S&P Raises SCOR Outlook; Affirms ‘BBB+’ Rating

November 10, 2004

Standard & Poor’s Ratings Services announced that it has revised its outlook on French reinsurer SCOR and its guaranteed subsidiaries to positive from stable. At the same time, S&P affirmed its ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on the group.

“The positive outlook reflects Standard & Poor’s belief that within a two-year rating horizon, SCOR’s management team will demonstrate that it has the skills and commitment to generate consistent underwriting profits throughout the cycle,” stated S&P credit analyst Marcus Rivaldi.

SCOR has been in the financial wilderness for over two years, culminating in the November 2003 announcement that its capital position had deteriorated to such an extent that it needed to raise an additional 600 million euros (around $650 million at the time). Eventually it raised 750 million euros (around $800 million), but by then S&P’s ratings on the group had slipped to “BBB-,” a real danger level.

Therefore the last line of yesterday’s announcement must have come as sweet music to CEO Denis Kessler’s ears, as S&P said SCOR’s “capital adequacy is expected to move comfortably into the ‘A’ range in order to offset less-strong quality of capital and to provide protection against less favorable prospective underwriting conditions.”

S&P said its action on SCOR’s ratings, “reflect its strong competitive position, which has proved resilient to past financial difficulties; appropriate strategy; strong prospective capital adequacy; lower reserve risks; expectations of a strong improvement in aggregate operating performance during 2004 and 2005; and good financial flexibility (the balance between capital requirements and sources).”

The rating agency also indicated that it “expects a group-combined ratio for 2004 of just less than 100 percent, with a similar or slightly better level for 2005. SCOR’s ability to reconfigure its cost base to deal with potentially lower premium income levels in the future will likely be necessary.

“This will include a progressive return over the medium term to an administration cost ratio of about 5 percent. Controlled premium growth of about 10 percent is expected for 2005, as the group recovers shares recently lost on existing treaties with existing clients. Geographically, Continental Europe will provide the greatest potential for growth.

“Beyond 2005, premium volumes will move in line with market conditions. SCOR has sufficient financial flexibility to successfully settle outstanding legal issues, particularly the purchase of the minority stake in IRP, without jeopardizing its capital adequacy position.”

The stock market liked the news as well, as the company’s ADR shares opened at $1.66 on the NYSE, and closed at $1.86, a 9 percent gain. They continued they’re upward move in Paris this morning.

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