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

Ladies and gentlemen, welcome to Zurich Q2 2024 Results Conference Call. I am Ali, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Jon Hocking, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.

Thank you very much, and good afternoon, everybody, and welcome to Zurich Insurance Group's Half Year 2024 Results Q&A Call. On the call today is our Group CEO, Mario Greco; and our Group CFO, Claudia Cordioli. Before I hand over to Mario for some introductory remarks, just a reminder, for Q&A, if you could keep it to 2 questions, that would be much appreciated. Mario?

Thank you, Jon. Good afternoon, everybody. Thank you for joining us today. I'm here, as Jon said, with Claudia Cordioli, our Group CFO. Before Claudia and I answer your questions, I wanted to provide you with a few remarks on our results. We have achieved excellent results in the first half of the year, a performance which positions us well to exceed all of our targets for the '23 to '25 cycle. We remain on track to achieve compounded EPS growth in excess of 10% for the planned period, as we announced a while ago. BOP at $4 billion in the first half is at record level, driven by strong results in Property & Casualty, with record levels of BOP in both Life and Farmers. BOPAT ROE reached a new high of 25% in the period. We continue to carefully invest in growing the business while generating highly attractive returns on capital. Property & Casualty produced 7% growth in insurance revenue in the first half, with particularly strong growth in Retail. In Life, we saw short-term protection revenues increase by 12% on a like-for-like basis. And Farmers Management Services revenues grew in the mid-single digits. In addition, we completed our acquisition of 70% of Kotak General Insurance in India, and we also announced an agreement to purchase AIG's personal travel insurance business, a transaction which will more than double the size of Cover-More, giving it a leadership position in the key U.S. markets and globally. Now looking at our business segments in turn. I'll start with Property & Casualty. The Property & Casualty business today reports an excellent combined ratio of 93.6%, with the BOP of $2.2 billion up 3% on a like-for-like basis. Our leading Commercial Insurance business has a combined ratio of 91.4%, despite an accumulation of small and midsize weather events. In the first half, North America Commercial saw rate increases of 6%, and we remain pleased with how rates are responding to changes to loss cost trends. Commercial auto, in particular, saw rate increases in the mid-teens for the period. In Commercial property, we took the decision to moderate growth in the first half of the year given the slowing of rate increases and our continued efforts to actively manage cat exposures. This was mainly in large accounts, and we continue growing strongly in the middle market. Looking ahead, market conditions remain favorable despite the pace of rate increases reducing in some of the lines where we have seen significant cumulative rate moves in recent years. We also see opportunities for structural growth in areas like middle market, Accident & Health and E&S. Retail P&C reports a combined ratio of 96.4%, which was higher year-on-year, driven by elevated weather versus the prior year and persistent inflationary trends in motor. However, as in Commercial, we are able to increase rate, with particularly strong action taken in the core European motor market; so Switzerland and Germany. The work we have done in recent years on customer centricity is paying off, as we see an increase in customer retention despite pushing through significant rate increases. We continue to take a conservative approach to reserving. PYDs for the first half was positive, at 1.6%, in the middle of the 1% to 2% guidance range. Moving now to Life. The Life business continues to perform extremely strongly, reporting an all-time high BOP of $1 billion for the first half, and remains on track to at least match last year's record results for the full year. We saw particularly strong growth in highly attractive short-term protection, where revenues increased by 25% year-on-year with stable margins. Fee revenues for investment contracts increased by 10% on prior year. The stock of CSM increased in the period on a local currency basis, and we continue to be focused on low capital intensity growth across our Life franchise. Moving now to Farmers. Farmers continues to see the benefits of the decisive actions taken over the last 18 months: record BOP in the first half, driven by Farmers Management Services and Farmers Re. Farmers Management Services saw BOP grow by 10% year-on-year, supported by growth at the Exchanges. The combined ratio at the Farmers Exchanges improved by 16 percentage points year-on-year to 95.2%, despite significant catastrophe losses, reflecting the earn-through of rate increases and the benefits of the expense actions. The improved underwriting performance at the Exchanges also drove a significant improvement in the result of Farmers Re, where BOP for the first half was $81 million; so more than $100 million above last year. We're well positioned now to exceed all of our targets for this cycle. In particular, we expect to generate compound EPS growth in excess of 10%. Market conditions remain favorable, more so than we had anticipated at this point. And we see today many opportunities to profitably grow the business, especially in the Commercial area. Thank you for listening, and we are now ready to take your questions.

[Operator Instructions] Our first question comes from the line of Andrew Sinclair, Bank of America.

Two for me, please. First was just to do with the weather that you've talked about. I think you mentioned there was some -- the undiscounted attritional was higher, partially due to an accumulation of weather losses that were notable, but not big enough to qualify in themselves as nat cats. Can you give us an idea of what the impact on the combined ratio was from above-normal weather losses in that attritional? And just a reminder as well, what's the -- at what point losses qualify as nat cats rather than attritional. So that's my first question. Second one is faster. Just a comment on reserve adequacy in U.S. casualty lines and workers' comp. What's the development in those lines in 2024 for both older and more recent accident years?

Andrew, so let me start first with the reserves because I would say that's the most important part of your questions. We felt that reserve adequacy, especially in casualty is fully appropriate. We haven't touched the reserves. We didn't feel the need to increase casualty reserves, except for Commercial motor, and we didn't release it either. So we feel that the portfolio is performing very well and the reserve policies of the past years have been very, very solid. And that's why the PYD is pretty much where it used to be, in the middle of the range. On weather. So a couple of clarifications. First of all, the cat definition threshold is at $25 million. So events below $25 million are not counted as cats, by definition, but they are still weather events. If I look in North America -- now I don't know what is a normal weather. I mean, you said something like what is the normal level of that. I can't judge this. What I can tell you is what was last year, what is this year. In North America, last year we had 2.8% as cat loss ratio. This year, it was 3.5%. And that means that the accident year combined ratio, ex cats, in North America is 60 basis points better this year. And including the cats, the combined ratio is flat, which I think supports our view that margins are expanding in Commercial, especially in North America. If I move to Europe, again comparing cat definition, which is a restricted version of weather events, especially in Europe, last year we had 0.9%, so 90 basis points of cat events, in H1. And this year is 110 basis points. But then in Europe, there are a number of smaller, less-than-$25 million events, especially in Central Europe, that have impacted us.

Andrew, I just wanted to add that the range that we're looking at in terms of [ fourth quarter ] events, as Mario mentioned, for the ones that are below $25 million threshold and classified as weather, we are around 60 basis points worsening year-on-year, and the vast majority of it is EMEA.

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

I've got, sort of my first question, since you're so confident on the EPS, does it mean that we should also expect the dividend to grow at over 10% CAGR?

Can you ask this question again in February next year?

Okay. Fine. But unless you change your guidance, the question will be the same.

Happy to answer that then, but in February.

Excellent. Okay. Well, February, I hope there'll be no surprise. And then the other question is on, I guess, maybe just digging into the Retail. It feels like it's been a bit slower to turn around than maybe you'd have expected. Can you give us a feel for how you see the trajectory or how quickly we should get to see an improvement in Retail? That would be very helpful.

Okay. Okay. Thank you. That's a quite important question. Because the way we see today the Property & Casualty situation is Commercial is doing extremely well, much better than we expected. We see margin expansion in Commercial, and we see opportunities for us to grow business, as I indicated, in middle market, in A&H and in E&S, continuing to expand the margins further. So Commercial, we're very bullish about. Let's talk about Retail, what's the matter with Retail. So first of all, if we strip off Germany from our Retail results, we have a significant improvement of results. So the worsening of our results has been really concentrated in Germany. What happened in Germany for us? Fundamentally, 2 things happened in Germany, and both are industry phenomenon. One was an increase in frequency of claims in Germany; motor, I referred to. And the second one was a number of weather events. Germany ended up with above 100% combined ratio. Europe altogether on Retail is a 98% combined ratio. Slipping off Germany, Europe again would have been improving on last year, and it would have been on a path of achieving the 95% combined ratio that we indicated. So we need to act, not starting today, but starting weeks or months ago, we need to act on Germany. But the whole industry, I believe, is in our situation and the whole industry is facing the same need to act on the German combined ratio and improve it quickly. That's how we see the Retail situation. The motor portfolio is improving, except in Germany. Switzerland is improving, although we still want to drive further better improvement in Switzerland. The smaller European countries are improving. And you saw the kind of improvement at Farmers, where really the combined ratio is not at all a concern or an issue at the moment. So we need to tackle and have a quick impact on the German performance. Thank you, Michael. For dividend. Let's talk later.

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

Perhaps I could just start with a quick follow-up on that last point, because I'm just wondering how possible it is to react quickly on Germany. I mean, I know the industry is changing a little bit but, obviously, overweight January renewals. And I guess a lot of your peers seem to have been talking about this for a while and are sort of reporting some benefits. So I'm just wondering how quickly we'll be able to turn that around. And then, more generally, I'm just wondering if, again, possibly in our focus, I mean, a lot of your peers will give guidance on where they see the sort of underlying loss ratio going. You give guidance obviously on PYD and nat cat, but I'm just wondering if you can help us understand where you think it's progressing from here. And if it's not cheating, just you talked about the changing business mix. Commissions obviously have sort of pushed up the expenses. I'm guessing we should see an offset come through on the loss ratio? Or is that not how we should think about it?

Thank you, Peter. On Germany, look, I mean, first of all, we want to possibly conclude the year below 100% in combined ratio. It's a combination of the actions already launched and the claims management. Let's see, but then the rest would be done through price increases at the renewal date, as the rest of the market will do. For the combined ratio guidance, look, I mean, as you heard me saying, we're very confident on the Commercial situation. There, we see margin expansion. We remain very prudent and solid on our reserve approach, but we see margin expansion there. On the Retail side, the composition of the business is partially changing, with a growth in extended warranties, which is high-commission part of the portfolio and which runs at the lower combined ratio. So yes, I mean, we will expect to have this reflected. In general, I think the market conditions are different and better than we expected them to be. And so the real question for us going forward, and also starting to reflect on what's going to be the next plan for us, is, can we become more ambitious on the P&C profitability? And this is work undergoing now.

The next question comes from the line of Elena Perini, Intesa Sanpaolo.

The first one is on Commercial. You seem to be very confident on this subsegment. I was wondering where would you find some risks or some threats in this positive environment. And then another question is more a strategic one. There were some press articles around in Italy in July saying that you were interested in FinecoBank and generally in growing in the wealth management distribution in Italy. I don't know if you can comment on this and on your strategy in Italy.

Elena, I'll start with Commercial, because the second one is a little bit an embarrassing question, being myself Italian, as you are, but I'll get to that. On the first one, on Commercial, where are the risks? So Commercial is a business for pros, especially these days. On property, there is a lot of cat exposures. And different from some of our competitors, we have kept our retention amounts unchanged. And we don't want to take more retention and more risks on our books because we believe that this will increase the volatility of our P&L. And equally, I mean, we select constantly the risks and the quality of the portfolio. As I mentioned in my introductory comments, we have taken a very prudent stance on large property exposures because of cat risks and because of the rate situation. Casualty is today in a better situation than before because the rates have been hardening, hiking significantly. But again, casualty is a business for pros because you need to understand precisely what guarantees you're giving and what liabilities you're creating for yourself over the next years. We are very pleased so far with the quality of our underwriting, and we don't see creeps in that. If that is clear, let me turn now to the painful story of Italy. Look, I mean, we saw this news about our interest in an Italian bank. We thought this was baloney, if not bulls***. but we don't have a practice to comment on press. When I saw that this moved a $3.5 billion market cap, in absence of actions by regulators and others we issued a press release saying that we have no interest whatsoever, and we categorically denied anything. We will never, ever look at the bank. That is a bank, and we will never, ever look at the bank. There has never, ever been anything. I'm really embarrassed that fake news of this size can stay in the market. On interest we have on wealth management, we don't have any interest in wealth management. We only have interest in Life distribution. We want to distribute Life through financial advisers, through banks and, as much as they can, through insurance agents. But we're not going to be a wealth management provider. We are an insurance company. Wealth management is for others. I hope I've been clear.

The next question comes from the line of Ismael Dabo, with Morgan Stanley.

I just had 2 really quick questions. One, I was wondering if you could discuss more about the rate development in Commercial lines by line of business, maybe property versus casualty versus workers' comp and some other lines, and how those lines are progressing versus loss trend? And additionally, is there any difference in, like, the rates compared to account size (i.e., mid-market versus large corporate risk). Additionally, just a very small, I guess, numerical question. You guys used to provide Farmers' PIF by line of business: motor, home. I was wondering if you could provide us with how much of that $13.2 billion thus far is motor versus home versus other lines of business, if possible.

Yes, we definitely can. I mean, Jon can do that. That's not a problem. On rates, property is harder on mid-market and it's softer with the size of the company. So if you go to large accounts properties today, it's low single-digit increases. While if you go to mid-market, it's still mid- to high single-digit. And then mid-market, of course, have mid-market exposures to catastrophes and claims which, again, resonates very well with our ambition to stabilize the P&L and don't expose the P&L. But property is still highly profitable, and we still see rates in excess of cost of claims. So we still see the property margins building up. Casualty. Okay. Casualties in ocean made of very different seas in there. Workers' comp is still flat, around 0, but cost of claims is negative. So we feel very good about it, and we feel very good about the reserving situation. Liability. Liability, honestly, is performing well. The rate increases are in excess of claims cost. And again, we don't see leakages. We don't see issues with our reserving position. Surety. A&H, in specialties, they're quite still expanding their margins, and this is one of the reasons why we're very interested in continuing to grow. And you have a page in the pack where you see the growth that we're having on mid-markets in A&H. E&S is growing significantly in volumes, in rates and in margins, and that's an area where, again, we will continue to target growth and opportunities. Sorry, I forgot the important one. Commercial motor. Commercial motor has the highest rate increases of all because the whole market has been suffering losses there. There, we continue to shrink in number of policies in counts, except for some specific customer sections like Captives, for example, where historically we had very good combined ratio results. And so there, we continue to expand ourselves. We think that after the very bad last 2 years, Commercial motor is now improving. And also, we fully adjusted the loss picks for this year for Commercial motor. So we're confident that by year-end we will show a significant improvement of Commercial motor, but that will not change our appetite going forward, because we have seen enough cyclicality in Commercial motor to have a longer-term view on appetite for that line of business.

The next question comes from the line of Andrew Crean, Autonomous.

I wanted to ask or delve a bit more into the European Retail combined, which I think you said in Europe was 98% and is improving on a path towards 95%. Could you give us a sense as to how much more improvement do you anticipate there and perhaps talk a little bit about the situation in Switzerland relative to Germany, where I think you said the combined is over 100%?

So the combined ratio of Europe, ex-Germany, would already be in the 95%, 96% combined ratio that we said that we would like to achieve this year. And so we still think that EMEA has to be run at or below 95% Retail combined ratio. And if not this year, we think that this would be achieved by next year. On Switzerland, Switzerland is running Retail at 97%. Switzerland also had a weather impact. There is roughly 60 basis points of a weather impact in Switzerland. And then they had also 60 basis points of more cats with respect to last year. So that's why I indicated that we want to continue improving in Switzerland, but it's not as a drag as the Retail Germany performance has been on Europe or on our results. And we will continue -- this means that we will continue having price increases and portfolio selection in Switzerland going forward, especially on the motor side.

If I may add, Mario, on your question on Switzerland, Andrew, the team has started already last year to take very decisive actions on pricing. We saw then frequency last year increasing; severities, to some extent, also being a topic. Now this year, clearly, Switzerland is seeing important inflation on spare parts, and that's one of the points in motor. But we've been taking very aggressive action on pricing; the team continues to do that. And the loss picks adjustment that Mario was mentioning has been done as well there. So we are confident that we will see improvement in the second part of the year.

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

First one, Mario, could you talk a bit more about the outlook for the Farmers combined ratio, please? I mean, the first half does seem excellent, and this time last year the second half was only 96%. So it does look like you're now just mathematically trending more like to be in the mid-90s, when your official comment is just below 100%. So are we at the stage now where we can be more optimistic about the Exchanges combined ratio? Or is there stuff that can be more of a headwind in the second half? I can't myself think what it is, but that will be kind. And then secondly, could you give us a bit more color on the crop result, please? Ideally, I'd like to know the revenue BOP and combined ratio, but if you can just talk about the trends. And specifically, am I right, one of your slides talks about crop being $500 million lower than last year. Is that number equivalent to the $1.2 billion of revenue that you did in the first half of last year? In which case, it really is a massive cut? Or I might be not comparing like-with-like.

So let me start for crop because it's a longer answer then. So no, I think you misinterpreted. There is a slowdown in the commodity prices. But if I am not wrong, and Jon can correct me, it's worth $100 million in lower revenues, and it's definitely not the size you indicated. Now how is crop going? I mean, so far, this looks like a very good year, but I cannot say anything more than this now. And frankly, also, what I say today can be easily changed by weather later on. And so I mean, we just have to sit and wait. We've taken actions reforming our portfolio. Remember that there was a piece of our portfolio which was lousy, especially last year, and these were the private customers. So we have taken actions in reducing the share of these private customers already. We definitely expect a better result than last year, but then the weather will tell the final one. And this will be known in November, December, not now. But there is nothing at the moment that worries me on the weather situation, the weather developments or anything else. On Farmers combined ratio, I mean, you're right. The Farmers combined ratio is at 95%, despite a pretty heavy cat second quarter. Despite that, we're still at 95%. So I think the combined ratio issue at Farmers is fully resolved. And Farmers, we'll keep running the portfolio of the business below 100%, which gives space now also to start growing the business. And also they started already thinking about how to grow the PIF. California has turned itself very quickly, and we're confident again to be profitable in California this year already, which is an impressive achievement considering the history we had there and considering the amount of the gap we had before. And this is a very important basis to start improving the PIF, because it means that in the rest of the states we can really have competitive pricing and grow the business there.

If I may, coming back to your question on crop, William, so we've seen a reduction in terms of gross premium written of nearly $400 million, but that does not compare to $1.2 billion of revenues. We were about $2.5 billion last year for the first half. So that's the magnitude. So it's very material, but obviously, it's concentrated on the first half of the year.

And remember that a piece of it is deliberate because we canceled business that we did not want to have. And then there is a piece of it, which is commodity prices, and that's roughly in the $100 million ballpark.

Hence, we expect it to have a positive impact on the bottom line. And maybe just to add on the Farmers combined ratio, I mean, don't forget that part of the improvement on the combined ratio is not just driven by the top line and what they've been doing on capacity exposure, which is notable and significant. But also the expense run rate that the team has been taking out, that's very significant. So that's there to stay. That won't come back.

The next question comes from the line of James Shuck, with Citi.

Without taking away from the progress made at Farmers, I'm still a little bit kind of surprised by the level of nat cats in Q2. You said 22 points. I know you've done a lot of work focusing on the footprint and trying to rein that number in. Is that just a timing issue (i.e., are we still waiting for things to be reunderwritten and the nat cat exposure to be rebased down)? And I guess I think I asked this on the last call as well, but what is a normal level of nat cats that you would expect at Farmers, going forward? And then secondly, just in terms of the CrowdStrike outage, I appreciate you don't have much cyber exposure directly, but just keen to know what kind of impact that might have on your travel business, please.

Look, James, any question on what is the normal level of catastrophes is very hard to address, honestly. I don't know what that is. Farmers has cut roughly 20% of their cat exposures already or by year-end they will just be at 20% cat. If this is not going to be enough, they will cut further, as we did at Zurich. The second quarter has been heavy for everyone in the industry. So there is nothing special about Farmers. And even with that, they are a 95% combined ratio. So they are absolutely fine. So I would say at the moment, they're happy with it. And if needed, they're going to do more. But I don't think at the moment that they feel more is needed. And let me also stress, and again allow me to do that, that I would just want to repeat that we're making huge profits in our reinsurance contract with Farmers, and we believe that this will be quite stable over the next years. Remember also that they canceled geographically some of the states which are more cat-prone. So it's not just about policies, it is geographical presence. I hope that is clear.

And I guess, over time, as they obviously create room, they have been creating room to invest as well and grow in other states, you will see also the mix change. So it will become more and more balanced now that other states don't need to cross-subsidize California, effectively. So they are in a much better place than they used to be, but they are now in a phase as well where they can grow in other states, and that will be accretive to the mix and to the right balance that they're targeting.

Right. Then on the outage of the past days, I mean, as you said yourself, it's certainly early days to draw conclusions on it. From what we see in our portfolio, we don't have any kind of significant exposure travel included. I mean, cyber is not a portion, a significant portion of our portfolio, neither is something that we like to offer to customers. And similarly for travel, we typically issue travel services, but we don't insure travel. It's a different concept. So I don't believe that this is going to be any significant for us, but it's very early days, and we know companies that are still in remediation. So they haven't yet figured out the impact of that and the cost of it. But I don't expect to come back to any of you saying that we have a big impact from that kind of claims.

Your next question comes from the line of Vinit Malhotra, Mediobanca.

Mario and Claudia, my 2 questions, I will focus on Commercial, please. One is just on the growth areas that are mentioned by you. I mean, they do look interesting, but they feel a bit like maybe it's a $2 billion out of, like, maybe 10% of the group. I mean, I'm just curious if these growth areas are really enough to get some more growth, or you just note them here just to see where the interesting things are. And within that, I'm also interested in the A&H line that you mentioned. Because when you see various of the industry articles, we see there's some claims inflation, some health protections, those kind of things. So I'm just curious if the profits are also commensurate with this growth in A&H. And then my second question, a very quick check, really. I mean, we've heard the optimistic and positive comments around Commercial margin. I'm just curious, at the moment, when I see the 1H data in your slide, I think Slide 25, it's more flattish year-on-year, ex-cat. Is that just because of the effects of weather or smaller claims, do you think? Or this is what you intended to communicate when you say margins are holding up in Commercial?

We are at 60 basis points more cat events in Commercial compared with last year. And with this, the margins, as you say, they're flat, which means that the underlying margins are 60 points better with unchanged PYDs and reserve approach. I think this is a very healthy signal to us, compared with the forecast and the plan that we had that over this 3-year cycle Commercial will soften. And you might remember discussion with many of you about, "Will you be able to hold the Commercial margins? How much is going to be lost there?" We see today a very different situation, where Commercial is holding very well. And actually, it is expanding margins. And we're reconsidering what this means for us and for our plans. That links for me also to your first question about where are the growth opportunities. So for sure, one thing that we're not considering doing is taking more risk on retention. That's a possibility today. We're seeing the market doing that. But that would mean also reopening possible volatility issues in our P&L, and we don't want to do that, however profitable that can be. It's a new scenario, to be honest. Because up to probably 6 months ago, we've been looking at the market, trying to figure out when and if the soft cycle will start. And then we started understanding that at least in property there is not going to be any soft cycle because of the correlation with weather. And that also meant that we had to reconsider what to do and how to deal with that. And equally, the hardening of the casualty business and the hardening of the specialty business has opened up opportunities that now we are evaluating and assessing. I don't think that middle-market A&H and E&S together are a $2 billion ballpark. I think the potential there is much higher. But this is for our next plan to figure it out. And when we will be clear on that, we will come to the market and present our plans. But it's a different ballgame than the one we thought we would be playing by this time in the cycle. On A&H, look, "H" is a combination of many different things. There are things which are risky and of questionable profitability, and there are parts of the business which are very good and solid and sustainable. So we think we're playing so far with excellent returns in these good parts of the business, and we'll continue playing there. But again, take it as a commitment that we're working on it, we're working on how and how much to be able to grow this business in the next years. And when we will be ready, we'll come out with our plans for it.

The next question comes from the line of Dominic O'Mahony, BNP Paribas Exane.

I've only got 2 relatively detailed ones remaining. One was just on Life. A strong result here. When you set the guidance that you'd achieve operating profit at least in line with the prior year, had you already anticipated either the German write-back, the $50 million that [indiscernible] and/or the strong experience result? I think it was about $100 million of strong experience in the period. I'm really trying to work out whether that was already in your line of sights when you set that guidance, or not?

Yes.

And then just secondly on -- okay, very good. And then secondly, just on group functions. Clearly, lower than most of us were expecting in the prior year, I believe. At the same time, your guidance for the full year is unchanged. Could you help us understand the phasing there? It's obviously suggesting quite a different balance between H1 and H2. I'd just like to understand what's driving that and how it might help us understand how that segment performs in the future.

I believe there, there is a positive impact from the financial markets and the cost of debt which is impacting these numbers. So if you look at the head office structure and the cost of it, it is a few millions lower, but not a big change. It's just a few millions lower. The rest of the benefit, it is because the cost of debt and the financial costs are lower than they were a year ago.

And possibility of phasing out some expenses, Dominic. So I would not extrapolate anything other than the guidance we gave in the past. With respect maybe to the first point on Life, on the positive experience, this is something that in a book of this kind you will see, that there's nothing exceptional there. We knew about the German legacy book when we gave the guidance. There's also some impact coming from FX that goes the other way around. So it's an extent of volatility and operational experience that we will see also going forward, but we would expect it to be rather on the positive side.

The next question is from Will Hardcastle, UBS.

I guess it's been quite a long time since we've had to consider and think about SST really being any sort of binding constraint for Zurich. I'm sure we're still miles off, but in the context of the interest rate fall and your sensitivity, can you just remind us at what point you'd start having to at least consider it when considering excess capital distributions to shareholders beyond the regular dividends or growth assumptions?

Well, Will, I don't think for us this is linked to SST. This is more linked to cash. We distribute excess capital when we have or when we feel we're sitting on extra cash. SST, as you said, is not a binding constraint. And also, SST is notional capital. And even if we have it, but we don't have available cash, we won't be able to distribute it. So for us, how much to distribute in dividends, how much else to distribute in other forms is very much cash-driven. And as you saw last year after we sold the Farmers New World Life, which was a way to transform excess capital into cash, then we launched a buyback to – we proceeded to this free extra cash back to shareholders. But it's not SST-driven. It's cash-driven.

And just for the avoidance of doubt, William, we're doing very well on cash remittances. There's no sign of anything constraining us there. But as you've also seen with the acquisitions that we've recently made, with the growth of the business, that we are confident that we find great opportunities for us to grow the business profitably. So that's the way for us to deploy capital at the moment. But in terms of cash remittances, we are, as we just said, on the path to exceed all of our targets, including that.

Today's last question comes from the line of Michael Huttner, Berenberg, as a follow-up.

It's just a bit of maybe clarification on the Farmers policy count story, which I guess would be lovely. Could you give an idea of timing when we might see a positive here? I think in H1 it was minus 5%. And that's my only question.

Michael, I think timing, we stick to what we said, is next year. Because this year, they're still losing policies that are being canceled through last year. Take, for example, the decision to abandon some U.S. states. That was implemented between H1 and the end of the year last year. So the loss of the policies will continue up until year-end. And so they're already growing the business. But until you see a net policy-in-force growth, we have to stop [ bleeding ] policies out for cancellations. And this is only going to happen during next year. It's not possible for this year because the policies that they're losing are still quite big numbers. And again, just for the sake of clarity, they are already growing the business, and they're already growing the agency counts and the policy counts, but they have been abandoning entire states of U.S. or canceling pieces of portfolio. And so what you refer to is a net number. And for this net number to become positive, we need to stop the cancellation, to finish seeing this cancellation impacting the portfolio, which is going to happen next year.

So my wish, and it's not a question, when I think, 21st of November, maybe you'll have a like-for-like policy count. I know these are strange numbers, but then we can start dreaming a bit.

What would you mean "like-for-like"? Excluding the cancellations?

Yes, yes, yes.

Okay. We can think about that. I can come [ clearer then in ] February with an answer for this.

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

Thank you, everyone, for dialing in. If you've got any outstanding questions, please get in touch with the IR team. Thank you.

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.