Best Downgrades SCOR Ratings – Action ‘Unfounded’ Reinsurer Replies

A.M. Best Co. announced that it has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of France’s SCOR Group and its guaranteed subsidiaries. The company reacted quickly with an announcement that it regrets the decision “at a time when the Group’s fundamentals are improving.”

Best also said it “has downgraded the ratings on debt instruments issued or guaranteed by SCOR,” and gave a full list of the subsidiaries affected. “All ratings have been placed under review with developing implications. A.M. Best anticipates being able to resolve the under review status of the rating by the end of the year,” said the bulletin.

The rating agency justified its action as the result of a “deterioration in SCOR’s risk-adjusted capitalisation,” and “as a result of slower than anticipated improvement in performance despite the positive action taken to curtail underwriting in certain areas.”

On the positive side Best said, “Successful completion of SCOR’s plans to make capital in a new life subsidiary available to investors and to sell Commercial Risks Partners Limited, Bermuda (CRP) are highly likely to result in enhancement of SCOR’s consolidated risk-adjusted capitalisation.” It also noted “SCOR’s rating continues to be underpinned by its excellent business profile and diversified reinsurance account.”

However, “The company’s performance in the first half of 2003 has continued to be affected by adverse development in its reserves for business written prior to 2001 by SCOR Reinsurance Company in the United States and losses arising in its credit derivatives portfolio and from CRP. A.M. Best believes that these factors may continue to depress SCOR’s future performance,” the announcement continued.

SCOR’s bulletin listed the following positive developments in calling Best’s action “unfounded:”
— Operating cashflow rose strongly during the first half of 2003 to EUR 292 million [$358 million] vs. EUR 58 million [$65 million] for the same period last year,
— Combined ratios have improved significantly,
— The new underwriting policy, rigorous and selective, is producing results,
— The prudent asset management policy is producing increasing returns,
— The Group has discontinued its non-strategic activities (Alternative risk transfer through CRP, credit derivatives),
— The Group has decided to strengthen its capital base by bringing in investors into its Life reinsurance subsidiary which is in the process of being created.

“The Group is actively taking all the necessary steps to offer its clients the optimal level of security they expect from it,” it added.