Fitch Ratings has changed its outlook on SCOR from stable to negative, due to concerns that the reinsurer may not deliver a financial performance in line with its ratings over the next year to two years.
At the same time, the rating agency affirmed the insurer financial strength (IFS) and long-term issuer default ratings (IDR) of SCOR at ‘AA-‘ and ‘A+’, respectively.
Analysts said the affirmation reflects SCOR’s favourable business profile within the global reinsurance sector, very strong capitalisation and strong, albeit pressured, financial performance.
“We believe SCOR faces heightened pressure on earnings that represents a medium-term risk to its ratings,” Fitch said of its outlook downgrade. “We see financial performance and earnings as a high influence credit factor and the main vulnerability of SCOR’s credit profile relative to peers’ and Fitch’s rating guidelines.”
SCOR reported a net loss of €80 million for the first-quarter of 2022, as the firm’s natural catastrophe ratio exceeded budget, COVID-19 continued to impact life and health (L&H), and it reserved for losses related to the war in Ukraine.
Fitch forecasts a net income return on equity and combined ratio better than 6% and 100% at end-2022, but it also expects uncertainties due to above-budget natural catastrophe losses, continued high levels of life reinsurance claims, and further losses arising from the war in Ukraine.
However, Fitch was generally favourable towards SCOR’s ongoing portfolio optimisation to expand its most profitable business lines, while reducing natural catastrophe and US mortality risk exposures, and said the effectiveness and timeliness of these management actions will be key in its assessment of financial performance in the next 12 to 24 months.