Reinsurer is a “negative outlier relative to close peers” with financial results “below expectations”

S&P Global Ratings has lowered its long-term issuer credit and financial strength ratings on SCOR SE and its core subsidiaries and guaranteed entities to ‘A+’ from ‘AA-’. The outlook is stable.

The rating action reflects that SCOR’s operating performance has not met S&P’s expectations or kept in line with that of ‘AA-’ rated peers, with the trend accelerating in the first nine months of 2022.

This is partially due to the challenging price environment in the P/C business pre-2022, elevated natural catastrophes, volatile technical margins from the life reinsurance business, and lower investment income.

SCOR reported a net loss of €509m in the first nine months of 2022. This makes it a negative outlier relative to close peers such as Munich Re and Hannover Re, which have a better track record of meeting our earnings expectations, stated S&P.

Taking all steps necessary

Meanwhile, the global reinsurer responded that it was “taking all possible steps to improve its profitability”, 17 years after it succeeded in regaining its ‘A’ rating under the leadership of Denis Kessler.

“SCOR has gone through a challenging period, marked by a historic pandemic, successive natural catastrophes and very low interest rates,” said the reinsurer in a statement. ”These various factors have weighed heavily on the Group’s profitability, which has nonetheless maintained a high level of solvency.

“SCOR is actively implementing a whole series of strong measures to remediate its technical profitability,” it continued. “The environment in the year ahead looks positive, with the hardening of the P&C market, the increase in interest rates and an improved situation in terms of the pandemic. 

“SCOR is actively preparing the January 2023 renewals, fully focused on technical profitability.”

S&P has assigned a stable outlook to the Group, reflecting its belief that management actions will likely return the group to underwriting and overall profitability in 2023 while maintaining its market positions in Life and P&C reinsurance.

Reducing exposure to cat perils

On the P/C side, SCOR is reducing its exposure to natural catastrophe, which will come down about 20% by year-end 2022 versus 2021. It has also reduced exposure to US property, and climate-sensitive businesses.

SCOR has also desensitised itself to inflation by strengthening its P/C reserves by €485m. The rating agency believes SCOR’s relatively shorter duration investment portfolio will boost its investment yield.

S&P expects SCOR’s underwriting results will improve in 2023-2024 due to benefits from hardening reinsurance pricing, with a combined ratio (loss and expense) of 95%-98% including a natural catastrophe load of eight percentage points. 

It forecasts that the group’s leverage will remain below 40% and its fixed-charge coverage temporarily below 4x for 2022 before recovering to above 5x over 2023-2024.

The rating agency said it could lower the rating by one notch if SCOR’s financial profile deteriorates through, for example, increased exposure to catastrophe losses.

On the other hand, it could consider a positive rating action if the group’s underwriting performance sustainably improves, with a combined ratio below 95% translating into a return on equity above that of ‘A+’ rated peers.

“This would demonstrate that SCOR’s very strong competitive position can drive earnings in line with those of ‘AA-’ rated peers,” said the rating agency.

In May 2021, Laurent Rousseau was appointed SCOR chief executive, replacing long-serving CEO Denis Kessler, who stepped down from the position for personal reasons. Kessler remains chairman of the board.