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

Ladies and gentlemen, welcome to the Zurich Half Year Results 2026 Conference Call. I'm the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to [ Adrian Lin, ] Head of Investor Relations and Rating Agency Management. Please go ahead.

Good afternoon, everyone, and welcome to Zurich's first half results call. I have with me our group CEO, Mario Greco; and our Group CFO, Claudia Cordioli. As a reminder, we will not be taking any questions on the proposed acquisition of Beazley or comment on its results given we are still 2 separate independent companies. Before I hand over to Mario for some opening remarks, please, can I remind you to keep your questions for the Q&A session to a maximum of 2. Over to you, Mario.

Thank you, Adrian. Good afternoon, everyone, and thank you for joining us today. Before we take your questions, I'd like to make a few remarks on our half year results. I'd like to start with 3 messages that I'd like to highlight today. First, we delivered another record result. Business operating profit increased 13% to $4.8 billion, and core EPS grew 11.5% and with every business segment contributing to this growth. These results reflect the strength of our diversified model, our focus on execution and our ability to generate attractive returns through the cycles. Second, we are seeing strong momentum in our strategic growth areas. In Property & Casualty, our diversified portfolio allows us to expand selectively in areas where we see attractive returns, such as specialty middle markets. In Life, protection growth reached double digits well ahead of our targets. And our farmers, policy count growth continues to build with the exchanges gaining market share for the first time in a decade. And lastly, today's results reinforces our confidence in meeting or exceeding our 2027 financial targets. We continue to see attractive growth opportunities across our business, supported by structural trends, such as investment in air infrastructure and rising demand for protection solutions. Now let me briefly touch on the performance across our key business segments. And as usual, I start with Property & Casualty. Gross written premiums grew 7% to nearly USD 30 billion with an all-time high operating profit of USD 2.8 billion, up 16% year-on-year. Combined ratio was an excellent 92.7%, reflecting the strength of our underwriting and active portfolio management. Within Commercial Property & Casualty, Specialty remains a key growth area with premiums up 8% and an underlying combined ratio of 91.2%. Construction was a particular strength, growing 18% supported by demand from AI-related infrastructure, not just in the U.S. but around the globe. This is an area where our risk engineering, underwriting expertise, global capabilities such as our fully integrated global industry vertical and ZRS expertise give us a meaningful competitive advantage. And this supports our leadership position. We currently lead on around 70% of our underwritten data center projects. Within our customer segments, middle market also continued to perform strongly with premiums up 7%, driven by growth in Germany, Italy and France and targeted expansion in the U.S. Across our commercial portfolio, margins remain healthy following several years of cumulative rate increases. We continue to see pressure in lines such as U.S. large property and E&S. While financial lines in cyber are showing signs of stabilization as the market responds to increasing claim complexity and emerging AI-driven threats. Casualty rates continue to increase reflecting persistent loss cost trends. Importantly, the breadth of our portfolio across geographies, products and customer segments give us the flexibility to dynamically manage our portfolio through different market cycles. Nat cat losses remain low at 1.9% of combined ratio reflecting actions we have taken over recent years to reduce cat exposure in our portfolio. In terms of the recent wildfire events in Central Europe, we currently do not see a material impact on our results. You will have seen in our materials from this morning that the prior year development contributed 2.4 points to the combined ratio, somewhat above our usual lending. We expect PYDs to remain modestly elevated in the near term, supported by positive experience from short-tail lines, particularly from EMEA property. -- where we took a conservative approach following the inflation spike in 2022. In addition, the 2025 accident year has developed very favorably for global travel and for our U.S. crop business. Our approach to long term lines remains unchanged, and we continue to carefully monitor trends in casualty given continuing social inflation. On Retail, Property & Casualty, the operating profit grew 14% year-on-year, and the underlying combined ratio improved by a further 60 basis points to 94.6%. Rates remain positive, and we continue to see improvements in motor and property, supported by investment in pricing and claims. In EMEA motor, for example, the combined ratio has improved by more than 5 points over the last 2 years to a healthy 96.2%, close to our longer-term ambition of operating below 96%. Turning to Life now. Business delivered a record operating profit of USD 1.3 billion, It is up 16% on a like-for-like basis. We're particularly encouraged by the pace of growth we're seeing in protection, where premiums grew 10% ahead of our targets. Growth was supported by strong performance in the U.K., Australia and Latin America, where we saw continued expansion in our bancassurance partnerships in our joint venture with Santander returning to volume growth. Beyond protection, both our savings and unit-linked businesses contributed to earnings growth, benefiting from strong customer inflows and favorable financial market impacts. As a result of this, we are raising our life profit guidance for the year. Looking ahead, we see significant opportunity to grow protection further as we continue to help customers address their increasing needs for protection and health solutions. And now farmers. Farmers delivered the strongest half year ever with operating profit of USD 1.2 billion. The exchanges grew premiums by 4% and are organically gaining market share for the first time in more than a decade. This represents a key milestone and is a testament to the successful transformation that the team has executed on since 2023. The exchanges are now operating from a position of strength with an industry-leading combined ratio of 82.4% and a surplus ratio of 58.7%. Looking ahead, we expect exchanges to benefit further from key initiatives to enhance agent productivity alongside a newly launched brand campaign. So to summarize, we are just at the midpoint of our 3-year financial plan. We announced it at our Investor Day back in 2024. And today, we're pleased with the progress we're making. The strong momentum we are seeing in our first half result reinforces our confidence in meeting or exceeding all our 2027 targets. Thank you very much for your attention. And now Claudia and I are happy to take your questions.

[Operator Instructions] The first question from Michael Huttner, Berenberg.

Fantastic. And well done on the results, but I'm really sorry, I want to focus on Beazley. I only have 2 questions. On Beazley, my 2 questions the following. One, could you -- is there any update on the timing for the completion of the deal whether with September, October, earlier or later? Or are there any milestones you have to think about? And then the second is also on Beazley and this you might choose to say, well, we can't answer. But the results yesterday, the day before, were possibly a little bit less strong than we had hoped. Obviously, it's not very actively followed stock anymore with [ cyber ] combined ratio, which worsened by 12%. And I just wondered if that's changed any of your kind of thoughts about ROE enhancement ROI return, whatever? .

Michael, it's interesting that you start with the first question after Adrian said that we're not taking questions on Beazley and that's 2 questions. So look, on the timing, I don't know. I mean we are in the process. We got approval by a number of jurisdictions, but not all of them. I would say that this is a Q4 event. Now where in the Q4, it's hard to say. There are no issues, no delays. It's just that it takes time. On the results, we have nothing to say because we have really nothing -- we don't know anything. And so we can comment on something that we have no information about.

The next question is from Fahad Changazi, Kepler Cheveraux.

On North American rates, minus 1% and Q1 '26 was flat. And I believe the outlook has changed from stabilizing to moderating. So could you just put a bit more -- you already talked about some the business lines. Could you just talk about in terms of the outlook then versus now and what's changed And I was wondering if you could also talk a little bit more about specialty, your specialty business and where rates are developing, you highlight some segments that you've cut back in 1 of the segments that you have increased premiums, but you can just talk about the inspects of specialty.

Yes. So look, on the rates, in particular, the U.S. rates -- the rates in the second quarter have been very positive double-digit positive on specialty. They've been high single-digit positive on liability in Motor, as in all the past years have been close to flat on workers' comp and they've been negative on property. Our property remains negative in the rounding of 10%. That's the composition respect -- with respect to Q1 specialty has improved. Motor and Liability have stayed on the same levels. Property has slightly worsened and workers' comp is practically unchanged. So that's the situation on the North American rates. The rates are slightly better or are better in EMEA and this is probably a structural characteristic. The market is less competitive. So it's not just a lag in transmission. It is just rates in EMEA are structurally higher than the ones in the U.S. Then you asked about specialty, but what -- what particular angle of specialty, do you want me to answer you on? Rates or on the volumes?

Actually you can do both. And if you could just also segment between the large specialty business at the middle market specialty business as well. .

Yes. So on specialty, of course, the predominant component in our results is what the construction and infrastructure vertical does -- this has been the highest source of growth, and it's also probably the most rewarding 1 for us in terms of margins. E&S has performed slightly better than it did in the past years. But it remains for us in the area of careful underwriting. Financial lines is showing, as Claudia said, I think a number of times already showing some improvements in the rates and the margins. Energy remains a growth area for us and quite stable. We got some as it happens every number of years. So we got some losses in surety for some of the exposures that we had not related with construction and infrastructures. And on cyber, we see a market of which we expect now to turn into better the rest of specialty for us is insignificant.

If I may complicit in Mario's comments, there's also the geography aspect, right, it's great to see that the growth is broad-based. So it's not a U.S. topic only. As you were rightly pointing out, there is some overlaps as well between middle market and specialties, roughly 1/3 of of specialty is done with middle-market customers. And this is a big driver of growth in the European markets as well. So the U.K. has been traditionally leading. But what we are seeing now becoming more and more prominent is Continental Europe. There's a number of beyond data centers, infrastructure projects, very large projects in the energy field, which need a lot of insurance support. So we're very happy to be growing there. It's double digits in Germany, in Italy, France Benelux on a smaller basis. So those are great markets for us, and we are very well positioned to be growing there.

The next question from Iain Pearce, BNP Paribas.

The first 1 was just if you could talk a little bit, particularly about the commercial accident year combined ratio ex cat trends. So that was 120 basis points higher year-on-year. Could you talk a little bit about how you're expecting that number to trend? And if you think that the retail improvements can offset that? And then on the expense ratio, obviously, that was quite a bit higher year-on-year as well. You flagged business mix and commission impact. But when I look at looks as if the expense ratio has basically gone up in all regions ex APAC, and in both the retail and commercial division. So I was just trying to see if there's anything else to flag in the expense ratio trends across the different segments.

Yes. So I'll start with the expense ratio and then Claudia will continue on the combined ratio commercial in retail. Look, on the expense ratio, there are 2 things that are happening. The pure expenses, we are very confident that you'll see them by year-end coming down. And so we're still confident that we're going to show by year-end and then in the next year, a reduction of the pure expenses component into this. On the commission side, however, that reflects the business mix and reflects partially the different composition of the premiums that we are reporting in our portfolio. Now we will carefully manage it over time and making sure that this doesn't worsen further. But in a sense, this is also a more stable business mix for us. It's a more encouraging business mix on the margins than the 1 with a lower commission ratio. There are products like travel, but also [ Finai, ] which do have higher commission ratios, but then they offer us important benefits on customer loyalty and in profitability of the relationship. Is that enough on the expenses and commissions or?

Yes.

Thank you, Mario. On the loss ratio, I mean, just to give you some context out of the year-on-year move on the combined ratio of 2/3 is loss ratio and 1/3 is the commission essential definition point that Mario already mentioned. So the year-on-year worsening on the loss ratio while it's there, it's 80 basis points. So in the context of a book that's growing 7% being able to maintain this business mix and this level of margin is really -- sorry, let me reiterate that because I think it kind of comes a composite where obvious, if not, right? There's a lot of proactive portfolio management that's done to keep a portfolio of this size, growing at 7% at 91% combined. So important that we reiterate that. So in terms of the loss ratio changes, there's a bit of a mix impact there as well. So obviously, the rate movement in property is such that we are growing less in property and here and there, we are also proactively moving some business where rates are no longer adequate. So that's also visible, obviously, in the loss ratio. There are a few losses, as Mario was mentioning, it's very pointed on the Surety book or the underwriting years, but it's coming through the accident year. So some relatively small in the context of the overall books, but there are a number of factors coming together. So the volumes property, some very specific losses coming through. We want to continue to grow the book in our target and strategic areas. The combined ratio might move slightly from here. Obviously, we have a very strong focus on expenses, as you know, and we continue to have it going forward, but we are happy about the context of the book as a whole and where it's going as long as we are growing at this rate with this type of margins and profitability. .

And can I add the comments because not many of you have been around in 2018, 2019, but I was there. And at the time, was a similar discussion where some of your colleagues were asking us, what about for the reduction of the combined ratio we're saying we're targeting EPS growth and BOP growth, but we're not targeting low combined ratios. We're running targets for targets, which are on BOP and EPS and this is what we want to achieve. We're not in a race to have the lowest possible combined ratio, no matter what the BOP in the EPS are. So please be mindful of this because otherwise, you don't understand what we're trying to do here.

And the growth, maybe that might be a related question on this side. The growth that we are pursuing just to be very clear on that point as well, is mostly growth that's coming through very profitable mostly short-tail lines, right? So we are not -- just again, to reiterate, we're not making compromises on the underwriting discipline. We're not taking long-term bets on casualty. We're not growing casualty, in fact on a net basis, right? So we are not taking that on future social inflation trends. We want to grow the bulk in the lines that are mostly profitable, and they happen mostly to be shorttailed specifically in the specialty middle market area.

The next question from William Hawkins, KBW. .

Could you first talk about any major issues you want us to be aware of in terms of seasonality or sequential change when we think about 2H versus 1H -- there may be a lot to say on the non-life side, obviously, nat cat seasonality, and it would be good to have an update about whether you think PYD or other loss picks could limit the impact of that in the second half. But I'd prefer if you could start by talking about the Life result, please, because you have just had a great print. And I'm not sure about the seasonality of life. From first principles, I just thought your life results should be stronger in the first half than the second half because of things like dividends, but the history seems to show that actually the second half gets better relative to the first half. So I'm just trying to manage my expectations for that. And also, thank you very much for Slide 19, where you've dug a bit more into margins on the life side for me, least,that's really helpful. Then secondly, much shorter question. In the SST walk, there's a very small change in target capital which seems a positive surprise to me given how much you're growing the business. So could you help me understand why there's almost no change in required capital and what the outlook is, please? .

Okay. I'll start, William. And by the way, thank you very much for the title you used this morning to your report on us on the [indiscernible] of lesser code, no more of that. You remember that I said many, many times, and I'm happy to see that it's finally coming back to be a normal sun. And then I'll ask Claudia to take the capital question. Look, seasonality -- of course, in the second half of the year, you start watching the weather reports every morning or twice a day, especially on the U.S. That's a constant thing. Now 1 thing, whether I want to stress is that if you look over the past years, we constantly outperformed the market in terms of share we have a natural catastrophes. We have become very good at selecting the cat exposures, meaning that we're less exposed than anybody else, I would say, in the industry to cat events. So -- but that is the fundamental seasonality in the second half of the year. I think on the cost side, vice versa, H1 is kind of heavier because we make investments, we make a cost decision at the beginning of the year and then in the remainder of the year, we manage the results. And so we typically reduce it, and that we're confident that the costs will be lighter by year-end. Life I think the only change that exists between H1 and H2 really is that some of our distribution channels will feel the constraint of meeting their budgets and they will be forced do better on the sales and so we expect actually that on the same side, we should report even stronger numbers by year-end for that. But other than that, there is much seasonality there. On capital?

On capital, so relatively is explanation, William. So there's -- there is a very tiny incremental net incremental increase in the capital that we need, but most of it has been diversified away because the growth is so broad-based in terms of where it's coming between life, non-life and geographies as well. This is a place we're talking about seasonality. We might see potentially a bit more of an impact in the second half, but it still stays in the in the low single-digit area.

The next question is from Vinit Malhotra, Mediobanca.

So my 2 questions. One is for back on life, but more thinking about I mean this unit has persistently surprised positively over many years. And I'm just thinking that if you are getting a plus 10 -- above 10% earnings growth this year, how -- what could theoretically business-wise, say, drive further growth next year? So just looking next year or next year, of what could be in the business that could make another push on growth on life? Second question is, again, slightly hypothetical the data centers in the U.S., obviously, is 1 of the key 2 at the moment, I think, from all the conversations. I mean, recently, there was some article in the economist, which was titled compute, which basically shows that the populations and with other people in the U.S. are digging to object to such data centers. And I understand that, that's where you come in like you therefore the warranty of the project being built. Are you seeing anything? Are you hearing anything about such kind of risks to this business line from a claims perspective? Or are you seeing anything there that is worth flagging? .

Yes. But that's -- sorry, let me address this reactively. That's not a risk for us because we only ensure projects which are authorized which are decided, authorized and can officially start. So if there is a position, the project will not even start. And anyway, that's not a risk for us that the project then will not be I can say, will not be authorized to continue. The risk for us is that the project doesn't deliver what it's supposed to deliver because construction doesn't work. This construction is not appropriately realized. So we fundamentally ensure 2 things. One is the builders risk and one is the construction of risk plus reinsure the workers, we ensure the transportation, we ensure the energy definition of the solution for the location for the place the opposition of the people is before the project starts if there is. On life, look, I mean, first of all, I'm glad that life starts to be considerably valued. I think our life business is fully discounted in our results. I mean, I believe that in 2027 will grow even further. We are expanding very nicely across Asia, for example, where -- our results have been not very significant in the past. We have been investing in Hong Kong and in the development of the life market in Hong Kong, we're even investing in branding around there. That's an area where we expect further returns. Japan has been a fantastic surprise for us the success we reported there. We own today 8% of the unit-linked market in Japan with incredible success of our products and services and all then on a kind of ground-up basis. Brazil, Latin America, especially with Santander, we discussed it many times. I think they still have something to recuperate, and Santander has very aggressive plans to further growth. So even there, I expect better results. But to start with, now we want to deliver further improvements in the second half of the year, and we're going to deliver a but result of life exceeding $2.5 billion, which will be for Zurich and a very important achievement. And then we will concentrate on '27. But you remember all the investments we made in life, we changed the organization. We brought it to a global platform. We in-sourced underwriting. Today, we have a global database of risks in life, which allows us to price and underwrite centrally giving very good services to customers and achieving full control of how we manage the business. We never had that before and probably not many companies have it. So it's a journey that now is starting to deliver the results and the profits.

Sure. Can I just follow up quickly, please. Because as we mentioned, Hong Kong I mean there's been loads of news around Chinese tax authorities decisions. I just presume that that kind of offshore business is not what it does -- should be more protection, should there be?

Yes, yes. I mean -- and we're not doing offshore business. We're doing business with on copresidents. We're not doing offshore business -- but there is very significant wealth there -- and so the demand there is super high and super hot, and this is a great opportunity for us. .

Next question from Will Hardcastle, UBS. .

A question on the data center growth, maybe a couple of sub-questions actually. I'm trying to get a grip on your competitive edge you have here. You've discussed that edge of what the risk engineers give you in the past, but maybe the addition scale also a key advantage. I'm trying to understand perhaps what line sight you can offer versus competitors and whether the lead role because of your capability is really differentiating in price versus the follow market? And just as an extension, I read there's some consortiums happening and they're scaling up together to offer higher limits. Are you seeing that as a threat to the price or not at the moment?

Well, Construction & Infrastructure has always been the main competence of Zurich on property and casualty since really decades ago. You remember that we advertised years ago as the insurance company who made the Panama Canal, and that was really decades ago. What we have, which is special. I mean, besides having hundreds, really hundreds of specialized underwriters on this. Then we have the risk engineering. But also, we have run this as a vertical, as I mentioned before. vertical means that we don't just offer construction, build this risk and construction of risk. We offer the customers integrated in the construction of risk and business risk, we offer for everything else that they need. And this is motor transportation, marine. This is workers' comp. This is fleet every kind of -- and of course, this is a security. Nobody, I think, in the market comes to them with an integrated offer and we have people who have done this for years and they know very well how to make these projects from the insurance standpoint and how to support the customers doing that. Look, this is a market which is clearly in excess demand, not in demand of insurance. So I'm not afraid of anything. Actually, there are projects who are waiting to start because there is no insurance available. We're happy if some capacity comes because we'll be able ourselves to do more, we can do all by us, we have limits. So we control our exposures, we control our concentration of risks. And as long as there is a clear excess of demand from the customers. we're happy with everybody say entering. And I don't see how this can be reverted in a situation of excess supply. I really don't see that happening any time.

Right at this point in time, if I may add, well, this is where there are constraints on the insurance and the capital side as well as it goes into ensuring data centers. We've been -- I think we put it in the deck as well. We were successful in a new strategic placement. We placed a variable quota share on first of July, which gave us $1 billion of additional capacity that we now can deploy in the market to support new projects. But as Mario said before, I mean, if we had more capacity to give to our engineering teams, the request is there, they would be actually super happy to deploy more in other projects. So right now, I think we are at a point where the traditional insurance and reinsurance market is coming to a limit in terms of the capacity and solutions that are more innovative that foresee some type of consortia or bundled capacity. I think that's actually a necessity, right, to be able to continue to support projects of this scale. So we are welcoming and we are exploring ourselves as well as some innovative forms.

Also Will just be mindful that, okay, data center is something that it's easy to visualize, but this is about infrastructure. It's about energy projects. It's about transportation means because a lot of these projects are just about -- in Europe, for example, are about highway and railway systems A good part of that Germany is now planning to do or started doing is about that. There are lots of energy building infrastructure in -- across Europe. In the Middle East, there are lots of projects, significant ones focused on energy. So it's easy to talk about data center because it's incisively important for everyone. But a lot of what we do there is infrastructures. And again, this is a nice job for us. I mean we know it. This is good business for us. .