SCOR sets 2023 targets and financial assumptions under IFRS 17

Paris - As of Q1 2023, SCOR Group has announced that it will publish its financial results under the new IFRS 17 accounting standard, adding that this transition will notably allow it to disclose the full value of its risk portfolio, particularly in Life & Health reinsurance, through the introduction of the Contractual Service Margin (CSM) which reflects the present value of expected future profits based on strict, audited rules. Together with the shareholders’ equity, the CSM is one of the two components of the Group’s Economic Value measured under IFRS 17.

The Group said Economic Value growth reflects not only the results for the current year but also the net value creation related to the year’s underwriting activity, through the generation of new business CSM. SCOR will publish the evolution of its Economic Value each quarter with the split between shareholders’ equity and CSM.

François de Varenne, Interim Chief Executive Office of SCOR, comments: “The transition to IFRS 17 will allow SCOR to disclose the full value of its portfolio, particularly in L&H reinsurance, through the introduction of the Contractual Service Margin (CSM). Together with the shareholders equity, this constitutes SCOR’s Economic Value.

"This is an opportunity for the Group: our systems have been updated and our analytical framework has been modified. The teams are mobilized, with ambitious targets for value creation and solvency for 2023. We will publish our results on May 12, 2023, and we are ready to support the new CEO in the preparation for a new and ambitious strategic plan under IFRS 17.”

Economic Value as of December 31, 2022

Under IFRS 17, the Group’s Economic Value as of December 31, 2022, is estimated at €8.7bn. This represents an Economic Value per share of c. €48. The Group’s Economic Value as of December 31, 2022, can be broken down into:

• €4.6bn of CSM, representing €6.1bn of CSM before tax, which itself is composed of:
• • €5.4bn of L&H CSM before tax,
  • €0.7bn of P&C CSM before tax.
• €4.1bn of shareholders’ equity.

It stated that the increase in CSM over 2022 notably reflects the growth of the risk portfolio as well as the strong level of technical profitability expected for the new business underwritten during the year.

The decrease of equity is higher under IFRS 17 than under IFRS 4 mostly driven by the difference between the IFRS 4 net technical result and the IFRS 17 insurance service results. Indeed, the Group added that, "under IFRS 17 L&H management actions are recognized over time without a material upfront P&L impact. At the same time, the release of excess L&H reserves in Q3 2022 has no impact under IFRS 17 and the equity level also reflects the additional resilience added ahead of the transition. The equity level also takes into account a more significant economic impact experienced under IFRS 17".

As of December 31, 2022, the Risk Adjustment (which is the liability held for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as (re)insurance contracts are fulfilled) stands at €2.4bn, consisting of €2.1bn for the L&H portfolio and €0.3bn for the P&C portfolio.

A favourable environment

SCOR said it is focused on the technical profitability and risk-return profile of its risk portfolio, concentrating on optimizing (i) capital allocation by line and by client, and (ii) the portfolio mix, in terms of both risk diversification and the resilience of technical results.

The Group added that it seeks to maximize the benefits from the reinsurance market tailwinds:

• The positive phase of the P&C reinsurance cycle;
• The normalization of Covid-19 claims in L&H reinsurance;
• High reinvestment rates.

The Group aims to offer its clients a AA-level of security, and in addition, continue to implement transformation and simplification measures. 

2023 targets and financial assumptions under IFRS 17

Following the transition to IFRS 17, SCOR said it has set itself two ambitious and equally weighted targets for 2023:

• A financial target: an Economic Value growth rate under IFRS 17 of 700 basis points above the risk-free rate between December 31, 2022, and December 31, 2023, at constant interest and foreign exchange rate assumptions;
• A solvency target: a solvency ratio in the optimal 185% to 220% range. In 2023, the solvency ratio is expected to stay in the upper part of the optimal range.

Both these targets are based on a set of 2023 financial assumptions for the Group and each of its three business engines.

These assumptions are:

1. Group: insurance revenue growth between 1% and 3%.
2. P&C (re)insurance:
   • Insurance revenue growth between 0% and 2% (gross P&C insurance revenue stood at ~€7.4bn in 2022),
   • Combined ratio of ~87%, of which ~10% relating to the Nat Cat budget,
   • Expected CSM generation of ~ €750m through new business.

3. L&H reinsurance:

• • Insurance revenue growth between 2% and 4% (L&H insurance revenue stood at ~€8.5bn in 2022),
  • Insurance service result of ~€450m,
  • Expected CSM generation of ~€450m through new business.

-    Investments: regular income yield in the range of 2.8% to 3.2%.
-    Group management expense ratio in the range of 7.1% to 7.3% of insurance revenue.
-    Return on Equity above 1,100 basis points above the risk-free rate^₁₈.

2023 dividend policy

SCOR said as a listed company, it pursues an attractive and consistent shareholder remuneration policy that favours cash dividends but may also include special dividends or share buybacks. 

It aims to offer a resilient, foreseeable and predictable dividend, and through this dividend, to distribute to its shareholders a significant portion of the Economic Value created over the cycle. To this end, it follows a 3-step procedure:

1. Ensure that the Group’s solvency ratio, taking account of the projected future growth, is in the optimal range;
2. Consider the Economic Value created over the year and analyze its drivers;
3. Define the amount of the cash dividend accordingly.

Preparation for the new strategic plan

The Group added that its new Chief Executive Officer, Thierry Léger, will take up his position on May 1, 2023. His priority will be to draw up a strategic plan under IFRS 17 that enables the Group to take full advantage of the favorable market conditions. 

Denis Kessler, Chairman of SCOR, comments: “The transition to the new IFRS 17 accounting standard constitutes a veritable quantum leap for the reinsurance industry in general, and for SCOR in particular. This new standard reflects the Economic Value of the Group’s risk portfolio more accurately and faithfully, particularly for L&H reinsurance. At €8.7bn, SCOR’s Economic Value as of December 31, 2022, confirms the relevance of the strategic choices made over the past few years. These choices have notably been guided by the conviction that life & health reinsurance is a strong value creator. This Economic Value is now fully recognized in the Group’s accounts.”