S&P Comments on SCOR’s Earnings Announcement

Standard & Poor’s Ratings Services indicated that its ratings and outlook on French reinsurer SCOR and its guaranteed subsidiaries – currently “BBB+” with a positive outlook – would not be affected by the company’s earnings announcement for the financial year ended Dec. 31, 2004 (See previous article).

S&P said, “although these results are satisfactory, they are in line with our expectations.” After noting the earnings highlights, S&P observed that the “combined ratio on the non-life business was 100.1 percent. This is satisfactory in light of the magnitude of storm-related losses during the second half of the year and the disproportionate impact that administrative expenses continue to have on SCOR’s performance.”

The rating agency noted, however, that ” SCOR’s cost base continues to be higher than that of its peers, as the company seeks to operate on a lower volume of business without compromising the quality of its service offering. Significantly, the group’s result was not materially affected by deterioration on prior year reserves. At the group level, management has confirmed that SCOR continues to hold reserves at actuarial best estimate.”

S&P also indicated that SCOR’s “life reinsurance business remained stable year on year at 47 million euros [$61.2 million] (2003: 50 million euros [$65.1 million]), demonstrating the quality of earnings that SCOR continues to derive in this segment. SCOR’s capital position has been reinforced both by the increase in its retained earnings and, more significantly, by the continued de-risking of its balance sheet, particularly in respect of its much reduced U.S. operations and exposures. This is also reflected in the 16 percent year-on-year reduction (at constant exchange rates) in the gross technical reserves that SCOR held in respect of its discontinued U.S. portfolio at Dec. 31, 2004.

“These reserves totaled 1.16 billion euros [$1.51 billion] at year-end (2003: 1.5 billion euros [$1.953 billion]) and have been further significantly reduced since then as a result of the completion of further commutations. The improvement in SCOR’s operating performance in financial 2004 reflects the significant progress the group has made over the past 18 months in successfully defending its competitive position, although challenges still remain.

“These include SCOR’s ability to generate consistent underwriting profits throughout the cycle, to reconfigure its cost base without damaging its franchise, and the negotiation of an agreement to buy out the minority shareholder in its Irish subsidiary, Irish Reinsurance Partners Ltd. (BBB+/Positive/–).”

Topics Profit Loss