Investing.com -- Shares of Scor (EPA:SCOR) SE fell over 2% on Tuesday as the reinsurer’s revised guidance reflected a mix of lower expectations and recalibrated strategies for the coming years.
A cut to cash flow from operations in 2026, along with reduced Life & Health metrics, weighed on sentiment, despite some positives including accelerated cost-cutting measures and strong reserve adequacy reaffirmations.
Scor updated its core targets to address the challenges posed by recent market volatility. Among the key announcements was a downgrade to its cash flow from operations guidance for 2026, now set at €1.0 billion—down 50% from the original €1.5 billion projection.
This reduction stems from adjustments in L&H assumptions and higher intra-group allocations, compounded by lagged claims payments in the Property & Casualty segment.
The reinsurer maintained its ROE target of >12% and reiterated its goal of +9% annual economic value growth, supported by a Solvency II ratio within the optimal range of 185%-220%.
The company expenses are now expected to decline by €150 million by 2025, one year earlier than initially planned, marking a quicker realization of cost efficiency.
The L&H segment remains a point of concern. Scor has lowered its guidance for new business contractual service margin (CSM) to €400 million annually, below market expectations of €490 million for 2025-26.
Additionally, the projected growth in CSM has been adjusted to 1-3% per year, well below the prior consensus of 5.5% and 5.2% for 2025 and 2026, respectively.
The amortization rate for CSM is expected to drop to 6.5%, reflecting changes in cash flow profiles, while the Insurance Service Result is now pegged at €400 million per year.
Cost savings from efficiency measures are forecast to deliver €30 million annually in this segment. Scor aims to improve new business margins and business mix, targeting a 2-percentage-point boost in IFRS ROE by 2026 compared to 2023.
In its P&C business, Scor has retained its combined ratio target of below 87%, alongside expectations of double-digit gross premium growth for 2025.
Alternative Solutions is now set to triple premiums by 2026, up from previous guidance to double them, while overall insurance revenue growth is forecast at 4-6% annually.
An independent actuarial review confirmed the adequacy of reserves in both L&H and P&C. Additionally, consulting firm WTW concluded that Scor’s global P&C claims reserves as of September 2024 exceed its best estimates, marking an improvement over prior years.
Analysts at RBC Capital Markets and Jefferies said that while cost-cutting measures and reserve adequacy provide reassurance, the reduced guidance underscores challenges in achieving robust growth.
Jefferies noted that Scor’s strategic recalibration, including the confirmation of its ROE and economic value targets, aims to position the company for long-term stability.
However, with shares trading at 5.5x forward earnings compared to peers at 11x, the market remains skeptical about near-term execution.
RBC Capital Markets said that the dividend yield of about 8%, based on a €1.80 per share payout, remains attractive, and the company is better positioned to deliver mid-teens ROEs from FY25 onwards.