​Briefing: Scor is a terrible fit for acquisition-hungry Covea

Briefing by content director Saxon East

At first glance, the logic of Covea’s takeover attempt on Scor makes sense.

Covea wants to grow and diversify at a time of limited organic growth for primary insurers, while reinsurers such as Scor can shield themselves from the harsh winds of alternative capital by taking shelter in a larger diversified group.

But anyone who has followed Scor over recent years knows it is a unique business, one that has flourished as an independent. 

Denis Kessler was the unfancied economist who took over the troubled business in 2002. Against the odds, he transformed it.

His management team conjured up an average ten-year dividend return of 5.6%. The share price has nearly tripled from €14 in 2003 to nearly €40 today.

Shareholder value? Thank you very much.

Despite the onslaught of alternative capital and a soft market, Scor has prospered.

Indeed, the company showed its entrepreneurial spirit by taking advantage of alternative capital and being the first player to launch a catastrophe bond in London earlier this summer.

Covea is a different animal altogether.

Some have described it as a lumpen mutual, but that would be unfair. 

It is a steady and conservative French mutual, if a little staid, servicing its customers well.  

The danger for Covea is that a hostile takeover could lead to Kessler, and the cream of his management team, walking out. 

Then what are you left? A good company on paper, but the spirit has gone. Covea will have to find a new management team, and that would be a nightmare. 

M&A perfect conditions 

The bigger picture here is that Covea’s increasingly messy attempt at acquiring Scor is part of an M&A stampede. 

In reinsurance, all the players below Munich Re and Swiss Re look susceptible takeover targets.

Alternative capital is putting immense pressure on reinsurers.

Those without scale, potentially lack the geographic spread and product diversity to keep primary insurers from turning to more adventurous ways of protecting themselves.

Combine this with low interest rates that have slashed a source of conventional insurance income, the ongoing soft market, and finally a wave of cheap debt fuelling boardroom ambitions, and you have the perfect conditions for mergers and acquisitions.

Who goes next is anyone’s guess, but if Denis Kessler has anything to do with it, it won’t be Scor.