SCOR sees capacity gap still driving reinsurance rate into 2024

Market dislocation in reinsurance has eased very little in 2023, and together with the continuing impact of inflation, will force the pace on reinsurance rates well into 2024, new management at  SCOR believes.

“A few drops of capital has come in” from companies raising equity and “a little bit more on the ILS front,” recently appointed CEO Thierry Léger (pictured) told his company’s second quarter earnings call. “But ultimately, those movements were small.”

That leaves SCOR with an estimate of the current supply-demand gap on the market at some €40 billion, not so very far below the €50 million to 80 billion he estimated early in 2022.

“That will require significantly more capital generation or new capital coming in to close this gap,” he said. “That only happens at the right price.”

The reinsurance pricing upshot: “We expect this trend to last for longer.”

The market’s most lively capital flows, into catastrophe bonds en masse since early in 2023, have been inordinately directed at Florida, not a core area of SCOR focus, leaving SCOR’s pricing fields unscathed, officials believe.

“In the business we are focused on, we think prices are very much in line with what we saw early in the year,” CFO François de Varenne said. Property cat looks “attractive” and “will remain so” into 2024, also thanks to the continuing upwards pressure from claims inflation.

June/July treaty renewals took on the appearance of greater order not on account of any major balancing o the market, but as cedents “reset their expectations.”

But management was given very little opportunity to expound on the bright future during the Q2 earnings call, its first earnings call since taking their posts during the second quarter.

Much more time and effort had to be spent defending a decision to inaugurate their term with a hefty dose of discretionary prudential reserving against P&C risks they could not specify and to internal prudency targets they could not quantify.

Analysts pushed back on the accounting decision with suggestion that new prudence and declared “dissatisfaction” with Q2 technical results didn't square with a stable combined ratio target where management could not identify any other changes in their assumptions.

One analyst pushed a suggestion that investment gain had been “recycled into reserves for future profitability.” Others hinted that management had sought to build a buffer to smooth the future impact of discount rates on IFRS17 accounting. Then others shot back with question if, on the other hand, SCOR's new apparent conservatism wouldn't crop up again across operations to depress earnings on any and every future horizon.

Management would not be pinned down on the target or the measure of their new prudency standard. “We don’t have a specific budget in mind to build buffers,” CFO de Varenne said.

“We are simply taking a more conservative stance on certain exposures,” de Varenne said in apparent exasperation on the belaboured point as the call closed. “We are not flagging a specific line or underwriting year,” he said. But nor were reserves spread “across the book.”

“If we don’t do it in a semester when we earn half a billion, … I don’t know when we can do it.”

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