Zurich Insurance Group AG (ZURN) Earnings Call Transcript & Summary

Ladies and gentlemen, Welcome to Zurich Insurance Group Investor Day 2021 Q&A session. I'm Andrei, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

The first question comes from the line of Will Hardcastle from UBS.

First of all, thanks for providing more color on the potential life portfolio transaction. Sorry for being slow on this. I think it is me being slow, and it's probably obvious, but when you say the first part is the elimination of the earnings dilution, then it's about the growth in regular earnings and dividend. Should I be reading that as a buyback or simply deployment for growth to offset the earnings dilution? Clearly, if you're deploying a 15% return on capital, this would be accretive utilizing the same capital. Then the second one is on the deductibles. Really interesting slide on that EMEA liability. A question has facultative reinsurance deductible increased in line with this? Or is the spread of risk narrowed? And also just to get some flavor because this is showing 2020 versus '21. Presumably, a lot of this hasn't even begun to be factored into the reported combined ratio improvement. I guess, is this happening in some shorter tail lines as well where we might see this benefit sooner?

Will, it's George. So why don't I start with the first question, which of course I've tried to avoid answering in the presentation. I'm then going to ask Sierra to take the second one. I mean the -- all the reason why I've differentiated between growth and dilution. And I guess what I'm trying to do is, give a clear signal that we're not really prepared to tolerate any solution for any lengthy period, which means that organic growth supported by the capital at lease won't do it. So it requires some direct action. Hopefully, that's clear enough. Sierra, do you want to talk about the deductible topic?

So for retention, I believe your question was specific to retentions and liability. Did I get that correct?

Sorry, I can explain because it was a chart I used in my presentation where I had the chart on the increase in deductibles in EMEA liability. Now as I try to -- I think to say in my speech, this is just an example. We have similar examples on property book. And then you asked about the facts. And yes, I mean the situation of reinsurance hasn't changed much over the past 3 years, not significantly. Now fact is, it's a complicated question to ask because there is no policy in fact. I mean there are policy specific or customer-specific. And so I can't really answer you on facts in particular, but the process of this was to show what the significance of the improvements in the quality of the book, and your guess that this hasn't been yet fully manifested itself and the combined ratio is fairly correct. Not only because this is -- the example is in liability, but even in the property book, it's going to take a while to really see that because just the first couple of years, so not enough to judge what is the improvement in the quality of the books.

The next question comes from the line of Andrew Ritchie from Autonomous.

Sorry to dwell on the topic of the life back books, but I guess you provided more information. But George, I think I'm also being a bit dense. You talk about, on Slide 41, a reduction in target capital and there's liquidity impact. But then I think you mentioned in your comments, the liquidity impact is sort of academic to some degree because of the capital as a group center already, but what matters? And how do I relate the resources that you might be freed up? Is it a liquidity that matters? Or is it the target capital reduction that matters? Which is the sort of relevant one in terms of the resources you have to use to neutralize the earnings impact? Second question is for Ericson. Your predecessor talked about an aspiration to use automation. This was in his presentation -- Christoph's presentation in 2019, that ultimately, automation could reduce claims handling expenses and admin expenses in non-life by at least 15% in time. Is that a quantum you also recognize? Or I'm getting an impression that you're trying to implement an additional step change in the group in use of technology. So do you think that ambition is possibly too low?

Thanks, Andrew. So on the first one, I mean, I wish it was a really simple answer that covered all of the different permutations. I think the easy thing to realize is liquidity. I mean we talked before about the fact that I mean, in general, the challenge that we create is actually the group overlay and the group requirements for capital to back the risk that we're taking locally, which means that in most cases, the cash is not sitting locally, it's sitting at the center. So the cash side of it is not a particularly reliable indicator to the flexibility that we have. The capital generally a much better indicator. There are a few things that you need to keep in mind. So I think I would start with capital. In some cases, even capital won't be necessarily the best. It'll depend on how we then feed that into the target levels we set for the group. So for example, if you look at the examples I've given on Slide 40, I mean the first life portfolio that I've highlighted, that's a pretty traditional one. I think it's the capital side of it. It's a pretty good guide for the flexibility we expect the group to generate. Number two, which I covered in the prerecorded remarks, is much more complex. So the -- if you look at it from a local perspective, I mean, the local perspective is actually quite -- it doesn't have high capital requirements. The returns are actually not great but okay. When you look at this one, again, it's actually the group's requirements. And in particular, the thing we're trying to solve for, and live portfolio too, is the volatility that it brings us in metrics. So you do get a very substantial capital release, but more importantly, we take out this huge swing that we're exposed to. In fact, we saw it last year in the early responses in the financial markets to the pandemic, and there we get a capital release that will allow us to use the cash more freely at the center, but we get a significant reduction in volatility or reduction in sensitivities, and that would also allow us to rethink where we think we need to operate on average through a cycle. So those things in combination drive in the case of life portfolio, too, a very material capital or additional capital flexibility for the group.

Yes. Thanks for the question. If I get the question right, it's like if we are continuing with this automation journey or if there is a further we can do. If I get the question right? Is that right?

Yes. I guess I'm looking for -- is it a continuity or step change relative to some of the aspirations that Christoph set out back in, I guess, it was 2019. And he also made some specific aspirations around things like the cost benefits to claims handling in particular from automation, but also broader OUE.

Yes, definitely. Thanks for the question. We have not stand still, we have been continuing with this journey. And what is the step change right now is, we are increasing the pace by doing things even a little bit differently I would say, continuing what Christoph has done and it's almost -- you can look at it is 1.0 and 2.0 now. And what is the difference is the way of how we're doing automation these days is because of the technology advance and we can take advantage of some of the latest technology I mentioned earlier today, like the process mining as an example. And also, we structure ourselves slightly differently going forward, which I mentioned also about the 3 structural change. This is also part of a continuing asset, but then we would bring more capabilities in-house, and we will also make sure we are focusing on productivity. So that is, one is about the approach. We are stepping up on the approach to give ourselves even do the automation a bit more. And the second is, also while we are doing automation, we also want to focus on the customer experience. How well we are doing automation while we get more efficiency, how we can serve our customers better. I think that is the key.

And can I just ask, is the transition to the cloud that you talked about as a key initiative for 2022. Was that always the plan? Or has that been accelerated as well?

I think -- well, everybody do talk about how, put it this way. I think now we are mature in the way that it is time to step up because what is the difference is, before we have done or we have done since 2016, streamline of our IT infrastructure like data center and network. Before we have done that, it will be very difficult, but now we have just completed the whole streamlining. So it's natural for us now at this juncture to move to cloud. So -- and then we have been using it. It's not completely new, but now we will do it at pace starting next year.

Andrew, that was not in the plans. Answering your question to the point, that was not in the plan. And so what now Ericson launch is above and beyond the plans we had before.

The next question comes from the line of Peter Eliot from Kepler Cheuvreux.

The first one was on Slide 6, please, on the GWP growth by driver. I guess when looking at net new business, I mean, we often hear that one person's new business is somebody else's unwanted business. I'm just wondering if you're able to give us some comfort that, that new business is not going to result in any sort of deterioration of the quality of the portfolio. And looking at the rate change bars, I guess just doing the math would suggest it's 5.5% growth from that rate change, which obviously is a bit lower than the 8% we've been talking about before. I mean is the delta explained by the terms and conditions? Or am I missing something else there? And then secondly, George, thank you for confirming the dividend policy earlier and the fact that you will look through earnings volatility maybe a cheeky question, but I'm just wondering if you're able to quantify the items that you would sort of want to look through in terms of the 2021 earnings. I mean you probably don't give us numbers, but what sort of things you look through would be very helpful.

So I'll start on the premiums and then I'll pass it to George. Look, first of all, let me divide the answer between retail and commercial. I start with commercial, which is definitely the most interesting or the more complicated one, retail is easier. On commercial, it can be true in general. What you said that the business that some of the acquirers is to business some of the let it go, but remember what happened over the past 2 years. The market has fundamentally changed because the number of players left the market. Capital has been taken back. The hardening of the rates has brought back to market risks that haven't been there for 20 years. And in a softening market, we haven't been seeing this risk for long, long time. Companies like ourselves have a chance to pick and choose because we were in the market, so we have no capital constraints, and we could really did take conditions, which meant that very often -- the business we have been taking over the past 2 years and Sierra can expand on that, has been on our terms and conditions, which is a lesson that we learned again last year on pandemic conditions. On cyber, definitely the case. Sierra moved more than 90% of our portfolio on cyber to the Zurich conditions. So I would not consider the business we're acquiring commercial is risky or business that others have canceled. And this was just taking advantage of the hardening. I don't know, Sierra, if you want to expand on this or...

I think you've summarized it quite well. I mean there was opportunity also because as we covered earlier today, I mean, certain lines of business, we've reduced our line sizes so have some of our competitors, and so there's more business in the market to take a look at.

And remember, again, the example that we discussed before about what business have been -- we've been writing on liability. But as I said, the same kind of examples we can make it appropriately for cyber. And also, again, remember that we've been writing on our terms and conditions. We generally have hold very well in the market even in the tougher situation. On the rates, a couple of comments. I mean you cannot really reconstruct precisely the market of this. So first of all, because there is a reduction in exposures. So on one side, you have the rate increases, but on the other side, the customers are buying less because they have less money. The second thing, of course, is that the portfolio develops in -- this is the picture of the premiums as they were at the half year, but the rates will continue to expand themselves for the remaining months of the year coverage. So the numbers are not too distant, but they're not precisely the same number. On the -- and also on the theme of what the customers buy will take the exposure, but the other thing also are the deductibles and other conditions, which again influence what is the final price of it. And this is what makes the calculation not precisely matching each other. Retail. Retail is an easier story. We are -- all of our sole insurance companies are in the markets where our customers have a relationship with other 4, 5 insurance companies at the same time. And they might have had contact or relationships with us at a point in time, but then they move to others. We've been reactivating relationship. We've been using the new partnerships that I think you have on the next page of my presentation, and both these things -- no, sorry, the page after still. One more. Yes, there. So the growth comes from this new partnership that you see mentioned there. It comes from the BUs, which have been reactivating the customers that they got in touch before, and it comes from better penetration of the existing customers. There, I would say that it's an easy case to conclude that these are not customers which have been thrown away, send back to the market by competitors. These are just customers who do not have a strong relationship with anybody else, and are interested in starting a relationship with us. What you will see next year, probably at the next Investor Day is, we will present you all the work that we have been doing on segmentation of customers on tailoring the offer to the need of the customers. And you'll find, I think that, that work interesting and also the result of that work very promising also for the future.

Dividends. I've just lost my voice at the crucial point. You'll appreciate that. I can't walk you through the process we're going to run through for this year-end or rather the outcome of the process for this year-end. I can easily display the process we've been through onr what we go through.

Must be psychological.

It must be psychological, yes. I mean I've done it 7 times, so you think I would know the whole thing off by. I mean we prepared a memo for the Board, which is the recommendation from the Executive Committee on the dividend topic. We look at the earnings for this year. We typically look at it from -- I mean what we see is the underlying results, and there are typically 3 or 4 major topics that we regularly adjust CAT is the one that typically stands out. If you look at it over the course over the last several years, 2017 is a standard example of a year where we've made a significant adjustment for CAT, given the progress that we saw in the firm, and in particular, what we saw coming in the plan in the following year. And that continues to be the -- I mean, the second and most important topic. We not only look at the underlying performance of this year, we look at the plan for next year to determine whether or not that underlying number is viewed as sustainable. So the adjustments tend to be nat cat. I mean, again, I commented when we had the call last week on Q3. But I don't expect us to change our view on how much CAT risk we're going to carry. And in fact, I think you saw in the earlier comments, we're actually doing a number of things to actually reduce the capacity that's absorbed by CAT across the group. So I don't expect that particular process to change. So we will take out what we view as a temporary volatility on CAT versus our view of the current and load we expect to see, say, for next year. The other 2 adjustments that we frequently make -- I mean realized gains, they're not entirely random, but they can be a bit up and down. So we tend to take a more long-term view of realized gains that we don't count too much or too little. And then finally, restructuring. It's less of a topic today, but we've had quite a bit of restructuring in the group, particularly in the '16 through -- '17 through '19 period. And again, we would adjust that back to a level that we would think is more consistent with the run rate. So I think the long story short is, I think as you're thinking about what we'll look at the year-end, I mean, we would adjust the CAT burden back to the level that we have previously guided you for because that's currently what I expect the CAT burden in the plan to be for next year.

Next question comes from the line of James Shuck from Citi.

My 2 questions. Firstly, on the empowering of commercial. I just wondered if you could spend a little bit more time elaborating on kind of the reengineering of the relationship that's happening there. I guess we're on a kind of journey and trying to get into risk prevention and risk assessments and all these types of things. And I'm just keen to know where we are in that journey? Where you see it going? Ultimately, we're seeing more business that's going to come direct rather than through brokers, and are you actually competing more with the brokers? The second question, coming back to the back book deals. Just to simplify that kind of thoughts, I suppose. You've got 10 points being released from portfolio 2. The other one might even be bigger than that. And then you're saying that reduced volatility means that you reassess what capital you need to sold on an ongoing basis, which might be 10 points or so, I guess. But if you add those up, you kind of get about 30 points of solvency. And is that the right way of thinking about what's available for deployment?

So to take the question on risk engineering, we see just an increased demand from customers and helping reduce the risk. And so we've done risk engineering for over 80 years at this point. We have broad capabilities in this space and through the needs that we see primarily focused on climate change, we see supply chain and cyber being key areas for our customers. We are looking to support them with capabilities in this space in addition to their traditional needs that we always supported them on, but with an eye to reduce risk and to keep certain types of risks such as CAT insurable over time. As for brokers, I mean, the vast majority of our business still goes through brokers. The risk engineering business is a bit different as it's a business that we do for a fee that's direct with our customers. There is some competition in that space for some of that business, but it doesn't hinder us from expanding our offering in that space.

James, on the back book topic, I think the logic is absolutely fine. So the -- I think the concept of thinking about -- I mean, I guess you're making assumptions about what they are. And of course, I've been rehearsing to try and avoid that. I tell you exactly where they are. I think logic is good though. So we've been pretty clear about what we see from life 1. I think the assumptions that you make about the structure for life 2. So there's more than simply a capital release on back to the answer to Andrew earlier. I mean I'm going to avoid commenting on the quantum at this point because we haven't done any of them, and we need to get some done. And then it's easy to talk about exactly what the impact is, but the logic is good for me.

The next question comes from the line of Thomas Fossard from HSBC.

A quick question, just one for me. On commercial lines, I was quite interested to see and to understand how you were already reshaping or transforming your book to be, I would say, more resilient and to be better positioned to a softening of the market when it comes? Can you say a word on what you need to do in terms of reserving in order to sustain the next phase of the cycle? I mean do you -- maybe at the group, I mean can you mention where you currently stand in terms of excess over best estimate? And what needs to be added on top in order to reach a point beyond which you would believe that you have all the necessary firepower to offset the net cycle? I mean really to understand because the point is that you're already pointing to a different source of strains in the reserve already. And the point you made on the liability and worker's compensation was interesting, but how much do you need to put aside in the current phase of the cycle in order to be to be sustainable for the next phase?

Thomas, this is George. So I'll take that question. I mean, for a moment, I thought it's going to be Sierra's question, but then you took that turn toward the reserving topic. I mean, I think -- I mean the question implies a level of precision and science that I don't think exists in terms of how we think about the level of reserve strength that we have. I mean we actually -- we have formal policies with the audit committee around the -- I mean how far we are allowed to move and the confidence interval, which confidence interval we want to work in. But I mean, I think if you think of the logic we've applied, our chief actually in the [ ExCo ], it must be more than a year ago now. I'm just reflecting on the fact that -- I mean, we don't believe we have weaknesses in the reserves. We tried -- I tried to make the point in the earlier remarks that we have significant strength, but to maintain a consistent position, I mean, through a cycle, you want to build as much reserve strength as you can, particularly in this hard market phase that we're in today. Having said that, I mean there are limits. So of course, I mean back to that point that I think Peter asked earlier about understanding the walk around the dynamics on growth and profitability. I mean we can't take all of that and put it into reserves. So I mean we've long had a policy around something we referred to as reserve strength. I mean it's unlikely that, that would be more than a point in the result in any given year. It depends partly on the risk factors. So if you look at this year -- when you look at the dynamics of earlier years, we've been -- I mean somewhat fortunate that the position we've taken on workers' comp has turned out to be more prudent than we expected. And that's allowed us to add to reserve -- also to cover some of the social inflation topics that we talked about before. But that benefit we got from workers' comp on top of what we've seen from the market move has given the ability to to strengthen the reserves to allow for those factors that are not in the past mathematical trends. But I mean, I'd be surprised if we would push that to over a point. So I'm trying to be as precise as I can be, but there is no hard and fast rule.

The next question comes from the line of [ Tom O'Mahony ] from Exane BNP Paribas.

First, just one more question on the back book piece. If I look at Page 39, it looks like in an ideal world, you'll be extracting about 3/4 of the capital from the life book, life portfolio. Just trying to get a sense of whether portfolio is 1 and 2 that you mentioned, are they -- the vast majority of that or actually does that leave quite a lot else. And then when it comes to sort of the balance, do you have plans to release capital on the balance? Or is there going to be a substantial chunk where, frankly, you just don't have as many options, and you have to sort of look at runoff as efficient as you can, but sort of in the shape that they are? Second question on CAT. I just wanted to clarify the extent to which you're stepping away a bit from CAT as a function of sort of pure financials. So the material equity or the allocated capital versus philosophy. It sounds from what you're saying, actually, it's more about the sort of earnings profile you want this business to have and not wanting that to be too influenced by the level of CAT. And I think, George, at one point, you said, the great -- pricing goes up, that doesn't mean you're just going to step back into CAT. Does this -- you just constrain your ability to write business with your customers. One thing we sometimes hear is that customers, they require a broad suite and actually if you're trying not to write as much capital, does that mean you're less able to serve your customers. I'm interested in your thoughts on that.

Yes, thanks. So the -- on the first one, so if we get -- what we show on the following page on Page 40, Life 1 and Life 2, then you make a very significant difference to the picture that you see on Page 9. And it's not just I mean the life -- the characteristics of the life book is the asset risk that some of these life books carry. So I mean you see a very significant change. And I think, one, if we were presenting it here today and we've been through that process to deal with the earnings dilution and still have room for growth, I think we would be far more comfortable with the overall capital allocation that we have in the book. I mean that sector is not going to entirely disappear. So there may still be some part that's left, and maybe that's a topic we come back to later. But I think, for now, I think if we get life 1 and life 2 done, we'll have made a material change to the characteristics, not just the life business and its performance and the growth trend that you also see in my presentation elsewhere, but also, I mean, we create a facility for the group elsewhere to benefit from some of the stronger trends we see in other markets currently. So you'd see a very material change. And on the second topic, I wouldn't characterize it as stepping away from CAT. I think we're trying to manage the exposure to CAT. I talked in the earlier comments by the fact that we've seen, in particular, a very strong rise in frequency. And it's very hard to predict in any 12-month period, I mean, what we should really expect to see from CAT. But it seems clear to me that there is some trend here, and we'll see this rise over time. So if you write the same nominal level of CAT tomorrow that you wrote today, you would expect the claims cost of that to be a larger proportion. And I think the point I was trying to make is that, that's just not consistent with -- I mean, what we do is an insurer or what we have as an investor proposition. So it's not stepping away, but it's trying to manage some of the frequency that we see around the CAT topic, and that's why it was continuing. Does that constrain our ability to write business with clients? I don't think so. I think, again, it's like -- I mean like most scarce resources, we need to allocate it to the places that make more sense. I mean it's clear that if we have a client and we simply said, the client will take the things we really like, but we're not going to take the other things. That doesn't function, but I mean, we're nowhere near that on what we're proposing today. So really -- what I'm really saying here is that we're looking to manage this into the future to avoid that we see this become an ever larger part of the group's financial outcomes with all of the volatility that, that brings. But I don't think it fundamentally changes the customer proposition.

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

George, back on just the CAT load. You've been very clear that you don't expect to change your view of how much CAT risk Zurich is going to carry in the future. Given that I live in spreadsheet land, for me, that says keep plugging in the 3.5% load that you guided us to in the past. But I can imagine, in the real world, there can be a difference between the real world and spreadsheet land. So is that what you're telling us? And then specifically, if that is what you're telling us, I'm a bit confused by the language on Slide 46 because you were saying a lot of interesting stuff around that slide. But the actual text on the slide says that for part of your portfolio, U.S. large commercial, the improvement in pro forma loss ratio is expected to be offset by the current trend to higher CAT frequency. What I infer from that sentence is, saying attritional goes down, but the CAT losses do actually go up. So I'm not sure if that's just like some kind of exception or if I misunderstood the text or what. So if you could just help me understand that point, that would be great, please. And then secondly, when you were talking about cost efficiency, I'm one of those people I think in the past that's kind of asked you about the balance of priority between just getting costs down and investing in good digital and other stuff. When you were talking about Slide 43, you made this reference to transformational efficiency, and that sounded really good. I actually know what it means. Are you telling us something quite important with transformational efficiency? And if so, what does it mean? Because it sounds good.

So the -- so let me deal with the last -- the second last part first. So the -- on the CAT side, there is a misunderstanding. So what I'm really saying on 46 is not that we're changing the attritional and somehow the CAT expands to fill that in, we're controlling the CAT. So actually, we're controlling the CAT capacity that we deploy so that when you look at the outcome at the end of it and you plug the number into your spreadsheet, it's the same as a number that it was to begin with, despite the fact there may be more frequency in the future. So I mean, I'm telling you, we're not looking to change that number, but it's not an offset between 2 different components of the loss ratio. On the cost efficiency topic, I said to John before we started this that hopefully, we wouldn't trail too much at next year's Investor Day because that will be the bigger update, obviously, with the new ambitions that we have, Mario's already started with the customer topic earlier. And I guess I hinted at something that will be equally important to us next year in my comments. I mean you look at the industry in general and you look at the cost of the production of the product, it's really high. I think if we then look at Zurich and what we do, then you go back to some of the things that -- I mean, Ericson has indicated our priorities. I mean we still believe there's an opportunity to really significantly change the cost basis of the firm. So if you look at slides, let me find that again, 43 -- I guess the point I'm making is that we're nowhere near the end of that journey. So I mean we started from a place that we didn't like. We work really hard to correct it and the run up. They run through the last strategic cycle. We haven't given up on that. So the -- again, the point I was trying to make here is that you have a combination of growth and continued expense outright expense reduction to get to where we are today, but there's much more room unless we believe. I mean some of the early things that -- I mean the Ericson's focus and I talked about some of the more transformational things we're going to do on the technology side, I mean it not only produces funding for some of the things that will be a high priority for us and actually, I mean, allow us to serve our customers bear in the future. And it's also producing savings already. So I mean it's a bit coy, but I'm just trying to signal that when we come back to this topic again next year, just don't be surprised if expenses continues to be a key theme for us.

The next question comes from the line of Michael Huttner from Berenberg.

Fantastic. I have 2 questions, please. The first one is on the workers' comp. So on the slide -- I better get this side, and then we'll move the slides. Slide 45, I think. You shared something which I thought was lovely, which is the chart continues to go down, which for me means improving. And I remember at the start of the year when we were discussing reserves, you said we don't look too much on 2020 reserves. It looks like 2020 results, we could begin to include them. So that's the I just wondered if that's maybe a kind of a positive I could take away here. And then going back to the 30%, James calculated and said, yes, maybe 10 -- so that's $8 billion roughly, give or take. If I take $27 billion as your required capital base -- I know the math is not quite that straightforward, but just give or take, assuming that there is some earnings -- anti-earnings dilution done. It's a huge amount. What are you going to do with that money? Because it changes the group. It's not -- you can't just let it lay there and your ROE would literally go -- or it would go down significantly. Where -- I haven't seen here anything which suggests you're willing to -- you're potentially considering reallocating. And it's not $8 million, $8 million is required capital base. In terms of deal value, you can -- it's a multiple of that. And I'm just curious what that could be.

Thank you, Michael. So on the workers' comp topic, I mean I tried to be really careful in the earlier remarks that -- I mean you've been around for a long time. I've been around for a long time. So we've seen this business over the years. I'm not necessarily convinced that the current experience that we see in the business is something that you can count on to be the case for every year for the future. So I mean, actually, the point I was trying to make here was that we actually have a significant resilience to inflation. It comes not only from the structure of the product, but it also comes from the fact that we've taken a relatively long look back period and one that, in general, predate some of the very positive runoff that we've seen from what has come. Yes, it's pretty clear that, I mean, if you take that 5-year average line, you move it forward -- let's ignore the COVID impact, I mean, you're to see a drop. So that apparent prudency in the short term, I think it's likely to increase. But I think, for me, I don't see that as as a principal source of earnings. I see that as a significant source of comfort around reserving risk. And one of the things that gives us confidence that we can be pretty consistent around the outcomes that you should expect to see from the back book. So I think that combined with the discussion earlier around the point that Tom has made around, I mean, what are you trying to do in the current year? It's a measure of protection that allows us to be consistent and reliable rather than we're going to come back and take that gap because that gap is obviously a very, very large number. On the second question. So when you paraphrase me, it doesn't sound like me speaking to me. So the way I heard you say it was, you said, well, I followed Jame's logic. It's 30 points. I think you said maybe. So therefore, it's a ton of money. I think the way I remember it was, as James said, it's several components. Here's a view of what the numbers for those components would be, and I tried to be really careful to say to James that I think the logic that James has is just about spot on as far as I'm concerned, but I make no comment on the number because we haven't done anything at this stage. And the only -- I mean, as far as I'm prepared to go today is to say that the #1 priority, I guess, is what we started the conversation went well, which is the removal of earnings dilution and not through organic growth, direct from the organic solution is the priority. We would prefer to grow the business. That would be kind of step 2 for us. And the whole point of doing this, of course, is that if we show you this chart again a bit further down the line, the balance and the performance is just much better than we see today. But I'm not going to qualify either James assessment or the number or yours at this stage. I mean we'll cross that bridge when we come to it.

The last question for today's call comes from Vinit Malhotra from Mediobanca.

So my first question is on the bancassurance side. And just looking for the Slide #9. And Mario, is there any feedback? Or have you -- I mean, you've heard about banking regulations changing, making insurance a bit more attractive to banks in Basel IV. Is there any sense of getting early sense that some of the banking partnerships could be reviewed or tested in the near future? So just very quick feedback for you that you think would be helpful. Second question, just George, a very good clarification. Slide 42 is a very popular slide. Why do we start the HY '21 with 15%? Because that was sort of the stated ex-CAT book at ROE. And if we did to August 15, would the '22 look higher? Or would this be still included somewhere in the bit older quality, et cetera?

Vik, on bancassurance, frankly, we are -- look like also in the page, we're very pleased with the success we had in renewing the agreement and actually expanding the one with Deutsche Bank to Postbank. The agreement with UBS is are focused on SME business that we plan to develop together, and we'll see if we will then be able to expand it to something else. Postbank is a relationship like Deutsche Bank that we had over a number of years, and so we're very happy that, that was renewed. Nothing has changed the quality of this relationship, and we look forward to our further successes in -- and I'm quite optimistic on the results of these businesses over the next months and years. I don't take that the capital decisions will move banks into the territory of taking the insurance business back into their field because I think at least what happened with our partners is that they understood what's the benefit of a competent specialized player working with them. We bring them products -- and as I try to demonstrate later on -- in the pages on big protection business that they were not able to introduce themselves. Our solutions serve package into the banking solutions. The systems are very much working together. So our solutions are embedded into their systems. This is very smooth for the banks, and they give them very high commissions and profits. And it's not just based on capital or on kind of arbitration or optimization of capital rules, they really sell much more than they would have done before or that they did before.

I'm going to answer the second part of the question. So it's an excellent question. The -- so I mean, actually, the approach we've taken here to start from the actuals rather than to go back to the historic numbers. And I guess the question would be, so when we talked about the underlying performance at the half year, we were already very close to the level that we had indicated we believe we could achieve by the end of next year. I mean that would suggest, there is some upside around the ROE topic. I think what we're trying to lay out here, at least in terms of the state normalization, is how we see things developing over the course of the next -- well, let's say, the next 18 months, but the 18 months from the half year point. But the -- I guess, if I was going to summarize your question, I mean the company is already performing relatively close to this benchmark. So I mean we have a very strong return on capital. I don't see that reversing and potentially, we have some upside around the ROE.

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

So thank you all for participating. Hopefully, next year, we'll be able to see each other in person, and it will be a much nicer event meeting. I'm sure on -- as closing remarks, guys, I mean, over the last 5, 6 years, we have always been more ambitious than you were yourself. I still remember the discussions with many of you on the combined ratio, where you guys didn't believe that we were able to achieve 97 or below 97 combined ratio, we were being much better than that. Then I remember the discussion of growth where you guys were telling us you guys are not going to grow the business. We have been growing the business even during the pandemic. We're working now for our next plan, the one that will cover '23 to '25. And as usual, as we did in the past, we will come with relevant significant ambitions to continue improving our business and to make this company very strong. It's a privilege to be able to run such a strong franchise business, such a strong machine producing profits and being so balanced to produce shareholder returns, and we're committed to deliver '22, but also to come next year with a stronger plan for the next 3 years. I wish you a very good health and final part of the year, and hope to see you soon in person.

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