SCOR’s lower cat exposure driven by climate change not retro pricing, says Conoscente

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The 11% reduction of catastrophe exposures on SCOR’s P&C in-force portfolio for 2022 was driven by the reinsurer’s adjusted view of risk due to climate change, as the price rises achieved on the cat portfolio offset higher retrocession rates, according to Jean-Paul Conoscente, Chief Executive Officer (CEO) of SCOR Global P&C.

Early this morning, the French reinsurer reported premium growth of 19% and an overall average price increase of +4.9% in P&C reinsurance at the January 1st, 2022, reinsurance renewals.

Alongside robust overall growth, SCOR announced the further pruning of its catastrophe exposure for 2022 as it continues to actively manage the volatility of its book. In fact, underwriting actions resulted in SCOR reducing cat exposures at Jan 1st by -7% on treaty reinsurance, and by -11% on the P&C in-force portfolio for the full year 2022.

Speaking today on a call about the firm’s experience at the recent reinsurance renewals, executive Conoscente explained that the main line of business where SCOR reduced is property.

“So, as we said, we reviewed property proportional that was both in the US, Europe and Australia, where we reduced,” he said. The company also felt it prudent to reduce in property cat, “on the aggregate covers as well as the lower layers, where price increases were not sufficient, we reduced significantly.”

Additionally, SCOR reduced on some per risk lines on property, “where there was big cat exposure and not sufficient rate increases.”

“The other lines of business we didn’t see any big reductions. And on the contrary, we felt that the overall environment was probably better than last year,” he added.

In its press release, SCOR revealed that despite the higher cost of retrocession, which it says it has contained, it still purchased roughly the same limit for 2022 as it did for 2021. But while the retro market was challenging at 1/1, Conoscente explained that retro market conditions were not the driver of its reduced catastrophe exposure.

“What we see is the increase of the retro pricing, and as we mentioned in the press release we bought roughly the same limit as last year, basically is balanced out by the price increases we achieved on the cat portfolio. So, the net effect of the retro is more or less zero.

“So, the decrease we’re seeing is really from our adjusted view of risk due to climate change, and just our re-evaluation of the risks overall,” said Conoscente.

Last year, SCOR announced an increase to its natural catastrophe budget for 2022 from 7% to 8%, which is part of the firm’s transition to model its cat portfolio on a forward looking basis. But despite the 1% uplift, the carrier still decided to shrink its cat exposure and bring down its PMLs materially at the renewals.

During the call, Conoscente provided some insight into the firm’s thinking around this: “What we’ve done is we modeled the cat portfolio on a forward looking basis and calculated our cat budget for 2022 on a forward looking basis. Taking into account the reduction of our net PMLs as well as the increases that we expect from climate change, especially on secondary perils, where we’re confirming our 8% budget for 2022.”

SCOR is the latest reinsurer to cut its property catastrophe exposure at the Jan 1st, 2022, renewals amid consecutive years of above-average losses for the industry. While rates have been trending higher for some time now, notably for loss-affected business, many players still feel that increases are insufficient in certain areas and have highlighted a need for more rate.

According to Conoscente, on a gross basis, the expected profit one is able to achieve on property business would still be higher than on casualty.

However, “you put this on a net basis, whether you buy retro like we do or you buy reinsurance if you’re an insurance company, I’d say today, on an insurance basis, probably the US casualty has a better risk-return profile than property. The amount of capital required and the return you get for the capital is slightly better, on a net basis, than it is for property,” said Conoscente.

“As a reinsurer, that’s where you have to look further because it’s not just about the underlying book, it’s also the amount of commission you pay to access the business. And there it really depends on the conditions you’re able to obtain. So, today, we see casualty, I’d say, for reinsurance on par with property from a risk-return basis; slightly better depending on the conditions that were obtained.

“On the insurance side, we see a much better risk-return than we see on reinsurance for casualty,” he concluded.

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