SCOR: Under the microscope

[dropcap]W[/dropcap]ithin two days, Scor has rejected Covéa’s friendly bid (€43/share) and denied rumours linking it to Partner Re. The French reinsurer confirmed, at its Investors Day, its targets for all business segments. There are no worries about the dividend distribution which should continue on its upward trend.

These figures affirm the interesting profile of the company which should be a preferred target for operators looking for larger scale. Covéa is unlikely to be the only candidate.

The last two days have been so full of news for Scor. It started with the revealing of Covéa’s interest. The French mutual insurance group, which already owns an 8.22% stake in the reinsurer’s capital, announced that the latter has rejected an acquisition offer despite its generous proposition of €43 per share (21% premium over its 31 August closing price).

The offer was to be financed with existing resources and with committed debt provided by Barclays and Credit Suisse Group AG. The proposition was turned down by Scor’s board as it was “fundamentally incompatible with its strategy of independence”.

The company is considering all public bids as hostile, as its answer to Covéa which reiterated its interest in a friendly transaction. In the same context, Scor denied another rumour linking it to Partner Re.

The second event was the 2018 Investors Day. No great news was announced. The reinsurer confirmed its targets over the remainder of the plan: an ROE above 800bp over the 5-year risk-free rate across the cycle and an optimal solvency ratio in the 185-220% range.

For both segments, Scor has also confirmed the profitability assumptions of its business engines: 5-8% per year and a combined ratio <96% for the P&C segment; and a technical margin in the range 6.8-7% for the Life segment. The 2018 ROI is expected to be in the upper half of the 2.5-3.2% range. Scor also confirmed its policy of a “sustainable rise in the dividend over the years”.

Offering such an interesting price for Scor seems to be a surprise for investors who reacted positively. Even if our valuation was in line the market’s before Covéa’s press release, our SOTP gave the same proposed price.

The Investors Day confirmed that the reinsurer remains a strong company, even if its bottom line is under pressure with the implementation of the new operational structure following the US tax reform.

The solid solvency position is a guarantee for the rising dividend.

This makes Scor attractive for acquirers, including Covéa. With the mutual group, the story is not new. It became the major shareholder of the reinsurer in April 2016, an acquisition that occurred after a disagreement with another shareholder, the Japanese SOMPO.

Strong thanks to its three brands in France (MAAF, MMA and GMF), and with 11.5 million customers, Covéa is clearly looking for the development of its reinsurance business provided by Covéa Coopérations.

Following a restructuring process launched in 2012, Covéa Coopérations received regulatory approval to underwrite reinsurance business in 2016. Since January 2017, the international and health and personal protection inwards reinsurance activities have been backed by one of these entities, which became the Covéa group’s primary reinsurance arm.

Today, it is an international reinsurer that operates in 34 countries. A merger would allow it to add €14bn in premiums, a solution to its limited growth potential. In addition, Covéa Coopérations needs business outside the group to manage risks and diversify its portfolio.

The same reality is available for other operators that have an excess cash position and which are looking for more diversification and larger scale. Scor weighs less than €8bn, an attractive price for potential predators.

The reinsurer should begin preparing its defence. Its financial performance and strong capital position make it a preferred target. Scor’s shareholders should learn to live with uncertainties concerning capital.

Full analyst’s update available on