Berenberg expects SCOR to close 2024 with solid balance sheet

French reinsurer SCOR is anticipated to close 2024 with a solid balance sheet, according to Berenberg analysts, who have upgraded the firm to Buy, citing numerous factors.

The first reason for the upgrade is that the less severe Q3 2024 hurricane season has likely strengthened property and casualty (P&C) buffers.

Next, analysts note that approximately EUR 500 million of the EUR 1.4 billion life review charge likely relates to U.S. accounting changes, which other re/insurers may already have done when they made the transition to IFRS17 accounting in January 2023.

Finally, analysts note that the increase in Q3 buffers reinforces the balance sheet and sets the stage for dividend growth in 2025. They raised the price target from EUR 20 to EUR 24, indicating over 20% potential upside.

Berenberg estimates that natural disasters related to storms cost insurers less than $20 billion in Q3 2024, significantly below the $48 billion anticipated at the start of the quarter.

Analysts believe SCOR’s natural catastrophe costs in Q3 2024 accounted for just 5% of the combined ratio—half its 10% budget run rate. This translates to a pretax benefit of around EUR 100 million, which SCOR is likely to use to bolster its P&C buffer and offset any additional life review costs.

In H1 2024, SCOR took a EUR 1.4 billion charge related to its life business review but indicated a possible extra charge of EUR 400 million in Q3 if necessary. Berenberg expects SCOR to proceed with this additional charge, as the market favours a prudent approach, and the lower-than-anticipated natural catastrophe costs provide the flexibility to do so.

As a result, analysts predict that SCOR will end 2024 with a solid balance sheet. One key concern for investors has been SCOR’s two reserving charges: one for non-life in Q3 2022 and another for life in H1 2024. In contrast, many peers rolled their changes into the initial balance sheet adjustments when transitioning from IFRS 14 to IFRS 17 in January 2023. If SCOR capitalises on the benefit of lower natural catastrophe costs to add to its reserves in Q3 2024, its P&C buffer could reach EUR 150 million by year-end, halfway to its EUR 300 million target for FY 2026.

Additionally, while property catastrophe pricing is declining, reinsurers maintain a strong discipline against offering frequency cover.

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