EUR 850.00 For Business Accounts Only

Morningstar | Scor Disappoints in First Half; Shares Undervalued

Scor delivered first-half 2018 net income of EUR 262 million, slightly below our expectations for the full year. Accounting for the EUR 62 million impact of U.S. tax reform brings the results closer to our estimate, but still a little shy. Growth has been driven by life business in Asia-Pacific, financial solutions, and nonlife renewals. We maintain our narrow moat and stable moat trend ratings, along with our fair value estimate of EUR 38 per share.

From a technical perspective, nonlife delivered 91.4% combined. This nonlife combined represents good reporting, mainly as a result of lower-than-average natural catastrophes. Renewals saw premium growth of just under 8% with year-to-date pricing up 2.9%, 5% volume.

Life technical margin of 6.9% was 7.0% at constant foreign exchange rates, but the 2.5% return on invested assets has seen a 20-basis point compression, with portfolio growth of another 250 basis points to offset this and match reserve growth. The income yield was 2.3% versus a reinvestment yield of 2.8%, highlighting a more favourable outlook. Scor’s Vision in Action range is 2.5%-3.2% for 2018 and the strategic plan time frame. The investment portfolio and its return look better versus the prior quarter.

The cost/income ratio has edged up slightly by 10 basis points to 5.0%.

Solvency is stable at 221%, and though financial leverage looks a bit high at 28.4%, above the Vision in Action target range, 26.6% is a better reflection when EUR 250 million of callable November 2018 debt is considered. This is in line with our prior commentary that we would like to see this below 27.

One third of the EUR 200 million share-buyback program has been completed. Shareholders’ equity has dropped to EUR 6.048 billion, from EUR 6.225 billion after the EUR 312 million dividend, and book value translates to EUR 32.08 per share.

Overall, we think this is a slightly disappointing set of results from Scor, one of our most preferred businesses in the reinsurance space. However, we're not perturbed by this noise, and as always, we caution investors not to read too much into quarterly results, which is important in a long-term insurance business.