COVER STORY
SCOR shakes off a soft-market hangover—its new strategy targets alternative solutions
SCOR’s portfolio is in far better shape now than it was last year, but it is not resting on its laurels.
Improvements to rates and terms and conditions have been wholeheartedly embraced by SCOR, which has taken the opportunity to reshape its portfolio. But Stuart McMurdo, chief executive officer of Reinsurance at SCOR, stresses that improvements are still needed as SCOR, along with the wider industry, still looks to shake off the effects of an elongated soft market.
After doing a lot of heavy lifting in 2023, which culminated in its unveiling a new group strategy, “Forward 2026”, at Monte Carlo, McMurdo, speaking to Baden-Baden Today, said that the reinsurer’s portfolio is in far better shape now than it was last year. But he is not resting on his laurels.
“We’ve tackled attachment points, we’ve dealt with a number of wording issues, and we’ve tried to better align different exposures to avoid outsized exposures,” he said. “But, while things are looking more positive, we need to wait. We still have the hangover from the softer years, where the results are not as favourable.”
Time to talk
McMurdo feels the market is having the right conversations. While 1/1 renewal negotiations are still in the relatively early stages, he said the whole renewal process, and conversations generally this year, seem a lot easier than they were last year.
There are several key reasons for this. “One is that, for us as capacity providers, our retro markets are clearer in what they have available. That means we can be clear in our signalling of direction and requirements,” he said.
McMurdo believes there is an acceptance among brokers and cedants that the kind of changes that happened during 2023 must be preserved and built on into 2024.
“It’s a mature and balanced approach,” he said. “There is a recognition that rates and deductibles must be at the right levels. Wordings need to be looked at and ambiguity tightened.
“My impression is that there is not a disconnect between what we’re pushing for and what people expect. That should bode well for the so-called orderly renewal that everybody talks about.”
It may not all be plain sailing, however. He added that some “real crunches” could emerge if cedants look to cut spend or drop deductibles.
“We can be clear in our signalling of direction and requirements.”
Stuart McMurdo, SCOR
“For anybody that is trying to do that, my question would be: ‘in which markets, with which new capital?’. There is no new market of any major significance. There is no new flood of capital that’s coming into the reinsurance,” he said.
He stressed that one positive renewal (for reinsurers, at least) does not mean everything’s fine. The industry must not go back to where it was before. For McMurdo, all parties should be crystal clear on that as the industry moves towards 1/1 2024, a renewal in which he will seek some further improvements. He highlights property risk as an area that’s going to need deeper attention.
There are still some joint risk and cat programmes that will need changes to ensure attachment points are at an adequate level.
In terms of casualty business, McMurdo said, there was some upward movement in the last renewal—but not enough. “There was some improvement, it would be unfair to say there was none. But not nearly enough, if you consider all the moving parts of casualty, especially US.”
In US casualty specifically, he highlighted a number of concerns including litigation financing, question marks around tort reform—and over the adequacy of the rate that’s being achieved.
“There’s a dislocation between what the reinsurance community views as the correct trend factor for inflation on casualty, which is mostly double-digit numbers, and the insurance market, which is talking mostly single-digit numbers. It’s going to be a difficult time in that US casualty space.”
Coming back to SCOR’s new group strategy launched in September, McMurdo notes that for reinsurance there are some very specific areas it wants to focus on. One of these is alternative solutions, for which there is generally more demand in a hard market.
McMurdo stressed that this is not a sudden move for SCOR. “We’ve been active in the alternative solutions arena for over 10 years, but we’ve kept it below the radar. Now what we’re doing is saying: ‘we have this capability, we have the resource, let’s bring it to the fore’.
“That’s part of our strategy—one of the key pillars we’re pushing. A hardening environment opens up opportunities for alternative solutions.”
“A hardening environment opens up opportunities for alternative solutions.”
Core topics
In contrast, SCOR is cooler on cat business. “We will carry on growing our existing cat book, but at a slower rate than the rest of our book,” McMurdo said. This should allow the reinsurer to avoid outsized exposures in any one market, he added.
SCOR is also interested in some specialty lines. “In certain segments in certain markets, we believe there are good profitable growth opportunities.” Marine and engineering are two examples of this—“but it’s not every market, and not every segment”.
Beyond any strategy by line, however, he said the core focus must remain on profitability.
“When you cut through everything and say: ‘what’s at the absolute core of what you need to do?’, it is margin. That’s the core of our firm, margin.”
He offered his opinion on one of the other hot topics of the conference this week: the plight of third party capital investors and their challenges around managing so-called trapped capital. “We have had a bit of a rubber-hits-the-road moment for third party financial markets capital,” he said.
McMurdo distinguishes between the different types of financial markets investors that have entered the industry in recent years, describing some as more mature than others.
“It’s the less mature financial markets’ money that had a moment of realisation through the period 2017 to 2020. They discovered that collateral, which was previously just being rolled, year in and year out, making a return, was all of a sudden locked up.
“It was being trapped because of the mechanisms in the wordings. The question these people were suddenly asking was ‘what do you mean, I now need to go and get more collateral? We thought the collateral rolls’.
“That’s how some of that money has disappeared. It has either been lost or they realised the investment isn’t as liquid as they thought. That’s probably the most material piece that’s missing from the market.”
Main image: Shutterstock / ChunnapaStudio