Scor: Estimate Cuts May Reverse Some Of YTD Spread Outperformance

Scor (SCOR: A-/BBB+) equity is down significantly on this morning’s earnings miss (spreads streaming broadly in line with peers). Earnings estimates are likely to come under pressure but credit stats remain solid. Spreads have outperformed YTD and some of this could reverse on today’s news but there’s little reason to see more fundamental issues for the credit, we feel.

• Credit view: solvency ratio is 2pp below consensus (but up 6pp from Dec-23, at 215%) and liquidity is down marginally in the quarter (-3.7% to EUR2.15bn). The EV is up marginally with the CSM bang on consensus (at EUR4.7bn) bringing leverage down 80bp. So, from a credit perspective, solid figures.
• However, operationally less positive. Non-life premiums were 4% below consensus (life were in line) but the non-life operating result was 26% below consensus with hits from the Baltimore bridge and a large commutation. The life operating result was similar poor (47% below consensus) on weaker US mortality claims. Investment income was more positive but still meant pre-tax was 17% below expectations.
• Guidance: there were no explicit changes in guidance but the <87% combined ratio target is now being questioned by the sell-side. Further, the US mortality point could be a one-off but mgmt were not explicit either way, so conservatism is going to lead to fears for equity holders, in our view.
• Scor’s spreads are indicating tighter with the peer group today and c.11bp tighter on the month (-67bp YTD, €IG insurers -11bp and -51bp). We can see why equity holders are fearful of lower profits and dividend stream but credit metrics remain solid, though some of that YTD performance may well reverse.