NEWS
SCOR wants to leverage the hard market to build a better book of business
Climate-exposed & US casualty are out; some specialty lines are in; some nat cat can stay for SCOR.
Global reinsurance giant SCOR will set its gearbox to “controlled risk appetite” and “disciplined underwriting” to rebuild a more balanced and diversified book through the hard market.
It is seeking a 4 to 6 percent growth for its P&C reinsurance business through 2026 and sees the enduring hard market as a crucial early enabler.
“We are entering a very favourable reinsurance cycle and we intend to make the best of it with significant opportunity to create value,” newly appointed chief executive officer Thierry Léger said during his first-ever Investor Day for the French reinsurer, which took place days before the Monte Carlo Rendez-Vous.
The goal is not just growth, but “selective” growth into what Léger will consider a “more balanced” portfolio. Boil it all down and Léger calls the pending stance one of “upper mid-level risk appetite” with heavy demands that the group gets granular line by line.
“We will make sure we avoid outsized exposures and improve allocations overall,” he said. Each line must pass a test for its economic value and its contribution to improved diversification, he vowed.
Climate-exposed perils and litigation-exposed US casualty lines require caution, and often outright reduction, he noted. Climate worries include its involvement in some areas of agriculture-related insurance, especially in Brazil and India, two large core markets that have traditionally been overweight from SCOR. North America and select European markets might benefit as it embarks on a diversification drive.
Property-cat also requires some prudence but, once cleared of climate-change drivers, select lines of growth remain open. “Climate change and nat cat is not the same field,” Léger said. Earthquake is clearly its own independent game, Léger stressed, by way of example. Even hurricane risks can have only a tenuous tie to climate change, he argued.
“We are entering a very favourable reinsurance cycle.”
Thierry Léger, SCOR
While SCOR will remain underweight on nat cat overall, its global nat cat allocation can remain flat going forward and allow the book to grow hand-in-hand with the rise in SCOR’s own funds. SCOR will continue to be a “major capacity provider” for excess-of-loss property-cat treaty at layers above frequency losses. The group is budgeting a cat ratio around 10 percent.
Unspecified risk partnerships will be sought out and developed where growth opportunities outmatch SCOR’s own capital allocation plans, Léger said.
The firm expects higher growth rates in some lines. It suggested it might achieve annual growth rates near 8 percent for such sought-out lines as engineering, marine, non-US casualty and inherent defects covers for real estate and construction.
The new strategy will also bring a build-out of what SCOR considers alternative solutions of customised, non-traditional replacements for traditional covers, all of which should bring the benefit of lower capital intensity. An action list includes solvency relief quota-share, multi-year stop-loss, combined adverse development cover and contingent reinsurance.
Put it all together and SCOR should manage compound annual growth in the margin-inclusive IFRS17 top line measure called “P&C reinsurance revenue” at 4 to 6 percent through 2026. The growth rate of the margin being packed into the portfolio, what IFRS17 calls the “new business contractual service margin”, should settle into a 1 to 3 percent compound annual growth rate.
Léger admitted, as one analyst suggested, that the figure sounds modest, but reminded those on the call that SCOR has the dual goals “to grow and to adjust our portfolio at the same time”.
“For the environment we are in, we should favour profitability over volume,” Léger said. “If we can grow more at the profitability levels we look for, we will be doing good.”
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