SCOR, the French headquartered global reinsurance firm, reported its third-quarter results this morning, revealing that its targets continue to be exceeded in terms of returns, while growth in property & casualty lines continues apace.
However, the reinsurer’s P&C business almost fell to a technical underwriting loss in Q3 due to higher than budgeted catastrophe losses, only saved by the benefit of reserve releases.
SCOR has reported group wide net income of EUR 401 million for 2019 to-date, which is a 17.3% increase compared to the first nine months of 2018.
Given this strong income, SCOR’s return on equity (ROE) reached 8.8% for the year so far, sitting at 816 bps above the risk-free rate, which exceeds the reinsurers profit target from its recently launched strategic plan “Quantum Leap”.
Strong growth at a time of improving reinsurance rates continues to be a driver of income and return for SCOR, as the reinsurer expands it property & casualty (P&C) business with a particular focus on underwriting in the United States.
SCOR has expanded its overall premiums written to EUR 12,055 million for the first nine months of 2019, an increase of 3.2% at constant exchange rates (or 6.3% at current rates).
In P&C, gross written premiums are up by a significant 11.5% to EUR 5,264 million at constant exchange rates (or 14.6% at current rates).
SCOR said that the P&C growth comes thanks to strong 2019 renewals, and the firm is benefiting from the very robust H2 2018 renewals in the U.S., where it saw significant growth in that year.
The expanding SCOR Global P&C business delivered an underwriting profit for the first nine months of the year, as the combined ratio came out at 95.7% despite what SCOR terms “heavy loss activity in Q3”.
In fact, that heavy loss activity almost drove SCOR to an underwriting loss in the third-quarter of 2019, as the impacts of catastrophe and man-made losses drove the combined ratio to 99.4% for Q3.
The P&C line of business was hit hard by catastrophe losses during the latest quarter, with a 12% nat cat impact reported by SCOR.
Most of this catastrophe loss impact came from Hurricane Dorian, which cost SCOR EUR 92 million after retrocession, as well as Typhoon Faxai, which cost SCOR EUR 89 million after retro. After accounting for these Q3 major catastrophe losses, SCOR’s year-to-date cat ratio sits at an above budget 7.6% (7% being the budget).
In addition, SCOR reports a net attritional loss and commission ratio of 81.3% year-to-date, 2.1 pts above the prior year thanks to a higher level of man-made losses and the impact of the Ogden rate decision in the United Kingdom (costing the reinsurer EUR 13 million).
Offsetting all of this and perhaps helping to keep the combined ratio under 100, SCOR has released EUR 60 million (pre-tax) of reserves in Q3, without which we’d be talking about a technical underwriting loss in the SCOR Global P&C business.
The reserve release amounted to 4.1% off the combined ratio, so helped SCOR Global P&C deliver positive underwriting performance for Q3 2019.
But in the Life business, overall gross written premiums year-to-date are down 2.5% (up 0.7% at current rates), which SCOR says is mainly due to the renewal of come Financial Solutions transactions as fee business rather than as premiums in 2019. With those transactions excluded, SCOR’s life book would have grown by 3.8% at constant exchange rates, the company explained.
The SCOR Global Life business expanded its franchise further in the all-important Asia region and delivered strong technical profitability in the first nine months of 2019, with a technical margin of 7.2% and technical result of EUR 453 million, which is up by .2% on the prior year.
SCOR’s investment business, SCOR Global Investments, reported a 3% return on invested assets for the first nine months of 2019, helped by an income yield of 2.6% and realised gains largely from real estate asset sales.
Commenting on the results, Denis Kessler, Chairman & Chief Executive Officer of SCOR, commented, “SCOR records a solid performance in the first nine months of 2019, achieving its solvency target and outperforming its profitability target of its new strategic plan “Quantum Leap”.
“SCOR demonstrates once again its capacity to successfully combine profitability and solvency, in spite of challenging conditions that the industry faced in the third quarter of 2019, marked by a series of natural catastrophes and man-made P&C claims, combined with historically low levels of interest rates. The Group continues to expand and deepen its franchise both on U.S. P&C, the largest market in the world, and on Life reinsurance in Asia-Pacific. The Group is fully mobilized to pursue value creation for the benefit of all stakeholders.”
So the expansion of SCOR continues at a steady pace, as it has for a number of years now.
Given the expansion in P&C is at a time of improving rates, the company will be hoping its technical results can remain positive to demonstrate the increased profitability in its growing book.
Of course, that is dependent on major loss activity remaining below budget, which it failed to do in Q3. It will be interesting to see how Q4 affects SCOR, given typhoon Hagibis’ impacts are expected to be much larger than Faxai’s.