4.4 Legal risk - Scor

transfer solutions (e.g., catastrophe bonds) that are needed to ensure that the net aggregate exposure remains within
predefined tolerance limits.
The probabilistic catastrophe modelling approach captures the uncertainty related to the likelihood of a given event
occurring (frequency uncertainty) as well as the uncertainty associated with the amount of loss, given that a particular
event has occurred (severity uncertainty). A sound understanding of the uncertainties associated with the model’s key
parameters is essential for the interpretation of the model outcome and thus for decision-making. The outcomes for each
model describe a bandwidth of loss estimates and not a unique value. In order to identify and stress-test the key
parameters, systematic sensitivity analyses are carried out.
For peril/zones where neither internal nor external models are available, the following approaches are used:
• Pricing is performed based on actuarial techniques using historical losses and other benchmarks.
• Accumulations are performed either on a notional basis (i.e. sum of event limits for underwritten share), or on a
“manual PML” basis, applying a mean damage ratio to the peak zone aggregates.
This method is validated by the Research & Development Cat team, who performs comparative studies with other
peril/zones of similar hazard and vulnerability characteristics.
See Section 9 Operating and Financial review for certain data regarding SCOR's catastrophe loss experience
Life reinsurance
Accumulations of risk particularly exposed to catastrophes or other significant events in the life business are regularly
assessed in group-wide extreme scenarios. Every year, limits for the acceptance of specific catastrophe covers by
market are reviewed taking into account the capacities obtained by the retrocession coverage purchased by the Group.
SCOR is making use of the RMS model for infectious diseases in order to assess the exposure to catastrophe risk
arising from global and regional pandemics. This exposure is monitored throughout the year against SCOR’s defined
risk limits and used for decisions on mitigating measures. Specifically designed retrocession programs aim to protect its
life reinsurance business. One program protects assumed catastrophe excess of loss acceptances; the other protects
the retained lines in respect of all other acceptances.
Maximum underwriting capacities are defined to limit SCOR Global Life’s exposure on various types of treaties
underwritten, proportional and non-proportional, covering individual or Group policies. These capacities are revised each
year, taking into account the capacities obtained by the retrocession coverage purchased by the Group. These limits
include: maximum commitment per life accumulated for all SCOR exposures, maximum annual commitments for nonproportional
cover per life or per event, maximum commitment per country for non-proportional exposures by event.
Aggregate portfolio exposures are continually monitored. Specialized information technology software, developed by
SCOR allows an inventory of insured persons across SCOR Global Life’s markets and is fed with single risk information
as received by the client companies. Through this system, an accumulation control is carried out and risks under which
the accumulated exposure exceeds SCOR Global Life’s retention are identified and retroceded to a pool of
retrocessionaires. The retention limits are revised regularly.
6.1.3.5 Reserves
The Non-Life and Life reserves adequacy is controlled by internal actuaries who make a quarterly review and annual
detailed reports, validated by the Group Chief Actuary. External consulting firms also review on an annual basis the Non-
Life reserves. Life reserving assumptions are reviewed as well by an external firm in the framework of the embedded
value calculation. If necessary, internal audits of its portfolios are performed. Centrally defined and tightly controlled
reserving process, strong portfolio diversification, prudent reserving policy, sound reserving tools and, state of the art
actuarial methods used by highly skilled professionals and high level of transparency, both internally and externally,
tends to minimize the risk of inadequate reserves.
However, the Group is subject to all of the factors of uncertainty mentioned above and, in consequence, to the risk that
its reserves are inadequate compared to its liabilities. Therefore, if its claims reserves prove to be inadequate, its net
income, cash flow and financial position may be adversely affected.
See "Paragraph 4.1.5 - If SCOR's reserves prove to be inadequate, its net income, cash flow and financial position may
be adversely affected" for further information on reserves.
A. Non-Life business
SCOR regularly reviews and updates its methods for determining outstanding claims reserves and IBNR Reserves.
However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal
environment, which could affect the reserve development.
When a claim is reported to the ceding company, its claims department establishes a reserve corresponding to the
estimated amount of the ultimate settlement for the claim. The estimate is based on the cedant’s own methods of
evaluation. The ceding company reports the claim and its suggested reserve amount to the Group entity with which it
concluded its contract of reinsurance. The Group records the ceding company's suggested reserve and is free to
establish greater or smaller reserves based on the review and analysis by the Group's claims division and internal
actuaries. Such greater or smaller potential reserves are based upon the consideration of many factors, including the
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