SCOR reduces cat exposure, secures retro with ILS capital & $300m sidecar

France-headquartered global reinsurance firm SCOR has reduced its natural catastrophe exposure at the January renewals and managed a challenging retrocession market through the use of third-party capital and upsizing its sidecar capacity to US $300 million.

SCOR revealed strong 19% growth in premiums at the January renewal season, taking “full advantage of the hardening P&C reinsurance market,” the company explained.

But growth patterns have changed at SCOR, having expanded its catastrophe book through some recent years. Now the reinsurer has downsized its catastrophe exposure, saying that this is “reducing climate-sensitive volatility.”

The change in strategy of the last year or so now sees SCOR allocating capital to “the lines benefitting from the best risk return profile,” which involved growing its Global Lines treaty portfolio and accelerating the expansion of its Specialty Insurance business.

In particular, SCOR has downsized its catastrophe exposure in the United States at the January 2022 reinsurance renewals, which is again a reversal of trends of recent years, as SCOR had expanded strongly in the US through a softer period of the reinsurance cycle than we find ourselves at today.

Repositioning of the US treaty reinsurance portfolio on some large catastrophe exposed accounts has resulted in SCOR’s US renewal book shrinking -11.3% in terms of premium, while growing modestly in casualty business there.

The reinsurer said that its treaty reinsurance catastrophe exposure declined -11% at the January renewal, while dropping by -11% on the P&C in-force portfolio for the full year 2022.

SCOR also reduced its Asia Pacific portfolio a little as well, as it did not feel rates were adequate in all opportunities there.

SCOR grew strongly by 15% in Europe and 14.7% in fast growth markets, but its Global Lines business expanded by 20.7% and was the fastest growing at this renewal season.

Overall, the reinsurer secured price increases that average out at +4.9% for its property and casualty treaty reinsurance book at the renewals, while also improving the modelled combined ratio for the book as well, which SCOR said should improve profits.

SCOR made use of more third-party capital to support its retrocession needs at the renewals, which suggests more risk transferred in insurance-linked securities (ILS) formats to third-party investors or ILS funds.

The reinsurer had reportedly been challenged in placing its retro program last year, being one of the retrocession renewals that is always first out of the blocks around September time.

SCOR’s retro program went through some restructuring before its placement was secured this time, we understand, reflecting the challenging retro market and lack of capacity to support aggregate retro needs.

But the reinsurer scored a successful retro placement in the end and due to this flexibility said that its “cost of retrocession was efficiently managed.”

In the end, SCOR said that it purchased the same amount of retrocession limits for 2022, but that it accessed a broader pool of retrocessionaires thanks to its successful third-party capital strategy.

SCOR said that for 2022 its retrocession program was renewed “in line with plan” but that an overall reduction in proportional and aggregate excess-of-loss capacity was compensated for with an increase in sidecar capacity to US $300 million.

Part of this expansion of the sidecar platform will have been the $200 million investment made by Swedish pension fund Alecta into SCOR’s new Atlas Gotland Worldwide Catastrophe Sidecar, part of a newly formed SPI named Atlas Re Limited.

The redesign of SCOR’s retro program for 2022 results in more earnings protection, the reinsurer said this morning.

The reinsurer also noted that one of the reasons it has pulled-back from catastrophe risks at the renewal, is the fact cat-prone lines do not compensate adequately any more, relative to the volatility inherent in them, “after accounting for claims inflation, the impact of climate change and the increased cost of retrocession.”

Which suggests the pull-back on catastrophe risks will likely continue at the renewals throughout 2022, especially in the US where SCOR’s reversal after a number of years of growth there is quite a stark change in direction.

Looking forward to the April and June/July renewal seasons, SCOR said that it “expects the current positive market trends to continue.”

As a result, it continues to forecast premium growth of +15% to +18% for 2022, with a combined ratio of 95%, or lower.

Jean-Paul Conoscente, CEO for P&C at SCOR, commented on the successful renewals, “In line with the forward-looking view shared during its September 2021 Investor Day, the market hardening continues into 2022. We are successfully implementing our strategy to reposition our portfolio towards value-accretive growth opportunities. The result allows us to expand our franchise, while taking a series of actions to reduce our exposure to climate-sensitive Cat business where rising prices did not lead to sufficient margins given the expected volatility. We expect continuing positive market trends as we head into Q2 2022, anticipating a sustained hardening in the upcoming renewals where we remain well positioned.”