S&P has downgraded SCOR SE’s long-term issuer credit and financial strength ratings to ‘A+’.
In moving SCOR from its previous rating of ‘AA-‘, S&P cited weak results at this point in 2022, along with droughts in Brazil, high natural catastrophe losses, and reserve strengthening in the property and casualty segment, along with high economic and social inflation. However, it did say that the outlook is ‘stable’.
S&P said: “The rating action reflects that SCOR’s operating performance has not met our expectations or kept in line with that of ‘AA-‘ rated peers, with the trend accelerating in the first nine months of 2022. This is partially due to the challenging price environment in the P/C business pre-2022, elevated natural catastrophes, volatile technical margins from the life reinsurance business, and lower investment income. SCOR reported a net loss of €509 million in the first nine months of 2022. This makes it a negative outlier relative to close peers such as Munich Re and Hannover Re, which have a better track record of meeting our earnings expectations.”
It added: “Management has taken steps to improve its weaker earnings. On the P/C side, SCOR is reducing its exposure to natural catastrophe, which will come down about 20% by year-end 2022 versus 2021. It has also reduced exposure to U.S. property, and climate-sensitive businesses. Furthermore, SCOR has desensitized itself to inflation by strengthening its P/C reserves by €485 million. On the life side, SCOR expects improved earnings because COVID-19-related losses are abating. In addition, rising interest rates help life reinsurers gradually improve investment income. We believe SCOR’s relatively shorter duration investment portfolio will boost its investment yield. At Sept. 30, 2022, the group’s reinvestment yield improved to 5.1% from 2.1% posted in full-year 2021.”
S&P did say that it expected the group’s risk-based capital will reach the ‘AAA’ level by 2024 after a dip to ‘AA’ in 2022 and 2023.
It added: “From a regulatory perspective, we expect the group’s solvency ratio to remain comfortably within its target range (185%-220%) over 2022-2024. We expect SCOR’s underwriting results will improve in 2023-2024 due to benefits from hardening reinsurance pricing, with a combined ratio (loss and expense) of 95%-98% including a natural catastrophe load of eight percentage points. We forecast that the group’s leverage will remain below 40% and its fixed-charge coverage temporarily below 4x for 2022 before recovering to above 5x over 2023-2024.”
In response, SCOR said that it ‘actively implementing a whole series of strong measures to remediate its technical profitability’, saying that the environment in the year ahead looks positive. This, it said, would be down to a hardening of the P&C market, the increase in interest rates, and an improved situation in terms of the pandemic.
