EUR 850.00 For Business Accounts Only

Morningstar | Scor 1Q Below Our Estimates

Scor reported net income of EUR 131 million for the first quarter 2019. This is below our estimates and this is a poor set of results from this narrow moat business. We maintain our 38.0 fair value estimate and narrow moat rating.

Within the non-life division, while the combined ratio is impressive at 94.6% and premiums grew exceptionally, by around 13% at constant rates, this growth has been driven by the United States where we know Scor is tilting more towards natural catastrophe. This quarter's nat cat expense came in 50 basis points below budget and combined with that specific product growth, we expect to see a deterioration in underwriting pricing throughout the year. Management are talking up the book, but we are not seeing that in renewals as pricing in January only improved by 130 basis points. We don't think management should be using revisions for losses within results because that is a normal course of initial picks and development.

The result from the life division, which is the basis on which we have awarded Scor a moat, is decent. The technical margin has improved by 20 basis points and this underpins Scor steady development and franchise in Asia Pacific Protection as well as longevity. The contrast between these two highlights what Scor should be doing but is chasing execution. For example, while there is strong growth in non-life, this is where the risks and drag are. Where there is better controlled growth in Life, this is where there is outperformance.

Return on investments continues to improve, this quarter by a near 50 basis points.