Global Reinsurer SCOR SE's Restricted Tier 1 Deeply Subordinated Notes Rated 'BBB+'
- Global reinsurer SCOR SE is issuing deeply subordinated notes that will be eligible as restricted tier 1 capital under the EU's Solvency II regulations.
- We are assigning our 'BBB+' issue rating to these notes.
- We expect to classify these notes as having intermediate equity content.
PARIS (S&P Global Ratings) Dec. 16, 2024--S&P Global Ratings today assigned its 'BBB+' long-term issue credit rating to the restricted tier 1 (RT1) notes to be issued by global reinsurer SCOR SE. The issue rating is subject to our receipt and review of the bonds' final terms and conditions.
The rating on the bonds is three notches below the long-term issuer credit rating on SCOR SE (foreign currency and financial strength A+/Stable/--; local currency A+/Stable/A-1):
- One notch to reflect the notes' deeply subordinated status to senior bondholders;
- One notch to reflect the risk of potential write-down of principal; and
- One notch to reflect the mandatory and unconditional optional interest cancellation features.
The notching on this instrument is wider than the notching applied to some of SCOR SE's other subordinated instruments because noteholders face a potential loss of principal should a mandatory write-down trigger be breached.
Our rating analysis and equity content assessment take into account our understanding that:
- The bonds are deeply subordinated to senior creditors;
- The issuer has unconditional discretion to cancel interest payments;
- Interest cancellation is mandatory under certain circumstances, including if the solvency condition is not met or if, under Solvency II, SCOR SE's own funds (capital resources) are insufficient to meet either the solvency capital requirement (SCR) or the minimum capital requirement (MCR), or upon insufficient distributable items;
- The bonds will be eligible as RT1 capital under Solvency II; and
- The notes will be written down if the amount of own funds eligible to cover the SCR is equal to or less than 75% of the SCR, the amount of own funds eligible to cover the MCR is equal to or less than the MCR, or a breach of the SCR has occurred and not been remedied within three months.
As the group's regulatory capital position evolves, the notching on these instruments could be altered to reflect changes in the likelihood of default or coupon cancellation. We do not expect to change the notching of this instrument while the group's SCR coverage remains within its target range of 185%-220% (in the third quarter of 2024, coverage stood at 203%). However, we could consider widening the notching if SCR coverage drops consistently below its target range, or if the group's risk profile changes in such a way that the SCR ratio became structurally more volatile.
We understand that the notes are perpetual but are callable at par after ten years (subject to a six-months par call). The notes carry a fixed interest rate that will be reset after ten years and on each reset date thereafter. There is no step-up in the coupon rate if the bonds are not called at the end of the six-months par call period. In addition, the issuer can choose, following a write-down of the principal, to reinstate the notes at its discretion if certain conditions are met.
SCOR SE has the option to redeem the bonds at par before the first call date under specific circumstances, such as for changes in tax, regulatory, or rating agency treatment. Any such early redemption must be replaced by an instrument of at least the same quality.
We expect to classify the bonds as having intermediate equity content, subject to our receipt and review of the bonds' final terms and conditions. Hybrid capital instruments with intermediate equity content can comprise up to 30% of total adjusted capital (TAC), which is the basis of our consolidated risk-based capital analysis of insurance companies. Inclusion in TAC is also subject to the issue being considered eligible for regulatory solvency regarding amount, terms, and conditions.
We think that SCOR SE will use the proceeds for the group's general corporate purposes (including the refinancing of existing debt). We do not expect financial leverage or fixed-charge coverage ratios to deteriorate materially following this issuance if SCOR SE does exercise the call options on its eligible debt in 2025 and 2026.
Related Criteria
- Criteria | Insurance | General: Insurer Risk-Based Capital Adequacy--Methodology And Assumptions, Nov. 15, 2023
- General Criteria: Hybrid Capital: Methodology And Assumptions, March 2, 2022
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/504352. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings. Alternatively, call S&P Global Ratings' Global Client Support line (44) 20-7176-7176.
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| Primary Credit Analyst: | Marc-Philippe Juilliard, Paris + 33 14 075 2510; m-philippe.juilliard@spglobal.com |
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