SCOR aims to keep 50/50 mix of ILS & traditional retro limit: Conoscente

Global reinsurance company SCOR appreciates diversity within its retrocessional reinsurance panel, but aims to keep a roughly 50/50 mix, between ILS and traditional limit, as it appreciates both the mix of products and long-term relationships available, Jean-Paul Conoscente, CEO of SCOR Global P&C said yesterday.

As we explained this morning, SCOR reduced its natural catastrophe exposure at the January 2022 reinsurance renewals, while also successfully managing a more challenging retrocession market through continued use of third-party capital and upsizing its sidecar capacity to US $300 million.

Speaking during a renewal analyst briefing, CEO of SCOR Global P&C Jean-Paul Conoscente explained that both traditional and alternative forms of capital are equally important when it comes to renewing SCOR’s retro reinsurance.

Previously, Conoscente had said that SCOR was reducing its exposure to peak and climate exposed catastrophe perils, while also adjusting its retrocession program for 2022.

He explained then, back in October, that capacity available for the SCOR’s proportional and aggregate retro covers would likely be reduced for 2022, but added that the reinsurer would “look for different products to help us replace that shrinking capacity.”

Which, as we explained this morning, is exactly how the retro renewal panned out for SCOR.

Speaking this afternoon, Conoscente said that at the 1/1 renewals, “The retrocession market was probably one of the most difficult areas of the market.

“We correctly anticipated this market environment where we restructured our program, to compensate for the supply reduction of proportional and aggregate capacity, increasing our sidecar facility with a large Swedish pension fund.”

Here, Conoscente is referring to the $200 million investment made by Swedish pension fund Alecta, into SCOR’s new Atlas Gotland Worldwide Catastrophe Sidecar, which is part of its newly formed SPI named Atlas Re Limited.

Overall the sidecar capacity was lifted to $300 million for 2022, thanks to Alecta’s allocation.

Conoscente went on to explain that despite increased retro pricing, “We bought roughly the same limit as last year,” adding that the increased cost of retrocession was “balanced-out” by price increases achieved on inward catastrophe business underwritten.

Explaining that the sidecar helps to reduce earnings volatility for SCOR, Conoscente commented that, “The sidecar that we grew is proportional capacity, so it does provide first-dollar protection, which you know, for small, medium sized losses provides us better protection than excess-of-loss.”

But he added that, “The reduction on volatility is not just through the retrocession, it’s also through the underwriting actions.”

He explained that SCOR has worked to lower earnings volatility with the help of its portfolio pruning, pulling-back on catastrophe exposure and the retrocession.

Adding that, “We dramatically reduced the aggregate cat portfolio that we write on behalf of our cedents. It’s the combination of those actions that reduce the earnings volatility, not just the retro.”

Asked for more detail on how the retrocessional reinsurance program breaks down, Conoscente said that SCOR looks to maintain a roughly even mix, between alternative and traditional sources of retro capacity.

“On the retro, I think today the amount of retro we place with non-traditional players, including the cat bonds we have outstanding, is roughly 60% ILS, 40% traditional,” Conoscente said.

Explaining that, “In terms of limit purchased, its more 50/50. What I was mentioning was more premium based, but limit purchased its roughly 50/50 between ILS and traditional.

“Going forwards, that’s the mix that we want to keep. We don’t necessarily want to have an over-exposure to ILS markets and like long-term players on the traditional side, with whom we’ve been renewing year after year.”

As well as its collateralised reinsurance sidecar having expanded to around $300 million in limit this year, SCOR has a number of other retro contracts in-force and also $750 million in property catastrophe bonds that are outstanding at this time. In addition, SCOR also has retro arrangements on the life and mortality side of its business.

The ILS markets look set to continue playing an important role for SCOR, while the reinsurers shift towards a reduction in retained cat and climate risk may herald further growth of its catastrophe retro program over the coming years.