4.4 Legal risk - Scor

SCOR’s exposure to the equity market results both from direct purchases and through certain (re)insurance products
including Guaranteed Minimum Death Benefit (GMDB) business.
Equity prices are likely to be affected by risks which affect all of the market (uncertainty on economic conditions in general,
such as changes in GDP, inflation, interest rates, sovereign risk, etc.) and/or by risks which influence a single asset or a
small number of assets (specific or idiosyncratic risk).
SCOR is, therefore, exposed to a risk of capital losses on equity exposures - if it were to occur - which could adversely
impact the Company’s net income, cash flows, financial position and potentially, the price of its securities.
(ii)
Valuation risk on insurance liabilities
Life
In general, equity movements have no impact on the reported liabilities of the Life business as the underlying policies and
reinsurance contracts are typically unrelated to equity prices. For some risk premium treaties (where the underlying
insurance policies are unit-linked or universal life) the sums at risk and thus the expected claims, vary with the movement of
the underlying assets. However, under almost all reinsurance programs, premiums are also linked to the sums at risk such
that the liability would not materially change.
The premiums on the Guaranteed Minimum Death Benefit (GMDB) business underwritten by the SCOR Group in the U.S.
market vary with the value of the underlying assets rather than the sum at risk. Thus, premiums would decrease under a
decline of the equity values whereas the expected claims would increase thus leading to an increase in the liability.
However, included in the reserve calculation is a prudent margin for this fluctuation. Accordingly, there is no requirement for
a material change in reserves in the event of a 10% change in equity values.
Non-Life
The Non-Life business is not sensitive to equity price risk.
(d) Sensitivity to market risk
The following table summarizes the accounting sensitivity of the Group’s consolidated income and consolidated equity to
market risks based on reasonably possible movements in key variables with all other variables held constant. The
assumptions included are:
(i)
Interest rate risk
The interest sensitivities for equity presented in the table below include the movements on the debt security portfolio, cash
and cash equivalents, structured notes, the impact of changes in interest rates on variable rate financial debt and the GMDB
business. The annuity business of the Life operation in the U.S. was sold in 2011 and had no effect on the sensitivities as at
31 December 2011.
The interest sensitivities for profit & loss presented in the table below shows the impact of changes in fair value of financial
assets at fair value through P&L held at closing date, and change in income on variable rate financial assets held at closing
date, following an increase/decrease of interests of 100 basis points. An estimate of the impact on the future profit & loss
following a change of 100bps is therefore included. However, SCOR does not include in this analysis the impact that
changes in interest rates might have on the reinvestment of future cash flows, as future cash flows of our business are
difficult to predict and asset allocations might change over time.
(ii)
Equity price risk
SCOR conducted an analysis of the sensitivity of the impairment of equity securities, by applying the accounting policy and
application guidance set out in Note 1 (H) to theoretical future market value changes. SCOR estimates that, excluding any
impairment arising to duration, a further uniform decline of 10% from 31 December 2012 market values would generate a
future further impairment of equity securities of EUR 12 million (2011: EUR (7) million; 2010: nil). It should be noted that this
figure should not be scaled up or down as the impairment rules are not a linear function of market value. For example a
scenario with a market value decline of 20% would not double the potential further equity impairment.
As previously mentioned, the Life and Non-Life business have minimal sensitivity to equity price movements.
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