Management actions will likely return the French global reinsurance group SCOR to underwriting and overall profitability in 2023 while maintaining its market positions in life and P&C reinsurance, according to S&P Global Ratings (S&P).
In addition, SCOR's underwriting results will improve in 2023-2024, due to hardening reinsurance pricing, with a combined ratio of 95%-98% including a natural catastrophe load of 8 percentage points, says the global credit rating agency.
2022 financial results
SCOR reported a net loss of EUR301m ($322m) in 2022, affected by a major drought in Brazil, high natural catastrophe losses, and reserve strengthening in the P&C segment, reflecting high economic and social inflation, notes S&P.
The net loss included negative underwriting earnings from P&C business with its 113.2% combined ratio which is worse than those of close peers. P&C reinsurance performance was hit by higher natural catastrophe claims (12.4% of the overall combined ratio) and reserve strengthening in the P&C segment (6.2%). On the life and health side, the EUR1,116m result was affected by COVID-19-related mortality claims of about EUR325m.
S&P affirmed the 'A+' long-term insurer financial strength and issuer credit ratings on SCOR and related core subsidiaries. The outlook remains ‘Stable’, reflecting S&P’s belief that management actions, which started in 4Q2021, will likely result in SCOR making a recovery in 2023 while maintaining its market positions in life and P&C reinsurance.
Management has taken steps to improve the company's weaker earnings. On the P&C side, SCOR has reduced its exposure to natural catastrophes by 14% in January renewals, after a 21% reduction in 2022. It has also reduced exposure to US property and climate-sensitive businesses.
Furthermore, SCOR has desensitised itself to the inflationary environment by strengthening its P&C reserves by EUR485m. On the life side, SCOR expects improved earnings because its COVID-19-related losses are abating, which was the main reason for increased mortality claims in the US.
Also, rising interest rates help life reinsurers gradually improve investment income. S&P believes SCOR's relatively shorter duration investment portfolio will help improve its investment yield. In 2022, the company's reinvestment yield improved to 4.9% from 2.1% in 2021.
The credit rating agency added, “Our base-case assumption is that the group's risk-based capital will remain at the 'AA' level by 2024. From a regulatory perspective, we expect its solvency ratio to remain comfortably within the target range of 185%-220% over 2022-2024.”
It also said, “The group proposed a dividend of about EUR250m for 2022 and we believe this will lead to a reduction in capital adequacy to 'AA' from the 'AAA' range during the forecast period through 2024.”