SCOR faces another downgrade as concerns over performance mounts

Ratings agency  AM Best is the latest to question the “poor underwriting performance” of global reinsurance giant SCOR in light of its sizable full year loss in 2022, following a tone set by its peers  S&P,  Fitch and  Moody’s in the past few months. AM Best has downgraded the financial strength rating of  SCOR to A from A+ citing its concerns over the group’s underwriting and risk management capabilities.

The changes also affect the company’s main operating subsidiaries, including the downgrade of its long-term issuer credit ratings to A+ from AA-. However, the outlook of its credit ratings has been revised to stable from negative.

Best said the rating downgrades reflect the deterioration in SCOR’s operating performance, which it no longer considers supportive of its previous strong assessment.

In 2022, SCOR reported a sizable net loss of €301 million and a combined ratio of 113.2%, driven by above-budget natural catastrophe losses and reserve strengthening carried out in the third quarter of the year. SCOR’s five-year average (2018-2022) non-life combined ratio and return-on-equity ratio are 102.5% and 3.5%, respectively, as per AM Best. The group’s earnings diversification between non-life and life segments somewhat moderates volatility in its overall technical results. Non-life technical losses, recorded in each of the past six years, have been offset by profits from SCOR’s life portfolio in five of the six years, despite elevated mortality driven by the COVID-19 pandemic. In 2022, the life result was positively impacted by active management of the in-force book and a sizable excess reserve release in the third quarter.

AM Best said that while the group’s management has implemented remedial actions to improve underwriting performance, such as reduction of its peak exposures (natural catastrophe risk and U.S. mortality risk), nonrenewal of unprofitable accounts, and streamlining the organisation to increase operational efficiencies, it will take time to improve the non-life technical profitability track record.

The poor underwriting performance in recent periods has highlighted weaknesses in the group’s underwriting and risk management capabilities, it noted. As a result, the ERM assessment is no longer considered supportive of the previous very strong assessment and has been revised to appropriate, said AM Best. The group’s risk management capabilities are in line with its risk profile.

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