Zurich Insurance Group (OTC:ZFSVF) has reported strong performance for the first half of 2024, with record business operating profit (BOP) across multiple segments and strategic acquisitions bolstering their position. The company's efforts have set them on a path to surpass their targets for the 2023-2025 cycle.
Despite challenges in the German market, Zurich Insurance Group remains optimistic about their commercial and life insurance sectors, as well as their farmers' segment. The company is focused on improving their combined ratios in Europe and Switzerland and has denied any interest in expanding into wealth management, contrary to rumors about an Italian bank acquisition.
Key Takeaways
- Zurich Insurance Group achieved record BOP in property and casualty, life, and farmers segments.
- Acquisitions include 70% of Kotak General Insurance in India and AIG (NYSE:AIG)'s personal travel insurance business.
- Retail performance in property and casualty grew, with life insurance seeing a rise in short-term protection revenues.
- Farmers segment BOP reached record levels, driven by Farmers Management Services and Farmers Re.
- The company targets EPS growth over 10% and sees commercial area opportunities for profitable growth.
- Zurich Insurance Group is taking measures to address increased weather losses in Germany and is confident in the adequacy of reserves for casualty lines, except for commercial motor.
- No guidance was provided on dividend growth.
Company Outlook
- Zurich Insurance Group aims for a retail combined ratio below 95% in EMEA by next year and is working towards improving the current 97% ratio in Switzerland.
- The company plans to grow the farmers business in other states and is optimistic about achieving a combined ratio below 100%.
- In the commercial sector, despite flat margins due to increased catastrophe events, underlying margins have improved.
Bearish Highlights
- The company experienced a decline in retail results in Germany due to increased claims and weather events.
- Commercial motor rates are increasing the most, reflecting industry-wide losses.
- The crop insurance sector has seen a slowdown in commodity prices, resulting in lower revenues.
Bullish Highlights
- Zurich Insurance Group expects further improvement in the European retail combined ratio.
- The company is confident in the commercial sector with expected margin expansion.
- Life insurance operating profit is in line with the previous year, considering the German legacy book and strong experience results.
Misses
- The company did not provide specific guidance on dividend growth.
- There is an acknowledgment of the need to improve the performance in Germany, where the industry faces challenges.
Q&A Highlights
- Zurich Insurance Group clarified that they have no interest in acquiring an Italian bank, focusing solely on insurance.
- The company is evaluating growth opportunities in the middle market, accident and health (A&H), and excess and surplus (E&S) lines.
- Positive net policy count in Farmers is expected next year, with current cancellations affecting the portfolio.
- In response to excess capital distribution, the company will distribute excess capital when it has available cash, with no constraints on cash remittances.
Zurich Insurance Group (ZURN) remains committed to delivering strong financial results and value to shareholders, as evidenced by their robust first-half performance in 2024 and strategic initiatives. The company's focus on improving combined ratios and expanding profitable growth areas, despite some market challenges, positions them favorably for the remainder of the cycle. Investors and stakeholders can reach out to the Investor Relations team for any further inquiries.
InvestingPro Insights
Zurich Insurance Group (ZURVY (OTC:ZURVY)) continues to demonstrate robust financial health and a strong market presence. Here are some key insights from InvestingPro that shed light on the company's performance and future prospects:
- Zurich Insurance Group boasts a solid Piotroski Score of 9, indicating a very healthy financial state, which is a reassuring sign for investors looking at the company's fundamentals.
- The company has shown a commitment to rewarding its shareholders, having raised its dividend for 3 consecutive years and maintained dividend payments for an impressive 24 years.
- InvestingPro data highlights a market capitalization of 76.32 billion USD, underscoring Zurich Insurance Group's significant presence in the insurance industry.
- With a P/E ratio of 15.16 and an adjusted P/E ratio of 17.13 for the last twelve months as of Q4 2023, the company is trading at a high multiple relative to near-term earnings growth, which could suggest a premium valuation.
- The revenue growth for the last twelve months as of Q4 2023 stood at a remarkable 27.38%, indicating the company's ability to expand its business significantly over the past year.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available for Zurich Insurance Group at https://www.investing.com/pro/ZURVY. These insights can provide further guidance on the company's financial health and investment potential.
Full transcript - Zurich Insurance Group Ltd (ZURVY) Q2 2024:
Operator: Ladies and gentlemen, welcome to Zurich Q2 2024 Results Conference Call. I am Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference will now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Jon Hocking, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.
Jon Hocking: Thank you very much and good afternoon, everybody. And welcome to Zurich Insurance Group's half year 2024 results Q&A call. On the call today is our Group CEO, Mario Greco; and our Group CFO, Claudia Cordioli. Before I hand over to Mario for some introductory remarks, just a reminder for Q&A, if you could keep it to two questions that would be much appreciated. Mario?
Mario Greco: Thank you, Jon. Good afternoon, everybody. Thank you for joining us today. I'm here, as Jon said, with Claudia Cordioli, our group CFO. Before Claudia and I answer your questions, I wanted to provide you with a few remarks on our results. We have achieved excellent results in the first half of the year, a performance, which positioned us well to exceed all of our targets for the '23 to '25 cycle. We remain on track to achieve compound EPS growth in excess of 10%, for the planned period as we announced a while ago. BOP at $4 billion in the first half is at record level, driven by strong results in property and casualty, with the record levels of BOP in both life and farmers. BOP at ROE reached a new high of 25% in the period. We continue to carefully invest in growing the business, while generating highly attractive returns on capital. Property and casualty produced 7% growth in insurance revenue in the first half, with particularly strong growth in retail. In life, we saw short-term protection revenues increase by 12% on a like-for-like basis. And farmers' management services revenues grew in the mid-single-digits. In addition, we completed our acquisition of 70% of Kotak general insurance in India, and we also announced an agreement to purchase AIG's personal travel insurance business, a transaction which will more than double the size of Cover-More, giving it a leadership position in the key U.S. market and globally. Now, looking at our business segments in turn. I start with property and casualty. The property and casualty business today reports an excellent combined ratio of 93.6% with BOP of $2.2 billion up 3% on a like-for-like basis. Our leading commercial insurance business, has a combined ratio of 91.4% despite an accumulation of small and mid-sized weather events. In the first half, North America commercial saw rate increases of 6% and we remain pleased with how rates are responding to changes to lost cost trends. Commercial auto in particular saw rate increases in the mid-teens, for the period. In commercial property, we took the decision to moderate growth in the first half of the year, given the slowing of rate increases in our continued efforts, to actively manage cat exposures. This was mainly in large accounts and we continue growing strongly in the middle market. Looking ahead, market conditions remain favorable, despite the pace of rate increases reducing in some of the lines, where we have seen significant cumulative rate moves in recent years. We also see opportunities for structural growth in areas like middle market, accident and health, and E&S. Retail P&C reports a combined ratio of 96.4%, which was higher year-on-year driven by elevated weather versus the prior year and persistent inflationary trends in motor. However, as in commercial, we're able to increase rate with particularly strong action taken in the core European motor markets of Switzerland and Germany. The work we have done in recent years in customer centricity is paying off, as we've seen increasing customer retention, despite pushing through significant rate increases. We continue to take a conservative approach to reserving. PYDs for the first half, was positive at 1.6% in the middle of the 1% to 2% guidance range. Moving now to Life. The Life business continues to perform extremely strongly. Reporting an all-time high BOP of $1 billion for the first half, it remains on track to at least match last year's record result for the full year. We saw particularly strong growth in highly attractive short-term protection, where revenues increased by 25% year-on-year of stable margins. Fee revenues for investment contracts increased, by 10% on prior year. The stock of CSM increased in the period on a local currency basis, and we continue to be focused on low capital intensity growth, across our Life franchise. Moving now to Farmers. Farmers continues to see the benefits of the decisive actions taken over the last 18 months. Record BOP in the first half, driven by Farmers Management Services and Farmers Re. Farmers Management Services saw BOP grow by 10% year-on-year, supported by growth at the exchanges. The combined ratio at the Farmers exchanges improved by 16 percentage points year-on-year to 95.2% despite significant catastrophe losses. Reflecting the, earn through of rate increases and the benefits of the expense actions. The improved underwriting performance at the exchanges, also drove a significant improvement in the result of Farmers Re, where BOP for the first half was $81 million. So more than $100 million above last year. We're well positioned now to exceed all of our targets for this cycle. In particular, we expect to generate compound EPS growth in excess of 10%. Market conditions remain favorable, more so than we had anticipated at this point. And we see today many opportunities to profitably grow the business, especially in the commercial area. Thank you for listening. And we're now ready to take your questions.
Operator: [Operator Instructions] Our first question comes from the line of Andrew Sinclair, Bank of America (NYSE:BAC). Please go ahead.
Andrew Sinclair: Thank you very much. Good afternoon, everyone. Two from me, please. First was just to do with the weather that you've talked about. I think you mentioned there's some, the undiscounted attritional was higher, partially due to accumulation of weather losses that were noticeable, but not big enough to qualify in themselves as Nat Cats. Can you give us an idea of what the impact on the combined ratio was, from above normal weather losses in that attritional? And just a reminder as well, at what point losses qualify as Nat Cats rather than attritional? So that's my first question. Second one is faster, just on a comment on reserve adequacy in U.S. casualty lines and workers' comp, what's the development in those lines in 2024 for both older and more recent accident years? Thank you very much?
Mario Greco: Hi, Andrew. So let me start first with reserves, because I would say that's the most important part of your questions. We felt that reserve adequacy, especially in casualty is fully appropriate. We haven't touched the reserves. We didn't feel the need to increase casualty reserves, except for commercial motor. And we didn't release it either. So, we feel that the portfolio is performing very well. And the reserve policies of the past years have been very, very solid. And that's why the PYD is pretty much where it used to be in the middle of the range. On weather, so a couple of clarifications. First of all, the Cat definition threshold is at $25 million. So events below $25 million are not counted as Cats by definition, but they're still weather events. If I look in North America, now, I don't know what, is a normal weather. I mean, you say something like what is the normal level of that? I can't judge this. What I can tell you is, what was last year, what is this year. In North America, last year, we had 2.8% as Cat loss ratio. This year, it was 3.5%. And that means that the accident year combined ratio, ex-Cat in North America is 60 basis point better this year. And including the Cats, the combined ratio is flat, which I think supports our view that margins are expanding in commercial, especially in North America. If I move to Europe, again, comparing Cat definition, which is a restrictive version of weather events, especially in Europe, last year, we had 0.9, so 90 basis points of Cat events in each one. And this year is 110 basis points. But then in Europe, there are a number of smaller, less than $25 million events, especially in Central Europe, that have impacted us.
Andrew Sinclair: And just can you give us a...?
Claudia Cordioli: If I may add...
Andrew Sinclair: Sorry go ahead Claudia?
Claudia Cordioli: Sorry, Andrew. I just wanted to add that the rate that we're looking at in terms of those smaller events, as Mario mentioned, so the ones that are below $25 million threshold and classified as weather. We are around 60 basis points worsening year-on-year, and the vast majority of it is EMEA.
Andrew Sinclair: Perfect. That's what I was looking for. Thank you very much.
Operator: The next question comes from the line of Michael Huttner, Berenberg. Please go ahead.
Michael Huttner: I've got - and so my first question, since you're so confident on the EPS, does it mean that we should also expect the dividend to grow at over 10% CAGR? And my...?
Mario Greco: Can you get this question again in February next year?
Michael Huttner: Okay. Fine. But unless you change your guidance, the question will be the same?
Mario Greco: Happy to answer that.
Michael Huttner: Say again?
Mario Greco: Happy to answer that then that is February.
Michael Huttner: Happy to answer that then. Excellent. Okay. Well, February, I hope that will be a nice surprise. And then the other question is on, I guess, maybe just digging into the retail, and - it feels like it's been a bit slower to turn around than maybe you'd have expected. Can you give us a feel, for how you see the trajectory or how quickly we should get to see an improvement in retail? That'd be very helpful? Thank you.
Mario Greco: Yes. Okay. Okay. Thank you. That's a quite important question. Because the way we see today the property and casualty situation is commercial is doing extremely well, much better than we expected. We see margin expansion in commercial, and we see opportunities for us to grow business, as I indicated in middle market in A&H and in E&S, continuing to expand the margins further. So commercial we're very bullish about. Let's talk about retail. What's the matter with retail? So first of all, if we strip off Germany from our retail results, we have a significant improvement of results. So the worsening of our results has been really concentrated in Germany. What happened in Germany for us? Fundamentally, two things happened in Germany and both are industry phenomenon. One was an increase in frequency of claims in Germany, motor I refer to, and the second one was a number of weather events. Germany ended up with above 100 combined ratio. And Europe altogether on retail is a 98 combined ratio. Stripping off Germany, Europe again would have been improving on last year, and it would have been on a path of achieving the 95% combined ratio, that we indicated. So we need to act not starting today, but starting weeks or months ago, we need to act on Germany. But the whole industry, I believe, is in our situation and the whole industry is facing the same need to act on the German combined ratio and improve it quickly. That's how we see the retail situation. The motor portfolio is improving. Except in Germany, Switzerland is improving, although we still want to drive for the better improvement in Switzerland. The smaller European countries are improving and you saw the kind of improvement of farmers. Really the combined ratio is not at all a concern or an issue at the moment. So we need to tackle and have a quick impact on the German performance.
Michael Huttner: Thank you.
Mario Greco: Thank you, Michael. For dividend, let's talk later.
Michael Huttner: Very good. Thank you.
Operator: The next question comes from the line of Peter Eliot, Kepler Cheuvreux. Please go ahead.
Peter Eliot: Thank you very much. Perhaps I could just start with a quick follow-up on that last point, because I'm just wondering how possible it is to react quickly on Germany. I mean I know the industry is changing a little bit, but obviously, overweight January renewals and I guess a lot of your peers seem to have been talking about this for a while and are reporting some benefits. So I'm just wondering how quickly we'll be able to turn that around. And then more generally, I'm just wondering if then again I'm probably not so focused, but a lot of your peers will give guidance on where they see the sort of underlying loss ratio going. You give guidance obviously on PYD and Nat Cat, but I'm just wondering if you can help us understand where you think it's progressing from here, and if it's not cheating just you talk about the changing business mix. Commissions obviously have sort of pushed up the expenses. I'm guessing we should see an offset come through on the loss ratio, or is that not how we think about it?
Mario Greco: Yes so. Okay. Thank you, Peter. On Germany look, I mean first of all we want to possibly conclude the year below hundreds in combined ratio. It's a combination of the actions already launched, and the claims management let's see but then the rest will be done through price increases at the renewal date, as the rest of the market will do. For the combined ratio guidance look, I mean as you heard me saying we're very confident on the commercial situation. There we see margin expansion. We remain very prudent and solid on our reserve approach, but we see margin expansion there. On the retail side, the composition of the business is partially changing with a growth in extended warranties, which is high commission part of the portfolio and which runs at the lower combined ratio. So yes, I mean we will expect to have this reflected. In general, I think the market conditions are different and better, than we expected them to be. And so the real question for us going forward, and also starting to reflect on what's going to be the next plan for us, is can we become more ambitious on the P&C profitability? And this is work undergoing now.
Peter Eliot: All right. Thank you very much.
Mario Greco: You're welcome.
Operator: The next question come from the line of Elena Perini, Intesa Sanpaolo (OTC:ISNPY). Please go ahead.
Elena Perini: Yes, good afternoon and thank you for taking my questions. The first one is on commercial, you seem to be very confident on this sub-segment. I was wondering where would you find some risks or you know some threats in this positive environment? And then, another question is more on a strategic one. There were some press articles around in Italy in July saying that you were interested in FinecoBank, and in generally growing in the wealth management distribution in Italy. I don't know if you can comment on this and on your strategy in Italy? Thank you very much.
Mario Greco: Okay Elena, I'll start with commercial, because the second one is a little bit an embarrassing question being myself Italian as you are, but I'll get to that. On the first one on commercial where are the risks? So commercially is a business for pros especially these days. On property there is a lot of cat exposures, and different from some of our competitors so we have kept our retention amounts unchanged. And we don't want to take more retention and more risks on our books, because we believe that this will increase the volatility of our P&L. And equally I mean we select constantly the risks and the quality of the portfolio, as I mentioned in my introductory comments. We have taken a very prudent stance on large property exposures, because of Cat risks, and because of the rate situation. Casualty - is today in a better situation than before, because the rates have been hardening, hiking significantly. But again casualty is a business for pros, because you need to understand precisely what guarantees you're giving, and what liabilities you're creating for yourself over the next years. But we're very pleased so far, with the quality of our underwriting, and we don't see creeps in that. If that is clear, let me turn now to the painful story of Italy. Look I mean, we saw this news about our interest in an Italian bank. We thought this was this was Meloni, if not - , but we don't have a practice to comment on press. When I saw that this moved to $3.5 billion market cap in absence of actions, by regulators and others. We issued a press release saying that we have no interest whatsoever and we categorically denied anything. We will never ever look at the bank. That is a bank and we will never ever look at the bank. There has never ever been anything. I'm really embarrassed that fake news of this size can stay in the market. On interest, we have on wealth management we don't have any interest in wealth management. We only have interest in life distribution. We want to distribute life through financial advisors, through banks and as much as they can through insurance agents, but we're not going to be a wealth management provider. We are an insurance company. Wealth management is for others. Yes, I hope I've been clear.
Elena Perini: Yes, thank you very much.
Mario Greco: Thank you, Elena.
Operator: The next question comes from the line of Ismael Dabo with Morgan Stanley (NYSE:MS). Please go ahead.
Ismael Dabo: Hi, how are you doing? I just have two really quick questions. One I was wondering if you could discuss more about the rate development and commercial lines by line of business. Maybe property versus casualty versus work with companies and other lines and how those lines are progressing versus a loss trend. Additionally is there any difference in the rate, compared to account size i.e. mid-market versus large corporate risk? Additionally just a very small I guess numerical question. Do you guys use to provide farmers' pass by line of business motor home? I was wondering if you could provide us with how much of that $13.2 billion thus far is motor versus home versus other lines of business if possible? Thank you.
Mario Greco: Yes we definitely can. I mean Jon can do that. That's not a problem on rate. So property is harder on mid-market and it's softer with the size of the company. So if you go to large accounts properties today it's low single-digit increases, while if you go to mid-market it's still mid to high-single-digit. And then mid-market of course have mid-market exposures to catastrophes and claims, which again resonates very well with our ambition to stabilize the P&L and don't expose the P&L. But property is still highly profitable, and we still see rates in excess of costs of claims. So, we still see the property margins building up. Casualty, okay casualties in ocean made of very different seas in there. Workers' comp is still flat around zero, but cost of claims is negative. So we feel very good about it, and we feel very good about the reserving situation. Liability honestly is performing well. The rate increases are in excess of claims cost and again we don't see leakages. We don't see issues with our reserving position. The surety A&H in specialties, they're quite still expanding their margins, and this is one of the reasons why we're very interested in continuing to grow, and you have a page in the back where you see the growth that, we're having on mid-market and A&H. E&S is growing significantly in volumes, in rates and in margins and that's an area where again, we will continue to target growth and opportunities. Sorry I forgot the important one, commercial motor. Commercial motor has the highest rate increases of all, because the whole market has been suffering losses there. There we continue to shrink in number of policies and counts, except for some specific customer sections like captives for example, where historically we had very good combat ratio results. And so, there we continue to expand ourselves. We think that after the very bad last two years, commercial motor is now improving. And also we fully adjusted the loss peaks for this year for commercial motor. So we're confident that by year-end, we will show a significant improvement of commercial motor, but that will not change our appetite going forward, because we have seen enough cyclicality in commercial motor, to have a longer term view on appetite for that line of business.
Ismael Dabo: Okay. Thank you very much.
Mario Greco: Okay. Good. You're welcome.
Operator: The next question comes from the line of Andrew Ritchie, Autonomous. Please go ahead.
Andrew Ritchie: Good afternoon or good morning. I wanted to ask or delve a bit more into the European retail combined, which I think you said in Europe was 98% and is improving on a path towards 95%. Could you give us a sense as to how much more improvement you anticipate there, and perhaps talk a little bit about the situation in Switzerland relative to Germany, where I think you said the combined is over 100?
Mario Greco: Yes so, the combined ratio of Europe ex Germany would already be in the 95%, 96%, combined ratio that we said that we would like to achieve this year. And so, we still think that EMEA has to be run at below 95% retail combined ratio and if not this year, we think that this will be achieved by next year. On Switzerland, Switzerland is running retail at 97%. Switzerland also had a weather impact. There is roughly 60 basis points of weather impact in Switzerland. And then, they had also 60 basis points of more cats - with respect to last year. So that's why I indicated that we want to continue improving in Switzerland, but it's not as a drag as the retail Germany performance has been on Europe or on our results. And we will continue this means that we will continue having price increases in portfolio selection in Switzerland going forward especially on the motor side.
Claudia Cordioli: If I may add Mario on your question on Switzerland Andrew, the team has started already last year to take very decisive actions on pricing. We saw then frequency last year increasing severity to some extent also been a topic. Now this year clearly Switzerland is seeing imported inflation on spare part, and that's one of the points in motor. But we've been taking very aggressive action on pricing. The team continues to do that and the loss fixed adjustment that Mario was mentioning has been done as well there. So, we are confident that we will see an improvement in the second part of the year.
Andrew Ritchie: Thank you.
Mario Greco: You're welcome.
Operator: The next question comes from William Hawkins (NASDAQ:HWKN), KBW. Please go ahead.
William Hawkins: Hi Mario. Hi Claudia. Thank you for taking my questions. First of all Mario could you talk a bit more about the outlook for the farmers combined ratio please? I mean the first half does seem excellent, and this time last year the second half was only 96% so it does look like you're now just mathematically trending more like to be in the mid-90s when your official comment is just below 100%. So are we at the stage now where we can be more optimistic about the exchanges combined ratio or is there stuff that can be more of a headwind in the second half? I can't myself think what it is but that would be kind? Thank you. And then secondly could you give us a bit more color on the crop result please? Ideally I'd like to know the revenue-bought and combined ratio, but if you can just talk about the trends and specifically am I right? One of your slides talks about crop being $500 million lower than last year. Is that number equivalent to the $1.2 billion of revenue that you did in the first half of last year in which case it really is a massive cut, or I might be not comparing like-was-like? Thank you.
Mario Greco: So let me start from crop, because it's a longer answer then. So no I think you misinterpreted. There is a slowdown in the commodity prices, but this if I'm not wrong and Jon can correct me, is worth $100 million in lower revenues, and it's definitely not the size you indicated. It's now how is crop going? I mean so far this looks like a very good year, but I cannot say anything more than this now. And frankly also what I say today, can be easily changed by weather later on. And so, I mean we just have to see them wait. We've taken actions reforming our portfolio remember that there was a piece of our portfolio, which was lousy especially last year and these were the private customers. So, we have taken actions in reducing to share this private customers already. We definitely expect a better result than last year, but then the weather will tell the final one and this will be known in November, December not now. But there is nothing at the moment that worries me on the weather situation, the weather developments or anything else. On farmers combined ratio, I mean you're right the farmers combined ratio is a 95, despite a pretty heavy Cat second quarter, despite that we're still a 95. So, I think the combined ratio issue of farmers is fully resolved, and farmers will keep running the portfolio of the business below 100, which gives space now also to start growing the business. And also they started already thinking about how to grow the PIF, California has turned itself very quickly. And we're confident again to be profitable in California this year already, which is an impressive achievement considering the history we had there. And considering the amount of the gap we had before. And this is a very important basis to start improving the PIF, because it means that in the rest of the states we can really have competitive pricing and grow the business there.
William Hawkins: Excellent, thank you.
Claudia Cordioli: If I may, coming back to your question on crop William, so we've seen a reduction in terms of cross premium rate of nearly $400 million, and but that does not compare to $1.2 billion of revenues. We were about $2.5 billion last year for the first half so that's the magnitude. So it's very material, but obviously concentrated on the first half of the year.
Mario Greco: I remember that the piece of it is deliberate, because we can't do business that we do not want to have. And then, there is a piece of it, which is commodity prices and that's roughly in the $100 million ballpark.
Claudia Cordioli: And we expected to have a positive impact on the bottom line, which is to add on the farmers combined ratio. I mean, don't forget that part of the improvement on the combined ratio, is not just driven by the top line and what they've been doing on catastrophe exposure, which is notable and significant. But also the expense run rate that the team has been taking out that's very significant. So that's there to stay that doesn't come back.
William Hawkins: Excellent news, thank you.
Operator: The next question comes from the line of James Shuck with Citi. Please go ahead.
James Shuck: Thank you and good afternoon. Without taking away from the progress made at farmers I'm still a little bit kind of surprised by the level of Nat Cats in Q2, so 22 points. So I know you've done a lot of work focusing on the footprint, and trying to rain that number in. Is that just a timing issue? I mean we're still waiting for things to be re-underwritten and the Nat Cat exposure to be rebased down. And I guess I asked this on the last call as well, but what is a normal level of Nat Cats that you would expect of farmers going forward. And then secondly on, just in terms of the CrowdStrike (NASDAQ:CRWD) outage I appreciate you don't have much cyber exposure directly, but just keen to know what kind of impact that might have on your travel business please? Thank you.
Mario Greco: Yes. Okay look James any question on what is the normal level of catastrophes is very hard to address honestly, I don't know what that is. Farmers says that cats are roughly 20% of their cat exposures already, or by year-end they will just be a 20% cat. If this is not going to be enough, they will cut further as we did at Zurich. The second quarter has been heavy for everyone in the industry, so there is nothing special about farmers. And even with that there are 95% combined ratio, so they are absolutely fine. So I would say at the moment they're happy with it. And if needed they're going to do more, but I don't think at the moment that they feel more is needed. And let me also stress and again allow me to do that, that I would just want to repeat that we're making huge profits on our insurance contract with farmers. And we believe that this will be quite stable over the next years. Remember also that they cancelled geographically some of the states, which are more cat prone. So it's not just about policies, it is just geographical presence, but I hope that that is clear.
Claudia Cordioli: And I guess over time, as they obviously create room they have been creating room to invest as well and grow in other states, you will see also that that makes a change right so it will become more and more balanced, now that other states don't need to cross subsidize California effectively. So they are in a much better place than they used to be, but they are now in a phase as well where they can grow in other states, and that will be a accretive to the mix, and to the right balance that they're targeting.
Mario Greco: Right then on the outage of the past days. I mean as you said yourself its early days to draw conclusions on it. From what we see in our portfolio we don't have any kind of significant exposure travel included. This I mean cyber, is not a portion a significant portion of our portfolio, neither is something that we like to offer to customers, and similarly for travel. We typically issue travel services, but we don't ensure travel it's a different concept. So don't believe that this is going to be any significant for us, but it's very early days. And we know that, we know companies that are still in remediation. So they haven't yet figured out, the impact of that and the cost of it. But I don't expect, to come back to any of you saying that, we have a big impact from that that kind of claims.
James Shuck: Right. That's very helpful. Thank you.
Mario Greco: Welcome.
Operator: The next question comes from the line of Vinit Malhotra, Mediobanca (OTC:MDIBY). Please go ahead.
Vinit Malhotra: Yes good afternoon Mario and Claudia. So my two questions are focused on commercial please. So one is just on the growth areas that I've mentioned by you, I mean they do look interesting, but they feel a bit like maybe it's a $2 billion out of like maybe 10% of your of the groups. So I mean, I'm just curious if these growth areas are really enough to get some more growth or you just note them here just to see where the interesting things are. And within that I'm also interested in the A&H line that you mentioned and, because when you see various other industry article we see this some claims inflation and health protections and those kind of things. So I'm just curious if the profits are also commensurate with this growth in the A&H. And then my second question very quick check, really I mean we've heard the optimistic and positive - comments around commercial margin. I'm just curious at the moment when I see the one-edge data in your slide I think it's Slide 25 it's more flatish year-on-year ex cat is that, just because of the effects of some weather or small claims you think or this is what you intended to communicate when you say margins are holding up in commercial? Thank you.
Mario Greco: Yes, we are 60 basis points more cat events in commercial, compared with last year. And with this the margins as you said are flat, which means that the underlying margins are 60 points better with unchanged PYDs and reserve approach. I think this is a very healthy signal to us, compared with the forecast and the plan that we had that, over this three cycle commercial will soften. And you might remember discussion with many of you about will you be able to hold the commercial margins, how much it's going to be lost there. We see today, really different situation where commercial is doing very well. And actually it is expanding margins and we're reconsidering what this means for us and for our plans. That links for me also to your first question about, where are the growth opportunities. And so, for sure one thing that we're not continuing doing is taking more risk on retention that's a possibility today. We're seeing the market doing that, but that will mean also reopening possible volatility issues in our P&L, and we don't want to do that. However, profitable that can be. It's a new scenario to be honest, because up to probably six months ago we've been looking at the market try to figure out when and if the soft cycle will start. And then we started understanding that at least in property, there is not going to be any soft cycle, because of the correlation with weather. And that also meant that we had to reconsider what to do, and how to deal with that. And equally, the hardening of the casualty business and the hardening of the specialty business, has opened up opportunities that now we are evaluating and assessing. I don't think that middle market A&H and E&S together are a $2 billion ballpark. I think the potential there is much higher, but this is for our next plan to figure it out. And when we will be clear on that, we will come to the market and present our plans, but it's a different ballgame than the one we thought we would be playing by this time in the cycle. On A&H look age is a combination of many different things. There are things which are risky and of questionable profitability. And there are parts of the business, which are very good and solid and sustainable. So, we think we're playing with so far with excellent returns in these good parts of the business, and we'll continue playing there. But again take it as a commitment that we're working on it. We're working on how and how much to be able to grow this business in the next years, and when we will be ready we'll come out with our plans for it.
Vinit Malhotra: Okay. Thank you.
Mario Greco: You're welcome.
Operator: The next question come from the line of Dominic O'Mahony, BNP Paribas (OTC:BNPQY). Please go ahead.
Dominic O'Mahony: Okay. Thanks for taking the questions. I've only got two relatively detailed ones remaining one was just on life, and a strong result here. And when you set the guidance that you've achieved operating profit at least in line with the prior year, had you already anticipated the either the German right back the $50 million that the [indiscernible] slide. And all the strong experience a result, I think it was about $100 million as - of strong experience in the period, really trying to work out whether that was already in your line of sight when you set that guidance or not?
Mario Greco: Yes.
Dominic O'Mahony: Okay. Very good. And then just secondly just on group functions clearly lower than most of us are expecting than the prior year I believe. At the same time your guidance for the full year is unchanged. Just can you help us understand the phasing there, it's obviously suggesting quite a different balance to H1 and H2. I just like to understand what's driving that and how it might help us understand how that segment performs in the future?
Mario Greco: I believe there are there is a positive impact from the financial markets, and the cost of debt, which is impacting these numbers. So if you look at the head office structure and the cost of it is a few million slower, but not a big change it's just a few million slower. The rest of the benefit it is, because the cost of debt and the financial costs are lower than they were a year ago.
Claudia Cordioli: And possibly also the phasing on some expenses Dominic, so I would not extrapolate anything there. And then the guidance we gave in the past. With respect maybe to the first point on life on the positive experience, this is something that in a book of this kind you would see that there's nothing exceptional there. We knew about the German legacy book, when we gave the guidance. And there's also some impact coming from a fix that goes the other way around. So it's an extent of volatility and operational experience that that we would see also going forward, but we would expect it to be rather on the positive side.
Dominic O'Mahony: Very good. Thank you.
Mario Greco: You're welcome.
Operator: The next question is from Will Hardcastle, UBS. Please go ahead.
Will Hardcastle: Hi there, afternoon. I guess it's been quite a long time since we've had to consider and think about SST really being any sort of binder constraints for Zurich. I'm sure we're still miles off, but in the context of the interest rate fall and your sensitivity. Can you just remind us at what point you'd start having to at least consider it, when considering excess capital distributions to shareholders beyond the regular dividends or growth assumptions? Thanks.
Mario Greco: Oh well, I don't think for us this is linked to SST, this is more linked to cash. We distribute excess capital when we have, or when we feel we're sitting on extra cash. SST as you said it's not a binding constraint, and also SST is notional capital. And even if we have it, but we don't have available cash we won't be able to distribute it. So for us - how much to distribute in dividends, how much else to distribute in other forms. It's very much cash prudent, and as you saw last year after we sold the Farmers New World Life, which was a way to transform excess capital into cash. Then we launched a buyback to intercede to this free extra cash back to shareholders. But it's not SST driven it's a cash driven.
Claudia Cordioli: Just for the avoidance of doubt, we're doing very well on cash remittances yes, but there's no sign of anything constraining us there. But as you've also seen with the acquisitions that we've recently made with the growth of the business that we are confident that we find great opportunities for us to grow the business profitably. So that's the way for us, to deploy capital at the moment. But in terms of cash remittances we are - as we just said we're on the path to exceed all of our targets including that.
Will Hardcastle: Okay. Thank you.
Mario Greco: You're welcome.
Operator: Today's last question comes from the liner of Michael Huttner, Berenberg has a follow-up. Please go ahead.
Michael Huttner: Thank you very much. It's just a bit of maybe clarification on the farmers policy count story, which I guess uh would be lovely may - could you give an idea of timing when we might see a positive here. I think in H1 it was minus 5% and that's my only question?
Mario Greco: And Michael, I think timing we stick to what we said is next year, because this year they're still losing policies that have been cancelled, through last year. Take for example the decision to abandon some U.S. states that was implemented between H1 and the end of the year last year. So the loss of the policies will continue up until the end. And so, they're already growing the business. But until you see a net policy in forced growth, we have to stop bleeding policies out for cancellations. And this is only going to happen during next year, it's not possible for this year, because the policy that they're losing are still quite big numbers.
Michael Huttner: Very clear. Thank you.
Mario Greco: Sorry and again just for the sake of clarity, they are already growing the business and they're already growing the agency counts, and the policy counts. But they have been abandoning entire states of U.S. or canceling pieces of portfolio. And so, what you refer to is a net number, and before this net number, becomes for this net number to become positive. We need to stop the cancellation to finish seeing this cancellation impacting the portfolio, which is going to happen next year.
Michael Huttner: So my wish and it's not a question when I think 21st of November maybe you'll have a like-for-like policy count. I know these are strange numbers, but then we can start dreaming a bit?
Mario Greco: What would you mean like-for-like so excluding the cancellation?
Michael Huttner: Yes, yes, yes.
Mario Greco: Okay. We can think about that.
Michael Huttner: Thank you so much. Thank you.
Mario Greco: [technical difficulty] I can come clear it in February, with an answer for this.
Michael Huttner: Lovely. Thank you.
Operator: Ladies and gentlemen that was the last question. I would like to turn the conference back over to Mr. Hocking for any closing remarks.
Jon Hocking: Thank you everyone for dialing in. If you've got any outstanding questions then please get in touch with the IR team. Thank you.
Operator: Ladies and gentlemen the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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