SCOR puts weak remediation effects down to bad luck, sees uptick just ahead

Global reinsurance giant  SCOR claims that ongoing portfolio remediation may become visible in the P&L from Q3 or shortly thereafter and that the continual cat-driven rise in combined ratios in the first year of remediation is a bad mix between the renewal calendar and the geographies of major events.

“You should see the full benefit essentially 12 months after having taken portfolio actions,” CEO Laurent Rousseau said when asked why combined ratios have only risen since remediation began. He cited a September 2021 launch date to  SCOR’s realignment away from heavy property cat.

The 12-month count has worked unfavourably vis-à-vis the renewals calendar and the geographical focus tied to each renewal season, officials argued.

“It’s a question of timing and a question of where the losses occurred,” chief risk officer Fabian Uffer said, pointing to a heavy load from Australia in Q1, more Australia, a heavy dose of South Africa and French hailstorms Q2.

“It’s a question of both where these losses take place and the timing for these actions to emerge through the portfolio,” Uffer said.

Q3 might already bring visible improvements vis-à-vis US cat losses where  SCOR maneuvered to avoid small to medium-sized events.

The next round of January renewals will see more work done.  “We will take further actions at 1.1; we’ve taken some action on our Australian portfolio at July and we will take further actions through the year 2023 and further actions on our European book and our US book come January,” Uffer said.

Asked why property cat looked inadequately priced to  SCOR just as rivals are increasing their stance, CEO Rousseau says his group can’t switch the model that says the past five years are an anomaly and that frequency should necessarily nose downward.

“I don't think there is any kind of scientific or anecdotal basis that cat frequency is going to improve any time soon,” Rousseau said.

And improved pricing may not prove sufficient enticement if segment volatility simply forces  SCOR to reduce property cat as a portion of its total game.

“However attractive rate adequacy is, the question is what should be the share of cat in the overall business,” Rousseau said when challenged. “We say we have too small a base relative to the cat volatility.”

Rousseau cites a study suggesting the group would now be staring at an 8.5% cat loss ratio, three points below the latest reading, had the group taken the current remediation five years prior.

In the second quarter,  SCOR suffered a €159 million loss, in part as its P&C combined ratio shot up to an eye-opening 111.5% from 103.7% reported in the first quarter when its net profit first dipped into the red.

SCOR rattled off a series of nat cat losses including Brazilian drought and South African floods, but also admitted to a "sharp increase" in its attritional loss ratio.

Loss or no loss, PMLs are coming down, an official noted for the analyst call.  SCOR claims to have secured a 21% reduction in its 1 in 250-year PML for the 2022 underwriting year following a decline in premiums at the mid-year renewals, “significantly ahead of our original 11% projection”.  Officials added that higher-frequency PMLs had also come down at unspecified double-digit rates.

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