Citi’s Shuck: Scor’s strategic plan provides reassurance on earnings
Scor’s new 2024-2026 strategic plan, Forward 2026, has provided reassurance on its path to more dependable earnings supported by a stronger balance sheet, according to Citi analyst James Shuck.
The analyst underlined that while Scor’s new 12 percent return on equity target is lower than that under its previous plan, it comes with “more believability and arguably less volatility”.
Shuck said Scor’s targeted 87 percent combined ratio should be seen in the context of a planned margin rebuild by the reinsurer, although said that Scor was not precise on what this meant.
“We like this approach as a way to deliver more stable earnings and allow the benefits of reduced earnings volatility to be seen, although we would have welcomed more disclosure around the percentiles adopted,” said Shuck.
“P&C Re will remain underweight nat cat, growing in line with OFG,” according to Shuck, with specific growth areas focused on engineering, marine, inherent defects insurance and international casualty.
The analyst expects capital requirements to grow more quickly than the suggested 4-6 percent per annum P&C Re revenue guidance as new business diversification reduces.
Specific revenue and growth targets were not provided for specialty lines, but it was still said to be a key growth area.
On solvency, Shuck said Scor sits slightly below the top end of its 185-220 percent target range, with growth in core earnings the main driver of revenue.
Shuck said free cash flows should improve from €0.5bn in 2023 to €1.5bn by 2026, driven by flat P&C flows and a €1bn swing in life and health (L&H) Re.
CIti set a share target price of €33.1 for Scor and recommended the shares for buy.
The main risks to its target price were said to be pandemic loss exposure in L&H, P&C growth over the upcoming renewals, capital return actions, and M&A.
Scor’s share price closed up 4.67 percent on yesterday’s opening.