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“Radical” shift in market environment to persist into 2020, says SCOR’s Kessler

29th July 2019 - Author: Luke Gallin

The Chairman and Chief Executive Officer (CEO) of French reinsurer SCOR, Denis Kessler, expects market firming on both the primary and reinsurance side, particularly in the U.S., to continue into 2020.

SCORThe global insurer and reinsurer recently announced strong and profitable growth for the opening six-months of 2019, supported by expansion in its Global P&C segment following solid renewals.

As a reminder, the re/insurer reported year-to-date (YTD) price improvements of 1.7%, with mid-year 2019 renewal pricing up 3.8%. SCOR’s mid-year renewal book accounts for less than 15% of its Global P&C book, of which roughly 95% is now renewed. Renewed premiums in June / July are up by 6.2% to €660 million.

During the firm’s H1 2019 earnings call, Chairman and CEO Kessler, as well as other leaders within the firm, discussed the improved rate environment on both the primary and reinsurance side, offering some insight into what this might mean for the re/insurer moving forward.

Kessler said that it’s “extraordinary to see the change of mood in the U.S. market.” Adding that while SCOR was expecting the cycle to turn earlier, perhaps one or two years ago, this failed to materialise and instead the market stabilised.

Now, he continued, “there are lots of signs of firming up, hardening market,” both on the primary side but also on the reinsurance side.

“So, it’s quite a change and it’s only took place in 2019, but we see that renewals after renewals. And, it’s true that this is a radical change of the environment. We believe it is going to go on for 2020,” said Kessler.

Jean-Paul Conoscente, CEO of Reinsurance at SCOR, also noted an acceleration of primary insurance rate hardening, especially in the U.S, and attributes this to a reduction in limits deployed by lead insurers and also a struggle for brokers to complete placements.

“From a reinsurance point of view, the market is firming more slowly with decreasing commissions on a number of casualty proportional treaties, significant rate-on-line increases on property cat placements and small commission decreases on proportional property treaties,” said Conoscente.

Interestingly, Conoscente noted that despite 15% to 25% rate-on-line increases achieved on four specific programs in the U.S. catastrophe portfolio, SCOR did not grow here as “these increases barely matched our increased view of risk coming from increases in loss adjustment expenses.”

He later added that as SCOR has now renewed more than 95% of its yearly portfolio, it anticipates “the 2020 renewal season optimistically with expected continued hardening of primary conditions and an accelerated firming of reinsurance conditions.”

Management noted that perhaps the global re/insurer was too optimistic of a market turn last year and as such has taken a more cautious stance this year. Conoscente explained that in the combined ratio that it is reserving for, there is some conservatism on the volume of price increases that will flow through and, at the same time, SCOR has revised its view of a number of perils such as Japanese typhoon, U.S. hurricane in Florida, U.S. wildfire and other risks.

CEO of SCOR Global Life, Paolo De Martin, also commented on the firm’s prudent approach in 2019 when compared with last year.

“In terms of pricing, it’s possible that our views right now are a bit conservative. I think we feel like we are better positioned to just let the portfolio develop and make sure the rate increases that we’re seeing punctually at different renewals are actually flowing through the rest of the book, and that usually takes 6 months to 12 months to really start appearing,” said De Martin.

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