One of the largest reinsurance firms in Europe, Scor, has decided to cut back its profit targets as it attempts to get on top of difficult conditions throughout the industry.
According to a Financial Times
report, companies across the reinsurance sector have been hit with a number of challenges – including low interest rates which are affecting investment returns and price falls due to a lack of catastrophes and a lack of fresh capital.
Now, Scor has announced that it is aiming for a lower return on equity for the next three years compared to the previous three years.
From 2013-2016 it produced ROE of 10 percentage points above the risk free rate. However, that has been cut to eight percentage points ahead for 2016-2019.
Despite this, Denis Kessler, Scor’s chief executive, was optimistic about the future for the industry.
“We believe there’s a large untapped gap in protection,” he told The Financial Times
. “We know we are suffering from low interest rates and the sluggish economic environment but cycles are cycles and we believe there’ll be a return to a more sustainable environment.”
In an effort to generate an annual investment return from 2.5-3.2%, the company is also considering taking more risk on its investment book. Its plans include increasing its exposure to corporate bonds while cutting its holdings of sovereign and cash bonds.
However, his optimism is seemingly not shared by several ratings agencies – with Moody’s, S&P and Fitch all offering gloomy outlooks. Speaking to the publication, Simon Harris, the head of insurance at Moody’s, outlined that the outlook for the industry “remains negative” and demand from the primary insurers was “tepid”.
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