NEWS
SCOR is making the case for rate hikes—and it has many arguments
SCOR believes rate rises are still needed in the industry, and it can point to multiple factors driving this logic.
SCOR is walking into the 2024 renewals cycle arguing vociferously for continued rate hikes—and it has many rationales. It is citing the evolving world of risk, reinsurer loss history, heightened inflation, a plague of litigation and more—and it seems certain that continued market dislocation can deliver those rates one way or the other.
“We are living in very particular world,” newly appointed CEO Thierry Léger told journalists of the big picture behind ever-rising risk costs just as he and the SCOR leadership sit down to the first day of talks with cedants at the Monte Carlo Rendez-Vous.
“We have risks that come up and only ever get bigger,” Léger said, citing an evolving trend from climate change, geopolitics and the “ongoing digitisation of everything”, he said to launch his view.
“I am not sure we have experienced a similar environment where chapters open, but generally don’t close again.”
But that is just one argument. The company also points to the reinsurance industry’s earnings history. “We need more than one semester of decent results,” Jean-Paul Conoscente, the CEO of SCOR Property & Casualty said. He cited recent industry and rating agency reports suggesting the reinsurance industry is only at the cusp of earning its cost of capital—for the first time in a long time.
“Yes, we’ve been profitable, but not enough and not for long enough to go back to the way things were,” Conoscente said.
Catastrophe loss trends follow closely in SCOR’s logic. The French reinsurer talks up the intersection of climate and demographic changes that can dramatically extend the roster of events capable of causing a big loss.
“We have risks that come up and only ever get bigger.”
Thierry Léger
Hard market welcomed
The hard market is naturally welcomed by SCOR and may have saved it from some of those losses. Higher attachment points achieved in the 2023 renewals have now lifted reinsurers, including SCOR, above the water mark for many of the record list of H1 cat events, a long build-up of smaller secondary perils.
“We feel that the portfolio is adequate today because of those attachment points,” Conoscente said. “Defending those will be key.”
SCOR’s view is by no means devoid of sympathy for the primary insurance cedant partners where those losses are now stacking up; it just insists that the answer to all this is adequate pricing in all parts of the risk chain.
“We need more pricing overall in the marketplace, starting with reinsurance, but it has to be pushed through to the insurance level,” Conoscente said. If the prior regime of reinsurer losses was looking “not sustainable”, the current regime collecting cat losses at the primary level “if it continues, will not be sustainable for primary insurers either.”
This story won’t end until insureds have paid their way. In the meantime, SCOR will be offering cedants a variety of bespoke structured products to help plug the gaps that lower layers left exposed.
SCOR points to inflation as another driver of rate: “Today, we are in what we believe is a sustained high inflation environment” which needs to be built into the prices.
For Monte Carlo, that is the talk behind eventual rate hikes, but the balance of supply and demand will have to handle the final delivery.
“SCOR intends to deliver 4 to 6 percent growth per annum for its P&C reinsurance business through 2026.”
“That is why I need the rate hikes,” Conoscente told Monte Carlo Today of the full roster of arguments. Citing a market in which he can add two euros on top of programmes for every one euro he takes off the bottom, Conoscente is confident. “That’s why I know I will get the rate hikes.”
Three-year plan
SCOR announced a new three-year strategy through 2026 in which it hopes to leverage the hard market to fine-tune the books it rejigged more fully during a recent remediation.
SCOR intends to deliver 4 to 6 percent growth per annum for its P&C reinsurance business through 2026, trimming climate-exposed perils and litigation-exposed US casualty lines while ploughing into some favoured and well-priced specialty lines to help fill the gap and stick to overall growth.
Property cat—not one and the same with the anathema climate-exposed perils—will be allowed to grow alongside the book, but the current underweight allocation is capped, officials have said.
For more unabashed growth, expect 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.
Packed together with life & health, SCOR should deliver a target of 9 percent annual growth in economic value generation, the new core earnings target.
Main image: Shutterstock / Sk Hasan Ali