SCOR CEO Rousseau sees parallels between ‘unloved’ insurance in 2017 and reinsurance now

Laurent Rousseau (pictured), chief executive officer of SCOR, said “there are parallels to be drawn” between the state of the insurance industry in 2017 and the reinsurance industry today, in a speech at the Monte Carlo Rendez-Vous.

He said that the past five years had been testing for the industry with “tremendous” increases in the frequency and severity of natural catastrophe, which he said has posed some really fundamental questions on the nature of the risk.

“Has nat cat risk fundamentally changed and how does it affect societies?”

The COVID-19 pandemic had been testing for SCOR, he said, as the company is a major life reinsurer, especially in the US. But he said SCOR has “stood by its clients”.

Again, the pandemic has created fundamental questions about the risk.

“Before the pandemic we had extreme mortality, we had pandemic modelling. What the industry had missed was the correlation between life and P&C.

“Where we were looking at it as an 80 percent life event, the reality of the 2019/20 pandemic is it has been much more of a P&C event. This is because of business interruption. And that correlation between life and P&C had probably been missed by the industry.”

He said this did not change the fundamental need to diversify SCOR’s business and he added that the need to diversify the value of the life business further “has never been greater”.

Rousseau flagged macroeconomics as another vital question that has come into view as people had pinned their hopes on 2022 bringing the end of the pandemic and a return to more normal life.

“Nat cats, the pandemic and macroeconomics all raise the prospect of systemic risks. Those risks happen globally and very much in an instantaneous way, so how to diversify these risks and manage the crisis has been a real challenge,” he said.

“Looking forward, we see the implications of these three headwinds as having a deep impact on the demand and provision of capital and reinsurance. The market balance is really shifting.”

But, he added, it had started shifting in 2017 with hurricanes Harvey, Irma and Maria and that had driven a hardening of the large commercial lines insurance markets. “Since 2017 we’ve been seeing a pretty hardening insurance market. I’m convinced that today we are seeing in reinsurance what we saw in insurance in 2017,” he said.

“At that time large commercial lines were doing very poorly and were very unloved, the listed insurers were trading pretty low. That was a real turning point, the rate increases, walking away from the business, drove the hardening of that market.

“There are some parallels to be drawn with reinsurance today, where it is an unloved industry. If you look at the listed reinsurers’ valuations they are at very low levels and I do think we are going to see a tipping point and an acceleration of the reinsurance market.”

The SCOR CEO pointed to two trends, sustainability and technology, which he said “are going to support the industry for the long term”.

IFRS17

A big transformation is coming from accounting regulatory changes with IFRS17 coming into force in 2023.

“We think IFRS17 is going to be a big positive. From the economic point of view because insurance and reinsurance companies are going to put on balance sheets, stamped by the regulators, the value of the long tail long line portfolios,” said Rousseau.

“And it’s positive for SCOR. As a 55 percent life reinsurer the value of this life portfolio is going to be better recognised in our accounts.”

He said that IFRS17 doesn’t change the substance of SCOR’s business but he added: “We think it will reflect more intrinsically the value of our business.”

While there have been headwinds for the industry Rousseau said that the pace and depth of changes “is creating some real opportunities for the stronger and better organisations”.

SCOR views it as a shift out of an area of capital abundance to one of scarcity.

“There are various forms of capital, the one we all think of being reinsurers is financial capital. This has been a lot more available due to low interest rates.

“Monetary policy has shifted, we’ve been seeing tremendous tipping points in central bank positions and that is going to make capital as a resource, as a raw material, a lot more expensive. This is good for risk buyers and for volatility takers such as reinsurers,” he concluded.