Weak results, execution remains the focus

Scor Q3 results fell short of expectations. While the reinsurance sector was thriving amidst a hard market, Scor’s performance demands scrutiny. Despite the confidence instilled by the turnaround during the CMD and the strong ytd performance prior to the release, the current results are not promising. As previously emphasized, effective execution is key and the reported results do not bode well. The increased Nat Cat losses, although a factor, do not entirely account for the disappointing outco

Not that bad a quarter

Scor delivered a decent quarter, we believe. Despite a net profit below expectations and a disappointing P&C performance, the rest of the business held up fairly well while we believe that the woes from P&C were exceptional and were, excluding France, man-made riot-related claims which showed positive signs of an improvement vs. last year. A positive turnaround in the risk embarked by the firm. We believe in upcoming positive momentum for Scor.

A massive and unexpected beat

Scor released a massive beat propelled by both the P&C and L&H lines. Questions surround the sustainability of these results given that the firm has not raised its guidance. Scor’s guidance was also quite low for the P&C business however the results remain very robust. We need a similar Q2 23 to give the share renewed momentum.

Scor’s IFRS 17 2023 targets: nothing to get excited about

Scor has released its FY 2023 targets under the new IFRS 17 framework. Our reading is that the assumptions disclosed do not imply a major improvement vs. what the consensus had been pricing in pre IFRS 17. The EPS and Book value per share should decrease but, as expected, the new framework brings clarity over the (re)insurers’ prospects (via the Contractual Service Margin). We remain neutral vis-à-vis this update.

How sustainable is this quarterly performance?

Scor’s Q4 22 results contrasted with those of the previous quarters. We are not really convinced by the improvement in operations and still sense that the cash is not moving up to the holding company. The group’s FY 23 objectives remain an unknown and will be announced in April, at the same time as the IFRS 17 update. New CEO Thierry Léger will have a lot on his plate and we are mindful of his plans for Scor.

Once upon a time, Scor

Scor has unexpectedly announced the resignation of its CEO Laurent Rousseau, after only 18 months at the helm. This again plunges the firm into a governance turmoil. François de Varenne, supported by Denis Kessler, will be the Interim CEO until Thierry Léger, Group Chief Underwriting Officer at Swiss RE takes over as the new CEO on May 1. There is now significant uncertainty overhanging the Group’s strategy going forward.

A dreadful Q3 but even a negative forward scenario implies upside for the stock

Scor’s Q3 figures were even worse than expected, having been impacted by NatCat and man-made events. The firm increased P&C reserves while some were released from the L&H business. We do not buy the 95% combined ratio objective for 2023. However, despite our bearish estimations, Scor still has fundamental upside and the market reacted as if it had had enough of the negative share price trend.

From bad to worse

Scor’s results were strongly hit by NatCat and the prolonged war in Ukraine, against the backdrop of an inflationary context. While the management tried to convince that the benefits of the efforts to reduce NatCat exposure should pay off within the 12-18 months after implementation (September 2021), we see little room for improvement over the year. While we had not assumed any buybacks this year, we may need to revise downwards our dividend assumptions.

Reinsurance at its finest

Scor’s results have been heavily impacted by the combination of the war in Ukraine and NatCat events (for which the size came as a surprise). In the meantime, the firm is recording outstanding growth, while maintaining a very strong capital position. We wrote a couple of months ago that great momentum was ahead for Scor; this was without counting on a war and the fears of a global recession.

Profitability is striking

Scor’s Q4 release comes with great satisfaction. The French reinsurer has shown great profitability and closes its “Quantum leap” plan outstandingly well. We confirm our positive opinion on the reinsurance sector.

Covéa transaction saved the day, positive signs ahead

Scor’s performance is satisfying at the bottom line, however, COVID-19 related claims remain a drag for the reinsurer’s performance, while the one-off life-business transaction with Covéa positively impacted H1 21 net income, translating into fragile operations. We remain on hold regarding the capital redeployment from the proceeds with further indications expected during the CMD.

Looking brighter going forward

Scor has posted better than expected Q1 21 results. Although weak on an absolute basis, they leave room for optimism and potential to recover from a defensive stock performance against its peers.

All COVID-19 costs booked in 2020, new start for 2021

Scor posted a positive Q4 20, with a jump in its net income to €99m. FY 20 net profit was €234m, -44.5% yoy. The top line was stable, at €16,368m. The reinsurer absorbed the cost of COVID-19, estimated at 3.7% in terms of Life technical margin and 0.7% in the combined ratio. The Solvency II ratio stands at 220%, allowing a dividend of €1.8/share. 2021 would be better with the recent improvement in prices and clearer terms in contracts.

Positive outlook for P&C reinsurance market

Scor announced positive results in its P&C renewal campaign. The reinsurance treaty premium income improved by 15.9% to €3,445m, with an overall average price increase of 7.8%. This is promising for 2021 profitability, mainly with expected further price increases. However, the profitability of Scor is also conditioned by its Life book and the continued spread of the UK variant of Coronavirus in the US should put pressure on its operating earnings, at least in H1 21.

A real change?

Scor has selected Benoît Ribadeau-Dumas as the next CEO to succeed Denis Kessler in 2022. He has strong industrial and political roots but no background in the reinsurance industry. Denis Kessler will also remain as the Chairman of the group and a resolution to this effect will be submitted at the 2021 General Meeting. This means that the veteran CEO will continue to be the reinsurer’s strong man for years to come.

Redde

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