4.4 Legal risk - Scor

4.2.2 SCOR FACES RISKS RELATED TO ITS EQUITY-BASED PORTFOLIO
SCOR is also exposed to equity price risk. A widespread and sustained decline in the equity markets could result in an
impairment of its equity portfolio. Such an impairment could affect its net income.
The Group’s exposure to the equity market results both from direct purchases and through certain (re)insurance
products including GMDB business. See “Section 4.1.4 – SCOR could be subject to increased reserves from business
that it does not actively underwrite.”
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 gross domestic product (“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).
The impact of a uniform drop of 10% in equity markets is included in “Section 20.1.6 – Notes to the financial statements,
Note 26 – Insurance and Financial Risk.”
SCOR is, therefore, exposed to a risk of capital losses on its equity exposures - if it were to occur - which could
adversely impact its business, present and future revenues, net income, cash flows, financial position, and potentially,
the price of its securities.
See “Section 20 – Note 26, Insurance and financial risk – Market risk” for further information on risk mitigation actions.
4.2.3 SCOR IS EXPOSED TO OTHER RISKS ARISING FROM THE INVESTMENTS IT OWNS
A. Valuation risk
Some financial instruments do not have a sufficient and recurrent number of transactions to allow valuation with
reference to a market price and therefore need to be valued using an appropriate model. There is a risk that the price
provided by the model is noticeably different from the price which would be observed in the event of rapid disposal of the
financial instrument, which could have an adverse effect on SCOR’s financial position. This risk is higher for non-listed
assets, structured products (e.g. asset backed securities, collateralized debt obligations, collateralized loan obligations,
collateralized mortgage obligations, commercial mortgage backed securities, residential mortgage backed securities,
structured notes, etc.) on the loans and on the alternative investment portfolio (e.g. hedge funds, infrastructure,
commodities, private equity, etc.).
For further details on valuation, refer to “Section 20.1.6 – Notes to the financial statements, Note 6 – Insurance Business
Investments.” See also “Section 4.2.5 – The valuation of SCOR’s intangible assets and deferred tax assets may
significantly affect its shareholders’ equity and the price of its securities.”
B. Market disruption
The financial markets context remains uncertain and exposes SCOR to significant financial risks linked to changes in
macroeconomic variables, inflation, interest rates and sovereign debts, credit spreads, equity markets, commodities,
exchange rates and real estate securities but also to changes in the models used by the rating agencies. Due to the
current economic and financial environment, the Group may also be faced with the deterioration of the financial strength
or rating of some issuers.
C. Real estate risks
The rental income of the property portfolio is exposed to the variation of the indices on which the rents are indexed (for
instance in France, the Construction Cost Index) as well as risks related to the rental market (changes in supply and
demand, changes in vacancy rates, impact on market rental values or rent renewals) and the default of lessees.
The value of property assets, owned directly or through funds, is exposed to changes in the investment market itself
(changes in interest rates, liquidity) but potentially also to the risk of regulatory obsolescence of properties (regulatory
developments related to the accessibility of buildings for handicapped people, on the reduction of energy consumption
and the production of carbon dioxide, etc.) which would lead to losses of value in the event of a sale of the assets or to
additional expenditure to restore the value of the property.
D. “Side Pockets” or “gates”
SCOR holds shares of private equity or hedge funds or funds of funds in its alternative assets portfolio. Some of these
funds have the possibility to temporarily restrict the liquidity of these shares pursuant to restrictions that are commonly
referred to as “side pockets” or “gates.” The Group does not hold a material portfolio of such assets.
The occurrence of one or more of the above risks 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.
See “Section 20 – Note 26, Insurance and financial risk – Market risk” for further information on risk mitigation actions.
E. Insurance Risks
SCOR holds in its investment portfolio a some securities related to insurance risks (e.g. Insurance Linked Securities
(ILS)). These securities can be indexed bonds ("CAT bonds"), Over-The-Counter (OTC) (e.g. Insurance Loss Warranty
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