The impact of the coronavirus, while material, is manageable for SCOR due to the company's very strong capital position, says Fitch Ratings.
The international ratings agency has affirmed SCOR's Insurer Financial Strength (IFS) Rating at 'AA-' (Very Strong) and Long-Term Issuer Default Rating (IDR) at 'A+'. Fitch has also affirmed the ratings of SCOR's core operating subsidiaries. The outlooks are stable.
Key rating drivers
Fitch says that the affirmation reflects SCOR's 'Favourable' business profile within the global reinsurance sector, 'Very Strong' risk-adjusted capitalisation and 'Strong' financial performance.
However, Fitch adds that it expects deterioration in SCOR's financial performance due to COVID-19, including pandemic-induced claims and increased credit defaults, and rating migration within the company's investment portfolio over the near term.
SCOR's 'Favourable' business profile compared with that of all other reinsurance companies, reflects the company's position as being part of a small group of global reinsurers with the scale and financial strength to attract the highest-quality reinsurance business. Given this ranking, Fitch scores SCOR's business profile at 'aa-' under its credit-factor scoring guidelines.
SCOR's capitalisation is 'Very Strong', as measured by Fitch's Prism Factor-Based Capital Model (Prism FBM) as of end-2019. Fitch does not expect a material weakening of SCOR's capital strength in the medium term, assuming a normal level of major losses. For 1H20, SCOR reported a solvency ratio of 205% (2019: 226%).
COVID-19 related claims
Fitch assesses SCOR's overall financial performance as 'Strong', as it considers COVID-19 related claims to be one-off in nature. For 1H20, SCOR reported an annualised return on equity (ROE) of 0.8% and a net combined ratio of 102.3% (1H19: 93.7%).
The results include EUR248m ($294m) of booked claims reserves related to the coronavirus pandemic for the property & casualty (P&C) segment and EUR194m for the life segment. While 1H20 results incorporate the vast majority of expected pandemic-related losses in P&C, Fitch still sees downside risk in life reinsurance.
SCOR reported at end-2019 an improved net income ROE of 6.9% (2018: 5.4%) and a P&C reinsurance combined ratio of 99% (2018: 99.4%).
SCOR is exposed to pandemic risk through its mortality reinsurance business and, in P&C, through trade credit insurance and the business interruption segment. SCOR has a higher proportion of life reinsurance business than its peers. Life reinsurance represented 56% of its gross written premiums and around half of its total operating result at end-2019.