French reinsurer SCOR’s P&C Re segment could exceed its budgeted level for catastrophes in the fourth-quarter of 2019, leading analysts at JP Morgan to revise the firm’s expected full-year 2019 net income down by 7%.
After Swiss Re, SCOR becomes the second of the big four European reinsurers that JP Morgan has said will likely exceed its catastrophe budget level for the fourth-quarter, suggesting that others could be in a similar situation.
Analysts expect that SCOR’s P&C Re unit will exceed its budgeted cat ratio for the period of 7% by 2.5%, and have not assumed that the reinsurer will offset this with reserve releases in the quarter.
Specifically, JP Morgan predicts that large losses will modestly exceed the budget for SCOR, mostly driven by natural catastrophe events, particularly typhoon Hagibis in Japan, but also with the potential for some elevated manmade losses.
As a result, analysts have revised down SCOR’s estimated full-year 2019 net income by 7% to €524 million (USD 576 million), and estimates that the firm’s fourth-quarter 2019 net income will reach €123 million (USD 135 million).
Overall, JP Morgan estimates that SCOR will produce a headline combined ratio of 97.8% (95.3% normalised) for the fourth-quarter and 96.1% (96.2% normalised) for the full-year.
Outside of P&C Re, and JP Morgan notes that it expects to see Life Re produce an in line quarter, with the firm assuming a net technical margin of 7.2% with operating income of €104 million (USD 114 million). For the full-year, analysts estimate that SCOR’s Life Re unit will produce a technical margin of 7.2%, versus 7% in 2018, with operating income of €414 million (USD 455 million), compared with €371 million (USD 408 million) a year earlier.
As highlighted by JP Morgan, typhoon Hagibis is clearly going to be the main driver of natural catastrophe losses for many reinsurers in the fourth-quarter. Currently, industry estimates suggest an insurance and reinsurance industry loss of around $8 billion to $10 billion from the event.
The revised net income of two of Europe’s largest reinsurers in as many days suggests that others in the space, and not just Hannover Re and Munich Re, could also see their large loss budgets exhausted in the quarter.
With this in mind, it’s worth noting that one of the themes across the industry so far in 2020 is reserves and the potential for an inflection point to be reached in the months ahead. This suggests that players will be less able to call on their reserves to bolster weaker returns that are in part driven by elevated catastrophe losses, ultimately adding more pressure to margins in what remains a very competitive marketplace.
