Zurich Insurance Group Ltd

Ladies and gentlemen, welcome to the Zurich Insurance Group update for the three-month-ended March 31st, 2023 conference call. I am Sandra, the call school operator. I would like to remind you that all participants will be in this synonym 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's my pleasure to hand over to Mr. John Hawking, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.

Thank you, Sandra. Good afternoon, everybody, and welcome to Zurich Insurance Group's first quarter results Q&A call. On the call today is our Group CFO, George Quinn. Before I hand over to George for the usual introductory remarks, just a reminder for Q&A, if you could keep to two questions each, that would be much appreciated. George.

Thank you. Thanks, John, and good afternoon, everyone. Before we move to the Q&A, I just want to make a few introductory remarks. We've had a strong start to the year. The first quarter result is strong, and the forecast puts us on a good track to deliver against our investor day commitments. If I start from the underlying IFRS 17 result for 2022 of US$6.4 billion, I would expect to see growth well above the 8% target commitment we've made for over the cycle. And in fact, we currently expect earnings growth in 2023 that's not far away from double the target rate. But this, of course, is subject to the usual caveats on claims and financial markets. But it also assumes some caution about how quickly we recognise the benefit of the improved rate trend that we're seeing. In P&C, we continue to see margin expansion in commercial, with rate increases of 6% in the quarter. North America continues to be particularly strong, with rate increases of 8%, driving double-digit growth in premiums. And property is an area of particular strength, with rates accelerating from the fourth quarter. It's important to note that this is the pure price effect and excludes indexation and other contractual features that are designed to compensate for increases in insured value. Interest rates are also a strong positive in the quarter. I'm also pleased that during the quarter we were able to renew our US CAT occurrence tower with a lower attachment point than previously, $600 million versus $650 million before. And I think it speaks to the progress that we continue to make on managing CAT exposure as well as concentration overall. We remain focused on disciplined portfolio construction carefully balancing exposures while looking to limit volatility in our results wherever possible. In our retail P&C business, we expect the results to improve over the course of the year as earn rate starts to exceed lost cost trends. In Q1, we saw rate increases of 4% for retail, over 5% for retail motor, and in selected parts of the book, we've achieved significantly more rates than this. While interest rates create a positive effect in P&C, they create headwind for our life business. And we would expect 2023 earnings to be similar to the underlying earnings under IFRS 17 in 2022. Following last week's announcement on Chile, today we've announced an additional backbook transaction in our life business with the reinsurance of the in-force individual life portfolio at Farmers New World Life. This is the fourth backbook deal that we've announced in the last 18 months. The earnings effects of these deals are offset by the buyback that we expect to complete shortly. As a result of this, we'll have a life business with less volatility in earnings, much less volatility in capital and substantially less financial market exposure, all without any significant reduction in per share earnings. Our life business is a powerful earnings and cash contributor for the group and is well positioned to generate profitable growth in the future. The farmers' exchanges are continuing to make good progress in improving underwriting outcomes, with significant rate increases being achieved across much of the portfolio. The driver of the Q1 volume reduction, which is a change to one of the transportation network company contracts, attracts a much lower fee than the regular business written by the exchanges, and the underlying developments that the exchanges have and will continue to drive fee growth. We expect the positive rate environment for the farmers exchanges to continue throughout 2023 and well into 2024 and we're confident that farmers will achieve the goals set out at last year's investor day. You have also no doubt noticed that we provided a significant amount of detail on our IFRS 17 results for 2022 and the IR team will be available to support you as you rebuild models over the coming weeks. With that, I'd be happy to take your questions.