AM Best has downgraded the Credit Ratings of SCOR, noting that the decision reflects deterioration in the French reinsurer’s operating performance, which is no longer considered supportive of AM Best’s previous strong assessment.
The rating agency has downgraded the 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 SE (SCOR) (France) and its principal operating subsidiaries.
AM Best also downgraded the Long-Term Issue Credit Ratings (Long-Term IRs) on SCOR’s outstanding rated instruments.
The outlook of these Credit Ratings has been revised to stable from negative.
In its 2022 full year results, SCOR reported a notable net loss of €301 million and a combined ratio of 113.2%, driven by above-budget natural catastrophe losses and reserve strengthening carried out in the third quarter of the year.
SCOR’s five-year average (2018-2022) non-life combined ratio and return-on-equity ratio are 102.5% and 3.5%, respectively, as calculated by AM Best.
The rating agency explains that the firm’s earnings diversification between non-life and life segments somewhat moderates volatility in its overall technical results.
Non-life technical losses, recorded in 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.
In 2022, the life result was positively impacted by active management of the in-force book and a sizable excess reserve release in the third quarter, says AM Best.
However, While SCOR’s management has implemented remedial actions to improve underwriting performance, such as reduction of its peak exposures, nonrenewal of unprofitable accounts, and streamlining the organisation to increase operational efficiencies, AM Best states that it will take time to improve the non-life technical profitability track record.
Further, the rating agency suggests that the poor underwriting performance in recent periods has highlighted weaknesses in SCOR’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 firm’s risk management capabilities are in line with its risk profile.
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 rating agency writes, “SCOR 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.”
AM Best concludes, “SCOR continues to maintain its prominent position as one of the top five global reinsurers, with excellent product and geographic diversification.
“Its internationally recognised franchise, long-standing client relationships and technical expertise help SCOR manage local and global reinsurance market cycles.
“The firm is expected to benefit from improved reinsurance market conditions while executing on its stated objective to reduce earnings volatility.”
