4.4 Legal risk - Scor

• choose and exercise a policy option which allows to increase the policyholder’s expected benefit.
This might lead to a portfolio composition which differs from the one assumed during pricing and might imply lower than
expected profits for both the direct insurer and reinsurer.
Resale
In general, for most individual life covers, the policyholder and the insured person are identical. The pricing of these
policies is based on this assumption. However, there is a trend, especially in the U.S., where policyholders who can no
longer afford or for other reasons do not want to continue to pay the premiums, are selling their polices and the eventual
death benefit to third parties who continue to pay the premium. These “stranger owned life insurance,” or STOLI policies,
lead to deviations between actual and expected lapse rates which can be a risk to the insurer and reinsurer of the cover.
(c) Catastrophe risks
As previously indicated, natural or man-made catastrophic events can cause very significant material damages affecting
the Non-Life activities of the Group. In addition, such events could cause multiple deaths and serious injuries which
could potentially seriously impact the Life activities of SCOR, particularly under contracts covering groups of employees
working at the same location.
For further details, refer to “Section 4.1.2 – SCOR is exposed to losses from catastrophic events.” See also “6.1.3.4 –
Catastrophe (cat) Risk and Exposure Controls.”
(d) Risks linked to the types of guarantees
Certain life insurance products include guarantees, most frequently with respect to premium rates, insurance benefits,
and surrender or maturity values, or guarantees with regard to interest accrued on reserves or policyholder funds. Other
guarantees may exist, for example, with regard to automatic adjustments of benefits or options applied in annuity
policies.
Such guarantees may be explicitly or implicitly covered by the reinsurer under the reinsurance contract and if so expose
the reinsurer to the risk of adverse developments which increase the value of the guarantee and thereby necessitate
respective increases in benefit reserves.
(e) Risks linked to collateral requirements
The availability and cost of collateral, including letters of credit to represent the Group commitments, asset trusts and
other credit facilities, could adversely affect SCOR’s operations and financial condition.
Regulatory reserve requirements in various jurisdictions in which SCOR operates may be significantly higher than the
reserves required under IFRS. A regulation in the U.S. (NAIC Model Regulation XXX or Valuation of Life Insurance
Policies Model Regulation), commonly referred to as Regulation XXX (or Triple X) and adopted by most U.S. states as at
1 January 2000, requires a relatively higher level of regulatory, or statutory, reserves that U.S. life insurance and life
reinsurance companies must hold on their statutory financial statements for various types of life insurance business,
primarily certain level premium term life products. The reserve requirements under Regulation XXX increase over time
and are normally in excess of reserves required under IFRS in other jurisdictions. The increase and the ultimate level of
XXX reserves will depend upon the mix of business and future production levels in the U.S.
SCOR might over time retrocede certain XXX-related cash flows and reserves to such affiliated or unaffiliated reinsurers
that are authorized in company‘s domicile or provide collateral of an amount equal to the reinsured reserves. Such
collateral must be provided in the form of withheld funds, NAIC (National Association of Insurance Commissioners)
approved commercial bank letters of credit, the placement of assets in trust for the ceding company’s benefit, or by other
means pre-approved by the ceding company’s regulator.
Based on the assumed rate of growth in SCOR’s current U.S. business plan, and the increasing level of XXX reserves
associated with this business, it expects the amount of required XXX reserves, retrocession and required collateral to
grow significantly. With regard to retrocession to affiliates, SCOR would be required to secure such collateral.
In connection with these reserve requirements, SCOR faces the following risks:
• The availability of collateral and the related cost of such collateral in the future could affect the type and volume
of business it reinsures and could increase costs.
• The Group may need to raise additional capital to support higher regulatory reserves, which could increase the
overall cost of capital.
• If its affiliated or not affiliated retrocessionaires, are unable to obtain or provide sufficient collateral to support
their statutory ceded reserves or if regulatory changes lead to change the current retrocession structures, it
may be required to increase regulatory reserves. In turn, this reserve increase could significantly reduce
statutory capital levels and adversely affect SCOR’s ability to satisfy required regulatory capital levels that
apply, unless it is able to raise additional capital to contribute to its operating subsidiaries.
• Because term life insurance is a particularly price-sensitive product, any increase in insurance premiums
charged on these products by life insurance companies, in order to compensate them for the increased
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