Aviva plc (AV) Earnings Call Transcript & Summary

Okay. I think it's 3:00, so we'll start. Good afternoon, everyone. Thank you for joining us for our first In Focus session, which we hope will give you a better insight into our Canadian business. In due course, we will look to provide you with a number of further deep dives into the businesses to help you better understand how we are transforming our performance to drive sustainable long-term growth. I'm shortly going to hand over to Jason Storah, who's the CEO of Aviva Canada; and Colin Simpson, CFO of Aviva Canada, who many of you already know, of course. Following their presentation, there will be an opportunity for you to ask questions about our Canadian business. But before I hand over to Jason, I wanted to quickly recap on Aviva's strategic priorities and the progress that we have made to date. So just under a year ago, we announced our 3 strategic priorities of: focus the portfolio, ensuring Aviva is financially strong and transforming the operating performance of Aviva. As you know, we have substantially delivered on the first 2 of those priorities, announcing 8 disposals in 8 months, which will bring in GBP 7.5 billion in proceeds, strengthening our balance sheet, reducing the risk profile of the group and significantly reducing our leverage. Our focus is now firmly on transforming the performance of Aviva so that we can capitalize on the significant growth opportunities across our 3 markets of the U.K., Ireland and Canada and, of course, Aviva Investors. Over the next hour or so, you will see that we have a strong business in Canada that is well positioned in an attractive insurance market. It is a business that already makes a significant contribution to group profitability and cash, but also benefits from and gives rise to significant synergies, both in Canada and across the group. We will show that Aviva Canada has significant opportunities for sustainable and profitable growth. We have the core capabilities and a clear path to transform performances so that our Canadian business will deliver even better returns for our shareholders. With that, I will hand over to Jason Storah.

Thanks, Amanda, and thanks, everybody, for taking the time to join us today. We're going to run through some slides, both Colin and I, just to give you an overview of the Canadian market and why we think it's attractive, the strengths of our business and its positioning, as well as the strategic priorities that we're pursuing going forward to drive improvements in performance. And then we'd love to just get into a discussion in Q&A, as Amanda said. So just to level set, for those of you who might not be familiar with Canada, we think it's a really attractive place to do business. There's a large affluent population, and it's the eighth largest GI market in the world with $69 billion in premium. Not only is this a large market, but it's growing at around 5% per annum over the last 10 years. And this high growth is supported by a relatively strong economy, with the second highest growth amongst the G7, which is helped by immigration, with around typically around 300,000 new immigrants to Canada every year, and that's helping to drive that steady population growth. Canada also benefits from a stable prudential regulator -- sorry, a stable political and economic environment. I'll talk about the regulator in a second. We have a strong prudential regulator in OSFI, and that's certainly brought stability to Canada's financial services industry. And this has been seen in how well Canada has withstood the last 2 global economic recessions. Lastly, Canada is a structurally attractive GI market. It has high barriers to entry, partly due to strong regulation, but also due to consumer buying behavior, which we'll talk a little bit about today, the importance of strong, long-standing relationships with distributors and the high retention rates that are typical in Canada. So we think it's a great place to do business, but it's a difficult place for new entrants to break into. We thought this next slide was useful to highlight some of the unique characteristics, which you may not be familiar with compared with the U.K. And I'm sure that the U.K. is a market you're a lot more familiar with, so a bit of a comparison would be helpful. Our personal motor insurance market is regulated in each of the provinces. And actually, British Columbia, Saskatchewan and Manitoba have their own government-run motor insurance. So we only write personal property and commercial in those 3 provinces. What provincial motor regulation means is that we just have to seek approval from the regulators for price changes, and that usually takes about 3 months. That's obviously very different to the U.K., but I think it actually helps create a more predictable and stable motor market here than in the U.K. The top 10 insurers make up almost 70% of the market. And whilst there has been a 12.5 point increase in the market share of the top 10 insurers over the last 10 years that's largely through market consolidation, there are still over 90 GI companies in Canada. Brokers are still the dominant distribution channel at 64% of premium, and there's been considerable broker consolidation here, with the largest 10 brokers now controlling about 1/3 of the Canadian market. Whereas the U.K. shifted a long time ago to PCWs, direct and digital, Canada hasn't yet. Only 1% of personal insurance consumers bought fully online last year, but we're definitely seeing an emergence of the digital and direct propositions. And COVID certainly accelerated that with changing consumer expectations now around digital self-service. Historically, though, Canadians like to speak with someone when buying their insurance, and I think it's a combination of legacy technology that insurers haven't yet upgraded, the dominant role of brokers and the advocacy and advice they provide, and the fact that the average motor premium here is about $2,000, which is notably higher than in the U.K. One of the advantages that Aviva has in Canada versus the domestic insurers is that as this market evolves, and I'm sure it's going to, follow the kind of consumer and digital trends of the U.K., we're able to tap into the U.K. team's expertise in customer and digital propositions. Not everyone in Canada is going to be able to make the investments needed to take advantages of these shifts, we are making the investments, and we'll get the additional benefit from leveraging the U.K. expertise.

All right. Sorry, everyone. I really apologize for that. That wasn't good timing at all. So look, if we -- and just moving on to Slide 8, please. When you look at Aviva Canada, we are the #3 position and have 8% market share. After growing the business by just under 6% per annum over the last decade, we're in striking distance of $6 billion of premium. And last year, we delivered a sub-95% COR. Strategically, we have deep and long-standing relationships with brokers and a unique partnership with RBC that allows us to leverage the most recognized financial services brand in Canada. And we bring technical expertise, particularly in the claims area, as well as a very broad product range, including specialty personal lines and surety, which others just cannot match. From a financial perspective, we're cash generative and have obviously become a larger part of Aviva's general insurance operating profits. Now because of our geographic position and the nature of our risks, our risks diversify incredibly well. In fact, 60% of our Solvency II SCR diversifies away when combined with the broader Aviva Group. And actually, we're able to crystallize some of this benefit by participating in the mixer, and we currently have a 25% quota share with the mixer. When we team up with the U.K. business, we have serious reinsurance purchasing power, and we actually benefit from incredible relationships across the organization with the reinsurers that goes all the way up to Amanda at the CEO level. If we go to Slide 9, which takes a little bit more -- it takes a little closer look at the competitive landscape, you can see from the bottom of Slide 9 that the top 10 players have grown by an average of 7.6%, which is more than the market. And this has come through a combination of organic growth and consolidation. And as #3, we're in an excellent position to benefit from a continuation of this trend. Unlike the banking and life insurance spaces, the P&C sector is still quite fragmented from a Canadian perspective. Four of the top 10 are mutuals, which does make for an interesting competitive dynamic, but we know at least one of those is planning to de-mutualize in the near future. Lloyds is an interesting one. They're #4 in the market, almost exclusively commercial lines, and they support a really vibrant MGA market in Canada. Now they have fairly frequent flow of capital into and out of the market. It does create for some commercial lines pricing volatility, and we're able to lean into this -- lean into the hard markets at least, a little bit like what we've done over the last couple of years. Now when you consider market share growth, underlying Canada is a stable market because of the high retention rates that Jason mentioned earlier. Therefore, M&A has played an active role in forming market leaders, and you can see some of the acquisition activity on the right-hand side of the slide. The final point I want to make is on ROE, which has a strong correlation with scale. Bear in mind, this is presented on a Canadian IFRS basis, which includes the adverse impact of declining interest rates on discounted reserves. Our U.K. IFRS and Solvency II ROE are much stronger, particularly over recent years as is the go-forward potential, which we'll get on to in a bit. This correlation with scale is likely to persist as there are an increasing number of challenges for smaller companies, be it IFRS 17, keeping up with cybersecurity, systems, pricing sophistication and digital transformation. All of these make it more difficult for smaller players to compete, particularly when they don't have the scale and expertise that being part of the larger Aviva Insurance Group can provide. We expect this to drive further consolidation in the bottom 30% of the market. Over to you.

Slide 10, if we could just move on. This shows our top 3 position and how it's split across the provinces and our product mix. We've got strong market positions in most provinces, although Ontario stands out, which isn't a surprise because it is our home market. It has the largest population in GDP, and so it contains the biggest personal and commercial insurance opportunity across Canada. We operate in a broad range of segments, so our business is well diversified. We've got about 2/3 Personal Insurance, 1/3 Commercial. And we're looking for faster growth in commercial as that helps improve the diversity of our business even further. As you all know, Canada is a pretty big country, and it takes over 7 hours to fly across. But what the size really means is that from an insurance perspective, we get really good geographic diversification of risks and earnings. Within the $3.6 billion of personal insurance that you can see there, there's $1.2 billion in specialty business, and that's group, home and auto, leisure and lifestyle and high net worth. This is an attractive and fast-growing business for us. And I strongly believe that we are best-in-class in Canada in this sector. We also have our partnership with RBC, which accounts for about GBP 850 million, and I'll talk more about RBC in a second. And then we've got over $1 billion in small to mid-market commercial. Our SME book has traditionally been focused on the smaller end of the market, but we've worked really hard on the performance and the product mix over recent years, and we're seeing great results. Our attritional loss ratio has improved steadily. And year-to-date, our average premiums are up 76% as we've deliberately moved up the curve to write larger accounts. And then our GCS business, which is going to exceed $1 billion this year. So I just mentioned RBC, and I just want -- I'd like to spend a few more minutes on it because it's a fantastic partnership. We acquired their GI business back in 2016. And at the time, we entered into a 15-year distribution agreement. We both like this partnership so much that we subsequently increased it by another 5 years. It's a really interesting partnership because with the Bank Act here in Canada, that means that banks can't sell insurance through their branches unlike in the U.K. The RBC agency handles all of the marketing, sales and service for the business and they do this through 2 contact centers, 45 field stores and over 460 sales agents. And we're responsible for the underwriting claims, products, pricing adjudication, claims adjudication as well. RBC has the most recognized and well-respected brand in Canada, and 1 in 3 Canadians banks with RBC. You might remember that we had to strengthen our reserves on this business a few years ago. But since then, the performance has been exceptional. Even in spite of that really strong performance over the last few years, I think the biggest opportunity is still ahead of us. The reason I say this isn't just because of the outlook for the retail personal insurance business, but also because I think there's great areas of product expansion and opportunities there ahead of us. I'm going to try and bring this to life with one example, which hopefully, shows you that opportunity. We have a really successful high net worth business that we launched about 5 to 6 years ago. But we launched it just with our brokers. And traditionally, that's a very broker-centric business, with specialty insurers like Chubb and AIG. But then a couple of years ago, we launched it with RBC. And within the first 12 months, RBC became the biggest source of growth for us in the high net worth segment. This speaks to the power of the RBC brand, the access to great customers and the untapped potential that remains, which is why I think we've got such a good opportunity ahead of us. And it's one that none of our competitors can compete with.

So just moving on to financial performance. You saw from Q1 that we had a really strong start to the year, but we've actually been on quite a journey over the past 5 years. We grew into the soft market with the acquisition of RBC, and so had to take remediating actions in 2017 and 2018. We had over 40 distinct profitability actions that we tracked and executed on to bring profitability back to an acceptable level. This actually also highlighted areas that needed an overhaul, such as our claims management and onset pricing. The performance of -- during the period of recovery is strong, especially when you consider the adverse impact of COVID on our 2020 results as we set up business interruption reserves and accrued for higher contingent profit commissions. Now we finished this period of recovery and are looking forward from a stable base. We expect to generate consistent profits in excess of $0.5 billion, which is a level we haven't actually delivered to date. This translates to a 93% to 95% COR. Now I just want to touch on expenses because operating efficiency is incredibly important to us at Aviva Canada. The 9.3% that you see on this slide is what we call the G&A ratio. So it excludes your premium taxes, your claims handling expenses and your distribution expenses. It's effectively best-in-class, but we have still brought it down over the past 5 years despite investing in the business. Now going forward, we expect to run at a G&A ratio below 9%.

So as one of Aviva's core markets, the opportunities to collaborate, leverage and share our capabilities across the group have never been more prominent, and the benefits flow both ways. You can see 6 areas of synergies here on this slide, along with some examples that I think give us a clear edge over local competitors because we're not just bringing our local scale to bear, but also the wider group resources and expertise. Colin talked earlier about the 2-way capital and diversification benefits, as well as the reinsurance purchasing leverage that we get. And there's a few other examples on this slide that I'd just like to mention. In technology, the Canadian team works really closely with the U.K. on our move to the cloud, Guidewire implementation and cybersecurity. We've got a local team dedicated to building out the digital direct business here, but we're also able to leverage the expertise of Quote Me Happy in the U.K. because there's nothing in Canada yet that comes close to the U.K.'s digital or direct landscape. We've got a really strong data science team here in Canada. And combining this with the strength of the U.K.'s analytics and pricing sophistication really helps enhance our speed to market with new models and trend analysis. And then we've made a number of talent moves back and forth. And at the moment, I've got several individuals from the U.K. in my claims and pricing teams, and there's a number of Canadians over in the U.K. working in the risk and surety teams. So moving people back and forth is a real asset for us in both the U.K. and Canada. Just moving on to Slide 14. I'd like to shift focus into the 4 strategic priorities for this business, delivering sustainable growth, investing in industry-leading capabilities, transforming the service experience through digitization and then disrupting the market through innovation. I'm going to spend a minute or so on each of them. In terms of the first one, Colin mentioned that we've got $6 billion of premium firmly in our sights, and we've set clear expectations for both growth and underwriting performance across the portfolio. I would just say -- I should just say also that the core numbers on here all exclude any ongoing benefits or impacts of COVID. So whilst the dynamics are different across these 3 portfolios, we're going to grow all of them organically. If you look on the left-hand side with our retail personal insurance book, that's a relatively mature and stable market. So I think that maintaining steady market level growth of 3% to 5% organically is quite sensible, particularly when we're looking at moving that business on to Guidewire and there's still current regulatory pressure on auto rates going forward. There might be some more upside with RBC. But again, I just want to see the dust settle and what happens in the auto rate market and what the market looks like generally, post-COVID. The middle and right-hand columns on this slide, along with -- sorry, the middle and right-hand columns make up almost 50% of our portfolio, and they are positioned for above market -- above-average -- above-market growth, sorry. And they're going to deliver underwriting performance in the 92% to 94% COR range. I mentioned our specialty PL business, both Colin and I have referred to it. And if you combine that with our surety business, those are 2 examples where we're a market leader in Canada. And that's $1.6 billion of premium that's delivered sustained COR performance in the high 80s, low 90s over the last few years and is really, really well positioned to continue to do so. Although we haven't historically been a leader in our mid-market commercial, that's definitely changing. And this is a $400 million business that's delivered great results for us over the last couple of years, so I'm bullish about the outlook for us here, particularly with the trends we're seeing so far this year. And finally, there's 2 areas on the right that we're going to accelerate growth to diversify our overall business. The first is our GCS corporate risk book, where there's an opportunity for us to write more Canadian multinationals. And then the second is direct, and we talked a little bit already today about that. We've got a small business today, and we're going to scale it up significantly going forward. So now I'd like to turn to some of the initiatives that are going to help drive this performance and this growth going forward. The items on the left of this next slide are the foundational capabilities that we're investing in. And on the right, you can see the 2023 aiming points that we've set out to demonstrate the clear benefits that these are going to deliver. I've mentioned our data science and analytics earlier, and we've incorporated AI and machine learning into all of our pricing models, and we're automating them to make model delivery twice as fast as it was before. This will allow us to increase the frequency of our model refreshes, to spend more time on the quality of our model inputs and analyzing and understanding the outputs and will just support better decision-making so that we can adapt more quickly to market conditions. We're going to continue driving our expenses down through increased digitization, automation and simplification Colin just referred to a second ago. And I want to take a second to talk about claims. Our claims proposition in Aviva Canada is the best in the market. We're running at about 96% internalization, which drives our Net Promoter Scores to be 20 points higher on average settlements in auto and property, over $700 lower than externally handled claims. We're seeing benefits come from our fraud analysis -- analytics sorry, and automation. And we've got an, internal legal team of over 100 lawyers do a brilliant job of defending our clients from frivolous, fraudulent claims. This is such a successful model that we've started to see a number of competitors in Canada copy it. And look, every year in claims, our objective is to just improve the operation by at least a point to help offset loss trend. The last comment I want to make here is about the people and culture in Aviva Canada. Our employee engagement is 16 points better than the top-quartile financial services in Canada. 49% of our frontline leaders are women. 43% of our senior leaders are women. And over the last 2 years, we've tripled the number of [ visible ] minorities in all of our succession lines. Moving on. I think this next slide is pretty straightforward. I'll just wait for it to move forward. We're on a journey to move our business from analog to digital, and there's a number of proof points along the bottom showing the progress so far. But there's more to be done here. Not only is this going to help improve our customer experiences, but it will also generate increased efficiencies in our business. There are no clear digital winners in Canada today. And my aim is that the kind of trajectories you're seeing on the bottom of the page are just going to get steeper because of the investments we're making and the access to experience from the U.K. The final priority is focused on market disruption, and there's 3 components to this. As I mentioned earlier, we've made a significant investment in building up our data science and analytics teams, as well as leveraging the expertise in the U.K. The brilliant thing about this part of our business is that we're nowhere close to exhausting the benefits that these teams deliver to our growth and profitability. And so far, we've focused a lot on personal insurance and claims, which we're going to continue to do, but we're also moving into -- we have already moved into the commercial pricing triage and service. And then next in claims, where I said we're already a market leader. I've set the team a challenge of settling 60% of our auto claims and 40% of our property claims within 24 hours. Right now, we've been in the low single digits along with the rest of the market, but fast and fair claims settlement will be an unmatched experience for our customers and a significant differentiator for our business going forward. I've mentioned our direct and digital business a few times already, and the key point here is that we are going to make this a 100% digital business. No one is doing that today in Canada. Even though a couple of competitors have invested heavily in building out their direct business and capability and brands, there's a lot more to be done in the Canadian market, particularly when you compare to the U.K. Before we wrap up, I just wanted to share how we define what success will look like for us as we go forward and by 2023 across a number of outcomes. These are all based on organic underlying performance. And as I said earlier, they exclude any of the temporary benefits or impact from COVID. So we're going to deliver better than market performance on both top and bottom line. We'll ramp up our efficiency gains through digitization, automation and simplification. We'll continue to outperform the competition on our claims outcomes for customers, and we'll deliver really strong financial returns for the group, which you can see here with the $1 billion of cash remittances and the Solvency II return on capital better than 15%. So this is the final slide, and there's 4 messages I'd just like to reiterate for you about Aviva Canada. The first is that we've got a really strong position with multichannel distribution in a very attractive GI market. And we're already delivering solid, strong, improving and a great underlying performance across the business. Second is that we're a market leader across a number of areas. I mentioned personal insurance, pricing sophistication, our specialty personal business, surety and claims. And the RBC partnership is a really unique opportunity for us going forward. Plus we're becoming and we're emerging as a market leader in our mid-market and GCS commercial business. Third, there are absolute tangible 2-way benefits between Canada and the U.K., particularly on capital reinsurance and technical expertise. And this creates some competitive advantages to us over and above being a really strong stand-alone business. And then finally, as you saw on the previous slide, we've got a very clear outlook and a set of targets that we'll measure ourselves against in terms of the strategic operational and financial outcomes of this business. So with that I'll hand back to you, Amanda.

Thanks, guys. I really, really appreciate that. And I appreciate everybody bearing with us there, while we had a few technical difficulty. Just goes to show we're truly live. Nothing is recorded. So what we're going to do now, and hopefully, Jason, you can take a drink and get yourself ready for I'm sure will be the number of questions we're going to have. So thanks both of that.

And moving on to Q&A. Let me just explain quickly how we're going to work this. So if those of you that would like to have -- ask a question, please tick the raise hand button in Zoom. Then the team here will be able to see who wishes to ask a question. We'll then call out the person asking the next question, and their line will be unmuted. Now there is definitely a delay on the line between here and Canada, so we just may take a few seconds, so please just bear with us what we do that. Obviously, at some point during the Q&A, if you no longer want to ask a question because somebody else has asked it, then please just lower your hand by pressing the same button again. The last thing I want to say before I open up is obviously today's event is about the Canadian business. So if we can try and focus questions on this business as much as possible, and we'll try and get through as many questions in the time that we have. So I'm going to take the first question from Farooq, please.

I must say, actually, your presentation is a lot better than some other companies I've been, given that it's live, so well done. Yes, I just -- can you talk about the $2,000 average premium for motor? What's driving that? Because your claims ratios look quite comparable. And is there an opportunity there? Secondly, your view on consolidation. Clearly, you've got a lot of cash and capital coming your way. And would it not make sense to look at that? And then lastly, on the expense ratio. So if you get to a less than 9% G&A ratio in kind of our money type of expense ratio terms, how would that look? So I think you've got between 33% and 34% expense ratio in 2020. So how would -- what would that sort of go to, all other things being equal?

Thanks, Farooq. So I'm going to -- I would like to -- maybe Colin can answer the last question. And Jason, do you want to pick up the average premium and the consolidation point?

Yes, yes, for sure. Thanks, Farooq. So $2,000, I mean, that's a benchmark in Ontario. Realistically, in the last few months, that's gone down, with the pressure from the regulator to reduce auto premiums with less people driving on the road. But what we see in Canada is, historically, there's been quite a lot of leakage in the claims system. There's lots of players in the system, whether it's plaintiff lawyers that are looking to get cash payouts, treatment clinics, rehab clinics that take an awful lot of money out of the claims system. And actually, when you look at what the claimants end up getting, it's actually quite a small amount. So auto is a reasonably low-margin business. Retail also. Typically, we're happy with the COR in the 93% to 95% range. So there isn't much margin there, and there's certainly a lot that gets paid out in claims, but it's really because of -- it goes back to a number of regulatory interventions with the product and the sort of statutory payments and the way that the different payments for different levels of bodily injury are just regulated in Canada. Is there anything, Colin, you just want to add to that piece?

I guess, Farooq, it's a first party and a third-party product unlike the U.K., so it's an incredibly rich product. But everything that Jason said just adds to the fact that that as well as the market has not been as big and as close together as other parts of developed markets just leads to a very expensive auto premium.

Yes.

Just in terms of your second question, so consolidation. I mean, we definitely look at opportunities. Traditionally, in the Canadian market, we've seen about one insurer deal a year. There's lots of consolidation going on in the broker space. My personal view is I don't actually think that's the best use of our capital to buy brokers and consolidate them. Broker valuations are pretty chunky. You're looking in the 4 to 5-plus times valuation range of revenue and 12, 14x EBITDA valuations. And we've got a really strong track record of growing organically without needing to use consolidation to drive our growth. But we'll always look at opportunities if they make strategic sense.

Yes, Farooq, on the expenses, I think you're rightfully pointing out that 9.3% to sub 9% doesn't probably move the dial on many forecasts. But that's not all that we're going after. So we are trying to target sub-30% distribution ratio, including so G&A premium taxes and, importantly, distribution expenses. So we do want to see that distribution -- solely distribution ratio come down.

The next question for Greig Paterson.

More strategic -- one technical and two strategic. One is, you mentioned the -- those 3 markets where the regulator sets premiums. You've discussed that there's a headwind coming in the second quarter. But it's interesting that you linked it to COVID. Does that mean that once COVID -- once we go through COVID and understand where claims, that there's potential for the regulator to allow increases? Or -- I'm trying to think more towards 2022 in that regard. So that's just a technical question. The second one is, and I did ask this before, Amanda, but -- in the first quarter. But digital disruption, I mean, is that a threat to you? And I mean -- and I've listened to lots of presentations like this from lots of companies, and the one who [indiscernible] our mind is technology arms race cost, technology arms race cost. And I've heard the story again and again and again over the years, and we never get the benefit. So just your thoughts on that. I mean what -- how are you going to get the benefits greater than the costs in the modern world?

Thanks, Greig. Brilliant questions. So Jason, do you want to pick up the first one? Probably the second one, in the context of Canada, please, because I think the digital market is -- it is different in Canada, perhaps, than we talked about in the U.K.

Absolutely. So it's a great -- just with regards to auto, I mean the 3 provinces I called out BC, Saskatchewan, Manitoba, where we don't write auto business because they're government auto insurers. But across the rest of the country, particularly Ontario, and then Alberta and Quebec, I would say, but definitely, Ontario, we've had a lot of dialogue with the regulators about auto premiums, loss trends. And the rate reduction that we took actually last month, we did that with a very, very clear dialogue with the regulator about, look, we're happy to do this because, obviously, losses are down, frequency is down. But we do -- this is a low-margin product. And as we see driving start to increase, we're going to come back to you looking for easing off of those rate reductions. And we've really, really positive dialogue with FSRA in Ontario as the regulator, as well as the other provincial regulators. And actually, just to mention about the regulator, they are moving towards becoming more principles and conducts based as well as still maintaining that rate regulation component. So they want a transparent, open, forward-looking dialogue with insurers, and we're really well set up for that. And I would just say, right now, we've got some assumptions in -- some very conservative assumptions in our plans going forward around when auto rates will start to go up again. We're just -- it's early days. We haven't seen driving go back as much as we need. But at the appropriate time, we'll have that dialogue with the regulators. In terms of digital direct, I don't think it's a threat. I think it's a real opportunity. And I cannot state enough that the Canadian market is really, really in a very different spot to the U.K. And the U.K. is a lot more advanced, a lot more sophisticated. So I see it as an opportunity. Locally, the team we've built and the [ tapping into ], as I mentioned, folks like the Quote Me Happy team in the U.K. has great expertise as well. And I should say that the money that we're investing in growing out the digital direct business is already factored into our plans going forward, and we're making substantial investments. So one of the things that we -- one of the things that allows us to do that is Colin and the team, myself, we're driving efficiencies out of this business so that we can look at investing in what's the future and what are the capabilities that we need. But I really think it's an opportunity. The last point you mentioned there, and I think Amanda can relate to this, is that patience factor of wanting to make the investment and see the return immediately, but also knowing that there's a bit of time required. And I think we've all got the battle scars of making investments and learning from different investments that we've seen before. So really exciting opportunity in Canada. And I think the expansive opportunity in Canada is probably greater than the U.K. because we're so far behind the U.K. in this space.

Thanks, Jason. Okay. So shall we move on to the next question, and that's going to come from Larissa, please.

Two from my side, please. The first is sticking to the theme of utilization, but also the other improvements that you've spoken of. Can you give us some color as to how much you've earmarked, what your time frame for implementation is and what the impact may be on the underwriting margin? And the second question pertains to Slide 15, where you speak of your retail market versus your future growth markets. Are there any areas of the business that you believe may -- are subpar and need specific help? Or is this a more growth-focused initiative?

Okay. Perfect. Jason, do you want to pick up the first question? And Colin, perhaps you could pick up the second question.

You know what, Amanda, do you mind if we switch?

No. [indiscernible] You do it. You do it. That's fine. Go for it.

Thanks. Larissa, look, we have a bit of a scarcity mentality here. We spend only what we need to, and if it doesn't work, we stop. So I can't give you -- we have got a budget over the next 3 years, but I don't want to give it to you because we might end up spending less if we're less successful in actually moving the market, or more if we're more successful. So just bear in mind that it's not going to cripple any financial statement that you see. It's -- but at the same time, it's meaningful enough for us to make a go at it. I wouldn't -- I think because it's in digital and retail personal lines mostly, you just have to be patient. So the next 3 years underwriting margin is probably going to be unaffected by the investments that we're making. But just rest assured that in the 3, 5, 7 years, we want this to make a real difference to the business.

Thanks, Colin. So just, Larissa, with the second part of your question, I mean, I have a view at the moment that there's quite a lot of uncertainty in the retail market, going forward, particularly around rates. Auto rates, I think everybody expects them and they're going to need to increase at some point, but the timing of that is still a little bit uncertain. Property, on the other hand, is very, very -- it's competitive and it's profitable, and it's a really attractive segment for us, and we've done really well over the last little while. I don't think there's anywhere that I would say we are subpar. I think -- but I will say that as we focus the shift in our commercial business to more of the mid-market, what we call core and mid-market, so moving up the spectrum, which has driven the 76% increase in average premiums, we have deemphasized the small micro part of our portfolio. That's a very deliberate decision because you can spend an awful lot of time and effort on an $800 or $1,000 premium, and just -- you quickly burn through your return on that business, and moving up market is definitely our focus. But we haven't forgotten about the small micro commercial, and we're going to be doing a number of investments to grow that back again in the future. But I don't think we're subpar. I think we've emerged. If you'd asked me that question a couple of years ago, I think there's probably some segments that we would have said we've got a lot -- we've still got more room ahead of us. But now this is definitely a growth play for our plan going forward.

Okay. Next question from [ Louise ], please.

Just 2 from me, please. The first one is on telematics. I know you briefly mentioned in one of the later slides. I know that others in the Canadian market are building out their proposition. Can you just give us a little bit of information about the Aviva proposition? And just more generally on that, what is the regulatory environment like for telematics in Canada? And then my next question is on the commercial rate environment in Canada. I mean on the lines where you're seeing commercial rate increases still, when do you expect these to moderate?

Okay. Jason, over to you.

Yes. Thank you. So just first on telematics, we're going to be launching a telematics product at the end of this year. It's a -- we've watched what the market has done. And I think, initially, when telematics was launched in Canada, a big push was just companies offering lower premiums out of the gate. And then there was a different regulatory environment. So increasing premiums was quite difficult. But if I look about where we are in the Canadian market right now, where the regulator is, and we've got a regulator that's far more open to more agile pricing that represents the kind of individual driving behavior that really is individual driving behavior rather than broad brush approaches to perhaps telematics that have been taken in the past. So we'll have something in market end of this year, early next year. It's going to be a simple digital play really, really looking forward to and, particularly looking forward to the kind of additional data that it's going to give. We've got millions of data points today, billions of different configurations and, certainly, the data and analytics capability, additional capabilities that we'll get through telematics are quite interesting. In terms of your second point about commercial. Look, in Canada, our commercial rates have been increasing for the last 18 months pretty steadily. And if you look back to last year, at the beginning of last year, we were seeing really, really strong double digits. And I mean 30% to 80% rate increases on average depending on the type of segments you're looking at. That's definitely eased off a little bit through the course of the year. And it's continued to ease off this year. So I would expect that maybe we've got another 12 to 18 months of strong growth -- strong rate growth. And then hopefully, we can get back to the kind of inflation -- inflation plus rate increases, I think, are more sustainable long term. But the great thing is we've got a number of segments that, a couple of years ago, were in real dire trouble. And property -- commercial property would be one example that was really underwater. Now it's a reasonably healthy segment. And I think the proof of that is going to be when you see other capacity come back into the Canadian market.

Okay. Thanks very much, Jason, for that. And thanks, Louise, for the question. Next question from Andrew Crean, please.

A couple of questions. Your target of hitting $500 million of earnings each year. My memory is that Canada is an extremely volatile market, both because of weather and because of regulated pricing in motor, where you -- which almost drives the cycle, and actually caught you out, I think, a couple of years ago in terms of that. Why do you think that you can sustainably hit more than $500 million of earnings each year without volatility, which may take you lower? And as part -- going on from that question, your ROE targets of more than 13%. And I don't think even Intact, which is the sort of market leader and has demonstrated better performance, profitability with greater consistency over time really hits that kind of ROE. So why do you think you'll be able to do it?

Thanks, Andrew. Colin, I'm going to count on you for both of those, please.

Thanks, Andrew. So the first point, you rightly mentioned that we got caught out. Actually, what contributed to us getting caught out is a reliance on reserve releases to generate profitability. And so, obviously, that's not how you run a general insurance business. And so we are basing our plans on, clearly, no prior development to support the earnings base so that we would -- and what happens is if you've got lots of prior year development, you might not be as disciplined on your front-end pricing. And that's effectively what happened. So we've invested a lot in our pricing sophistication. We've taken out all assumptions of any sort of contribution from prior year development, so that every time we see a change in trend, we want to get into the regulator's office where we have great relationships and get the rates up or down. And so we believe, with the investments that we've made in pricing sophistication, the more sophisticated way that we look at this business, we will be much quicker off the bat to handle the regulated price environment. We've also grown out our commercial lines business relative to personal lines, so that's also helped stabilize. The final point I want to make is on the weather, which you rightfully mentioned. We have a lot more reinsurance purchasing than our bigger competitors. We buy down to quite low levels. But that's -- so there is some protection. Clearly, if we have a ridiculous polar vortex, then I'm sure we will struggle to make a $500 million profit in extreme weather. But I'm sure we would come to you and explain that away. But certainly, we don't expect to have an issue with the $500 million on a go-forward basis. The ROE on the solvency -- the ROE that we mentioned in the deck is the Solvency II ROE, so not quite comparable with Intact. And then I think the other point that you need to bear in mind is we have capital advantages over Intact by the nature of being a subsidiary, so you can't really make an adequate comparison. But if you look at the CORs, we want to match them on a COR basis, and we want to do it for a more efficient capital base. So that should lead us to generate a higher ROE.

Thanks, Colin. Next question, please, to Ming.

My first question is on your 93% to 95% combined ratio target. How much have you allowed for the normal weather? And could you give some color in terms of your reinsurance coverage? So in a bad weather, we could sort of get a sense how much that gets eaten? And my second question is, obviously, you've done a very good job in terms of recovery and now you're in a very good position. And given the target you've set, why don't you just sell the business at, say, a attractive valuation? Or have you ever been approached? Or is your plan of hitting your target and maybe selling it? So I just want to get a sense of that.

Okay. So I'll definitely answer the second question there. And Colin, can I ask you to answer the first one, please?

Yes, of course. So Ming, we budget for about -- for full catastrophes and cats take on a different definition in each country. But effectively, if a storm is big enough to be a cat, we declare a cat, and we assume around $220 million of cat losses in any given year. I will tell you, the first half of the year has been a very quiet cat year. And actually July 2, we got hit with hailstorm in Calgary. But it's cat season, so that's not at all unexpected. But that 2:1 is what we would budget for a full year. We have 3 reinsurance treaties. The main reinsurance treaty is a cat reinsurance treaty, which is a 5 -- $50 million retention, and that covers effectively a single-loss limit. We, then, have a cat ag treaty. So if we get a number of cats over a certain franchise limit, we only retain $75 million and pass on to the reinsurers the excess of that cat ag. And the third treaty we have is on a single loss event. We have in excess of $10 million that we pass on to reinsurers. And that's leveraging the broad Aviva Group because we're able to get good reinsurance terms.

Thanks, Colin. And Ming, to your second question, I think that whilst I think we all recognize the team have done a great job in turning around Canada, we do believe that Canada has a brilliant future. You've heard, I think, this afternoon, the attractiveness of the market. You've heard about the strength that we have in that market. And the U.K. and Canada are core markets for the group, and that hasn't changed and we look forward to seeing, in another couple of years' time, Jason and Colin come back and tell us what they've delivered following the presentation today. So a core part of the group, and we believe that the best is yet to come as far as Canada is concerned. Next question, please, from Dominic.

Really just 2 questions about the market dynamics. The first is just on distribution. When I think of a broker-oriented personal lines market, I usually think that's a challenging market, in particular when it comes to owning customer relationships. And yet this is a high-margin market. And I wonder if you could just give us a bit more detail on how the broker lads get work? So we're talking about mom and pop sort of small branches with limited ranges, or are these sort of nationwide full-range brokers, and how does that work? The second question is really just on regulation, such an important dynamic for Canada. What do you see as the sort of the regulatory changes? I think of sort of 3 categories there. One is the status of the pricing system. I mean very, very different from, say, the U.K. price approvals in so many of the provinces and quite long lead times. Secondly, on claims, I mean, Ontario, as I understand it, I wish I understood it better. But as I understand it, Ontario has sort of a cycle of interventions to change the claims dynamic in motor. Can you maybe give us some direction on that? And then finally, just on prudential capital regulation, any direction of travel there? Any changes that you would like?

Thanks, Dominic. So Jason, I think you'll -- be you're best placed to answer both of those.

Thank you, Dominic. Look, just on the distribution, I mentioned that 64% of the market is intermediated. I think one of the things that's played into, I mentioned before, the high premiums in auto. And when people are paying those kind of premiums, they generally want to talk to somebody and they want that advocacy and advice that a broker gives. And another factor I would say is there aren't really strong brands in Canada. And quite often, you speak to people, and they don't know the difference between their insurer and their broker. They might sort of see the 2 as interchangeable. So, definitely, the high retention that people have seen traditionally has played a factor in that broker domination. But we've also seen about 4% of the market change over -- sorry, yes, 4% of the market change over the last few years, moving from intermediated to direct. But it's not a tipping point. And look, I've been in Canada for about 19 years. And every year, somebody talks and speculates on a tipping point. And brokers are getting older and the directs are going to take over. We just haven't seen that, which I know is very different to the U.K. experience. There are definitely -- there's definitely a trend that's really picked up in the last few years around broker consolidation. If you were to wind the clock back 5 or 6 years, there'd have been maybe 2 or 3 strong, big, dominant consolidating brokers. We've now got 10 brokers that control 1/3 of the market, and their appetite is pretty voracious to continue buying up the small local brokers. But we're also seeing an emergence of strong regional players that don't want a national presence. They want to really dominate in the regions where they're focused on acquisitions. In terms of the regulator, I mean, I think you actually nailed some of the comments, I would say, Dominic. Definitely, we're seeing a move towards a principle-based focus. We're not seeing any -- I'm not expecting any of the regulators to say they don't want to focus on rates anytime soon. I think there's a lot of a journey that regulators still have to make in the different provinces around moving towards focusing on customer outcomes and being principles-based. But there's a real journey there. And it's ironic because in the U.K., you've got the regulator that's now just recently focused more on pricing with the new business sort of decisions around not discounting new business. Just I'll say and maybe hand on to Colin as well, with regards to the prudential regulator, OSFI. I mean we've got a great relationship with OSFI, a number of us sit on working groups. Colin has been active in terms of advising the regulator on reinsurance guidelines called the B3 guideline that they've been looking at. We are very active with them on sharing the kind of stress and scenario testing that we do with our business. And I think we are -- they definitely see us as one of the thought leaders, I would say, in the space around how we stress our business and the type of scenarios we plan for. But they also pride themselves quite rightly with being conservative in protecting the Canadian market and the Canadian consumer. And I don't -- I absolutely think that's going to continue.

I can't add anything else onto that.

Okay. Thanks, both. So if anybody has any other questions, can you please raise your hand. We've got one more that we can see from here, and that is Ashik, please.

Just a couple of questions. So first of all, is it possible to share any thoughts about how do you reserve for your P&C business in Canada? I mean what is the -- do you have -- do you set aside buffers in addition to the best estimate? What is those level? Just trying to understand like if things go wrong on weather or any other issues, like what happened in 2016, 2017, how much buffer you would have to address those at least in the short to medium term. That's number one. And secondly is, how do we think about capital? Because if I look at your remittance guidance, I mean, it's north of $1 billion. And I'm hoping these are all Canadian dollars. So it's like north of $1 billion for probably post-tax operating profit of $1.2 billion, so that's 80%, 85% payout ratio. That's pretty good, I would say. So what gives you enough confidence on that? And just connected to that, it also means that there is no even small bolt-ons, anything planned for the Canadian local market. I mean if any funding is needed, it has to come from the center for any small acquisitions. Is that fair?

Okay. Thanks, Ashik. Colin, do want to pick those up?

Yes. Thanks, Ashik. So just on the -- let's take the capital position first. So you said north of $1 billion versus if we say over $500 million per annum for 3 years. So that's 2/3 of pretax operating profit. So you've got to tax it. So I -- the only other thing I would say is that there are still capital efficiencies for us to go after, that may increase the small additional benefit to the profitability action. So -- but honestly, a 2/3 ratio is not that stretching. And don't forget, when you look at our local stat returns, you've got to add in the contribution from the mixer because we do transfer business to the mixer, and that adds to the dividend paying capacity. The question on reserving. So we reserve a best estimate, and then we have a reserve margin on top of that, a U.K. reserve margin. And there's no need to go into the detail of the U.K. reserve margin because we can't ever really tap into that. We always need to maintain the U.K. reserve margin as long as we're a going concern. So it's not really worth thinking of that as a buffer. What I will say with COVID-19, and this is consistent with just about every P&C actuary I've spoken to, is there's a lot of uncertainty out there. We don't actually know how driving trends are going to come about. We don't actually know, as people come back to work, we don't actually know how this reduction in frequency has translated into severity. Intuitively, it feels like if you've got fewer accidents on the road, they're probably going to be more severe because they're going to happen at a faster speed. So the actuaries, in a period of deep uncertainty, will clearly -- they're clearly not going to err on the side of aggression. That's -- but fundamentally, we reserve a best estimate. We get the peer review on a local basis. We get an external third-party actuary firm once every 3 years, and we get people from the U.K. as well as our external auditors. So I wouldn't -- I genuinely wouldn't think about any buffers that exist in the reserves, but I really wouldn't want you to think that there's any risk of inadequacy.

And on the point around capital, Colin?

The capital piece being -- how the remittances feed into the profit target was...

No. Basically, I mean, just trying to understand like are you -- so the capital you're retaining, is it just for the organic growth, or does that provide any buffer to you to do some inorganic growth locally as well? I understand that it has to be small. But would you ask the center for any money? Or would you be -- do you have any bandwidth to do it on your own there?

Ashik, well, our plans assume that we -- if it's very small, we'll be able to afford it, but we would generally ask the group in the same way we did for RBC to fund acquisitions. There's no point in holding excess capital at a local subsidiary in the off chance that something comes along. It's just much easier to manage it with group treasury.

Next question is from Steven Haywood.

Two questions from me really, both about sort of current underlying levels. And I really don't know the Canadian market that well. So can you talk about retention levels on the personal and commercial lines? Are we looking at like really high 90% retention levels? Or are we somewhere down in the 60% levels here? And then in terms of other levels, on inflation, can you talk about the underlying level of inflation that we're seeing? Is it particularly tied into U.S. commercial inflation levels at all for your Canadian commercial lines? And also, obviously, on the retail lines, you've had a one-off COVID deflation or lower frequency amount. But going back to normal levels, what would you assume is the normal inflation level for claims here?

Okay. Jason, do you want to pick up retention? And Colin, you can pick up in the point on inflation?

Yes. Thanks, Steven. So the underlying retention in our business in -- I'll split personal and commercial, though, it's a lot easier to talk about personal. But we typically -- we plan for and see the retention level in the mid-80s, 85% to 87%. And then for some of our specialty business, like Group Home and Auto and our Specialty Personal Lines business, we routinely see retention in the 90s. In fact, some of our leisure and lifestyle business, policies that we don't retain and when somebody sells their property or sells their product, it doesn't need insurance going forward. So really, really strong retention, I think, is notably higher than the U.K. In terms of our commercial lines, I mean our small micro commercial business, the retention would be a bit low. It would probably be 5 to 10 points lower. It's a bit harder to track the retention in commercial, given the different portions of our business. But -- and in the large GCS side of our commercial, a loss of one account can really swing what the retention numbers look like in any given month. But the range that we have in Personal Lines is 85% plus, and in Commercial Lines, I would say, it's 75% to 85%.

Yes, Steven, on inflation, it's incredibly topical. It's -- I'll try and distill it into something that sounds simple because it's not -- because we have to break down every claim component into an individual line item. I think the closest measure that you can use is building CPI, Canadian building CPI. I mean, obviously, you don't want any of the rent and shelter impacts of looking at any other CPI or PPI measures. So we break everything down, and we all know lumber has been ridiculous. But actually, when you look at some of the wage inflation pieces, clusters, builders, roofers, they've all actually gone up quite a bit. We get property inflation running at about 4%. And so that's effective. And we built that into our indications, we've built it into our pricing on an annual basis. It's really critical at this point in time that we get something right. What's helped a little bit is the weakening of the U.S. dollar against the Canadian. That does offset some of the U.S. auto parts. But I really like some of the initiatives that the claims team have put in to try and counter inflation, be it greater control of the supply chain, deeper vendor relationships and some of the new contracts that we've been able to secure. So I'm quietly confident that, that 4% is going to be an overestimate.

Thanks, Colin. And back to Greig for the next question.

Yes. I mean, just one of the questions you asked about running quite a tight ship in extracting profitability from your operations. That reminds me of another company called RSA and that reminds me about 10 years ago when they were running a regime like that, and they're putting so much pressure on their subsidiary CEOs, that they actually have to resort to affordable behavior. And I'm not suggesting you guys to do that, but I [ just did ]. But when I drilled down into the detail in a post-op analysis of that with the management, I realized that, yes, that had gone on. But the central controls, the governance controls over the management of the subsidiaries reserving, et cetera, were quite weak. So I was just trying to understand if you could just make -- give us some comfort around it. I mean, there's nothing wrong with running a tight ship, but if you put so much pressure on subsidiaries, you tend to have last year effects?

Yes. Okay. So maybe I can start, and then I'll pass to the Canadian team to finish that. I mean, so first of all, there has to be a tension between the group and the subsidiaries around whether it's cost control, et cetera, and you wouldn't expect me to say anything different than that. But what I would say is that there is a local independent Board in Canada, which has a non-executive chair and non-executive directors. And there will be a local audit committee, a local risk committee, and all the local governance that the Canadian team will flow through will have to pass [indiscernible] at those at those committees, and that's a very, very important part of our governance. And so the group would not be able to override the decisions and the governance that takes place there. But at the same time, of course, what we would expect from the group is that there is some sort of consistency and some -- the standards are the same whether they're U.K. or Canada, and we're all operating to the same governance framework. As much as it is relevant, obviously, sometimes that change is according to the local regime. But certainly, there will be no pressure from the group, and hopefully, Colin and Jason would be able to say that. That's not to say that we are not expecting the subsidiaries to perform very well to have discipline around cost control and when they want money for projects and they're investing in the business, that those projects deliver the benefits that they say they're going to. So I think you would expect to see that. But maybe I don't know whether Colin or Jason -- you're both smiling, so I'm expecting you to say something.

No, Amanda, thank you actually took a number of the points I was going to make. I mean just to build on that, I think we've got a really strong rigorous process around our change budget, our portfolio transformation and just our business-as-usual spend. We have about -- we have an operating expense base of $600 million, give or take, and we're very, very keenly focused on that. But you referenced maybe some competitors, and I think the difference for it with us is we're not going to go on a starvation diet. We know we've got to invest in this business and we're looking at where we can leverage efficiencies and savings and reinvest appropriately for the sustainability of this business going forward. And with regards to controls and governance, I mean, I think the controls and oversight have never been stronger on the Canadian business. But locally, with our Board, and then also from a group perspective, lots of dialogue and transparency. And one of the great things about being 1 of the 3 core markets is there's lots of attention on are we investing in the right ways, and are we making the tough decisions? So I think we're in a good spot on expenses and where we're investing.

Okay. Thanks, Jason. Colin anything to add?

No, no. Actually, you know what? Can I just readdress Ming's question earlier on the cat losses. I added a rogue $80 million. Our cat budget is actually $140 million, not $220 million. Must be the holiday blues.

That's your prerogative as a Finance Director, right? Thanks for clarifying that, Colin. Next, Colm, please from UBS.

Just firstly, on the current wildfires in Canada, I appreciate, it's very early in terms of insured losses, et cetera. Just wondering if you can update on exposures to the affected regions. And if you could just remind us of the reinsurance in place in terms of the net claims retention Aviva Canada has. Second question, just on return on capital. You're targeting over 15%. Colin, you mentioned that included maybe some minor capital efficiencies on top. If I look back to 2019, I think Aviva Canada posted a 15.3% return on capital. So given the future targets baked in improved profitability, I'm struggling to square wider return on capital target is not much higher than what was achieved in 2019? So perhaps you could maybe bridge my lack of understanding on that.

Yes. Thanks, Colm. Jason, would you like to pick up the first point around recent claims and reinsurance? And then Colin, you can pick up retain capital.

Yes. So Colin, I'll respond to that and also build on it because, I mean, the Lytton -- the town of Lytton BC is destroyed. The fire went through it at the weekend, and it's decimated. We actually have a very small -- we knew before the fire hit what our exposure was, a small number of policies. And as I sit here today, we've actually only had a small number of claims come through probably worth a couple of million dollars. But most residents haven't been able to get back into the town yet. So our exposure is in the $10 million to $13 million range, we believe, based on sums insured, the number of policies, but there has been quite a serious loss of life. And that's also subject to just understanding the situation on the ground better. And once we can get in there, along with all the residents, we will. But certainly very, very manageable. I will just talk as well, because of the weekend, there was a hailstorm, fairly significant hailstorm in Calgary, which was a second cat. So you've got fire in BC and hailstorm -- golf ball-size hail in Calgary. We've certainly seen a sizable number of claims there. I think as of last night, we had about 1,400 claims between auto and property. The nice thing is, they seem to be light damage claims. So I would expect that's going to be somewhere in the $15 million to $25 million range. And I'm giving quite a range because I think we're still going to see a number of claims come in. And then what typically happens is the new claims notifications drop right off. So from a cat perspective, and Colin, jump in here, but for any individual events like that, our net is $50 million.

That's right.

If there's any one single loss that's really large, our net is $10 million.

Thanks, Jason. Colin on the...

So, Colm, you asked on the return on capital numbers and highlighted that 2019 was actually higher than 15%. That was on a Solvency II basis and actually takes into consideration an improvement in the SCR. As you know, Solvency II looks forward, and so when your future profitability looks better, you get to take that into your SCR. And so that was -- that, you wouldn't expect to recur. And so on a go-forward basis, we still think 15% is the right number and a decent improvement.

Thanks, Colin. And I think we are next going to Farooq again. Thank you, Farooq.

Can you talk about the long-term investment return? So what are the reinvestment rates that are relevant? And how should we model dilution or not in returns going forward?

Colin?

Yes, Farooq. So [indiscernible], in Canada, we've always maintained an incredibly conservative portfolio, mostly because it takes more sense to take equity and -- to take credit and equity risk in the U.K., particularly credit and the U.K. life portfolio. So we've always -- we've been at the sort of $2.2 million, $2.1 million for some time. We expect this to come down to about $1.9 million. I think it was a $20 million headwind on profitability. Saying that, the curve has picked up this year, as you all know way better than me. So we will not see maybe the unfavorable reinvestment rate that we saw. We're also looking at a couple of opportunities maybe in the private space. Nothing big, very, very measured that could help abate the decline. But Farooq, if you model very modest deterioration in line with the risk-free in both the U.S. and Canada, where we invest, that should give you a good sense of the mild reduction.

Thanks, Colin. And the final question of the afternoon goes to Dominic.

I'm afraid it's a relatively prosaic question about numbers, but let me ask it anyway. If I were to walk through, your optimize growth accelerate sort of metrics, I think you get to a target of about 6%, maybe 5% to 6% growth, which is -- which would be great. I'm just thinking about how much capital you need to retain to support that. Because at a 15% to 20% return on equity, I think you need to retain something like 30% to 40% of earnings, which is obviously would reduce your remittance capacity. Is it that you're growing into lower capital-intensity businesses, is that the plan? Or that you're planning to use more reinsurance, maybe more internal reinsurance? Or was there something else that I might have missed? Because, obviously, that's got a high rate of growth, so you'd have to retain capital to support it?

Thanks, Dominic. Colin?

Yes, Dominic, the only thing I'd say is you're probably missing in your calculation, the base. Right now, at the end of May, we had a 226% Solvency II ratio, which had -- I think that translates to -- I think it translates to about $240 million of excess. So we are -- we will incrementally use that, but they will -- we're not starting from 0 to grow the business from, we are also growing in some of the lower capital-intensive metrics. And then also, don't forget, we were more personal lines-overweight than commercial lines. And so when we do grow more in commercial lines, we do get some diversification benefits. So on our calculations, it costs very little to grow our Commercial Lines business.

Thank you. So I think that's the end. So thank you very much for the really strong engagement there. Once again, apologies for the slight technical hiccup that we had, but I think we managed to get back, and everybody answered -- everybody was able to ask their questions. We really, really appreciate that. As we said right at the very beginning, this is the first one of these that we will do. We would very much welcome your feedback. It was very much -- our trial, to see how it went. If you've appreciated it, then let us know. If we could do it better, then please let us know. We do really do welcome the feedback. But I just want to say thank you to Colin and Jason there for doing a brilliant job, I think. So we really appreciate that. And thank you very much for everybody for dialing in. See you all, hopefully, very soon.

Thanks, Amanda.

Thank you.