Zurich Ins Group S/Adr

Ladies and gentlemen, welcome to the Zurich Insurance Group Q3 Results 2020 conference call. I am Alessandro, TICOR's 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. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Richard Burden, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.

Good morning and good afternoon, everybody. Welcome to Zurich Insurance Group's third quarter 2020 Q&A call. On the call today is our Group CEO, Mario Greco, and our Group CFO, George Quinn. As usual for the Q&A sessions, we kindly ask you to keep to a maximum of two questions. But before we start the Q&A, as usual with the Q3, George will make a few introductory remarks before going on to your questions. George, I'll pass over to you.

Yeah, thanks, Richard. And good afternoon, good morning to everyone. I mean, over the third quarter, the group overall has successfully managed what have been a series of unprecedented challenges related to COVID-19. Not only that, but a global recession and, of course, a record number of hurricanes making landfall in the U.S. We've continued to deliver strong growth in property and casualty. That's driven by commercial insurance, but we've also seen our life business return to growth in Q3. And the P&C business pricing momentum in commercial remains strong both in North America and in other regions. And we expect this to continue through the remainder of this year and into next, which will support further improvement in the underlying accident year loss ratios. Our balance sheet remains very strong with our conservatively calibrated ZECM solvency returning to the midpoint of the 100 to 120% target range. Over time, we think the ZECM has served us Well, it's informed our decision to move away from interest rate sensitive life business already over a decade ago. Having said that, the high level of calibration and conservative assumptions that underpin the model, I think we believe cause unnecessary uncertainty. Therefore, we intend to change reporting from the fourth quarter to focus on the Swiss solvency test ratio. It's obviously still conservative, but it's much more aligned to metrics that you see reported by peers. From a COVID-19 perspective, you'll have seen already today that we've reported claims net of the associated frequency benefits at an unchanged level since the end of the first half at $450 million. And I think, as you know, from early in the crisis, we've worked Hard to further clarify wordings as policies renew and today I'm happy and I'm confident that we only have limited exposure to any new developments in the pandemic. The combination of a flexible and resilient business model and the increasingly evident answer of higher commercial pricing gives me great confidence that we will emerge strongly from this year's disruption. and be in a strong position to take advantage of new opportunities as they present themselves. I'm now happy to take questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. Once you register, an operator will be with you and will ask for your name. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question or comment may press star and one at this time. The first question comes from John Hawking from Morgan Stanley. Please go ahead.

Thank you. Good afternoon, everybody. I've got two questions, please. Looking at the rate momentum, particularly in the North America business, can you give a little bit of colour in terms of what you're seeing, so 3Q and 2Q and how that might be impacted by the types of mines that you're seeing renewals in, in the two quarters? That's the sort of first question. And secondly, on farmers, obviously the top line has been impacted by what's been going on in the world and also the rebates. How confident are you that once we get through this difficult period that we're going to see the top line go back to normal growth trends at farmers? Thank you.

Yeah, thanks, John. So on P&C pricing, so you see the overall headline numbers today and things have not slowed down in Q3. If you look at the key commercial markets, which are the main drivers for us, if I picked out North America in the overall picture, would be pretty much exactly the same thing to the first decimal point. Within that, there's been a wee bit of movement. So you see property is, we see property at roughly the same level. We would say that liability is actually progressively again in the rate environment in Q3 compared to Q2. Motor slightly down compared to Q2, but obviously property and liability dominate the book. I think we still expect this to continue. You've seen some of it come through the top line in the course of this year, but obviously not a huge amount yet. you'll see more of it next year. And I think if we look at the growth rates that we're reporting today, and we look at the plans that we have for next year, I mean, you will see a pickup in growth. I think I said back at the half year that, I mean, with currency, we thought that maybe the headline number would be flat through the year, maybe underlying up to, I think we're going to be a bit stronger than that before we get to the end of the year. and will be stronger than that again next year. On farmers, I mean, there's clearly still work to be done. I mean, obviously they do... Can you still hear me? You cut out at the beginning of the farmer's piece, George. Yeah, sorry. So I was just saying that there are two more pandemic-related topics in the farmer's number. I mean, that's a common... Can you still hear me now, John?

Yeah, I can hear you. You're cutting in and out, but I can hear you now.

Yeah, sorry, I've got a wee bit of technology trouble. So, farmers, obviously, they have the £311 million that we reported in the first half, which is the return of frequency benefit. They've got the impact of the commercial ride share. I mean, they are still failing rate, but at a lower level than we've seen in prior years, so that will have some positive impact. But the main focus, both at the exchange and in the conversations that we have with them, is trying to grow that policy kind of footprint because that's crucial for growth for next year. I mean, we've seen some early positive signs over the course of the last couple of months. I think it's, it's obviously way too early to declare a victory. Um, but it's that policy count, uh, growth topic that we're completely focused on and working through the management company to try and support the exchange and, uh, delivering that, um, But pharma has more work to do. Excellent, thank you.

The next question comes from Andrew Ritchie from Autonomous. Please go ahead.

Oh, hi there. Hi there, George. The question, obviously I'm aware of the large losses in Q3, but I wonder if you could just give us a commentary on the underlying more attritional loss type trend you're seeing. I mean, you strengthened slightly some of the loss picks on liability in the US in the first half. I just wonder, I mean, clearly it's hard to judge what's going on in the underlying loss environment, but do you have any updated view on underlying loss trends in some of the sensitive areas? And again, whether indeed pricing is still for sure well above any loss trend? That's the first question. The second question, from a life outlook, there was a degree of confidence expressed in the sort of recovery in profitability in the second half of the half year. What's your latest thoughts on that? I mean, in particular, I guess one area that's come to light additionally since the first half is Australia disability income, and I don't know if that's impacting your outlook in aggregate. Thanks.

Yeah, so I think on the... So starting with what we're seeing currently in terms of technical profitability, I mean, trends ex-COVID, ex-CAT are very similar to the ones we saw in the first half of the year. So, I mean, obviously you saw that improvement and we're seeing that significant price trend net of the impact of lost cost inflation feed into our underlying performance. So when we get to the end of the year, I would expect to see report a set of numbers that would be completely in line with the commentary you're hearing around price. On lost cost trends, I mean, our view is not different today. I mean, it can bump around a bit, but I mean, overall, from a pricing perspective or the lost cost elements we add into pricing, if we look at it on a basis that we think is more consistent with the USPS, I mean, we see it around five I think I gave some commentary at the half. Of course, there's a wide range of actual assumptions per line of business, with XSGL being the standout. And I think from all the reviews that we've done, I mean, I think we're happy that what we've done addresses the social inflation trends. On the life outlook, recovery and profitability, so We said before that the second half, the results will be second half weighted principally because of what we're doing in Australia. That continues to be true. So we haven't seen anything in the Australia market that is different from what we've expected. And in fact, I'd say that if you are asking me today, but if I compare how we see things today to how we saw them in the first half, I mean, we're now through a round of, price change on the DI market. We've seen some, again, over the recent months, some good performance from the business following that. You will see, I expect, what we've indicated in the second half, and that's a significant contribution from the Australian life business, mainly because of what we're doing in repricing. It obviously helps that the entire market It's doing the same thing. So, I mean, it creates, I mean, a very positive trend. And my guess at this stage is that probably that trend of increasing prices is not over yet on the DI side of the Australian life market. Great. Thank you.

The next question comes from Peter Elliott from Kettering. Please go ahead.

Thank you very much. I had two on the ZECM, please. I mean, the first one, I mean, you've always been very clear on your guidance for your target range under the ZECM ratio. I mean, now you're moving to SST being the primary reporting metric. I guess the obvious question is, you know, what sort of target range you have in mind there? How should we sort of think about that? And then the second question is, I understand there were some modeling changes this quarter to get you sort of closer to the sort of SST framework. Just wondering if you could quantify what the sort of impact of modeling changes was on the ZDTM number you reported this quarter. Thank you.

Yeah, thanks, Peter. So on the first one, If you allow us, we'll come with the target range in February when we switch to SST. I mean, we have done the work to try and calibrate it in a way that we think is consistent with what we do on JDCM. We've also looked at what other people do in terms of the ranges they give. I don't think we're going to surprise anyone. I think the the range will be very familiar when you compare it to what you would typically see from similar players in the European context. But that's something we'll formally bring forward in February. From a modelling change perspective, I mean, really worth saying, first of all, that the vast majority of The change that we've seen on ZDTM is driven by market or market-related movements in the quarter. Obviously, credit and equity generally have been very positive, maybe slight offset with what's happened on interest rates. There are two relatively small adjustments we've made. One is around how we look at reserving for non-life. We've made that consistent. between ZECM and SST. And there's also a small update on the life replicating portfolio in the quarter. But the vast bulk of the change is all driven by markets, which I think is what you'd expect.

Okay, that's great. Thank you. If I could just come back very quickly on the first point. I mean, I guess your main European peers look at Solvency 2 rather than SST 2. so you're not sort of quite comparing apples with apples when we sort of look at their target ranges. I mean, there's probably not a lot you can say on that, but I guess your business profile is different as well, so I guess we'll wait until February.

It's a good point, but I think we've, I mean, there's only so much that we can do to make the thing comparable. I mean, we're not going to go through the full scale solvency to exercise, and it's not relevant for us anyway because of how the regulatory system works. And I guess if we were very mathematically precise, you would end up with a different target range if you were trying to be consistent with European peers, given that SST is, we think, a more conservative measure of solvency. Having said that, I think that would be confusing for people if we did that. So it would be our intention simply to except the fact that this particular model is a bit more conservative. I think most people who know us well have an understanding of roughly the kind of range of conservatism that's in there. But we'll reflect a target range that's pretty consistent with what you'll see from other peers. So again, we won't surprise you by, say, bringing a lower target range because the thing is more conservative. We won't do that. We'll stay consistent with the others.

Okay, great. Thank you very much.

The next question comes from . Please go ahead.

Yeah, hi. Thank you very much. I hope you're well. Just on the ZECM, you're still going to be obviously using it internally to drive your economic thinking, but by not telling us what the number is, you know, we'll get less frightened when this thing falls below 100 and start asking questions on calls and stuff. So it does give you more leeway in the public sphere to do things that you might not otherwise do. And one area presumably would be interest rate risk and asset risk. So I was wondering if you'd comment on that, whether that's something that, in my view, would be a good thing to align you with others, what your thoughts are on having that leeway. And then secondly, on... kind of underlying combined ratio picture. So if we take the sort of 450 net number, which presumably hasn't changed since 1H, so you're kind of running at a 96% combined ratio in the first half, I'm guessing, with some additional kind of reserving. Just wondering what your thoughts are on underlying combined ratio. And then if we start thinking about next year, I mean – The numbers are astronomical here in terms of claims inflation versus pricing versus mix change, and it's just lots of big numbers. If you can give us some sort of thoughts to help us with our modeling, that would be great on the underlying combined ratio for 2021. Thank you.

Yeah, okay. Thanks, honey. So on the ZECM topic, I think, I mean, again, we'll do more of it in February, so we'll bring forward the our view of the target capital ranges. I mentioned earlier to Peter that you expect that to be pretty much in line with what you've seen elsewhere. We've had some significant conversation internally. What does that mean? Are we still operating ZECM somehow in the background but not showing it to you? And I think the way we've agreed to do this is that, I mean, SST will become the prime measure for the company. So it will be... it will make us certainly more consistent for the reasons that you're all well aware of. It won't make us entirely consistent with the Solvency 2 reporters, but I think it's good enough for government work. I think the thing to bear in mind, though, is that we have a number of corporate finance measures that we need to manage day in, day out. So even though we don't talk about S&P a great deal today, it's obviously a a thing we think about a lot. We've got stress liquidity models. We've got other capital models. All of these things have to be factored into the decision making. I think also, I mean, you could think of ZECM as something that was kind of given to us and we all adopted it. I think, I mean, obviously it makes far more sense if you see it the other way around. I mean, ZECM was a development of, I guess, the the way the company and the people who run the company think about risk. And even if we no longer have ZEC in the future, I don't think you'll see any significant change in how we perceive certain types of risk. And I think in particular on the interest rate topic, I mean, that decision that we've talked about a lot about 10 years ago, in fact, more already to deprioritize the more interest-sensitive guarantee product I mean, I wasn't around, but I'd be surprised if it was only ZECM that drove that decision. I think it was the thinking of the people around the table. I mean, we can take ZECM out of the mix, but I don't think it changes the perceptions that most of the key management team have about risk and how we should deploy our capital. But we will use SST as the prime measure going forward. On what's happening underlying I mean it's actually an easier conversation to have in February because I mean both for you and from Andrew's comment earlier I can actually show you some numbers I can show you the improvement and we can talk about what that means when you then roll that forward into next year but I mean we expect to see a significant continuing improvement in technical profitability the margins improvement, the difference between the headline price and the underlying loss cost inflation is obviously more than sufficient to offset other factors, for example, lower interest rates. So we do expect to see a continued improvement in the overall economics of the commercial part of our P&C business. But it'll be easier for me to do that in detail when we come back next year. I think, I mean, just to give you one jumping off point, I mean, we did talk at the The half-year call, I mean, we saw about seven-tenths of a combined ratio or a loss ratio improvement. If you take out the excess cats from COVID and other things, so we saw ourselves towards the bottom end of the 95, 96 range. I would expect that that probably improves again before the end of the year. And that gives us a starting point for next year, which we'd expect to improve upon for that.

Okay, that's extremely clear. Thank you.

The next question comes from Hossein Kamran from RBC Capital Markets. Please go ahead.

Hi, George. It's Kamran Hossein. Yeah, hi, Kamran. It's not the first time I've been called Hossein. Yeah, I'll bet. Two questions on P&C. The first one is, I guess, brilliant rate rises this year. But what, you know, looking to next year, do you think premium growth will begin to match or exceed rate rises? If I look at the jaws between race and P&C growth, the jaws actually seem to be widening as the year goes on. So any thoughts on that for next year? And the second question is just on COVID claims. how's your degree of confidence in your estimates or has it changed over the year? Are you more confident now? Do you have any numbers on kind of IVNR to total COVID reserves and maybe how that's moved as the year's gone on? Thank you.

Yeah.

Okay. So on the first one, so if you're low for the science, I mean, the figures I gave earlier, I mentioned the 18 and 16 for commercial in US and in Europe. If you allow for the fact that commercial is about half of the book overall, you allow for the underlying loss cost inflation. I mean, that means you'll see about half of the headline number come through as growth. You will start to see a much higher growth rate next year. I mean, I would allow for us to do things around the portfolio to try and improve some of the characteristics. And one of the things we talked about already before is For example, from a credit perspective, this feels like a good point at which to think about starting to rein in capacity. I don't think you'll see precisely 50% of the headline number, but you'll see it get much closer next year. So you should see a significant growth rate. in the P&C business overall, and certainly far more significant than you've seen this year. COVID claims. So, I mean, I mean, there's a there's a I guess a psychological thing around the COVID topic around, I mean, can you feel incredibly confident? And then there's a mathematical thing. We've been running this process since about March. And the components have moved around a bit, but the totality of what we've reported, I mean, hasn't changed significantly. We reported today that the net number is in the same territory. We've looked at the risk. that we have from what's taking place now in Europe and whether that might drive the possibility of another significant loss. And when we run the models, we don't see that outcome. And of course, that's a combination of the exact circumstances of what's taking place now, but actually more importantly, the fact that some of the things that gave rise to claims before, the limits are exhausted or the contracts are renewed on a different basis. um so i mean it's not that we have zero additional risk but when i look at the what the scenarios tell me i mean maybe we could have a large property loss um equivalent um so i mean well i wouldn't say that we don't pay attention to and we're not careful around it it's not a major source of concern for us i mean we think that we have the COVID topic more or less actually behind us at this stage. And from an IBNR perspective, I think I said at the half year that about half was IBNR. Believe it or not, that continues to be true today.

Thanks, George. That's very helpful.

The next question comes from Nick Holmes from Societe Generale. Please go ahead.

Oh, hi there. Thank you very much. Two questions. The first is with business interruption. Do you have any concerns left about adverse legal rulings or do you think we can now basically draw a line under that issue? And secondly, with the dividend, is there any concern you have that the Swiss regulator might try to copy the French and Italians and become a little bit stricter? Thanks very much.

Yeah, thanks, Nick. So on the BI topic, so risk of adverse legal rulings, I think if we look at all the exposures that are out there, I don't think that we have a view that we have any particular material risks out there. I mean, certainly there's always a risk that in one particular action or in one particular court case, you can lose. But, I mean, the trends that we've seen have tended to be fairly favourable to the insurers. And if you look at, I mean, the US as the main example, I mean, the wordings, the exclusions have generally held up well there. I think the FCA in London has been the exception so far, although I would point out that certainly on our own wording, our position was upheld So I wouldn't be surprised if along the way, and by along the way, I mean probably over the next year or even longer, we do from time to time see something go against either Zurich or the industry at large. From what we can see in terms of what that would mean financially, I mean, there's nothing that's particularly troubling me at this point. I mean, we have a good estimate. we certainly have some residual risk, but the residual risk is a very small proportion of what we've seen in the first wave. So I guess I'm as confident as you can be around something that you don't control like a legal topic. From a dividend perspective, sorry, Nick. So from a dividend perspective, I mean, just from a general regulatory perspective, I mean, I think we benefited from the fact that FINMA took a facts and circumstances approach to the payment of dividends last year. So FINMA asked that all the financial institutions, including the insurance companies, take a look at stress scenarios and form a view of those risks prior to the payment of dividends. I mean, we did that, but you've already seen that that led to the same decision as the one that was taken initially. I mean, I'd be confident that FINMA is likely to do something, although, I mean, it will partly depend on the circumstances that we find ourselves in in January and February of next year. But, I mean, the most important thing that we can do is make sure the company's well capitalised, make sure that we've got the cash in the right places, make sure we deliver the performance underlying that We've committed to, and I think at that point, we've done everything that we can. I think the positive thing is that, I mean, FINMA's demonstrated that they're a pretty consistent organisation. They have conducted stress tests over the course of the year. So I think they're well informed in terms of where the industry stands and where the individual companies. So while I can't tie their hands, I'm pretty confident that FINMA will continue to look at it case by case rather than take a very broad brush approach, which for me personally doesn't make sense.

That's great. That's very clear. Thank you very much.

The next question comes from Vinit Malhotra from Mediobanca. Please go ahead.

Yes, good afternoon, George. My two questions. The first one would be, just looking at the sales figures in LATAM, raises the question for me that in the light, we saw what I can see at 22% growth. And in non-light, we still see compression. And in non-light, it's mentioned the mass consumer business. Is this just a little bit contradictory? And if you could just comment on in the LATAM business. So that's just the first question, please. Second question is, with the pickup in US tenure, the reinvestment yield could it provide us an update? And do you think this is going to be a topic for next year's pricing or if any other significance that you can point out to? Thank you.

Yeah, thanks, Vinik. So I think in LATAM, it's obviously we're in different channels so that has some impact so the the life growth that you've seen has been driven by a a very strong recovery from the the joint venture with santander so i think between the the zurich team and the santander team and the various countries down there they've done a great job and finding ways to to bring that growth back um it's not the first time we've seen that from them so I'm not surprised that they've again demonstrated a really superior sales capability. I think the challenge on the P&C side is, I mean, we're more mass consumer. um it's typically not um it's not always linked to the same things that cause you to interact in a branch or with a bank cash machine where you can't actually buy actually um zurich santander product in latin america i mean it's typically much more connected to mass consumer brown white good sales. I think that's been a bit harder to try and find ways to bring back. But from what we see the partners do, I think we feel confident you'll start to see that growth coming back. It's just taken a bit longer. And I think the circumstances for the retailers is maybe slightly more challenging than it has been for the banks. I think that's part of why you see this the slight lag on the P&C side versus the LIFE side. On the 10-year rate, so obviously the increase in the 10 years, it's a relatively recent phenomenon, so we haven't tried to update the numbers this week to precisely model what the impact of that is going to be. I mean, obviously, I can see the reinvestment rates that we've run at in the P&C business through Q3. I think year to day it hasn't really changed significantly from what you saw at the half year. I think I'd make the point that we're not a highly interest rate sensitive business. So if we do see in the US market interest rates pick up, that does allow some room to except a slightly lower technical margin, but yet achieve the same overall economics. I think, in my experience, there tends to be a bit of a lag. So I think, actually, if we see a sustained pickup in the 10-year, there's probably a period where that actually gives a bigger benefit to the insurers. It won't last forever, and the market will eventually correct. But if we do see a sustained pickup, I think that will actually work in our favor in the short term. And from a longer term perspective, I don't think it changes that much. The key drivers are the other things we've discussed at this point. Thanks very much.

The next question comes from Edward Morris from JP Morgan. Please go ahead.

Oh, hi, everyone. Thank you for taking my question. The first one just relates to the targets that you outlined around a year ago at the Investor Day. I think it's fair to say that this year hasn't quite panned out as expected, but I just wondered if you could update on how you're thinking about these targets over the 2020 to 22 period. We've got ROE, cash remittances, organic EPS growth. We'd be calibrating our expectations around 2022 now. And I'm just interested in your thoughts on your ability to deliver them for next year and then in 2022. And then second question, I mean, thank you. You've already given quite comprehensive comments on how you think the regulator will think about the dividend. I wonder if you could just provide a few more thoughts on your own view of the prospects for dividend growth this year. Obviously, earnings are a little lower than maybe expected. I'm conscious that the Swiss franc means that the dollar cost of your dividend has increased this year. And it feels that some others in the sector are going to be minded towards holding a flat dividend. So I just wondered if you had any thoughts on how you're likely to approach that decision later on. Thank you.

Yeah, thanks, Edward. So I think on the targets, I mean, in the last target cycle, it was really important to us that every single year we take all the boxes on the targets. When we set the targets last time, I think one of the targets which was the EPS growth. I mean, I think that was always something you had to measure over the course of the three-year period, but we certainly had the same aspiration around ROE and cash remittance. Now, of course, as you point out, this is a year that we did not anticipate. I guess no one did. Having said that, we said at the half year that our expectation is that through the course of the three-year period, we can deliver the targets that we've committed to. That's ROE, that's cash remittance, and that's the earnings per share growth that we introduced just over a year ago, or just about a year ago. So if I think of next year, I mean, I'm not going to try and qualify them all. I think on the ROE side of things, I expect a significant bounce back. I don't necessarily anticipate at this stage that the the pandemic topics continue to have a significant impact into next year, other than the change in the expectation of what's going to drive the group's performance, i.e. something that's maybe a bit less retail oriented and a bit more commercially driven. From a cash remittance perspective, I mean, I guess it's pretty clear that we're going to be below run rates this year. I mean, next year at the very start of the year, there will still be some impact from financial markets related topics to COVID or actual COVID claims. But over the course of the year, I mean, I'd expect to start to see us come back in line with the run rate. And I mean, we've been looking at it very recently. So our expectation is that by the end of the three-year period, we will achieve at least the commitment we've made of $11.5 billion of cash remittance. Earnings growth, obviously this year is going to be significantly disturbed. It creates a new basis into next year, so Well, I'm not going to make any promise. All things being equal, you would expect to see a much higher growth rate. But of course, it's the start to end picture that's most important. And all of what we currently do is aimed at making sure that we can drive out that performance that we committed to. So if you think of each of those three things in that context, With those comments around timing, we are committed to the targets that we gave last year. We're not revising them. On the dividend topic, it's tempting, but I'm going to resist the temptation to start to give you my views. I think all I can say at this stage is we have a policy. You guys have seen us operate this policy for the last three some years within that period. We've had some volatility, so you've got a guide into how we think about that topic there. My expectation is we have a policy and we're going to apply that policy. At this point, I can't say more than that.

Okay, that's understood. Thank you.

As a reminder, if you wish to register for a question or a comment, please press star and 1. The next question comes from Michael Hutner from Berenberg. Please go ahead.

Oh, fantastic. Thank you, George. Two questions. One is on U.S. tax. And if – because I seem to remember last time when the tax rate dropped, it impacted your emittance from the U.S. a little bit, not much, but a little bit. Mm-hmm. And the second one would be on the combined ratio. Your comments today seem much more positive than half-year. They were already a bit strong at half-year, but I'm kind of guessing 94.5 underlying this year. And at the half-year, I seem to remember you were kind of pushing away, pushing back to thinking that maybe we could reach 93% or below at some stage in the foreseeable future. But it sounds like this is actually – something you're beginning to think. Is that a fair comment? And have you built kind of reserves using all these frequency benefits which would allow you to do that?

Thank you. Thank you, Michael. So first of all, on U.S. tax, obviously we don't know what will happen on tax rate yet, but maybe just a helpful reminder to everyone that about half of the profitability comes from the US so therefore for each one additional point or change of one point on the tax rate you can expect about a half point change on the group's tax rate from a remittance perspective I get I mean appreciating that I don't know what will come the The impact on remittance last time came from some of the additional things beyond the actual change in rate, in particular the so-called BEAT tax. I have no idea what will happen with that. If I just assume it will stay in place and doesn't become more onerous, I wouldn't expect other than the incremental tax costs that you'd see any significant impact on US remittances back to the group but I mean obviously it's very early stages that there are only very high level proposals it's not even clear that majorities exist in the right parts of the US legislative process to actually push through some of these things but I think the only guide I can really give you at this point is for every 1% move or change in the rate that the US would enact, you can expect about a half point change on the group. On the combined ratio, so first of all, I apologize. I'm gonna resist the temptation to go along with some of your forecasts about the future. Maybe just to reiterate some of what I said earlier. I said we were towards the bottom end of the 95-96 range. I expect to see further improvement through the second half of the year on an ex-cat basis. Again, I think without the ending point for this year and a a revised view or an updated view of what's happening on price, it would be a bit mad for me to give you forecasts today. The one thing that's clear to me, and I can see it in the numbers, XCAT accident year performance continues to improve, which is exactly what you'd expect to see given the rate environment that we're currently in.

Just a quick follow-up, and I know you answered Ed's question very fully, but You kind of indicated, or maybe I misunderstood, that adjusted for interest rates, you know, you're still improving. The profitability in P&C is improving. Surely that would mean that you'll beat your targets now rather than be in line, particularly the ROE target?

So you need to think of what's taking place on the technical side, i.e., the the margin improvement in the context of the duration of the asset. So, on the P&C business, we've got about a five-year duration. You need to increase it to a level that at least offsets. And I think the point I made earlier was that we're actually above that point today. But you have to hold on to it for five years to achieve that outperformance over the period. I certainly have a certain visibility into the future, but I'm not sure I'd be yet ready to give you a view that far out. But certainly at the moment, what we're seeing is more positive. I mean, I think one thing to keep in mind, though, Michael, I think we said earlier in the year that, I mean, commercial is certainly much stronger than we had allowed for in the targets that we established at the investor day back in November last year. But having said that, we need that strength because life will not be quite as strong and farmers will not be quite as strong as the underlying assumptions that we had when we put those targets together. So we not only need that higher rate to help us with the investment income challenge, it's also going to help us with some of the pressure that I think you're generally seeing around the retail side of the business. So our commitment is that we'll deliver the targets that we signed up to. A year ago, I can't promise we're going to do better than that.

That's brilliant. Thank you so much. And thank you for your very full and kind answer. Thank you.

The last question for today is a follow-up question from Peter Elliott from Caprash River. Please go ahead.

Thank you very much for letting me come back, George. Just, I mean, I guess... with a backdrop of, you know, a company that obviously you looked at a few years ago now being bought. I mean, a lot of things have changed since then. And, you know, you've acquired many things yourselves in that time. I'm just wondering if I could give you an opportunity to remind us of how your thinking on M&A has evolved over the timeframe and how your sort of priorities might have changed and, Yeah, whether post-COVID world, there might be some opportunities or any general comments you might be able to make on that outlook.

Yeah, thanks, Peter. Richard was telling me that we're coming to the end of the Q&A, so I was hoping that I would avoid this question. Yeah. So, I mean, you're absolutely right. There are things being bought. I appreciate the way you phrased that. I mean, I think for us, our approach to M&A has been, I mean, I think it's well signalled that the types of things that we do, the things we've done in the past are a pretty good guide to what we think about in the future. So it tends to be. in market focused where we're not dealing with large multi-market integration topics I don't think our philosophy is necessarily going to change in general that's what's pretty well for us and I think from our perspective there's no reason to change that I will add the normal disclaimer though that I mean the responses that I gave to Michael earlier about the targets that we have for the three-year period, they're entirely organic. They don't require us or rely on us doing M&A at any point in the cycle. So there's no pressure or driver to do that. But of course, if the right opportunity emerges, it would help us get to one of our strategic priorities a bit quicker and the price is right, then of course we would take a look. But there's no change in the way that we think about it compared to what you've seen from us over the course of the last several years.

Great. Thanks very much.

Thank you. I think that was our last question. So thank you very much, everybody, for dialing in today. Obviously, if there are further questions, the investor relations team is available So please do not hesitate to reach out to us. Otherwise, stay safe and have a very good afternoon or day.

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