SCOR continues to expand, but price deceleration now evident

French headquartered global reinsurance player SCOR has reported its second-quarter results today, which reflect further expansion in the firms appetite for risk in the better priced 2018 market environment, but also reflect the deceleration of pricing after the January peak.

The first-half of 2018 may prove to be the shortest post-loss hard market cycle in reinsurance market history, with January now clearly having been the peak and rate increases on a steady downward slide ever since.

SCOR is one of the major reinsurers that took advantage of rates in January to build a much larger book of underwriting business, including in U.S. catastrophe risks.

That trend has continued at the mid-year renewals, with the firm growing its book again.

Year-to-date renewed premiums are up by 7.8% for SCOR, with renewed premiums at the June-July renewals rising by 22.7% at constant exchange rates to EUR 605 million.

SCOR said that this growth was partially due to winning increased shares in U.S. Treaty and Credit & Surety reinsurance business, but the firm did note that in Florida it has not expanded.

“SCOR Global P&C continues to be underweight on Florida specialist accounts, where pricing has been particularly weak for several consecutive years,” the company said, also noting that reinsurance rates there did not materially improve following the major 2017 hurricanes and other catastrophe loss events.

On pricing though SCOR explains that year-to-date price improvement has been recorded as +2.9%, across its book. At the January renewals SCOR reported that risk-adjusted pricing improved 3% compared to January 2017, but for the June and July 2018 renewals the reinsurance firm said that pricing was up 2.3%.

So that reflects the deceleration of rate rises as the market comes to terms with the fact that it remains well-capitalised and the appetite of the ILS fund market and its third-party investors remains undiminished following the losses of last year.

SCOR reported group net income of EUR 262 million for H1 2018 and an annualised return on equity (ROE) of 8.8%.

However, the impact of U.S. tax reforms tool USD 75 million (EUR 62 million) off the firms net income, which lowered the group’s overall result.

Gross written premiums reached EUR 7.537 billion, which is up 8.2% at constant foreign exchange rates compared to H1 2017, as the firm grew in both Life and P&C business, which increased volumes by 10.5% and 4.9% respectively at constant FX compared to H1 2017.

Hence, while SCOR grew in P&C, including in the U.S. again, the life business actually outstripped that growth which should contribute increasing revenues in years to come.

Finally, SCOR reported a 91.4% P&C net combined ratio and a 6.9% Life technical margin, as well as return on invested assets of 2.5% for the quarter.

Denis Kessler, Chairman & Chief Executive Officer of SCOR, commented on the results “SCOR delivers strong results in the first six months of 2018, outperforming both its profitability and solvency targets. The Group continues to deliver disciplined and profitable growth, with both the Life and P&C divisions expanding their footprints in targeted territories and business lines and delivering robust technical profitability. Through the execution of its share buy-back program, the Group reaffirms its confidence in the strength of its underlying fundamentals, excellent ratings and optimal debt leverage. As we progress through the year, our firm focus on the Group’s profitability and solvency targets ensures stability for our clients and lasting value for our shareholders.”

Looking ahead, it will be interesting to see how the major reinsurers appetites for risk change going into the January 2019 renewals, where pricing may prove to be flat at best with the 2018 contract signings.

It’s possible that we could move back to an environment where underwriting books are not growing as fast, or even shrinking again as was seen before.

Without a doubt this current market cycle has provided the hard evidence that market peaks will be short-lived and rate rises depressed going forwards, unless some truly major loss impacts the reinsurance and ILS market and drains away a significant chunk of its capital.