Retro support helps SCOR to remain profitable so far in 2017

Despite the significant catastrophe losses facing the reinsurance industry, French reinsurer SCOR has reported a profit for the first none months of 2017, as support from its retrocession providers helped the firm to better manage its losses.

SCOR’s significant retro protection has helped to moderate the impact of recent catastrophes, including hurricanes Harvey, Irma and Maria, to the firm and its shareholders.

Even following the major industry losses, so the hurricanes and the Mexico earthquakes, which the reinsurer says caused it a EUR 430 million loss after retrocession and tax, the company has not blown through its retrocessional protection.

So far in 2017, SCOR said that it has not breached the upper limit of its retro program and has ample unused capacity available to it for the rest of the year.

Additionally, SCOR said that so far the losses of 2017 have not triggered its insurance-linked securities (ILS) structures, so its Atlas catastrophe bonds and any sidecar capacity it may have in place.

SCOR has US $630 million of retro ILS protection in-force, across its cat bonds and mortality bonds alone.

It’s worth noting though that the reinsurers $150m Atlas IX Capital Limited (Series 2015-1) catastrophe bond remains marked down significantly on broker pricing sheets and could face a loss if the industry loss estimates for the three hurricane events rise significantly.

Additionally, the SCOR’s $300m Atlas IX Capital DAC (Series 2016-1) cat bond has also been discounted by the brokers, suggesting it is not completely safe from loss as yet.

So there is the potential for further retrocessional recoveries from the capital markets to be made, which would lessen the financial hit to the reinsurer.

SCOR also reiterated today that it does not believe that its losses so far in 2017 put its EUR 300 million catastrophe and mortality risk contingent capital facility at risk of being triggered either. This is another significant layer of protection that could help the reinsurer manage any further losses.

SCOR has managed to report a profit for the first nine months of the year, of EUR 25 million, despite the major loss impact. This is testament to the support provided by retrocessional capacity providers, which have helped the company to avoid a loss so far this year.

SCOR said that its in-force retrocession programs have “responded as expected” and that even after the major losses the company still “Benefits from most of its retrocession capacities.”

Denis Kessler, Chairman & Chief Executive Officer of SCOR, commented, “SCOR once again demonstrates its capacity to absorb shocks. The natural catastrophe events that occurred in the third quarter of 2017 are a serious wake-up call for the reinsurance industry and the Group is in a very good position to benefit from the new market environment.”

SCOR said it retained around 60% of the losses from the first five catastrophe events, so hurricanes Harvey, Irma and Maria, as well as the two Mexican earthquakes.

That suggests that retrocessional capacity providers have likely paid somewhere around EUR 400 million of SCOR’s losses, as the company said its gross loss was EUR 598 million.

That’s a significant chunk of losses and SCOR said that had its losses been even higher, say if Irma had been a $125 billion industry event, there would only have been a marginal net impact to the reinsurer.

Retrocessionaires are proving their worth in 2017, paying a significant chunk of the industries overall losses from recent catastrophe events. Having shown such strong support for the largest firms in the industry, the retro market will be hoping it is paid back to some degree with higher rates at 1/1.

This could push major reinsurers like SCOR to the catastrophe bond market again, as a way to lock in pricing on multi-year retrocession deals.