Moody’s has affirmed the Insurance Financial Strength Rating (IFSR) of SCOR SE, a P&C and Life reinsurance provider, and its key operating entities at Aa3. Moody’s said it has also changed the outlook to negative from stable.
According to the rating agency, the affirmation of SCOR’s ratings reflects its very strong franchise and market position across Life and P&C reinsurance as well as its well diversified business profile.
At the same time, the change in outlook to negative reflects SCOR’s weak profitability, which combines with Moody’s expectation of further earnings headwinds arising from claims inflation and elevated natural catastrophe claims.
SCOR reported an overall net loss of €239 million in the first half of 2022. Its P&C business was negatively impacted mainly due to natural catastrophes and large claims related to Brazilian droughts and the Russia/Ukraine military conflict, including some losses related to past casualty cases in the United States.
The heightened levels of COVID-19 losses also continued to put pressure on technical results in Life reinsurance in H1 2022. Despite this, Moody’s believes that SCOR’s Life reinsurance business, when excluding Covid-19 claims, continues to perform well and should support stronger earnings if pandemic related mortality continues to decrease.
Additionally, the negative outlook also reflects the execution risk related to the SCOR’s recent initiatives to rebalance the reinsurance portfolio, which resulted in uncertainty around the ultimate impact of these measures on the firm’s earnings and market franchise.
The rating agency said: “Moody’s also believes that further earnings headwinds could materialise, namely from claims inflation and elevated natural catastrophe claims, including the current hurricane season. Claims inflation is rising and could put pressure both on current level of claims as well on SCOR’s reserving levels, where reported prior-year developments have been largely flat since 2020, after several years of consistent positive reserve development.
“As concerns possible losses from Hurricane Ian, SCOR has not yet disclosed any estimate but current industry loss estimates are material, ranging from $31-74 billion. Positively, SCOR had reduced its net exposure to North Atlantic Hurricane, and specifically to Florida, during recent renewals.”
According to Moody’s, the rebalancing of the reinsurer’s portfolio could have positive results in the future, the agency said: “The rebalancing of the portfolio – which SCOR has actively been pursuing since the second half of 2021 – reduces SCOR’s exposure to modeled natural catastrophe losses and should reduce the volatility in its P&C Reinsurance underwriting results going forward.
“Pricing momentum continues to be positive and SCOR aims to increasingly grow specialty lines business, which it considers more attractive from a risk-return perspective. However, ultimately the impact of these remedial actions on SCOR’s market-leading franchise and its earnings power going forward remains to be seen. SCOR will announce updated profitability targets as part of presenting its new strategic plan in November 2022.”
