Reinsurer reveals it is pulling back from agriculture after taking a €193m hit from droughts in Brazil
In its latest results announcement, SCOR has revealed a net loss of €239m for the first half of 2022, of which €159m was incurred in the second quarter. Its combined ratio was 107.7%.
The global reinsurer blames the global macroeconomic environment, which has strongly deteriorated due to tensions driven by the war in Ukraine and related sanctions, which have impacted the supply of natural resources. Many countries are now experiencing levels of inflation that had not been observed in decades, it observes.
In H1 2022, the impact of climate change also continued to be felt. The second quarter was marked by heavy floods in South Africa and storms in France, which followed a first quarter that had already been impacted by severe floods in Australia and one of the worst droughts experienced in Brazilian history. In the first half of 2022, the Covid-19 pandemic also continued.
SCOR’s reduced profitability notably reflects the cost of the claims related to the drought that impacted corn and soy crops in southern regions of Brazil. This was the worst drought in Brazil in 91 years and resulted in a $9.2 billion economic loss2 with a loss of €193m to SCOR’s technical result, of which €35m was incurred in the first quarter.
As a consequence, and consistent with its ambitions to reduce its exposure to climate-sensitive events, SCOR has been fully reviewing its agriculture portfolio with a 50% exposure reduction (PML3) targeted for 2023.
Denis Kessler, chairman of SCOR, commented: “The recent past has been a stark demonstration that uncertainties and instabilities of all kinds are multiplying: the Covid-19 scourge continues, entropic forces are running riot on the international geopolitical stage, inflation is reaching multi-decade highs, the economy is slowing down, the fear of a global recession is growing, the frequency and severity of natural catastrophes are on the rise – a change that is most likely linked to global warming…
”In this volatile environment, risk aversion, and the need for protection, will continue to soar. The multiplication of uncertainties and risks demonstrates more than ever the crucial role of the reinsurance industry to act as a cornerstone and guarantor of the resilience of the global economy.
”I am convinced that SCOR, as a Tier 1 global reinsurer, is perfectly equipped to meet these challenges and pursue its value-creating development, building on its global franchise, its recognized technical expertise, its financial strength, the talent of its teams and its command of new technologies.”
Laurent Rousseau, chief executive of SCOR, comments: “H1 2022 has been marked by a series of exceptional events both in L&H and in P&C, which have negatively impacted our financial performance.
”Most notably, a number of events driven by climate change (natural catastrophes, droughts, etc.) have affected the profitability of our P&C business, confirming that our strategy to decrease our exposure to these events is the right one.
“Despite an accounting loss, SCOR’s solvency position remains stable and robust with a solvency ratio of 240%.
”The current changing environment comes with challenges and opportunities and our objectives are unchanged: to reduce earnings volatility, increase profitability, grow the franchise, optimally allocate capital and accelerate the Group’s transformation.
”We are fully focused on the preparation of the new strategic plan that will be unveiled in November together with our Q3 results. In a stochastic world, we are taking remediation actions proactively, while taking advantage of an environment where demand for protection is increasing, with strong pricing discipline. SCOR is building on its strengths to adapt and seize opportunities arising from the current risk environment.”
SCOR was also impacted by the materialisation of latent claims related to sexual molestation from the 1980s in the US while the provision related to potential claims consequent to the war in Ukraine which was booked in the first quarter of 2022 is unchanged.
The total cost of Covid-19 claims amounted to €254 million, of which €195 million had been incurred in the first quarter.
In Q2 2022, a number of positive signs consistent with the Group’s stated priorities to reduce volatility, improve profitability and manage growth can also be observed, notably:
- Further actions at the June 1 and July 1 P&C reinsurance renewals contributed to a 21% reduction of our 1 in 250 years PML4 for the 2022 underwriting year, significantly ahead of our original 11% projection;
- Reinvestment yield was 4.1% at the end of June 2022 up from 2.1% at the end of 2021 and 3.1% at the end of Q1 2022, highlighting an improved investment yield outlook.