French reinsurer Scor made a net profit of €131 million ($158 million) for 2005, up from €75 million in 2004. This was despite catastrophe losses of €168 million. The results beat analysts' expectations. Investment bank Exane BNP Paribas, for example, expected the firm to make a profit of €106 million, and analysts' consensus estimate was €110 million.
But some analysts warn that the result was boosted by investment gains and a lower-than-expected tax rate, and that when these gains are stripped out, the results do not look so impressive.
"The headline numbers are better than the market expected, but this is mostly on the back of the tax rate and higher realised gains" says Neil Manser, analyst at investment bank Fox-Pitt, Kelton. "The underlying numbers were slightly lower than what we had."
Others agree that the results were propped up by investments. "They are not bad numbers but they were boosted a lot by the investment result," says Tim Dawson, analyst at Swiss investment bank Helvea. "You've seen the same with Hannover Re and Munich Re."
Scor's investment income for 2005 was €460 million in 2005 – a 33% increase on 2004's number. Scor says the increase was caused by a more active investment management policy. The results were also helped because improving profitability allowed the company to reduce a provision it had set aside for the amortisation of deferred tax assets.
Manser says the fact that the results were bolstered by investment gains was not a worry in itself. But he adds: "It is a concern if the market prices that in as sustainable earnings."
He believes, however, that investors have recognised that the results are not as impressive as they first appear. Scor's share price increased only slightly to €2.17 on March 22, the day the results were announced, from €2.16 the day before. And on March 23 the shares had fallen back to €2.13.
But some analysts warn that the result was boosted by investment gains and a lower-than-expected tax rate, and that when these gains are stripped out, the results do not look so impressive.
"The headline numbers are better than the market expected, but this is mostly on the back of the tax rate and higher realised gains" says Neil Manser, analyst at investment bank Fox-Pitt, Kelton. "The underlying numbers were slightly lower than what we had."
Others agree that the results were propped up by investments. "They are not bad numbers but they were boosted a lot by the investment result," says Tim Dawson, analyst at Swiss investment bank Helvea. "You've seen the same with Hannover Re and Munich Re."
Scor's investment income for 2005 was €460 million in 2005 – a 33% increase on 2004's number. Scor says the increase was caused by a more active investment management policy. The results were also helped because improving profitability allowed the company to reduce a provision it had set aside for the amortisation of deferred tax assets.
Manser says the fact that the results were bolstered by investment gains was not a worry in itself. But he adds: "It is a concern if the market prices that in as sustainable earnings."
He believes, however, that investors have recognised that the results are not as impressive as they first appear. Scor's share price increased only slightly to €2.17 on March 22, the day the results were announced, from €2.16 the day before. And on March 23 the shares had fallen back to €2.13.
