The reinsurance market is probably at its most attractive in a decade, according to SCOR, which on September 10 revealed significant plans for growth. Treaty reinsurance business was being written on average two percentage points more profitable than last year, Romain Launay, deputy chief executive officer of SCOR Global P&C, said.
“We expect further risk-adjusted price increases and market improvements in 2022,” he added.
“While there remains plentiful market capacity, demand for reinsurance is also on the rise. This is due to a general increase in risk aversion fuelled by an uncertain risk environment following the recent elevated cat activity, social and general inflation, as well as the need to restore margins in the industry and compensate for low interest rates.”
After repositioning its book in 2020, the reinsurer was now ready to expand its P&C portfolio to make the most of market hardening, taking advantage of strong growth opportunities in Europe, fast-growth markets and global lines, Launay said. Its focus would be on non-cat lines.
Specialty growth
According to Jean-Paul Conoscente, chief executive officer of SCOR Global P&C, the business had delivered on its “Quantum Leap” strategy launched in 2019. Its profitability had been affected both by COVID-19 and heavy cat losses since its launch, however.
“Cat activity has been heavy over this period,” Conoscente said. Since 2017, only in 2020 were cat losses within the company’s 7 percent planned budget under its previous plan. This would be increased to 8 percent to reflect rising losses from climate change even as the business reduces its exposure. It has also adapted its retrocession programmes to focus on earning protections rather than just capital events, he added.
“The company plans to put more capacity to work in the coming year.”
Romain Launay, SCOR Global P&C
SCOR’s new strategic plan, to be unveiled in March 2022, will include estimated growth in gross written premium (GWP) for the global P&C market of 15 to 18 percent and target a combined ratio trending down to 95 percent and below.
While the outlook for reinsurance looks strong, specialty insurance has proved the most profitable segment for the company’s P&C business in recent years, and its GWP in the segment is up 55 percent since 2018.
“With further improvements expected in 2022 and beyond, we continue to be bullish on further developments in this area,” said Conoscente. SCOR projects specialty insurance moving towards 30 percent of its total P&C premium. After years of flat growth, its large commercial insurance book had doubled in size since 2017, it revealed.
According to Launay, the company plans to put more capacity to work in the coming year with its risk appetite broadly unchanged for property, energy, cyber and directors and officers lines.
A more balanced business
The P&C business is increasingly important to SCOR following its recent settlement agreement with mutual insurer Covéa, following years of legal wrangling. As part of the agreement, SCOR ceded 30 percent of all in-force business carried by SCOR Life Irish entities in exchange for $1 billion paid upfront by Covéa.
The transaction had “crystalised significant value for SCOR”, according to Ian Kelly, chief financial officer. “We had an excellent opportunity to monetise the future value that we have in the life portfolio,” he said.
The transfer included 20 percent of SCOR’s entire US mortality risk, limiting its exposure to future US trends and COVID-19 exposure.
“As a result, this rebalances the group towards P&C business with the GWP moving to a more balanced profile of 53 percent life and 47 percent P&C,” Kelly explained.
“Macro trends become opportunities if you make the effort to understand them.”
Laurent Rousseau, SCOR Global P&C
With the strong market environment for P&C, SCOR has revised its P&C GWP growth from 4 to 8 percent under its existing strategic plan to 15 to 18 percent from next year. Life GWP assumptions reduce from 3 to 6 percent to 1 percent.
The Covéa transaction has significantly boosted the group’s solvency position, boosting it by 27 percent so that at the end of the first half it stood at 245 percent. Going forward, it would aim to bring this down to the optimal range of 185 to 220 percent.
The company’s strong capital position meant it would continue to consider share buybacks, but ongoing uncertainty meant it was not the right time to commit.
“We are in the midst of the cat season. We’re still assessing the impact of European floods and Hurricane Ida and need to see the remainder of the storm season. There are also many uncertainties around COVID-19 due to potential new variants and the speed and effectiveness of vaccine rollouts,” Kelly said.
While volatility and such increased risks challenged the business, they also provided opportunities, said SCOR chief executive officer Laurent Rousseau.
“Macro trends become opportunities if you make the effort to understand them and have the nimbleness and entrepreneurial spirit to take advantage of them.
“To put it simply, risk awareness is at such a high point. This will drive long-term growth in both insurance and reinsurance while ensuring all competitors are disciplined in the pricing and risk appetite.”
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