4.4 Legal risk - Scor
4.4 Legal risk - Scor
4.4 Legal risk - Scor
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and amortization expenses related to goodwill and other intangible assets, all of which could materially adversely affect<br />
SCOR’s businesses, financial condition and results of operations. Future acquisitions may have a dilutive effect on the<br />
ownership and voting percentages of existing shareholders. The Group may also finance future acquisitions with debt<br />
issuances or by entering into credit facilities, each of which could adversely affect its business, present and future<br />
revenues, net income, cash flows, financial position, and potentially, the price of its securities.<br />
In addition, acquisitions may expose SCOR to operational challenges and various <strong>risk</strong>s, including:<br />
• the ability to integrate the acquired business operations and data with its systems;<br />
• the availability of funding sufficient to meet increased capital needs;<br />
• the obligation to comply with new regulatory requirements;<br />
• the ability to fund cash flow shortages that may occur if anticipated revenues are not realized or are delayed,<br />
whether by general economic or market conditions or unforeseen internal difficulties; and<br />
• the possibility that the value of investments acquired in an acquisition, may be lower than expected or may<br />
diminish due to credit defaults or changes in interest rates and that liabilities assumed may be greater than<br />
expected (due to, among other factors, less favorable than expected mortality or morbidity experience, or<br />
increase reserving of long tail lines of business).<br />
A failure to successfully manage the operational challenges and <strong>risk</strong>s associated with or resulting from acquisitions<br />
could adversely affect SCOR’s business, present and future revenues, net income, cash flows, financial position, and<br />
potentially, the price of its securities.<br />
The businesses SCOR has recently acquired are described in “Section 5 – Information about the issuer, 5.1.5 Important<br />
events in the development of the issuer’s business.”<br />
Specific <strong>risk</strong>s relating to the acquired businesses are as follows:<br />
A. The integration of the acquired activities may prove to be difficult<br />
The success of SCOR’s business combinations will be assessed with regards to the success of the integration within the<br />
Group. Subsequently, integrations may take longer or may be more difficult than expected. The success of integrations<br />
will depend, notably, on the ability to maintain the former client base to coordinate development efforts effectively, at the<br />
operational and commercial levels among others, and to streamline and/or integrate the information systems and<br />
internal procedures and the ability to retain key employees. Difficulties encountered in integrations could entail higher<br />
integration costs and/or less significant savings or fewer synergies than expected.<br />
SCOR is also exposed to <strong>risk</strong>s relating to the integration of the underlying data of newly acquired companies into its<br />
operating and financial accounting systems.<br />
B. An insolvency of AEGON might impair the value of business acquired (value-of inforce) of SCOR Global Life<br />
Since August 2011, the majority of the mortality reinsurance business in the United States of the former Transamerica<br />
Reinsurance Co. ("Transamerica Re") flows into SCOR via retrocession from AEGON companies. As long as underlying<br />
reinsurance agreements between cedants and AEGON companies are not novated, an AEGON insolvency might lead to<br />
premiums from clients no longer being passed on to SCOR, and thus potentially impair the value of business acquired<br />
(“VOBA”) (value of inforce) and have a significantly negative impact on SCOR’s business, present and future revenues,<br />
net income, cash flows, financial position, and potentially, on the price of its securities.<br />
C. Certain <strong>risk</strong>s relating to acquired companies may not yet be known<br />
Due notably to the size and complexities of acquisitions and despite pre-acquisition due diligence work carried out<br />
(SCOR not having always been granted complete access to exhaustive data at the time of the acquisition) and the<br />
integration work performed to date, there is a <strong>risk</strong> that all financial elements may not have been fully and/or correctly<br />
evaluated or unknown or unexpected financial <strong>risk</strong>s emerge, which may have significant consequences on the initially<br />
estimated impact of the relevant acquisition on the combined Group.<br />
D. SCOR could be exposed, due to acquired companies, to certain litigation matters<br />
SCOR could have to assume the burden of the litigation matters of acquired companies or relating to those acquisitions.<br />
The costs of these litigation matters could have an adverse effect on its future operating income and an unfavorable<br />
outcome to one or more of these litigation matters could have a material adverse effect on revenues, net income, cash<br />
flow and financial position. For further details, refer to “Section 20.1.6 – Notes to the financial statements, Note 27 –<br />
Litigation” and “Section <strong>4.4</strong>.7 – SCOR is exposed to certain litigation matters.”<br />
SCOR remains committed to exploring acquisition opportunities which may present themselves and which would be<br />
likely to deliver value for shareholders, and will rely on the consistent application of its strategic plans.<br />
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