Rousseau vs Léger: why their stance on nat cat could be the difference

SCOR this week  ousted its CEO of less than two years, replacing him with an industry veteran from  Swiss Re. The move likely heralds a major revision of strategy for the loss-strapped reinsurer, yet it has also prompted speculation that part of the reinsurer’s core 2021-22 strategy, a broad retreat from natural catastrophe business, could be up for revision amid what is now widely called the hardest market in a generation.

Strategy had clearly been a matter of contention within the group: SCOR’s last official strategy expired at the end-2021. A March 2022 date had been set for the unveiling of a new vision. This was delayed with reference to rising uncertainties. By mid-year, leadership could reference rising losses. After Q3, with its spike in loss-making provisions, management spoke more to short-term triage than longer-term direction.

Strategy concerns rang clear in the late Thursday announcement. Former CEO and board of directors’ chair Denis Kessler said Rousseau’s replacement, Swiss Re chief underwriting officer Thierry Léger, has been asked to “forge a new strategic vision for the company, while pursuing an underwriting policy based entirely on technical profitability.”

From the surface of it, a clear distinguishing feature between Léger and Rousseau has been their stance on nat cat. This raises the question as to whether the axe fell on Rousseau for his underwriting stance on the market’s hottest segment.

As CEO of SCOR, Rousseau became the poster boy for the industry’s retreat from nat cat. While any number of reinsurance leaders spoke to the need to manage earnings volatility via greater diversification away from nat cat, Rousseau spoke in larger terms.

“We should not assume the past five years are exceptional; they are probably the new normal,” Rousseau said of the 2017-2021 era upon announcement of a consecutive quarterly loss in 2022. “There is a very pragmatic view of running a business which is, ‘can we sustain taking more of what we had for the past five years?’”

“We have to be able to walk away,” Rousseau said as a consecutive quarterly loss triggered new, lower limits on cat exposure. SCOR went into 2022 promising investors an 11% reduction in PMLs for the year before another set of “exceptional events” hiked the target to 15%. Rousseau framed it as a decision “to be even more ambitious and set the bar higher.”

Léger, in turn, has sounded firmly, albeit selectively, bullish on nat cat throughout 2022, increasingly so as the market hardened.

Around the mid-year renewals, Léger was calling nat cat “an attractive area to go further” and spoke to a team that was “very optimistic” about continued market hardening through at least end-2023. Those tones only increased as the year went on.

But Léger had also sounded discriminating early on. By an April 2022 investor day conference and through the late July earnings call Léger was talking publicly about the types of changes in structures and tactics that the industry would only begin to chant in chorus by Baden-Baden.

Aggregate covers were being called out for their defiance of models and their potential for quick shifts into the red. Instead, Léger spoke to nat cat by the peril with appetite ranging from "very large to maybe less so.” And the value of quota share to XoL was shifting under the weight of inflation and the catch-all accumulation of aggregate covers. Terms, limits and retrocession had to be deftly juggled to mitigate the impact.

“Some of the good business might have to go to make room for even better business,” he said mid-year. But amongst cat lines, “what is good is going to get even better.”

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