Fitch Ratings has affirmed SCOR’s Long-term Issuer Default Rating (IDR) and Insurer Financial Strength (IFS) ratings at ‘A+’. Fitch has also affirmed SCOR’s junior subordinated debt at ‘A-‘. The Outlook on the IDR and IFS is stable. A full rating breakdown is at the end of this comment.
The affirmation reflects SCOR’s strong solvency and average debt leverage in relation to its risk profile. SCOR’s ratings are also supported by significant business and risk diversification. The ratings also take into account the group’s consistent and comprehensive strategy, solid business position, and somewhat volatile profitability.
SCOR has improved its capital adequacy over the past three years as a result of well-controlled underwriting practices and a cautious investment policy. Debt leverage has increased while remaining in line with expectations for the current ratings.
Fitch notes SCOR’s ability to successfully expand its business position via external growth and to swiftly integrate acquired operations. As a consequence, business position and diversification have significantly improved over the past five years. In addition, prices paid for acquisitions have usually been conservative, resulting in a manageable amount of intangible assets on the group’s balance sheet.
SCOR’s profitability has been recovering in 2012, especially at the non-life division, as a consequence of a smaller impact from natural catastrophes, as compared with previous years. Fitch considers the cost of hurricane Sandy will not have an impact on SCOR ratings. Fitch expects SCOR to continue to adjust policies terms and conditions in order to strengthen profitability. However, life reinsurance profitability is suffering from the low interest rate environment. Fitch also notes the group’s ambition to significantly reduce costs has yet to deliver its full benefit.
Although unlikely in the near future, an upgrade could be triggered by a material and sustainable recovery of profitability (combined ratio sustainably below 100% and life operating margin sustainably above 6.5%), translating into significant capital accumulation or debt redemption. Conversely, rating triggers that could result in a revision of the Outlook, or a downgrade, include deterioration in Fitch assessment of capital adequacy or profitability (combined ratio persistently above 100% or life operating margin persistently below 6.5%).
