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Consequence: Jefferies downgraded to Preserve – 11/18/2022 at 10:04 am

(AOF) – Jefferies has lowered its buy rating to hold and its price target from EUR22.50 to EUR17.50 to Scor following S&P’s downgrade of its credit rating. According to the consultancy, the rating agency’s decision will weaken the group’s competitiveness unless it accepts lower prices than its higher-rated competitors. “This is the result that we thought management managed to avoid by unveiling an action plan during the third-quarter results,” the analyst said.

“In addition, Scor benefited from a virtuous cycle of rating upgrades over the 2004-2016 period, as capital and earnings improvements led to rating upgrades, which in turn spurred growth and other rating upgrades. The risk of a downgrade of this rating is that this spiral is reversed,” the broker warns.

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Important points

– Fourth largest reinsurer in the world, born 1970, leader in the US life reinsurance market with a third of the market share;

– Very safe risk profile: most geographically diversified reinsurer and fair split between life reinsurance under the Scor Global Life brand (more than half of the premiums) and non-life reinsurance under the Scor PC brand;

– Gross written premiums of €17.6bn and successful diversification in wealth management with a portfolio of €20.3bn, 8/10 invested in bonds;

– Business model organized in 3 autonomous management “hubs” (Americas, Asia-Pacific and EMEA), with underwriting and claims management depending on the life and non-life lines of business;

– Open capital, the first shareholders are Covea (8.44%) before employees (4.60%), Denis Kessler is non-executive chairman of the 16-member board of directors until 2022 and Laurent Rousseau chief executive officer;

– Exceptionally strong financial position with a AA debt rating, equity of €5.5 billion, a debt ratio of 30.6% and a solvency ratio of 240%.

challenges

– Ahead of the launch of a new plan unveiled on November 9, strategy to reorganize insurance portfolio at the expense of the natural catastrophe sector, increase to 10% of valuable assets, such as B. Corporate loans and reduction of liquidity in portfolio investments;

– Innovation strategy aimed at preventing the emergence of new competitors, artificial intelligence-related technologies that make the forecasting and probabilistic work of insurers accessible to other actors, hence the use of data collection, processing and safeguarding and the integration of artificial intelligence in reinsurance operations / the launch of the hELIOS platform and the partnership with start-ups and insurtech / the use of public clouds / 250 million euros investments in technologies;

– Environmental strategy at the heart of the strategy, reinsurers very exposed to climate risks: CO2-neutral investment portfolio in 2050 / support for research on climate risks / creation of specific offers -FEEL, BAM or VITAE- in life reinsurance / use of carbon credits and introduction of a “green” credit facility;

– Reduction of the amount of the probable maximum loss to 21% for 2022, carried out during the non-life reinsurance renewals on 1 June and 1 July and increasing the reinvestment rate to 4.1% at the end of June.

challenges

– sensitivity to natural disasters and major industrial, financial and cybersecurity disasters in developed countries and to the euro versus the dollar and sterling, the currencies in which most revenues are denominated;

– Change in net book value per share, €31.21 per share at the end of June;

– Impact of Russo-Ukrainian war, natural disasters and drought in Brazil: net loss in Q1

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Half year hence a full portfolio review with a 50% reduction in agriculture exposure in 2023;

– Following an 8.3% increase in gross written premiums and a deterioration in financials as at 30 June, actively managing reserves, maintaining a short duration of assets in the portfolio and seeking opportunities, particularly in healthcare.

A strong development boost for French life insurance

Life insurance continues to grow over the months. In the first four months of the year, premiums reached 53.7 billion euros, a level not seen in more than ten years. Net inflows also reached 10.5 billion euros in the same period, the highest level since 2011. At the end, end of April 2022, outstanding life insurance contracts reached 1.847 billion euros, a rise of 1.1% in one year. These good performances are partly related to the growing success of the PER (Retirement Savings Plan). Since the beginning of 2022, PER marketed by an insurer has added 592,000 additional policyholders and €9.3 billion in payments. At the end of April 2022, 3.2 million policyholders held a P/E ratio, which corresponded to an outstanding amount of 39 billion euros. Excluding transfers, 87% of new PER holders (as of the end of December 2021) had taken out a PER with an insurer.

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