4.4 Legal risk - Scor

CAPITAL MANAGEMENT POLICY, OBJECTIVES AND APPROACH
The Group’s capital management policy is to optimize the utilization of its capital and debt structure in order to maximize the
short term and long term profitability to shareholders while at the same time providing its customers with an adequate level
of security as measured by internal capital allocation models, rating agencies and national regulators.
The Groups’ capital management objectives are:
• To match the profile of its assets and liabilities, taking account of the risks inherent in the business;
• To maintain strong credit ratings and healthy capital ratios in order to support its business objectives and maximize
shareholder value;
• To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets;
• To allocate capital efficiently and support the development of business by ensuring returns on capital employed
meet the requirements of the regulators and stakeholders; and
• To manage exposures to movements in exchange rates.
The Group seeks to optimize the structure and sources of capital to ensure that it consistently maximises returns to the
shareholders.
The objective of the Group’s overall capital management process is the setting of target risk adjusted rates of return for
divisions, which are aligned to performance objectives and to promote the creation of value to shareholders.
In this regard, and in line with the Group’s new strategic plan “Strong Momentum” which runs from 2010 to 2013, the Group
aims to achieve the following objectives:
• Optimization of the Group’s risk profile;
• ‘AA’ level of financial security;
• Profitability of 1000 basis points above the three-month risk-free rate over the cycle.
SCOR believes that its working capital is sufficient for the present requirements of its consolidated companies. The Group
reconciles its strategic objectives with the protection of its capital via the Group’s “Capital Shield” policy, which articulates
the Group’s risk appetite. This policy is based on an economic approach and aims to protect the Group against potential
shock losses, some of which are not immediately recognized from a pure accounting view. The policy builds on the following
two concepts:
(a) Active hedging of peak exposures through retrocession
The Group selects the level of its retrocession to third parties once a year to ensure that the Group’s retained risk profile is
in line with specific Group risk tolerance limits, to help the Group achieve its return on capital and solvency objectives.
(b) Buffer capital
The Group also holds Buffer Capital in addition to the solvency capital required to support the retained (after retrocession)
risk profile. The aim of this extra economic capital is to absorb a significant amount of inherent volatility, thereby limiting the
frequency of turning to the market to maintain the Group’s available capital above the required solvency capital.
The primary source of capital used by the Group is equity shareholders’ funds and borrowings.
The Group also considers alternative sources of capital including reinsurance and securitization, as appropriate when
assessing its deployment and usage of capital.
The objective of the capital management policy is sustained and ensured through regular updates of forecasts and an
annual strategic and financial planning process. The Group’s Board and Executive Management team regularly review the
Group’s risk profile to ensure that the Group’s risk appetite remains aligned with the Group’s strategy. The capital
management process is ultimately subject to approval by the board after a formal presentation to its risk committee.
Capitalization and indebtedness was comprised of the following:
At 31 December 2012 At 31 December 2011
In EUR million Book value Book value
Subordinated debts 1,212 992
Shareholders' equity at book value 4,810 4,410
Capitalisation and indebtedness 6,022 5,402
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