Scor: Nat cat and other lines hold promise, but T&Cs and P&C portfolio balance remain key
While industry concerns mount over the increased frequency and severity of natural catastrophe events, Scor says that property catastrophe and other business lines continue to hold promise so long as the right conditions are met, and an appropriate balance can be struck across its entire P&C portfolio.
Speaking to this publication in the lead-up to this year’s Rendez-Vous de Septembre, Jean-Paul Conoscente, who serves as CEO of Scor P&C, said the Paris-headquartered reinsurer “remains a large property reinsurer, and we intend to continue to provide significant capacities to our clients on a XoL basis”.
As Conoscente explained, heading towards the 1 January 2024 renewals, Scor’s appetite for catastrophe-exposed proportional and aggregate covers “will remain limited”.
Currently, the executive said Scor’s property catastrophe portfolio “is today well balanced between US and non-US exposures”.
Speaking at a press conference to discuss Scor’s Q2 results in July, the reinsurer’s newly appointed CEO Thierry Léger said the company had reduced its property cat capacity “quite significantly” in the period leading up to and including 1 January, especially in climate change-exposed regions, along with lower layers, frequency layers and aggregate covers.
At the earnings discussion, Conoscente said the company sees property catastrophe business “as being attractive”.
And speaking to The Insurer, Conoscente said that if pricing, along with terms and conditions, continue to improve in the US, then Scor “will look at potentially growing our appetite on cat XoL business above the 1-in-10 return period”.
Further property improvements needed
While it remains to be seen whether those improvements are forthcoming, Conoscente is adamant further correction is required, despite the rate rises and tightening of terms and conditions that have recently been imposed.
“We believe that despite the successive waves of price increases, property insurance remains underpriced in the US and elsewhere because climate change claims inflation has been growing faster than price increases,” said Conoscente.
Some exceptions to that can be found within the excess and surplus lines space, although even within that fast-growing industry segment, the instances where pricing is sufficient are “limited”.
“Due to a combination of increased exposures stemming from construction and population expansion in risk-exposed areas, and increased frequency and severity of climate-related events resulting from the new climate regime we have witnessed for the past seven years, [we believe that] cat claims will continue to rapidly increase, requiring both a review of the limits deployed in some areas, as well as continued significant pricing improvements.
“The first half of 2023 was a good illustration of this,” Conoscente declared.
The need for further price rises and strengthening of terms and conditions is not limited to just the US either, the executive said, with other regions of the world also in need of improvements.
“The significant increase in climate-related cat claims is not just a US problem,” said Conoscente.
“It is indeed a global problem. As we see, significant flooding, wildfires and tornado/hail events are now commonplace around the world. All property prices need to reflect this new reality,” he said.
Casualty also under pressure
It is not only in property where there is need for improvement. The casualty reinsurance sector’s profitability is also under pressure as it battles the impact of inflation – both economic and claims-based – while the price rises that have been prevalent in many of the primary business lines that support quota shares have slowed or, in some sectors, reversed with rate reductions now being applied.
“On the US casualty side, we believe the segment profitability is still challenged overall as claims inflation continues to grow significantly year on year, whereas primary price increases have slowed down or stopped,” Conoscente said.
“For reinsurers, the issue is exacerbated by high commission levels, which are no longer sustainable,” the executive stated.
Looking ahead to 2024, Conoscente forecast that US casualty quota share commissions “will be a very contentious area” during renewal discussions because, the executive said, “reinsurers’ margins are insufficient to absorb the type of claims volatility we have witnessed on US casualty and auto losses”.
“To be sustainable, primary rates need to increase much further; and reinsurance commissions need to get back to mid-20s level,” he stated.
Eyes cyber growth
While Scor has adjusted its portfolio in some segments, with property catastrophe being a notable example, the reinsurer has been building out its book of cyber business.
Scor currently writes just over €200mn in cyber, and generally targets high single-digit/low double-digit shares across reinsurance programs.
Conoscente said cyber remains an area of growth for the entire industry, as well as for Scor. However, he said the segment remains under stress given that demand outstrips supply, while pricing has started to flatten or even move downwards following several years of significant increases.
At the same time, while ransomware claims are once again on the rise, the (re)insurance industry is yet to face a truly catastrophic, systemic cyber event.
“As a result, all actors including reinsurance take a prudent stance on cyber accumulations,” Conoscente said.
“Scor will continue to do so whilst accompanying our current clients on their portfolio expansion.”
Engineering and marine growth
Cyber is just one of the global lines and specialty segments where Scor is looking to potentially grow its book, with engineering and marine both offering attractive returns to reinsurers, Conoscente said.
“Given our underweight presence in these segments, we believe them to be attractive areas of growth potential for Scor,” he noted.
Some areas where Scor is taking a more cautious approach include credit and surety, along with financial lines and D&O. Conoscente said those sectors “are very sensitive to economic cycles, and the future landscape remains very stochastic”.
Elsewhere, Conoscente pinpointed agriculture-related lines of reinsurance as another area exposed to climate change, causing Scor to remain cautious.
“We have also seen agricultural lines of business suffering from the effects of climate change in a similar fashion to property lines of business,” he said.
“Whilst we want to remain a major reinsurer in this area, we need to better manage our global balance and plan to grow slightly in countries where we are currently underweight; and restrict our growth in our peak countries.”
Aside from business line-specific coverages, Conoscente predicted Scor’s structured solutions team will attract greater interest from clients who are grappling with increased capital constraints, after they were hit with increased reinsurance retentions and continued portfolio volatility.
“We already have a well-established alternative solutions team in Europe and plan to expand it globally, whilst significantly upscaling our current portfolio,” highlighted Conoscente.
Scor ended 2023’s second quarter with a P&C combined ratio of 88.5 percent, a major improvement on the 113.1 percent the reinsurer posted for the prior-year period.
For the first half of this year, Scor’s P&C combined ratio was 86.9 percent. That result is in line with Scor’s full-year assumption of 87 percent, although CEO Léger expressed dissatisfaction at the high attritional loss ratio contained within the figure.
Conoscente said Scor is continuing to focus on the pricing adequacy across its entire P&C portfolio as it looks to reduce its attritional loss ratio.
“This means incorporating all new claims trends in our pricing, and allocating capital to lines of business providing the best returns,” the executive stated.
“We believe our 2023 portfolio largely achieves this and we will continue to push for improved terms and conditions with the same determination and resolve,” Conoscente added.