4.4 Legal risk - Scor

(b) Receivables from retrocessionaires
SCOR transfers part of its risks to retrocessionaires via retrocession programs. The retrocessionaires then assume, in
exchange for the payment of premiums by SCOR, the losses related to claims covered by the retrocession contracts. In the
event of default of a retrocessionaire, SCOR would be liable to lose the coverage provided by its retrocessionaires whereas
it would retain liability to the cedant for the payment of all claims covered under the reinsurance contract.
Moreover, the Group is exposed to a credit risk in the event of a payment default by the retrocessionaires of the balance of
the profit and loss retrocession account due in respect of its cession.
The policy for the management of retrocessionaire credit risk is entrusted to the Security Committee who is responsible for
analyzing the financial security of each retrocessionaire and defining the terms and conditions and limits of amounts ceded
per retrocessionaire, per rating and per geographical area. The Security Committee meets regularly and pays particular
attention to the retrocessionaires’ default risk in the treaty renewal period.
Several actions taken by the Security Committee to quantify the risk are:
• the analysis of the financial ratings of the retrocessionaires;
• the analysis of external studies prepared by the security departments of the main reinsurance brokers; in this
regard SCOR meets the security departments of two large reinsurance brokers at least twice a year to analyze the
security of its retrocessionaires.
Furthermore, to reduce the credit risk arising from its retrocessionaires, SCOR:
• requests that certain of its retrocessionaires provide that all or a portion of the receivables from its retrocession
contracts be guaranteed by collateral (cash deposits, letters of credit, pledging of securities etc.) in favor of SCOR;
• carries out an active commutation policy in Non-Life.
The Group’s retrocession department regularly monitors its exposure to retrocessionaires by taking into account all relevant
accounting balances (estimated and actual claims, premiums, reserves and deposits, pledges and security deposits).
SCOR seeks to reduce its dependence on its traditional retrocessions by using alternative risk transfer solutions such as the
multi-year securitization of catastrophic risk in the form of ILS or mortality swaps or the issuance of contingent capital
securities. The credit risk that SCOR may be exposed to, through these alternative risk transfer solutions, can be more
limited than the credit risk related to traditional retrocession arrangements.
The retrocessionaires’ part in the reserves split by retrocessionaires’ financial rating is included in Note 16 – Contract
Liabilities.”
In spite of the measures to control and reduce the risk of defaults of its retrocessionaires, the occurrence of one or more of
such default could have a material adverse impact on SCOR’s business, its present and future premium income, its net
income, its cash flows, its financial position, and potentially on the price of its securities.
(c) Receivables and deposits with cedants
There are three aspects of credit risk related to contracts with cedants.
Firstly, SCOR may be exposed to credit risk in relation to amounts deposited with ceding companies in respect of reserves
which cover its current and future liabilities. Depositing these amounts does not a priori discharge the Group of its liability
towards cedants in case it is not able to recover these amounts in the event of default of cedants.
Secondly, SCOR is exposed to a credit risk in the event of a payment default by the cedants of the balance of the profit and
loss reinsurance account due under its acceptance of a portion of their risks.
Thirdly, SCOR is exposed to a credit risk in the event of a payment default by the cedants of the premiums due under its
acceptance of a portion of their risks. In cases where such an event does not lead to termination of the reinsurance contract,
any offset between contractual obligations between the two parties is dependent on court decisions, and it is possible that
the Group will remain liable for paying claims without being able to offset the unpaid premiums.
Thus, the inability of its cedants to fulfill their financial obligations could affect SCOR’s current and future revenues, net
income, cash flow, financial position, and potentially the price of its securities.
Credit risks related to contracts with cedants are mitigated through a quarterly examination of exposure and associated
risks. Depending on the financial situation of the principal cedants, actions aimed at reducing or limiting exposure or
mitigating the risk through guarantees on deposits (for example, via offset clauses) may be carried out. Moreover, should
their financial strength deteriorate between the time their financial commitment is made and the time it must be honored, an
appropriate financial provision is established in the Group’s accounts corresponding to the liability for which a loss is
considered probable.
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