SCOR slips to ‘negative’ on weak profitability & increasing headwinds

France-based global reinsurer  SCOR’s outlook has been changed to negative on weak profitability and expected further headwinds from claims inflation and elevated nat cats.

Moody’s Investors Service has affirmed the insurance financial strength rating (IFSR) of SCOR and its key operating entities at Aa3 and changed the outlook to negative from stable.

The change in outlook to negative reflects the deterioration in SCOR’s profitability combined with Moody’s expectation of further earnings headwinds arising from claims inflation and elevated natural catastrophe claims.

The negative outlook also reflects the execution risk related to the recent initiatives to rebalance the reinsurance portfolio resulting in uncertainty around the ultimate impact of these measures on SCOR’S earnings and market franchise, the ratings agency said in a statement.

SCOR reported an overall net loss of €239 million in the first half of 2022. In property and casualty (P&C) Reinsurance, it reported an underwriting loss of €111 million, resulting in a combined ratio of 107.7%, mainly due to higher natural catastrophes which negatively impacted the claims ratio by 10.5 percentage points, significantly above budget. SCOR's P&C underwriting result was also hit by large claims related to Brazilian droughts, claims related to the Russia/Ukraine military conflict and losses related to past casualty cases in the US. On a normalised basis, SCOR's combined ratio deteriorated to 105.1% in H1 2022 from 91.2% in H1 2021, indicating a weakening in P&C reinsurance underwriting profitability. Moreover, heightened levels of COVID-19 losses continued to put pressure on technical results in Life reinsurance in H1 2022, albeit on a lower level than in 2021.

Moody’s also believes that “further earnings headwinds could materialise”, namely from claims inflation and elevated natural catastrophe claims, including the current hurricane season.

“Claims inflation is rising and could put pressure both on current level of claims as well on SCOR's reserving levels, where reported prior-year developments have been largely flat since 2020, after several years of consistent positive reserve development,” analysts at Moody’s said.

SCOR has not yet disclosed any estimate of possible losses from Hurricane Ian but current industry loss estimates are “material”, ranging from $31-74 billion, Moody’s noted. Positively, SCOR had reduced its net exposure to North Atlantic Hurricane, and specifically to Florida, during recent renewals.

The reinsurer is said to be actively pursuing rebalancing of its portfolio since the second half of 2021. to reduce exposure to modeled natural catastrophe losses, as well as the volatility in its P&C Reinsurance underwriting results going forward.

“Pricing momentum continues to be positive and SCOR aims to increasingly grow specialty lines business, which it considers more attractive from a risk-return perspective,” Moody’s said, noting that “ultimately the impact of these remedial actions on SCOR's market-leading franchise and its earnings power going forward remains to be seen.”

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