Global reinsurance group SCOR has shrunk its January 1st renewal book by roughly 12%, in terms of premiums underwritten, with actions taken to shrink its catastrophe exposure, but the firm remains confident the hard market will persist and it will have opportunities to deploy additional capital later in the year.
Going a little against the grain of what are seen as the best underwriting market conditions in well over a decade, SCOR has elected to pull-back and save more capital for the later renewals this year, it seems.
The reinsurance firm has shrunk its property and casualty treaty renewals book by more than 20% year-on-year, and its global treaty book has grown by 3.6%, resulting in a -12.1% shift in the renewal portfolio at January 1st 2023.
SCOR states that this is all with the goal of improving the expected profitability of its underwriting portfolio, and the risk-return profile of its P&C business, while taking advantage of favourable market conditions.
A further reduction in exposure to natural catastrophe risks has occurred at the 1/1 renewals, with SCOR lowering its 1-in-250 year net catastrophe probable maximum loss (PML) by a further 14% at 1/1 2023.
That’s on the heels of a 21% reduction in catastrophe PML at the renewals in January 2022.
SCOR has also taken action to slash its exposure to lines of business most linked to economic and social inflation, in particular cutting 24% of its casualty and motor line premiums at the renewals.
An overall rate increase of 9% across the portfolio of reinsurance underwritten is expected to combine with the actions taken to deliver an improvement to the expected net underwriting ratio of around 2.5 to 3 points, SCOR estimates.
Property catastrophe reinsurance treaties are seen as the main source of the rate improvements, with SCOR citing average rate-on-line increases of 71% for North America property cat, 44% for European property cat, 37% for Latin America, Middle East and Africa, and 18% for Asia Pacific.
Having pulled-back at the January renewals, SCOR has dry-powder left for renewals later this year, it now seems.
The reinsurance firm said that it is “confident that the current P&C cycle will continue” and is actively preparing for the April, June and July 2023 renewals, in what it sees as “a positive market environment.”
SCOR noted that, on the January 2023 contract signing period, “These renewals have been marked by a decrease in reinsurance supply and strong demand for protection from cedants.”
The reinsurer said it has “thoroughly reviewed” its underwriting at 1/1, focusing on “diversification and portfolio balance to take advantage of current market conditions.”
In further slashing its natural catastrophe exposure, SCOR said that it has achieved this by cutting limits on catastrophe-exposed property proportional covers by -30% and aggregate excess-of-loss by -25%, as well as through a “significant increase in cedant retention.”
Retentions are cited as having risen 34% for US catastrophe excess-of-loss treaty renewals, 149% in Canada, 100% in Germany, 64% in France, 147% in Italy, 93% in the UK, and 100% in Australia and Asia Pacific.
The reduction in proportional treaties amounted to -24% in property risks, but SCOR noted that there was a reallocation towards excess-of-loss here.
However, SCOR also said it has shifted the property cat XL book to higher return periods, further adjusting the risk profile of its portfolio.
On top of this, SCOR said it achieved improved terms, through exclusions of additional perils, higher attachments and tightened reinstatement provisions.
Jean-Paul Conoscente, CEO for P&C at SCOR, commented, “In one of the best reinsurance environments witnessed in a few decades, SCOR is taking all possible steps to improve the risk-reward profile and technical profitability of its portfolio.
“To achieve this, SCOR has been particularly focused on controlling exposures, on optimizing the capital allocated to the various lines, and on diversifying its risk portfolio. I am confident: the technical profitability of the renewed portfolio should increase significantly.
“Market hardening looks set to continue, which will allow SCOR to continue to deploy its capital under favorable market conditions during the next renewals.”
Overall, it seems SCOR has looked at the January renewals through a new lens, assessing the profitability of some arrangements it may have underwritten for years and reducing or restructuring them, to shift the risk profile considerably.
The pull-back in property catastrophe risks has been underway for some years, as the reinsurer reversed its previous growth into some cat zones, including the US.
If SCOR can find similarly attractive opportunities at the renewals to come in 2023, there is every chance it can still build the size of book analysts had been hoping to see, but more spread across the year and more diversified as a result.
Analysts are already commenting this morning that SCOR’s renewals are below their expectations, as many had forecast growth from the reinsurer.
But the sentiment is mixed, with some applauding SCOR’s actions, on the proviso it can grow and make up for the premiums relinquished at 1/1 at the remaining renewals this year.
SCOR shrinks at 1/1, slashes cat again, but confident in hard market opportunity was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.
Leave a Reply