4.4 Legal risk - Scor

MORTALITY SWAPS
On 1 January 2008, SCOR Global Life SE concluded a four-year mortality swap with an affiliate of J.P. Morgan Chase & Co.
On 1 September 2009, the terms of the agreement were amended to add an additional layer of protection.
Under the terms of the original 2008 agreement (“1st tranche”) SCOR Global Life SE would have received cash up to a
nominal amount of USD 100 million and EUR 36 million in the event of a rise in mortality. Under the terms of the amended
agreement in 2009 (“2nd tranche”) SCOR Global Life SE would also have received cash up to a nominal amount of
USD 75 million in the event of a rise in mortality. The agreement, which ran for a risk period from 1 January 2008 to
31 December 2011 and 1 January 2009 to 31 December 2011 for the 1st and 2nd tranche respectively, terminated on 15
January 2012. The termination had no material P&L impact in 2012.
REAL ESTATE SWAPS
SCOR has entered into two real estate swap contracts, with ABN AMRO. The contracts were subsequently assigned to
RBS. This dual-swap transaction has been concluded for 5 years commencing in 2007 and ended in April 2012. The two
separate swaps were calculated and settled annually in April of each year:
• SCOR swaps the French offices total return for 1Y Euribor + 2.20%.
• SCOR swaps 1Y Euribor + 2.20% for the German all properties total return.
The objective of this transaction was to:
• Hedge SCOR’s direct economic exposure to the Paris commercial real estate market.
• Diversify SCOR’s real estate direct allocation to other real estate sectors, especially residential, with geographical
diversification through another country exposures.
The indices used to measure the relevant real estate returns are those issued by an independent third party company (IPD).
These indexes are obtained by the analysis of the appraised market values on 31 December of each year and rental
incomes of the real estate portfolios of institutional investors using the independent third party provider. The indices are
therefore derived from a large and diversified data base. The notional exposure for each of the four components of the
transactions was EUR 30 million. The termination had no material P&L impact in 2012.
Valuation
SCOR valued these swaps using an internal model based on observable banking and real estate inputs.
INTEREST RATE SWAPS
SCOR has entered into interest rates swaps to cover its exposure to financial debt with variable interest rates relating to real
estate investments. The fair value of these swaps is obtained from the banking counterparty using market inputs. As part of
the usual analysis of accounts processes these third party valuations are checked for reasonableness against internal
models. The total notional amount relating to these swaps is EUR 302 million as at 31 December 2012 (2011:
EUR 326 million). Net interest paid under these swaps amounted to EUR 17 million in 2012 (2011: EUR 4 million).
Valuation and presentation
Cash-flow hedge accounting is applied when the hedging relationship is determined to be highly effective. Effectiveness
testing is performed at the inception of the hedging relationship and at each balance sheet date throughout the term of the
hedge relationship. Where hedge effectiveness is not attained, the hedging instrument (interest rate swap) is measured at
fair value through profit and loss from the date the hedge relationship ceases to be effective. As at 31 December 2012, the
fair value of the interest rate swaps was a liability of EUR 36 million (2011: liability of EUR 24 million). The amount
recognized in other comprehensive income in 2012 is EUR (12) million (2011: EUR (21) million). The amount recognized in
the statement of income in 2012 was EUR (2) million (2011: EUR (2) million).
CURRENCY SWAPS
In order to hedge the FX risk associated with the debts issued in CHF (CHF 650 million issued in 2011, CHF 315 million
issued in 2012, see Note 14 – Financial debt), SCOR entered into cross-currency swaps which exchange the principals into
EUR and exchange the coupons on the notes into EUR and mature on 2 August 2016 and 8 June 2018.
Valuation and presentation
Cash-flow hedge accounting is applied. The fair value of the swaps is obtained from the banking counterparty using market
inputs. As part of the usual analysis of accounts processes these third party valuations are checked for reasonableness
against internal models. The total relating notional amount is CHF 965 million as at 31 December 2012 (2011:
CHF 650 million). Fair value of the swaps is EUR 9 million as at 31 December 2012 (EUR 15 million as at
31 December 2011). EUR 7 million of the fair value movement during the year was credited to the statement of income
(2011: EUR 15 million) wheras EUR 13 million was debited to other comprehensive income (2011: nil).
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