Abundant capital here to stay, so optimisation key: SCOR’s Conoscente

The global reinsurance market is going to remain boosted by an abundance of capital and capacity, which makes being able to optimise it for your efficient use key, according to Jean-Paul Conoscente, CEO of SCOR Global P&C.

This theory underpins an increasing move to both leverage different sources of capital, plus also manage it at SCOR, with an expectation that the reinsurance firm will continue to build on key partnerships with insurance-linked securities (ILS) investors.

It also means writing more business for third-party capital, both managed at SCOR’s investment arm, SCOR Investment Partners which now manages around US $3 billion of ILS capital, as well as in dedicated vehicles to deliver returns from underwritten business to investors.

During SCOR’s investor day yesterday, Conoscente, the CEO of SCOR Global P&C, explained that the reinsurer has been working through its P&C Partners unit to deliver innovative solutions and foster operational excellence.

Out of a number of areas of focus, one has been on third-party capital and Conoscente explained that, “The first is the creation of a sidecar in 2021, which is one additional way for SCOR to tap into the growing pool of third-party capital.”

We covered the launch of this new collateralised reinsurance sidecar vehicle yesterday, a $100 million single-investor structure incepted in April 2021 that provides quota share exposure to SCOR’s worldwide excess-of-loss catastrophe book.

SCOR has long been a reinsurance company that embraced ILS and third-party capital sources, but it seems to be gaining in importance for the company in recent years.

Conoscente pointed out that, “We live in a world of abundant market capacity which we believe is here to stay.

“In such an environment better value will come from optimisation of capital sources.”

ILS structures and third-party capitalised balance-sheets are a key way that reinsurers, like SCOR, can manage capital and risk more efficiently, so having a range of structures and options for ceding risk to investors, while also earning fees, is becoming critical for these firms going forwards.

Later, Conoscente explained that SCOR aims to expand its position across the P&C reinsurance value chain, writing more business from a range of lines and sources.

This expansion would also include, “Writing on behalf of third-party capital,” he stated.

Interestingly, another driver for the use of third-party capital can be volatility and here SCOR has plans to adjust its retrocession program to reduce earnings related impacts of frequency weather and catastrophe loss events.

“We’ve been starting to shift our retrocession to more earnings protection,” Conoscente said, with this being pitched as a work in progress for the reinsurer.

Alternative capital and ILS structures can play a significant role in these new retrocession plans, we’d imagine, with SCOR having access to the range of capital market structures and direct investor relationships, should they prove viable routes to soften the blows from frequency events.

Also of note, Conoscente later explained that climate change and related risks are one area of focus for the company, when it comes to enhancing its own retrocessional protection.

He explained that SCOR has seen an acceleration in the shift towards climate change related losses in recent years from weather and natural catastrophe events, which is driving some of the demand for more earnings related, or frequency protection it seems.

This could be a trend across the market, as SCOR is as exposed as others and suggests more focus on aggregate covers, retrocession and also other capital solutions to protect earnings may be required by the reinsurance industry in years to come.

All of which sound like solutions that the capital markets can play a role in the provision of.