Zurich Insurance Group AG

James Quin - Head of Investor Relations Martin Senn - CEO George Quinn - CFO

Paul De’ath - RBS Andrew Ritchie - Autonomous Research Michael Huttner - JPMorgan Andy Broadfield - Barclays Thomas Seidl - Sanford Bernstein Farooq Hanif - Citigroup James Shuck - UBS Stefan Schuermann - Bank Vontobel Nick Holmes - Societe Generale Marcus Rivaldi - Morgan Stanley Ralph Hebgen - KBW Anasuya Iyer - Jefferies

Hello and welcome to Zurich’s full year results presentation. I’m joined by our CEO, Martin Senn and our CFO, George Quinn.

Martin and George who’ll make a few short comments before we open the Q&A. And as usual, please keep to two questions.

I will now hand over to Martin.

Thank you, James and welcome to everyone on the call on my behalf as well. We are one year into the three-year strategy outlined in December of 2013.

And as I explained in my presentation this morning, we have made good progress in a number of key areas and across each of our three strategic cornerstones, namely, investing in priority markets, managing for value and growing our operating earnings. In terms of our targets, we are very well positioned in two of the three.

Our solvency as measured by the Z-ECM ratio and cash remittances. These two metrics are important reflections of our overall financial strengths and resilience and underpin the CHF17 dividend per share that the Board of Directors is proposing.

Where we are less satisfied is with the progress made in translating these initiatives into improved earnings, with an ROE of 11% below our 12% to 14% target range. By 11% return is not a bad outcome in itself there was a gap to close and we have actions underway across the business to ensure that we will deliver on those three of our targets.

And with that, I will now hand over to George, who will give you a short overview of our financial results.

Thanks Martin, and good morning and good afternoon from me. I’ll make a few short introductory remarks on our results.

And as I do that, try to answer some of the questions that we’ve been receiving this morning. And I’ll focus first on Q4 standalone.

So, business operating profit of just over $800 million is below expectations, mainly due to 99.4% combined ratio of GI business and reserve additions that we made in non-core, which mainly relate to U.S. asbestos and environmental liabilities.

In GI, the accident year ex-cat combined ratio was 98.2% for Q4, compared to 94.8% in the first nine months of year. The increase is due to four factors which are in roughly equal measure.

So, we had a slightly higher level of large loss, we have adverse experience on U.S. crop, we have an up-tick in the attritional loss ratio and we have slightly higher expenses.

To put in some context, compared to where we were in the nine months results, we’ve increased the attritional loss ratio booked for the full year by about 30 basis points in Q4. It’s a fairly small adjustment obviously overall for the year but it magnifies because of the impact in the quarter.

This doesn’t make the Q4 results any better but hopefully does explain to some degree why we wouldn’t extrapolate this into future periods and why, instead we actually ask you to focus on the full-year picture. And on that basis, we did make good progress on a number of key areas.

So, even with a weaker Q4, our accident year ex-cat combined ratio and GI improved by 1.5%. Our life business results were impacted by some of the management actions that we took last year as well as the costs of some of the central initiatives that we are undertaking in execution of strategy.

And farmers, we believe has clearly turned a corner, with the return to growth and positive momentum on our key metrics. There are positive trends in the performance although we clearly need to do more to improve our ROE and deliver on the 12% to 14% target.

But this isn’t any different to the picture that I said owed to the December investor update, well the gap between 2014 performance under target is perhaps slightly wider than expected. The levers that we intend to apply are no different to the ones that we discussed back in December.

So, namely delivering number one on the GI turnaround plans for their underrating initiatives and priority markets enforce management and life and with an acceleration of plans relating to efficiency. Lastly, in relation to balance sheet and cash position, the macro-environment, lower reinvestment rates and the strength of the dollar and the Swiss franc against the Euro, present us obviously with some challenges.

We tried to give you a steer in the presentation on what these factors might mean for a, starting point earnings in 2015, but nonetheless we remain in a very secure position in terms of both solvency and our ability to extract cash from the business. As you know the Board of Directors is proposing an unchanged dividend of CHF17 per share that as I said before, the main driver of dividend and dividend growth will be the overall earnings level.

And our aim is to grow operating profits, earnings. At the same as I said last December, we are highly unlikely to simply add to our equity over the next two years without taking options to deploy our surplus capital within the business or return it to investors.

And this remains an additional lever to allow us to improve our ROE and achieve our targets for 2014 to ‘16. With that, we’ll now open up for questions.

Yes, hi there. Good afternoon and thanks for taking my questions.

And couple of things, and firstly, on the Z-ECM ratio, this obviously remains at an elevated level. Where do you expect that moving?

I mean, do you plan on more re-risking in order to improve returns and bring that number down? That’s question one.

And the second point, again on the solvency position. You’ve given some guidance on the FX impact on earnings, and but if you could give us some steer as to whether or not the FX moves will have any impact on the solvency position over the next year that would be very helpful.

Thanks.

Great, thanks Paul. So, on the first one, so, just a reminder that the Z-ECM number we published today is a September end position.

So we’ll have an update again with the Q1 results. I mean, I think if you look at what might happen, I think from a re-risking perspective, we’ll take some steps to address the issues of negative interest rates especially in Switzerland and perhaps elsewhere in the portfolio.

And I think that will add a very, very small amount but additional risk to the portfolio, I don’t think that would be particularly material for us, maybe a couple of points. The FX move will also have some impact but again I expect it to be pretty modest, maybe at the same type of order.

I mean, when we present, the Z-ECM ratio will include the plans for 2015 in the growth that we currently plan for. And the risk capital that requires that I mean, I don’t expect to see a major change beyond those two items on the impact of growth.

So, I mean, Z-ECM were well above target range, our target range again is 100 to 120, aim, more than our aim our intention by 2016 is to make sure that we’re back in that range, the capital priorities that we said before but obviously number one is to maintain and eventually grow the ordinary dividend. Number two is to invest for growth and the growth can be organic or inorganic.

And then number three, to the extent that we have an achieved target capitalization levels through number one and number two, we’ll return capital to shareholders.

Okay. Excellent, thanks.

Thank you.

Hi there. Could you just remind us, clearly, you’ve put 2015 as an element of a transitional year and there’s quite a few projects where you anticipate payback in 2016.

Now, I can identify one of them, which is the Brazilian extended warranty business. What are the other areas of investment where there could be some payback in 2016?

So I think there’s Brazil extended warranty. I guess you would hope to reinvest the capital freed up from farmers REIT.

What other areas are there where there’s a return in 2016 maybe not evident in 2015? Thanks.

And, sorry, the second question was you used the term acceleration with respect to costs or efficiencies, roughly that term. Can you just give us some update on the progress on the $250 million cost saves?

And, again, do we assume the non-life expense ratio should fall from ‘16, given less investment/more payback? Thanks.

Yes, thanks Andrew. So, on the first topic of investment, I mean, I’m not really sure I necessarily think of 2015 as a transitional year but I understand why you put it that way.

I mean, the most obvious thing is Brazil, but on top of Brazil we have, I mean, if you go back to the Q2 presentation we talked about some of the I guess, the operational leverage that we described around Santander and the fact that the growth rate we see in Santander is significantly faster than the growth rate on the expense or the amortization side of the upfront. On the, just one comment on the capital from farmer’s REIT, so I mean, I guess we haven’t discussed that topic in detail but I think you’ve seen in the presentation already today that I’ve mentioned the fact that we’re going to trade away the, I mean, part of the volatile income stream and return for capital release.

And we’ll take a bit of time to achieve that capital release so I don’t necessarily expect of all of that in my hands this year. And if I need time, so that obviously the team that farmers can have a discussion with the regulator and make sure that the regulator is comfortable with plans that we are proposing.

So, I mean, overall from what changes ‘15 into ‘16, I mean, my guess is, I mean, you’ll see relatively modest impacts from things like Brazil, you’ll maybe see a stronger impact from the life side, from things like Santander, Sabadell and other transactions that we’ve done more recently. I mean, what would be more transformational, I mean, we have to come back to costs and efficiencies I guess this comes into the second part of your question, I mean, it’s a topic we’ve been spending a lot of time looking at if we simply allowed the, if you look at the expense ratio for GI on a pro forma basis, if we do nothing it will rise into 2015.

And given the market conditions and given the charges that we face, I mean, I’m assuming that Mike Turner and the team are prepared to countenance. I mean, overall though, I think we need to take course and efficiencies across the entire group and not just for GI.

So I mean, I think that will be a much bigger theme this year that you’ll hear us come back to in May. On the $250 million saves, the $250 million essentially are above - we say above the business use, so above the legal entities.

We are currently on track for delivery of that and I’m highly confident we’ll deliver the remainder in the course of this year, I mean I think we were up to about $100 million saves on that piece for ‘14, we’ll get the remainder in ‘15.

Can I just clarify on the investments? The investments you made in ‘14 to Brazil Sabadell, that wouldn’t be part of the $3 billion reinvestment, or that you talked about at the Investor Day.

Is that fair?

No, that would be unfair, I guess, we did does before I mentioned the $3 billion.

Okay.

That’s incremental.

So none of the $3 billion has occurred then as far as you’re concerned at this point?

No. And maybe one additional point on the capital front, I think as you appreciate the $3 billion was sized based on reasonable expectation of the money we have to complete flexibility over.

I mean, to the extent that we can grow organically, I mean, our ability to use capital and grow organically is much larger than $3 billion. But $3 billion is I guess the limit what we have to complete flexibility or vendibility.

Okay, thanks.

Andrew, just to add from my side as well, on the aspect of efficiency and the respective improvements, and which is highlighted the fact that it has to go beyond GI and it has to encompass the whole group. Clearly, with the headwinds we’re facing and the macro-economic environment is a strong sense that we have to look in how we transform operations technology altogether.

This is a continuation which has to obviously go as well beyond ‘16 but clearly just to give you some example without being able to put a price-tag on to it, that will mean initiatives in relation to datacenters, datacenter consolidation, real-estate consolidation, further procurement savings, end-to-end process redesign scenario, I think where we still have quite some work to do. In absolute terms and these are kind of the topics when we talk about accelerated focus on efficiency, we really want to put our hands on that moving forward.

And the acceleration is just reflecting the tougher backdrop. Is that…?

Well, it’s reflecting that. But the backdrop is well putting the right sense of urgency on these initiatives.

Okay. Great, thanks.

Thank you so much. So my first question is could you just possibly walk through the combined ratios by in the fourth quarter by country or geographic area?

I couldn’t quite match the numbers I’m looking at with your comments you see, and I’m kind of thinking, well, I must be wrong because you know your numbers, I don’t. For example, I don’t think you mentioned Germany.

Germany had a high combined ratio in Q4. I think the U.K.

was mentioned as a source of high large losses. In fact, the U.K.

had a magic quarter. I can’t.

And I’m not trying to criticize this. I just want to better understand what - the feeling I had is that, as CFO, you got a bit fed up with your non-life guys and you, and effectively you added a lot to reserves.

But that’s just a feeling. And then my second question is on the reserve releases.

So the impression I have is that you’re still quite confident that 1% to 2% is a normal run rate. However, 2014 was 0.6% and you guided us to thinking of 2014 as a normal base.

And of course if I were to add the U.S. asbestos, which now is non-core, but it was originally in non-life, of course, that 0.6% would even be lower.

So I just want to have your sense of why you’re so confident on that number. Thank you.

So, on the first point Michael, so I’m going to avoid going through the thing country by country and maybe try to explain why some of the confusion arose. Maybe for everyone’s benefit, just to repeat what we had in Q4, so we’ve had a combined ratio, that’s about 3 points, 4 points less than the nine months.

And that’s a combination of expenses which is about 1 point if you normalize for one-offs. It’s crop in the U.S.

which is about 0.5 point. And then on individual large losses, I guess, we picked out U.K.

and Brazil, I mean Brazil is, I mean, almost all of the impact. Large losses, we see higher by about 1 point.

And then we have the attritional impact which is I guess the second point that you made I’ll come back to in a second, which is the further 1 point deterioration for the year. But obviously given that’s current accident year, you wouldn’t expect that to repeat every single quarter.

So, I mean, apologies for using U.K. I think you’re right on the U.K.

reserve overall, but we picked our examples of large losses. We weren’t looking to try and confuse you.

On the attritional, I think this is your second point, I mean if you look at number of businesses, as you see attritional numbers that are weaker than we’d like to see. If I look at the portfolio overall, I mean, the thing is a standout for me, I mean, you can find in almost every geography we operate, some small deterioration, again in line with the comments that I gave at the very beginning of the call.

The things that stand out more though, I mean, to come back, did I get for some reason bored or irritated or whatever it was with the actuarial team and somehow make them do something they wouldn’t ordinarily do. I mean, obviously the answer is no.

I mean, I guess, things we did change in Q4, I mean, things like high excess energy books, sometimes the kind of topics is notoriously difficult to reserve. It’s actually in that book we’ve seen poor experience in 2013.

And in fact, if you cast your mind back to Q2 you might remember it being one of the reasons why we did not achieve the expected PYD level, I mean that particular quarter. And I guess we look to 2013, we looked at the rate improvement that we believe we have achieved in 2014.

And we’ve concluded at the end of the year that we don’t want to get quite as much weight to that at this stage. I mean, that’s an example, I think we went through but it really wasn’t and I wouldn’t want people to walk away with the impression that this is addition of excess conservatives.

And we tried to do the processes consistently as we always have. On reserve releases, I mean, we ended up for the year 0.6%.

Again for the quarter, we’re beneath the guided 1% to 2%. I mean, you’ve heard me talk before about in prior quarters if you look at it closely there are individual items that I believe from a longer term perspective, I wouldn’t necessarily multiply up, so therefore it leaves me with confidence.

And to be honest today, when I look at what we do and the expectation we have, I still wouldn’t change my view that I expect 1% to 2%. But obviously it’s disappointing that I can’t demonstrate that, and I simply have to again hold the prospect of it.

Brilliant, that’s really helpful. Thank you.

Thank you.

Hi there, good morning, or good afternoon it probably is. I just want to follow-up very quickly on your comment with Michael putting the two things, the true up and the reserve releases - or the attritional and reserve releases together.

It feels cyclical, in fact, just looking from the outside in. And I appreciate you say there’s no significant individual things, but is that not a sign of a cyclical trend that actually the claims inflation is running slightly ahead of where you expect it especially after a period of such low claims inflation I guess we’re all looking for that sign, if there is one, so just your thoughts on that, please.

And then just to, just on the investment side, are you able to give us an indication of the percentage of your, how would I put this, the allocation of risk to investments now as a sort of percentage of your overall portfolio? And is it maxed out now?

Or would you consider re-looking at your allocation, your risk allocation to investments from a strategic level rather than just a tactical level?

So, what we’ll try and do and I’ll try and answer number one. I’ll deal with the numerical part of number two, and maybe Martin can comment on the strategic state of the risk allocation or the capital allocation to investments.

I mean the answer that question number one Andy, is yes and no. I mean, even in this business going after, everything is cyclical than insurance.

So that is an aspect of business some cyclical feature, but as it claims inflation coming back, I don’t believe that. I mean, if it was claims inflation then we’d be talking about workers’ comp today, because that’s the first place we’re going to see it.

So, I mean, if I look at what we’ve got, again going back to the comments I made to Michael, I mean, a part of the driver is by this year referred to around excess energy. So again, its high excess book, I mean, very hard to get the number right.

We do our best, but when all is perfect and here we’ve made a decision that we would be more conservative. And we’ll carry that conservatism into 2015.

On the remainder of the book, I don’t think claims inflation I think some of the other attritional stuff that we see, maybe a bit economic activity. Certainly in the U.S.

on the commercial auto book, we think that’s part of the driver for the change again that we made in Q4. But in general, if it was inflation that was coming back, you’d see it first in the most inflation exposed lines.

And currently I don’t see it there.

And then, sorry, just on that very quickly, there’s no sense that terms and conditions have moved over time at all? That’s certainly not my sense.

But I’m just trying to think about the drivers that could cause these things to move slightly faster than you expect.

I think to be honest, I guess to come back to the rate environment, the rate environment is tougher. So if you look at the book overall, pricing that we see in Q4 is, it’s spot-on with where we were in Q3.

The composition is different, so if you look at the individual parts of GI, we come to the same place. We’re a bit stronger in Latin America, we’re a bit stronger in North America we’re a bit weaker here or there.

The overall environment is pretty competitive on the rate side. So I suspect this is maybe a bit more that chipping away of the edges and they are.

On the risk allocation, if you’ve got the slide pack, again it’s the nine-month position. So that’s the one I’m going to give you now.

So it wouldn’t have changed dramatically by the end of the year. Slide number 50 is the one that has the detail on it.

And on this, we have 58, sorry my eyesight is not as good as it used to be, I need to buy glasses. So overall, we’ve got a bit 38% of the risk and ALM and market risk we have about 10% and investment credit risk.

I mean we’re close to the half way mark which is broadly consistent with where we’ve been in the past. And Martin do you want add anything?

Yes, thank you, thanks. Hi Andy, look, we have actually last year largely in deferrals kind of completed the re-risking by putting an additional $2 billion of risk capital in investment strategy that has led mainly to a purchase of equity and corporate debt, it was at that time, $2.5 billion equity $5 billion of corporate debt and credit.

So, altogether there is at this point no plan whatsoever to increase the allocation to investment management with regards to risk capital. What then I should stress obviously is that there is going to be some shades to think about negative yields in Switzerland, so bonds, Swiss bonds, and corporate bonds partly negatively yielding but definitely government bonds.

So, this became for us clearly a non-investible asset. And any new investments from maturing assets, we have to look and diversify into other categories across the globe.

Having said that we will not on the back of that materially change to risk allocation, it might be $100 million here or here, but this is not going to be a significant impact on the risk capital. And the last thing what I should say is, we have started last year as well to shift good part of our investments into less liquid assets.

We will continue doing that but that as well is not going to impact capital as just we do that risk capital neutral.

Okay, very clear. Thank you very much.

Yes.

Yes, thank you. Good afternoon.

Two questions, unfortunately, on the same topics we’ve discussed already. First, on the reserves side, when I look at Slide 28 on the reserve triangle I make two observations here.

There are three vintages where you increased the ultimate loss ratio even though just one year before you decreased. And, secondly, the loss pick on year-one is dramatically down to 66.6%, so why should we be confident and comfortable with the further reserve outlook just looking at the plain data here?

That’s my first question. And second question.

With the investment income, and you just commented, Martin, credit spreads interest rates have fallen dramatically last year. I look at Slide 56.

With the re-risking you managed here to keep the debt yield at 3.02%. Now with QE and spreads further falling there should we not expect Zurich to take more credit risk, or is it just that you accept lower investment income and, hence, overall lower margin?

So, on the first one Thomas, I guess, when I look at the triangle on Slide 28 and if I look at the last, I guess, I look at the first lines, the initial reserves in the year, and I look at 2005 and on, I’m not sure that the partner is very different from what you’d expect to see given the rate improvement in the book and not only the book but also in the market. I guess the challenge being, where does it go from here?

So, I think from a pure rate perspective, I don’t think the market is going to drive further improvement for us. But I don’t look at that and believe that that’s a signal that things are too optimistic.

If you look at the last tag, which I guess is the most recent view. And again, you think about rate improvement say ‘13 over ‘14, ‘14 over ‘13, that doesn’t look unreasonable to me.

Thanks Thomas. Now, I think at this point you should not expect us to employ more risk capital.

We want to stick to our discipline of managing assets really this to liabilities risk adjusted. And with that the initiatives we undertook already is making us pretty comfortable in the way we are positioned at this point.

Naturally there is an ongoing review with regards to our strategic asset allocation. But clearly there is no need or any intention for us to change that allocation.

The capital we have I think George has made a point to that that we want to primarily use to grow the business organically or inorganically. And where this is not possible, then at one point we obviously will as well think about deployment of capital in other ways but not sort of load up and chase it on the investment management side, because that’s at one point when financial markets do sort of reposition itself will hit back.

And frankly, I’m not trying to lead to any sort of market cold here, but everybody is going to play into the same direction chasing yield that we want avoid then to protect the investor over the cycle. And that will just depend on the income on the investment side.

And that brings us back to our strategic priorities and as well of course and they have highlighted that the urgency to become much more efficient altogether within the group.

And just one question on that, should that then mean that the debt yield, on Slide 56, would fall 20 basis points or 30 basis points this year, just as it did from ‘12 to ‘13?

What I can say with regards to the impact on the business operating profit or the investment income rather, we would still see kind of a flattening out. Now that’s flattening out and the number is probably going to be bigger.

And I would guide you with a number of about $100 million of negative impact on the investment income for this year, i.e. 2015.

Okay.

And that’s altogether across all asset classes, right.

Yes.

Okay. And that’s not just GI?

I thought it was just the GI number you mentioned in the paper, no?

Yes, that’s just GI Thomas.

Okay. And overall?

So, overall, the impact on life will be much, much less because across the policyholder who actually bear the risk. So the additional impact, we don’t expect to be material above the 100 that you’ve seen already on GI.

Okay.

Yes.

All right, thank you.

Hi everybody, thanks for taking my questions. I want to turn to your cash remittances, Slide 19.

I mean, you talk about the $500 million of special additional cash remittances from farmers in global life, but it sounds from what you’re saying that the capital release from farmers is going to be multi-year and there’s more that you’re looking to do in global life. So I was wondering if you could comment on whether we’re likely to see more of this above-budget release in the next few years and where it could come from.

And perhaps related to that, second question, you’ve talked about the phase one of global life restructuring where, which seems to be efficiency focused. Is phase two more capital and capital release?

So could you just talk a little bit about that as well? Thank you.

Thanks Farooq for the questions. First of all on the cash remittance topic, I guess I want to avoid some in the case of global life our expectations for more than the $500 million we’ve indicated for ‘15 and ‘16.

So I still expect them to come-in around our level. I think the inflexion point for them would be beyond that and at that point we expect to see less cash reinvested and more cash come back out global life.

But sort of for the next couple of years, I think it’s almost possible. And if we see the opportunity we would take it.

But from a planned perspective, we assume $500 million to all those per annum. Farmers, given on what we’re doing on the core share sides, we certainly expect that to have an additional benefit above the run-rate for us.

I don’t expect it will come in I don’t expect to come in a series of payments. I guess, it can always arrive that way.

I think it’s more likely that, I mean, hopefully we reach agreement at some stage. And there would be again more of one-off entries in the cash from farmers.

But that’s yet to be seen, and I think to be honest, I think will take more than 12 months to put together. I mean, overall, we were very optimistic on the cash front.

I think we would send the target for three years for cash today, would be sent higher than more than $9 billion. So, our expectations for ‘15 out to ‘16 remains positive but I don’t like to reset the target today.

Okay. And so - okay, so obviously you don’t want to talk about expectations, but just in terms of phase one am I right in thinking it’s more just straight-forward cost cutting?

Yes, I didn’t answer the second one.

My apologies, yes.

So, the, I guess, the - I’m not sure I split the quite the way you do, I mean, the interest off in the team have been pretty number of things along that I mean in the same pace. So they have a team focused on the enforced management piece which is around managing what sort of behavior, what some of the expenses, looking at the asset allocation, I mean did all the normal things that you would do.

And we have high expectations for that. But we haven’t waited on the capital side, so we have a number of things in train.

We’re looking at various parts of the portfolio to see if there are all kinds of structures, whether we can turnaround or exit, I think at this stage, I think our expectations are relatively modest for that piece given the market conditions currently. I think we do expect to see some change on the capital front alongside the enforced piece.

So the enforced piece will continue through 2016 for a minimum, I think probably be on that as well. And on the structural options, I mean that’s a topic I think will also, pretty much continually look at and review to see whether or not we have options available to us.

But improve returns to our shareholders. But we do both in parallel.

Okay, thanks very much. Thank you.

And I guess, maybe sorry to, I guess, to connect part two of your question to part one, sorry, I should have done that to the start, so, what that would mean is that we are more successful on the structural side, then you could see again another one-off on the life side. But again from a follow perspective, I haven’t had a trigger for that today so I haven’t planned it yet.

Okay, yes. No, that’s clear.

Thank you.

Thank you.

Thank you. I had two questions, please, just reflecting again on the efficiency side.

I’m just interested to try and think about ratios and where you might see yourself going if you were to be closer in line with peers. So if I normalize the expense ratio in 2014, because you got about 50 basis points of one-off benefit, your GI expense ratio is about 31.1%.

Obviously, a large part of that is commission expenses so the non-commission expenses is 17.4%. Could you just indicate where you see that going?

It’s obviously far too high at the moment, but in the medium term what is an aspirational level for you to get that down to? And then, although it’s not an ideal number, we don’t really have a better way of looking at it, but just on the life side, life operating expenses in relation to reserves, about 89 basis points, also looks very high.

Obviously, that’s boosted somewhat because of the very high number in Lat Am. So could you just comment about, directionally about where that, 89 basis points should go to in bringing it back in line with peers or even beyond?

And then my second question was on, again on the net cash remittances, please, on Slide 19. I’m just keen to get some insight into the actual free cash generation underlying these numbers so we can try and draw some views around actually what the remittance ratios were driving these numbers.

Thank you.

So, I’ll do the second one first, it’s easy. So, I just knock off the 0.5 Jim, it’s 3.2 would be the one at what from.

So that would you a sense of, to the extent to which we’re converting earnings into cash?

Sorry, not so much earnings to cash, but free cash generation to cash remitted.

So, if you’re looking for the slide that we normally publish with Q1, we have to wait for Q1 for that one, so apologies but we’ll give you more detail on that as we do our normal disclosure at Q1.

Okay.

On the expense side, I under why you do it, I’m not sure that we would necessarily split it apart and only look at, I guess what would describe as the other underrating expenses as I guess the central non-commission part of course. I mean, overall we haven’t set a target yet, I think the view is that wrong, for the reasons that Martin gave earlier to establish a purely top-down view.

And what we’re trying to do is to go through a process that’s triggered by a peer comparison but let’s try and decompose that and look at the things that really should drive efficiency for us. So, we have been doing some peer benchmarking lately.

I think it would be fair to say that we see ourselves as with considerable room for improvement. But what we’re looking to do is run of a top-down view of a number which then tends to be something that’s applied somehow evenly across the organization but looking at more of a program that would be transformational.

Again with a focus in mind just around all, the key cost drivers for the entire group, GI which of course is the bulk but for everyone else in addition. So, again I apologize, I won’t you a number yet but it will be a topic that will come back to the Investor Day and I guess the key aim here would be to come up with a program that, wouldn’t be a temporary reduction expense, it’s going to be a diet for example, but it would be something that would be I guess longer lasting.

But on the late stage, I agree with you, I think if I compare the peers on the life side and I mean, view of the metrics, I think most investors would commonly use, we also look a bit high there. I think as you mentioned, partly that’s expected given what we are in terms of the current stage of maturity of our life business.

It’s clear to me that I mean Kristof sees expenses as a way that he can achieve his plan over the course of the next two years. So, again, I don’t have ratios for either of these things today.

But as the topic we’ll come back to you with more chapter events in May.

Okay, I look forward to May. Thank you.

Thank you.

Yes, hello. I have two questions, the first one on the life side.

In fact, can you maybe give us an update? I didn’t find any numbers for reserve adjustments.

You must have increased reserves there again. How much was that in Q4?

Then the second one on non-life growth, just a small one on Switzerland, Q4 saw a drop in top line of 17%. Is that some one-off, or is there a trend?

I would have thought that you would rather try to gain market share than lose, so really just explain on this one, please?

So, on the first one on the life side, I guess, and it is relative to retain for a number of adjustments to move through life business and go on both directions. If I look at my net perspective, I mean there is no net impact from reserve over the course of the whole year.

So, the life headline number I think is relatively representative of what they’ve actually achieved, despite the fact we’ve had a number of things like farmers new world life, the GI and reserve adjustments that we made earlier in the year, but I think that’s broadly a zero. So what you see is what you get in life.

On the Swiss business, we don’t see anything unusual in Q4 to be honest. So, I mean, over the course of the year, we’ve drawn a Swiss life business so we’re running a rate that’s putting a bet ahead of market, that’s been one of the areas where we focus the investments for growth.

And it’s certainly an area where we look to take market share going forward. So, certainly from an annual perspective, we’re happy with what it is, we’re not concerned or see anything unusual in Q4.

And we look forward to see this business continue to grow faster than the peer group.

I mean, in non-life, I’m talking non-life. Their gross written premiums into Q4 were clearly down.

I understood that. So, my comments on gross written premiums were for the full year.

Yes, okay. Very good, thank you.

Hi there. Thank you very much.

Just coming back on cost efficiency and you mentioned, Martin, the sense of urgency. I wanted to ask when do, you think the GI expense ratios are going to start to show some improvement?

I mean, they’ve clearly got worse in all of the segments in 2014. Is it is 2015 too early to expect improvement?

Is 2016 more realistic? And as sort of a second question to that how important is pricing in U.S.

commercial do you think for your expense ratios? If there is a severe softening in that market how worried are you that that’s going to endanger the U.S.

expense ratio? Thank you.

Thank you Nick, let me take the first question and then George takes the second. Now, I cannot elaborate further than what we have said and George has mentioned with regards to the structural continuation on efficiency.

Very concrete to your question, clearly, the ambition has to be to have some impact already starting in ‘15 without any doubt in GI. And then beyond that into ‘16 and beyond, obviously a look for the group as a whole and not just GI, on how can we accelerate the focus on efficiency and with that as well, get much more efficient altogether along the lines I have set.

And that’s beyond the GI, but the bulk of that should be obviously coming in into ‘16 and beyond.

Okay. But as a follow-up we can expect, you would hope to see some improvement by the end of this year.

Some improvement, yes.

Okay.

On the second point, on pricing and U.S. commercial, just to give about a history I guess you guys will follow the market so to speak.

So if you are North American business, the commercial part rather than the global corporate part. We improved in Q4, we’re at 1.1%, we were close to flat in Q3, 1.1% essentially means flat when you think about inflation rate increases or claims caused inflation.

What implications would that have for the expense ratio, we have a plan always to anticipate so we think of a forward trajectory of rates will be over the next couple of years. We will set our expense base accordingly, if we saw significant softening, not just in North American commercial but any other part of the book would have implications.

I think first, we’d look at tearing the portfolio, so trying to maximize the share that we can take as the parts of the business that we think more profitable. The NAC team in particular have predictive analytics project running which is again aimed at risk selection so we’d hope to see benefits coming from that.

I mean for the entire business of, as the business cannot produce the required returns to course from under pressure whether it’s North America, Europe or just about anywhere else, I mean, absolutely we do.

Yes, I understand. Just sort of a very quick follow-up, MarketScout is forecasting minus 5% price changes by the end of the year.

Is that something that you would be kind of comfortable with, with your cost base? You could control that, or would that be something you would feel is perhaps not just incorrect in terms of forecasting, but might give you problems?

Yes, so, I guess, I know that markets saw the same report. So market’s goal is zero for the U.S.

commercial market for January. I think I guess, there is some hockey stick to the rate reduction because I think, as I read it, it was more modest reduction by mid-year but it seems to accelerate into the second half of the year.

I guess, we have a run view of what will happen on rates. I mean, I don’t want to give you here, but it wouldn’t be entirely consistent with markets goal, although we do see the same headwinds coming for commercial businesses, especially in the U.S.

So this will be a tough for the year. But I guess, MarketScout have given their view and given their commentary as to why they believe it’ll be the case and you guys can be, your independent judge of what you would view based on this.

Again, I can repeat on rates overall that we have plans for the next two years and plans beyond if we’re not producing what has to be produced, we look at all the things that we have under our control that help us get to where we want to be and cause a clear lead very high on that list.

Understood. Thank you very much.

Good afternoon everyone. A couple of questions please, on cash and capital.

So first of all on your capital, the stated solvency ratios obviously do benefit from a regulatory regime that takes a longer-term view on discount rates for particularly longer-term liabilities, if you were going to mark-to-market today what would that be difference in your ratios? And, on that, does that feature or do you consider that mark-to-market position in your thoughts around capital management internally and maybe in discussions with regulators?

So that’s number one. And, secondly, on the cash side of things obviously you’ve had a stronger year on cash remittance than the $9 billion run rate would suggest.

In the past, George, you’ve suggested that you’d take maybe that bonus from this year and use it to give yourself some comfort of smoothing out and sure you’re going to hit the $9 billion for over the three-year period. Is that still the case, or would you be thinking, well, I’ve got this excess cash now, maybe I could deploy it into a share buyback more immediately?

Thanks.

Can I just ask a question Marcus on the first one?

Yes.

So you mentioned the use of long-term rates.

Yes, things like UFR inclusion within Swiss solvency tests and, obviously, within the Solvency II.

So, I mean, I guess, that’s how we look, we use interest rates that reflect the key rate durations of the liabilities, so they’re relatively matched. So I don’t see the same mark-to-market component that you do.

So my view is that what we have is actually mark-to-market with no adjustment. So I mean, I guess the more, the ultra-conservative view is, it feels to me would actually be the wrong way to look at it would be if we use current interest rates across all key rate durations.

But I mean, that just wouldn’t be the way we managed the business. So, we don’t do, I think you’ve suggested, we use the traditional approach and we discount market based rates at the key rate durations.

I was just thinking, the point being really is we all hope we’re going to get growth back in Eurozone and elsewhere, and inflation, but are regulators taking a more cautious view, that you’re finding at the moment that what if we do get a period of very low interest rates for an awful long time?

I mean, I think on that, I guess, the challenges they have really on the, the really long duration liability. So in the extrapolation in the context of Solvency II, because that’s been a lively discussion with the regulators, only very recently, so I don’t really expect them to change that.

And again, for us, given that we’re not playing the very extreme end with a heavy guaranteed business, I wouldn’t see that as a major risk factor for us. If that became a topic, it would not be good for the industry in general, it would be very bad.

But I wouldn’t see that having a particularly negative impact on us.

Okay.

On the cash side, I’d just be careful, I didn’t answer to the question, but you may have used what smoothing is. So I’ve got $3.7 billion in year one, and maybe I only take $5.3 billion over the course of the next two years to smooth out to get $9 billion of $5.4 billion to just get over $9 billion.

I would not do that. That’s important to me that we continue to focus on cash, and we continue to make every, take every step that we can to liquefy the annex.

So, I mean, I think it would be reasonable to expect that the $0.7 billion excess that we have today is something that today we’d be projecting to be at least $700 million above the more than $9 billion target. I think the point you’re really making that was around I mean, how would we use the money, if you look at last year, I guess, I’ve ended with excess cash of maybe around $1 billion.

And I guess you’ll see more of what we did last year, so invest in things like the Via Varejo distribution agreement in Brazil, the agreement with Bank Sabadell in Spain. So on projects, we really believe that even if not immediately profitable, for example in the case of the Brazilian deal because of the upfront amortization, if they can contribute positively to our plans sticking to 2016, that would be a good use of our cash.

I think that’s how I’d answer you. Hopefully that covered?

Yes, I wasn’t trying to suggest smoothing. I think it’s more we all know how uncertain the world can be.

It’s more a question of you’ve got a dividend to meet every year and it gives you a bit more leeway to make sure that that is secure in future from cash at center. But it doesn’t sound as if you feel like it’s burning a hole in your pocket and you want to again use it very, very quickly outside of investment in the business.

Well, I wouldn’t use the word, expression, burn a hole in my pocket. But I guess, I’m keenly aware that there is two-part to the ROE calculation.

So, obviously I’d push Mike, Kristof and Jeff hard on the R side of the equation. And I think the team expects me to help them manage the E side of the equation, it can’t just be one.

So, again, for the achievement of our targets in 2016, management of E is going to be an important part of that.

Okay. Thank you very much.

Yes, hello. Good afternoon, Ralph Hebgen from KBW, two things.

On P&C, I remember at the Investor Day in 2013 you gave a sort of indication that you would expect P&C business operating profits to increase by about 5% on an annualized ‘09 and ‘13 basis. And the question is in light of the general dynamics which you’re seeing now would you stand by this guidance or this indication for the future?

And the second question is, relates to life profitability. It’s just I’m just looking for perhaps a qualitative evaluation of the dynamics in your life book.

I see that obviously acquisition costs have gone up, as you wrote 18% increase in APE, but you have, it appears at least that you’ve written that business at lower profitability, although also it looks as if the business was less capital consumptive. So I’m not clear on the profit dynamics.

There seem to be lots of dynamics which push in different directions perhaps. And I would value just some evaluation of how you describe your life - the dynamics of your life profitability.

Yes, okay, all right. So, on the 5% CAGR for GI, I think the way to think of that, let me first of all, I guess we said these, we give these indications because we’re looking to give an indication to the market what we believe we can achieve.

So we wouldn’t remove them without a careful consideration and we wouldn’t remove this. However, I think if I look at our GI business, I expect making the team to deliver what they’ve committed.

But what I would expect them to get some slack is on foreign exchange. So for example on pure translation adjustment, if the dollar strengthened incredibly or continues to strengthen significantly over the course of the next 24 months, I would not expect GI to make up the difference.

To the extent that foreign exchange rates drive expense issues because we’re over-weight in a particular currency and the expense makes, that’s a different topic than needs to be addressed. But overall, currency adjusted I expect is to hold to that 5% CAGR.

On the second topic, I think the summary is, it’s absolutely spot-on, so particularly in Q4 so what you’re really seeing here is a substantial rise in APE. It’s driven by corporate life and pension business in the U.K.

which is both low-margin and capital raise, it’s a volume play. So we’re looking to add more of that to the platform to achieve the scale required to be profitable.

I mean, across all of the corporate life and bench business, the corporate risk element is currently profitable already. But the broader platform will take a bit more time before you reach the level of profitability that we’ve targeted.

But that’s what drives the characteristics that you see, especially in Q4.

And would these characteristics remain the same if you exclude the impact of the U.K. single premium pension contract?

No, no, not at all. So you see volume would drop.

The new business value would increase our new business margin would increase. I mean, it’s really CLP that’s driving this.

Would you have guidance of how much or could these impacts be quantified from the U.K.?

Q4 or going forward?

No, for 4Q, I think Q4, sorry.

Can I direct you to the IR team?

Yes, of course.

Would that be okay?

Absolutely, thank you very much.

Thank you.

Hi, it’s Anasuya. My first question is on the loss reserves addition in your non-core business.

How often is this review done? Is it quite regular, or part of a larger review?

Basically, is there risk of more strengthening here? And my second question is where do you see your reinvestment yields being currently, particularly on the GI book?

So how much dilution in yields do you expect over the next year or two from the low interest rate environment? Thank you.

Okay. So it’s on the first one, so non-core I guess as everyone seen has had a loss for the quarter of $140 million - just over $140 million which is unusual given non-core’s performance over several quarters over the last couple of years.

It was triggered by an external review that we conduct periodically on the reserves the current frequency of that review is every two years. I guess it will continue at that rate or maybe slightly less frequently.

So I mean, I cannot promise for sure that there is no risk of additions to reserves. But we may have booked to the point that we believe is indicated following that external review.

I guess it’s also what’s in non-core, I guess that’s about half of the total impact in the fourth quarter. There are also additions to some builder’s guarantee products in the U.K.

And there is some impact from some property exposure that we’ve had from some of the Dunbar banking assets that we’ve felt for some time. I mean, I think from a go-forward perspective, I don’t - I really do not expect to see this type of topic recur on a regular basis.

And in fact from a planning perspective I’d expect non-core businesses to be fairly flat. On the reinvestment yields, we have just look in my notes, I mean, for GI in particular I mean the book or accounting yield for full year and this is same for both, for Q4 just over 2.6 is the accounting yield.

If we did a new money yield in the entire portfolio, it would be more like 2.2, so i.e. what we’re investing at.

We’ve got about 40 something basis points GAAP on GI. I mean, given the duration of the book, I mean, it would take a few years, maybe about four years duration on GI, so it takes several years to feed into that level.

And of course that GAAP is reflected on the guidance we gave already today on the expected impact on investment income for GI for 2015.

Okay, thank you.

Yes, just on Germany, so a couple of years ago we had these big reserve additions and I noticed Germany in Q4, and I know it’s a tiny part of your business now, but did miss, at 1.03% and I just wondered if it’s the same sort of thing. And then I just wondered if, and I know you said you have very little exposure to very long interest rates, but I guess there may be still some in Germany.

Can you give an idea of what the impact of the ZZR is now? And maybe are there trigger points which will make it more onerous quite soon?

It’s the local read the Germany reserve in topic was in the architects and engineers. I’m just looking at James, can you remember what was to come back to you on, what the length was, it wasn’t the same sources three years ago.

On ZZR, so, I mean, we’ve slightly long asset, maybe all of the numbers I’ve currently got, we made the big asset to model ZZR. But again, it’s based on interest rate pair end of the year, so I guess it will be slightly tougher today if we were to redo it.

Based on the current, so if you look at the next few years, I mean, we currently expect the ZZR reserve to peak in 2021, and the requirement is going to be, I mean, somewhere between $4.5 billion and $5 billion. And I look forward, I mean, we will cover that of what we currently have in unrealized gains, but I expect that from a both, mainly from the 2019 onwards, I could see a drag in BOP of maybe $150.

If we’re not able to offset reductions to policyholders or other sources of efficiency within the portfolio, so I mean they would have been completed relaxed about it. It doesn’t cause me any immediate concern, and I don’t really expect to see of any substantial impact on those through to 2018 given that we can’t have in front of us.

Brilliant, that’s very clear. Thank you.