Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SCOR SE (SCRYY, Financial) maintains attractive margins and growth in preferred lines of business in P&C, with a combined ratio of 87% for the first six months.
- The company has a high-quality fixed income portfolio with stable and elevated returns, achieving a regular income yield of 3.5% in H1 2024.
- SCOR SE (SCRYY) has a strong solvency ratio of 201%, within the target range of 185% to 220%, despite a significant impact from life & health reserving assumptions.
- P&C premiums are up by almost 16% year-to-date, with strong growth in specialty lines such as engineering, marine, and energy.
- The company has a three-step plan to restore profitability in life & health, focusing on reserve adjustments, maximizing value from the in-force book, and increasing diversification and profitability of new business.
Negative Points
- Life & health results have been significantly impacted by an ongoing reserve assumption review, resulting in a negative insurance service result of EUR257 million for H1.
- The economic value of SCOR SE (SCRYY) has reduced from EUR9.2 billion to EUR8.4 billion, well below the 9% growth target.
- The full-year life & health ISR is expected to be well below the target range of EUR500 million to EUR600 million.
- The company faces challenges in the US casualty market, maintaining stable premiums but reducing net exposures due to insufficient market improvements.
- The solvency ratio would have been 221% excluding the impact of the life & health reserving assumptions review, indicating a significant hit to the balance sheet.
Q & A Highlights
Q: Can you provide additional thoughts on how the previous reserving assumptions were not appropriate across different geographies and lines of business? What led to this large adjustment?
A: We review all assumptions annually, but deep dives cover 100% of the portfolio over three years. The 2024 review focused on the US, Canada, South Korea, and Israel. The adjustments were due to technical assumptions like lapses and net amount at risk, not changes in mortality trends. The impact was significant enough to communicate immediately.
Q: What is the potential Solvency II impact from the additional actions you are taking?
A: The best estimate for the additional impact is around EUR100 million in ISR and EUR400 million in CSM. The solvency ratio impact would be proportional to the 20-point hit already booked, and we are confident in maintaining the solvency ratio within the optimal range of 185% to 220%.
Q: What are the drivers for whether the second half ends up being as bad as minus EUR0.4 billion or not?
A: The booked figures are the best estimate based on current information. No new deep dives are planned, and the final results will be communicated in December. The amortization rate of the CSM will be updated based on the finalized review.
Q: Is there a structural uplift to the reserve buffer in P&C, or will it flow through the P&L over time?
A: The buffer strategy aims to build EUR300 million in P&C reserves by 2026, used during high CAT activity or low P&C cycles. For life & health, we added EUR300 million of prudence to reserves, booked as an add-on to the risk adjustment under IFRS 17.
Q: How should we think about the amortization rate of the CSM going forward?
A: The amortization rate for the first six months is 6.8%. We will update the forward 2026 targets and assumptions in December, which will include any changes to the amortization rate.
Q: How comfortable are you with the level of diversification in your life & health required capital?
A: The SCR breakdown shows that life underwriting risk contributes 31% undiversified and 35% diversified to the total SCR. Mortality risk accounts for roughly 70% of the life underwriting risk. We are comfortable with this level of diversification.
Q: Can you explain the disconnect between SCOR's and Covea's booking of losses on the life & health retrocession block?
A: We cannot comment on Covea's bookings due to ongoing arbitration. However, all figures presented are net of retrocession, including to Covea. We do not recognize the figures mentioned in the French press.
Q: What is the normal run rate for the P&C attritional loss ratio, and how much was put aside for reserve build?
A: The normalized run rate is around the current level, including additional prudence. We do not quantify the exact amount each quarter but are well above the trajectory needed to build EUR300 million by 2026.
Q: Is there potential for more positive outcomes from management actions in the US mortality book?
A: Yes, we actively manage the in-force portfolio. Recent management actions have led to positive outcomes, including arbitration decisions and rate increases. We expect to see more benefits from these actions in the future.
Q: Are there any management actions in the pipeline to support the Solvency II ratio if needed?
A: We have tools to restore the solvency ratio if needed, including tailored retrocession schemes. We also have a strong capital generation from P&C and investments, and we continuously optimize capital deployment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
