Commenting on the hike in interest rates since the start of 2018, Chief Executive Officer of SCOR global investments, Francois de Varenne, said it would be “excellent news” for SCOR if the current cycle of increasing interest rates continues.
In SCOR’s 2017 activity report Varenne noted that at 2.9% at the end of January, interest rates had reached their highest level for the past four years.
“The economic situation remains sound and we expect this to continue for the year to come,” he said.
In 2017 SCOR global investments delivered a strong financial contribution to the group with return on assets reaching 3.5%; total invested assets of the reinsurers’ investment portfolio stood at EUR 18.6 billion.
Varenne explained that this result follows the continued execution of the firm’s vision in action strategic plan in which SCOR reduced its cash and portfolio investment from 14% to the target level of 5%; increased corporate bonds exposure from 34% to 46% in line with SCOR’s risk capital, and increased the duration of its fixed income portfolio from four years to 4.6 years.
In addition, he said, with SCOR maintaining high reinvestment flexibility, the reinvestment rate of SCOR’s portfolio would improve with higher interest rates and have a positive impact on the firm’s solvency position, given the current duration gap between SCOR’s assets and liabilities.
SCOR continued to expand in 2017, though severe catastrophes eroded the reinsurers’ profit: the reinsurer reported that for the full-year 2017 its group net income came in at €286 million, down from €603 million in 2016.
Analysts have favoured SCOR following January renewals which saw SCOR come out on top witnessing the best renewal outcome at a 3% price increase, with the Deutsche Bank stating that the differentiating factor was larger quota share deals distorting the pricing picture.
The French reinsurance giant could now grow into U.S. casualty and still see an improvement in underlying combined ratio toward 94%.
Technical price improvement at SCOR continues to screen as having achieved the strongest improvement in technical profitability, if volume growth and price improvements are multiplied based on a portfolio size of 100, according to Deutsche Bank.
“We believe that Scor will use this excess profitability from the January renewals in order to partially mitigate mix shift effects when growing into US casualty business going forward. We would therefore expect Scor to post higher growth rates going forward,” said Deutsche Bank.
2017 was a positive economic year for the financial market with a prolonged economic cycle in the U.S. and improvement of the European situation, in this context, SCOR noted financial banks have kept an accommodative bias, but have initiated a progressive exit from quantitative easing policies.
Now the reinsurer appears set to capitalise on improved profitability from better pricing rates following renewals as well as benefit from macroeconomic interest rate trends; “in our current market condition,” said Varenne, “we expect the annualised rate of invested assets to be in the upper part of the 2.5% to 3.2% range, defined for vision in action both for 2018 and over the strategic plan.”
