Half-year 2022 results

• Gross written premiums of EUR 9,686 million in H1 2022, up 8.3%⁽¹⁾ compared with H1 2021
• Net loss of EUR -239 million in H1 2022, compared with EUR 380 million net income in H1 2021
• Shareholders’ equity of EUR 5,581 million at the end of June 2022, implying a book value per share of EUR 31.21 down -11.5 % from December 31, 2021 (EUR 35.26)
• Estimated solvency ratio of 240% at the end of June 2022 (up from 226% at the end of 2021)
   

SCOR SE’s Board of Directors met on July 27, 2022, under the chairmanship of Denis Kessler, to approve the Group’s H1 2022 financial statements.

Key highlights: 

In the first half of 2022, the global macroeconomic environment strongly deteriorated, as tensions driven by the war in Ukraine and the related sanctions grew regarding the supply of natural resources. Many countries are now experiencing levels of inflation that had not been observed in decades. In H1 2022, the impact of climate change also continued to be felt. The second quarter was marked by heavy floods in South Africa and storms in France, which followed a first quarter that had already been impacted by severe floods in Australia and one of the worst droughts experienced in Brazilian history. In the first half of 2022, the Covid-19 pandemic also continued.

The combination of these events has significantly affected SCOR’s results, leading to a net loss of EUR -239 million for the first half of 2022, of which EUR -159 million was incurred in the second quarter.

The reduced profitability notably reflects the cost of the claims related to the drought that impacted corn and soy crops in southern regions of Brazil. This was the worst drought in Brazil in 91 years and resulted in a USD 9.2 billion economic loss⁽²⁾ with a EUR -193 million impact on SCOR’s technical result, of which EUR -35 million was incurred in the first quarter. As a consequence, and consistent with its ambitions to reduce its exposure to climate-sensitive events, SCOR has been fully reviewing its agriculture portfolio with a 50% exposure reduction (PML⁽³⁾) targeted for 2023.

SCOR was also impacted by the materialization of latent claims related to sexual molestation from the 1980s in the U.S. while the provision related to potential claims consequent to the war in Ukraine which was booked in the first quarter of 2022 is unchanged.

The total cost of Covid-19 claims amounted to EUR 254 million, of which EUR 195 million had been incurred in the first quarter.

Finally, the results of SCOR are significantly impacted by two non-operating items: EUR -45 million tax charges provisioned following negative taxable results in certain jurisdictions and the EUR -30 million pre-tax impact related to the option on own shares granted to SCOR valued at fair value through income. 

In Q2 2022, a number of positive signs consistent with the Group’s stated priorities to reduce volatility, improve profitability and manage growth can also be observed, notably:

• Further actions at the June 1 and July 1 P&C reinsurance renewals contributed to a 21% reduction of our 1 in 250 years PML⁽⁴⁾ for the 2022 underwriting year, significantly ahead of our original 11% projection; 
• Reinvestment yield was 4.1% at the end of June 2022 up from 2.1% at the end of 2021 and 3.1% at the end of Q1 2022, highlighting an improved investment yield outlook.

In this complex environment, SCOR stays the course and expects to navigate the current headwinds and take advantage of upcoming tailwinds in a hardening market, relying on the combination of its initiatives to improve profitability and reduce volatility, its strong Solvency and its ongoing transformation.

• Gross written premiums of EUR 9,686 million in the first half of 2022 are up 8.3% at constant exchange rates compared with H1 2021 (up 14.7% at current exchange rates).
• SCOR P&C (Property and Casualty) gross written premiums are up 20.9% at constant exchange rates compared with the first half of 2021 (up 28.1% at current exchange rates). SCOR is currently adopting a more selective approach in Reinsurance P&C Lines, however the H1 2022 GWP growth is still benefitting from recent underwriting years. SCOR continues to grow its Reinsurance Global Lines and its Specialty insurance portfolios, where market conditions are seen as attractive. The net combined ratio stands at 107.7% including natural catastrophes equivalent to 10.5% of net earned premium. 
• At the June and July P&C reinsurance renewals, gross reinsurance premiums decrease by 9.8%⁽⁵⁾. This results from a combination of a significant decrease (-24%) in the U.S., where SCOR has significantly decreased its exposure to natural catastrophes, most notably in Florida and growth in Europe (+16%), Mature APAC (+5%) and Fast Growth markets (+7%), where SCOR is benefiting from high demand. SCOR achieves a pricing increase of 6.7%⁽⁶⁾, reflecting a hardening market in an inflationary environment. 
• SCOR L&H (Life and Health) gross written premiums decline by 1.8% at constant exchange rates compared with the first half of 2021 (up 4.0% at current exchange rates) as the Group rebalances the portfolio towards more health and longevity products and services in a post-Covid world. Over the period, SCOR L&H delivers a technical margin of 6.3%. 
• SCOR Investments, with the adoption of IFRS 9, delivers a return on invested assets of 1.6%⁽⁷⁾ for the first half of 2022 reflecting the negative impact of change in expected credit losses (ECL) which reduces the return by –30 bps. The regular income yield is up from 1.9% in Q1 2022 to 2.2% in Q2 2022. 
• The Group cost ratio stands at 4.5% of gross written premiums in the first half of 2022, below the “Quantum Leap” assumption of ~5.0%. 
• The Group net loss stands at EUR -239 million in the first half of 2022, also capturing EUR -45 million increased tax charges provisioned following negative taxable results in certain jurisdictions and the EUR -30 million pre-tax impact related to the option on own shares granted to SCOR valued at fair value through income. 
• The Group generates negative operating cash flows of EUR -368 million in H1 2022, mostly driven by negative EUR -648 million operating cashflows from SCOR L&H reflecting the payment of Covid-19 related claims, while SCOR P&C’s operating cashflows stand at EUR 280 million. The Group’s total liquidity is strong, standing at EUR 2.6 billion as at June 30, 2022.
• The Group shareholders’ equity stands at EUR 5,581 million as of June 30, 2022 down from EUR 6,402 million at the end of 2021, resulting in a book value per share of EUR 31.21, compared to EUR 35.26 as of December 31, 2021. The largest driver for the change is the revaluation (assets measured at fair value through OCI) of EUR -812 million in H1 2022.
• The Group financial leverage stands at 30.6% as at June 30, 2022, up 2.8 points compared to December 31, 2021 (27.8%), as a consequence of the decrease in shareholders’ equity. 
• The Group solvency ratio is estimated at 240% on June 30, 2022, above the optimal solvency range of 185% - 220% as defined in the “Quantum Leap” strategic plan.

Strategic update: 

Ahead of SCOR’s new strategic plan, which will be unveiled on November 9, the Group continues to take actions to navigate the transition to new risk environments and fully seize new opportunities.

• Climate change is impacting the reinsurance industry and SCOR is actively seeking to reduce its exposure to climate-sensitive perils.
• SCOR is actively managing its L&H portfolio and is diversifying away from pandemic risk to focus its growth on transactional lines of business such as longevity and Financial Solutions while optimizing the in-force portfolio profitability through management actions;
• SCOR is carefully monitoring the potentially negative impacts of the deteriorating macro environment and is focused on containing the impact of inflation through pricing, reserving, expenses management and asset allocation: 
  • By reflecting the latest market dynamics in its pricing ahead of the renewals;
  • By managing its P&C long-tail reserves prudently when a significant proportion of SCOR’s reserves (41%) corresponds to the L&H business, which has very low sensitivity to inflation;
  • Through the combination of the short duration of the asset portfolio (28% of fixed income securities mature over the next 24 months) and the weight of securities protected from high inflation (22% including real estate);
  • By following a strong cost discipline with a view to absorbing inflationary pressures on the Group cost ratio.

Looking ahead, SCOR also sees a number of opportunities, both in L&H where increased awareness of the need for insurance coverage has triggered increased demand for protection products and in P&C where the combination of shrinking capacity and the growing imbalance between supply and demand should support a hardening P&C cycle.
 
SCOR’s long-term vision of a sustainable world highlighted by recent commitments relating to underwriting, investments, culture and people has been recognized by non-financial rating agencies: MSCI ESG now ranks SCOR among ESG leaders and Moody’s ESG Solutions’ rating was upgraded in 2022. 

These paradigms lay the ground for the new strategic plan that will be unveiled on November 9, 2022.

In this context, the new accounting standard IFRS 17 should also better capture the Economic Value (estimated to be in excess of EUR 9 billion⁽⁸⁾ at 1 January 2022) of SCOR, bringing closer the accounting framework and the other internal frameworks (EVA⁽⁹⁾, Solvency 2) used by SCOR to make business decisions. Going forward, SCOR will focus on creating Economic Value over the long-term. The project is now transitioning across to production with the delivery of the Opening Balance Sheet (OBS) and comparatives. IFRS 17 represents a high degree of complexity for reinsurers given the nature of the business, especially for L&H.

Denis Kessler, Chairman of SCOR, comments: “The recent past has been a stark demonstration that uncertainties and instabilities of all kinds are multiplying: the Covid-19 scourge continues, entropic forces are running riot on the international geopolitical stage, inflation is reaching multi-decade highs, the economy is slowing down, the fear of a global recession is growing, the frequency and severity of natural catastrophes are on the rise – a change that is most likely linked to global warming... In this volatile environment, risk aversion, and the need for protection, will continue to soar. The multiplication of uncertainties and risks demonstrates more than ever the crucial role of the reinsurance industry to act as a cornerstone and guarantor of the resilience of the global economy. I am convinced that SCOR, as a Tier 1 global reinsurer, is perfectly equipped to meet these challenges and pursue its value-creating development, building on its global franchise, its recognized technical expertise, its financial strength, the talent of its teams and its command of new technologies.”

Laurent Rousseau, Chief Executive Officer of SCOR, comments: “H1 2022 has been marked by a series of exceptional events both in L&H and in P&C, which have negatively impacted our financial performance. Most notably, a number of events driven by climate change (natural catastrophes, droughts, etc.) have affected the profitability of our P&C business, confirming that our strategy to decrease our exposure to these events is the right one. Despite an accounting loss, SCOR’s solvency position remains stable and robust with a solvency ratio of 240%.

The current changing environment comes with challenges and opportunities and our objectives are unchanged: to reduce earnings volatility, increase profitability, grow the franchise, optimally allocate capital and accelerate the Group’s transformation. We are fully focused on the preparation of the new strategic plan that will be unveiled in November together with our Q3 results. In a stochastic world, we are taking remediation actions proactively, while taking advantage of an environment where demand for protection is increasing, with strong pricing discipline. SCOR is building on its strengths to adapt and seize opportunities arising from the current risk environment.” 

^{(1) At constant exchange rates
(2) Source: https://www.farmprogress.com/commentary/drought-devastates-brazilian-crop
(3) PML (probable maximum loss) as measured by the net Aggregate Exceedance Probability-250
(4) PML (probable maximum loss) as measured by the net Aggregate Exceedance Probability-250
(5) At constant exchange rates
(6) SCOR Price change is based on a sample of contracts for which price evolution can be computed per unit of exposure (e.g. notably excludes new contracts, contracts renewing with change in structure, multi-year non-proportional accounts)
(7) As at 30 June 2022, fair value through income on invested assets excludes EUR (30)m related to the option on own shares granted to SCOR. The H1 2022 RoIA at 1.6% is calculated based on IFRS 9 and includes the impact of expected credit losses (ECL) and change in fair value of invested assets measured at fair value through profit and loss. Excluding those impacts (which would not have been recorded under IAS39), the RoIA would have been at 2.0%
(8) Unaudited figure, defined as shareholders’ equity plus contractual service margin (CSM) net of tax
(9) Economic Value Added}