Good afternoon ladies and gentlemen and welcome to the SCOR Q2 2025 Results Conference Call. This call is being recorded. There will be an opportunity to ask questions after the presentation by pressing Star and one on your telephone keypad. 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 now like to hand the call to Mr. Thomas Froissart. Please go ahead sir.
Good afternoon and welcome to SCOR Q2 2025 results conference. My name is Thomas Froissart, Head of Investor Relations, and I'm joined today on the call by Thierry Léger, Group CEO, François de Varenne, Deputy CEO and Group CFO, Jean-Paul Conoscente, P&C CEO, as well as other COMEX members on slide two. Can I please ask you to consider the disclaimer of the presentation? Now I would like to hand over to Thierry. Thierry, over to you.
Thank you, Thomas. Good afternoon everyone and thanks for joining the call today. Let me have some high level remarks on SCOR six months performance before turning to François and Jean-Paul for more details. Overall, I'm very satisfied with the level and the quality of the results since the start of the year. With all our three businesses contributing positively, in P&C, the portfolio is in a very good state as demonstrated by the excellent underlying attritional loss ratio. This is the result of our Forward 2026 plan where we target profitable and diversifying lines of business. We feel well positioned in the current market and able to continue to deliver on our strategic priorities.
Also, going forward, we have steered our capital allocation proactively in the last six months by adapting our portfolio mix to the more competitive market we are in. On top of it, we adopted a more dynamic retrocession approach, helping us to improve our net combined ratio. Additionally, all these actions prove to be the right choice in the current cycle that we still view as adequate overall in terms of P&C market outlook. At SCOR, we prepare for a more competitive, more distinctive but overall still risk-adequate market. Without major losses in the second half of the year, I expect our underwriting strategy to remain broadly unchanged. We will continue to actively steer our portfolio to the most diversifying and profitable lines of business. Our Tier one franchise and the still relatively low market share provide us with an attractive pipeline of new business opportunities in the coming quarters.
The environment remains very volatile, particularly driven by climate change, geopolitics, and digitization. We therefore expect the demand for reinsurance to be generally up, and our teams are 100% focused on our clients and their needs in Life and Health. Following a good first quarter, we deliver another three months in line with our expectations. As I told you already, even if this is very positive, I want to see us deliver on many more quarters before declaring victory. In terms of numbers, the profit contribution to the group over the first six months is as expected under the Forward 2026 plan. Our Life and Health team, under the leadership of the new Life and Health CEO Philipp Rüede , continues to execute on the three step plan established last summer to restore the profitability of our new and in force business.
As in P&C, looking ahead, I see a strong pipeline of attractive business opportunities in Life and Health. I would like to end my introduction with two numbers. The six months return on equity of 20.1% and our economic value growth of 10.5%, both well above our targets despite buffer building, which I regard as a clear reflection of the strength of our strategy and business franchise. François, over to you.
Thank you. Thank you, Thierry. Hello everyone and thanks for joining the call today. I will now walk you through our second quarter results starting with a few key messages. First, Thierry and I, we are very satisfied with these results. The performance of our three business activities is strong, delivering EUR 225 million of net income, a 22.6% return on equity, and an economic value growth of 10.5% at constant economics. P&C performance is excellent. The combined ratio for Q2 is at 82.5%, well ahead of our Forward 2026 assumption of below 87%. This result reflects both low CAT claims and strong underlying attritional performance. This performance enables us to build additional material buffer in Q2 in Life and Health, with an insurance service result of EUR 180 million in Q2 and the year-to-date expense variance.
In line with our expectation, we are on track to reach our full-year Forward 2026 assumption of around EUR 400 million ISR. Investments had another good quarter. We achieved a 3.5% regular income yield and a return on invested assets of 3.6%, thanks to a high-quality fixed income portfolio that continues to benefit from elevated reinvestment rates. Our economic value increases by 10.5% at constant economics, the translation of the good and excellent business performance. Our group solvency ratio stands at 210%, stable compared to the end of 2024. This is supported by strong net operating capital generation in the first half, net of dividend, offset by adverse market variances and notably the volatility in FX in Q2. On June, July, P&C renewals in an environment with increased competition, we have executed in a disciplined way on our P&C strategy. We continued our growth in profitable and diversifying line of business.
This, combined with our dynamic retrocession buying approach, has translated into an unchanged net technical margin compared to last year in the 2025 renewals year to date. Jean-Paul will provide you with more colors on the media renewals later in the presentation. Overall, thanks to the quality of our results over the first six months, we remain confident about achieving our full-year objectives. Now I will go on with more details regarding our Q2 results, starting first with P&C. In Q2, the P&C new business CSM is mostly stable year on year excluding the FX effect. This is a strong achievement in an increasingly competitive environment. On a half year basis, our P&C new business CSM grew by 5% by benefiting from our strategic growth in preferred lines as well as our dynamic association buying, which offsets the inward business margin erosion.
The P&C insurance revenue is down -6.6% for the quarter. The already mentioned large contract commutation impacts the Q2 growth rate by -6.4 percentage points or -$131 million. Excluding this effect, the insurance revenue growth is flat, similar to Q1. This is supported by growth in reinsurance, offset by a decline in SCOR Business Solutions. In reinsurance, our preferred lines continue to grow nicely, namely alternative solutions, engineering, marine, IDI, and international casualty. Together, they are up 9%. This is partially impacted by a negative premium revision in the agriculture business underwritten last year and our proactive actions to reduce our U.S. casualty book. This is fully in line with our focus on profitability. We are prepared to reduce capacity or redeploy capital whenever necessary. In SCOR Business Solutions, the trend has improved compared to Q1 as the timing effect on the renewal of some contracts has now caught up.
Nonetheless, we still see the impact from the closing of underwriting U.S. casualty business from London and Paris, and we are also impacted by a one-off refinement in NDIC calculation in alternative solutions, impacting the SBS growth by a negative 3 percentage points. Overall, the P&C insurance revenue this quarter contains some noises, while in terms of the underlying, we are doing what we promised, growing in a profitable and diversified way. Moving on to the underlying performance of our P&C book, our P&C combined ratio stands at 82.5% in Q2, benefiting from low net CAT losses in the quarter. Nat CAT ratios stand at 3.8% in Q2 and 8.2% year to date, well within the annual budget of 10%. In such a quarter, we take, of course, the opportunity to build additional buffers.
The 77.4% reported attritional loss and commission ratio includes good underlying attritional loss performance as well as a strong level of prudence. We are very satisfied with the shape of our P&C portfolio, delivering again excellent performance quarter after quarter. Now let's have a look at the Life & Health portfolio. The Life & Health business generated a new business CSM of $136 million in Q2. This is mainly driven by the protection business, which includes some positive trawls from the last quarter. On a half year basis, we are well on track toward achieving the EUR 0.4 billion new business CSM annual assumption on insurance service results. Lifeinas delivered EUR 118 million this quarter, including some positive one-off in the CSM amortization. On the experience variance side, this is fully in line with our expectation year to date.
On investment, we continue to benefit from a strong performance with a return on invested asset of 3.6% this quarter, generating an income of EUR 210 million despite the negative FX impact on the asset base. This comes from a regular income yield of 3.5% as well as from a positive fair value change on our private equity investments. Moving now to solvency capital generation, in the first half of 2025, it has been very strong, more than compensating the need for continued business growth and for the accrual of the dividend. This is also reflected in our economic value growth of 10.5% at constant economic assumption compared to year end 2024. Similar to the economic value evolution, the solvency ratio is impacted by adverse market variances, especially the volatility in FX in Q2, which offsets a large part of the value creation in the first half of 2025.
Nevertheless, our solvency ratio remained very strong at 210% in the upper part of our optimal range. Before moving to the June-July renewals, I'd like to come back on our press release of this morning on new developments on arbitration. We have been informed that Covéa just filed a request for arbitration to contest the validity of the settlement agreement drawn up and concluded in the presence of the French regulator ACPR on June 10, 2021. We consider this request unfounded and we will vigorously defend our rights. This request for new arbitration comes in addition to the ongoing arbitration on the retrocession treaties initiated by SCOR in November 2022 and which has now reached its final phase. In this context, Covéa has requested that the tribunal in charge of the 2022 arbitration stay or defer its decision until the outcome of this new arbitration.
At a time this ongoing arbitration is reaching its final phase, we oppose this request and remain firmly committed to keeping the current proceedings within the agreed timeline for a decision to be rendered in the course of 2026. This latest development has no impact on our business, has no impact on our ability to deliver our strategic plan Forward 2026. We are very confident on the positive outcome of both arbitration. With this, I will hand over to Jean-Paul .
Thank you François, and good afternoon everyone. I'd like to briefly share with you the outcome of the SCOR P&C mid-year treaty renewals. As a reminder, these represent around 14% of our reinsurance portfolio and around 10% of our global P&C business. These are highly focused on the U.S., which accounts for 50% of the SCOR premium up for renewal in June and July. Let's first take a look at the year-to-date figures. Throughout the year, we have consistently executed on a 426 strategy, growing in our preferred lines. We are showing a 6% EGPI overall growth, driven particularly by specialty lines where the growth is at 9% and alternative solutions at 30%. P&C lines remain stable but with a different profile, namely reduced exposure to U.S. casualty and selective growth on property cat.
This year-to-date growth has been achieved at stable expected net technical profitability, with the growth in proportional treaties and the more favorable retro market conditions helping to offset the margin erosion on the non-proportional treaties. Turning next to the mid-year renewals, these have followed a similar trend to the January and April renewals, characterized by increased competition, particularly in the property cat space and more marginally in specialty lines. The decrease in price has remained mostly limited to non-proportional treaties, while proportional treaties continue to get rate increases. We continue to view strong rate adequacy in most lines of business despite the price decreases, with terms and conditions remaining broadly stable within the still favorable market condition environment. We continue to grow in our preferred lines while maintaining a stable year-on-year overall net technical margin.
Looking in more detail by lines of business, in alternative solutions, we saw a slight decrease in the June-July renewals due to the nonrenewal of one large U.S. deal. That said, the pipeline of deals remains strong for the remainder of the year, confirming clients' continued demand for structured solutions. We had a strong renewal in diversifying lines driven by International Casualty and Marine. Marine is a line of business where we still see good price adequacy despite pressure on pricing. We've achieved an EGPI growth of 6% in property cat, largely driven by the U.S. Despite an average rate online decrease of 10% year-on-year across the U.S. portfolio, we've released the price level of U.S. business to be adequate.
This led us to increase our gross exposures on target clients as well as to keep more net, resulting in an increase of North American Hurricane net PMLs year on year. Our 2025 net PMLs still remain small compared to the industry, and we continue to take a prudent approach to climate-sensitive exposures in line with the Forward 2026 strategy. Regarding U.S. casualty, we remain disciplined and selective. Whilst the insurance market continues to push through double-digit primary rate increases, the reinsurance market shows little to no downward pressure on ceding commissions. As a result, we continue to see insufficient margins and took underwriting actions to protect our profitability, reducing our portfolio EGBI by 14%. Looking ahead to the January 2026 treaty renewals, we expect continued reinsurance competition on well-structured and priced programs.
However, we also expect continued discipline from the reinsurance market, and we will continue to do our part as demonstrated during these 2025 renewals. I will now hand back to Thierry for closing remarks.
Thank you Jean-Paul and François. Let me conclude before handing over to Thomas. We are very satisfied with the level and quality of our results over the first six months of 2025. In P&C we have taken proactive and strategic underwriting decisions, which have enabled us to combine growth with an unchanged attractive net technical margin. In Life and Health, we have delivered six months results in line with expectations and remain fully focused on the execution of our three-step plan. Thanks to our clear strategy and tier one franchise, we are confident in our ability to deliver on our Forward 2026 plan. Thomas, over to you.
Thank you Thierry. On page 21 you will find the forthcoming scheduled events. With that, we can now move to the Q&A session. Can I remind you to please limit yourself to two questions each, operator? Can we take the first question?
Thank you. The first question is from Andrew Baker, Goldman Sachs. Please go ahead. Great.
Thank you for taking my questions. The first one on the P&C recombine. Ratio, are you able to just give us a sense of how much the additional buffer build was in the quarter. Really just trying to get a better sense of where the underlying or the normalized combined ratio is running, and also just to clarify on that point, does that buffer run through the risk adjustment? Can we use the sort of increase in the risk adjustment as a proxy for a way to backsolve it? Secondly, just on the new Covéa arbitration, is it fair to assume. The contentious point is around the Life & Health free quota share portion. Of the original agreement? Is it around the restrictions around conveyance, ownerships, and voting rights on SCOR shares? Thank you.
Hi Andrew, thank you for the questions. I will take the two questions. The first one, you remember our buffer strategy that we initiated with Thierry in July 2023. We were at the target two years in advance compared to our initial ambition. The target of $300 million was reached at the end of 2024. Since, we moved to an opportunistic strategy and we add buffer when we have an excellent underlying performance of P&C or the group. That was the case in Q1. Of course, with such a low netcat ratio and such a good attritional ratio, as I mentioned, the amount of buffer we opportunistically added in Q2 is material. I confirm that since 2024 we add those buffers in the risk adjustment under IFRS.
I agree with you that the increase of the risk adjustment is maybe not one for one, but is a good proxy of the amount of buffer that we added this quarter. Another way to see it, if you want to double check the amount you may have in mind, look at the expense variance. The expense variance this quarter is negative at around -$59.60 million and you should expect that the expense variance should be positive given the netcat ratio and the exceptional performance this quarter. You can imagine if you adjust for the CAT ratio and the attritional performance and the published expense variance, you can double check the amount that you find using the proxy on the risk adjustment. On your second question, let me come back. I remind you, I guess you may have some question on these new developments.
We remind you that we are bound by confidentiality obligations which prevent us from sharing detailed information on any arbitration, not only this one, but on any arbitration beyond what is strictly required under applicable law and regulations. That is what we did in the press release this morning. You remember, I come back, we signed in June 2021 a global settlement agreement between Covéa and SCOR. Part of this settlement agreement was.
The idea was to restore the business relationship between the two groups to maintain the relationship as a shareholder and to maintain the relationship as a client. Covéa is a shareholder, is a retrocessionaire, and is a client, and that was what was included in this settlement agreement in exchange. A retrocession agreement on Life and Treaties has been signed between SCOR and Covéa. Here, the new development is that we've just been informed that Covéa has filed for an arbitration on the settlement agreement and not on the reinsurance treaties, which is the current arbitration that SCOR launched 16 months after the signature of the settlement agreement.
Great, thank you very much.
Thank you, Andrew. Can we take the next question, please? The
next question is from Shanti Kang, Bank of America. Please, go ahead.
Hi. Yeah, I just had a couple of questions. First one's on P&C. The top line was obviously softer on FX and this large multi-year commutation. If we strip out those, how should we think about the run rate of top line going into the second half of this year? Maybe you could talk a little bit about where you're looking to grow given the pricing conditions you've seen at mid-year renewals. The second question is just on the Covéa settlement validity contest. Have you guys provisioned anything against this or for any future action? Would any of the settlement gains that you've had in the past be used to reserve against future action or would this be sort of released? Thank you.
Thank you. I suggest Jean-Paul, take the first question.
Okay, thank you so much. On the first question, yes, for the rest of the year we still have a very strong pipeline of transactions, especially on the alternative solutions. As you know, there's very little treaty business renewing between July and the end of the year. We still have a lot of opportunities on the alternative solutions side and on the specialty business solutions side. Our intent is to continue to investigate and explore all profitable business opportunities. We remain still very active in this aspect. In terms of guidance for the year, I think we had indicated in Q1, low single digit. Given the renewals that we just completed in June and July, I think we should revise that guidance for 2025 to flattish. For 2026 we remain very optimistic.
We still have to see what the next few months hold in terms of loss activity and in terms of discussions around the renewals. For this I defer back to François, but it's too soon for us to really change our guidance for 2026.
Yeah, just remember that we had the question during the Q1 call and we said that we will give you more indication during this call. Let's say it's a miss of the assumptions for 2025. We expect insurance growth of revenue growth for 2025, flattish for P&C, but we reiterate and we maintain for the entire plan the guidance of 4.6% that you saw in Forward 2026 assumptions. On your second question on the provision, I will be a little bit generic, but I guess that through my answers you may find what you want. As a matter of principle, provisions for all material ongoing litigation or arbitration are booked at best estimate under IFRS and under Solvency II.
If you remember what we did in Q3 last year, we took with Thierry the opportunity of the Life & Health actual review to adjust position on, I would say, major material arbitration. In Q2 it was on a few arbitration, not only one, and the amount was $128.28 million. We reiterate the fact that we are at best estimate under IFRS and Solvency II in how we book those provisions. I think it could be interesting for you to understand how we book this provision again on all our material ongoing litigation or arbitration. Here, as a matter of principle, our provisions are calculated based on the probability-weighted multi-scenario analysis. This is in line with market practice with IFRS and Solvency II recommendation. We consider, when appropriate, of course, legal opinion on each litigation or arbitration.
Those provisions are reviewed in detail by the Audit Committee, the Board, and by our two auditors as well, at least at Q2 and Q4 when our accounts are fully audited. The only information I can give you, or at least two pieces of information I can share today, given again the confidentiality clauses we've got, is if and when applicable, the multi-scenario analysis can include the cancellation scenario. You will see tonight, we are going to publish our ALFEA report on our website. You will see in this ALFEA report that we classify this new development on arbitration as a subsequent event, which means it has been discussed with our auditors and the provision, our provision, is unchanged compared to Q1.
Thank you, operator. Can we take the next question, please?
The next question is from Kamran Hossain, JP Morgan. Please go ahead.
Hi afternoon Two questions on P&C. Just really interested given how well this year has gone so far for you and it kind of seems to have evened out pretty well for the rest of the market. What the view is on the renewals for 1st January 2026? Clearly your outcomes mid year look relatively good relative to some of the other market commentary, so interest in kind of where you think that lands us for the beginning of 2026. The second question is just on the PMLs. You know for a number of years there were decreases, particularly in the U.S. hurricane PML. It's gone up pretty materially, and I would assume you probably should have had an offset elsewhere from something like FX. It's gone up quite a lot.
Just intrigued what's going on with the PML because again, if I look at your mid year renewals, it doesn't look like you've grown that much. Just interested in what's happening there, whether it's just a change in retrocession strategies or something else. Thanks.
Thank you. Thank you, Kamran. Jean-Paul is going to take the two questions.
Yeah. On your first question on the outlook for January 2026, again it's a little bit difficult to give a clear view right now because a lot of it depends on what happens over the next two quarters. Assuming the next two quarters are free of any major loss activity, we would see an environment that we expect to be similar to what we saw at June, July, and April, which is a competitive market for programs that are well structured and well priced and primarily a non-proportional business, and a continuation on proportional business of price increases because the loss activity on a primary level has remained unabated and still very, very active. Insurance companies are pushing through primary rates. We see rate decreases more on the non-proportional treaties there today.
We see the price level as adequate, and I think anticipating some more competition, we'll see to what level the competition is. We expect, as I said, a similar market to what we see today. Discipline from the market players, giving back some rate to clients where the treaty has performed well and where the level of retentions are adequate. On your second question regarding the PMLs, if you look, the one peril where there's been a notable increase is on the North American hurricane PML. As I mentioned in my renewal speech, what we saw there is overall rate of line decreases of 10%. Price adequacy remains very adequate in our view, and we decided to grow our book on U.S. hurricane and also to retain more on a net basis. That is really the driver of the increase in net PMLs for North American hurricane.
For the other perils, I'd say that the PMLs are fairly stable on a net basis. I guess pre-FX, I guess. The jump is about 40% year on. Year, but I guess FX, it's more like 50%, but I guess it sounds like that's where your appetite, you think it's well priced, and that's the decision. That all kind of makes sense to me. Yeah. I think, you know, if we compare ourselves to peers, I think our PMLs still remain low compared to peers, you know, on different metrics. I still, you know, we still have room for this growth.
Yeah, it's definitely a much smaller absolute number, for sure. Thanks very much.
If I may add here, overall, in looking at the risk profile, we are still underweight in cat, so there's no change to our risk profile. This is also very, very clear. The other one with regard to the renewals, Jean-Paul explained it really well. We think that with our strategy that is quite distinct, where we really chase profitability and diversification at the same time, it leads us to a better outcome in general than if you don't adapt such strategies. We are confident in one thing. Whatever the market will be, we will try to make the best out of it.
That's right there. Thank you, Sir.
Thanks, Kamran. Have a great afternoon. Can we take the next question?
The next question is from Will Hardcastle, UBS. Please go ahead.
Thank you. It sounds like there was more net capital generation than you'd have anticipated in the half year. Obviously, stronger earnings perhaps as well. At the CMD, you made the comment about 2%- 4% cumulative net cap gen for the next two years. I guess the question is, would you still stand by this today or would you expect it to be higher? What's been the deviation to that point if there has been a change? The second one is just coming back to this new arbitration. I appreciate your strong stance. I guess I'm just trying to quantify a potential tail risk here. At the time of settlement, you gave a number of details about the eligible loan funds and SCR impacts of this. It's about EUR 500 million and EUR 300 million for what it's worth.
Clearly, a hell of a lot changed in the intermittent period with the CSM action and that comment you made about the provision there. Those numbers, would they be, you know, sort of half of what they were at the time or maybe not reduced quite that much? Just trying to quantify tail risk. Thank you .
Thank you. Thank you, Will. The first question on capital generation, we have good news this quarter. Let's look at the good news. We have very strong capital generation. It's coming from the strong performance of the business, mostly from P&C. Strong performance also of Life and our Solvency II, and some contribution from the investment portfolio. We don't provide the work of the solvency ratio; you have to wait until the end of the year. We just give you the own funds and the CR. If you look at the solvency ratios, if you look at the solvency ratio, we are at 210. I would say it's almost in line with the consensus if you take into account what I'm saying on the strong capital generation. It offsets mostly a big FX impact that we see in Q2. You can quantify a little bit this FX impact.
We provide the work of the economic value growth and you see the FX impact or the market variance impact, and it's similar under Solvency II. It can give you a little bit the flavor. I don't want to give you exactly the number of points, but the flavor of the size of the good news on the capital generation side. Is it the right timing to change our assumption again? Forward 2026 is a plan where we intend to deploy capital. Given the excellent margin, what we see in Q2, there is a lag between the peak of the pricing. That was probably Jean-Paul in 2024, but the margins are just very attractive and very strong since 2023. You had underwriting year 2023, underwriting year 2024, and we start to see as well a little bit the effect of 2025.
This means under IFRS and Solvency II we start to see the peak of those exceptional contributions. I guess we should see the effect a little bit more in the following quarters. On your second question on the terrorists, on the tail risk, it's terrorist. We consider it really as extreme tail risk. Remember the statement we made. We are very confident in the fact that we are going to win, to be successful on those NAT2 arbitration. If you want to ratify a little bit, refer to our communication in July 2021 and you saw a little bit the effect in terms of liquidity and in terms of solvency.
In terms of liquidity, I just remind you that at the end of June we have $2.4 billion of liquidity, and the definition of liquidity at SCOR in all our KPI or dashboard, internally and externally, it's cash, money market funds, and short-term investments, which means short-term treasury. We don't take into account in our definition of liquidity any insurance receivable. We are confident on the liquidity side financially. Financially, a cancellation, if we go on the tail risk, the cancellation of the settlement agreement, the agreement signed in 2021, would be, I would say, financially from a solvency perspective, relatively or pretty similar to a cancellation of the reinsurance treaties. The risk that you price one year ago when we discussed this could be the same, the quantum could be the same.
What I said a few minutes ago on the provision, it was discussed with auditors over the last few days. You will see tonight in the ALFIA report the amount of the provision after this subsequent event is unchanged. We consider that even with a new arbitration, our provision is at best estimate under IFRS and Solvency II.
Thank you, that's helpful.
Thank you, Will. Can we move to the next question please?
The next question is from Chris Hartwell, Autonomous Research. Please go ahead.
Good afternoon. Just two quick questions from me if I may. The first one is on the life side with new business CSM particularly strong again in Q2. I just wonder if you can help me understand the underlying growth here. Maybe give a little bit more color. On where that's coming from. I think you also mentioned there's a true up that's pulling over from Q1. If we sort of look at the half in aggregate, what does this suggest for what are you thinking about the targets you gave with the 2026 plan? It does seem that life continues to do particularly well. The second question is on the rather tedious subject of tax, unfortunately. The tax rate again was pretty low in Q2 and I'm not sure if that's entirely related or related at all to the discussions you've had before around the DTA's. If you can help me understand the tax rate and maybe why we're on the subject of the DTA's, where are you currently on the plans to increase utilization of that? Thank you.
Thank you. Thank you. Chris, on your first question on the new business CSM on the Life and Health side. We published a new business CSM of EUR 136 million in Q2. There is some true-up and also a FX impact. We really invite you to look at the new business CSM over the first six months of the year and not specifically in Q2. That is why we are happy; we see a strong business. New business CSM is mainly driven by protection business with some true-up in Q2 in respect of Q1. Look again at the first six months and not specifically Q2 versus Q1.
On a year-to-date basis, we have been able, especially compared to what we said during the IR Day of December, to retain more business than we expected at higher margins, despite our ongoing discussion with clients, especially regarding what Thierry Léger explained during the Investor Day in December. This is especially regarding the implementation of higher return threshold across our protection book. This is good news. We still have access, despite the fact that we increased the order. We still have access to good business and with good volume. I remain new and you do not see yet the effect, but at least internally I see the pipeline and I see Philippe and Raymond in the room who have a very strong pipeline on longevity and financial solutions.
We expect to see the generation of new business CSM, but we need a little bit of time to build the team and to build the relationship with the client. The pipeline is strong and you should see soon as well the effect of this in the new business CSM for Life. On the second question on tax, we changed a little bit our approach. I think I mentioned this in Q1 compared to last year, to avoid a little bit the volatility. You know that the expected tax rate, especially in France, is computed under the French tax perimeter, which means under the statutory account of SCOR SE. For Q1 and Q2, I would say we have a more normative approach of the effective tax rate and we will be closer to the real one at the end of the year.
We are 28% in Q2 versus an assumption of 30% in the plan. From what I see, it is not a guarantee, but from what I see, the effective tax rate should improve in the second part of 2025. I expect an overall effective tax rate for the group to be a little bit lower compared to what you see in Q2 on a full-year basis. And The translation of action we started to implement at the end of 2023, in 2024, in 2025, and I still expect to implement the last one early 2026. I would say we are on a good path to deliver our strategy to deliver reduced effective tax rate in the future. Again, the objective was, I remind you, to protect the French DTA and one day to reactivate the amount of DTAs which are not activated on the balance sheet. I'm pretty confident on this topic. We are on a good track.
Thank you, Chris. Can we move to the next question?
The next question is from Michael Huttner, Berenberg. Please go ahead.
Fantastic. Thank you. You've answered almost all of the questions I had, but I have a few. If I may, can you explain what dynamic. Thank you so much. Thank you, Jay. Dynamic retro, can you explain what that is? It sounds lovely. If I were to try and explain it to a client or an investor, I'd have to call up some. My other question is on price adequacy. Clearly you obviously like U.S. natcatn The growth is strong. I just wondered, can you give us a feel for how you see it? The closest I have is a comment Yesterday from one of your very, very. Small peers say that we're back at 2023 pricing, which I think is still kind of, this is the way they look at the world. It's different, 18% above what they would see as kind of minimum. I don't know. My last question was really, you know, we had these two plane incidents. One was the court judgment, one was The very sad crash in India. Is that something which is relevant? Thank you.
Three questions for Jean-Paul. Jean-Paul, how do we explain simply to a client what we mean by strategic buying retrocession?
It means that looking at the pricing environment of retro, the leveraging between proportional and non-proportional, that's what we mean. We buy proportional treaty with typically long-term investors, long-term partners. We buy non-proportional reinsurance as well with usually different retrocessionnaires that tend to be also long-term. Depending on the pricing dynamic of the market, we have the ability to tune up non-proportional and scale back proportional or vice versa.
My guess is this means that at the moment, because you said in your comments, somewhere non-proportional, the pricing is coming down. With proportional, the underlying or the primary is holding up, that you'd be buying more non-proportional retro.
What I mentioned that was on the reinsurance pricing on retro, what we saw this year is the year-on-year pricing for non-proportional retro is down and for proportional the terms are more or less stable or more favorable to buyers. You see in both areas kind of favorable conditions for buyers on price adequacy of cat business overall. Right now we see decent price adequacy. We don't quantify it or we quantify it internally but don't share externally because this could be used by brokers to push through certain price decreases. For us, we still see decent price adequacy in our cat business globally and in the U.S. On your last question regarding the aviation incidents, Air India and the other one, those remain very small events for SCOR, they'll be Q3 events and not sure at this stage whether they'll make the threshold of a major loss for SCOR. They'll be very small.
Cool, Thank you very much .
Thank you, Michael. Can we move to the next question, please?
The next question is from Hadley Cohen, Morgan Stanley. Please go ahead.
Hi, thanks very much. A couple of questions, please. First point I guess is more of a clarification. Your risk adjustment in P&C increased from $0.7 billion at the year end last year to $1 billion at the end of the first half, so $300 million increase. Can we infer that the majority of that is buffer build based on your earlier comments, please? My second question is around the European Commission's report on the solvency review, which was published I think a couple of weeks ago. I think previously you've guided to around about 10% to 15% benefit from the solvency review. Is that number still valid? If that's the case, can you just remind us, please, what the offsets are to the benefit that you get from the risk margin, please? I think the lower cost of capital and the risk margin is more than that in itself. What are the negative offsets that we need to think about as well? Thank you.
Thank you. Thank you, Hadley. Your first question, it's the first way to assess the amount of buffer in Q1 and Q2. The $300 million that you see, it's mostly business mix, volume, and buffer. You are close to the amount, you have a little bit more than the buffer in the change in evolution. You are close to the amount on your second question on the upcoming Solvency II reform. As you said, the Commission has just submitted its draft report for consultation with the rest of the industry. We will answer to this. The limit is 5th September. Final proposal is expected, I think, in Q3 2025. If I look at the impact for SCOR, we cannot yet communicate and quantify publicly the impact. Mostly, the good news will come for us from the risk margin and the cost of capital.
The negative point is, as you can expect, the non-recognition as of today, the non-recognition of the contingent capital. We maintain what we said in the past. The net effect should be highly positive for SCOR. We maintain the range of 10+ 15 points of impact on the solvency ratio and we will update you in due time closer to the implementation date.
Thank you, Hadley. Can we move to the next question, please?
The next question is from Darius Sepkauskas, KBW. Please go ahead.
Good afternoon. Thank you for taking my questions. The first one is could you provide some color on why the attritional was so good this quarter. Also, any color on the man-made losses in the quarter. Secondly, on arbitration, do you have any idea, even if it's speculation, on why Covéa is requesting the arbitration now, so close to the outcome? Could it have anything to do with the emergence of new information or simply a delay tactic? Thank you.
I'll take the first question on attritional. I think what we've seen is that, you know, if I look at the underwriting reason, it's all the underwriting actions and pricing actions we've taken over the past few years. There have been large losses in the marketplace, but we haven't been heavily impacted. On the treaty business, the low price adequacy is really what's driving the good attritional performance. I would expect this, as we see the renewals in 2025, also from a pricing perspective, being very similar to 2024. I would expect this attritional to continue to be quite good over the next few quarters.
You will remember that two years ago we were talking a lot about the attritional. At the time, we were not so happy with the attritional, and we were very transparent that we were not satisfied with it and that it would be the first sign of a healthy portfolio once we see the attritional come down. We are now where we wanted to be at the time. We are now really satisfied with the attritional. The last point I wanted to make on this attritional is it's very sticky, so it's not something that goes away very quickly.
On your second question, Darius, as a CFO of the group, I don't like to do speculation or to make speculation or spake. I like to look at facts. I just want to share with you a few facts. Again, we are bound by confidentiality obligation, but if we look at facts, and I invite you to look at facts only. Fact number one, Covéa and us, we signed a settlement agreement in June 2021 in the presence of the Vice Chairman of the French regulator, the ACPR, in order to restore peaceful relation. It's public information. Fact number two, in this settlement agreement, Covéa and us, we entered into retrocession treaties on our Life & Health in-force portfolio and in exchange, all parties have withdrawn and waived all existing and future legal action and claims against each other. It's a fact.
Fact number three, as you saw it in our URD, published for the year 2022, 16 months after the signature of the settlement agreement we initiated, we SCOR initiated an arbitration to request execution of these treaties. This arbitration, as I mentioned it in my introduction, this arbitration has now reached its final phase with a decision expected in the course of 2026. It's a fact. Another fact, fact number four, Covéa just filed a request for a new arbitration to cancel the settlement agreement. Fact number five, on top of it, Covéa requests that the tribunal in charge of the arbitration on the retrocession treaties defer the proceedings, which would postpone the decision on the current arbitration, which as I just mentioned, is reaching its final phase by at least two, three years. That's the fact. It's not speculation. It's not speculation. What can we say now, SCOR.
First, as I mentioned it, we will firmly oppose such postponement requests and we will vehemently defend our rights like for any other litigation. As we discussed it a few minutes ago, you understand that all our provisions have been booked in accordance with applicable law and are at best estimate under IFRS and Solvency II. Thierry and I, we discussed this as well at the level of the Board of Directors. We remain very confident on the positive outcome of now the two arbitration. Of course, these latest developments have no impact on our business and our ability to deliver our Forward 2026 plan. Again, instead of speculation, I just invite you to look at just those facts.
That's great. Thank you .
Thank you, Darius. Can we move to the next question, please?
The next question is from James Shuck, Citi. Please go ahead.
Hi, good afternoon. I wanted to ask actually about the judicial investigation, the one against the previous chairman that was announced in April 2025 in relation to some comments he made in 2022. My question really around that is whether we expect any timing in terms of relative announcements. More importantly, is there any implication for the outcome from that judicial investigation on the arbitration cases? That is, if it is shown to be that he said something that he shouldn't have done that's factually incorrect or whatever, does that have any implication for either of these two arbitrations? More broadly, should we be thinking about any D&O cover here, either in relation to both of the arbitration cases or indeed this judicial investigation? That's my first question.
Secondly, I just want to return to the P&C revenue growth point where you kind of lowered the outlook. I'm sorry to dwell on this, but it's quite a big change from where you were in April, which is when you spoke to us at Q1 and we've really only had the June-July renewals, which as you point out is only 14% of the book. We've gone from GWP guidance and you mentioned low single digit. My understanding was it was mid single digit, so call it 4% to 6% for 2025. We've gone from 4% to 6% to 0% for the full year. Not a lot is being renewed in the intervening period. I'm struggling to make the bridge. You understand what has changed since the comments at Q1. If I may just squeak in another one.
It's just a clarification really, but you keep mentioning FX impact being quite a large contributor to the solvency development in Q2, but your solvency sensitivities kind of show only - 1 point for a 10 point change in U.S. dollar versus euro. I'm starting to see where that comes from. Thank you very much.
Thanks, James. I will take the first question. On When we were placed under investigation last April. We are under confidentiality clauses, so take what I say with the restriction, refer to the press release first, refer to the press release of April 2024, when we were placed under investigation. The only point of attention on this press release, and it's important to reiterate this point, we have been placed under examination in April 2022 for the sole reason that the legal representative, at a time when he was no longer the company legal representative, was allegedly involved in some of the acts of which the support association was accused by the judge. There is no direct implication of SCOR, so I cannot comment now. Is there a link between this and the new arbitration? The only thing I can say is that there are two different proceedings, two different authorities, two different trials, and with two different timelines.
Yeah, on the DNO cover.
No comment on this one.
James, on your question on revenue outlook, again, when we were in April there was a number of, I don't know if you call them exceptional, but one-off items that happened in Q2 that we had not foreseen. One was a revision, as mentioned by François de Varenne, revision of our EGPI in agro, which had a strong effect. We had also, as mentioned in the presentation, an accounting correction for alternative solutions on the SBS side, which accounts for roughly one point. We had hopes that the U.S. casualty renewals would go better than they did. That's really, I think, the drivers of the miss this quarter. As we look at the outlook for 2026, of course we're looking more in detail on our assumptions. This is why we remain probably more optimistic than what we've been able to achieve in 2025.
Just on the FX impact to the solvency, please.
Just so the sensitivity of the FX, remind you that we publish sensitivity of the solvency ratio to FX. We disclose as well in the URD equity and solvency to sensitivities. What we can add is that we still see a net profit sensitivity of plus minus points, deviation of weakening or strengthening of the dollar of, I would say, around - 5, - 6 Points.
Of the net profit. What I see. Yeah. Again, where are we in our journey on FX? Let's see. There is a glass half empty or half full. I'll let you decide the way you see it. We started our journey last year. I start to see on my side the effect of the hedges we put in place at the end of 2024 and early 2025. I see the contribution of those hedges especially on the solvency ratio. We still need to work a little bit to refine a little bit more the way we compute the sensitivities of the solvency ratio on the unfunded side and as well on the side. We are working on it with our team, ILM team and Fabian's team. I think everything should be done by the end of the year.
Again, something that is important to reiterate is that this quarter, it's not only a weakening of the dollar, it's a strengthening of the euro against all the currencies. It's a little bit exceptional. Usually we have plus and minus compensation effect that we don't see this quarter. The effect is big, but it's the addition of many sensitivities in various currencies versus the euro instead of high sensitivity only on the dollar.
Okay, thank you very much.
Thank you, James.
Thank you, James. We're going to take the last question, please.
The last question is from Vinit Malhotra, Mediobanca. Please go ahead.
Yes, good afternoon. I hope you can hear me. Thank you. My first question is, you know, Thierry, your comments about competition for 2026 picking up and also that the underlying, which is very strong, is likely to be sticky. Can we marry these two commentaries and assume that despite competition picking up, the underlying strength could surprise next year? That's the first question. Second question is just on the PML and North America. I know it's still smaller than peers, but is this something that was very opportunistic only for Florida or is it also the Gulf broadly? Is it something that you could further increase in next renewals next year?
I'm just curious if there is a shift in how you view these risks or is it just very opportunistic because, you know, we're heading into a quiet season kind of move. Thank you.
Thank you, Vinit. I take the first one and Jean-Paul might complete, but definitely take the second one. As you referred to what I said before, I guess competition is up in the sense where the incumbents build capital through strong. That's the competition that is increasing. Ultimately, competing in our market is capital availability, and the capital is going up because we create a lot of capital these days, as also SCOR did. That's reality. More offer obviously creates more competition. What is on the other side of the equation is that the demand is going up, and I said it. We are in a volatile environment.
The geopolitics, climate change, digitization create an environment in which we see an occurrence of large losses on a very regular basis. I don't have to remind you that the first half year, 2025, was one of the worst in terms of insurable. That stands a bit against it, that there is also a strong upward trend in demand. The last point that goes against increased competition is that we generally still see strong discipline, generally by the reinsurance participants in the market. You really have to look at those tools, which gives you a bit more of a balanced view. What really then is very specific to SCOR is our strategy to grow in a very specific way in lines where we see less cycle and more stable prices. Jean-Paul, anything you want to add to this first point or then?
Yeah, the only thing I would add is you have to remember also in the financials that you earn through the previous underwriting years and quarters. As you know, we have had very good underwriting years 2023, 2024, 2025. Those will continue to earn through in 2025 and probably early 2026. That's why I say we expect the strong attritional to remain for the coming quarters because it's really the underwriting years 2024, 2025 that we're earning through.
He also said, and François has mentioned it, we have said it a few times, that maybe the market is not as peak anymore as it was in 2024, but it's still very attractive overall. Definitely on IFRS 17 basis, we are actually very much in a peak phase.
On the PML question again, we're staying within the framework of Forward 2026 there. You know, we said we wanted to remain cautious on climate effective perils. We have a CAT ratio that's fixed at 10%, so there's no intention to increase the CAT profile compared to those assumptions here. It was more an opportunity that we saw. The growth is not, you know, we did grow a little bit in Florida, but as you know, last year we wrote two accounts. This year we write six accounts. It's not a big growth. It was more overall where we see the attractiveness of the business on the growth side and decided to also retain more net.
Okay, thank you very much.
Thank you. Vinit, this does conclude the Q&A session for today, so thanks for attending our Q2 2025 conference call. The IR team will remain available for any follow-up questions you may have, so please don't hesitate to give us a call at the reminder. SCOR will release its Q3 2025 results on Friday, 31st of October, with a call at 2:00 P.M. as usual. Thank you and have a nice summer. Thank you.
This does conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.