SCOR’s global property and casualty (P&C) business is seeing claims driven by specific lines and a drop in premium income in economically sensitive lines of business but said other market events, such as the US Black Lives Matter riots, were “immaterial to our results”.
Reinsurance has not been impacted by COVID-19 in the same way as other sectors, according to Denis Kessler, chair and chief executive officer of SCOR.
This is in contrast to many industries which have seen a sharp decline in sales and activity as a direct result of the pandemic, he said.
Kessler’s comments came as he discussed the reinsurer’s results for the first half of 2020 and emphasised how the firm had been able to “successfully absorb the impact of the COVID-19 crisis”.
However, SCOR did not exit the first six months of 2020 completely unscathed. In spite of the pandemic, the group remained profitable with a net income of €26 million, which translates into a return of just under 1 percent. But that figure represents a 90.9 percent decline from €286 million for the same period in 2019.
The reinsurer’s second quarter results for the year showed a €136 million loss as a result of COVID-19 compared with a profit of €155 million for Q2 2019.
The total estimated cost of the COVID-19 pandemic booked in Q2 reached €456 million, including €248 million on the P&C side, €194 million in the life business, and €14 million on the investment side.
Kessler was clear that as a Tier one reinsurer coming through the pandemic: “Reinsurance is not impacted in the same way as most other businesses have been.
“As you have seen, and will see in the future, many industries have seen a sharp decline in sales and cash inflows due to lockdown and confinement measures, which have contracted supply and demand on a global scale. This is creating issues all around the value-added chain,” he said.
“This is not the case for us, the top line is stable—it’s even slightly up compared to last year. There has been a 1 percent increase of the worldwide premium for the entire group at the constant exchange rate (SCOR wrote €8.2 billion of gross written premium in H1 2020).
“And we continue to collect premiums from our clients.”
“For the P&C markets, we see COVID-19 has been an accelerator of market hardening observed in 2019/20.”
Jean-Paul Conoscente, SCOR Global P&C
Kessler acknowledged, however, that the premium income for some lines of business such as marine, engineering and airlines had eased on the back of lower economic activity, for example, the dramatic drop in the number of passengers for airlines.
But, he reiterated: “Overall the extraordinary resilience of the group is demonstrated by the P&C and life units continuing to expand in the current crisis as sales go on.”
He added that the P&C market is “clearly hardening” around the world and SCOR is in a very strong position to benefit from the improving market environment.
Acknowledging that SCOR has been impacted on the liability side, he said that the global P&C exposure was mainly coming from credit, surety and political risk on one side and from property business interruption on the other.
“The actual COVID-19-related claims received for P&C are limited so far, standing at a total of €74 million at the end of Q2 2020,” he reported.
The group has estimated that the ultimate cost of this pandemic will be €248 million for P&C, driving an 8.2 percentage points hit on the year-to-date combined ratio, which has increased to 102.3 percent for H1 2020.
Premium income down
Jean-Paul Conoscente, chief executive officer of SCOR Global P&C, added that as well as credit and surety as the main drivers of the claims, SCOR had expected the drop in premium income in economically sensitive lines of business including aviation, credit, surety and engineering.
“The anticipated premium reduction is roughly €100 million, or roughly 3 percent of our premium volume for the first half of the year,” Conoscente explained.
He said SCOR’s P&C results had been hit by a number of small natural catastrophe events including several tornadoes in the US and hailstorms in New South Wales, Australia, and Calgary, Canada.
“We also saw an increase in small to medium manmade events. Other market events, such as the US riots, were immaterial to our results.
“For the P&C markets, we see COVID-19 has been an accelerator of market hardening observed in 2019/20. This was confirmed in the treaty renewals since April and illustrated once again in the June and July renewals,” Conoscente said.
“The market hardening is the most pronounced in property and property catastrophe renewals globally; it is expanding to all lines of business and most geographies. It is reflected not only in price increases but also in terms and conditions.”
“The group can see the market opportunities through leveraging its global franchise, market expertise and Tier one rating.”
Denis Kessler, SCOR
This trend is expected to continue at the January 2021 renewals, he added. But he and other members of the group’s senior team emphasised that the pandemic was “still an ongoing event” which creates a degree of uncertainty.
On the life side of the business COVID-19 effects were also described as “limited” by Kessler, with the costs standing at €63 million as of June 30, 2020. For this side of the business, SCOR estimated the impact of the COVID-19 pandemic would eventually be €194 million with the majority of this, €182 million, coming from the US.
Paolo De Martin, chief executive officer for SCOR Global Life, said: “In terms of the financial impact on the portfolio of SCOR Global Life, we expect the entry phase (which the reinsurer considers to be from March to June 2020) will have the highest relative cost. Therefore we assume a lower burn rate from COVID-19-related claims going forward.”
Kessler said that based on the data currently available the total estimated cost for the COVID-19 pandemic booked in 2020 “reaches €456 million net of retrocession, net of reinstatement premiums and before tax”.
“As such, the COVID-19 pandemic is a fully manageable earnings event for the group.”
Resilient business model
The group’s solvency position remains well within the optimal range and any impact from COVID-19 was “more than offset by the strong operating performance” added Kessler.
“In the face of the COVID-19 pandemic, SCOR once again demonstrates its capacity to absorb major shocks and the resilience of its business model. It shows strong potential for long-term value creation in an attractive industry.
“We expect that as a direct result of the pandemic there will be an increase in risk aversion driving high demand for risk cover on life and P&C,” he said.
“In the P&C market we see COVID-19 acting as an additional catalyst in an already hardening market. The firming of the market has accelerated since the April renewals across many segments with broad improvements in terms of conditions and significant price increases including the claims programme.”
Awareness of the upward trend of claims costs has increased in the market after three consecutive years of numerous natural catastrophe, major industrial and commercial losses, combined with the acceleration of social inflation in the US.
Kessler said these changing conditions were “perfect” for SCOR to benefit from its Tier one status.
“The group can see the market opportunities through leveraging its global franchise, market expertise and Tier one rating, and from gaining leverage via its scalable underwriting platform.”
Images (from top): Shutterstock / traganta, GOLFX