4.4 Legal risk - Scor

The targets of the strategic plan are supported by the consistent application of the four cornerstones of SCOR's
business model, which are:
• a strong franchise, achieved by deepening its presence in the local property and casualty and life markets in
which SCOR operates by strengthening client relationships and through best-in-class service and product
innovation, and by expanding into new markets through organic growth and through acquisitions, such as the
acquisition of the mortality reinsurance business of Transamerica Re;
• high diversification, achieved both by Non-Life business area and Life lines of business diversification and by
geographical presence , providing better stability of results and robust required capital diversification benefits;
• a controlled risk appetite, on both sides of the balance sheet, respecting a moderate risk appetite; and
• a robust “Capital Shield” policy, with a four layer-framework that is optimized according to severity and
frequency levels of risks:
- traditional retrocession, which includes a combination of proportional / non-proportional, per-event
and aggregate covers;
- alternative risk transfer solutions, which include the securitization of catastrophic risk in the form of
ILS and mortality swaps (see “Paragraph 6.1.3 Underwriting, Catastrophe Risk and Claims” and
“Paragraph 20.1.6 - Notes to the financial statements, Note 8 - Derivative assets”) and provide
multiyear protection that is not dependent on short-term market fluctuations;
- buffer capital, defined as the amount of capital above the required capital having an annual
probability of total erosion of 1 in 33 (3%);
- contingent capital securities, which are designed as tools of last resort. See "Paragraph 20.1.6
Financial Statements - Notes to the consolidated financial statements, Note 8 - Derivative assets.”
SCOR’s risk appetite framework
SCOR’s risk appetite framework is an integral part of the Group’s strategic planning. It is approved by the Company’s
Board of Directors in connection with the review of new strategic plans, based on recommendations from the Group’s
executive management committee and the Risk Committee of the Company’s Board of Directors (the “Risk Committee”).
The Company’s Board of Directors may vary the amount and the composition of risk that the Group is prepared to take.
SCOR’s risk appetite framework encompasses three concepts: risk appetite, risk preferences and risk tolerances:
Risk appetite
Risk appetite defines the quantity of risk that SCOR wishes to accept to achieve a desired level of profitability. This
determines where the Group wishes to position itself on the assumed risk-expected return spectrum, between extremely
risk averse (i.e. low risk-low return) and an extreme risk taker (i.e. high risk-high return). SCOR uses a target retained
risk profile (probability distribution of economic profits and losses) and target expected profitability to provide a complete
definition of its risk appetite. The Group actual retained risk profile and profitability are regularly reported to the
Company’s Board of Directors via the Risk Committee.
Risk preferences
Risk preferences are qualitative descriptions of the risks which SCOR is willing to accept. The Group aims to cover a
wide range of reinsurance risks and geographical areas. However it has no desire to take operational, legal, regulatory,
tax and reputation risks (but this does not mean that the Group are immune to these risks). This choice of risk
preferences determines the risks to be included in the Group’s underwriting guidelines.
Risk tolerances
Risk tolerances are the limits required by SCOR’s stakeholders (e.g., clients, shareholders, regulators etc). The
Company’s Board of Directors defines and approves risk tolerance limits for the Group by line of business, asset class
and extreme scenario in order to ensure that the Group’s risk profile remains aligned with its risk appetite framework.
SCOR uses various risk measures to verify that its exposures remain within these limits. These measures can take
several forms depending on the technical constraints or the level of information available and are based on either
internal model outputs or expert opinions.
52