Alegal ruling againstwhat SCOR SEdescribes as illegal state aid in France's natural catastrophe reinsurancemarket marks an important step in opening up a business which the company couldbe in the perfect position to exploit.

TheParis administrative court ruled July 12 that France must end its guarantee ofCaisse Centrale deReassurance's natural catastrophe reinsurance business, or elsenotify the European Commission of the scheme within a year. The EC would thenrule on whether its structure complies with European law.

Foundedafter World War Two, the Caisse Centrale de Reassurance was reorganized in 1982to help the French state cover the risks of natural disasters, wars, nucleardisaster and acts of terrorism. SCOR, France's largest reinsurer, has for yearscriticized the scheme on the grounds that it breaches competition rules, objectingto the government giving backing only to Caisse Centrale de Reassurance asthis, it says, gives the latter a "virtual monopoly" of the Frenchnatural catastrophe market. The firm welcomed the ruling as formallyacknowledging the existence of state aid "that renders Caisse Centrale deReassurance's natural catastrophe reinsurance scheme illegal."

CaisseCentrale de Reassurance generated€1.29 billion of gross written premium in 2015, 62% of which was derived fromits natural catastrophe program. If at the conclusion of the current legalprocess this business is shut down, SCOR and peers such as , and could gain access to anatural catastrophe market worth €800 million.

SCORcould be the biggest winner, since it is the only French reinsurer among thetop tier and would likely be able to use its local knowledge and connections towin a big share of Caisse Centrale de Reassurance's business despite having asmaller book of business than its German or Swiss peers, Deutsche Bank analystFrank Kopfinger said in an interview. In 2015, SCOR reported gross writtenpremiums of €13.42 billion, compared to €29.07 billion at Swiss Re and €50.37billion at Munich Re.

CaisseCentrale de Reassurance also participates in other lines; 6% of its businesscomes from non-catastrophe reinsurance that also benefits from state backing.The rest of the business is not backed by the state.

Theruling comes at a tough time for insurers and reinsurers in Europe. DanielBischof, an analyst at Helvea, said in an interview that after several quartersof very low natural catastrophe losses, he expects second-quarter results toshow that the average combined ratio — a measure of underwriting profitabilitythat expresses claims and costs as a proportion of premiums — to tick up above100%, implying an underwriting loss.

Floodsin Europe in May and June caused an estimated $6.5 billion in damage, accordingto Aon Benfield's GlobalCatastrophe Recap. But Bischof said that with none of the losses comingfrom an unexpected line of business which might have spooked the market —floods being a common and well-modeled peril — reinsurance prices aren't likelyto rise at the next round of renewals despite several years of steady ratedecline.

Headded that the weather events in Europe and losses elsewhere in the world inthe second quarter are still far too lowto remove the overcapacity that they have.

Kopfingersaid that in this market, with monetary policy so loose that investors earnscant returns for parking their money in safe assets, reinsurance will continueto provide an enticing investment opportunity — all the more so because naturalcatastrophe in the industry are uncorrelated with the broader financialmarkets. Even losses of $100 billion might not be enough to cause rates toharden again, he said, suggesting also that the traditional reinsurance pricingcycle with large losses causing rates to increase, sparking investors to enterthe market and driving prices lower again, might be coming to an end.

Reinsurerslike SCOR are under intensepressure to deploy their capital and find new business, with somebranching out to cover unusual perils like cyber, nuclear and biohazard, wherehigher profits can be found. But they are often poorly understood, and SCOR'sCEO Denis Kessler has suggested he will take a conservative approach to suchperils.

Insuch an intensely competitive market, a new opportunity to reinsure Frenchnatural catastrophe risk, which at least boasts the appeal of the familiar, islikely to be fought over.