SCOR seeks higher rates, retentions as nat cat losses erode APAC profit targets

SCOR is meeting its top line growth plans in Asia-Pacific, but a combination of an elongated soft market and increased catastrophe losses driven by climate change means it has to work hard to meet profitability targets, Mukul Kishore (pictured), chief executive officer for the Asia-Pacific region at the reinsurer, told Intelligent Insurer.

Kishore pointed to a couple of reasons behind what he called a “performance blip”. These included a higher frequency of cat events and SCOR’s exposure to them, and a soft market that has spanned the past 15 years, which has meant covers have widened yet prices have gone down.

“Even the frequency losses have been transferred to reinsurance,” he said. “This probably is affecting us more than anything else. If I were to look at the last five or six years, compared to a much longer period before that, we are looking at a new normal, which is affected by climate change.

“You have increased frequency and a higher severity of these natural catastrophe events driven by climate change.”

He said that no region of Asia is immune to climate change in terms of losses. Many different parts of the region have been hit by significant and often record-breaking events, such as the significant flooding in Australia this year.

“We have had wind events, the tropical cyclones in Japan in 2018 and 2019. Just this year we have had Typhoon Nanmadol, in Japan, Malaysian floods, and floods in South Africa, which we picked up as a reinsurer in Asia.”

Mature and emerging markets in Asia-Pacific have both been hit by losses, he said. However, the results in some of Asia-Pacific’s fast-growth markets, such as India and South Asia, have been more stable because there hasn’t been a very large cat event there.

“But we need to accept that these nat cat events are going to affect everyone,” he said.

Wider challenges

Kishore discussed some of the wider challenges facing global reinsurance, such as inflation and geopolitics. These are equally relevant in Asia-Pacific, particularly as reinsurers look to price risk-adjusted rate increases, he said.

“The degrees of these issues vary in terms of what’s happening differently in mature Asia-Pacific markets versus emerging markets in the region.

“You have geopolitical instability, inflation, the under-pricing of cat covers across the board. It’s been said that Asia is to an extent disconnected from the West, but that’s not so.”

Kishore sees opportunities in the current market. He wants SCOR in Asia to balance its portfolio by growing in non-cat-exposed lines. “We are looking at geographies where we have opportunities to build on the non-cat-exposed programmes and across product lines where there is no cat exposure.”

Marine, inherent defects insurance, and some retail lines all offer potential opportunity for growth, he said. And he is confident about SCOR’s ability to improve its performance in the next 12 to 18 months.

“We are very confident about what we have; we have significantly high solvency ratios. Yes, there has been a blip on the performance, but with our financial strength, we are extremely confident of delivering performance and meeting our targets going forward.

“We are positive about the market tailwinds we see and the actions we have taken to rebalance our portfolio. We expect those changes to start showing up in our results in the next 12 or 18 months, it takes time,” he said.

Looking at the market as a whole, a “dislocation” has emerged between insurers and reinsurers, he said.

“Reinsurers are picking up all the losses and struggling on margins, while the insurers are well positioned. This is not sustainable. The reinsurers need to provide a return which meets the expectations of our stakeholders.”

Kishore said a significant rate hardening is now required. During what was a long soft market terms and conditions widened. This now needs to be reversed and terms and conditions tightened, he said.

He added that “structures need to be revisited” and retentions will increase for insurers. He said that SCOR is “willing to allocate stable capacity, which we will, but at the adequate or right price”.

“We have always been very focused on clients and will accompany our clients on their journey as long as they understand that reinsurance needs a margin and this needs to be reflected in the price,” he concluded.