SCOR speeds nat cat retreat, recalibrates models to 5Y mega losses

Global reinsurance giant  SCOR must accelerate its retreat out of nat cat as loss experience forced the group to abandon its key catastrophe and climate models and accept recent heightened loss experience as the “new normal,” top officials have admitted.

SCOR will respond to a cat-laden Q1 loss “by stepping up our actions to reduce volatility and improve profitability,” CEO Laurent Rousseau (pictured) told the Q1 investor call.  SCOR went into 2022 promising investors an 11% % reduction in PML’s this year. Following another “series of exceptional events” in Q1,  SCOR tightened that target to a 15% reduction.

“We have decided to be even more ambitious and set the bar higher,” Rousseau said of the reduction.

The past five years of elevated nat cat losses have defied  SCOR’s models.  SCOR will largely abandon any view built on long-term historical trends and regear to the experience of the past five years, leaving a “more pessimistic view on cat going forward.”

“We should not assume the past five years are exceptional; they are probably the new normal,” Rousseau said. “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?’”

Models have been reviewed and successively round-filed.  SCOR studied what the impact of climate change ought to be vis-à-vis the long-term loss trends that run the industry and got figures “not aligned with historical experience,”  SCOR’s chief of global P&C Jean-Paul Conoscente said.

“Our view of cat has become much more pessimistic and Q1 just reinforced that pessimism,” Conoscente said. “I think that will drive some of the actions we will take over the coming renewals to continue to reduce our cat volatility.”

Conoscente admitted to having been “surprised” by the structure of Q1 losses which he reads as an accumulation of small to mid-sized losses. Australian floods and European windstorms are not single outsize one-off events, but an unrelenting series of loss-driving conditions.

The 15% PML reduction target will not be applied blindly across the board, but spare quality clients bringing “other attractive business.”

The balance  SCOR seeks in its portfolio will come through those exposure reductions until the price side comes through with rate sufficiency.

“The day a reinsurer walks away from volatility, we lose our value-added,” Rousseau said, with caveat: “Today, to walk away is to make yourself a price-maker.”

“We have to walk away; we have to be able to walk away.”

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