In the cover feature of our summer issue, SCOR Global P&C Chief Executive Officer Jean-Paul Conoscente talks with Editor-in-Chief Shawn Moynihan about building relationships over the long term, the value of being environmentally responsible, and why the company is well positioned for a market turn.
“I’m in the optimistic camp right now,” says SCOR Global P&C Chief Executive Officer Jean-Paul Conoscente – and while many executives in his position might offer such a statement simply to exude confidence in themselves and their organisation, Conoscente is not one of them.
Rather, he’s a sincere realist who since his new appointment on 1 April has been working to move the ball forward after a high level of natural catastrophes in 2018 and encouraging results in Q1 of this year – including a net combined ratio of 94.6% for SCOR Global P&C.
“The U.S. market has sometimes been difficult,” he says, offering a frank assessment in his 21st-floor office at One Seaport Plaza in downtown Manhattan. “At SCOR we have grown significantly in the U.S., but in a step-by-step, block-by-block manner – not by betting big in one area or another. We’re well positioned to take advantage of the market turn that we’re seeing.
“What we’ve started seeing in 2018 is being confirmed in 2019,” he continues. “The changes have been, in my view, structural, because insurance companies need to generate technical profits since interest rates aren’t going up.”
Regardless of pressure from reinsurers, Conoscente adds, insurance companies are forcing through rate changes and re-underwriting their portfolios, “and that’s really driving a lot of market changes that we see today and that as reinsurers we will continue to benefit from as well.”
Growth in a challenging age
To be sure, there are a variety of factors in play – especially on the primary side. Investment returns remain disappointing for all. Margins remain tight due to intense competition, even in some of the more challenged lines of business. Rate pricing does continue to rise in some sectors, albeit much more slowly than most in the industry would prefer. Risk selection and pricing have become more critical than ever, with organisations also balancing the need to grow business organically.
“That’s driven a lot of companies to re-underwrite their portfolio as well, to take different approaches – and that’s driving not only price increases but a narrowing of the terms and conditions and improvement of the overall profitability of their portfolio,” says Conoscente.
SCOR Global P&C grew its overall gross written premiums by 9.6% at 1 April renewals, with the rates rising on CAT programs in Japan following almost $20 billion in industrywide insured losses in the 2018-2019 policy year. In Japan, its rates on CAT programs, which represented close to 10% of SCOR Global P&C’s renewable portfolio in April, were up by nearly 15%.
“Overall, we were able to achieve satisfactory outcomes for both parties with Japanese clients allowing reinsurers to develop outside of CAT programs while agreeing on reasonable CAT price increases, making those CAT programs sustainable over time,” says Conoscente. “For us, it was important to get price increases but also to get overall positive movement on the portfolio outside of CAT.”
Despite the fact that SCOR’s overall net income in Q1 2019 fell 21% due in large part to the impact of the 2018 typhoons, SCOR retains an overall 10-year position of profitability in Japan.
“Japan has always been a very strategic market for SCOR,” Conoscente says. “It’s a market where we’ve been involved for a long time, and what we like about Japan is that clients have a very long-term view of their relationships with reinsurers. Of course, as any reinsurance buyer they want to get the best price that they can achieve for their program, but they always try to do it in a manner where over time reinsurers will make money.”
In the U.S., SCOR Global P&C in April reported growth in both non-CAT Property and Casualty lines, whilst CAT premium remained stable as the U.S. reinsurance programs most affected by the events of 2018 were set to renew in June and July. Those results were in line with the priorities set out in SCOR’s “Vision in Action” strategic plan, which Conoscente explained in practical terms.
“The whole strategic planning process is actually something pretty powerful that Denis Kessler put into place when he arrived,” he says. “It’s really a framework to bring together all the internal and external stakeholders and focus them on the objectives we want to achieve. Over time, it’s developed into a very powerful communication tool internally and externally.
“We’re currently in the process of developing a new underwriting plan and it’s a very intense process, but it’s also something that will be very rewarding once we finish it because it’s a commitment we make publicly,” he adds. “On our web site, we provide a lot of details on the goals we set for ourselves. It means that we have to walk the talk while being monitored by rating agencies, by financial analysts and by our employees. It helps gather employees around a common mission.”
After renewing approximately three-fourths of its portfolio in the first quarter, SCOR Global P&C is well on track to achieve growth in line with the upper range of the 5%-8% targets laid out in the “Vision in Action” plan – and to achieve a net combined ratio between 95% and 96%.
The art of risk selection
Smart risk selection also involves knowing what lines of business not to play in – and why.
“There are mainly three lines of business that we decided not to get involved in, in the U.S.,” Conoscente relates. “One was workers’ comp. We made a conscious decision almost 17 years ago to exit that line of business. Another is commercial auto: we see rate increases going up, but that segment is still challenged. There, we’re staying prudent. The third one is product recall – we are and will likely remain very cautious in that line of business. It’s not just a question of price; it’s a question of terms and conditions and the type of coverage provided. We maintain a risk-averse view of that line of business.”
Other lines, he notes, are performing “broadly in line with our expectations. So, again, we feel optimistic for ’19 and ’20.”
On the Casualty side, Conoscente says, “we’re seeing a lot of adverse development from more recent underwriting years where companies probably had a too-optimistic view of the line of business. I think there’s a coming realisation of where that market stands, and this is bringing down commission levels and setting loss picks at a more realistic level.”
When asked about his vision for SCOR’s U.S. business and whether any changes or adjustments were necessary going forward, Conoscente shared his thoughts on what to expect over the next several years.
“We’re trying to position ourselves to clients and brokers as the best alternative to Swiss Re or Munich Re. That’s how we want to be perceived. So what does it take for us to get there? Capacity, service and relationships, which we’re building again step-by-step,” he says. “We believe we have the right staff and organisation to do that.”
While ESG initiatives have yet to gain wider traction in the U.S., they are hardly new to SCOR. Since 2015 the organisation has excluded investments in businesses that generate more than half of their revenues from coal, and has since lowered that threshold to 30%. Two years ago, the reinsurer also disinvested from the world’s top 120 developers of coal-fired power plants.
In an update to its 2017 policy, SCOR said in April 2019 that it would no longer provide insurance and facultative reinsurance coverage to the construction of new coal-fired power plants, irrespective of the technologies, the construction, and quality of the coal (its 2017 commitment stated that it would stop insurance or facultative reinsurance that would specifically encourage new greenfield thermal coal mines or stand-alone lignite mines or plants).
Conoscente says the conversation around being an environmentally responsible insurance player starts at the top.
“We’re trying to employ a lot of initiatives to help reduce our carbon footprint,” he notes. “One of the aspects we’re focused on is being a good corporate citizen in the communities that we operate in. This is part of our mission statement. Reinsurance is not just about returning value to the shareholders, it’s also helping the different stakeholders we have in the local communities achieve a better life. Reinsurance is a very important factor in economic and welfare growth, and I think we can also be a very important factor in improving people’s lives over time.
“Resilience is a topic that we take very seriously,” he adds. “We believe that as a company we have a responsibility to try to diminish our carbon footprint. We look at initiatives for more carbon-efficient means of energy when we travel, when we buy new buildings or equip our buildings. It’s something that’s at the core of what we try to do. We’re trying to apply this mindset in all of our business.”
Which is not to say the decision to write fewer coal-related risks is a simple one, he stresses, especially from a worldwide standpoint – and even in parts of the U.S.
From an underwriting point of view, he explains, “it’s a bit more complicated because we operate across the globe, and some economies are very fossil-energy dependent. Making a non-nuanced commitment overnight could lead us to be wrongly perceived as blacklisting those countries and deeming to sink their economy. Economies that are very dependent on fossil fuels require a lot of investment and a lot of political will to make energy-transition changes, and I think it’s our role as reinsurers to help those local actors and governments in that transition.”
The answer, he says, lies in serving as a trusted advisor. “What we try to do is accompany our clients with their energy transition, helping them assess the risk of their current operations and help them in their transition plans towards other means of energy. We act as a resource for those clients to come and talk to us about what is done elsewhere and what types of insurance is available to help them.”
It would be accurate to count SCOR among the growing number of insurance organisations openly discussing the impact of climate change. “We invest significantly into research around climate change, and we operate in many of the inter-governmental agencies that are looking at this topic,” says Conoscente, adding that SCOR supports the development of models that would better take into account the climate-change effect on the risk profiles of its clients.
“There’s no doubt that there is global change,” he says. “There is political debate as to who is responsible, but it doesn’t change the fact that the climate, globally, is warming – and it has an effect on the frequency and severity of different natural perils.”
SCOR is also moving forward following calls by activist fund CIAM to oust chief executive Denis Kessler from the board earlier this year. At SCOR’s annual general meeting in April, shareholders voted to uphold Kessler’s position and maintain his current level of compensation.
“It was very surprising to see how personal the attacks were,” Conoscente says of the experience. “Even though the people on one hand were recognising all the positive work that’s been done at SCOR since Mr. Kessler arrived, those attacking him were quick to say ‘it’s time to go’ without really explaining what better long-term plans for the company could be laid out. It was reassuring to see that the votes defeated those resolutions, and it allows us to get past that period.
“It hasn’t affected us from a commercial point of view, but it’s focused a lot of internal resources,” he adds. “Now, there are more positive ways of focusing those resources on how to better develop our business and be more profitable.”