4.4 Legal risk - Scor

(d) Receivables from non-(re)insurance debtors
SCOR is exposed to a credit risk in the event of a payment default by a debtor not linked to the Group by a reinsurance or
retrocession treaty. This can be, for instance, advances to providers, social security contribution collection agencies or
states, or loans to employees, etc.
The risk of losing all or part of receivables the Group owns could have a material adverse impact on its business, present
and future revenues, net income, cash flows, financial position, and potentially, on the price of its securities.
(e) Cash deposits at banks
SCOR is exposed to the risk of losing all or part of any cash deposited with a retail bank in the event such a bank is no
longer able to honor its commitments (e.g., following liquidation).
The current main risk for the Group is the significant concentration of deposits in a small number of banks. This risk is a
direct result of the selection of the most stable banks.
The inability of one or several banks to return its deposits to SCOR could have a material adverse impact on its business,
present and future revenues, net income, cash flows, financial position, and potentially, on the price of its securities.
Concentration risk is mitigated by defining counterparty exposure limits. Furthermore, SCOR selects bank counterparties
according to their rating and quality of their credit. SCOR also considers the public assistance (e.g., loans, guarantees of
deposits, nationalizations) certain banks may benefit from during the financial crisis, as they are important in the economy of
their country.
(f)
Deposits with custodians
As part of the management of its investment portfolio, SCOR deposits the securities it owns with a number of approved
custodians. In the case of default of a custodian, depending on the local regulation applicable to the custodian, all or part of
these securities could become blocked.
The risk of losing all or part of securities the Group owns could have a material adverse impact on its business, present and
future revenues, net income, cash flows, financial position, and potentially, on the price of its securities.
(g) Credit & surety
SCOR is exposed to credit risk through its Credit & Surety portfolio. By reinsuring the liabilities of its clients, which are
insurers providing surety bonds and/or credit insurance policies, the Group must indemnify its ceding companies, for the
portion that it reinsures, in the event of the default of companies on which its ceding companies are exposed.
This business is situated in many countries, and across a diverse range of risks, cedants and activity sectors.
SCOR’s Credit & Surety business does not cover either credit default swaps (CDS) or real estate loans, notably in the U.S.,
nor is it exposed to the various U.S. credit “monoliners” or “guarantors.”
SCOR’s underwriting policy is particularly prudent in this area. SCOR specifically monitors its main exposures in this sector.
In addition, SCOR benefits from the expertise of its specialized cedants in terms of risk prevention, since the cedants
continuously adjust their own exposure levels based on changes in the financial strength of the debtors they are insuring.
Multiple defaults of companies (or in the event of the default of a major company) on which the ceding companies are
exposed could have a material adverse impact on SCOR’s business, present and future revenues, net income, cash flows,
financial position, and potentially, on the price of its securities.
(h) Future profits of Life reinsurance treaties
Credit risk on future profits from Life reinsurance policies arises from two risk factors.
First of all, the payment of future profits expected under Life reinsurance contracts necessarily implies that the cedant is
solvent: for this reason, SCOR risks a reduction in the value of its portfolio of Life contracts in the event of a deterioration in
the financial strength of the cedant. In such a case, it is possible that the VOBA and deferred acquisition costs (“DAC”) may
as a consequence need to be written down and as a consequence, its shareholders’ equity would be reduced accordingly.
In particular this affects the US book of business acquired in the course of the Transamerica Re acquisition. The majority of
the former Transamerica Re’s reinsurance contracts flow into SCOR via retrocession from Aegon companies. An AEGON
insolvency might lead to premiums from clients no longer being passed on to SCOR, and thus potentially impair the value of
business acquired (“VOBA”).
Secondly, a reduction in the value of future profits could arise from a massive unexpected lapsation of policies following a
deterioration of the cedant’s financial rating or an event which has a negative effect on SCOR’s image.
The Group, therefore, has exposure to a credit risk linked to the insolvency and to the image of its cedants, which, if this
were to occur, could have an adverse impact upon its business, present and future revenues, net income, cash flows,
financial position, and potentially, on the price of its securities.
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