Best Upgrades SCOR Ratings to ‘A-‘

September 11, 2006

SCOR’s “Back on Track” restructuring strategy finally paid off as the French reinsurer regained its “A” rating from A.M. Best Co. The rating agency announced that it has upgraded the financial strength rating (FSR) to “A-” (Excellent) from “B++” (Very Good) and the issuer credit rating (ICR) to “a-” from “bbb+” on SCOR and its rated subsidiaries. Best also upgraded the senior debt and subordinated debt either issued or guaranteed by SCOR, removed all of the ratings from under review with positive implications, and assigned them a stable outlook.

Concurrently, Best affirmed the FSR of “A-” (Excellent) and the ICR of “a-” of German life reinsurer Revios Rueckversicherung and its rated subsidiaries, removed them from under review with negative implications and assigned them a stable outlook.

SCOR’s U.S. subsidiaries were also included in the upgrade (See related article in National section).

“The rating actions reflects SCOR’s excellent risk-adjusted capitalization, a strong business profile in the European markets, which would be further enhanced through the anticipated acquisition of Revios, and improving operating performance,” said Best. “The stable outlook reflects A.M. Best’s expectations that SCOR will be able to successfully integrate Revios and continue its restructuring program throughout 2006 and 2007.”

Best noted that in its opinion “SCOR’s consolidated risk-adjusted capitalization is benefiting from a stabilization of its discontinued U.S. non-life portfolio and is likely to be further strengthened through retained earnings in 2006 after factoring growth of its European non-life business.”

Best also said it “expects SCOR to continue its strategy of reducing its U.S. claims reserves through normal run-off and commutation of its discontinued book of business.”

Concerning the Revios acquisition, Best indicated that it should not “negatively impacting the combined group’s risk-adjusted capitalization as the transaction is fully funded through a planned capital increase and subordinated debt that was issued in July 2006.” Best said it “expects SCOR’s financial leverage to remain within the current range even if the planned transaction is not closed,” and that it “believes that the acquisition would improve SCOR’s risk profile due to the shift to the more stable life reinsurance.”

The ratings report also notes that “SCOR has maintained a strong business profile in the European non-life market even during adverse developments. SCOR was also able to gain new business during the 2006 renewals and has acquired the renewal rights of Alea Europe, which added approximately €60 million ($76 million) to its portfolio.”

Best also said it “SCOR to continue to benefit from favorable market conditions and to grow its non-life portfolio to approximately €1.6 billion ($2 billion) in 2006 whilst maintaining its underwriting discipline.” In its view, “the planned acquisition of Revios would further diversify the combined group’s portfolio, both geographically and by business segment. Life reinsurance would account for approximately 60 percent of gross premiums written, compared to approximately 40 percent prior to the planned acquisition and would move the combined group amongst the top five life reinsurers.”

Best also highlighted the fact that SCOR is now making solid profits. It’s “post-tax earnings in the first six months of 2006 significantly improved by 42 percent to €102 million ($129 million), mainly driven by better non-life underwriting performance but also from improved margins in life reinsurance.”

For future earnings, Best said it “anticipates that higher non-life gross premiums written, stable expenses and improved overall non-life claims experience in 2006 are likely to generate a combined ratio of approximately 98 percent for the full year 2006. A.M. Best expects overall profits to be in the region of €180 million ($228 million) for the full year 2006, which would translate into a return on equity of approximately 10 percent. In A.M. Best view, the shift to life reinsurance as a result of the Revios acquisition would further stabilize SCOR’s income stream, whilst at the same time provide better economies of scales, especially in the United States.”

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