4.4 Legal risk - Scor

and documented before the pricing is completed. SCOR Global P&C employs a data system which allows management to
monitor and review the results from the pricing tools.
Underwriting cross-reviews are initiated by SCOR Global P&C Risk Management to evaluate the quality of underwriting of
particular underwriting units or certain lines of business, to identify risks, to assess the appropriateness and effectiveness of
controls and to propose risk-management measures, including mitigating actions.
(e) Risk assessment
Catastrophe management (Cat) is split into three sections under SCOR Global P&C: portfolio accumulation, optimization
and procedures; research and development; and modeling in support of underwriting. Descriptive guidelines for each of the
main business processes are available: ‘catastrophe methodologies’, ‘data quality & modeling’, ‘accumulation control’, , ‘Cat
pricing’ and ‘system & processes’. For Cat pricing, a matrix organization described in the guidelines has been implemented
in each Hub, distributing the responsibility of Cat pricing to the Cat modelers, the pricing actuaries or the underwriter. In
addition, a system of Cat referrals has been introduced in excess of a given threshold.
For all SCOR's property business, it evaluates the accumulations generated by potential natural events and other risks.
Pursuant to the rules and procedures, Regional Managers from SCOR’s natural catastrophes risks modeling team monitor
the structure of the portfolio for each region or country and the data is consolidated under the supervision of the Head of
natural catastrophes risks modeling.
The Group tracks natural catastrophe accumulation (earthquakes, wind and flood perils…) for all exposed countries
worldwide. Depending on the region of the world and the peril in question, it uses a variety of techniques to evaluate and
manage its total exposure. The Group quantifies this exposure in terms of a maximum commitment. It defines this maximum
commitment, taking into account policy limits, as the potential maximum loss caused by a catastrophe affecting a
geographic area, such as a storm, hurricane or earthquake, and occurring within a given return period. SCOR estimates that
its potential maximum losses for catastrophes, before retrocession, come from windstorms in Europe, hurricanes in the U.S.,
typhoons in Japan or from earthquakes in Japan or the U.S.
The Group makes extensive use of proprietary external models from industry-leading catastrophe model suppliers, including
Risk Management Solutions RiskLink® (“RMS”) and AIR Worldwide Catrader® (“AIR”), and licenses all the region/peril
combinations available from each vendor. In addition, it has access to local cat model expertise for Australia from Risk
Frontiers, a commercial provider of tools developed at Macquarie University. Access to multiple external models allows the
Group to better appreciate the strengths and limitations of each model and make adjustments where appropriate, and it is
well equipped with alumni from AIR and RMS within the Natural Catastrophe Risk Modeling team.
In 2012 and 2011, SCOR has operationally used the RMS modeling results format as its common framework for assessing
accumulations of natural catastrophe risk, including catastrophe risk management controls (Capacity Monitoring) and
provision of data to its internal capital models, and retrocession department.
These tools enable the Group to quantify its exposure in terms of a probable maximum loss (“PML”) at various levels of
probability for each peril and geographic location. The overall aggregate annual PML per peril, allowing for potential multiple
events, provides the information required to determine the level of retrocession and other alternative risk transfer solutions
(e.g., catastrophe bonds) that are needed to ensure that the net aggregate exposure remains within predefined tolerance
limits.
The probabilistic catastrophe modeling approach captures the uncertainty related to the likelihood of a given event occurring
(frequency uncertainty) as well as the uncertainty associated with the amount of loss, given that a particular event has
occurred (severity uncertainty). A sound understanding of the uncertainties associated with the model’s key parameters is
essential for the interpretation of the model outcome and thus for decision-making. The outcomes for each model describe a
bandwidth of loss estimates and not a unique value. In order to identify and stress-test the key parameters, systematic
sensitivity analyses are carried out.
For peril/zones where neither internal nor external models are available, the following approaches are used:
• Pricing is performed based on actuarial techniques using historical losses and other benchmarks.
• Accumulations are performed either on a notional basis (i.e. sum of event limits for underwritten share), or on a
“manual PML” basis, applying a mean damage ratio to the peak zone aggregates.
This method is validated by the Research & Development Cat team, who performs comparative studies with other
peril/zones of similar hazard and vulnerability characteristics.
(f) Concentration risks related to broker business
SCOR produces its Non-Life business both through brokers and through direct relationships with insurance company clients.
For the year ended 31 December 2012, approximately 65% of Non-Life gross premiums were produced through brokers. In
2012, SCOR had two brokers that accounted for approximately 34% of its Non-Life gross premiums. The risk of SCOR is
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