France headquartered global reinsurance firm SCOR is aiming to become the “reinsurance company of tomorrow” with its latest strategic plan, part of which also includes capitalising on its position in the insurance-linked securities (ILS) market.
SCOR has announced its next strategic plan this morning, laying out a new roadmap for the next few years to the end of 2021.
Part of this plan will see SCOR bringing its underwriting and investment divisions into a more closely aligned position to drive ILS growth and to position itself as a “leading player in ILS.”
Within this will be a more aligned and combined structure, that brings together the SCOR Global P&C reinsurance underwriting unit, along with its SCOR Investment Partners and recently acquired Coriolis Capital dedicated ILS manager capabilities.
But more on that shortly, the rest of the strategic plan deserves some attention first, for context.
The plan, dubbed “Quantum Leap”, is SCOR’s seventh, coming after implemented plans named “Back on Track”, “Moving Forward”, “Dynamic Lift”, “Strong Momentum”, “Optimal Dynamics” and most recently the “Vision in Action” strategic plan.
SCOR notes that it faced some headwinds in delivering the latest plan Vision in Action, including a higher level of catastrophe loss events, a property & casualty reinsurance market cycle that it notes “only turned recently”, continued low investment yields, regulatory shocks including the Ogden reform in the UK, US tax reform uncertainty and geopolitical threats, that have all “weighed on the reinsurance industry’s performance over the last three years.”
Despite these challenges SCOR still delivered on its profit and solvency targets over the course of the plan, achieving an average Return on Equity of 9.5% (876 bps over the risk-free rate), and an average solvency ratio of 219% which is in the upper-end of its targeted range.
SCOR explains that reinsurance remains an attractive industry, with a positive outlook. But the reinsurance market continues to navigate challenges, the company explained this morning, with “an increasingly complex environment that presents both challenges and opportunities.”
Despite challenges SCOR says that reinsurance benefits from “long-term growth drivers” saying that the sector has “solid foundations and should benefit from positive dynamics” going forwards.
SCOR explains why it is positive on reinsurance market prospects.
The company explains that the risk universe is rapidly expanding providing greater opportunity for new product development and capacity deployment.
“The sphere of insurable risks is increasing while the sphere of uninsurable risks is narrowing, resulting in a positive shift of the insurability frontier. In particular, emerging risks linked to new technologies are progressively becoming insurable,” the company says.
At the same time demand is increasing for insurance and reinsurance, while at the same time, “aversion to risk is increasing as nations become wealthier and governments are pushing insurance companies to increase their capacity through the reinsurance industry.”
In addition protection gaps are significant, which requires more capacity and products to cover those risks.
While the ongoing “technological and financial revolution” which SCOR says includes the use of alternative capital and insurance-linked securities (ILS), as well as tech developments such as “connected objects, big data, Artificial Intelligence, automation”, benefit the reinsurance sector.
As a result, SCOR explains that, “The potential for innovation in the reinsurance industry remains strong and is supported by evolving needs from insurers, changing regulation, increased knowledge of risk and risk correlation, and better understanding by insurers of their own risk portfolios.”
While at the same time reinsurers have proven their ability to be resilient to the largest extreme events, from natural catastrophes to financial shocks.
All of which means SCOR is bullish on the prospects for the reinsurance sector, but recognises the need to evolve to take the greatest advantage of them.
Commenting on the new strategy, Denis Kessler, Chairman & Chief Executive Officer of SCOR, said, “In this increasingly stochastic and complex environment, the future of the reinsurance industry depends upon embracing new technologies and the ability to manage and analyze data. With the “Quantum Leap” plan, SCOR is committing to a profound transformation to create the reinsurance company of the future, fully adapted to this new ecosystem. Over the course of the plan, SCOR will continue its dynamic combination of growth, profitability and solvency, to create value for all its stakeholders. SCOR is pursuing its growth while staying true to the fundamental principles that have shaped its success, while making greater use of new technologies, to accelerate the creation of long-term economic value.”
Under the new plan, SCOR targets ambitious plans for growth of around 4 to 7% in gross written premiums per year, with an RoE of 800bps above the risk free rate and a solvency ratio in the 185-220% range.
Premium growth will be around 4% to 8% for SCOR Global P&C, with a net combined ration of ~95 to 96%, the company expects.
To achieve this, SCOR aims to “create the reinsurance company of tomorrow.”
This will involve SCOR “profoundly, accelerating its use of new technologies – such as artificial intelligence, robots, blockchain, big data, multi-cloud and satellite imagery – to innovate, expand its product and services offering and increase its efficiency, for the benefit of its clients throughout the world. All areas of the company are involved, from underwriting to asset management and from risk analysis to claims settlement. All of SCOR’s employees are committed to this ambitious and transformative plan.”
SCOR said it will invest EUR 250 million to implement its Quantum Leap strategic plan, with a focus on bringing added value to clients in their digital transformation, expanding new profitable business opportunities, and strengthening its own digital capabilities in particular around robotics, e- business, multi-cloud, big data and artificial intelligence.
Part of the plan for the property and casualty division SCOR Global P&C involves expanding on its P&C Partners unit as an “innovation enabler, catalyst, and accelerator,” the reinsurer explained.
Within this sits growth of insurance-linked securities (ILS) activities, which SCOR clearly recognises as key to its future.
In addition, SCOR’s Global Investments division will also look to build on its position in ILS, the reinsurance firm explained.
“SCOR will fully leverage its positioning as a leading player in ILS with the project acquisition of Coriolis Capital,” the company further explained.
Of course, recently SCOR Investment Partners agreed to acquire one of the longest-standing insurance-linked securities (ILS) fund managers, Coriolis Capital Limited.
The acquisition of Coriolis Capital propelled SCOR in terms of ILS assets under group management to around $2.1 billion, with ILS investing operations in both Paris and London.
Building on this platform is a clear strategic goal for SCOR, hence featuring in its announcing the latest plan for the next few years.
With ILS growth slated within is P&C underwriting and investments side, it seems SCOR may be aligning the two arms of its ILS operations to take increasing advantage of efficient capital markets capacity and the income it can earn from managing it.
SCOR said it will also look to accelerate the use of technology alongside ILS, creating a more robust capital shield by leveraging “technological tools to better tailor ILS instruments.”
It will look to achieve a coordinated market approach across its P&C underwriting and ILS investment divisions, making the most of its access to investors in SCOR Investment Partners, the expertise in Coriolis Capital and access to risk it clearly has.
This will involve independent underwriting and investment decision-making, but coordinated approach to clients in the ILS offering.
SCOR Global P&C fronting capacity will be used for some ILS transactions, on behalf of SCOR Investment Partners and Coriolis, with capacity distributed through regulated investment vehicles, sidecars, quota shares and private ILS.
The aim is to increase the fee income stream from the ILS business, while also enhancing the client proposition by bringing ILS and underwriting more closely together as well, it seems.
“SCOR envisages partnerships with reliable long-term investors in a time of increasing size of deals,” the company also explained.
The firm also sees opportunities to combine specialty insurance capacity with ILS capacity, to enhance its offerings there as well.
The Coriolis acquisition is expected to close in September and brings significant benefits to SCOR, which the reinsurer has put at the heart of some areas of its strategic plan, reflecting the continued growth in importance of ILS capacity.
In addition, ILS and capital market solutions remain a key component of SCOR’s capital shield in the new plan as well.
Finally, SCOR aims to leverage ILS and the Coriolis acquisition to remain at the heart of the climate risk discussion as well, strengthening its natural catastrophe risk offering with broader ILS and weather derivatives offerings.
Overall the plan is typically ambitious.
But in clearly laying out its ambition to more closely integrate ILS into its business, bringing together underwriting and investing to the benefits of clients and revenue stream, while also leveraging its own fronting capabilities to better service the ILS investor base it has created, SCOR is laying out a far more ambitious ILS plan than ever before.
Accessing the capital markets can generate significant growth and income for SCOR, if the appetite of ILS investors is leveraged in the most appropriate and best-aligned manner.
It will be interesting to see how the plan and SCOR’s activities in ILS proceed from now.