French reinsurer SCOR has released a set of financial targets and assumptions for 2023 amid the transition to the new IFRS 17 accounting framework, which it says will notably allow it to disclose the full value of its risk portfolio.
As of Q1 2023, the reinsurer will publish its financial results under the new IFRS 17 accounting standard. Ahead of this, SCOR has published a new financial target and solvency target, both of which are based on a set of financial assumptions for the year ahead.
The financial target includes an economic value growth rate under IFRS 17 of 700 basis points above the risk-free rate between December 31, 2022, and December 31st, 2023, at constant interest and foreign exchange rate assumptions.
The solvency target is a ratio in the optimal 185% to 220% range. For 2023, SCOR says that it expects the solvency ratio to stay in the upper part of this range.
Expanding on what the new accounting standard means for the firm, SCOR notes that in life and health reinsurance particularly, IFRS 17 will allow it to disclose the full value of its risk portfolio through the introduction of the Contractual Service Margin (CSM), which reflects the present value of expected future profits based on strict, audited rules. Together with the shareholders’ equity, the CSM is one of the two components of SCOR’s Economic Value measured under IFRS 17.
As of December 31st, 2022, under IFRS 17, SCOR’s economic value is estimated at €8.7 billion, representing an economic value per share of c.€48.
SCOR breaks down its economic value as of the end of 2022 as €4.6 billion of CSM, representing €6.1 billion of CSM before tax, which itself is comprised of €5.4 billion of L&H CSM before tax, and €0.7 billion of P&C CSM before tax.
“The increase in CSM over 2022 notably reflects the growth of the risk portfolio as well as the strong level of technical profitability expected for the new business underwritten during the year,” says SCOR.
As noted, SCOR’s new targets are based on a set of 2023 assumptions for the Group and its three business segments.
These assumptions are group-wide insurance revenue growth of between 1% and 3% for 2023.
In property and casualty (P&C) reinsurance, SCOR expects insurance revenue growth of between 0% and 2%, with gross P&C insurance revenue standing at roughly €7.4 billion in 2022. The reinsurer is also assuming a combined ratio of around 87% for the year, of which roughly 10% relates to the natural catastrophe budget. Also in P&C, SCOR expects CSM generation of around €750 million through new business.
In L&H reinsurance, SCOR is expecting insurance revenue growth between 2% and 4% for 2023, which stood at roughly €8.5 billion in 2022. The firm’s assumption calls for a L&H reinsurance insurance service result of roughly €450 million, and expected CSM generation of roughly €450 million via new business.
On the asset side of the balance sheet, SCOR expects a regular income yield in the range of 2.8% to 3.2%; a group management expense ratio in the range of 7.1% to 7.3% of insurance revenue; and a return on equity above 1,100 basis points above the risk-free rate.
The French reinsurer has also commented on its dividend policy for 2023, stating that it aims to offer a resilient, foreseeable and predictable dividend.
As we’ve covered previously, Thierry Léger, who has served as the Group Chief Underwriting Officer (CUO) of global reinsurer Swiss Re since 2020, will take over as Chief Executive Officer (CEO) of SCOR on May 1st, 2023. His priority will be to draw up a strategic plan under IFRS 17 that enables the Group to take full advantage of the favorable market conditions.
Denis Kessler, Chairman of SCOR, said: “The transition to the new IFRS 17 accounting standard constitutes a veritable quantum leap for the reinsurance industry in general, and for SCOR in particular. This new standard reflects the Economic Value of the Group’s risk portfolio more accurately and faithfully, particularly for L&H reinsurance. At EUR 8.7 billion, SCOR’s Economic Value as of December 31, 2022, confirms the relevance of the strategic choices made over the past few years. These choices have notably been guided by the conviction that life & health reinsurance is a strong value creator. This Economic Value is now fully recognized in the Group’s accounts.”
François de Varenne, Interim CEO of SCOR, added: “The transition to IFRS 17 will allow SCOR to disclose the full value of its portfolio, particularly in L&H reinsurance, through the introduction of the Contractual Service Margin (CSM). Together with the shareholders equity, this constitutes SCOR’s Economic Value. This is an opportunity for the Group: our systems have been updated and our analytical framework has been modified. The teams are mobilized, with ambitious targets for value creation and solvency for 2023. We will publish our results on May 12, 2023, and we are ready to support the new CEO in the preparation for a new and ambitious strategic plan under IFRS 17.”
