Risk Management

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 a 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. Volatility is controlled through diversification and the capital shield strategy. SCOR has had the lowest volatility in the industry since 2005.
 

SCOR’s risk appetite framework is at the heart of its decision making, and is part of its strategic plan, “Vision in Action”. The Group notably relies on specific tools to monitor its risk exposures and compare them against the limits set out in its risk appetite framework:

• the “risk driver” system, which ensures that the Group’s annual aggregate exposure to each major risk category is well managed. The objective is to avoid overconcentration of risk and hence maximize diversification benefits;
• the “extreme scenario” system, which is designed to avoid the Group’s overexposure to one single event;
• the “footprint scenarios” provide an impact assessment on the Group under selected deterministic scenarios. SCOR uses either key historical events or other extreme events to assess their impact on an as-if basis on its current portfolio and in-force retrocession / hedging mechanisms. This approach provides an alternative and complementary perspective on the Group’s exposures.

A Robust Capital Shield is one of the four 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:
 

• the Group’s gross exposure is mitigated through traditional retrocession and other hedging mechanisms (such as capital markets solutions or contingent capital facilities) to achieve an acceptable net risk exposure;
• through the Solvency buffer (or Capital buffer) and the Group’s dynamic solvency scale, SCOR monitors the amount of capital necessary to respect the Group’s risk/return objectives and safeguard its franchise.

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. The optimal capital range (defined as a solvency ratio of 185%-220%) enables the Group to achieve the best balance between a strong solvency level and efficient use of capital. Hence 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.