4.4 Legal risk - Scor

4.1.14 SCOR IS EXPOSED TO LOSSES DUE TO COUNTERPARTY DEFAULT RISKS OR CREDIT RISKS
SCOR is mainly exposed to the following credit risks:
A. Bond portfolios
Credit risks on fixed and variable income securities cover two areas at risk.
Firstly, a deterioration in the financial situation of an issuer (sovereign, public or private) may result in an increase in the
relative cost of refinancing and a reduction in the liquidity of the securities issued leading to a reduction in the value of
such securitiets. Secondly, the borrower’s financial situation can cause it to become insolvent and lead to the partial or
total loss of coupons and of the principal the Group invested.
The risk of losing all or part of bonds 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.
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 retrocessionaire
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 risk of non-performance of retrocessionaire undertakings is set out in “Section 4.1.6 – SCOR may be adversely
affected by its cedants, retrocessionaires, insurers or members of pools in which it participates do not respect their
obligations.”
The retrocessionaires’ part in the reserves split by retrocessionaires’ financial rating is included in “Section 20.1.6 –
Notes to the financial statements, 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.
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.
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