing basis. The outcome depends on future events that are by
nature uncertain. In assessing the likely outcome of events, management bases its assessment on external legal assistance
and established precedents.
Provisions, contingent assets and contingent liabilities have also been assessed at the acquisition date for the entities
acquired. Such positions are subject to revision as at the acquisition date while the initial accounting is not final. Any
revision after the initial accounting is final is recognized in the statement of income in accordance with IFRS 3 – Business
Combinations.
(Q) SHARE-BASED PAYMENTS
The Group offers stock option plans to certain of its employees. The fair value of the services received in exchange for the
granting of options is recognized as an expense. The total amount that is recognized over the vesting period is established
by reference to the fair value of options granted, excluding conditions of attribution that are not linked to market conditions
(return on equity (ROE), for example). These conditions are taken into account when determining the probable number of
options which will be acquired by the beneficiaries. At each balance sheet date, the Group reviews the estimated number of
options which will be acquired. Any impact is then recorded in the statement of income with the offsetting entry in
shareholders’ equity over the remaining vesting period.
The Group also grants shares to certain of its employees. These grants are recorded in expenses over the vesting period
with the offset recorded as an increase in shareholder’s equity.
The dilutive effect of outstanding options is reflected in the calculation of the diluted earnings per share.
(R) TAXES
The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of income except to
the extent that it relates to items recognized in other comprehensive income or directly in equity.
The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the end of the
reporting period in countries where the Group’s subsidiaries and associates operate and generate taxable income.
Management periodically evaluates positions taken in tax returns. Assessing the outcome of uncertain tax positions requires
judgments to be made regarding the result of negotiations with, and enquiries from, tax authorities in a number of
jurisdictions. Provisions for tax contingencies require management to make judgments and estimates in relation to tax
issues and exposures. Amounts provided are based on management’s interpretation of country specific tax law and the
likelihood of settlement. Tax benefits are not recognized unless the tax positions are probable of being sustained. In arriving
at this position, management reviews each material tax benefit to assess whether a provision should be taken against full
recognition of the benefit on the basis of potential settlement through negotiation and/or litigation.
Deferred taxes are recognized using the balance sheet liability method, for all temporary differences at the balance sheet
date between the tax base of assets and liabilities and their carrying value on the balance sheet.
The main temporary differences arise from tax losses carried forward and the revaluation of certain financial assets and
liabilities including derivative contracts, certain insurance contract liabilities, provisions for pensions and other postretirement
benefits. In addition, temporary differences arise on acquisitions due to the difference between the fair values of
the net assets acquired and their tax base. Deferred tax is provided on temporary differences arising from investments in
subsidiaries, associates and joint ventures, except where it is probable that the difference will not reverse in the foreseeable
future.
Deferred taxes are not provided in respect of temporary differences arising from the initial recognition of goodwill, or from
goodwill for which amortization is not deductible for tax purposes, or from the initial recognition of an asset or liability in a
transaction which is not a business combination and affects neither accounting profit nor taxable profit or loss at the time of
the transaction.
Deferred tax assets are recognized on net operating losses carried forward to the extent that it is probable that future
taxable profit will be available to utilize those net operating losses carried forward. Management makes assumptions and
estimates related to income projections to determine the availability of sufficient future taxable income. SCOR uses a
discounted cash flow model comprised of an earnings model, which considers forecasted earnings, and other financial ratios
of legal entity based on board approved business plans, which incorporate key drivers of the underwriting results. Business
plans include assessments of gross and net premium expectations, expected loss ratios and expected expense ratios,
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