Forward 2026 And Decisive P&C Initiatives Poised To Restore Profitability And Boost Earnings

Key Takeaways

• Successful strategic plan and assumption reviews could restore profitability and stabilize future returns through improved business strategies.
  
• P&C growth with disciplined underwriting and strong investment returns could boost revenue, margins, and financial stability.
  
• Challenges in the Life & Health segment and reinsurance market volatility threaten SCOR's financial stability and long-term sustainability goals.

Catalysts

Provides life and non-life reinsurance products in Europe, the Middle East, Africa, the Americas, Latin America, and Asia Pacific.

• The successful implementation of a 3-step strategic plan (Forward 2026) for Life & Health is expected to sustainably restore profitability, impacting future earnings positively once the plan is fully operational.
  
• The completion of the 2024 Life & Health assumptions review provides a clearer financial outlook and facilitates moving forward with improved business strategies, potentially stabilizing future returns on equity.
  
• SCOR's focus on diversifying and profitably growing its P&C business, leveraging its Tier 1 market position, and maintaining underwriting discipline could drive revenue growth and improved margins in the future.
  
• With a high-quality fixed income investment portfolio benefiting from ongoing high reinvestment yields, investment returns are likely to remain strong, thus positively impacting future earnings.
  
• The establishment of a third-party capital solution significantly enhances the solvency position, providing greater financial stability and potentially increasing shareholder confidence in consistent dividend payouts.

SCOR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SCOR's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.4% today to 3.3% in 3 years time.
• Analysts expect earnings to reach €769.9 million (and earnings per share of €3.97) by about December 2027, up from €-67.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €869 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2027 earnings, up from -63.2x today. This future PE is lower than the current PE for the GB Insurance industry at 13.1x.
• Analysts expect the number of shares outstanding to grow by 2.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.36%, as per the Simply Wall St company report.

SCOR Future Earnings Per Share Growth

Risks

• The recent Life & Health review resulted in a significant negative impact on the company's financials, creating a net loss and negative ROE for the quarter, which raises concerns about consistent earnings growth in this segment.
  
• The Life & Health segment has experienced volatility under IFRS 17, suggesting potential ongoing challenges in achieving stable net margins.
  
• Despite strong performance in P&C and Investments, SCOR's economic value and solvency ratio were negatively impacted by the Life & Health review, raising questions about the long-term sustainability of its economic value growth targets.
  
• The company faces execution risks in implementing its 3-step remedial strategy for the Life & Health segment, which may affect how quickly the segment returns to profitability and stabilizes earnings.
  
• High nat cat activity and potential volatility in demand/pricing within the reinsurance market could negatively impact P&C revenues and margins if the market conditions do not stay favorable.

Valuation

• The analysts have a consensus price target of €26.82 for SCOR based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €31.65, and the most bearish reporting a price target of just €22.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €23.2 billion, earnings will come to €769.9 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €23.64, the analyst's price target of €26.82 is 11.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.