Zurich Ins Group S/Adr

Ladies and gentlemen, welcome to the Zurich Insurance Group Q3 Results 2022 conference call. I'm Andrei, the chorus call operator. I would like to remind you that all participants will be in this and 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 one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. George Hawking, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.

Thank you. Good afternoon, everybody, and welcome to Zurich Insurance Group's nine-month 2022 Q&A call. On the call today is our Group CFO, George Quinn. Before I hand over to George for some introductory remarks, just a reminder for Q&A, if you could please keep to a maximum of two questions, that would be appreciated.

George. John, thank you. And good morning and good afternoon to all of you. So before we start the Q&A, I just want to make a few opening remarks. As you've seen from this morning's press release, the group is on track to exceed its strategic and financial targets for the 2020-2022 cycle. In P&C, we've grown strongly with commercial rates in excess of lost cost trends, which is something that we expect to continue into next year. North America, for example, grew by 14%, benefiting from increasing rates of 8%. In our retail business, we also observe a continuation of the trend seen in the first half, albeit the mirror image of commercial. On Hurricane Ian, the group estimates a net impact of $550 million pre-tax. This number is exposure-based, and it sits a bit below our reinsurance attachment point. Our life business continues to experience positive operating trends, and we expect original currency earnings to meet to exceed guidance. but this is likely to be offset by the combination of weaker financial markets and the strong U.S. dollar. As you know, about half of the group's total operating profit is in U.S. dollars, and this gives us an FX translation effect of about $30 to $40 million for every point of U.S. dollar appreciation. Farmers is demonstrating strong rate-driven growth, also supported by the integration of the acquired met life business and we also expect this rate environment to continue into 2023. SST ratio remains very strong. It includes the anticipated effects of the 1.8 billion Swiss franc buyback and the cash tender that we made in October, but does not yet include the positive effects of the Italian and German backbook transactions. We're all looking forward to seeing many of you in Zurich next week, as we raise the bar for our next three-year cycle of the investor day. With that, I'd be happy to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star one on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only headsets while asking questions. Anyone who has a question or a comment may press star and one at this time. The first question comes from the line of Andrew Sinclair from Bank of America. Please go ahead.

Thank you. Thank you, Desmond. The first question was looking at first for a bit more color really on the P&C pricing backdrop. Sounds like saying the market's still hard, but perhaps not quite as hard as it has been. Just really wondering if you can give some more context. How much are we seeing pricing outstripping lost cost trends today? And really, how long do you think we'll be able to continue to say we are in a nice hard market? And second question was just on farmers. Really just wondering if you can give us some colour on the pricing that farmers is achieving now and your latest thoughts on when farmers will be able to return to a positive underwriting result.

Thanks, Andy. So maybe first of all, on the pricing environment, I'll focus the comments first on commercial, then go to retail. I mean, not much has changed if you compare it to the pattern that we've seen so far this year. So, I mean, at the margin, we're seeing things moderate again a bit in Q3. There's maybe a bit more differentiation by lines of business. So if you look at the overall picture, For the nine months across the two main commercial markets, ZNA and Europe, property continues to be really strong. I mean, partly in response to that being one of the areas that's more impacted by inflation, as we see that hold up pretty well. Other property like lines like engineering also doing well, marine too. Towards the end of the quarter, financial lines shows a bit more weakness. So we've seen a dip in rate increases, particularly around D&O on the financial line side. Liability still in double-digit territory. Workers' comp still pretty flat, which is where it's been, I think, for most of the last couple of years. I think the other thing, which I don't think it's new, we've seen it already, if you look at commercial and split it by geography, European commercial is currently offering a stronger rate environment than North American commercial. So I think we're back on that moderating path that we were on earlier in the year that was somewhat flattened by the impact of inflation. On the retail side, again, I mean, not much new to see on retail. I mean, we haven't really had the opportunity to improve it. It continues to be impacted by inflation. We weren't really expecting to see an improvement in the second half of this year, and it will take until we've got into the major renewals, particularly in continental Europe, so Switzerland and Germany, for example, where we've got a fairly significant bias to January 1 to really start to see the P&C retail business turn around. So I think overall, I mean, the picture... is maybe slightly softer than it was at Q2, but the change is not particularly significant overall, at least.

How long do you think we can continue that sort of momentum for?

So I think if you look at lost cost trend, I mean, we don't see that picking up. So we still expect this to continue into next year. So there's still margin expansion to be had in the business, but there's some points, I assume somewhere around the middle of next year where I think if the current trends continue, then these two things come into balance. I think if you look at the upside and downside risks on the upside, I am more positive and longer hard market. I mean, it could be inflation that drives that. So it could keep a number of these lines higher for longer downside risk. I think in general, the commercial market has been retaining the benefit of interest rates. I don't see any signs that that's eminently about to change. But of course, if interest rates continue to rise, I would expect to see some competitive element develop at the margins around the treatment of interest rates. But I think given current patterns, somewhere in the middle of next year, Farmers pricing. So, I mean, if you look at the growth they've had, so we talked about the 11% number. You've seen the farmers exchanges reports for the nine months. I mean, that splits roughly half of that is coming from the full nine-month impact of the acquisition of MetLife P&C. And the other part of it is, I mean, roughly half of it is due to ride share business. The other half of it is due to rates. I mean, rate is really quite strong through the nine months for the exchanges. They're in double digits. The only challenge is, of course, that inflation is still pretty high. So if you look at the frequency and severity trends, I mean, frequency has come down from where we were certainly at the very beginning of the year. but severity is still very significant. So within the nine months, there's not yet a significant improvement in the underwriting performance. However, if you're tracking some of the market observers of lost cost versus premium trend, I think you can see from those observations that the industry overall looks as though it has just tipped into an improving underwriting performance. I think that will continue, I think, through all of next year. I mean, I've talked to some of you in the past about some of the things that I think the exchanges are expecting to see as we enter 2023. So I think there's quite a bit of momentum in their favor when it comes to rates. But it needs quite a bit to address the current severity issues that we see in the auto market in particular.

Superb. Thank you very much. The next question comes from the line of Andrew Ricci with Autonomous. Please go ahead.

Oh, hi there. Firstly, I wonder if you could give us a sense of the underlying underwriting experience of an online business. You've obviously mentioned the CAT experience, but I'm thinking of the underlying in terms of the attritional, also any show-ups of the current year. profitability in light of, you know, realising inflation being higher. So just some colour on the underlying would be useful. The second question on cat exposure. I mean, you mentioned that you think cat losses might be two points higher than the long-term average. Sorry, long-term trend is the language you use, which I think is the famous 3.5%. The problem is, when I look at my model over almost any long-term trend period, and it goes back 20 years, I can't find 3.5% now. It's more like 4.5% to 5%. So I'm just wondering, is there even more radical action needed on the group's property exposure in 2023? And particularly in the light of you're going to not be able to buy the same amount of reinsurance and probably much higher attaching. So is there another significant rethink going on on property exposure given the persistent overrun of any long-term trend. Thanks.

Yeah, thanks, Andrew. So on the first part, underlying, I mean, nothing really different from what you saw in the first half. So we talked about the fact that at Q2, we'd put some additional precautionary elements, particularly around primary liability. We'd put some elements around commercial auto, maybe not precautionary given the prevailing trends. I mean, no real changes to that in the second half of the year so far. I mean, we haven't... There's no evidence, from what we see at least, that from a pure attritional perspective, there's any significant shift around lost cost trend. I think, I mean, probably shortly after the first half, we were looking at crop quite hard to see where we thought the weather patterns were going to drive crop. Probably, if you'd asked me at the end of September... I'd say we were slightly concerned that the droughts might drive slightly adverse outcomes. I think from today, I think we're much more relaxed about that. So, I mean, overall, certainly in commercial, there's no real change around the trend issues that we reported in the first half of the year. And, of course, the rate commentary I've given in response to Andy's question already. On cat exposure. So, I mean, where to go with cat exposure? So, I mean, there's two parts to your question, I think. So one is, I mean, what is this number? Where do you want it to be and what are you going to do about it? And the second part is, I mean, aren't you at risk of being squeezed in the reinsurance renewal at the end of the year? So let's start with item number one. I mean, I think we were pretty open last year that, I mean, every time we open a model and close it at the moment, the number gets bigger. And for us to try and contain that increase, our aim was to reduce the incoming exposure, not with the overall aim of reducing it, but the aim of keeping it relatively consistent. And as you point out, given the frequency that we've seen, that's kept it reasonably consistent, but at a higher level than the one we were aiming for. So what are we going to do more or less than we're doing at the moment? So from an incoming perspective, we talked already last year about the fact we had a target to reduce the US exposure by about 10%. I mean, that's almost done by now. And in fact, has already had a benefit on what you've seen reported in the Hurricane Ian estimate. And in fact, if you look at us compared to market, I mean, we're lower than market share, taking the high end of the market estimates around loss. And even compared to peers, I think we are lower than some in the pack with others. So there's nothing particularly unusual about Ian itself. But having said that, I don't think it changes our view that the likely trend in all of this is up. So what more are we doing? We expect in the US to do more on the topic. So again, we expect to see them prune back some parts of the cat portfolio where they're less relevant to us from a strategic perspective. And then we extended the discipline to the entire group earlier this year for the planning process, which is for some of the businesses started to lead to activity in the second half of this year. And for others, it will start in the beginning of next year. So you're going to see us, I think, constantly at work pruning the cat portfolio to try and resist and mitigate some of the natural rise given frequency and severity. But I mean, there's a limit to how far we can go. So I think we're definitely going to push this harder, but I don't expect to do something particularly drastic from here. On the reinsurance topic, I mean, this will sound odd, but I see that as a positive, if I'm completely honest with you. I mean, we're not particularly dependent on reinsurance capacity for what we do. I think it helps the market overall if the reinsurers are providing capital at a slightly higher cost than they have been in the past. And it might be one of the things that helps maintain discipline around some of the topics, particularly around property. So, I mean, we've got our own homework to do on the incoming side. I think we've been doing it. We're going to continue to do it. And on the reinsurance side, I mean, while there's certainly a part of me that doesn't want to pay more, my head realizes that it's probably a net positive rather than a net negative.

Okay, thanks.

The next question comes from the line of Hussein Kamran from J.T. Morgan. Please go ahead.

Hey, it's Cameron Hussain from J.P. Morgan. Two questions. I was going to ask about the grocery space reduction, but you helped me answer that, George. The first one is on farmers. You talked about lower surplus there. Are there any obvious implications that we should consider, for example, kind of higher reinsurance provision by yourself? The second question is on retentions and your reinsurance. How do you look at it? kind of going back to 2016 your u.s retention on your reinsurance has been pretty low well not low but it's been pretty stable for some time um should we expect that you have kind of material increases in retention next year or do you expect you'll probably take on uh or just pay slightly higher prices just interested in kind of how you think about that dynamic thank you thanks cameron um so on the on the first one on farmers uh i mean the reinsurance market is

It's certainly a bit harder than it's been for some time, but it still feels pretty orderly to me. I mean, we've made it clear in the past that it's a preference that the exchange find the reinsurance they need in the normal reinsurance market. But however, if there is something that we need to do because something is dislocated in some way, then we would certainly consider it given the value of the relationship to us. I mean, at this point, I don't expect to be doing something particularly material. It's not inconceivable that we could support the exchange with a bit more on the old lines quota share, given where we currently stand. But again, I think from a strategic perspective, the most important comment I can make is that we're not a reinsurer. We don't intend to be in that market long term. But if there was a need to do something short term that was in our interests, then we would absolutely do that. On the retention versus pricing topic, I mean, I'm going to assume that we can't completely exclude reinsurers from the audience on this call. So I don't really want to completely explain my tactics for the renewal. I think if you look at retention across our book, I mean, it has been pretty stable on the cat towers, but we've never touched a cat tower before. So, I mean, it's up there for a reason and it keeps the risk, I think, fairly remote for reinsurers. So in terms of trade-off of retention versus price, I don't know until I see the exact offer that people are going to make. I'm definitely expecting we're going to pay more for what's fairly obvious reasons. But on the trade-offs, I mean, in general, I would prefer to keep the structure of as we have it, even if it hasn't been a major part of what we've needed to protect the group over quite long periods. The only exception to that is we have a cat aggregate. I don't know what's the likely outcome on that, but given that that's already quite a long way out of the money and given it's not a favoured risk of reinsurers, it was already a marginal call for us last year. If it was more marginal than last year, we almost certainly wouldn't place it. But that's just not material for us in the scheme of things. So the reinsurance tariffs, my preference would be to keep them as is because it keeps things predictable. But let's see how the renewal turns out.

Nice, George. That's pretty interesting. Thank you.

The next question comes from the line of William Hawkins from KBW. Please go ahead.

Hello, thank you very much. George, can you tell me what was the numerator and denominator of the SST ratio, the 2.52%? And can you give me a hint about the market impact on available and required capital in the third quarter, please? And then secondly, I'm really sorry if I've missed this disclose somewhere, but what was the Hurricane Ian loss for the exchanges specifically? I had in the back of my mind that maybe cats could have been enough to hurt the 35% ratio at the end of June, but evidently not. So I'm not sure if that's because Ian was negligible or if there's just been you know, some other positives that have maintained solvency in farmers. Thank you.

So, Will, I don't have the numerator and the denominator in my head, so maybe chat to IR straight after the call and they can help you with it. On the market effects, repeat the question for me again. Do you want the market effect on AFR and required separately or together? Yeah.

Well, ideally, if you don't have the first numbers, you won't have the second, but I was just trying to get a feel for what the size of the market impact was, and in particular, you know, how much of the market impact was coming from movements in available versus movements in required capital.

Yeah, okay. So, I mean, obviously, I mean, the main impact from an SST perspective, I mean, tends to be on AFR because, I mean, for obvious reasons, you've got all the assets being marked to market, right? I mean, if you look at the different components, I mean, we've come down by about 10 points. Favorable market movement, about 25, dominated by interest rates. Some offset from some of the credit effects in the quarter. And all of the offsets to that are a combination of what we've done on the debt side of things. Obviously, the announcement of the buyback, unwind of the hedges that we talked about before. I mean, those are the largest drivers. So you've got a significant favorable market movement, but that's tended to have been absorbed by a combination of what we've done in terms of buyback and in terms of what we've done on the investment portfolio on the hedging side. On exchanges, I don't have the exchanges number for Ian. Again, I'm sure we can reach out to the exchange and get it for you after the call. Thank you. You're welcome.

The next question comes from the line of Will Harcastle from UBS. Please go ahead.

Hey, George. Question one, just on farmers. I guess, is the development here in terms of growth as you'd expect it? I know it is on price, but in terms of delivery, I know there's been some pausing on that. But last time we also spoke, there was a challenge in in the U.S. about getting rates through California. Has there been any shift in that dynamic? And the second one, I just wanted to clarify something you said. Did the reinsurance trigger or not trigger at all from the Hurricane Ian loss? I know not the CAAT-AG, but just the retentions. Do you think that puts you in a better relative position at upcoming renewals versus some peers, albeit, of course, there'll be an uplift? Thanks.

Yeah, thanks Will. So growth is more or less as expected. I mean, we've seen more, or rather the exchanges have seen more in some of the channels, particularly around exclusive agents. And I think we've talked already at prior calls about the fact that there have been some service issues around the independent agents, and there we've seen a bit less. But net-net, the growth picture is pretty much as we expected it to be. Now, I guess the challenge is that given that the lost cost trend environment for this year has been much tougher than we would have planned coming into the year, you actually needed more rate-driven growth to address the issues caused by claim trend. I think as the year's gone on, you've seen the exchange start to achieve more. So, I mean, we're now, as I mentioned earlier, in double digits, or rather the exchange is on double digits. There's still the issue that they're not able to achieve rate in all states. And that's something that I know we're all hoping can be addressed as we enter into 2023. But I mean, I referred earlier to the fact that, I mean, there are some industry forums that track lost cost trend versus rate. You can now see for, I think, the entire US auto market that it's just in positive territory. That wouldn't be completely true for farmers yet, given that geographic mix that it has. But I think we're pretty optimistic that you'll see that correct itself in 2023. And we will see very strong rate coming through in some of the key markets that are particularly important for farmers. On the reinsurance point, you're absolutely right. So the 550 doesn't hit the 650 retention limit that we have. Do I think that will help me in the renewal negotiation? I will do my best to try and make sure it does. I don't know how much help. I mean, I think I mentioned in response to Andrew Ritchie's question that I don't recall the last time we triggered any of this. So, I mean, if the reinsurers are having challenges, and I know they are, I don't think we're one of them.

Okay, that's clear. Thank you.

The next question comes from the line of Vinit Malhotra from Mediabanca. Please go ahead.

Thanks, George. Sorry, just one question for me, please. You said that the outlook on the pricing versus lock cost is slightly moderating versus Q2, but not significant. And that, despite the U.S. some lines like GNO going down. Is this confidence that it's less affected? Is it because of EMEA commercial? And also, why would EMEA commercial be so strong? Is it the UK? Is it some of the markets where loss costs are high? Or can you just comment a bit about this kind of composite question? Thank you.

Yeah, okay. So I think part of it, Vinny, is probably the interest rate thing I kind of hinted at earlier. I mean, if you look at the rise in interest rates, I haven't tried to calculate how much the rise is benefiting the economics by. But, I mean, it's pretty clear that if you have a book of the duration that we've got, you could be rating it higher combined ratios with the same economic outcomes. but the market is not doing that. So the market is generally holding on to the interest rate in addition to the margin between pure price and lost cost trend. So I think actually, I mean, I think the market's still in very, very good shape given the combination of features, certainly from a commercial perspective, not quite so much for retail as we discussed earlier, but I think next year we'll see a different picture on retail. Now, why would Europe show a different perspective from the US on commercial? I mean, probably a combination of factors. I mean, Europe has tended to lag. I mean, it is a global market, so global capacity is relevant. Maybe the European market is a bit more fragmented. So I think there's partly that lag issue. I think the second issue is if you look at the I mean, certainly if I look at some of our experience on European commercial, I mean, the pure European business, I think, does pretty well. Where you've written U.S. risks out of Europe and all insurers do this, that's been challenging too. So I think the market's also waking up to the fact that if you're writing a U.S. risk out of Europe, you need to be seeing the same kind of rate increase that we've seen in the U.S. end of the business. And we put additional steps and requirements in place to push our business in that direction. But I think it's mainly the topic of lag is my opinion. Thanks, George.

The next question comes from the line of Michael Haffner with Berenberg. Please go ahead.

Hi there. Thanks, George. I'll add three questions, but this is a bit naughty. So when do we get the buyback, please? The second is LATAM inflation. We just heard from one of your peers that it's costing them 1% combined ratio. Can you talk a little bit? Because you have a sizable business there. And then the other one is... I'm sorry, it's not about this call, so you might say, oh, no. You know, when you... IFRS 17, so lower equity, more CSM, the total is a bit bigger. But if I try and bridge, and you must say, Michael, you're crazy, probably yes, would the fact that we have the CSM, which effectively is kind of profit going forward, is that a little bit of what you're kind of recycling profit? I sound very direct. I didn't mean to. There you are. Thank you.

Okay, so I don't think I'm legally allowed to answer three questions, Michael. So maybe I get to pick. You can pick whatever you like, George. So on the buyback, I think we said at Q2 that we would let some portion of the hurricane season pass and then we would start. I'm not allowed to give you a date yet. But it's certainly something that I think I've indicated in the past that we needed to start within Q4 to make sure that we deal with the issue that the buyback is expected to address. But I think for a variety of reasons, I can't say much more than that. But we're obviously getting much closer to the point where we're going to launch it. The LATAM inflation topic... I think the interesting thing being part of this group is that, I mean, we talk to the Swiss business who are seeing, I think, lost cost trend that's probably 2%, maybe 3%, and it's something that's beyond the wildest nightmares. We've got Germany at 9%, and it's just something we've never ever seen before. And then we go to Argentina, where we're one of the market leaders, and they've got inflation trends that are, I don't know, pick a number. 50, 60, 70%. I mean, the reality, I mean, it depends which markets you're in. In Latin America, I think our business, if you take Argentina as being the most extreme example, I mean, it couldn't be successful if they hadn't adapted to something that's not new down there. So when you look at what they do from an ALM perspective, they certainly don't assume that the underlying risks or exposures are local currency because everything's imported. So the ALM philosophy has to incorporate a view on what the real inflation is and where the stuff comes from. And also the product. I mean, tend to be shorter duration, tend to have more floating features to address some of these things. So, I mean, it's not that it has no impact because it's not instantaneous. I mean, even if you write a short, say, a six-month contract, you can still have a bit of a lag. But certainly when we look at LATAM, the one thing we do for LATAM that's different for the group overall from a combined ratio perspective or a technical profitability perspective, we look at the ALM outcomes as well. because there's quite a bit of the economics that we generate in LATAM comes from sensible ALM usage and the use of hard dollar assets to back these liabilities. So, I mean, it's probably pushed up the combined ratio a bit, but it's not that significant for us overall. And the overall attractiveness of it hasn't changed. The... I'm not going to answer your third question, but I think your hypothesis is not far from the truth. I'll catch up next week. Thanks so much. You're welcome.

The next question comes from the line of Ashik Musadi with Morgan Stanley. Please go ahead.

Thank you. Good afternoon, George. Just a couple of questions I have. I mean, So when we are speaking to most of the companies this time and when we ask about inflation and benefit of interest rate, your combined ratio has to go higher because interest rates have gone higher. So to maintain the same ROE, ultimately underwriting standards has to go down. But so far, whenever I have asked this question, everyone has said, no, no, combined ratio is everything. We are not going to change that, et cetera, et cetera. I will keep both the benefits, combined ratio and interest rates. Whereas it looks like you are a bit more thinking on an economic basis where you're saying that, okay, interest rates have gone higher, so underwriting standards has to come down. Is it fair to say that you could be one of the early movers with that concept, or would you say probably you will still follow the market strategy and take more and more pricing rather than think about taking a bit of extra volume because economics are still holding up really well. So that's the first question. Second thing is, I mean, between, if let's say you have to pay up a bit more to the reinsurance for like taking the same retention, et cetera, where will that be funded from? I mean, will it be funded from your back book reserve? Will it be funded from, increase in primary pricing. So how do we think about that extra cost of reinsurance funding? Thank you.

Yeah, thank you. I think the only problem with the first question is that as soon as you start with underwriting standards have to go down, everyone's going to deny it because it's not true. I think that what you're talking about is the economic reality of underwriting. So when you think about how you price, you've got a view on lost cost, lost cost trends, You've got a view on expenses, but you've also got a view on the duration of the liability you're going to carry, and therefore the risk-free interest rate is extremely important. Again, I certainly don't want to talk us into a world where we start to trade away a benefit. The fact that we're able to maintain discipline in pricing and retain the benefits of the interest rate move to help offset the impacts of inflation, to me, actually makes sense. I mean, we talked about the fact lost cost trend has clearly been coming up. And for us to maintain the same level of profitability economically, we need to retain the interest rate component, which, of course, is at least a partial offset to that. I think if you look at things, again, just from an overall cycle perspective, I mean, I think to manage the resources appropriately, you need to have a realistic view on where the cycle's headed. And while I don't expect anything to drop off a cliff, I mean, we are seeing things moderate. In general, the performance across the sector is good. You would expect at the margins to see a bit more competition. But I think the interest rate thing, it's just a component of how people do underwriting anyway. But of course, we don't want to give away benefits if we can avoid it, particularly when we're seeing a lost cost trend impacted by the same factor that drives the interest rate in the first place. On the reinsurance topic, I'm a bit concerned that some of you guys are getting commissioned from reinsurance at the moment. I mean, where will it be funded from? I mean, we have a plan. So we put a plan together which covers the next three years. You'll get sight of that next week at the investor day. And within that, we've included our view of what we'll need to pay for reinsurance. So if you ask me where it comes from, it comes from our overall underrating result because it's part of what we're using to protect us from risk. And it's partly a capital substitution at the margins for some of the capital that risk would require if we had it on our own balance sheet. So it's part of the underrating result. margin in the end. That's what has to fund whatever we need to pay from a reinsurance perspective.

Great. Thank you. Thanks so much, Ed.

The next question comes from the line of Dom O'Mahony from BNP Paribas Exxon. Please go ahead.

Hello. Thank you for taking our questions. First one, just on farmers. I'm trying to understand how to read the surplus ratio, so 34.7%. Can you give us a sense of what sort of numbers would require the exchanges to take mitigating action, whether that's using a bit more reinsurance or withdrawing capacity or whatever it might be? And then the second question, just on life, clearly, Currency has been a headwind given that most of that is non-dollar. And I guess linked products will be impacted by market movements. It feels like the guidance you gave us at the end of last year of sort of mid-single-digit up-profit growth might be quite hard to get to, but I just wanted to check in with you whether that's right or whether actually we might need to set our expectations a little bit lower. Thank you.

Yeah, thanks, Dom. So on the first one, so yeah, farmers exchanges have a surplus ratio of 34.7 as of the end of Q3. I mean, they would normally target something 36 and north. So they're already in a world where they're looking for, I mean, are there things they can do within the existing business to improve the surplus ratio? What do they need to do from a pricing perspective? What do they need to do from a capital perspective? What do they need to do from a reinsurance perspective? So I think these are all topics for the exchanges already today. And they're looking to manage the surplus ratio back up. I mean, I don't know quite how long it will take them to do that in an orderly fashion, but it would certainly be their aim to be operating above this and their targets. would clearly imply that already. Currency, yep, currency has been a headwind this year. So it's, I mean, I guess on the positive side of things, I mean, half of what we do is denominated in dollar. Unfortunately, the other half is not. And it's been a particularly challenging year. And that's particularly true for life. Because when you look at life, I mean, we don't really have a US life business of any particular scale outside of maybe the farmers part, which sits inside the farmer segment. So I think as I made the comment on the introduction to the call, I gave an overall sensitivity around earnings and FX translation. Obviously, life will have a disproportionate share of that. So I think when you look at the thing overall, I mean, from our perspective, I mean, we expect to see uh life when we look at the planning conventions that we use which would be constant currency we expect to see them at least achieve the goals that we'd set for it if not beat it but when you then translate it back into dollar that's a significant headwind for the year and in fact you see already in the revenue so if you look at life overall and the headlines today from a revenue perspective you've got two percent growth I mean, by the time you convert that into dollars, you've got about 6%, 7% reversal. And the bottom of the P&L won't be that different. So I think you have to have that sensitivity in mind as you think about the life business towards the end of the year. That's great. Thank you.

The last question from today comes from the line of Thomas Fossard with HSBC. Please go ahead.

Yes, good afternoon, George. Two quick questions as well on my side, just to clarify your thinking on guidance you provided last time with the H1 number.

So the first one would be on any update on the reinvestment rate achieved on a nine-month basis, and especially in the context of your 50 to 100 million additional benefits to your investment income in 2022. And the second check as well will be on the guidance for the net earned premium growth, which was expected to be mid to high single digit range in local currency. How should we think about this guidance in light of the plus 13% achieved on a nine month basis? Thank you.

Yeah, thanks, Thomas. So on the investment income side of things, no change to what we've given you on the reinvestment benefit. It's a relatively short period, so it's hard to get the full benefit to come through. But we expect a similar number. I know you all know this, but of course, next year, the accounting will take this benefit and remove it from the income statement. So you won't see quite the same benefit. reinvestment effects in future than you've seen in the past. From a local currency guidance perspective around PNC, I'm not sure I'm going to change that. I mean, I think the end will be slightly lower in original currency. Watch out for, I mean, PNC doesn't have the same effects that you see in the life business. But, of course, it will still have some, given that we still have quite a substantial business outside of North America. So no change to original currency guidance on P&C per volume.

Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to John Hawking for any closing remarks.

Thank you very much, everyone, for dialing in. We look forward to seeing a lot of you in Zurich next week. If you've got any questions, then please just reach out to the IR team. We'll be available in a few minutes' time. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.