SCOR’s risk management system is composed of two interconnected parts:
As part of its capital management, a (re)insurer’s risk appetite defines the quantity of risk that it wishes to accept to achieve a desired level of profitability. Risk appetite can differ from one (re)insurer to another. Whether a company’s risk appetite is low or high, the management needs to properly understand its consequences. SCOR has an upper mid-level risk appetite, which is revised every three years. SCOR currently uses a solvency ratio target range and an expected profitability target to provide a complete definition of its risk appetite. SCOR’s risk appetite framework is at the heart of its decision making, and is part of its strategic plan, “Vision in Action”.
SCOR has developed a full and holistic internal model over the last 10 years, covering all material quantifiable risks to which the Group is exposed (Life and P&C underwriting risk, market and credit risk, operational risk) and reflecting SCOR’s risk profile and strategy. SCOR’s internal model simulates the interactions between the assets and liabilities of the Group under various scenarios and determines the capital level necessary to ensure that the Group is solvent with a probability of 99.5% over a 1-year time horizon.
Since January 1st, 2016, the regulatory solvency position of the Group has been assessed by SCOR’s internal model and it is also been used to help to prepare for management decisions involving risk management or solvency considerations.
A Robust Capital Shield is one of the cornerstones of SCOR’s strategy.
The primary purpose of the Capital Shield Strategy is to ensure that the Group adheres to the risk tolerance limits as defined in the Risk Appetite Framework, so that SCOR’s capital and solvency are protected. The Capital Shield Strategy is based on two concepts:
SCOR has developed a solvency scale which drives a process of gradual escalation and management responses, depending on its solvency position based on the internal model. SCOR aims to make the best possible use of the numerous options at its disposal to manage and steer its risk and capital positions toward the optimal area.
215% at year-end 2018
SCOR’s risk management system is supported by a healthy risk culture throughout the Group. The tone of the company’s risk culture is set by top management and from here spreads to the entire workforce. SCOR is continually working to raise awareness of risk-related issues and to develop understanding among SCOR’s staff on key risk management concepts. Interest in risk management issues throughout the company is also encouraged by the regular publication of the Group’s “Risk Tales”, which present easy-to-understand case-studies, providing real-life examples of where things can go wrong without good risk management practices. In addition, SCOR’s established Emerging Risks process is open to contributions from all staff members and spreads knowledge throughout the company on trends in new or rapidly developing risks.
The Group undertakes to manage climate risks in a holistic manner, encompassing both the company’s assets and underwriting liabilities. Furthermore, as part of SCOR’s commitment to Corporate Social Responsibility, the Group invests in projects that contribute to the transition towards a renewable energy future. SCOR’s approach to climate risk management and mitigation includes:
SCOR actively supports the CRO Forum, working alongside other major insurers and reinsurers to address major topics of concern for the reinsurance industry and society.
During the course of 2018, SCOR has contributed to CRO Forum papers on “Supporting on-going capture and sharing of digital event data”, “Understanding and managing the IT risk landscape” and the position paper on climate change, “The heat is on - insurability and resilience in a changing climate”. These papers make significant contributions to industry knowledge on key topics, both by defining industry best practices and in the case of the paper on climate change, by presenting the current overview of the issues, addressing the possible impacts on re/insurers and by suggesting what collective action is necessary from the industry going forward. As a testimony to SCOR’s past and ongoing support of this initiative, SCOR’s Chief Risk Officer, Frieder Knuepling, was elected the Vice Chairman of the CRO Forum in December 2018, effective from January 2019.
There is consensus within the scientific community that human activities initiated a global climate change, there is also evidence that as warming of the planet accelerates, some tipping points such as permafrost thawing will trigger further warming. The impacts of risks associated with these trends threaten to be more severe than currently assumed, especially as it seems unlikely that global warming will be kept to the Paris target of “well below 2°C” this century. Global climate change comprises global warming, extreme weather events, sea level rise, climate-induced poverty and migration among other risks.
Environmental degradation is one of the major challenges currently facing mankind. Mass species extinction, ocean acidification, declining land availability and pressures on the global water supply require urgent action. This trend encompasses environmental pollution, biodiversity loss, resource depletion and the alternative energy landscape.
Numerous breakthroughs in science and technology will change the landscape of medicine, bringing new threats but also possibilities of better treatments. Health trends include antimicrobial resistance, the increased frequency of chronic diseases, obesity, medication overuse and genetic testing.
The planet’s population is undergoing major demographic shifts, which may trigger political, economic, social, cultural and environmental upheavals, particularly in Asia and Africa. This trend encompasses not only population growth, but also the increase in the ageing population, rapid urbanization with the development of mega cities and mass migration.
The increasing wealth gap within societies, the weakening of international governance and cooperation, and the increase of regulatory and economic uncertainty, are significant trends with the potential to generate social and geopolitical instabilities. Terrorism remains a major threat.
Innovative technologies could disrupt industrial development, production and entire business value chains. The 4th industrial revolution includes breakthroughs in automation, autonomous mobility, artificial intelligence, augmented reality, robotics, new materials, energy use, “Big Data”, and communication.
Hyperconnectivity stems from the rise in the cyber dependency of people, things and organisations. Hyperconnectivity incorporates many topics such as the rise of social media, wearables, Internet of Things (IoT) and other health-monitoring devices. Hyperconnectivity offers many opportunities but may represent also an increased vulnerability of individuals, governments and organisations to potential increasingly sophisticated cyber-attacks perpetuated by criminal organisations or rogue states.
The world of finance is undergoing radical changes. Following the banking sector, the insurance industry is now at the forefront of this revolution. For example, blockchain technology could lead to fundamental shifts in business models, the creation of new payment solutions and enhanced transaction security.
