Scor in “materially better place” as company turns the page after difficult 2022: KBW

Scor’s balance sheet is now in a “materially better place” with the risk/reward around the reinsurer’s shares much improved following the group’s recent reserve strengthening, according to KBW’s Darius Satkauskas.

The Paris-headquartered reinsurer has endured a difficult 2022, culminating in a net loss of €509mn ($535mn) for the first nine months of the year following €485mn of pre-tax P&C reserve strengthening in Q3.

But Satkauskas believes actions taken by Scor's management, alongside messaging at the group’s recent investor day which provided management with an opportunity to “turn the page”, have put the company in a stronger position as 2023 approaches.

He told The Insurer TV: “Our view is that the risk/reward has notably improved and that investors should start trading the shares on earnings and dividends, which means there's a lot of value in the shares.”

Scor’s share price has fallen more than 26 percent during the year to date, although this masks a 19.8 percent recovery in November – a reflection of both the equity rebound generally and positive reaction to the investor day.

“Management essentially found a way to finance a notable reserve charge in the P&C segment with prudence from its life business,” Satkauskas explained.

“If you look at the €485mn reserve charge, two-thirds of that is a forward-looking structure inflation adjustment, which, in our view, means additional prudence in the reserves. The rest of the charge was taken for the latent liability claims,” he said.

“We also think it's important that you consider the context of the overall reserve charge. The group did not just look at a few problem areas – this was a group-wide reserve assessment, including an external assessment of key areas in the US casualty and property segments.”

Satkauskas said there was also a lot at stake for management to get this right, given that Scor CEO Laurent Rousseau was relatively new to the position and had been focusing on reducing earnings volatility.

“Fixing the back book is the best way to do that. The new management team has been aiming to rebuild investors' trust, in order to avoid being seen as a value trap.

“Scor’s management team has been very clear about the upcoming reserve charge and given where the shares were trading, this was an opportunity to do more rather than less.

“Nothing in the disclosures suggested that the earnings power should deteriorate as the group is still targeting 95 percent or lower combined ratio, and maintains live technical margin and target.

“We think the risk/reward around the dividend has also materially improved. If the group is comfortable with its earnings power, and the balance sheet remains strong, we find it very difficult to see barriers to maintaining a grow income, when you're €1.80 per share ordinary dividend going forward.”

In this 10 minute interview, Satkauskas also discusses:

  • The strengths and weaknesses of the four largest European reinsurers ahead of 1.1
  • How nat cat losses are affecting these reinsurers’ balance sheets and their views on the 1.1 renewals
  • How reinsurers are reserving for the effect of economic and social inflation