(News Bulletin 247) – The group abandoned its economic value growth target and warned that the result of its life and health branch would be significantly lower than expected in the second quarter.

The market’s patience had already been tested by Scor. The French reinsurer disappointed when it published its first-quarter results last May, due to a performance below expectations in its “life and health (re)insurance” (“L&H”) branch.

The result of this division had turned out to be around 50% lower than the consensus, weighed down by a negative “experience gap”. That is to say, to simplify, that the actual costs (and therefore the compensation) had been higher than the company’s forecasts.

Scor explained that it had suffered from an unfavorable mortality rate in the United States, and from an equally unfavorable rate of claims declarations.

Following this “negative experience gap” in the first quarter, the group announced on Monday evening that it was reviewing its provision assumptions in its life and health branch. This will affect its second quarter results.

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A goal that will not be met

Ultimately, the result of this branch is expected to be a loss of around 400 million euros in the second quarter, while the consensus was counting on a positive figure of 100 million euros, according to Royal Bank of Canada.

This loss is due to “actions taken on provisions and (to) an experience gap that continues to be negative,” explains the reinsurer. “Additional revisions in the second half of the year could potentially lead to additional negative adjustments on the result of life and health insurance activities for an amount estimated at most at -0.1 billion euros by the end of 2024,” adds the company.

As a result, the result of the life and health activity in 2024 will be “significantly” lower than the amount of 500 million euros on which the company was counting at the end of the first quarter, Scor warned.

In addition, the division’s pre-tax “contractual services margin”, i.e. the expected profit from the execution of contracts or the “future profit reserve”, is adjusted downward by around €900 million. Further adjustments of around €400 million could occur in the second half, Scor said.

As a result of these elements, Scor expects its economic value (the sum of its equity and its contractual service margin) to be between EUR 8.3 billion and EUR 8.5 billion in the second quarter, or EUR 46 to EUR 47 per share. In the first quarter, this economic value was EUR 54 per share (and EUR 51 in the fourth quarter of 2023).

As a result, Scor warned that its target of 9% growth per year in its economic value would “probably” not be achieved this year. During an investor day last September, the reinsurer indicated that it wanted to increase this indicator by 9% per year over the period 2024-2026 at “constant economic assumptions”.

Hurricane season is coming

On the Paris Stock Exchange, Scor shares collapsed following this profit warning, plunging by 27.6% at around 10:45 a.m.

“Today’s announcement appears to have reinforced market concerns about the life and health accounts following the initial warning in the first quarter. While we thought further losses were possible, the impact quantified today should rightly raise eyebrows,” Royal Bank of Canada said.

“We expect (analysts’) earnings forecasts to be revised downwards over the coming years due to the downward adjustment of the contractual service margin,” the Canadian bank continued.

The group assured that Tuesday’s announcements would not have an impact on its liquidity situation. It also indicated that its solvency ratio, a closely monitored indicator among insurers and reinsurers, was expected to be more than 200% in the second quarter, within its range considered optimal (between 185% and 220%). Which Jefferies describes as “good news”.

But UBS points out that another risk is looming, with the start of the hurricane season in the United States, which could later penalize Scor’s solvency ratio.

“Although Scor claims that there is no impact on liquidity or dividend policy in today’s statement, this is unlikely to be much consolation at this stage of the hurricane season, in our view,” the Swiss bank concluded.

Scor will publish its full second quarter results on July 30.