Scor investors’ bad year can still get worse
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
LONDON, July 16 (Reuters Breakingviews) -Scor SCOR.PA investors must be wishing they had access to a time machine. It’s six years since the 3.5 billion euro French reinsurer fought off a hostile takeover from its domestic rival Covéa, which valued the company at 43 euros per share. In 2024 problems in its life and health unit, revealed on Tuesday, mean it’s now worth less than half that. And there could be further strife to come.
Covéa and Scor’s arm wrestle began in 2018 when Scor rejected a takeover from the French mutual insurer. In 2019 lawsuits alleged that while Covéa CEO Thierry Derez was sitting on Scor’s board, he used confidential information to advance his own bid. Covéa denied wrongdoing but said the “continued attacks and hostile tactics” made it drop its plans. Eventually, in 2021, Covéa agreed to sell its stake in Scor and vowed not to buy any of its former target’s shares for seven years.
That pact now looks unfortunate, given Scor’s headaches. On Tuesday, the company’s shares collapsed 26% to just 19 euros a share after CEO Thierry Léger flagged that it may have to book a 500 million euro net loss in the health unit. More worryingly, Scor said the dent to its life and health business will impact the company’s solvency which will now merely be above 200% of regulatory minimum requirements, compared to 209% at the end of last year.
Investors should have two concerns. One is that the life insurance goof – partly down to mistaken assumptions that slow Covid-era claims rates would persist – could have been avoided. The other is that Scor’s property and casualty division, which pays out claims on damage from hurricanes and other natural disasters and accounts for around half of Scor’s 19.4 billion euros of premiums, may also drain capital. After all, the tropical storm season is just beginning and could lead to big payouts. The risk is Scor’s solvency sinks below the foot of its targeted 185% to 220% range.
If so, Scor might have to raise equity to bolster its reserves. That sort of uncertainty means potential suitors like domestic giant Axa AXAF.PA or private equity firms may not fancy lobbing in an opportunistic bid to take advantage of the company’s share implosion – and Covéa can’t. How Scor investors must pine for 2018.
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CONTEXT NEWS
Shares in Scor fell 26% on July 16 after the French reinsurer cut guidance for its life and health (L&H) unit.
The unit’s second-quarter insurance service result (ISR), a measure of profitability, is expected to fall to a loss of about 400 million euros and the full-year ISR is expected to be significantly less than the 500 million euros guided before, Scor says.
As of 0956 GMT, Scor shares were trading at 19.8 euros, down 24%.
Graphic: Scor’s share price has fallen far below Covéa’s 2018 offer https://reut.rs/3Y08eNl
Editing by George Hay and Oliver Taslic
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