AM Best downgrades SCOR and points to risk management failings

AM Best has followed Moody’s by downgrading French reinsurer SCOR’s credit rating and changing its outlook to negative after the group reported a big loss for 2022 and announced that its CEO Laurent Rousseau was stepping down shortly before the results were published. While significantly expanding its footprint in the primary specialty business in recent times, the Paris-based group has not delivered healthy non-life results. It has actually made losses in its non-life business for the last six years and subsidised these with profits from the life reinsurance business. AM Best said that the poor underwriting performance in recent years has highlighted weaknesses in the group’s underwriting and risk management capabilities. “As a result, the ERM assessment is no longer considered supportive of the previous very strong assessment and has been revised to appropriate. The group’s risk management capabilities are in line with its risk profile,” said the credit rating agency. AM Best has downgraded the company’s Financial Strength Rating (FSR) to A (Excellent) from A+ (Superior), and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a+” (Excellent) from “aa-” (Superior) of SCOR and its main operating subsidiaries. AM Best stressed that the ratings reflect SCOR’s continued balance sheet strength, which it assesses as very strong, as well as its adequate operating performance, very favourable business profile and appropriate enterprise risk management (ERM). The rating downgrades reflect the deterioration in SCOR’s operating performance, which is no longer considered supportive of AM Best’s previous strong assessment, said the agency. AM Best pointed out that SCOR reported a “sizable” net loss of €301m last year and a combined ratio of 113.2%, driven by above-budget natural catastrophe losses and reserve strengthening carried out in the third quarter. SCOR’s five-year average non-life combined ratio and return-on-equity ratio are 102.5% and 3.5% respectively, the ratings agency added. Non-life technical losses in each of the past six years have been offset by profits from SCOR’s life portfolio in five of the six years, despite elevated mortality driven by the Covid-19 pandemic. “While the group’s management has implemented remedial actions to improve underwriting performance, such as reduction of its peak exposures (natural catastrophe risk and US mortality risk), nonrenewal of unprofitable accounts, and streamlining the organisation to increase operational efficiencies, it will take time to improve the non-life technical profitability track record,” AM Best pointed out. Despite the recent problems, AM Best stressed that customers need not panic about SCOR’s solvency or market position – we are not about to see another Converium or Gerling play out. “AM Best expects SCOR’s risk-adjusted capitalisation to be maintained at the strongest level prospectively, as measured by Best’s Capital Adequacy Ratio (BCAR), supporting its very strong balance sheet strength assessment. The group benefits from a conservative investment portfolio and a robust retrocession programme designed to shield its capital base. A partially offsetting factor is SCOR’s reliance on soft capital components, which includes hybrid debt, value of in-force life business and a contingent capital facility,” said AM Best. “SCOR continues to maintain its prominent position as one of the top five global reinsurers, with excellent product and geographic diversification. The group’s internationally recognised franchise, long-standing client relationships and technical expertise help SCOR manage local and global reinsurance market cycles. The group is expected to benefit from improved reinsurance market conditions, while executing on its stated objective to reduce earnings volatility,” added the ratings agency.

AM Best downgrades SCOR and points to risk management failings

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