SCOR shifts emphasis back to reinsurance as reserves strengthened

French reinsurance giant SCOR has reported further strong growth in its specialty insurance business in its third-quarter results, but the accelerating hardening in property and casualty (P&C) reinsurance markets following hurricane Ian appears to be shifting the group’s focus back to its core P&C and life and health (L&H) reinsurance business into 2023. The Paris-based group’s specialty insurance business was up 24.7% on a constant FX basis and 36.4% on a current FX basis for the first nine months of this year. This compares with group gross written premiums up 15.8% on a constant FX basis and 24.1% on a current FX basis. This means that the sharp focus on primary specialty business growth relative to core reinsurance business seen during the last few renewals has continued. But with the market outlook markedly improving for P&C reinsurance post-hurricane Ian and L&H reinsurance post-pandemic, it looks like SCOR will shift its emphasis back to the core reinsurance book. There are few signs of a softening in the primary corporate specialty space and SCOR will no doubt continue to grow in that area. But it looks like the emphasis will shift in coming renewals from a group perspective. As he reported a set of third-quarter numbers ravaged by the impact of hurricane Ian and other catastrophes, as well as the need for a chunky reserve strengthening largely driven by inflationary pressures, CEO Laurent Rousseau explained that for specialty business the cycle has “already significantly improved since 2017”. The core focus in this area, which Rousseau was chiefly responsible for before taking over as CEO from now chairman Dennis Kessler, will be to “protect profitability where rates plateau”. The implication seems to be that SCOR forecasts a flattening at least in the primary specialty space as it will not seek “selective growth where rate adequacy still improves”. Rousseau was more bullish on the P&C and L&H reinsurance side of the business. In P&C, capacity is expected to shrink at coming renewals and into 2023, not least on the insurance-linked securities side of the reinsurance market following the battering from hurricane Ian. Rousseau said the group expects price increases across the main lines of business “well above inflation” and tightening terms and conditions that remain a “key value lever” alongside pricing, in a market that is currently characterised by a “supply and demand imbalance”. SCOR also anticipates increased levels of demand for L&H reinsurance post-pandemic. The group said it sees large protection gaps in many countries. Digitalisation has been accelerated by the pandemic and there is an increased awareness of “life fragility”, leading to strong demand for health solutions. The plan into 2023 for SCOR is therefore to maximise the benefits from the “supportive market tailwinds”. It said it will accelerate its P&C reinsurance strategy to improve pricing adequacy and terms and conditions in the favourable market environment. It will also benefit in L&H from the reducing impact of the pandemic and the increase in demand, and leverage the supportive interest rates environment to increase investment income. All of this positive news on the outlook was tempered, however, by a nasty set of Q3 results that, apart from the hefty losses from hurricane Ian in Q3, also saw the group set aside a reserve addition in its P&C business of some €485m pre-tax. This led to a third-quarter P&C combined ratio of a whopping 141.4%, and 119.5% for the nine months. Despite posting strong growth in gross written premiums at both group and P&C level, SCOR incurred a net loss of €509m for the first nine months of this year, compared with a profit of €339m for the first nine months of last year. Thus, as the group prepares to take advantage of the hardening reinsurance markets and strong demand into 2023, it has taken some tough decisions, not least on P&C reserves, to lay a firm foundation moving forwards. It has also reiterated its determination to stand firm at coming renewals and carry out further portfolio pruning and slash the central management cost base. As chairman Kessler said: “In light of the group's disappointing results, the board of directors asked the management team to accelerate the implementation of strong measures to strengthen SCOR's technical profitability and improve its operational performance. The board will ensure that these measures are implemented with determination. This will enable the group to take full advantage of the positive development in the P&C reinsurance market in terms of rate increases and tightening of terms and conditions.” Rousseau added: “The quarter has been difficult and the results are significantly below the group’s expectations. Our short-term priority is the restoration of our financial performance. The group has already taken meaningful actions to improve its performance, reduce its exposure to natural catastrophes, and prudently reserve the combined effects of social and economic inflation. But these Q3 results demonstrate the need to go further and continue taking strong actions to remediate the group’s underwriting performance and restore its profitability. “The hardening of the P&C market, the increasing demand for life reinsurance products and the increase in interest rates are drivers that should favour positive developments for reinsurers. I am confident that we are building from a sound base to navigate in the new environment and take advantage of market tailwinds.”

SCOR shifts emphasis back to reinsurance as reserves strengthened

Further strong growth in specialty but more cautious approach now likely

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