4.4 Legal risk - Scor

GOODWILL
Goodwill, which represents the excess of the cost of each business combination over SCOR’s interest in the net fair value of
the identifiable assets, liabilities and contingent liabilities acquired, was EUR 788 million as at 31 December 2012 and
EUR 788 million as at 31 December 2011.
The net book value of goodwill allocated to SCOR Global P&C and SCOR Global Life is disclosed in Note 2 – Segment
information.
For the purposes of impairment testing, goodwill acquired in a business combination is allocated by SCOR to the groups of
cash generating units (CGUs) that are expected to benefit from the profitability and synergies of the business combination.
SCOR groups its CGUs by its operating segments, SCOR Global P&C and SCOR Global Life. This is consistent with the
way that SCOR manages and monitors its business and cash flows.
In order to estimate the fair value of SCOR Global P&C for the purpose of impairment testing, SCOR uses a discounted
cash flow model comprised of an earnings model, which considers forecasted earnings and other financial ratios of the
reportable segment over a five year period. The first three years are based on Board approved business plans and the last
two are extrapolated using an approach based on past experience. Business plans include assessments of gross and net
premium expectations, expected loss ratios and expected expense ratios together with actuarial assumptions such as the
coefficient of variation on ultimate net reserves together with assumptions as to the mean time to payment of existing
reserves and future business. Cash-flows beyond this period are extrapolated using a growth rate of 5%. SCOR uses risk
free interest rates per currency and the estimated SCOR Group cost of capital 7.92% as derived from the Capital Asset
Pricing Model (CAPM) for discounting purposes.
For SCOR Global Life, goodwill is tested for impairment with reference to the inputs and methodology that SCOR applies in
calculating the embedded value of the segment. Market Consistent Embedded Value (MCEV) is a measure of the
consolidated value of shareholders’ interests in the covered business. The MCEV represents the present value of
shareholders’ interests in the earnings distributable from assets allocated to the covered business after sufficient allowance
for the aggregate risks in the covered business. The allowance for risk is calibrated to match the market price
for risk where reliably observable. The MCEV consists of the Shareholder Net Worth (market value basis of equity), and
value of in-force covered business (VIF). The VIF is composed of Present Value of Future Profits, projected over the life of
the portfolio and based on contractual cash-flows. Key assumptions are morbidity, mortality and lapse rates.
Mortality/morbidity are based on external tables, adjusted based on internal past experience. Lapses are also based on
internal past experience. SCOR calculates and publishes a Market Consistent Embedded Value in line with the principles of
the CFO Forum. For the 2012 embedded value discount rates used were based on risk free swap rates ranging between
0.29% and 8.15% depending on the currency and the duration.
Management believes that any reasonably possible change in the key assumptions on which SCOR Global P&C and SCOR
Global Life recoverable amounts are based would not cause their carrying amount to exceed their recoverable amount.
As part of the impairment testing, SCOR assesses whether the recoverable amount of operating units is at least equal to the
total carrying value of operating units (including goodwill). If it is determined that an impairment exists, the total carrying
value is adjusted to current fair value. Any impairment charge is recorded in income in the period in which it is determined.
The annual goodwill impairment tests conducted for both SCOR Global P&C and SCOR Global Life segments show a fair
value in excess of the total carrying value. Consequently, the result of the goodwill impairment tests is that no goodwill
impairment charges were recognized for the years ended 31 December 2012, 2011 and 2010 respectively.
VALUE OF BUSINESS ACQUIRED
The IFRS 4 liability adequacy testing which includes VOBA recoverability, showed no indicators of impairment for the years
ended 31 December 2012 or 2011.
OTHER INTANGIBLE ASSETS
Other intangible assets at 31 December 2012 were EUR 122 million compared with EUR 112 million at 31 December 2011.
Other intangible assets with finite useful lives at 31 December 2012 were EUR 92 million compared with EUR 82 million at
31 December 2011. A component of this balance relates to the joint-venture agreement with the Medical Defense Union
(MDU), acquired through the Converium business combination. During and subsequent to the financial year end, SCOR
received indications that this agreement would be terminated. As a result management decided to impair the intangible to its
recoverable value of EUR 6 million.
The Group amortizes its other intangibles with a finite life over a 2 to 10 year period dependent on the specific
circumstances of each arrangement.
The additions during the year ended 31 December 2012 of EUR 30 million comprise mainly software development cost
capitalized relating to the Group’s general ledger, technical accounting system and internal model of the Group.
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