Retrocession buoys SCOR’s result, offsetting catastrophe claims

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Global reinsurance company SCOR has again demonstrated the value of its robust retrocession program, as these protection arrangements seemingly helped to offset some of the catastrophe claims burden experienced during the last quarter.

scor-logoThis morning SCOR has reported an underwriting loss for its SCOR Global P&C underwriting division, both for the third-quarter and the first nine-months of the year, with catastrophe loss activity the main driver.

The reinsurance company has reported a 112% combined ratio for Q3 2021 and a 102.7% combined ratio for the first nine-months, with 14.8% of catastrophe losses and 2.3% of COVID claims contributing to that.

For the first nine-months catastrophe claims were EUR 708 million after retrocession, with hurricane Ida and the European floods amounting to EUR 343 million pre-tax and after retro in Q3.

SCOR’s net catastrophe claims figures are lower than its peers, but its accounting shows a significant positive benefit from retrocessional reinsurance during the quarter and year-to-date, which has helped to offset the catastrophe claims burden for the reinsurance firm.

SCOR’s results show that retrocession had a positive benefit of EUR 474 million in Q3, EUR 417 million of which was on the P&C side and so largely related to the catastrophe loss activity of hurricane Ida and the European floods, we expect.

The positive net impact of retrocession was larger in Q3 than over the nine-months, when on the P&C side it was reported as EUR 271 million.

But it does seem SCOR had quite a significant positive retrocessional benefit from its life retrocession during the year so far, amounting to a positive net result of retro of EUR 1.429 billion over the nine-months to September 30th 2021.

This all demonstrates the importance of retrocession in reducing volatility for the reinsurer, as the combined ratios would have been significantly worse without this buffering source of protection.

SCOR continued to grow its property and casualty reinsurance business through Q3, with gross premiums written increasing by 21.5% for the quarter and having increased 12.1% for the year so far, at current exchange rates.

This continued growth has meant enlarging the retrocessional reinsurance program over recent years and this is anticipated to continue for SCOR, while the company also continues to share and cede some P&C premium to the SCOR Investment Partners insurance-linked securities (ILS) funds as well.

Across the group for the first nine-months of the year, SCOR this morning reported positive net income of EUR 339 million, up 151.1% on the prior year period.

The annualised return on equity rose for the group to 7.3% for the nine-months, but was negative at -2.6% for Q3 2021.

Still, despite a challenging quarter due to global catastrophe events, that would have been far more challenging without retrocession, SCOR this morning also announced another return of capital in the form of a share buyback, demonstrating its continued capital strength.

Denis Kessler, Chairman of SCOR, commented, “Given the recent lift of the regulatory constraints against capital distribution, the Board of Directors has decided to launch a EUR 200 million share buy- back program, considering on the one hand the very strong solvency position of the Group after taking account of the level of capital required by the company to pursue its profitable growth in 2022, and on the other the high net asset value per share, which makes such an operation highly beneficial to SCOR shareholders. Furthermore, the Board has reaffirmed the attractive dividend policy actively pursued by the Group over the past few years.”

Laurent Rousseau, Chief Executive Officer of SCOR, added, “This is SCOR’s core mission as a Tier 1 reinsurer: to help its clients and partners be more resilient in a highly volatile environment. Thanks to the strict application of our strategic cornerstones, SCOR absorbs shocks and continues to manage growth, improve profitability and reduce earnings volatility. In this context, SCOR deploys its capital proactively to create long term value to its shareholders. The share buy-back program that we are announcing today is a demonstration of the confidence we have in our solvency position and our ability to continue to grow profitably. In the wake of its capital management actions, SCOR retains its robust capital shield in a market environment that remains volatile, and where financial strength is a key differentiator. SCOR is poised to reap the benefits of its strong franchise, and to seize the attractive long-term growth opportunities emerging from the rapidly changing risk environment.”

Analysts have called SCOR’s quarterly and nine-month results “better than expected” this morning and the benefits from retrocessional reinsurance are part of this.

It’s challenging to know exactly what recoveries have been made, given the accounting methodology, but it seems significant benefits from retro were realised for Q3, helping to significantly moderate the impacts of claims from hurricane Ida and the Euro floods.

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