SCOR SE
Fitch Ratings has downgraded
The Outlooks are Stable. A full list of rating actions is below.
The downgrade reflects SCOR's continued weak financial performance, which has fallen short of our expectations for five years and has worsened in 2022. We believe that until SCOR is able to demonstrate evidence of a successful turnaround, this profitability level is no longer commensurate with our expectations for a 'AA-' rating or consistent with that of 'AA-' rated peers.
The Stable Outlook reflects our expectations that the gradual implementation of the company's action plan should allow profitability to recover in the next 12 to 24 months to a level that is supportive of its new rating. Meanwhile, we expect SCOR's ratings strengths - its company profile within the global reinsurance sector and its capitalisation - to remain very strong.
Key Rating Drivers
Pressured Financial Performance: SCOR has been suffering from low financial performance for a 'AA-' rating. 2017-3Q22 was negatively affected by large catastrophe losses, pandemic claims and low investment income. Over the five years to end-2021, return on equity (ROE), as calculated by Fitch, averaged 5.5%, which is low relative to our 'a' category guideline for financial performance. The reported P&C net combined ratio (CR) averaged 100.6% over five years, which is consistent with the 'a' category.
SCOR reported a net loss of
Action Plan to Restore Profitability: SCOR's one-year action plan announced in
The loss mitigation effect of some of these actions is already visible and should be more pronounced in 2023. This supports our expectations for a return to a profitability level in 2023 that would be commensurate with the company's new rating. Specifically, the 21% reduction in natural catastrophes risk exposure in 2022 and the 50% cut in agriculture risk exposure in 2023 should contribute to lower P&C earnings volatility. We also expect the benefit of rising prices, higher reinvestment rates and reduced pandemic excess mortality claims to support earnings improvements in 2023.
Favourable Business Profile: Fitch ranks SCOR's business profile as 'Favourable' compared with that of all other reinsurance companies. We expect SCOR to maintain its very strong global franchise as it implements its profitability improvement plan. SCOR has a higher proportion of life and health reinsurance business than its peers. Management has taken actions to rebalance the business mix since 2021, reducing US mortality and natural catastrophe risk exposures.
Very Strong Capitalisation: Fitch considers SCOR's capitalisation as 'Very Strong', as measured by its Prism Factor-Based Capital Model (Prism FBM) at end-2021. The estimated Solvency II ratio was 217% at
Strong Leverage: The Fitch-calculated financial leverage ratio (FLR), which adjusts for unrealized fixed income losses, was estimated at 23% at
Fitch has revised the ESG Relevance Score for exposure to environmental impacts for SCOR to '4' from '3' due to the negative impact that past natural catastrophes had on the credit profile. Fitch notes that SCOR has reduced its exposure to natural catastrophe risk in 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Structurally low profitability, as reflected in a ROE below 4% for a sustained period.
A significant deterioration in capitalisation and leverage, as reflected in a Prism FBM score falling to the 'Strong' category or an FLR rising above 32% for an extended period.
A weaker business profile, as reflected in a substantial erosion of the company's competitive position in key franchises.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Successful implementation of the action plan, allowing the reinsurer to generate stronger, less volatile earnings, as reflected in a net income ROE sustainably above 8%, provided Prism FBM remains 'Very Strong' and the FLR remains below 25%.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2022 Electronic News Publishing, source
