SCOR warned of ‘high level of scrutiny’ with downgrade on ‘weakening profitability’

French reinsurance giant SCOR’s financial strength ratings have been downgraded by Moody’s Investors Service on further “weakening of the group’s profitability” but its outlook has returned to being ‘stable’ from ‘negative’ following the recent  replacement of its chief executive officer.

SCOR’s results for the third quarter of 2022 showed a further weakening of the group’s earnings as it turned a net loss of €509 million for the first nine months of the year. The group’s Solvency remained strong at 217%, but Moody’s noted that “positive market movements” strengthened the ratio by 43 percentage points over the first nine months.

SCOR recently announced the replacement of its CEO Laurent Rousseau with the appointment of Swiss Re’s Thierry Léger, stressing the need to develop and implement a new comprehensive strategic plan, which Moody’s said has been a key strength of the group in the past.

In Moody’s view, the turn-over in SCOR’s CEO role highlights challenges in the implementation of the group’s succession plan. The downgrade reflects the recent weakening of the group’s profitability and Moody’s expectation that the group’s senior management “will likely be faced with a high level of scrutiny from both external stakeholders, namely clients and investors, and internal stakeholders, which will increase execution risk in implementing a new strategic plan.”

Moody’s believes that it will take time for the senior management to rebuild the group’s track record despite the “proactive actions” taken by its board in the recent past.

“Management’s track record is a key consideration in Moody’s assessment of private companies’ governance under its ESG methodology, and given the aforementioned considerations, Moody’s has changed its assessment of SCOR’s governance to an Issuer Profile Score of moderately negative (G-3),” the agency said.

On a positive note, Moody’s stated that the reinsurer’s new chief Léger has a strong track record and is highly experienced in the sector with expertise in both life and property and casualty (P&C) reinsurance, which positions him well to run the group going forward.

Moody’s earlier changed the outlook to negative from stable on the group’s ratings in October 2022, following a weakening in the group’s performance in the first six months of the year, which continued in the third quarter. It has now been revised to stable from negative.

The stable outlook reflects Moody’s expectation that SCOR will maintain its strong franchise both in the global P&C and life reinsurance sector. It also reflects the rating agency’s expectation that SCOR will be able to gradually improve its profitability, both in terms of earnings levels and volatility, and maintain capital adequacy within its target range.

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