4.4 Legal risk - Scor

(i)
Default of pool members
SCOR participates, for certain risk categories that are material (particularly terrorist risks), in various groups of insurers and
reinsurers (“pools”) aimed at pooling the relevant risks among the members of each group. In the event of a total or partial
default by one of the members of a group, it could be required to assume, in the event of joint liability of the members, all or
part of the liabilities of the defaulting member. In such a case, its business, present and future revenues, net income, cash
flows, financial position, and potentially, the price of its securities could be adversely impacted.
In the context of its business, SCOR may be exposed to claims arising from the consequences of terrorist acts. These risks,
the potential significance of which can be illustrated by 11 September 2001 attack on the World Trade Center (“WTC”) in the
U.S., can affect both individuals and property.
Certain countries do not permit the exclusion of terrorist risks from insurance policies. Due to these regulatory constraints,
the Group has actively supported the creation of insurance and reinsurance pools involving insurance and reinsurance
companies as well as public authorities in order to spread the risks of terrorist activity among the members of these pools. It
participates in pools created in certain countries, such as France (GAREAT), Germany (Extremus), the Netherlands (NHT)
and Belgium (TRIP), which allows the Group to have limited and known commitments. In the U.S., the Terrorism Risk
Insurance Act passed in November 2002 for a period of three years, which was extended to 31 December 2007 by the
Terrorism Risk Insurance Extension Act, was renewed for seven years, until 31 December 2014 by the Terrorism Risk
Insurance Program Reauthorization Act (“TRIPRA”). It established a federal assistance program to help insurance
companies cover claims related to terrorist acts. TRIPRA requires that terrorist acts be covered by insurers. Despite
TRIPRA, and the federal aid that it provides, the U.S. insurance market is still exposed to some significant risks in this area.
Therefore, SCOR monitors very closely its exposure to the U.S. market, primarily because of the insurance obligation
created by the law. In addition to the commitments described above, SCOR does reinsure, from time to time, terrorist risks,
usually limiting, by event and by year of insurance the coverage that ceding companies receive for damage caused by
terrorist acts.
Beyond the potential impact on its Non-Life book, a terror event could also affect the Group’s Life portfolio. Although the
insured losses from past events have been comparatively small in relation to the Non-Life losses, a future terrorist act, such
as a “dirty bomb”, could claim a substantial amount of insured lives.
After the attack of 11 September 2001, the Group adopted underwriting rules designed to exclude or limit its exposure to
risks related to terrorism in its reinsurance contracts, in particular in those countries and/or for the risks expected to be most
exposed to terrorism. However, it has not always been possible to implement these measures, particularly in its principal
markets. For example, certain European countries do not permit the exclusion of terrorist risks from insurance policies.
As a result, future terrorist acts, whether in the U.S. or elsewhere, could cause SCOR significant claims payments, and
could have a significant effect on its business, present and future revenues, net income, cash flows, financial position, and
potentially, on the price of its securities.
(j)
Risk of accumulation of the above risks
The aforementioned risks could accumulate in either a single counterparty, in the same sector of activity or the same
country. SCOR attaches particular importance to the establishment of and respect of counterparty exposure limits. The
annual examination of its exposure enables the Group to identify and quantify the risks and, in case of accumulations,
formulate appropriate responses.
(k) Concentration
The carrying amounts of the Group’s financial assets exposed to credit risk by counterparty credit quality, excluding
consideration of collateral held or other credit enhancements is included in Note 6 - Insurance business investments (for
fixed income securities) and Note 16 - Contract liabilities (for the share of retrocessionaires in insurance and financial
liabilities).
SCOR maintains its investment policy in high-quality assets and in countries with the lowest sovereign risk. SCOR has no
assets linked to sovereign risk in Greece, Ireland, Portugal or Spain.
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