Fitch follows S&P in SCOR downgrade

Fitch Ratings has downgraded SCOR SE’s and its core operating subsidiaries’ Insurer Financial Strength (IFS) Ratings to ‘A+’ from ‘AA-’ and Long-Term Issuer Default Rating (IDR) to ‘A’ from ‘A+’. The Outlooks are Stable. 

The downgrade reflects SCOR’s continued weak financial performance, which has fallen short of our expectations for five years and has worsened in 2022.

Until SCOR is able to demonstrate evidence of a successful turnaround, this profitability level is no longer commensurate with our expectations for a ‘AA-’ rating or consistent with that of ‘AA-’ rated peers, said Fitch.

The Stable Outlook reflects expectations that the gradual implementation of the company’s action plan should allow profitability to recover in the next 12 to 24 months to a level that is supportive of its new rating.

Meanwhile, Fitch expects SCOR’s ratings strengths - its company profile within the global reinsurance sector and its capitalisation - to remain very strong.

SCOR reported a net loss of €509m for the first nine months of 2022, mainly due to weaker-than-anticipated property and casualty (P&C) earnings.

The reported net P&C CR deteriorated to 119.5% (9M21: 102.7%), mainly driven by substantial natural catastrophes losses, drought in Brazil and reserves strengthening to reflect prudence on inflation.

SCOR’s one-year action plan announced in November 2022 builds on the remedial measures taken since September 2021 to restore profitability. 

Fitch believes the plan will be sufficient to improve the level and stability of earnings in 2023 but not to improve the earnings profile to an extent that will be commensurate with a ‘AA’ rating on a sustained basis.

The loss mitigation effect of some of these actions is already visible and should be more pronounced in 2023. This supports the rating agency’s expectations for a return to a profitability level in 2023 that would be commensurate with the company’s new rating.

Specifically, the 21% reduction in natural catastrophes risk exposure in 2022 and the 50% cut in agriculture risk exposure in 2023 should contribute to lower P&C earnings volatility. 

It also expects the benefit of rising prices, higher reinvestment rates and reduced pandemic excess mortality claims to support earnings improvements in 2023. 

Fitch has revised the ESG Relevance Score for exposure to environmental impacts for SCOR to ‘4’ from ‘3’ due to the negative impact that past natural catastrophes had on the credit profile. Fitch notes that SCOR has reduced its exposure to natural catastrophe risk in 2022.