Global reinsurance firm SCOR has once again benefitted from its retrocession over the last year, one factor helping the firm to report higher results year-on-year.
SCOR reported its full-year 2018 results this morning and revealed that the strong growth we’ve reported on through recent consecutive quarters resulted in gross premiums underwritten rising 7.1% to EUR 15.258 billion for the year.
SCOR’s Life division grew 7.3%, while the P&C business grew 6.7%.
THe SCOR Global P&C division, where the property and casualty reinsurance underwriting is accounted for, recorded a positive technical result despite the impact of numerous major catastrophe events through the year.
SCOR was hit by losses from catastrophe events including Typhoons Jebi and Trami in Japan, Hurricanes Michael and Florence in the U.S., and the wildfires in California, but still the P&C division managed a combined ratio for the year of 99.4%.
As a result, net income for the year was up at EUR 322 million, from EUR 287 million for 2017, and return on equity was 5.5% for 2018, higher than the previous years 4.5%.
The fourth-quarter of 2018 saw SCOR falling to a negative for net income though, we assume due to the impacts of the California wildfires and hurricane Michael.
Negative net income of EUR -20 million was reported, along with a negative RoE of -1.3% for Q4 2018, down considerably on the prior year when SCOR had one of its most profitable quarters on record.
But SCOR’s retrocessional reinsurance program buffered the company from a much worse Q4 loss, helping the firm to moderate the impact of these major catastrophe losses once again.
SCOR has been increasing the size and scope of its retrocession program for a number of years now, with the capital markets assisting on a collateralized basis and also through catastrophe bonds when the reinsurer chooses to sponsor them.
The company has been working towards a strategy of optimising its retrocession, including its use of insurance-linked securities (ILS), while at the same time extending the perimeter of its retro program to better protect its results from volatility caused by losses.
While this does bring additional cost, SCOR itself says that the extended perimeter of its retrocession has resulted in higher expense, it also helps the company to cushion its results from the impacts of catastrophe losses.
For the full-year 2018 retrocession was a cost, rather than a benefit, at EUR -264 million for the year.
But when it really matters the retro program paid off for SCOR, with the firm reporting a net positive effect from retrocession that amounted to EUR 45 million for the fourth-quarter of 2018.
It’s even more apparent how much the retrocession benefited SCOR when you look solely at its P&C reinsurance segment, which reports a net positive from retrocession of EUR 67 million.
These retrocession recoveries will have helped SCOR not to fall to an even larger fourth-quarter loss, demonstrating the important role retro reinsurance markets and collateralized or ILS providers play for the major reinsurance firms when the really big catastrophes strike.
Denis Kessler, Chairman & Chief Executive Officer of SCOR, commented on the results, “In 2018 – a year once again marked by a high level of natural catastrophes – SCOR continues to grow: the Group delivers robust growth and solid recurring profitability, and provides a strong solvency position. For the first time the Group has recorded total gross premiums of more than EUR 15 billion.
“Alongside a robust solvency ratio, we completed a EUR 200 million share buyback program and awarded shares to all our employees worldwide, while avoiding any dilution for our shareholders. Our shareholder return remains attractive, with a proposed strong dividend of EUR 1.75 for 2018.
“With our financial rating reaffirmed by all four rating agencies, we are now actively preparing the Group’s next strategic plan, which will be presented at the beginning of September. As an independent Tier 1 global reinsurer, SCOR will continue to create value and to be the master of its own destiny.”
As an independent major reinsurer SCOR is likely to continue to increase its use of retrocession, particularly while it continues to expand in the United States and other catastrophe exposed high-growth markets.
That suggests an increasing role for the ILS markets as well, with the potential for future catastrophe bonds and collateralized participation in the reinsurers retro program as well.