Scor SE
PAR:SCR
Earnings Call Analysis
Q4-2023 Analysis
Scor SE
In 2023, SCOR experienced a robust financial year, achieving a substantial net income of EUR 780 million due to the successful performance of its various business units. This result was strengthened by the company's strategic decisions, such as lowering exposure to climate-sensitive risks through increased retentions and raised prices, ultimately leading to net cash claims falling below the anticipated budget. Additionally, SCOR confirmed that its reserves were at the best estimate after an exhaustive review by Willis Towers Watson. This financial strength enabled the proposal of a regular dividend of EUR 1.8 per share, which aligns with market expectations and is reflective of SCOR's secure capital position with a 209% solvency ratio.
With a solvency ratio at the higher end of the target range of 185% to 220%, SCOR's capital decision-making demonstrated prudence amidst a volatile financial market. This also included navigating a hard market with deliberate intent. The organization's strong solvency ratio of 209% and attainment of an 8.6% economic value growth in 2023 surpassed the set objective of 8.1%, in keeping with the strategic plan to achieve at least 9% growth annually until 2026. These factors have defined SCOR's dividend policy, with the recent board-approved dividend setting a baseline for future payments, founded on solvency and economic growth metrics.
Across SCOR's business lines, the performance in 2023 surpassed expectations. Property & Casualty (P&C) demonstrated a combined ratio better than planned at 85%, while Life & Health generated an insurance service result of EUR 589 million, notably higher than the expected EUR 460 million. Additionally, investment income return outperformed guidance with a yield of 3.2%. Looking ahead, SCOR's 2024 outlook includes a commitment to growth and modernization, focusing on profitability, diversification, and strategic responses to challenges such as climate change, geopolitical risks, and the evolving market conditions related to U.S. casualties.
Ending the quarter on a high note, SCOR's net income in Q4 totaled EUR 479 million, with a year-end net income of EUR 780 million, resulting in an impressive return on equity of 17.5% for the full year. This performance exceeded the 2023 goal of 3 rate plus 1,100 basis points, roughly 12%. The management expense ratio for the year concluded at 6.9%, better than anticipated. The P&C segment finalized 2023 with a strong EUR 952 million in new business value, directly aligning with the company's forecast. These figures demonstrate SCOR's capability to meet and exceed its profitability and solvency objectives while providing a reliable future business baseline.
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Good afternoon, ladies and gentlemen, and welcome to the SCOR Q4 2023 Results Conference Call. Today's call is being recorded. There will be an opportunity to ask questions after the presentation. [Operator Instructions]. At this time, I'd like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir.
Good afternoon, and welcome to SCOR Q4 2020 Results Conference Call. My name is Thomas Fossard, Head of Investor Relations. And I'm joined on the call today by Thierry Leger, CEO of SCOR as well as the entire Executive Committee. Can I please ask you to consider the disclaimer on Page 2 of the presentation? And now I would like to hand over to Thierry Leger. Thierry, over to you.
Thanks, Thomas, and good afternoon, everyone. I would like to start with 4 key messages. 2023 was a strong year for SCOR with EUR 780 million in net income, supported by all business activities. I will come back on this in more detail later. We delivered on the decision to reduce our exposures to climate-sensitive risks. We raised retentions, clarified wordings and increased prices. I'm very satisfied with our net cash claims coming in below budget and with our current positioning in nat cat. Our reserves are in a good position. At Q4, all lines have been checked at the very granular level and are at best estimate. This was confirmed by an in-depth independent third-party review conducted by Willis Towers Watson. And last but not least, given our strong capital position with a solvency ratio of 209% and the growth in economic value, we are proposing a regular dividend of EUR 1.8 per share, in line with market expectations. Before I go on, I would like to highlight that in this call, we will be presenting all figures without the impact of the fair value of the option on our own shares. Let me first focus on the full year group results. Overall, we are satisfied with the strong performance in 2023. The group solvency ratio stands at 209%, down 4 points compared to full year 2022. We maintain a solvency ratio at the upper end of our target range of 185% to 220%. This is despite the volatile financial market environment at least for interest rates and our decision to lean into the hard market. We grew our economic value by 8.6% in 2023, slightly above our target of 8.1%. As you would remember, we aim at delivering at least 9% economic value growth during the forward 2026 strategic plan. The strong operating performance of all activities generated a net income of EUR 780 million, translating into an excellent 17.5% ROE. Turning to our businesses. As mentioned previously, all our activities delivered in 2023, exceeding the full year assumptions. P&C with a combined ratio of 85% versus our assumption of 87%. Life & Health with an insurance service result of EUR 589 million, above our assumption of EUR 460 million, investments with a regular income yield of 3.2%, above our 2.9% to 3.1% guidance. Let's now turn to our dividend announcement. During our Investor Day last September, we presented our new capital framework. Yesterday, the Board has approved a regular dividend of EUR 1.8 per share. As per the new capital framework, this now sets the floor for the upcoming years. This decision has been taken on the basis of, first, a strong Solvency II ratio of 209% at the upper end of our Optimum range; and second, on an above target economic value growth of 8.6% at constant exchange rates. These will be the 2 factors determining our dividend going forward. We believe that the dividend of EUR 1.8 is the appropriate level at the start of our 3-year strategic plan, while the environment remains supportive for our businesses. In 2023, SCOR's core operating model based on 3 businesses with complementary contributions has proven its strengths. The model generates diverse cash flows leading to more stable and more profitable earnings turning into hard capital over time and strengthening our balance sheet. Leading into the first year of our forward 2026 plan, and after almost 1 year in the CEO role, I continue to be excited by the prospects of our company. The environment is volatile, sometimes unpredictable, but it offers attractive opportunities for SCOR. Over the last 10 months, I have been able to engage with clients and our teams around the world. It confirmed my initial conviction about one, of course, core strengths. We have a leading global franchise built on long-term relationships and the technical expertise of our employees. We position ourselves as a reinsurer, providing solutions to our clients. At the same time, we strategically allocate capital in a very disciplined way to the most profitable and diversifying lines of business in a dynamic way. As you know, underwriting is very close to my heart, and I'm pleased with the successful January renewals. We had a clear road map in mind and the teams fully executed on it. I keep telling our underwriters that our attention has to be entirely with our clients and business. As a result, we see an increasing pipeline of new business opportunities coming our way. Of course, this is not limited to P&C, we see similarly positive trends on the Life & Health side. As every year, we have conducted our internal Q4 review of the reserves. In addition, this year, following a concern from our shareholders, we decided to commission an in-depth independent external review of all our P&C reserves. The result confirms the solidity of our reserves above the best estimate. Let me turn to 2024 and beyond. Myself, the executive committee and all employees are focused on delivering on our 3-year plan forward 2026. It consists of growing our business whilst modernizing SCOR. We are very strategic about how we grow our business. Profitability is a must, and we constantly seek to improve our diversification, solutions capabilities and new sources of growth. We are a risk management company and put underwriting at the heart of what we do. Taking risk is our business. Nevertheless, as we grow and try to offer solutions to our clients, we have limited appetite for risks exposed to climate change. We are conscious of the geopolitical environment, increasing exposures to war, terrorism and civil unrest, and we remain very cautious regarding U.S. casualty. To enhance our commercial drive, we take actions to improve client orientation, fast decision-making and how we bring the full potential and expertise of SCOR to our clients. Let me focus on U.S. casualty for a moment. You remember me saying that we would remain very cautious towards U.S. casualty. And I believe that the 1/1 renewals prove this. Going a step further, we have decided to stop underwriting U.S. general liability and professional indemnity single-risk business from Europe. Going forward, we will only write this business locally from the U.S. It will be effective for renewals and new policies incepting from the 1st of May 2024. We London and Paris-based underwriters were focused on developing the non-U.S. book of general liability and professional indemnity business, one of our strategic growth areas. With this, I hand over to Francois for his presentation of our Q4 performance more in detail. Francois, please.
Thank you very much, Thierry, and good afternoon, everyone. I'm very pleased to present these Q4 results. In my section, unless mentioned, I will focus on quarterly figures and not year-to-date figures. Also, I will focus on figures excluding the mark-to-market impact of the option on SCOR on shares. I have one key message today. We have delivered a very strong fourth quarter, and we have achieved our overall profitability and solvency objective for the full year 2023. The group delivered a very strong net income of EUR 479 million in Q4, contributing to a EUR 780 million net income for the full year. The return on equity stands at a high 16.6% for the quarter and 17.5% for the full year, above our assumption of 3 rate plus 1,100 basis points for 2023, which is close to 12%. The performance is clearly very strong. Our management expense ratio has increased to 7.9%, driven by seasonality of expenses pattern in H2. However, on a full year basis, this ratio stands at 6.9% and is better than our expectation for 2023. The performance of the fourth quarter is driven by positive results coming from our businesses and our investments. We have maintained a strong reserving discipline over 2023 while delivering very solid results. Let's now focus on the P&C results. P&C delivered strong results over the quarter. The new business SM stands at EUR 77 million, excluding IFRS stabilization measures. We have performed a reclassification from the first quarter, which impacts the new business by a negative EUR 153 million. Through this exercise, we have refined the level of the business -- the P&C new business CSM for 2023. And we believe that this is a more reasonable baseline for the future years. Over the full year, the new business CSM in P&C stands at EUR 952 million and is now in line with our assumption of EUR 1 billion new business CSM. Looking at the P&C insurance revenue, it received EUR 2 billion, up 0.7% at constant FX. We see the effect of the portfolio rightsizing we performed during the January 2023 revenue roles as the weight of the ‘23 underwriting year increases every quarter in the business mix. Looking into 2024, the January 2023 portfolio rightsizing impact will continue to weight on the 2024 insurance revenue mechanically. However, we expect the ramp-up of the insurance revenue to be visible in 2025. Specialty Insurance represents around 1/3 of total insurance revenue for P&C, which we consider as a satisfying balance within P&C reinsurance ago. If we now look at our P&C combined ratio, it is very strong over this quarter at 75.6%, supported by a very low nat cat ratio of 1.5 million P&C has benefited from favorable developments from prior years, nat cats, notably from hurricane Ian, Typhoon Nanmadol and Whitter storm Elliott. This benefit is mainly due to our conservative reserving. In Q3 2022, we had booked EUR 279 million for Hurricane Ian. This figure was based on an industry loss of $7 billion at the top end of the estimated industry loss range at that time. Our cautious approach has born foods. Based on the data submitted by cedents, we observed positive experience variances associated with all this cat events. Excluding these positive developments that we partially released in Q4, the CAT ratio stand at 8.7% in Q4 and 9% for the full year 2023, well below our annual cat budget. We are highly satisfied with what we have achieved on the nat cat front, which proves the effectiveness of our portfolio rightsizing. We remain disciplined and continue to minimize the impact of climate sensitive business, as previously mentioned by Thierry. The undiscounted attritional loss and commission ratio stand at 79.3% in Q4. This may be higher than what you had anticipated. Let me decompose this figure. It includes another IFRS 17 stabilization measure related to the retrocession booking. We adjusted the retro amortization pattern, which led to a plus 3.8 points combined ratio impact in Q4. It also incorporates a positive one-off technical income of minus 1.4 points on the combined ratio due to a commutation of a large multiyear contract at the end. The underlying attritional losses are now in line with our expectations. Over Q4, we observed a large discount impact of 11% with similar drivers to what we presented in Q4 -- in Q3. These drivers are an increasing share of business with a higher locked-in rate, a higher level of claims and higher claims payment duration. Over these 11 points, close to 2 points driven by a reallocation of reserves performed during our reserve review into the longer tail line, such as our DNS casualty book written out of London and Paris. This does not impact the level of claims but extends the duration of claims payments. I will come back to provide more color on this raze review with the following slides. If we look at the P&C insurance service results, it is supported by a strong CSM amortization reflecting the very strong combined ratio over the quarter. It also reflects the positive experience variance linked to mature nat cat developments. Some of you may wonder about the impact of lower interest rates and what it implies on the discount benefit and the combined ratio. As far as the discount rate, looking to 2024, we expect a similar level of average locked-in rates as in 2023. Actually, interest rates in Q4 2023 fell to a similar level as in late 2022, and a large part of business is locked on 31st December 2023. As such, we maintained the minus 6 to minus 7 points discount assumption in line with -- we also confirm the below 87% combined ratio assumption for 2024, and we maintain a flat cat ratio at 10% and flat attributable expenses. Depending on the group profitability in 2024, we might decide to build further buffers in 2024, noting that the 87% combined ratio already includes prudence. Let's now move on to the P&C reserves. Thierry and I met many of our shareholders at the end of last year. We have carefully listened to them, and we have understood some concern about SCOR's reserve adequacy. It was also a listed concern in my presentation at the IR Day last September, and we have addressed it. I believe that what we are announcing today will fully alleviate your concern on this topic. I have presented our new reserving strategy during the last IR Day, and I will not go through it again today. But this new and prudent strategy has seen already results following a thorough annual review at Q4, which covered 75% of our P&C IBNR reserves, our group key factory concluded that all lines were at best estimate, including our long tail lines. In Q4 2023, the P&C gross booked reserves lie well within the range of reasonable base estimate within the confidence level moved up by a couple of percentage points within the risk distribution. In addition to completely address any concern, we ask for a third-party review of SCOR's P&C reserves this year. This review has been performed by Watson Tower Willis, which concluded that SCOR Global P&C claim reserves are greater than what -- we lease what Tower Watson corresponding best estimate as of 30 September 2023. This obviously confirms all our internal work and our own confidence into our reserves. We are determined to continue with this new reserving strategy. We want to move our confidence level to the higher part of the best estimate range over the next 3 years. Let's now focus after P&C and Life & Health. The Life Finance business continues to generate profitable growth with a new business CSM reaching EUR 90 million. This contributes to a new business margin of EUR 466 million over the full year, above our assumption of EUR 450 million. Life Finance generates an insurance service result of EUR 64 million in Q4. This is impacted by volatility in risk adjustment, but we are pleased with the underlying performance of the Life business. The CSM amortization reaches EUR 81 million despite an adjustment in the amortization pattern. Similarly to P&C, in Q4, we continue to experience some variation brought by the first year of the IFRS 17 transition. However, on a full year basis, we have amortized EUR 412 million of CSM, which represents 7.6% of the opening CSM stock, and this is broadly in line with the 8% guidance we have provided in the past. Experience Variance is limited in Q4, reflecting an underlying performance in line with expectations. Let's now focus on onerous contracts. The Life and Health insurance service result is negatively impacted this quarter by EUR 50 million from onerous contract. Please bear in mind that this did not come from new business. The main driver for a negative impact of loss component in Q4 is a change in the risk adjustment. Our profitable contract, the change would flow through CSM, while for onerous contract, the change directly flows through the P&L. This is essentially related to a change in risk in allocation in risk adjustment, and this is not new business related. We remain confident in achieving our Life Finance Insurance result assumption of EUR 500 million to EUR 600 million over the duration of the plan, and we will gradually move from 500 to 600 over the next 3 years. To put things into perspective, as illustrated on Slide 18, we have a total of EUR 0.2 billion on onerous contracts for Life & all versus a stock of CSM of EUR 5.4 billion. Our onerous contracts predominantly reflect historical treaties, which had negative experience in the past. In 2023, the biggest contributor is a portfolio which has been put -- been in runoff since 2019. This portfolio, which accounts for 80% of the loss component is well identified and under scrutiny, and its size remains very limited compared to the profitable contracts. After P&C and Life, let's now move on to investments. We are particularly satisfied with the regular income field, reaching 3.7% this quarter and 3.2% on a year-to-date basis, supported by increasing reinvestment rates and the relatively short positioning of our fixed income portfolio. We maintained a high quality of rating, A+ and a duration of 3 years. The reinvestment rate stands at 4.5% at the end of the year, and we maintain a highly liquid invested asset portfolio with significant financial cash flows of EUR 10.2 billion expected over the next 24 months. SCOR will continue to benefit from the still elevated reinvestment rate with a 3.2% to 3.6% regular income yield expected in 2024. In forward 2026, we announced our ambition to protect and activate our French DTAs in the future. We have published an expected 30% tax rate over 2024, 2026. In 2023, we are in line with this guidance. During the transition period, we expect the corporate tax rate to remain around 30%, but it should gradually decrease. Over the last quarter, taking into account the strong group profitability and the favorable P&C review results, we have decided to build prudence into the execution of the recovery plan of the French -- this explains the high effective tax rate in Q4 of 49% and a full year tax rate of 35%. Adjusted for this one-off prudence, the full year tax rate would be close to 30%, and we therefore maintain the assumption over the forward 2026 period. Our liquidity position is strong and continues to improve with EUR 2.2 billion of cash and short-term investments at the end of 2023 and positive cash flows of EUR 588 million in Q4, generated by our 2 business units. In P&C, positive cash flows are driven by a strong inflow of premium in Q4. In Life & Health, cash flows are positive by EUR 23 million this quarter, bringing the full year Life & Health cash flow to a deck even level. This is actually better than our guidance of minus EUR 100 million cash flow for 2023. We are on well track to deliver the target of above EUR 1.5 billion of operating cash flows by the end of the plan. Over 2023, the economic value is up 8.6% at constant economics, reaching EUR 9.2 billion. As mentioned during the IR Day, the economic value increase is driven by the strong shareholder equity growth. We, therefore, confirm our ambition to grow our capital. I would like now to comment on the evolution of our solvency ratio, which stands at 209 at the end of Q4 at the upper part of our optimal range. This represents 3 points of increase versus the 206-solvency ratio at the end of Q3. In Q4, we had a positive capital generation combined with less capital deployment. During the January 2024 renewals, we achieved the growth rates we wanted and grew in the lines that we targeted with higher margin than we expected, which is really good news. As a result, our year-end solvency ratio reflects a lower capital consumption than we expected. The capital generation linked to the capital deployment in 2023 is not yet fully reflected into our 2023 solvency ratio. This will be reflected in 2024 capital generation. Over forward 2026, our ambition is to decrease our financial leverage to below 20%. We are on track to achieve this objective. Our financial leverage is reducing, thanks to the strong net income generation in 2023. As a conclusion, I want to convey a simple message. The underlying performance of SCOR is very strong. we deliver and we achieve our assumptions and targets for 2023, and we still focused on the delivery of the Forward 2026 plan. We believe that we are in a strong position to deliver forward 2026 target and assumption. All target assumptions remain unchanged. As usual, there are more details in the [indiscernible] and we will have a Q&A session to address your questions. With that, I will hand over to Thierry.
Thank you, Francois. As a conclusion, I'm very satisfied with what we have achieved so far. And I feel we are hitting the ground running for executing on our forward 2026 plan. Now let's move on to the Q&A. Thomas, over to you.
Thank you very much, Thierry. On Page 31, you will find the forthcoming scheduled event. With that, we can now move to the Q&A session. [Operator Instructions].
[Operator Instructions] Yes. We'll take our first question from Will Hardcastle with UBS. [Technical Difficulty].
That was quite suspense. I guess with respect to the IFRS 17 stabilization measure, first of all, on reserves. I think if I understand this, it relates to an underestimation of the retro premium and effectively a true-up for the year. And therefore, if I sort of split that uplift across the year, it's sort of an added point also for the full year. Would this have been in that initial 87% guide, and that's another 1-point uplift that you found another point somewhere to maintain the guidance, if that makes sense. And then on I guess the second question is related to the Life [ Re ]. Can you just talk me through, you mentioned the 7.6% on the CSM amortization. I guess within that $500,000 to $600 million range of insurance service result, is that sort of what you were touching on there, it's going to be working their way up, I think, was the words as the years go on. I guess the point here is we should be assuming midpoint, lower level, not dine-specifics, but towards the end, the exit rate might be closer to the 600. Is that correct?
Thank you, Will, for your 2 questions. They are a little bit correlated. So, I think it's interesting. I mean, of course, you focus on the P&C. But I think it's interesting to understand what we do on what I call stabilization measures for IFRS 17 -- you understand that as new CFO of the group, appointing the year of transition to a complex and new accounting now, it is my duty to take a stabilization measure as soon as I think it is appropriate. I do this proactively and in a very transparent way. Each quarter, and I'm giving the details of these measures. And the aim is really to reduce what I call the accounting noise in 2024. So, we have done this in Q2 and Q3. You can see this in Q4 in P&C and Life. So that's clearly the case. We have a recalibration of the new business CSM. So that's on one part. On the combined ratio, what we did this quarter, we have 3.8 points in the Q4 attritional loss and commission ratio associated with an adjustment of the CSM amortization pattern on nonproportional cat ratio. So, this includes some catch-up from prior quarter as well. And I mentioned it during the speech, you have also a one-off technical item. It's a one-off technical income, positive impact from interest on cash deposits, and that's coming from a computation on a large multiyear contract at the end of the year. So, if you take this into account, not adjusted for this, again, we maintain our expectation for 2024, a combined ratio below 87%, including our buffer sales. On the Life & Health side, so as you see the amortization rate of the CSM stock in 2023 for the full year is at 7.6%. So, we maintained that close to the guidance of 8%. We don't change this guidance. As you will see, and I guess we'll have also questions during the Q&A on this. We observed some volatility due to the loss component effect this quarter. We also adjusted a little bit. We took some stabilization measures on life this quarter. Everything including, if you take this into account, we maintain our assumption over the next 3 years of an insurance service results for Life & Health between EUR 500 million and EUR 600 million. And to your question, we are gradually moving from 500 in 2024 to 600 by the end of the plan. So, I'm more precise in the answer to move to the next question.
We'll go next to James Shuck with Citi.
Hope you can hear me. My first question is on the solvency roll forward. So, I think you showed OFG-- [Technical Difficulty]
Okay. We're going to James Shuck with Citi.
Excellent. So, my question was on the over funds generation and the increase in the SCR. So, the own fate generation for the full year is EUR 627 million. Can you just help me understand how that compares with the net income of EUR 812 million. What are the kind of reconciling items between that? And then kind of related on the SCR is just key because that's 14 points of capital generation. It's quite backward looking. I think based on the comments, I don't fully understand why the capital allocation has gone up from the reserve buildup that perhaps you could explain that a little bit to me? And then my second question was just around the margin build, please. So could you just clarify what actually was added to the reserve resiliency is the difference between the discount rate and 6.5%. So that was in Q4 and across the full year.
Okay. Maybe the first one I'll take is on the SCR. As you know, the capital deployment is really the change in capital requirements due to the business updates in the internal model. This includes, obviously, a change in the cash flow, but also the expected planned new business. And overall, the 14% is really a mixture of the things, but mainly coming from leaning in the half P&C market. And that's where we are above the historic capital deployment coverage. If you look at own funds generation, I think we had a strong contribution from new businesses and imports, while both were expected by the impact of the experience variance from Life and P&C. And when you compare the results to IFRS 17, you have the same variance. For example, on P&C, demand made in particular in Q2 and Life & Health was impacted by operating assumption changes. There's also some effects on the risk margin. Overall, if you adjust for this, we would expect roughly EUR 900 million of own funds in 2023 or going forward, accounting for 22 solvency ratio points. When you look at capital generation and deployment plus dividend, we expect to generate roughly a few points per year on a normalized basis.
Thank you, Fabian. Maybe on your second question, James, I just want to say that in Q4, as you saw it, there is no reserve strengthening coming from the P&L. So, there is no other strengthening. All the positive development on nat cats are flowing into the net income. And we added, but it's a marginal amount. We added a very small buffer into our P&C reserve this quarter. Then on your question, you can see 2.3 points of additional discount impact compared to Q3 2023. And that's really linked, that's what I said, that's really linked to a reallocation of our reserves.
Thank you. We'll go next to Kamran Hossain with JPMorgan.
I hope you can hear me. It's Kamran from JPMorgan. Two questions. The first one is just on the reserve review, which I think is very welcome. So, I'm very pleased that you've kind of got a third party to take a look and kind of give the statements they've given. Could you maybe quantify on the reserve confidence level? You said it's gone up year-on-year, just intrigued kind of how much it's gone up and kind of where it sits now. And if you're not going to disclose it today kind of at what point you might kind of get around to doing that because I think it's very useful for us. The second question is on kind of the areas that you're focusing on for 2024. 2023 has been sensationally a good year for the company and things have gone very well. What are the areas of focus for you as a management team in 2024? Are there any areas you're looking to improve, build on grow, shrink, et cetera, just range in the kind of headlines on that?
So, thank you. Thank you very much, Kamran, especially for the nice compliment. I mean, you guess well, I will not answer to the exact positioning within the best range. What we confirm is that we move up by a few points within the best estimate range compared to last year 2022. So that's the case. And [indiscernible] that the ambition by the end of the plan is to move to the higher part of the best estimate range. And we want to at least build EUR 200 million of buffer into our year. On the 2024 priorities, maybe I'll give the floor to Thierry.
Thank you, Francois. So, I think I answered it already in some part in my initial words. So, a few points still, again, partially repetitious. But we have, in our forward 2026 plan, we have defined our areas to modernize score. And I would like to highlight 3. One is ALM. So, we said we need to evolve our ALM -- from a more static to a more dynamic ALM. We have hired already the first person in the area. And as we speak already, we have begun on that path. The second area of organization was on risk partnerships. That's the way to have third-party capital participating in our distribution and underwriting capabilities. We have also continued to strengthen that area. And we'll soon announce ahead of that business. The third area I would like to mention is capital allocation. I think you have heard us talk a lot about capital allocation already. We are, however, continuing to improve how we allocate our capital. So, we are refining our views on diversification and return on the capital deployed. And we are looking across our book of business to constantly improve our business. So, I mentioned this over and over again, but it's really a journey on. And I'm actually quite satisfied with where we are ready. On an operational level, we have our EUR 150 million target of cost savings. So that will require to quite a lot of transformation and simplification -- we have a particular focus on decision-making. We have to make sure we are close to the clients that decisions can be made close to the clients. We're also looking at the efficiency of our systems and, of course, the use of data. On the underwriting side, we remain actually committed to the areas we have defined so far. So, the growth areas are very clear structured solutions that are across life and health and P&C. In P&C, we have growth areas defined in some specialty lines. And we are also looking generally at innovative new type of products that can help us grow. So, I would like to mention those 3 that have a particular focus and where you will see actions in the months to come.
We'll go next to Derald Goh with RBC.
The first one is just on Life & Health lead to your comment that you expect the insurance service results to grow gradually from EUR 500million to EUR 600 million. But just if I look at what you delivered in 2023, just from the amortization of CSM and risk adjusting the loan, that's something like EUR 540 million already. Presumably, you're expecting positive experience variance on top of that as well. So why do you think that the gradual increase in 500 is appropriate? Or are you just being really prudent over there? And the second one, can you maybe explain what's driving the regulatory model change in that SDI increase? Because it still so you spoke about improving depreciation benefit, but at the same time, you're already way above your peers. And I'm not sure whether there's any regulatory risk or not of the depreciation benefit being brought down. So, any details that behind that, please?
Thank you, Derald, for your questions. I will take the first one. So, on our expectation for the contribution of side finance insurance service results next year. So, as you saw in Q4, again, part of what I call the IFRS stabilization measures, we took some action on the life and [indiscernible] amortization. It relates to refinements in our methodology for CSM amortization before-- [Technical Difficulty] Yes. So I don't know, I mean, since you have really technical issues here in Paris today. So I don't know if you -- what you have listened in terms of answers. So, if you listen to my answer already, the line was cut for Fabian.
We missed everything. I'm afraid, sorry.
Okay. So, I will take -- so it was a good warmup for me to answer to your question. So on Life Finance, so basically, what you see in Q4 on the Life in CSM amortization, it's also what I call an IFRS 17 stabilization measure. Here, what we did, it's related to refinements in our methodology for CSM amortization again, for Life Finance. Before Q4, we used the simplified approach. It has been refined to be more accurate on a full year basis, in particular, with more granularity. So, this has a true-up impact in Q4.There is no specific seasonality. So, for quarterly org, you can consider 1/4 of the full year amortization. So, if you take this effect into account, plus also we prefer to remain prudent on the loss component effect that we see in Q4 and the potential volatility, we prefer to guide you at the low part of the range, EUR 500 million, EUR 600 million in terms of life and insurance service results for 2024 instead of leaving a midpoint in the range. And now I will give the floor to Fabian for the second point.
Thank you, Francois. So, I think you have a misperception that the model changes had a big impact on the diversification benefit. What we have done this year is the usual set of model changes to improve our use cases. Thierry mentioned a few of them, capital allocation or ALM. Our model is on the constant inspection by our regulators, and we have their dialogue almost on a daily basis, I would say. One model change I can mention for the ALM use case. For example, we model now a new currency, which helps us also to improve our ALM going forward.
We'll go next to Ivan Bokhmat with Barclays.
I wanted to ask the first question on the dividend. And I was wondering, given that you put together the solvency ratio, which is within the optimal range and the economic value growth, thinking a bit more long term, should the growth in dividend in the future be somehow linked to the 9% economic value growth ambition, would it be -- are you going to be surprised if we increase that dividend by 9% per annum or maybe you think that there is even more room for special distributions over that time? And maybe a second question, I just wanted to ask you about the CSM. I mean the overall stock of CSM, I think, throughout this year have been largely flat in life and slightly down in P&C. I was just wondering if you have any thoughts on the trajectory of that beyond just talking about new business CSM.
For the 2 questions. So, on the first one, so I think Thierry was clear in his speech to guide you on the way we decided to determine the 1.8 million for 2023. Again, keep in mind that we introduced a new capital management framework last September. And the beauty of this capital -- this new capital management some work is now that forever at least, we are going to pay a cash dividend of EUR 1.8 per share. So, you have to value this year, which is a significant change in terms of culture for us. In the future, if you link the decision of 1.8 to the capital management framework, we said that it's linked, as you said, to the growth of [ EV ]. So, reference could be 9% per year as well as the solvency ratio. And of course, opportunities to deploy capital given the attractiveness or not of the market. So, there is not yet, I would say, mechanical rule defined by the management and propose to the Board. So, let's wait a little bit before we could move in a more guided approach of the growth of the dividend. Keep in mind that what we said in this capital management framework is that we have the regular dividend, so the one with a ratchet of the floor. And on top of it, if needed, if we want to share also the good fortune of score, we will add a special dividend or share buyback in the future. The second question, flat, I agree with you, flat stock of CSM for Life nil. We have some, I would say, recalibration of the new business, P&C CSM in 2023. It was clear in the strategic plan in the presentation of September 2026 or forward 2026, that the CSM stock over the next 3 years is going to remain relatively flat, and the growth of the EV is coming from the growth of shareholder equity coming from 2 effects, the first one, that's the generation of strong net income as we see in 2023. And also, if you remember, I mentioned also the effect of the reduction of the amount of annualized losses on the fixed income portfolio. So combined with these 2 effects, we should generate a significant amount of our capital over the next 3 years, which will reduce the leverage ratio. But again, with a flat assumption of CSM over the next few years.
We'll go next to Ashik Musaddi with Morgan Stanley.
Just a couple of questions I have is, first of all, Thierry, is it possible to get a very simple way of thinking about capital allocation? I mean, because there are quite a few measures, cash flow, solvency to capital generation earnings. I mean, how are you thinking about capital allocation? So, in terms of dollars or anything if you can give, okay, we are generating $100 this much is going to dividend, this much is going towards growth and this much is going to buffer or any sort of thing. That would help us get a bit of feel about how you're thinking about capital and capital allocation going forward. So that's the first one. Secondly, thanks a lot on working on the solvency ratio to get it to [ 209 ] again. Is there any further levers that you can think that you can pull in the near future to get it more towards 220% or higher, which are pretty straightforward ones, et cetera. So, any color on that would be very helpful.
Thanks for your question, Ashik. So, our intentions regarding capital education are quite clear, but we, of course, remain and must remain flexible, which is why I very often use the word dynamic in the way we look at it. But you're absolutely right, we have defined threshold at which we write new business, below which we estimate it's not worth to write it, and we would rather -- we would have the distributed back to the shareholders. Now this hurdle at obviously is fluctuating. And that's obviously an exercise that we are doing on a regular basis. The whole model is quite complex, which is why I'm insisting that we need to get more refined in the way we look at it because the capital -- the economic capital is actually the one we need for Siering. The economic capital depends a lot on diversification as an example. So that is a constantly changing pattern. And it also depends, as you know, on our red program, the quality of our retro program. So, we constantly adjust for all these parameters to actually find at each point in time, the right was to write new business. And I would like to end on the last item that is actually not a detail, but it accounts for as much as 50% of the decisions because you will appreciate that not every decision is on cut on an economic basis. A lot depends as well on the underwriting judgment. What's our view on a particular risk? And that's where, for example, I mentioned geopolitical risk today, we would get very high prices on some of those risks. But our view is very clear. And we do a stay even though purely economically, we could theoretically make a case. So that's important to keep in mind. I hope it answers your question, even if not totally precise, but for us, that's exactly how we apply our capital management model.
On your second question, I think on your second question, so on the solvency ratio, let me reassure you we delivered a 209% solvency ratio at the end of the year. It's in the upper part of the optimal solvency scale or range. So, we are very satisfied with the solvency ratio, and there is absolutely no concern at [indiscernible] with this level. Having said this, you can imagine all the solution that we could implement if we would need to increase certainly our solvency ratio, it could range from a change in the asset portfolio in the business mix or through optimized retrocession cover. Of course, all those solutions will have a cost, and there is no need today to pay this cost.
We'll go next to Vinit Malhotra with Mediobanca.
I hope you can hear me as well. So just one question on Slide 15, please, where the reserve buffer has been noted and it seems that under some conditions, you will add the buffer. Could you just elaborate a little bit? Is it just that if profitability is better than you will just make the buffer events? What you think because one of the, of course, recent topics has been that your new business is being written with more towards, let's say, upper end of the best estimate. So just curious on that Slide 15 buffer comment. Second question is that there's a lot of emphasis on diversified growth. And that should also imply that as you grow in this stage of the cycle, there's not much SCR growth. And so, solvency will all naturally by this means increase. Is that how you see it as well?
Thank you, Vinit. Before giving the floor to Fabian, I will answer to your first question. So, on Slide 15, you see in the middle. There is a box that I like, CFO decision in accordance with the group profitability. So that's where we decide the buffer. So, keep in mind what I said since Q2. So, the buffer, the amount of buffer, we act with determination with CRE each quarter to add buffer. It's not automatically linked to the combined ratio and the performance of P&C. It's also linked, of course, that's the primary link, but then that's linked also to the overall profitability of the group. So here, I confirm what I said. We have a marginal amount of buffer that has been added in Q4. We will continue expect each quarter to see buffers again, if we can finance them. We act with the termination with a target of at least EUR 300 million by the end of the plan.
Yes, on your growth and diversification, I mean, it goes back to a bit what Thierry has said. We try to allocate the capital to less capital-intensive line. But then there is the effect on the SCR coming from this where we see the SCR more as a constraint to keep the solvency ratio in the optimal range. That's how we do the optimization.
Thank you, Vinit. I think this is our last question. Before giving the floor back to Thomas for the conclusion. I know, [ Andrew ], you are on the line, but very discrete during this call. You saw we delivered record results. It's almost for your last call with SCOR. I would like to tell you the immense respect I have for you for all your questions and analysis on score the industry as well over the last year. I think you helped us to move in the good direction. So, I wish you all the best for the future. So, before we conclude, I would like to thank everybody today on the call. As you saw it, results are good. lasers are good, solvency is good. I think we guided you confidently on our 2024 outlook. With this, Thomas, to you.
So thank you very much all for attending this conference call. The Investor Relations team remains available for any upcoming questions. So please do not hesitate to give us a call. As a reminder, SCOR will hold its Q1 2024 results presentation on Friday, 17th of May, with a call at 9:00 CET. Our AGM will be held on the 17th of May, starting at 10:30. With this, I apologize again for our technical difficulties today, and thanks for your patience, and I wish you a good afternoon. Thank you.
Thank you. This does conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.