SCOR: Catastrophes unlikely to trigger contingent capital facility

Global reinsurance firm SCOR said that it expects the impacts of hurricanes Harvey, Irma and Maria will likely remain an earnings, rather than capital event, and that it does not expect its contingent capital facility will be triggered as a result of the losses it will suffer.

SCOR has a catastrophe and mortality risk contingent capital facility, that is designed to protect the reinsurer against the most extreme of losses. The EUR 300 million contingent equity line can be triggered by losses from natural catastrophe events and significant mortality losses, and is calibrated to protect SCOR against adverse solvency movements after such losses.

It’s a two-year, annual aggregate facility and even after the huge estimate of industry losses from hurricane Maria, at the moment SCOR does not expect to need to call on the contingent capital facility to help it deal with an erosion of solvency capital.

SCOR said that hurricanes Harvey and Irma are expected to be an earnings event, rather than a capital event for the reinsurance company, and that it feels its solvency position remains strong and within its targeted solvency range.

As a result the reinsurer said that its dividend policy remains unchanged and at the moment it will continue its share buybacks, it also does not expect any hit to its financial ratings due to the catastrophe events.

Hurricane Maria is still under assessment, but based on the information the reinsurer has today it does not expect to change its perspective on the losses with the addition of Maria to the rest of the 2017 toll.

SCOR said that its capital shield strategy will protect it as expected, and that it has “ample unused capacity” left, with “no breach of the upper limits.” As a result, SCOR said its retrocesional reinsurance protection and capital base is still in place to ward off further losses in 2017.

The company added that the chances of triggering its contingent capital facility are seen as “extremely remote.”

Victor Peignet, Chief Executive Officer of SCOR Global P&C, commented; “SCOR is supportive of all those who have suffered as a result of these hurricanes. The associated economic disruption and protection gap raise important sustainability issues and challenges to societies throughout the world. SCOR is actively engaged in all actions to bridge the protection gap, to the benefit of all populations exposed to natural catastrophes.”

The contingent capital facility is designed to protect SCOR when aggregate losses reach the level where they are truly a capital event, so much more than just a quarterly earnings hit which is what the reinsurer predicts today.

It’s an innovative way to secure protection from capital market investors for the very major losses a reinsurer can expect to suffer every so often, but so far 2017, despite being on track for a record market impact, is still not severe enough to trigger this facility for SCOR.