adminSCOR SE (OTCPK:SZCRF) Q3 2023 Results Conference Call November 10, 2023 7:00 AM ET
Company Participants
Yves Cormier – Head, Investor Relations
Thierry Leger – Chief Executive Officer
François de Varenne – Chief Financial Officer
Jean-Paul Conoscente – Chief Executive Officer of SCOR Property & Casualty
Fabian Uffer – Group Chief Risk Officer
Conference Call Participants
Will Hardcastle – UBS
Andrew Ritchie – Autonomous
Cameron Hasan – JPMorgan
Tryfonas Spyrou – Berenberg
Vinit Malhotra – Mediobanca
Ashik Mussadi – Morgan Stanley
Darius Satkauskas – KBW
Ivan Bokhmat – Barclays
Operator
Good afternoon, ladies and gentlemen, and welcome to the SCOR Group Q3 2023 Results Conference Call. Today’s call is being recorded. [Operator Instructions].
At this time, I would like to hand the call over to Mr. Yves Cormier. Please go ahead, sir.
Yves Cormier
Good afternoon, and welcome to the SCOR Q3 2023 results. My name is Yves Cormier, Head of Investor Relations, and I’m joined today on the call by Thierry Leger, CEO of SCOR as well as the entire Executive Committee. I please ask you to consider the disclaimer on Page 2 of the presentation. Note that unless explicitly stated, all the numbers mentioned during this discussion assume a constant valuation of the option and owned shares as of 31st December 2023. I would now like to hand over to Thierry Leger. Thierry, over to you.
Thierry Leger
Thank you, Yves. Good afternoon, and welcome, everyone. The first 9 months have been marked by many climate events across the world, including heat waves, wildfires, floodings as well as rising interest rates and geopolitical tensions with the continuation of the war in Ukraine and the Israel-Hamas war. In this context, SCOR has been performing well with a net profit of €602 million for the first 9 months of 2023, a return on equity of 18.8% and a strong growth in our economic value. Also, the Solvency II ratio of 206% remains within the optimal solvency range.
These results confirms SCOR’s focus on delivering its targets. On the P&C side, we are below our Cat budget over the first 9 months of 2023, which is a testimony of the effectiveness of the actions taken on our P&C business to rightsize our exposures over the past year. Also, the attritional losses have improved, and we are on track regarding the strategic plan over 2026 assumptions. Let me focus quickly on Q3. Our results translate into €135 million net income for the quarter, supported by positive results across all 3 activities despite some challenges on the P&C side.
The P&C performance was impacted by quarterly Nat Cat claims and also some man-made activity. Again, the 9 months — over 9 months, we have been within or even below the Nat Cat budget. And on the attritional loss side, we see clear improvements. For Life & Health, the business continues to grow profitably and generate a strong insurance service results. In investments, the group continues to benefit from high reinvestment rates and reports a noticeable increase in the regular income yield — a high increase in the regular income yield, sorry.
Regarding the January renewals, our objective is to take advantage of the hard market by generating new business at very attractive margins. In this context, and with €602 million 9-month results, we are confident that we can grow our economic value further and deliver on our forward 2026 objectives. With that, I would like to hand over to François.
François de Varenne
Thank you very much, Thierry, and good afternoon, everyone. I’m pleased to present these Q3 results. And let’s mention I will focus on quarterly results and not year-to-date figures. As Yves stated at the beginning of the call, I will present all figures without the impact of the fair value of the option on our own shares. Indeed, we do not take any credit for this.
Before diving into the details of Q3, I want to emphasize one key message. We are on track to achieve our overall profitability objective for the full year. To understand this trans statement, let me describe the way our Q2 and Q3 accounts have been built, especially regarding the added buffers. The published return on equity is 13.7% in Q3 and 20.2% year-to-date basis. If you exclude the fair value of the option on own shares, the return on equity stands at 12.5% on a quarterly basis and 18.8% since the beginning of the year.
These are strong results. And now if you exclude from the return on equity, the added buffer of Q2 and Q3 and also the Q1 one-off, we delivered return on equity of 16.1% on a quarterly basis and 21.2% on a year-to-date basis. This underlying performance is clearly very strong. Since Q2, Thierry and I have deliberately added buffers in our quarterly accounts, especially when the results are strong and in Q2 — as in Q2 and in this quarter. The added buffer in Q2 and Q3 represents 2.4 points of return on equity.
It reduces the economic value growth at constant economics by 1 point and the solvency ratio close to 2 points. We have maintained a strong service discipline over the first 9 months of 2023, while delivering very solid results. After this probe, which is important to understand our financial strategy, let’s focus on the key highlights of the quarter. The group delivered a satisfying net income of €135 million, contributing to a strong €602 million net income for the first 9 months of the year. We are on track to reach the assumption of the year for 2023, which is close to 12%.
The group insurance revenues reached €4.2 billion. On the P&C side, the insurance revenue growth is 6.4% over the quarter due to the weight of the 2022 premium in 2023 on premium and [indiscernible] underwrite more business than anticipated in April 2023, given very attractive market conditions. On the Life & Health side, the insurance revenue growth is 13.5%, but it includes a one-off reclassification. Otherwise, it would have been similar to the premium growth of 2%. The P&C new business CSM is lower than in Q2 given that the bulk of the P&C insurance renewals took place in H1.
It is also slightly lower for Life & Health, but we are well on track to meet our €450 million assumption for the year. The performance of the third quarter is driven by positive results coming from our operation expenses and our investments and continue to demonstrate the efficiency of our business model. I would like now to comment on the evolution of our solvency ratio, which stands at 206% at the end of Q3 in the upper part of the optimal range. We see, however, a 7-point reduction compared to a ratio of 213% in Q2. This reduction is mainly driven by 2 decisions from the management.
One is to grow higher than planned in P&C during the 1/1 2024 renewals to benefit from the favorable market condition. We announced this higher growth during our Investor Day in September. Do not forget as well that this growth is expected to be higher in the first years of the plan. This impact the solvency ratio by minus 5 points. This is obviously a controlled deployment, and we should see the benefit of this development on the P&C VNB increase in Q4 and in Q1 2024.
This effect should be visible on the capital generation in Q4 and Q1 2024. The other decision is to put aside some reserves in P&C in Q3 like we did in Q2, some buffers. This represents an impact of around 1 point of the solvency ratio. Then we have the quarterly accrual of the dividend weight for 2 points. There are finally some other minor effects such as seasonality as we see higher cat activity and the lower contribution from renewables in Q3 or market variances, which is very small this quarter.
Let’s now move on to the details of the performance of the 3 activity over the quarter. Let’s start with the P&C results. P&C new business continued to create value. The new business CSM stands at €169 million. For the first 9 months, it is already above our ’23 assumption of €1 billion overall for the year.
This reflects the strong pricing condition at the July renewals and for specialty insurance, the high margins we expect on the new business. Without any renewal round in Q4, we expect the new business CSM to be more limited in Q4. Looking at the P&C insurance revenue, it stands at €1.9 billion, up 6.4% at constant FX. This growth rate is lower than in Q2, which was at 7.9%. We see here the effect of the portfolio rightsizing we performed during the January renewals as the insurance revenue broadly follow the pattern of gross earned premiums.
But as I said, insurance revenue also continues to increase because we have written more business than expected in April, June and July annual. As you know, we have increased the capital allocated to Specialty insurance based on attractive returns observed in this business. We are now satisfied with the current balance between reinsurance and specialty insurance with the latter representing 1/3 of total insurance revenue for P&C. Let’s now look at the P&C combined ratio. It stands at 90.2% over the quarter.
We are very satisfied with the level of Nat Cat claims over the first 9 months period. For the first time since 2016 with the exception of 2020 due to the COVID economic slowdown, the ratio is below the annual cat budget of 10% at 9%, in line with our peers. We are above the Nat Cat budget for Q3 with a Cat ratio of 13.3%. As you know, the third quarter is marked by seasonality. Our largest event this quarter is due to one claim from a factory destroyed by the Hawaii fires.
This is not a surprise for us. It can happen. Also, we have a European bias on our Nat Cat book, and we have been hit, but the midsize cat event in Europe this quarter, such as the Italian store or the Slovenian flood. It is worth mentioning that to date, we have not performed any reserve release in our accounts. The mechanical impact of the P&C discount is 9% over the quarter, above our assumption of 6%, 7% communicated for the year, so let’s say, on average, 6.5%.
We are carefully following the discount effect. And as a measure of prudence, we have booked 2.5 points of excess discount benefit into [indiscernible]. Overall, if you normalize the combined ratio for the ex-cat and for the excess discounting effect and the reserve buffer, which offsets each other, you will find a common ratio of about 87%. On this normalized level, I would like to say 2 things. The first one is that while the overall attritional level is at its factory, the level of manmade claim is not, and we are working on it to improve it.
I will get back on this. The second one is that with the current level of attritional, everything else being at budget — it is not possible to buffer without exceeding the 87 ratio. Over the plan period, as we explained in September, we expect to be in a position to have buffer while remaining below 87%. The man-made claims are not concentrating on one segment, but are coming from various lines and underwriting year. We will reduce our attritional ratio over time as we have launched a number of initiatives to strengthen our manmade book, such as increasing rates and deductibles, decreasing our maximum growth capacity and adapting our reinsurance protection for SCOR’s business.
On the discount effects, we provide you with the reasons for the high impact in Q3. We have identified 3 main drivers. One is linked to the increased share of business in tepid in the 2023 underwriting year in the claims with a higher locked-in rate. Mechanically, this will weigh on the discount. The second driver is linked to the higher claims level in Q3, meaning the discount effect is higher.
Finally, you need to consider the fact that the proportion of claims impacting longer tail lines is higher this quarter and that the reserving buffer booked also relates to long tail lines. This buffer is added to the segment where we feel it is most relevant. This has been done consistently with the reserving approach outlined at the Investor Day. We have rolled forward reserves and have added some buffers in Q2 and Q3. To conclude, I’m perfectly aware that — of the fact that discount impact is higher than you anticipated.
But again, we do not take credit for this, and we have fully recycled this benefit into added buffer. Let’s move on to Life & Health. The business continues here to generate profitable growth with a new business CSM of €89 million in Q3 and €66 million in the first 9 months. We are on track to deliver a €450 million new business CSM for the year as per our 2023 assumption. We continue to build our life and Life & Health CSM generation, mostly from protection across all markets.
The Life & Health Insurance Service results amounts to €113 million, supported by a strong amortization of €140 million and the risk adjustment release of €29 million. Experience variance stands at minus €9 million. The negative expense variance in Q3 is primarily driven by a negative one-off accounting change on accruals of minus €32 million. We could have disclosed a normalized €145 million insurance revenue, but we did not to be transparent. The point on one contract is a technical classification that has no impact on the insurance service results.
Overall, the performance of the Life & Health business is strong and stable and in line with our expectations. After the 2 business units, let’s move on investments. We continue to be happy with the regular income yield improvement, supported by the higher investment rate and the relatively short positioning of our high-quality fixed income portfolio, which has an average rating of A+ in the duration of 3 years. Total investment income on invested assets stand at €185 million, and the regular income mill reaches 3.4%, progressing well compared to 3.1% in Q2. As we said in previous quarters, total investment income is not including into the insurance service results and come on top.
The reinvestment rate stands at 5.4% at the end of Q3 compared to 5.1% at the end of Q2. Liquidity position is strong and improving on the business side with €2 billion of cash and short-term investments at the end of September and positive cash flow of €655 million generated by our 2 business units, Life & Health and P&C. Let me make 2 comments on the net cash flow from operations for the quarter. On P&C, positive cash flow driven by a strong inflow of premium in Q3 as per historical seasonality. On Life & Health, cash flow are positive at €54 million this quarter versus a negative €165 million in Q3.
We are less impacted by COVID. We will see some outflow from some legacy book — blocks in the U.S. But overall, the balance is positive in Life & Health, which is good news. The positive cash flow from the new business are now outweighing the impact from the. Overall, we are confident that we can reach the minus €100 million cash flow expected for the full year in Life & Health as published in September at the [indiscernible].
Over the first 9 months of 2023, the economic value is up 7.1% at constant economics, reaching €9.2 billion. I remind you that the added buffer in Q2 and Q3 represents a drag of 1 point. The economic value increase stably driven by the strong shareholder equity growth of 15.2%. This is in line with our ambition to grow our app capital faster. The economic value progresses, thanks to the strong underlying performance of our businesses and our significant investment results.
The economic value per share, which is €51 at the end of Q3. The financial leverage has slightly decreased to 21.2% compared to the end of 2022 as we are benefiting from the shareholders’ equity growth, driven by a strong net income of €602 million over the first 5 months. As a conclusion, on my side, I want to convince simple message. The underlying performance of SCOR is very strong. We continue to deliver, and we are well on track to achieve our targets for 2020.
As usual, there are more detailed in the appendix, and we’ll have a Q&A session to address your question. Before closing this presentation on my side and has communicated during the Forward 2020 plan presentation, I’d like to update you on a few organizational initiatives. I’m pleased to announce that we have launched the new data and data office platform office. All the SCOR initiative focused on cash flow generation and ALM will be led by Matthew Giovacchini, who is joining us from [indiscernible] as former Group Head of ALM.
Thomas Fossard is going to join us in 10 days as Head of Investor Relations and Hatting Agencies. We will benefit from his significant experience as a sell-side senior analysts. As you see, we continue to [indiscernible] and adapt the organization to make it more efficient to achieve our financial strategy. And finally, I would like to warmly thank Yves Cormier for the excellent work he has done on the financial communication of the group, especially with the IFRS 7 first publication in the communication on forward 2026 strategic plan. Thank you.
With that, I will hand it over to Thierry.
Thierry Leger
Thank you, François. Let me summarize in 5 points. First, we are very satisfied with the €602 million net profit over the first 9 months. Second, we are also very satisfied with our Nat Cats ratio over the 9 months being below budget despite it being a very heavy year for Nat Cats. Third, we are very confident regarding our attritional loss that has improved, and we expect this to continue to improve.
Fourth, our Life & Health and investment businesses contribute positively in a very significant way to our overall result. And last, as you very well placed to take full advantage of the market conditions that we see today, in particular, the hard market on the P&C side with attractive opportunities, in particular, of course, in P&C, but also on the investment side and in Life & Health.The teams, the Executive Committee and I will continue to fully focus on delivering on our 2023 financial objectives and on our forward 2026 strategic plan. The achievements so far are a testimony to SCOR repositioning in the last year and to our well-diversified business model across Life & Health, P&C and investments.
Based on this, I see us very well placed to deliver on our strategic plan. With this in mind, we have also reinforced the Executive Committee in strategic areas of SCOR’s forward 2026 plan.
Claudia Dill, who just joined as Group Chief Operating Officer, we focus on the group’s strategy in terms of operational efficiencies. And Redmond Murphy, our new Deputy Life CEO, will notably oversee the Life & Health business in North America, a strategic market for the group. Their undeniable qualities and extensive experience will help us to achieve the targets set out in our new strategic plan. Thanks for your attention. Let’s now move to Q&A.
Yves, over to you.
Yves Cormier
Thank you very much, Thierry. On Page 20, you will find the forthcoming scheduled events. With that, we can now move to the Q&A session. Can I please remind you to limit yourselves to 2 questions each? Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question from Will Hardcastle of UBS.
Will Hardcastle
Thanks for taking the questions. First one is just linking to the solvency in the growth. You mentioned that it’s 5 percentage points quarter-on-quarter. Just trying to make sure, is this on top or what you will maybe assume when providing the Capital Markets Day targets? The second one is just linking to the man-made.
How are these trending year-to-date? I think we said Q3 was above discrete. I’m just wondering year-to-date. And was this just quarterly volatility as you see it? I think you suggested there was actions being taken.
I didn’t quite actual the detail. Can you just talk me through those actions that are being taken on those man-made?
Thierry Leger
All right. Thank you very much. I suggest probably Fabian takes the first question on solvency and how it varies compared to what we said at the CMD, and Jean-Paul Conoscente take the update on man-made.
Fabian Uffer
As you know, we have in the calculation of the solvency capital requirement, which is here the relevant part, a 12-month forward-looking view. Every quarter, we add an additional quarter, but we also update our assumption. In Q3, we have integrated now the operating plan, and this drives the reduction of the solvency ratio by the 4 points with the inclusion of the market you have now on the growth that we want to achieve at the 1/1 renewals and in the next year.
Jean-Paul Conoscente
With regard to the manmade losses, — so this is reflected in the attritional loss ratio. As François has pointed out, we’re satisfied with our attritional loss ratio overall. So this quarter is a bit heavy just to a frequency of a number of small to medium-sized losses. But over the years, this has been okay. We still have a lag effect due to older underwriting years that are earning through and having claims in the financial year this year.
As we — in terms of actions taken, that’s what we discussed previously, the raise of retentions, the improvement on rates, the sort of rightsizing of the exposures. This all actions taken on the underwriting year 2023 and 2022. And as those years earn over the upcoming quarters, we should see those ratios improving over time.
François de Varenne
I will add on my side, a comment on the growth for next year in the entire plan for 2023. The assumption in the plan, we provide an assumption of 4% to 6% for the growth of insurance revenues for P&C. Do not forget that during the Investor Day, we explained that the growth would be mostly front-loaded, so the 2024 growth should be higher than this. And as explained, and as I mentioned at the beginning, we expect to generate more new business, which will generate capital and offset capital deployment that we see in Q3.
Operator
Our next question comes from Andrew Ritchie of Autonomous.
Andrew Ritchie
Could you just remind me when is the normal cycle — reserve cycle review? I know it was accelerated last year to be in Q3, but I think it’s normally Q4 or maybe you’ve already done it. So just some sense as to how you think prior year is developing. I guess I’m curious because I don’t know how confident you can be you’ve built buffers without an update on the actual — the health of reserves as it is right now. And that would apply both to life and nonlife.
I think there’s an annual life review as well. The only other question is tax rate was very high. In the discrete quarter, you did advertise at the Investor Day, the tax rate will be high. Just to remind me, is it high for the rest of this year and next year? Or how should we think about the trajectory?
Thierry Leger
Thank you, Andrew. So 2 questions on the reserve review process and the tax rates. I think François can take both.
François de Varenne
Yes. Thank you, Andrew, for your 2 questions. So maybe the first one, I’ll just remind you what we explained during the Investor Day, and I think that’s important to understand our disciplined approach to reserving. So in Q1, Q2 and Q3, each year, we do a roll-forward process. So which means that reserves are all forward by the finance team to a low movement in line with experience and for changes to reserving approaches after, of course, validation of the Group C factory.
On top of it, and that’s new, and we did it in Q2 and in Q3, we had buffer — we build conservatism into opening loss ratio and conservative reserving for large events upfront. That’s what we did for the French riots, for instance, in Q2. And if possible, we had buffers to increase reserves on top of all forward process. This buffer, as you can imagine, are allocated to longer tail lines. In Q4 and 2022 was an exception, it was done in Q3, but the normal process that goes Q4, we do the annual review.
And here, we check how added buffer allowed to move the book reserve higher on the percentile within the best estimate range. Again, when we build a buffer each quarter, we do not look only at the P&C result and the combined ratio. But of course, we also look at the overall group results. That’s the benefit of the composite model. I just also reiterate what I said during the introduction, our reserve — there is no reserve rates since the beginning of the year at all and our reserve at the best estimate and our [indiscernible] really comfortable with the position at Crest.
The second question on tax. So that’s something also I mentioned during the IR Day. We have an assumption during the next 3 years that is higher, we took an assumption on a tax rate of 30%. As explained during the IR Day, we would like to secure and one day to utilize the French deferred tax asset, we’ve got at the level of SCOR. During this transition period, it will slightly increase the tax rate before we can benefit from a highly reduced tax rate for the group in France.
So this quarter, you have the two effects. The tax rate reflects the various geographies where the profit have been generated in this period and where tax rates might be higher. The tax rate in Q3 is also driven by a prudent stance, not to recognize new tax assets for losses occurring within SCOR’s, as you see in the URD last year. In the statutory account of SCOR’s, we are in losses. That’s still the case today, given all the acquisition flowing to SCOR’s.
And we don’t recognize, we don’t activate the DTA on this, and this is visible. So that’s the one-off effect that you see this effect. Keep in mind that all tax losses in France, tax losses carry forward are not lost. They are evergreen and can be reactivated when we can and when it will be appropriate.
Operator
Our next question comes from Cameron Hasan with JPMorgan.
Cameron Hasan
Two questions for me. The first one is on the man-made issue that you kind of talked about. Is there any reason why you wouldn’t kind of create a stand-alone man-made budget, just to help you understand the volatility? Just wondering kind of why that would be your approach to this seems to have a bit of an issue over the last few years. The second question is on capital.
Just looking at the split between hard and subcaps. — you’re still kind of less than 50% hard capital. How is this going to interplay or how is this going to play out in capital management decisions over the next few years? Just thinking about S&P and kind of their views on hard versus soft capital and how that might impact kind of rating requirements. Any thoughts on that would be really interesting.
Thierry Leger
All right. Thank you, Cameron. So the first question on man-made and probably… We’ll take it. Well, François will take both questions.
François de Varenne
Yes. So on your question on the mandate budget, of course, internally, we have a budget and something we follow, and that’s why we had the comments from Thierry also at the beginning of the call. We don’t publish the manmade because for us within the attritional and that’s the beauty and that’s the way our business — our P&C business is built. We could have, I would say, a relative allocation of capital between reinsurance and specialty. And that’s why we don’t publish a budget since this one could change for a given year.
And then it will be difficult to explain and to track those changes. So we have this diversification within the P&C business unit, within the P&C portfolio of risks, and we prefer to maintain it and then to adjust our relative exposure to the 2 lines. On the out-of-capital, you see it, we have a strong increase of out capital, 16.2% this quarter. This is in line with the strategic direction. We maintain the objective.
So you will see the stock of CSM over the next 3 years is expected to be almost flat, and we expect a strong generation of out capital, which should reduce the mix between soft and out capital during the next 3 years. On the S&P impact, we are all waiting, that’s expected for Q4, the new capital model. I have no other comments than the one I made during the IR Day on this. I think it should be favorable to SCOR at least the latest version that was the case.
Operator
Next question comes from Tryfonas Spyrou with Berenberg.
Tryfonas Spyrou
I had 2 questions. So first of all is on the P&C combined ratio. I guess how comfortable are you getting to the €87 million target? I guess you probably need around €84 million in the fourth quarter to bring you back down from ATA year-to-date. Is it mainly due to sort of Nat Cat season?
So any comments on those moving parts on that? And the second one is on casualty. I was wondering how you feel about your book. Clearly, there’s been a lot of discussions in the industry on casualty prior year’s last trend. Any comments as to how the actual this expected from your side is evolving on those 2014 to ’19 and years…
François de Varenne
On the — on your first question, so on our €87 million assumption and below €87 million assumptions for the next 3 years. In Q3, as we said, if you normalize for cats and higher discount benefit and additional reserving buffer, which offset the higher discount benefit, we are broadly — I mean we are just below €87 million. The point is that we would like to be a little bit more below because what we said during the IR Day is that the target being below €87 million should be done and should allow us to add buffer each quarter. So we maintain the assumption for the rest of the plan. As mentioned by Thierry, that’s a point of attention.
We are working on it in attractive market condition and renewal next year should help to go in this direction. On casualty, maybe a point that, I mean, you should have in mind, it’s our net exposure to U.S. casualty. In 2016, our net exposure in terms of P&C premium was 5%. In 2023, Today, it’s 7%.
So we have not the exposure of, I would say, the other, and we should be less concerned by this.
Operator
Our next question comes from Vinit Malhotra at Mediobanca.
Vinit Malhotra
So for me, one question is just on the overall C2 back, François, you’ve clearly laid out. But just on the markets, I mean, generally, the interest rates were higher quite a bit. And from your sensitivity, there’s usually not much more meaningful things. So I’m just curious, is there any commentary you can provide on why markets were that in effective for your falling C2 progression in Q3? So that’s the first question?
Second question is just relating to the Slide 12, when if I can squeeze a man-made question there. The last bullet point of higher duration and also man-made losses tend to have higher payment duration. I’m just curious to hear more thoughts on that because I thought, for example, a factory file might not be that long duration, but I might be wrong. So I’m just curious why you say that. And also just on this manmade, is it safe to assume there is no number that you’ve provided?
And is it coming from the business solutions — core business solutions? Or is it mainly could.
Thierry Leger
The first question will be handled by Fabienne. The second question on the high duration of manmade and also reinsurance will be handled by Jean-Paul.
Fabian Uffer
As you know, the sensitivities are based on kind of a linear view of the yield curve movements and driven by the way we constructed by the U.S. dollar and euro only, and the current economic environment is quite nonlinear in how the curves move. Additionally, it’s also not all yields have increased. So for example, in China, you have dropped to stay at the same level, roughly. And when you then run the internal model, but also when you do the full valuation of the — our liabilities, then you get nonlinear effects.
So as maybe with external sensitivities, you would have estimated effect of 3% to 4%, running the whole machine. We get plus 1% market movement. So the difference is not as big.
Jean-Paul Conoscente
On the second question, so for this quarter, the man-made is about 2/3 from specialty insurance, 1/3 from reinsurance. This quarter, in particular, we had a number of longtail manmade losses coming from prior underwriting years. We had a surety loss, a number of general liability losses. So that’s why the comment that this also affected the discounting.
François de Varenne
On the link with the discounting, again, I’ll come back on this. On the discounting impact, you have 4 drivers: one linked to underwriting years, one linked to well curves, one linked to the duration and one linked to the level of claims. So on the underwriting year, in H1, there was still a significant portion of incurred claims from earlier underwriting years with lower locking light. Now you look at the yield curve effect, of course, yields have increased during the year and also in Q3, amplifying this effect. That’s more on your point, duration to the claim this quarter and the buffer added corresponds to line of business, which have a longer tail, resulting in higher discounts.
And then we have the level of claims I mentioned the claims level is higher in Q3, meaning the discount effect will be higher.
Operator
[Operator Instructions] We’ll go next to Ashik Mussadi with Morgan Stanley.
Ashik Musaddi
Just a couple of questions I have is, see, first of all, I guess, there is a bit of difference in the attritional of 9 months on your combined ratio versus the 87% guidance that we have. So I guess you are very clear that there is a bit of work that needs to be done on man-made losses. But is there any other things that you think needs to be fixed as well? Or is it just, okay, let’s if manmade losses get sorted out, then probably we are thereabout on like clean 87%? So that’s the first question I’m trying to understand.
Second thing is, in Life earnings, I mean, there were some negative one-offs with respect to experience variance and on this contract. Can we get some color on what these are related to? Is this just a one-off? Or should we be expecting these things in the future as well? So just trying to get a bit more sense of this because this has been a bit volatile since first quarter.
We appreciate that it’s early days of IFRS 17, but some additional color on the volatility of these items would help us a bit.
Yves Cormier
All right. Thank you, Ashik. So the first question on the attritional work has to be done. We’ll go to Jean-Paul. And the second question on the work on the Life & Health service results, we’ll go to François.
Jean-Paul Conoscente
Thank you. So on the attritional we’re actually quite happy with the underlying performance on the attritional book, except for the man-made losses. That’s really the focus of our attention. As I said, a lot of work has been done already. It’s more a question of earning through the more recent underwriting years, and we believe that the rest of the book is really as expected.
If I may add on this something because I think it’s a very important point. In Nutritional, so there are 2 things that obviously need to be watched. One is the trend that we are on a good trend, and we have highlighted it several times today. We are on a good trend, and we are confident to with our additional loss targets. I think we have achieved a lot already.
But as François pointed out, we want to get even a bit better. The other one is the volatility around that trend. That’s also one that we are working on to improve to be more stable around that. So really 3 things that you are working on, and I’m comfortable on all 3. One, we work very hard on the portfolio, the mix of business that you’re having.
— to have the best diversified book possible at any point in time.The second point is the line setting.
We have reviewed the line setting again this year a lot. And it — we see already the positive impact from this, for example, with regard to improved diversification. And the third point is we have again improved our buying of retro to have an even better control of our net lines. So 3 things that we are doing, that you are strengthening, and that all 3 together make us very comfortable.
So again, I really want to emphasize this, we are not unhappy with where we are now. We are not yet satisfied. We are at a good level, but we want to be better than that.
François de Varenne
On Life & Health, so you mentioned a few one-off or technical points on expense variance on a contract. So I recognize that we have adjustments during this year that relates to transition of IFRS 17. Again, it’s a complex norm, and we are learning every quarter. So on the few points that you mentioned on the negative expense variance in Q3, there will always be an element of expense variance, positive or negative as quarter. The negative expense variance that you see in Q3 was primarily driven by a negative one-off accounting update of minus €32 million.
So this is similar to the situation at Q1, where we had an update to an accounting balance that was positive. It was also positively impacted by the classification from expansion to aero contract. So if you adjust for those 2 effects, the underlying [indiscernible] this quarter is, in fact, positive at €10 million. On onerous contract, impact of onerous contract in Q3 is driven by 2 technical factors: one, technical classification that is similar as in Q2, and the update of economic assumptions. So I will not enter to the detail of each of them, but that’s mostly what we did.
We have also the classification in insurance revenue, but we are transparent on everything. The difference also between the €130 million and the €145 million. On a looking-forward basis, what we should look at is the insurance service results. We are comfortable that we are going to be above the assumption for 2023 — in 2023. And the direction that we set during the IR day of transit result between €570 million is really reaching.
Operator
Next question comes from Darius Sakata at KBW.
Darius Satkauskas
Two, please. So the first one is on discounting benefit. It was higher than what you have seen at the Investor Day, so you’ve added 2.5% imprudent. Now you’ve been talking about your goal to rebuild prudent. So one is this higher discount benefit allow you to do more than you expected at the time of the Investor Day.
Also, since the underlying discount rate should be higher due to higher yields, does it mean that you should be able to build your buffers faster than you previously expected? And then what sort of discount ratio you thinking about for 2024, if nothing else changes in terms of the macro? Now the second question is, could you help us understand the potential upside from the favorable S&P model? I mean, could it be something that sort of allows you to do more when it comes to the capital repatriations with the full-time results?
Yves Cormier
All right, Ivan. I think both the discount question and the upside from the S&P model out of François.
François de Varenne
So effectively, so the discount impact is higher than expected, is higher than what we mentioned during the IR Day. The methodology that we described IR Day was to guide you a little bit on the sensitivity of the computation of this. I mentioned, I mean, the fourth driver — the fourth driver of the evolution of the discount impact underwriting year effect, in core effect, duration effect level of claims — what you should expect in Q4, it’s probably still a higher impact in Q4.
For 2024, I prefer to wait the full year results and the annual review, again, we see a sensitivity, of course, to long tail line of the discount factor that prefer to have the entire annual review of the reserves to give our assumption of the discount rate for 2024. On your second question on the S&P model, again, nothing.
We have no update on our side, except the fact compared to the IR, except the fact that there is a confirmation that we should have the release of the criteria and the new capital model in Q4, we will see. From what we saw and what I said in during the IR day, we see positively the new model, especially if they let the entire CSM in the model. Does that — how it will impact our capital management framework as discussed in the IR Day. This is not independently from the S&P model. So you have the 4 steps to take the decision, but that’s not linked to the S&P model.
Again, S&P, our strategy is we focus on the generation of economic value. As you saw in the IR day, it’s coming from a very strong generation of hard capital. So the outcome of this would be, of course, a correlation with the S&P capital. So it would be a strong generation of capital, and we should seek target to be at the level that S&P expects I would say end of time.
Operator
Our next question comes from Ivan Bokhmat with Barclays.
Ivan Bokhmat
Maybe I could ask the first question. That’s a little bit technical. On the Solvency II ratio, we had quite a lot of movements. Is there a chance you could just share the eligible own funds and the solvency capital ratio for this quarter so that we can try to gauge the impact of the growth. And the second question, it follows up on that, but in a different direction.
So the appetite for the growth plan for 2024 that has resulted in a higher charge. Could you share a little bit more of what classes of business have you had in mind any geographies split between primary and reinsurance maybe in general sense? And maybe the third one, just a small follow-up, if I may. So when we’re talking about the attritional ratio and the reserve addition, — should we think of the 87% target for combined ratio for this year is an underlying or rather still as a reported?
Yves Cormier
I think Fabian can pick up on the solvency implications. And then for the combined ratio, this is more probably for Jean-Paul.
Fabian Uffer
Yes, we don’t publish on a quarterly basis, the Crandon fund split and just give the solvency ratio with key movements. With regards to your question on the classes of business, we intend to grow in ’24. This hasn’t changed compared to what we presented at the Investor Day. On the reinsurance — in terms of split between reinsurance and specialty insurance, we see opportunities for profitable growth on both units. On the reinsurance side, as we said before, the areas of growth remain engineering, global lines, engineering IDI, marine, International Casualty.
We see conditions on property cat remaining attractive in 2024. And there, in our expectations, we probably have a little bit more growth than originally planned, if conditions materialize as we expect. On the specialty insurance side, it’s very much in line with what we explained at the IR day.
Jean-Paul Conoscente
On your last question for 2023 and the 87 combined ratio. So that’s an assumption. That was the one of April for the entire year. So we maintained the assumption. I’d just remind you that it was before we introduced Thierry buffer strategy in Q2.
So the 87 was, I would say, without any buffer for the next strategic plan, our assumption is to be below during the next 3 years, below 87%, but it would include those.
Operator
[Operator Instructions] With no other questions, ladies and gentlemen, this does conclude today’s question-and-answer session. At this time, I would like to hand the call back to the speakers for any additional or closing remarks. Thank you.
Thierry Leger
Thank you very much for attending this conference call. The Investor Relations team remains available to discuss any questions you may have. So please don’t hesitate to give us a call. As a reminder, SCOR will release the results of its January renewals on the 6th of February 2024 and its full year 2023 results on the 6th of March 2024. On my end, these were my last turning this call.
At the end of this call, I will have completed 2 full cycles of renewals, results and Investor Days, and I fully enjoyed my interactions with all of you. Thank you for this, and I wish you a good afternoon.
Operator
This concludes today’s call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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