The state of the market – SCOR Global P&C’s Conoscente

Ahead of renewals discussions set to begin in Monte Carlo, GR sat down with Jean Paul Conoscente (pictured), CEO of SCOR Global P&C, to benefit from a top level view on the reinsurance market at the midpoint of 2024.

Conoscente was firstly quite bullish about reinsurance rate adequacy at the half-year point for US peak risks, which usually dominate coffee table narratives at the salons of the annual reinsurance rendezvous.

“I think price adequacy is quite good, even with the price decreases we saw in June and July, we feel price adequacy on this business is still very high,” he said.

SCOR also has a “strong appetite” for specialty lines, he continued, checking off priorities for marine, engineering and inherent defect insurance (IDI) as particular growth areas for the reinsurer’s property and casualty (P&C) arm.

“That’s been a big area of growth for us,” he said. “Those have been three segments of strong growth, probably between 12 and 20% growth for us throughout the year, and we think they still keep growing as the price adequacy is quite good, and our footprint is still underway.”

Casualty loss trend

However, he repeated previous fears about the health of the US casualty reinsurance market, for which claims data trends have been headed in a negative direction. Loss trends since 2015 were “severely underestimated”, he warned, a trend that has continued into recent years.

“We’ve been concerned about US casualty for a while, and we capped our overall capital we want to allocate to US casualty since 2023,” Conoscente said.

“The concern is the loss trends have stayed very high – double digit – and the primary rate increases, although they have been positive, have not kept up with the loss trend,” he explained.

His message for primary insurers of US casualty business in twofold. Firstly, their price rises need to rise further from those already seen.

“I think needs to accelerate, it needs to needs to increase significantly. Right now, we see it in high single digits. It has to reach double digits for it to play catch up, because the loss trend is not slowing down until there’s tort reform to put in place safeguards against litigation funding, I think we’ll continue to see a loss trend in the double digits,” Conoscente said.

Secondly, the commissions that are currently paid by reinsurers on US casualty business are simply making it unprofitable for them to justify taking on more of the business, he warned.

“As a reinsurer, we still see commissions as too high,” Conoscente said. “When you take into account the loss trend and primary rate increases, despite all the improvement on the underwriting side that insurers have been doing, the compression of limits and so forth, technical profitability is not there. When we pay commissions at 10 or 15 percentage points, on top of the acquisition costs, there’s certainly no chance for reinsurers to make money.”

Retention levels

He noted that after the movements in attachment points seen amid 2023’s hard market renewal, renewals have been “broadly flat” this year, before giving a view ahead of 1/1 2025.

“In 2025 I think there will be a push to slightly increase the retentions. At the same time, insurance companies are trying to reduce their retentions and are looking for markets to take on more of that volatility on the lower layers. From a reinsurer perspective, we need retentions to keep increasing with inflation,” Conoscente said.

“We can already see in 2024 some smallish events, such as German floods this summer, events that in 2023 would have not been a reinsurance market loss at all, are starting to get into the first layers of programmes. It shows that there’s been erosion of the retentions over the last two years, and therefore increases are required for us to stay at a sustainable level,” he continued.

Reinsurers remain uninterested in buying into lower attachment points, he emphasised.

“There’s been a large amount of additional limit bought by clients this year, but it’s been mainly at the top of programmes, buying additional limit at the top. That’s been absorbed, in large part, by existing reinsurers. Catastrophe bonds are helping insurance companies, but they’re also helping reinsurers get additional retro. The cat bond market is still coming in at the top end of programmes, and the amount of new capital coming in has remained limited. It’s more the capital of incumbent reinsurers increasing with their appetite for business,” Conoscente added.

Retro programme

SCOR’s retrocessional programme is a major one to determine retro market dynamics. Conoscente runs through the basic structure of how the reinsurer protects itself with retro coverage for catastrophe risk, through a range of structures, layers and product types.

“On the cat side, we buy quota shares on our portfolio, and then excess of loss, with the different layers attaching differently for some of the perils. We have a US layer, a Western European layer, and then a non-peak layer,” he explained.

“The main core programme is covering our main perils. On top of that, we have our cat bonds that we renew every year, which are typically three year cat bonds, so on a rolling basis, they renew every year. Lastly, we have an annual aggregate structure, which complements the rest of the programme,” Conoscente continued.

By late July, SCOR was finalising its programme, pulling together second quarter data, ahead of discussions to be held in Monte Carlo in early September. An orderly renewal, like one year ago, would be desirable, unlike the remarkable conditions the previous year, when things happened later and capacity was much tighter.

“I feel there’s a good supply of retro capacity,” Conoscente said. “We’re trying to get back to a time framework, where in we have the programme placed by November, which is, typically what happened in the past. We think there’s a good chance this year of that being the case again.

“There’s strong appetite for retro, but a lot will depend on what happens in the hurricane season and whether some big events hit the market or not. Unless that happens, we feel that there’s a good chance for us to complete the programme by November,” he added.

Non peak perils

While reinsurers become hurricane watchers this time of year, so-called non-peak or secondary perils are another serious concern for Conoscente, he emphasised.

“Non peak perils are a serious concern, as well as anything climate sensitive,” he said. “Of course, hurricanes and windstorm are front of mind, but we’re perhaps more concerned about flood, tornado and hail, which have been a big driver of insured losses over the past few years, especially in Europe.

“I’m not sure that, as an industry, our modelling of these risks has been sufficiently accurate, so it’s an area of attention for us, such as in retentions, and particularly for German flood risk,” Conoscente added.

SRCC worries

France has faced recurring civil unrest threats in recent years. This June-July, a legislative election saw left-wing parties unite to stop the far-right National Rally from achieving a victory in the French parliament. There were also street protests against the National Rally. Around the same time last year, the focus was on ethnic and social tensions, which sparked riots in French towns and cities.

Conoscente has consistently flagged the issue of strikes, riots and civil commotion (SRCC) within French property and all risks insurance as a concern when passed onto the reinsurance market, something he repeated this year.

“It remains a concern. Riots in New Caledonia were another big example of that type of event occurring, which led to a significant insured loss,” he said.

In May 2024, civil unrest in the Pacific territory, part of overseas France, sparked by ethnic tensions and electoral reforms, caused ten deaths, a state of emergency issued, with insured losses arising from damage to property and business interruption through all risks policies.

“That’s been a €1.1bn insured loss. As a major player in the French market, we’re affected. It’s a moderate loss, but we receive virtually no premium for that risk on the reinsurance side,” Conoscente said.

“We’ve managed to restructure some of the programmes, to limit them in terms of hours clause, increase the retention of cedants, but the amount of premium that insurance companies pay reinsurers for this risk is very small. I remain concerned about the political environment in France, which is ripe for riots or civil unrest,” he continued.

More modelling and risk assessment work has gone into SRCC in recent years, he suggested, while efforts to gain adequate premium have not yet resulted in significant change to the situation, despite a worsened threat environment.

On the same political violence topic, the upcoming US election set for 5 November 2024 is the big SRCC fear on the horizon – regardless of whether the Republicans led by Donald Trump, or the Democrats, led by Kamala Harris, take the White House. Should largescale SRCC events befall some US cities, the insured risk would, for the most part, reside within property policies.

“I’m concerned about the US, where, regardless of who wins, half of the country is going to be unhappy, so there’s a situation that’s also ripe for civil unrest, and it’s a risk that’s not going away, and that’s become more frequent and more severe,” Conoscente added.

Negative noise

SCOR’s share price took a hit in July and August as a consequence of first half 2024 problems reported to the French reinsurer’s life and health (L&H) reinsurance portfolio. A profit warning for L&H accompanied a €308m net loss for the segment in the second quarter.

At the end of July, it was announced that SCOR’s group CEO, Thierry Léger, would assume management of the L&H division, with the departure of Frieder Knüpling, the previous CEO of SCOR L&H since 2021.

Conoscente said: “The onus was always pretty heavy for us to deliver, I don’t think it affects our strategy, it just creates negative noise. I think we’re just coming into a more positive dynamic, so it’s a setback from that perspective. The positives have been that the company made very good year-end 2023, very good renewals in 2024 so far, and good results on the P&C side.”