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AM Best announced Thursday that it has downgraded the financial strength rating to “A” (excellent) from “A+” (superior) and the long-term issuer credit ratings to “a+” (Excellent) from “aa-” (Superior) of SCOR SE and its main operating subsidiaries.

The rating downgrades reflect the deterioration in SCOR’s operating performance, which is no longer considered supportive of AM Best’s previous strong assessment, the rating agency said.

Best revised the outlook of the ratings to stable from negative.

The ratings still consider SCOR’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, very favorable business profile and appropriate enterprise risk management.

Explaining the downgrade, Best noted that SCOR reported a sizable net loss of 301 million euros, or $318 million, for 2022 and a combined ratio of 113.2. The results included the impacts of above-budget natural catastrophe losses and reserve strengthening carried out in the third quarter of the year.

According to Best calculations, SCOR’s five-year average (2018-2022) non-life combined ratio was unprofitable, coming in at 102.5, and its five-year return-on-equity ratio is 3.5 percent.

Best said the poor underwriting performance highlights weaknesses in the group’s underwriting and risk management capabilities. Although ERM was previously assessed as “superior,” Best has lowered that assessment to “appropriate.”

Even though the group’s management has implemented remedial actions to improve underwriting performance—reducing peak exposures (natural catastrophe risk and U.S. mortality risk), nonrenewing unprofitable accounts and streamlining the organization to increase operational efficiencies—it’s going to time to improve the non-life technical profitability track record, Best said.

Diversification has helped in the past, the rating announcement said, noting that non-life technical losses, recorded in each of the past six years, were offset by profits from SCOR’s life portfolio in five of the six years.

AM Best expects SCOR’s risk-adjusted capitalization to be maintained at the strongest level prospectively, as measured by Best’s Capital Adequacy Ratio (BCAR), supporting its very strong balance sheet strength assessment. The group also benefits from a conservative investment portfolio and a robust retrocession program designed to shield its capital base.

Finally, Best noted that SCOR continues to maintain its prominent position as one of the top five global reinsurers, with excellent product and geographic diversification. The group’s internationally recognized franchise, longstanding client relationships and technical expertise help SCOR manage local and global reinsurance market cycles.

The group is expected to benefit from improved reinsurance market conditions while executing on its stated objective to reduce earnings volatility.

Source: AM Best