French headquartered global reinsurance firm SCOR shrank its property and casualty reinsurance book at the key January 2020 renewals, citing the lack of price movement in the market in response to clearly increasing loss trends.
It’s particularly interesting that SCOR has chosen this moment to pull back somewhat, as the reinsurance firm has been among the most growth hungry through consecutive recent renewals over a number of years.
Making it even more interesting is the fact that many agree that the pricing response at 1/1 2020, while still widely not seen as sufficient, was greater than at any of the previous 1/1 renewals for a number of years.
SCOR added roughly 10% in premium volume to its P&C reinsurance renewal book at January 2019, having grown it by almost 4% in January 2018, and 5.4% at the January 2017 renewals.
SCOR also grew its book by 10% at the April 2019 renewals and also grew again at the mid-year 2029 reinsurance renewals as well.
So, despite the fact rate increases at January 2020 were seen to be some of the best available in years, in some regions. SCOR has decided enough is enough and seems to be suggesting that losses have now accelerated past rate increases, making conditions less attractive to continue building out its portfolio at this time.
SCOR said that in January it secured an increase in reinsurance underwriting profitability of around 1%, reflecting a 2.8% increase in pricing.
But it reduced its reinsurance top-line by 4.7%, saying that, “As Reinsurance markets showed limited response to increasing loss trends, SCOR Global P&C took proactive measures to improve expected profitability, focusing mostly on reducing selected large quota share programs.”
Specialty insurance became the focus instead, with SCOR citing double-digit rate increases that allowed it to continue growing the book there.
But overall the company said, “These January renewals demonstrate SCOR Global P&C’s proactive management and responsiveness to market conditions with contrasting strategies between its Reinsurance and Specialty Insurance underwriting platforms over the cycle.”
Rate increases on the reinsurance side were “gradual” SCOR said, although still accerating in specialty insurance.
“A main difference has been an increase in loss trends for which reinsurance price increases only partially compensated,” the reinsurer said.
Demand for reinsurance is still robust the company said, but it sees a price gap that is persistent in the market.
“Reinsurance market capacity remains abundant and emerging risks such as climate change and social inflation are still to be fully incorporated into reinsurance prices,” SCOR explained.
As a result of this, SCOR said it is returning to, “proactively manage the pricing cycle, focusing on business compliant with its profitability targets and risk appetite.”
Jean-Paul Conoscente, CEO of SCOR Global P&C, explained, “As the reinsurance market did not fully react to loss perspectives as we had initially anticipated, SCOR maintains a disciplined underwriting approach as evidenced during the January 2020 renewals. Despite plentiful reinsurance capacity, persistently low interest rates and upward expected losses, SCOR significantly improves its P&C profitability, while accompanying the growth of its key reinsurance clients.
“Thanks to its Specialty Insurance arm, SCOR leverages further the hardening witnessed in commercial lines, expected to continue throughout the year. Given that the January 2020 renewals are focused on EMEA with benign loss experience, we expect more pronounced favorable market conditions through the spring/summer 2020 renewals and maintain our “Quantum Leap” assumptions for the duration of the plan.”
Looking ahead, SCOR hopes for better market conditions and further year-on-year rate firming at renewals in April, June and July.
“The market is expected to stay firm, with the possibility of further hardening as loss affected contracts come up for renewal,” the company explained.
In Japan, the company aims to, “Rebuild the sustained profitability of its Japanese portfolio based on its long-standing client relationships.”
While in the U.S. the company feels, “Given its modest US casualty portfolio, SCOR is well positioned to benefit from further market changes arising from upcoming US renewals.”
Overall SCOR feels that January renewal rate increases were dampened by capacity again, with pockets of firming.
It’s interesting, as the main area that appeared dampened was Europe, which is where the major reinsurers, like SCOR, have the majority of the market and effectively control the price anyway.
It’s going to be interesting to see how SCOR approaches the future renewals in 2020 and whether it’s recently demonstrated appetite for growth returns.
If it does, it perhaps suggests that the appetite in January was largely down to a lack of price movement in areas that are mainly within the control of traditional reinsurers, rather than the areas where alternative capital has its focus.
That’s an interesting dynamic, if it is the case, as it could suggest major reinsurers are ready to push for more rate in regions where pricing has been stagnant for some years now.