SCOR's Q2 losses scoured in vain for sign of promised turnaround

Reinsurer  SCOR took some rugged reviews of its Q2 earnings performance from equity market analysts wondering just how long they have to wait for the group’s repositioning to blot red ink from the bottom line.

" SCOR reported a messy set of Q2 2022 numbers," analysts at Berenberg summarized in its note to clients.

"Yet another unexpected negative surprise within the combined ratio," analysts at Deutsche Bank said after  SCOR unveiled its second consecutive quarter of net losses and a deepening P&C underwriting loss on Thursday morning (July 28). "Yet another loss away from  SCOR's ambitions of reducing cat exposures ... and large loss volatility more broadly."

Shares sank nearly 20% from what had been a weekly high at the prior day close Wednesday before finally finding some traction mid-morning Friday. But even the ensuing 6% rebound through mid-day Monday leaves the company's shares 45% off their 12M high.

The French had begun their retreat from nat cat and more volatile perils already in September 2021, theoretically leaving less peril in Europe and globally in the book as of January, less Asia from April and less Atlantic storm from mid-year.

In the event, French storms, Brazilian drought and floods across South Africa and Australia helped push the &C combined ratio up to record highs, at 111.5% in Q2 from the 103.7% reported in Q1. But just as  SCOR blamed heavy nat cat for what management admits was a “stark demonstration” of runaway risks, they also admitted to a "sharp increase" in their attritional loss ratio.

While actions to de-risk the books seem "very plausible," the lack of relief in earnings remains vexing, analysts at Deutsche indicated.  "Even though the initiatives taken to reduce volatility feel very sensible, we are yet to see any tangible evidence of this in the numbers." Deutsche is starting to wonder “if the company is behind the curve from a reserving perspective” as well.

The upshot:  SCOR will stay on the market's watch list at least throughout the Atlantic hurricane season, despite looking "clearly incredibly" cheap to Deutsche Bank and despite claims of having reduced premium by nearly 10% at the mid-year renewals, analysts suspect.

"We would hope that  SCOR should now have significantly lower US hurricane exposure than peers as we head into hurricane season," Deutsche surmised. "But we are unlikely to see much evidence of this" until  SCORR can prove it on the Q3 bottom line.

Berenberg likes new targets in derisking, praising the increase in nat cat PML reduction to 21% from 15% and a vow for further action on the agricultural portfolio to reduce the PML by 50% by 2023.

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