SCOR optimistic on growth despite being “caught by surprise” by cedant reductions

Despite lower profits and stagnating growth in its property/casualty (P&C) business, SCOR remains confident about achieving its targets through growth in its US P&C business and its global life business.

The French reinsurer posted a 4.4 percent year-on-year growth in its gross written premiums which reached €10.22 billion in the first nine months of 2016 at constant exchange rates.

SCOR’s net income, however, was down 11 percent year-on-year at €438 million between January and September.

The life business drove growth with gross written premiums up 7.8 percent at constant exchange rates to reach €5.98 billion over the period.

At the same time, its P&C business stagnated, with gross written premiums at constant exchange rates shrinking by 0.1 percent year-on-year to €4.24 billion in the first nine months of 2016.

In P&C, SCOR was “caught by surprise” by reductions of business from ceding companies, Victor Peignet, CEO of SCOR Global P&C, said during an October 27 third-quarter results presentation.

The reductions relate to underwriting years 2015 and 2016 and were mostly driven by engineering and offshore business lines, which are the ones most affected by the prolonged slowdown of the global economy and the slump in the oil price, Peignet explained. The aviation market also contributed to pressures in P&C, he noted.

In addition, in order to protect the bottom line, SCOR has been “even more selective” in cases and areas where competition has driven contract terms and conditions down to what the reinsurer perceives as unsustainable levels, particularly in some of the large corporate business solutions and in LatAm (Latin America) for P&C treaties, Peignet said.

As a consequence, Peignet expects 2016 full year gross premiums in P&C to reach around €5.6 billion, below previous estimates of €5.8 billion.

The P&C market has been under pressure in recent years as the low interest rate environment attracted investors to the reinsurance market, pushing rates down and contributing to what is seen as a prolonged soft market.

But SCOR believes that an improvement is within reach. “I believe that there is a kind of acceptance generally that prices at the minimum have got to stay where they are and in some cases have to go up to compensate for losses in certain areas,” Peignet said. “I don’t see further deterioration to happen,” he noted.

SCOR’s net combined ratio in P&C was 93 percent in the first nine months of 2016 compared with 90.8 percent in the same period a year ago. The first half of the year has seen a rise in nat cat losses which drove SCOR’s nat cat net ratio to 5.7 percent in the first nine months of 2016, near its budgeted full year 6 percent. Major events included the Fort McMurray wildfires, earthquakes in Japan (Kumamoto), Taiwan and Ecuador, Netherlands and Texas hail storms, Europe and Louisiana floods.

Despite hurricanes Matthew and Nicole in the fourth quarter, Peignet remains comfortable with the 6 percent full-year budget for nat cat losses.

The “Vision in Action” plan, launched by SCOR earlier this year, which sets targets between mid-2016 and mid-2019 includes an annual growth in the 3 percent to 8 percent range of gross written premiums for the P&C division. For 2016, however, this target level is unlikely to be achieved. “We are expecting to resume growing next year and I think 3 percent to 8 percent is quite a reasonable indication,” Peignet said.

According to “Vision in Action,” the P&C division should achieve its growth target, amongst others, by further developing the US franchise towards what it calls clear Tier 1 reinsurer status.

SCOR is currently rolling out its business development plan in the US and Peignet sees the pipeline there “building up nicely” with opportunities for a significant volume of new business.

“All the clients we are talking to on that pipeline are existing clients in the US and basically that’s just in line with all the work we have been doing in that market for the last four to five years,” Peignet said. He suggested that the promising pipeline of business is likely to positively affect SCOR’s P&C growth figures in 2017.

For the life division, SCOR painted a more positive picture in its results presentation. Gross written premiums grew by 7.8 percent year-on-year at constant exchange rates to €5.98 billion in the first nine months of 2016.

This performance exceeded the annual premium growth of between 5 percent and 6 percent included in “Vision in Action” and was driven by strong new business inflow in Protection and Financial Solutions in Asia-Pacific, continued positive new business trends across all product lines in EMEA (Europe, the Middle East and Africa) and Americas amongst others, according to the presentation.

“In the first nine months of 2016, SCOR Global Life continued to combine growth and strong profitability,” said Paolo De Martin, CEO of the division.

The technical margin in the life segment was at 7.1 percent in the first 9 months of 2016, a slight drop from the 7.2 percent registered in the same period a year ago but above assumptions included in “Vision in Action”. According to the three-year plan, SCOR Global Life anticipates a technical margin of around 6.8 percent to 7.0 percent p.a.

In the life division, SCOR is benefitting from profitable new business, with an increased share of longevity business in the product mix, according to the presentation.

In longevity, SCOR has “a very strong pipeline of UK deals which are “at very advanced stages,” De Martin said.

SCOR also continues to invest and expand its APAC (Asia-Pacific) franchise with “good new business inflow both in protection and financial solutions,” De Martin noted. He is also “pleased with the continuing new business inflow observed across all product lines in EMEA and the Americas.”

“Looking ahead to the end of 2016 we expect growth in premiums to normalize at around 6 percent versus prior year with the potential upside due to our strong longevity new business pipeline,” De Martin said.