Reinsurance News

Fitch downgrades SCOR ratings on weak profitability

7th December 2022 - Author: Matt Sheehan

Fitch Ratings has downgraded its ratings on French reinsurer SCOR, citing continued weak financial performance, which has fallen short of the rating agency’s expectation for five year and has worsened this year.

SCORSCOR reported a net loss of €509 million for the first nine months of 2022, as natural catastrophe claims increased to €907 million.

Following this, S&P decided to downgrade the reinsurer’s long-term issuer credit and financial strength ratings.

And now, Fitch has followed suit, revising its subsidiaries’ Insurer Financial Strength (IFS) Ratings for SCOR and its operating subsidiaries to ‘A+’ from ‘AA-‘ and its Long-Term Issuer Default Rating (IDR) to ‘A’ from ‘A+’.

Analysts warned that until SCOR is able to demonstrate evidence of a successful turnaround, its current level of profitability no longer aligns with expectations for a ‘AA-‘ rating or with the level shown by peers.

Artemis ILS NYC 2023 conference

However, Fitch has also opted to maintain its stable outlook on SCOR’s ratings, based on the expectation that the gradual implementation of an action plan should allow profitability to recover in the next 12 to 24 months.

Meanwhile, it expects SCOR’s ratings strengths – which reflect its company profile within the global reinsurance sector and its capitalisation – to remain very strong.

SCOR’s financial performance over the past five years has been hampered by large catastrophe losses, pandemic claims and low investment income.

Since 2017, its return on equity (ROE), as calculated by Fitch, averaged 5.5%, which is low relative to its ‘a’ category guideline for financial performance, and its reported P&C net combined ratio averaged 100.6% during this time.

The reinsurer has since implemented an action plan that builds on previous remedial measures to restore profitability, and Fitch believes it will be sufficient to improve the level and stability of earnings in 2023, but not to return it to an ‘AA’ rating standard.

“The loss mitigation effect of some of these actions is already visible and should be more pronounced in 2023. This supports our expectations for a return to a profitability level in 2023 that would be commensurate with the company’s new rating,” analysts wrote.

Specifically, the 21% reduction in natural catastrophes risk exposure in 2022 and the 50% cut in agriculture risk exposure in 2023 should contribute to lower P&C earnings volatility.

Likewise, the company is expected to benefit from rising prices, higher reinvestment rates and reduced pandemic excess mortality claims to support earnings improvements next year.

Print Friendly, PDF & Email

Recent Reinsurance News