While its close competitors, Swiss Re And Munich Rewith good results, Scor reported a net loss of 112 million euros in the first half of the year and 308 million euros in the second quarter alone. Losses attributable to the life and health activity, according to the general director of Scor, Thierry Léger, who simultaneously announced the departure of Frieder Knüpling, Managing director of the L&H department (Life & Health), which he now leads directly.
A warning of results fifteen days before
Fifteen days earlier, the French reinsurer wanted to be transparent by announcing to investors on July 15 the foreseeable losses for the first half of the year, after a accelerated annual review of assumptions relating to life and health, and integration of “best guess” of its impacts in Q2 results. Since late July, Scor’s accounts have been scrutinized by analysts trying to explain its poor performance during this prosperous period for reinsurance.
The rating agency Moody’s ratings published on August 2 a report on the French reinsurer’s financial losses in the first half of 2024. And despite this negative development, Moody’s Scor maintained its financial strength rating at “A1”, as well as the stable outlook.
“The worsening of claims in a number of long-term healthcare contracts entered into in Israel and terminated from 2019 explains a fall of EUR 469 million in the second quarter of the underwriting result (insurance service result, ISR) compared to the second quarter of 2023, explain the analysts at Moody’s Ratings. The news IFRS 17 accounting standard actually forced the French reinsurer to recognize this loss in the income statement, whereas previously it was counted in “loss-making contracts”.
IFRS 17, which applies to liabilities, introduces two major changes: a valuation of liabilities at market value and the introduction of margin on contractual services (Contractual service margin or CSM), which reflects the present value of expected future profits.
One year after the “quantum leap” in IFRS 17
However, in April 2023, a month before the presentation of its first quarter results according to IFRS 17, the management of the Scor group expressed its satisfaction with the changes in the new accounting standards. “The transition to the new IFRS 17 accounting standard represents a real quantum leap for the reinsurance industry in general and for Scor in particular, then declared Denis Kesslerchairman of the group, who died a few weeks later. This new framework reflects more accurately and more credibly the financial value of the group’s risk portfolio, particularly as regards life reinsurance. This economic value is now fully recognized in the group’s accounts. » The French reinsurer wanted to see one “possibility” Before “reveal the full value of its risk portfolio, particularly in life reinsurance, through the introduction of the contractual service margin, which reflects the present value of expected future profits based on strict and revised rules”.
But today the reality that emerges through these indicators is completely different. According to Moody’s Ratings, the decrease in CSM, as reflected in Scor’s results for the first half of 2024, is mainly a result of the review of the assumptions of the mortality portfolio in the United States, worth 500 million euros. “We believe this revision is not due to higher than expected mortality in the portfolio, but rather changes in assumptions persistence, premium volume and long-term claims”, indicate the authors of the report. The increase in claims of morbidity in South Korea and the failures of the Canadian companies contribute to the decline in CSM.
However, the reduction in CSM indicates a significant decrease in the future profitability of Scor’s life portfolio, the rating agency assesses. However, “The risk of negative surprises should decrease after the review is completed. (…) It will take time before Scor’s director general’s plan bears fruit,” conclude the report’s authors, who also note a moderate weakening of solvency ratio of Score at the end of the second quarter, from 215% in the first quarter to 201%.
Reserved and pending analysts
Despite the reinsurance company’s declining performance, rating agency S&P Global also renewed at the end of July its “A+” financial strength and long-term issuer credit ratings assigned to Scor and its main subsidiaries, as well as the stable outlook, while specifying ” does not see any upside potential for Scor over the next two years. » In November 2022, following the group’s negative results in the third quarter of 2022, S&P Scors downgraded its credit rating and financial strength from AA- to A+.
On the other hand, AM best placed ” under surveillance with an evolutionary perspective » Scors and its principal subsidiaries’ financial strength rating, currently “A”, and issuer credit rating, “A+”, “Pending the review of Scor’s provisions, the new strategic plan for L&H activities will be published in December 2024”.
Thierry Leger will present the group’s results for the third quarter on 14 November and the revised version of the strategic plan on 12 December.
