S&P Downgrades SCOR Ratings to ‘A’ from ‘A+’

October 22, 2002

Standard & Poor’s Ratings Services announced that it has lowered its long-term insurer financial strength and counterparty credit ratings on France’s SCOR and its subsidiaries to single-‘A’ from single-‘A’-plus with a stable outlook, and removed them from CreditWatch.

The announcement stressed that its action included the ‘A’ rating on Arizona-based General Security Indemnity Co. (formerly Fulcrum Insurance Co.) following “receipt of assurances from SCOR that this legal entity remains a fully guaranteed subsidiary of the SCOR group.”

“The rating actions on SCOR reflect Standard & Poor’s expectation that, in common with the whole reinsurance industry, while underlying earnings are expected to be strong in 2003 and 2004, the ability of SCOR to sustain long-term profitability consistent with the higher rating level is limited,” stated S&P’s credit analyst Marcus Rivaldi. “The ratings on SCOR continue to reflect the group’s strong business position within the reinsurance sector, and its strong, although pressurized, capital adequacy position.”

SCOR responded that “The new rating should be seen in the context of Standard & Poor’s vision of the reinsurance industry as a whole. The Group is confident that, as recognized by Standard & Poor’s, its strong business position and very strong brand, will enable it to benefit fully from the current positive market environment for the reinsurance industry.”

S&P originally placed the Group on CreditWatch following SCOR’s announcement that it had entered into exclusive negotiations to acquire part of the operations of the Germany’s Gerling Group. It maintained the review, even after the negotiations ended, due to “continuing concerns about the SCOR group’s capital adequacy position, operating performance, and financial flexibility (that is, its ability to fund capital requirements).”

S&P indicated that despite its standing as the 8th largest global reinsurer, and its dominant position in the French market and in Europe, “SCOR’s recent operating performance has been marginal. The group has been unable to translate its strong business franchise and brand into sustainable earnings commensurate with a higher rating.” S&P also noted that this applied to a good deal of the rest of the reinsurance industry as well.

“In addition,” S&P’s bulletin continued, “earnings expectations for the SCOR group have been frequently reassessed in light of actual results. Despite an increasingly attractive underwriting environment, reported improvements in operating performance during the first half of 2002 have been sluggish. This stems primarily from the ‘earnings drag’ of less profitable business from earlier years, combined with the immediate impact of high-level protection costs. ”

The announcement added that, although S&P “expected SCOR to achieve strong operating performance over the next few years,” it questioned whether this “positive environment for the reinsurance industry” will extend past 2004.

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