Good afternoon, ladies and gentlemen, and welcome to the SCOR 4th Quarter 2024 Results Conference Call. Today's call is being recorded. There will be an opportunity to ask questions after the presentation. In order to give all participants a chance to ask questions, we kindly ask you to limit the number of your questions to two. At this time, I would like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir.
Good afternoon, everyone, and welcome to SCOR Q4 2024 Results Conference Call. My name is Thomas Fossard, Head of Investor Relations, and I'm joined on the call today by Thierry Léger, Group CEO, and François de Varenne, Deputy CEO and Group CFO, as well as by other ComEx members. Can I please ask you to consider the disclaimer on page two of the presentation? And now I would like to hand over to Thierry Léger. Thierry, over to you.
Thank you, Thomas. Hello, everyone, and thanks for joining the call today. Let me start with a few key messages. The underlying performance of our businesses has been strong. P&C performance was excellent in the fourth quarter and throughout 2024 on a reported and normalized basis. We have been growing in a diversified and profitable way. The attritional loss levels are in line with expectations, and our net cat claims are within budget. We have built significant prudence in our P&C reserves, two years ahead of plan. This is a strong demonstration of SCOR's underwriting discipline in a volatile environment. Life and health shows a satisfactory result in Q4. However, the full year is still negative, impacted by the 2024 assumption review. We remain committed to the three-step plan we have established last summer to restore the profitability of our new and in-force business in Life and Health.
Investments had another strong quarter. We achieved an elevated return over the full year through our high-quality fixed income portfolio that benefited from ongoing high reinvestment rates. Our group solvency ratio stands at 210%, an increase of seven points compared to Q3, and one point higher than at the end of 2023. With this, we have fully absorbed the negative impact from the Life and Health review, proving the resilience of our balance sheet. The board of directors is proposing a dividend of EUR 1.8. This is in accordance with our capital management framework and takes into account a solvency ratio of 210% at the upper end of our optimal range. With the Q4 net income of EUR 233 million, our full-year result turns positive. Excluding the impact of the Life and Health review, our full-year net income for the group would be EUR 728 million, translating into a 14.9% ROE.
I'm very pleased with the successful 1/1 P&C renewals. We were able to leverage our Tier 1 franchise and grow in a diversified and profitable way. The EGPI grows by 9.6% at stable and attractive net combined ratios. We estimate the Los Angeles fire at EUR 140 million for SCOR, based on a EUR 40 billion industry loss. This represents 25% of our annual cat budget, which is a very good outcome and the result of our cautious underwriting of climate change-exposed cat business. Throughout 2024, our teams have remained focused on execution of our Forward 2026 plan and have achieved substantial operational improvements in ALM, risk partnerships, business steering, and cost management. In more detail, in P&C, the combined ratio for the full year 2024 is 86.3% ahead of our Forward 2026 assumption of 87%.
This is mainly due to a very solid attritional performance, but also due to the 9.4 full-year net cat ratio better than the 10% budget. As mentioned already, included in these numbers is a significantly accelerated buffer building in 2024. In Life and Health, the insurance service result ISR is €348 million, negatively impacted by the Life and Health review and the adjustment of some arbitrage positions. Excluding these one-offs, the underlying Life and Health performance is €452 million ISR for the full year 2024. In Q4, we see an improved Life and Health performance with an insurance service result of €119 million. In investments, we continue to deliver stable returns with our high-quality, mainly fixed income portfolio. The full year 2024 regular income yield is at 3.5%, at the higher end of our guided range for full year 2024.
Our solvency ratio stands at 210%, fully absorbing the negative impact of the Life and Health review. This demonstrates the resilience of our balance sheet, the quality of our management actions, and the strong underlying operating capital generation. I'm very satisfied with this outcome following a very challenging year. SCOR's group economic value stands at €8.6 billion, as at year-end 2024, down 6.3% at constant economics. Again here, excluding the Life and Health review, our economic value growth would have been 9.8% above the 9% target of our forward 2026 plan. Our economic value per share is at €48, down compared to year-end 2023, but up €1 compared to Q3. I would like to point out that our current economic value per share is well above our actual share price. The full-year return on equity is 0.2%.
Adjusting for the Life and Health review, the return on equity stands at 14.9%, well above the 12% assumption in our Forward 2026 plan. This shows the positive performance of our underlying businesses. SCOR's Forward 2026 strategic plan aims at increasing the resilience of our P&C and Life and Health reserves, and I'm very satisfied with the progress achieved in 2024. At group level, we raised the risk adjustment confidence level from 70%-75% range in 2023 to a 75%-80% range in 2024. This is a substantial improvement. Regarding the P&C reserving buffer, we are pleased to report that we are already significantly above the EUR 300 million target set in Forward 2026. This puts us two years ahead of our three-year plan, i.e., we have achieved significantly more buffer building in one year than we had planned over three years.
This allows us now to move to a more opportunistic approach going forward. We will build buffers as opportunities arise, with the flexibility to show our underlying business performance sooner than planned. On the solvency side, we end the year one point above year-end 2023, fully absorbing the minus 29 percentage points impact from the Life and Health review. This is a demonstration of the resilience of our balance sheet and strengths of our management actions. The underlying capital generation has improved to 26% over the full year. Our new ALM strategy and the placement of a whole account stop-loss had a very positive impact too, and finally, we successfully issued EUR 500 million RT1 debt last December, which was well received by the fixed income investors with a 5.6 times oversubscription. As mentioned before, we are progressing well with the implementation of our new ALM strategy.
This is a three-year journey, but we are seeing the first positive impacts already. It enabled us to lengthen our asset portfolio. It reduced the solvency capital required, SCR, generating a positive solvency ratio impact of six points. It reduced our sensitivities to interest rate movements in all currencies except to the euro, where actions are planned for 2025 to reduce sensitivity further. Based on the solid underlying performance, the strong solvency ratio of 210%, and continued favorable business momentum, the board of directors has decided to propose a dividend of EUR 1.8 per share. Of course, this is subject to shareholders' approval at the annual general meeting in May. I'm very confident in SCOR's future. We have strong people, know-how, and expertise. Our Tier 1 franchise gives us access to the reinsurance programs of all insurance clients around the globe.
We have the ability to price any program in any line of business across the world. The 1/1 P&C renewals earlier this year have been a clear proof point for this and demonstrated our ability to grow in a diversified and profitable way. We are optimistic for the rest of the year and will continue to apply a disciplined underwriting approach. On the Life and Health side, we execute on our new strategy. We apply minimum hurdle rates to traditional protection business and accelerate growth in longevity and financial solutions. This will result in a better diversified and higher margin new business going forward. On the in-force side, full attention is given to protect and extract value through improved monitoring, clear KPIs, and the disciplined execution of our management actions.
SCOR's strategic positioning is very strong and provides us with the opportunity to grow in a diversified and profitable way in the years to come. François, over to you.
Thank you very much, Thierry, and good afternoon, everyone. I'm very pleased to present this Q4 result. As usual, in my section and unless mentioned, I will focus on quarterly figures, and also I will focus on figures excluding the mark-to-market impact of the option on SCOR's own shares. Now, let me walk you through the Q4 result in more detail. For Q4, we are very happy to report an excellent adjusted net income of EUR 235 million. This is achieved by the good performance of all business activities, P&C, Life and Health, and investments. Let's go directly into the P&C performance.
With successful renewals in 2024, the new business CSM reaches EUR 1 billion for the year, representing a 7.6% growth over 2023. This comes from our disciplined growth and from the strong profitability of the business that we are writing. For Q4, the negative amount is impacted by an early recognition of some retrocession costs as per IFRS 17 accounting rules. The P&C insurance revenue is up 2.5% for the year and flat for the quarter. The Q4 growth is impacted by the already mentioned large commutation, as in Q3. We expect insurance revenue growth to pick up in 2025, benefiting from the strong renewals in 2024 and at 1/1 2025. Moving on to the underlying performance of the P&C book. Our P&C combined ratio stands at 83.1% in Q4, significantly better than the forward 2026 assumption of being below 87%.
This is driven by an excellent attritional performance and a low cat ratio. The net cat ratio is at 6.4%, with Hurricane Milton being the main event in the quarter. On an annual basis, the cat ratio is at 9.4% for full year 2024, so below our 10% budget, reflecting the underwriting discipline and the effectiveness of our net cat strategy. As we are mentioning net cat, we are reiterating the message we have communicated during the 1/1 renewals, and with the information we have today, we expect the impact of the Los Angeles wildfires to be around EUR 140 million pre-tax and net of retrocession, which means around the cat budget in Q1 2025. We are very satisfied with this outcome. Coming back to Q4, our attritional loss ratio, including commission of 75.9%, is very strong and includes continued prudence built into our P&C reserves.
The minus 9.5% discount effect reflects the reallocation of our reserves at our year-end review. This is broadly offset by a higher attritional expense ratio of 9.7% in Q4, impacted by an expense accounting true-up. Based on the initial feedback we received this morning, we have noticed that some of you were not crystal clear about the P&C underlying performance this quarter. When you normalize for net cat and you normalize for discount effect, the combined ratio would stand at 88.2%. Remember that this combined ratio includes continued buffer building, which is equivalent to three points of combined ratio in Q4. As we mentioned it with Thierry since the beginning of 2024, given the very strong profitability of P&C, we decided to accelerate our buffer strategy since Q1.
We did it as well in Q2 and Q3, to be done by the end of the year, which means two years in advance. So overall, excellent quarter for P&C, contributing to an annual combined ratio of 86.3%, below the 87% assumption, including buffers, and including, at the end of the year, a significant addition to our reserve resilience this year. Now, let's have a look at Life and Health. The Life and Health business generates a new business CSM of €113 million in Q4, leading to a full year new business CSM of €485 million, 4% higher than last year. Remember that we have shifted the strategy of Life and Health toward higher return hurdles, and we expect a negative impact on the business volume that we will be writing. In December, we communicated around €400 million new business CSM per year for 2025 and 2026.
We reiterate this guidance. As mentioned during the Investor Day, we expect this to be slightly lower in 2025, but to ramp up in 2026. The insurance service result comes at €119 million this quarter. This is driven by three main items: a CSM amortization of €117 million, resulting from a 6.9% amortization rate, and a small exceptional release due to the management action of €16 million. A risk adjustment release of €36 million and an expense variance of minus €49 million this quarter, driven mostly by negative deviation from the U.S., though this is partially offset by a positive change impact of onerous contract for €12 million. Overall, the Q4 Life and Health insurance service result is at a satisfactory level and reflects the improving trend of the business performance following the extensive assumption review in 2024.
We are now fully comfortable with the updated assumption, and as our new inforce management team continues to take action on the inforce portfolio, we expect the level of expense variance to improve, although we expect to see some volatility on an ongoing basis. Now, moving to investments, we benefit from an excellent performance on the investment side, as seen in previous quarters. Our full year regular income yield reaches 3.5% in the higher part of our guided range. Here, we also provide you with an updated guidance of the regular income yield expected for 2025. Our economic value per share, as mentioned by Thierry, stands at €48, slightly increased from the third quarter. Our economic financial leverage increases to 24.5% from 21.2% at the end of 2023, following the mentioned successful issuance of the new RT1 debt in December.
As a reminder, we are proactively anticipating the refinancing of our corporate debts and seek providing our credit investors with larger and more liquid tranches. As a result, we expect SCOR's financial leverage to temporarily stay at a level higher than our long-term objective, as stated during the Investor Day of December. With this, I will hand over to Thierry for the closing remarks.
Thank you, François. Let me conclude. A lot has been achieved in 2024. We have reduced the complexity of our organization, moved decision-making closer to the front, and created a performance culture with strong values at its heart. We have a Tier 1 franchise, the knowledge and solutions to grow profitably and strategically with our clients. We are constantly refining our capital allocation at the business unit and portfolio level, with a focus on profitable and diversifying lines of business.
We make good progress in ALM and risk partnerships. There is a positive energy in the organization, and our teams are fully focused on the execution of the Forward 2026 strategic plan. On this basis, I'm confident that SCOR will create significant value for its partners, employees, and shareholders in the years to come. Thomas, over to you for Q&A.
Thank you very much, Thierry. On page 24, you will find the forthcoming scheduled events. With this, we can now move to the Q&A session. Can I remind you to please limit yourself to two questions each? Operator, can we get the first question, please?
Thank you, sir. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press Star and One on their telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions.
Anyone with a question may press Star and One at this time. The first question is from Michael Huttner of Berenberg.
Thank you so much, and congratulations, and really clear presentation. I had to, so one is top line, and the other one is one-offs. On the top line, so 9.6% at the renewals, I think the guidance somewhere is 4-6% in P&C. So I just wondered, how do I reconcile those two figures? Which one is the, what I'd like to hear is 9% is the right figure, but I mean, maybe that's too optimistic for the revenue growth. And then on the one-off, so for me, I'm actually building a model for the first time in a long time.
The difficulty I have is I can add back all the buffer building, etc., going forward, but I have no clue, none at all, at where you think you can do this opportunistic buffer building and whether there are other one-offs to come, whether it's due to arbitration or anything like that. So I just wondered if you can give me some help, because otherwise, all I do is multiply 233 by four and get a billion, and then it's probably the wrong figure. Thank you.
Thank you, Michael, and good afternoon. On the first question, still on the link between the growth, insurance revenue, the premium, I refer to what we said during the Investor Day, and that was the link on EGPI and insurance revenue. You have to take into account the lag effect in the transition between EGPI growth premium and insurance revenue growth.
You have as well to keep in mind the effect of the large commutation of early 2024, and you will still see the effect until Q2 2025 in the insurance revenue. So it should normalize in the course of 2024.
And just on that.
Maybe another point Michael ?
Yeah, yeah, please.
Also, you have to take into account the strong growth of the AS portfolio, for which the premium growth is quite high. But when you translate that into ISR and IFRS 17, you have to remove the commissions, and therefore, the growth of the ISR from alternative solutions is much lower than the premium growth. But I understand all these things, but maybe in a very brief answer, the 9.6, you sounded very pleased with it.
Does this mean that the four to six that you gave us in December could be kind of adjusted up a little bit, or am I mixing things up here?
Well,
for the time being, we keep the guidance of four to six, but the success of the renewals of January 1st makes us very comfortable to reach that target.
Okay, thank you.
On your second question, Michael, so if I understood well, it's the quality of the net income and what is linked to one-off in this set of accounts for Q4 and what you can multiply by four or not. If I look at the quality of the accounts, so I mentioned on the P&C side, the normalization effect, so mostly we have a good combined ratio, we have a good attritional ratio.
There is this effect on the discount impact, but if you look at the full year combined ratio, the full year attritional ratio, and the full year discount impact, we are really in line with the guidance provided in Forward 2026 and reiterated in December for P&C. So I think you just have on the P&C side a strong confirmation of the excellent performance of P&C in 2024, and as we mentioned during the 1/1 renewal call, it should stay in 2025. On the Life and Health side, you start to see, I mean, you have an effect of the Life and Health review mostly in Solvency II in Q4. You have a minimal effect. It's €38 million on the Economic Value under IFRS 17. So I would say the amount of one-off is limited.
The one that was not expected, I guess, on your side, that's the excellent good guy we've got on the tax side with an effective tax rate of 8%. If you look at the full year basis, the effective tax rate is at 26%, so mostly in line with the target of 30%, slightly better. You know that we are working a lot since the summer 2023 on the repatriation of profit of the group in the French tax perimeter to protect first and then to activate one day all the DTAs we've got in the French perimeter. We start to see the benefit of this strategy when you will look at, since we published them in the URD, you are going to look at the statutory accounts of SCOR SE in French GAAP.
You will discover that for the first time since 2016, we have a positive net income, and the effect in Q4 is mostly this one. So prudently, we have booked a provision on the French DTAs in Q1, Q2, and Q1, Q2, and Q3, and we have a reversal of those cautious provisions for the first nine months, given the fact that we have, for the first time, a positive net income in the statutory account, which ultimately will be good news and is really encouraging on what we do in repatriation of profit. I would say, except this, and that's the quality of the results. If you just extract those small one-offs, you have a strong quality of result in Q4.
Fantastic. Thank you so much.
Thank you, Michael. Can we move to the next question, please?
The next question is from James Shuck of Citi.
Hi there.
Thanks very much, and good afternoon. François, I just wanted to return to the resiliency build. So I mean, my understanding of what you're telling me is that you're significantly above EUR 300 million, which has kind of been achieved before the end of the plan period. And what you're saying is that you still want to do more, and that you want to do that within the next year. So basically, by the end of 2025, you think that any kind of discretionary type additional buffer builds will be complete by the end of this year. So firstly, I just want to check, kind of, is my understanding right? Do you have a number kind of in mind? I doubt you're going to share it, but what happens if we sort of have a normal year for the rest of the year?
And does that mean that you manage to achieve that number kind of regardless? I'm just a bit kind of confused by the ability to achieve an unquantified number by the end of this year when we don't really know what the earnings will be either. So that's kind of my first question. And then secondly, on Life and Health re, obviously, you've done the big reserve review. I was surprised to see US experience variances negative in Q4. Could you just explain to me what's happening in that line, please? Thank you.
Thank you, James, for the two questions. So let me come back maybe with more details on what we did on the buffer side on the P&C. So since July 2023, we initiated this strategy.
We mentioned, and that was reiterated in the Forward 2026, that with Thierry, we have a target in mind, EUR 300 million by the end of 2026. We accelerated the strategy in Q1. We did the same thing in Q2, Q3, and even in Q4. Given the very strong profitability provided by Jean-Paul on the P&C side, we accelerated the strategy. And as I mentioned in my speech a few minutes ago, consider we are done. We are done. So we don't have now any objective with Thierry. When we say we are significantly ahead or above EUR 300 million, it's really significantly above. It's not EUR 10 million or EUR 20 million. It's really significantly above. You see the translation of this in the slide where we publish the evolution of the confidence level of the risk adjustment.
You know that we moved the prudence into an add-on of the risk adjustment in the middle of 2024. We enhance the methodology to estimate the risk adjustment. So we used to be on a cost of capital approach to measure the risk adjustment. Now we do it like the standard indicates on a quantile approach. And you see we moved on an average by five points the range. So five points, that's big. I think it will be difficult for you to compute exactly the amount, but you see the amount of risk adjustment at the end of 2024 for both life and P&C. So it's done. We don't have any objective now with Thierry.
The only thing that we say is that if we have a very good quarter, especially on the P&C side, we don't exclude to still increase a little bit the buffer, but it will be purely opportunistic. Purely opportunistic. So consider, again, this is done well above our initial expectation two years in advance. On your second question on the expense variance on the Life and Health side, I understand that you could be slightly disappointed by still this amount. I'm in charge of the reserving team. My priority is to look first at the experience variance on the CSM, which is on the balance sheet, so the one that you don't see in the P&L. And if I compare the experience variance I see in the CSM, especially in the US, in H2 compared to H1, it has been reduced by a multiple of 10.
So it's a significant reduction of the volatility in the experience variance in H2 compared to H1. So it means what? It means that we are fully comfortable with all the review of 2024, and there is no concern on our side to reopen the topic in 2025. So which means 2025, you should expect at the end of the year, a business-as-usual review of the underlying assumption on the life side. So that's the good point. Now you see the one, the expense variance, the one that flows into the P&L is true. It's still a little bit high. Thierry was clear, even already during the summer in July last year, but during the presentation of the Investor Day, delivering the full value on the in-force portfolio through management action, it's a journey of three years, and we have just one year behind us.
So you should still expect a little bit of volatility on our side with Thierry. We are not afraid of this. The guidance of €400 million on the ISR we provided mid-December takes into account a small buffer of negative expense variance in 2025 and 2026 to cope with the fact that it's a three-year journey. That's all really helpful. Thank you so much for that. Would you mind just telling me what the U.S. experience related to, though, in Q4? Yes, €40 million. No, what did it relate to? Oh, it's across the book. I would say it's not linked to a specific large claim. I would say it's a little bit across the portfolio.
All right. Super clear. Thank you very much. Thank you.
Thank you, James. And can we move to the next question, please?
The next question is from Kamran Hossain of J.P. Morgan.
Hi, good afternoon. First question, just coming back to the combined ratio. So just trying to understand here, I think the answer you gave to James on the reserving and that job being kind of basically finished now is pretty clear. Just trying to understand why 87, or bet on 87, is still the right level to be at. It sounds like you're running stronger than that in the fourth quarter. Clearly, over the course of the year, you would have been running below that as well. No need to add to reserve. So just wondering why that's still the right number, or it's just a, let's get the SCOR story to be an under-promise and over-deliver story, which I think would be welcome. The second question is just on the reserving side.
Just trying to understand here what the drivers are for the 75%-80% to go up, and if you do want it to go up. Is the 75%-80% the number we should assume for P&C as well? And do you want that to go up over time, or are you pretty happy with where that level is? Thank you.
Thank you. Thank you, Cameron. On your first question, that's a good question. We thought when we prepared the Investor Day of December, we had a discussion. Do we change the guidance on the combined ratio or not? It was an update of the plan. So first, I think in the course of the execution and implementation of a plan, we don't like to change underlying assumptions.
So we maintain the 87%, even if you see better margin than this assumption for the full year 2024 in Q4 as well. Why we don't change it? Take into account also a little bit the evolution of the P&C cycle. We start to see a small decrease of prices in 2024, 2025. So we could have maybe reduced a little bit the guidance for the combined ratio in 2025, but then increase it for 2026. We prefer to maintain the same assumption constant throughout the plan, and we will see depending on the evolution of the P&C cycle. On your second question, I draw your attention that the confidence level we disclose on slide 7 and the move from the 70-75 percentile to 75-80, so on an average, a translation of five points, it's at group level. So that's at group level. It's not at business unit level.
We don't publish, we don't publish the confidence level for Life and Health on a standalone basis for P&C. When I look at our peers, at least in Europe, they don't do it as well. So let's see if the market is moving in this direction, we will do it. But you could imagine that we are close to this amount for each business unit. Maybe a quick word on the Life and Health side. You saw in Q2, when for the first time we started to book the effect of the Life and Health review, we added EUR 300 million in the Life and Health risk adjustment. We indicated in the Q3 call that we have increased the prudence into the Life and Health risk adjustment. It's almost stable between Q3 and Q4. So we almost did nothing in Q4.
So you can imagine as well that we are significantly above 300 million on the Life and Health side as well.
Fantastic. Thank you, François.
Thanks, Kamran. Can we move to the next question, please?
The next question is from Sean Kang of Bank of America.
Hi. Thanks for taking my question. So I just had a question on the one-month renewals. You guys talked a little bit about stable technical margins. I was just curious what the key risks to that are and what could lead to margin deterioration across the year, maybe at July renewals, for example.
And then, maybe it's a little bit early, but I just wanted to ask, given that the dividend has been stable this year at €1.8, after 2024's Life and Health reset and given the new future cash flow pattern, can we expect future buybacks or a special dividend, for example, in future, or is the focus purely on capital preservation still? Thank you.
So, Thierry, maybe the first question.
Yeah, thank you. On the 1/1 renewals, yeah, you're right. The net margin is stable. As you remember, there was a slight deterioration from the inwards business and a slight improvement from the retro. And so the net effect was stable. The retro is a yearly retro, so that benefit will also benefit future renewals. One of the risks is how prices hold for the upcoming renewals. We think the California wildfire will have an effect of stabilization of prices.
We're only into March, and already many of the cat budgets of reinsurers have been consumed. We haven't had any activity in other regions yet for the year. So I think everybody's going to be very prudent in managing their cat budget, and that should have a positive effect on pricing. So that would be the major risk I would see.
And Sean, on the dividend question. So of course, you have in mind the capital management framework that we published in September 2023. So we are clear. We have two drivers to determine the level of, I would say, the regular dividend. First, we look at the solvency. We have been clear over the last three quarters that, and we have a floor on the dividend, which means we pay at least the same dividend of the previous year if the solvency ratio is at 185% or above.
So that's the case. We end 2024 at 210. And then the idea is to share with our shareholders value creation, and we measure in this plan value creation with the growth of the Economic Value and with the impact of the Life and Health review and the decrease of the Economic Value in 2024 of -6.4%. There is no reason to share this decrease of value. So we just apply the floor, and we don't share any upside since there is none on the Economic Value side. Now, that's true that we mentioned that we could share the good fortune of SCOR with our shareholders through a special dividend and share buyback. Before this, our attention with Thierry and with the board will be on the progressive increase of the dividend per share.
It's too early to commit on the mechanical rule to increase the dividend, but you can expect an increase if, again, we see a positive growth of the economic value in 2025. And we were clear also when we presented Forward 2026, that given the strong margin on the P&C cycle on the P&C side, it's a plan where we seek to deploy capital to build margin on the balance sheet. That's what we did in 2024. That's what we are going to do in 2025. And that's not a plan where you should expect capital repatriation. It's really a plan of capital deployment.
Thank you, Sean Kang. Can we move to the next question, please?
The next question is from Iain Pearce of Exane BNP Paribas.
Hi. Afternoon, everyone. Thanks for taking my questions. The first one was just on the experience variances in Life and Health.
So thanks for providing a bit of clarity on what they were this year. Looking forward, when you're talking about those items being volatile, I guess that means the expectations are going to be negative consistently for the next couple of years. I'm just trying to sort of think about the quantum of negativity or headwind that you'll see in 2025 and 2026. Looking at the Insurance Service Result guidance versus the underlying number you've given this year, if we sort of back that out, it's looking potentially in the sort of high double digits. Is that sort of roughly what you're expecting in terms of the negative experience variances? And then the second one was just on the operating capital generation.
The underlying operating capital generation, I think this year was six points on the solvency walk-in on slide 8, sort of net of dividend and new business, which is a bit ahead of where you're guiding to. So I'm just wondering why you're expecting that to fall based on your guidance for the next couple of years. Thank you.
So, Ian, thank you. So it's a good question on what you should put in your model on the expense variance on Life and Health or even on the ISR, IS Insurance Service result. If you take our average amortization rate published in December during the Investor Day, it's 6.5%. So you apply this to a stock of €5 billion. You take the amount, and you don't take any weird assumption on the release of the risk adjustments. And you take zero assumption on the expense variance and the loss component.
You are probably a little bit around EUR 450 million or north of EUR 450 million. And we guided the market between EUR 400 million and EUR 450 million in December. So it gives you a little bit the range of volatility that we expect coming both or either from the loss component side or the experience variance side. So we don't want to revisit the guidance. So we maintain a guidance of at EUR 0.4 billion. So EUR 0.4 billion, it means it could be between EUR 400 million and EUR 450 million. Again, if you applied all the guidance on, again, amortization rate, risk adjustment release, and on a stock of roughly EUR 5 billion of CSM on the life side, we would be close to a little bit north of EUR 450 million. So it gives you the type of volatility we expect coming both from loss component or expense variance side.
On your question on the solvency ratio, so we have 20. Let's look. I know I'm following all the market reactions since this morning. I know that you are a little bit disappointed by the solvency ratio of 210, and you were all expecting 216. We reiterate that on our side, we are very happy with the 210. And let me just explain why we are happy with the 210. First, we have. That's new. I mean, we have a great operating capital generation of 26 points on a full year basis. So that's quite high. Probably two, three points, I would say, are linked to the very strong performance of P&C and also from the investment portfolio. But even corrected from those two, three points, it's a very high level of operating capital generation.
I think you can appreciate the capital deployment, only 13 points, which I would say is in line with the previous year, but it's stabilized. The dividend, so we mentioned it, 7 points. So which means that we have a net capital generation of 6 points, net of the dividend, net of the accrual of the dividend of 6 points. If I add on top of this the ALM good guy, so the impact on the SCR for 6 points, it's 6 points. It means that if I exclude the Life and Health review and the mitigant we put in place, so the early refinancing of the debt and the whole account stop loss we put in place in Q3, solvency ratio would have been at 222% at the end of the year, which is very high. So I know you are a little bit disappointed by two factors.
It was difficult for you to expect or, yeah, to model the finalization of the Life and Health review in the internal model. And here, it's mostly that something we indicated. So in Q3, it's not finalization of the review itself, but we had two remaining points in Q3. We mentioned them. The first one, we pre-allocated in Q3 the asymmetry position, and we have to wait the full run of the internal model to finalize it. And as well, the final number on the risk margin, and François can enter into the details if needed, is known when we have the full run of the internal model, and ultimately, that's five points. So I think those five points were quite difficult to anticipate on your side, and it's a complex effect in the internal model.
On the market variance side, I know that some of you were a little bit more optimistic than the neutral impact we see in Q4. We start to see the benefit, as mentioned by Thierry at the beginning of this call. We start to see the benefit of the new ALM framework we are putting in place. We work a lot on the FX sensitivities. It's almost done. We started to work on, I would say, market risk in the own funds, which reduced a lot by 6 points the SCR. We reduced a lot the sensitivity to interest rate in all currency except the euro. So it's non-material, and that's why we don't publish them. It's non-material. For the dollar, for instance, it's 1 point with a shock of 50 basis points.
It's still a little bit high on the euro side, and that will be the focus of 2024. And if you look at the evolution of interest rate at the end of Q4, it's mostly an evolution in dollar and not in euro, and that's why our sensitivity, market variance is close to zero. So overall, I understand, again, and I fully acknowledge that you are all a little bit disappointed on the solvency side. If you take into account what I said, you can understand why we are happy, and this was not something that was easy to predict at the end of July last year.
Understood. Thank you for that. But on the 2025 outlook and the guidance of the low single-digit sort of net capital generation growth, that implies a decline versus the underlying number that you've achieved this year.
So is that more operating deployment, lower capital generation that you expect next year? Just trying to understand that guidance. Obviously, that's been a big area of focus for the market as well.
Yeah. I reiterate what François said during the investor day in London mid-December. In this plan, we expect, again, we deploy the capital on the P&C side. We expect, I would say, a net capital generation on the solvency ratio of 1-2 points per year. So take this as an assumption. Thank you.
Thank you, Ian. Can we move to the next question, please?
The next question is from Faizan Lakhani of HSBC.
Hi there. Thank you for taking my questions. My first question is on the attributable expenses.
I know it's a little bit higher this quarter due to true-ups, but when I look at it year on year on the P&C rebusiness, it's up 1.4 points. If you could maybe just explain what's driving that and how to think about that going into 2025. And just two very short follow-ups or clarifications from your comments earlier. You mentioned that the tax rate was lower in Q4 as you reversed out some of the DTAs due to positive net income in Q4. Am I correct in saying that if you have a good quarter, the tax rate should be lower, and in quarters where the performance is worse, it should be higher? Just maybe some clarification on that. And just finally, on the combined ratio guidance, it's clear that you didn't want to change the combined ratio guidance at the Investor Day .
But am I correct in saying that you're not really incentivized to print a lower combined ratio in this current plan despite it being lower? Is that the correct way to think about it? And then any sort of good performance will be tucked away as reserve resilience. Thank you.
Thank you, Faizan. So on the attributable expense, so that's true that we have a true-up in 2024. We enhanced the methodology. That's mostly linked to acquisition expenses. And I think the effect should be a little bit lower in 2025. More generally, you should, because that's the way we look at them as well. But between attributable and non-attributable expenses, there is a strong commitment of the management, a strong commitment for Forward 2026 to maintain flat management expenses. So it's including both attributable and non-attributable expenses, flat between 2023 and 2026 at €1.2 billion.
You see that we are a little bit better than the budget of 2024 in actuals on total management expense. So I would say on this side, that's really under control by the management. On the tax side, I think it's too early. You know that the goal ultimately of what we do on the tax side with the re-domiciliation of profit in France is to reduce the effective tax rate. We are in good progress and on track. That's something I mentioned, I think, during the Investor Day. We are contemplating the re-domiciliation of one of platforms outside in France. I think it will be done in 2026. So maintain, I think at this stage, maintain the assumption of 30%. It could be maybe a little bit lower, but maintain it.
I don't want yet to revise the guidance on the effective tax rate of the group until we have all the authorization from the country where we have the platform today and from the French authorities before revision of the tax rate. Maybe that will be for 2026 or for the next strategic plan. On the combined ratio guidance, I think I gave you the explanation of why we maintain 87% for 2025 and 2026. I think the management has a strong incentive. Part of our bonus is linked to the return on equity, which means ultimately on the profitability of P&C, not only, but of course, the profitability of P&C. We have performance condition on the economic value growth as well. I think we are incentivized, but the COMEX and the CEO is incentivized for the entire group and not a specific business unit.
That's helpful.
Thank you.
Thanks, Faizan. Let's move to the next question, please.
Thank you, sir. The next question is from Will Hardcastle of UBS.
Oh, hi. Thanks for taking the question. The first one's just coming back to the net capital generation of that 1-2 points per year. I guess it begs the question, where is the major deviation versus what you've delivered in 2024 on an underlying basis? Is it the higher capital deployment, or are you essentially assuming further dislocation yield curves or ending on the dampening of that Euro interest rate sensitivity? And just coming, the second one's just linked with that Euro interest rate sensitivity. I guess, can you help us to understand what type of actions you're looking at? Would all of these come with a solvency implication or any earnings implications? Thank you.
So on the net capital generation, I would say on a net basis, it's 6 points excluding the L&H impact. On the L&H side, I think most of the upside is in 2024. There could still be a small upside in the course of 2025, but it should be fairly limited compared to the 6 points we see in 2024. Keep in mind as well that in Q4, it was the case last year as well. That's the main difference between Solvency II and IFRS 17, but we start to recognize part of the renewal in the solvency ratio through BBNI, and I would say 40% of the 1/1 renewal are already taken into account in the solvency ratio, and the rest will be taken into account in Q1.
You have a little bit of seasonality in Q4 and Q1 linked to the 1/1 renewal. I prefer to be prudent and not to guide you on a net capital generation of six points. I prefer to guide you on 2-3 points, as mentioned during the Investor Day. Keep in mind, an important slide we presented during the Investor Day, that's an area of focus. It was one of the four initiatives presented by Thierry in Forward 2026 to prepare SCOR to be the range of tomorrow, which means to prepare probably the next strategic plan. I see a smile on Thierry's face. It enhanced the capital allocation framework and governance. To do this, I mentioned that we are revisiting the framework to define a framework for performance. We are working on a framework on better understanding and capturing when we underwrite or when we allocate capital.
Solvency II capital generation, we are going to do the same thing on cash flow generation. So when we will have those 3D framework, performance, capital generation, and cash flow generation, I think we have margin to unlock net operating capital generation and probably a little bit of return on equity at least, but that will be probably for the next strategic plan. I think we will be done on the framework side by the end of the year, and it will be used to prepare the next strategic plan in 2026. On the second question, I understood a little bit. Maybe for François? Yeah. The instruments that we want to deploy is obviously still thinking about lengthening the portfolio a bit, but this takes time. And then we deployed derivatives as for other currencies, also for euro, and we think we can reduce this quite quickly below 5%.
Thank you, Will. And we're going to move now to the last question, please.
Yes. The last question is from William Hawkins of KBW.
Hello. Thank you for taking my question. First one, forgive me slightly overlapping on some of the other bits, but how do you want me to interpret the EUR 728 million adjusted earnings that you talk about on slide four? You say on the slide that it's excluding one-offs, but the footnote only mentions a few of the things, and there's obviously a lot of other things that we've been talking about on this call. So are you effectively telling me that all the other things just kind of balance out, and so we should be taking EUR 728 as a clean base? And if it is a clean base, can you just sort of summarize for me briefly the key headwinds and tailwinds for 2025?
Then secondly, please, I think Jean-Paul already mentioned this, but just to clarify, you said the LA fires have already absorbed the Q1 CAT budget. What is CAT experience otherwise looking like? I think Jean-Paul did say in answer to another question that there's nothing in other regions, but it's quite unusual to have a completely clean quarter for CATs. Non-LA fire CATs, please.
We take the first question, William. I will make a long story short. It's adjusted for everything. It's clean, and it's a good base for your estimate for the future.
William, on your second question, you're right. There's other CAT activity that is much smaller than the California wildfires, but every quarter we have also revisions of prior quarter CAT losses, positive or negative.
So it's a bit difficult to see right now, but we think the rest of the CAT activity is business as usual with some pluses and some minuses.
I'm really sorry to come back on that second point, Jean-Paul. When you say business as usual, are you implying that we're going to have double the CATs in the first quarter because business as usual will be the normal CAT load?
Yeah. No, okay. That's not what I'm implying. I'm implying that we'll probably have some small additional CAT losses coming from some small events in Q1, and then we have to see what the revisions of the losses from prior quarter looks like.
I got it. That's clear. Thank you so much.
But again, as of today, it could change tomorrow, but as of today, it's one-fourth of the annual budget that is on the Los Angeles wildfire.
So that's why we are very happy on absolute basis, which means if you just compare this to the full year budget, and if we compare to peers on a relative basis, we are happy as well. 25%, it's nice.
Okay. Thanks. Thanks, William. We're going to close the call here, Roberto. So thanks everyone for attending the call today. The team is at your disposal. If you want to catch up for follow-up questions, please do not hesitate to give us a call. As a reminder, SCOR will host its AGM on the 29th of April, and we'll release its Q1 2025 results on the 7th of May with a call at 2:00 P.M. And with this, we wish you a very good afternoon. Thank you all.
This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.