Continuing on from “Back on Track”, “Moving Forward”, “Dynamic Lift”, “Strong Momentum” and “Optimal Dynamics”, “Vision in Action” is the sixth strategic plan drawn up and implemented by SCOR under the chairmanship of Denis Kessler. This new plan was approved by the Board of Directors during its meeting of 26 July 2016. The three-year strategic plan “Optimal Dynamics”, launched in September 2013, has come to an end having fully achieved all of its targets.
With the success of “Optimal Dynamics”, SCOR confirms its capacity to combine growth, profitability and solvency, with ambition and determination
Over the last ten years, SCOR has almost tripled its gross written premiums, with
EUR 13.7 billion expected for 2016, while at the same time almost doubling its shareholders’ equity, which reached EUR 6.3 billion at the end of June 2016. From 2005 to 2015, the Group distributed dividends of more than EUR 2 billion to its shareholders. Over the “Optimal Dynamics” plan, covering the mid-2013 to mid-2016 period, both gross written premiums and shareholders’ equity grew by more than 30%.
The Group has fully achieved its “Optimal Dynamics” targets. The relevance of its strategy, combined with the quality of its underwriting policy and the recognised skills of its global teams, enabled the Group to record an average ROE of more than 1,000 basis points over the risk-free rates1 over the period of the last plan, while maintaining the solvency ratio within the optimal range of 185% to 220% of the SCR2. At 30 June 2016, the estimated solvency ratio was 210%.
Meanwhile, SCOR is constantly enhancing its Tier 1 position in the reinsurance market, leveraging its AA-3 rating and its confirmed status as a market leader and an independent global player, combining strong profitability and solvency.
SCOR’s Tier 1 position gives it a clear advantage in an attractive industry
Despite a challenging macroeconomic and pricing environment, particularly in the P&C sector, SCOR firmly believes that the reinsurance industry benefits from long-term drivers which confirm the sustainable attractiveness of this market.
The sector enjoys solid foundations and long-term perspectives:
- The risk universe, which is the raw material of reinsurance, is rapidly expanding. This is due not just to traditional risks, which are thriving in the midst of the general economic growth, globalisation, population growth and the concentration of populations in the most exposed areas in the world, but also to the emergence and development of risks linked to new technology and the general reconfiguration of the world as a whole;
- The demand for insurance and reinsurance cover is itself expanding and aversion to risk is increasing as nations become wealthier and governments are pushing insurance companies to seek support from the reinsurance industry;
- There is a major protection gap due to the lower prevalence of insurance solutions in most emerging markets – as well as in more mature and developed markets -, and closing this gap will support demand for insurance and reinsurance;
- The reinsurance industry is less exposed to technological “contestability” than other industries. The cat bond phenomenon is largely fuelled by reinsurance companies and enlarges the overall market capacity. Furthermore, the reinsurance industry will benefit from the current technological and financial revolution, which includes alternative capital, connected objects, big data and automation;
- Insurers and reinsurers will benefit fully from the normalization of the current exceptional economic and financial conditions, as well as from the inversion of the P&C pricing cycle;
- The potential for innovation in the reinsurance industry remains strong and will be enhanced by new needs from insurers, changing regulation, better understanding of risk correlation, and better understanding by insurers of their own portfolios, etc.;
- Finally, the reinsurance industry, and more particularly the diversified global reinsurers, have proved their very strong resilience to the most extreme events over the long term, in terms of both economic and loss event shocks.
With “Vision in Action”, SCOR will continue to focus on its two equally weighted strategic targets: profitability and solvency
“Vision in Action” relies on three dynamics to enhance its profitability and its solvency:
- Build on continuity and consistency: SCOR’s strategy implemented in the previous plans has proven to be relevant. The Group’s four historical cornerstones (strong franchise, high diversification, robust capital shield and controlled risk appetite) are still fundamental in the current environment. The Group, whose focus will remain on the reinsurance business, intends to pursue its diversified strategy, which combines Life and P&C business;
- Expand and deepen the franchise: over the 2016-2019 period, SCOR plans to grow organically and profitably, leveraging on existing and new platforms. Gross written premiums are expected to grow organically between approximately 4% and 7% annually on average over the plan;
- Normalize the asset management policy as market conditions allow over the plan by aligning it to the upper mid-level risk appetite of the Group, reducing the very high level of prudence that currently characterises the investment portfolio.
With “Vision in Action”, SCOR has two targets:
- A high return on equity at or above 800 basis points over the 5-year risk-free rate over the cycle4;
- An optimal solvency ratio in the 185-220% range (percentage of SCR)5.
A strategy based on technical profitability, operational excellence and optimized capital management
The “Vision in Action” plan defines a set of key assumptions for each of the Group’s three engines, including a Group-wide annual gross written premium growth rate of approximately 4% to 7% over the course of the plan:
- The P&C division, SCOR Global P&C, is well positioned to pursue sustainable annual growth in the 3% to 8% range (of gross written premiums) over the plan by: i) further developing the US franchise towards clear Tier 1 reinsurer status, while consolidating its position in international markets, ii) building the Channel Syndicate to sustained profitability, iii) transitioning SCOR Business Solutions (SBS) towards a customer-centric model and expanding the sectors and products offered to large corporations, iv) and developing the MGA6 platform to promote new business channels using the P&C division’s infrastructure. SCOR Global P&C anticipates a net combined ratio of 95-96% over the plan.
- The Life division, SCOR Global Life, pursues the strengthening of its market position, building on its leadership position in the US market, enhancing its strong EMEA position and expanding in fast-growing Asia-Pacific markets. SCOR Global Life will continue to manage and optimise its in-force book, expand longevity transactions and enhance its Global Distribution Solutions capabilities. Meanwhile, the Life division will develop in China, Japan and South East Asia. SCOR Global Life anticipates a technical margin of around 6.8% to 7.0% p.a., while anticipating annual premium growth of between 5% and 6% over the plan.
- The Asset Management division, SCOR Global Investments, will normalize its investment policy, by reducing liquidity to the target level of 5%, by closing the duration gap between assets and liabilities by the end of the “Vision in Action” plan and by benefitting from additional degrees of flexibility in its asset allocation. The Group expects an average annualised return on invested assets in the range of 2.5% to 3.2% over the plan.
“Vision in Action” will also attain a new degree of sophistication in terms of the Group’s risk and capital management. The retrocession strategy, ALM7 and risk management will be further fine-tuned to support business developments..
1 Three-month risk-free rates
2 Solvency Capital Requirements
3 Standard & Poor’s and Fitch Ratings
4 Based on a 5-year rolling average of 5-year risk-free rates
5 This is the ratio of Eligible Own Funds over the Solvency Capital Requirement (SCR)
6 Managing General Agent
7 Asset Liability Management