Scor XoL renewal goes out to market; points to 1.1 2021 retro market up 15-20%

The Scor XoL retro renewal has finally gone to market in what will be closely watched as a bellwether for the state of the wider retro markets ahead of the 1.1 renewals.

The XoL placement – which followed a broker RFP undertaken by the French reinsurer earlier this year – is traditionally led by RenRe with significant participations from Aeolus and select Bermuda carriers such as Everest Re and Ascot, together with ILS retro markets. 

According to sources, the Scor renewal went officially out to market last week and underwriters are now modelling pricing/cat loading quotes for both the aggregate and per occurrence layers.

Placed by Aon, Willis Re and Guy Carpenter, indicative pricing is expected by early October with firm orders terms (FoTs) later in the month/ early November. 

Traditionally, Scor is the industry’s first major XoL program to renew, typically pricing in or around the September Monte Carlo Rendez-Vous. 

But last year the renewal was delayed and the aggregate layers only part placed as the ~$20bn global retro market suffered a capacity crunch caused by another year of H2 cat losses as well as the withdrawal of supply, principally from ILS markets. 

By mid-December 2019 the 1.1 market cleared but not before the entrance of last resort markets such as Berkshire Hathaway and DE Shaw attracted to the spike in pricing.

Scor, however, is generally one of the premier retro renewals, prized both for the size of the cover bought and also its underwriting quality.

According to sources familiar with the renewal, brokers are anticipating average indicative quotes in the region of 15 percent with the most upward pressure expected on the Scor aggregate XoL layers.

At a simplified level, The ReInsurer understands Scor bought a $175mn xs $350mn layer, complemented by separate towers of $200mn cover for agg and global per occurrence, topped with $200mn xs $750mn for 2020 (see image). 

However, The ReInsurer understands that not all 2020 layers were completed.

In addition to RenRe, Everest Re and Aelous, ILS funds such as AlphaCat, Elementum, Twelve Capital and LGT Capital have traditionally participated on the program.

Although Scor had previously bought some cover from CatCo – the controversial and now defunct Bermuda multi-peril retro fund – it was not as dependent on the Guy Carpenter-linked platform as other, typically smaller retro buyers.

Some restructuring of the Scor 2021 placement is also expected. Sources suggest there may be separate towers of coverage, not least for Scor’s property fac book by the time of FoTs.

Speaking last week at Scor’s virtual Monte Carlo Rendez-Vous briefing, chairman and CEO Dennis Kessler predicted the placement will be completed by November. 

“We’ve spent a lot of time optimising our retro. We want to protect the book and the way we structure retro and the way we combine types of protection is something we’ve been working on a lot. I believe it should be done by November,” Kessler explained.

Jean-Paul Conoscente, CEO of Scor Global P&C, added: “We’ve had the same leaders on our program for a number of years. We’ve already started discussions with them and we expect to have the first idea in the coming weeks.”

But he added that the reinsurer is willing to buy less if it feels the retro markets are too expensive.

“We will know from the price discussions whether we’re better off holding or retaining more risk, but we’ll find out soon.”

At the same briefing, Laurent Rousseau, Deputy CEO of Scor Global P&C, emphasised that the company sees the retro placement as complementing its other forms of capital.

“We raised [Eur] 300m of debt yesterday and our capital base is very strong, so we’re comfortable retaining more risk.”

In addition to the Eur300mn debt placement, Scor is a frequent issuer of cat bonds via its “Atlas” series, together with other forms of contingent capital.

Scor did not respond to a request for comment at the time of publication.

 

 

The ReInsurer Comment:

In the good ol’ days, Scor’s 1.1 retro renewal would be placed at or around September’s Monte Carlo Rendez-Vous. As the first major renewal, it was a fairly accurate barometer for the state of the retro markets. If Scor was flat, for instance, it would suggest wider pricing might be up circa 2.5-5 percent as the French reinsurer typically enjoys a discount for the reasons explained above.

Last year, however, the renewal was much delayed, both for Scor and the wider market. Indeed, the latter only cleared in mid-December as new quoting capacity from the likes of Berkshire Hathaway, Chubb and DE Shaw helped absorb the retrenchment from a number of ILS funds scarred by another year of losses and tied capital. Average rates last year were typically up ~25 percent.

So, how will the Q4 2020 renewal compare to a year ago? Well, if Scor does renew up around the 15 percent mark then this dovetails with early predictions of average, market-wide renewals in the region of 15-25 percent.

~15 percent for broadly loss free/ within modelled range accounts and ~25 percent for heavier loss accounts. 

A key pricing driver, of course, is supply. The three leading retro markets – RenaissanceRe, Aeolus and AlphaCat – are expected to be active as is Everest Re. But what of other ILS markets and also potential new entrants?

There is also talk of potential new entrants (David Eklund and Integral ILS) and a number of incumbents are currently fund-raising. Until we get greater clarity on these – together with the Q4 loss picture – then we won’t know for certain. But as it stands, the 1.1 retro renewal appears to be looking upwards in the 15-20 percent range.