Best Affirms SCOR’s ‘B++’ Rating

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) and issuer credit rating of “bbb+” of France’s SCOR and its main subsidiaries (collectively referred to as SCOR Group). Best also said it has affirmed the ratings on senior and subordinated debt instruments issued or guaranteed by SCOR and the company’s commercial paper program. The outlook for all these ratings remains positive.

Concurrently, Best affirmed the FSR of “B++” (Very Good) and the ICR of ‘bbb+” of Investors Insurance Corporation (IIC). The rating agency said it “believes that as a direct annuity operation, IIC’s business model is not aligned with the life reinsurance operations of its parent company. Accordingly, IIC’s ratings reflect a stand-alone analysis of the company’s financial strength. The outlook for IIC’s ratings has been changed from positive to stable.”

“The ratings of SCOR reflect its very good prospective risk-adjusted capitalisation, continuing improvement in non-life profitability, stable life operating profitability and the company’s strong business profile in continental Europe,” said Best. It noted, however, that an offsetting factor remains “the need for further stability in loss reserve development, which has recently been favourable following a prolonged period of adverse development.”

Best said it “believes that SCOR is likely to maintain adequate capitalisation to support its current rating, with improvement expected in 2005 and 2006, reflecting steady improvement in retained earnings.” Shareholders’ equity of €1.68 billion ($2.016 billion) in 2005 after nine months reflects strengthening of 27 percent since year-end 2004 “as a result,” Best noted, “of solid retained earnings as well as additional capital from the €233 million ($280 million) rights issue in June 2005. €183 million ($220 million) were used to buy out the minority interests in Irish Reinsurance Partners Limited.”

Best further noted that it “believes the risk of reserve volatility has reduced as a result of reserve strengthening since 2002 of approximately $1.2 billion, given the historical loss reserve development and the length of the tail of current loss reserves, additional stability is needed before the risk of further adverse development is viewed as minimal.

“The ratio of net non-life technical reserves to net premiums written is high–525 percent at year-end 2004–despite the company’s continuing programme of commutations $1.1 billion reduction in reserves in the US and Bermuda since 2002).”

The rating agency “anticipates that SCOR’s non-life combined ratio will be close to 100 percent in 2005, down from 106 percent in 2004. This is likely to result in net income above €110 million ($132 million), up from €69 million ($94 million) in 2004. The anticipated improvement is a consequence of a reduction in likely reserve strengthening, a relatively modest exposure to recent catastrophe events and an increasingly disciplined underwriting approach.”

Best also expressed confidence that SCOR “is likely to systematically address the operating expense issues that have arisen as a result of reductions in the volume of business written. Total net written premium reduced by 29 percent in 2004. A gradual reduction in the company’s non-life operating expense ratio to approximately 30 percent by 2007 is anticipated, down from a high of 36.5 percent in 2004. The company’s performance is also likely to continue to be supported by stable earnings from its life and accident reinsurance underwriting.”

Best expects “SCOR’s business volume will remain stable at a comparable level to 2004 when gross premiums written were €2.528 billion ($3.449 billion), reflecting consolidation of SCOR’s business position with its existing clients. The company continues to benefit from a very good business position in continental Europe and, to a lesser extent, in Asia. SCOR has maintained its relationship with the majority of its significant clients in these areas, despite reductions in its participation on some major programmes.”