Zurich Insurance Group AG

James Quin - Head, IR and Performance Management Martin Senn - Chief Executive Officer George Quinn - Chief Financial Officer

Andrew Ritchie - Autonomous Daniel Bischof - Helvea Paul De’Ath - RBC Thomas Seidl - Bernstein Farooq Hanif - Citigroup Nick Holmes - Societe Generale Michael Huttner - JP Morgan Stefan Schuermann - Bank Vontobel James Shuck - UBS Vinit Malhotra - Mediobanca Andy Hughes - Macquarie Andrew Broadfield - Barclays Dhruv Gahlaut - HSBC

Welcome to Zurich Insurance Group’s first-half 2015 results presentation. I’m joined by our CEO, Martin Senn, and our CFO, George Quinn.

Martin and George will make a few short comments before we open the Q&A. As usual, please keep to two questions.

And I will now hand over to Martin.

Thank you, James. And welcome everyone on the call on my behalf as well.

As you will have seen from the results we published this morning, we continue to make good progress in our life and pharma businesses, but the performance of general insurance is below our expectations. We set out at Investor Day the actions underway to improve both expense and loss ratios.

Let me be clear, delivering on these commitments is my number one priority. While we are not fully satisfied with the progress made in achieving our business operating profits after tax return on equity target of 12% to 14%, we are well positioned with respect to our solvency ratio, which is at the top of our target range and we now expect to achieve cash remittances in excess of $10 billion over the course of this three year strategic cycle ahead of our target of $9 billion.

Let me now say a few words on the press release we issued last week regarding our interest in RSA Insurance Group. At this stage there is very little that we can say on this topic.

However, we believe that the transaction could bring significant benefits to us and to our investors in terms of the complementary fit of RSA’s business with our own operations and in terms of financial benefits from for example expense and other synergies. But let me make one point absolutely clear.

This or any other investment must meet the hurdles that we set last year, 10% on EBIT. And as we’ve said repeatedly in the past, if we are not able to achieve this for organic or inorganic opportunities, we’d rather return capital to our investors.

Let me also reassure you that this does not and will not distract us from our core focus on delivering on the commitments to investors that we made at our Investor Day this year. And with that, I will now hand over to George who will give you his perspective on the numbers.

Thank you very much.

Thank you, Martin, and good morning or good afternoon to you. I’ll make a few short introductory remarks on the results and as part of that, I’ll try and answer some of the questions that we’ve been asked this morning.

Naturally most of the focus has been on the higher-than-expected combined ratio and I’d break this down into three parts. First of all, we’ve experienced a particularly significant level of large losses in both Q1 and Q2.

We’re around 1.5 points above expected and are around 1 point higher than we were for the full-year 2014. Taking a look at Q2 compared to Q1, we see an uptick in the attritional loss ratio around 1%.

This is due to several individually small factors and we don’t see them as representative of the run rate. We would steer you towards the half-year results where the attritional loss ratio is essentially flat compared to full-year 2014 levels.

Third, a higher expense ratio is as we expected and in line with the indications that we gave to the market back in February. I have no doubt that you’ll have lots of questions on each of these topics, but let me stand back from the detail for a second.

At the recent Investor Day, we told you that we had plans in place to improve our combined ratio by 2 to 3 points from a normalized full-year 2014 starting point of 98.5%. Our half-year combined ratio is 98.3%.

Our cat losses are below plan; large losses are well above recent experience. So the reported number, in our view, is close to a reasonable starting point, in other words we are in a similar position to where we ended 2014.

Of course this is not where we want to be, but the bottom line is that we still need to improve our loss ratio by 1 to 2 points and we need to reduce our expense ratio by 1 point. This is our overriding priority and we have plans in place to achieve this.

Time is short, but we are confident that we can deliver. Before we start the Q&A however, I want to emphasize the progress that we are making in life business and in pharma and in fact in many parts of our GR operations.

And actually remain in a strong place in terms of solvency and our cash remittance and capital generation continue to be excellent. With that, I look forward to your questions.

Hello, hi there. I wonder -- I mean there is clearly evidence that the pricing environment has continued to get a bit tougher.

I guess you flagged earlier in the year, but can you just give us perspective as to what should we be more concerned as to the feasibility of you hitting your combined ratio improvement targets given the pricing backdrop. Has that changed materially in your thinking over the last quarter?

Second question, is there any specific areas inflating the attritional loss ratio in Q2? I’m thinking areas that have been problematic in the past, for example, you have some issues in U.S commercial auto and we’re seeing a lot of your peers have issues there.

Maybe just give us a bit more color as to any specific blocks that affected Q2 attritional. Thanks.

Thanks, Andrew, so I’ll start. So on the pricing environment, it’s slightly tougher than it was at the end of Q1.

We have come down from our perception of about slightly less than 2% rate increase to about a bit more than 1%. And that from a perspective of what we had anticipated and what we included in the commitments doesn’t change the overall picture materially.

This is not driven by a rate topic today. On specific areas impacting the attritional, let me just be clear for everyone, if you compare Q1 versus Q2 and look at the sequential, there is a deterioration on the attritional about 1 percentage point, even if we still have retained about 0.4 points compared to last year in the half.

The main driver, global corporate in North America as the piece stands out, and within global corporate in North America, there are really two drivers. So one is property, it’s far and away the largest part of it and we’ve seen not only elevated large loss, but we’ve seen much higher attritional losses in the quarter, far larger than the rate change would suggest you would expect to see.

And our conclusion there is that that really is again natural volatility in the result rather than a trend that we’d expect to continue into the second half of the year. Liability is a smaller contributor to the overall.

If you look at U.S commercial auto, we were booking across all of our businesses around the 104 mark last year, which of course was too high. In Q1 we saw very good rate across most of the portfolio and certainly exceedingly our expectation of what was happening on the loss cost side.

Although rate has -- well, not declined, the pace of rate increase has slowed in Q2, and at the end of the half for the six months we’ve booked commercial auto at 107. I mean again in the scheme of things it’s a relatively small move, but it gives you evidence of an area that we have to tackle to be able to achieve the overall goal.

And you’ve looked into the large losses in terms of identifying any trend to do, well, with economic recovery or is there any sort of commonality across the large losses?

It’s a good point. So as you can imagine, we’ve looked at it pretty intensely as we head for the day and to give you some sense in global corporate alone we have 13 large losses in the first half of this year versus four in the first half of last year and four of the 13 are more than 10 this half versus one last half.

We have large losses in the Zurich municipal business in the U.K, we’ve got two that total $80 million. We done the normal post loss review, which means we go back, we look at the risk engineering, we look at the underwriting and we compare the cause or the identified risk drivers of loss.

And for all of these things or within the P&L identified in all cases, for these items, the cause of the loss is the primary risk drivers identified. I don’t see anything from an underwriting or acceptance perspective that would have us conclude that this is a frequency issue and there’s [totally] severity on the property side in Q2, but there is no reason for us to see that as a trend.

Hence, what you heard from us today that we don’t think that Q2 is representative of the underlying run rate. We think the half is a better guide.

Okay, thanks.

Yes, good afternoon. Two questions from my side.

First of all on your debt capacity, at the Investor Day you mentioned that Zurich might increase leverage and move the hybrid debt share from 14% to 20%. In addition there is 5% volatility buffer.

Now question is, is this buffer mainly for market movements and unforeseen events or could you use this entirely for M&A? And then the second one, a rather broad-based question on the industry consolidation that’s taking place.

What’s your view on the potential impact of this and some of your main business areas such global corporate, North American commercial and Farmers?

So on the first one, on debt capacity, the 5% that you saw on the slide at the Investor Day was intended to be allowed for passive movement. So, I don’t expect you see us actively use that to gear up, I mean that we allow for natural volatility, equity or the AFR that normally that we use in that calculation.

On the industry consolidation side of things, I don’t have a sense that that’s a big driver of current trends. My sense is that we’re in an industry generally that’s very well capitalized.

There is more capital chasing the available risks here and of course that puts pressure on price. It started in reinsurance, particularly in the property side, it’s fed through into the primary market and I think, I mean for Daniel, that’s probably the main driver of some of the dynamics that you see currently.

If I may quickly add to that -- good afternoon, Mr. Bischof, just on the industry consolidation and the impact on Zurich specifically, naturally observe that very closely and think about the impact on our sort of positioning and with that as well behavior on our customers and clearly some of the larger transactions without referring specifically to it.

In some of them there is no cost or interaction, that is some of the customer segments, in some of the regions, we actually do not even cover. So with that the immediately impact on Zurich as such, I would say is in no way material.

Thanks a lot.

Yes, hi there, and thanks for taking my questions. The first point was on the capital position because obviously it’s kind of a quarter delayed that we get the numbers through on that.

And just any indication on where that might have moved in Q2. And second point kind of related to it I guess is you said before about the $3b of deployable capital that you have and has there been any change to that figure over the last quarter given the higher level of cash that you are now targeting for the year, etc.

That would be great. Thanks.

Thank you, Paul. Let me start with the first part of the question.

Now obviously, the Zurich economic capital model of 120% at the upper range refers to the first quarter, and if you just look on how the interest rates have moved, all others factors being equal, you probably would have to assume that our economic capital position if anything, has improved in the course of the second quarter. I do not want to see that now as a very firm guidance in any way, but I just would like to guide you in looking at interest rate changes in respect to sensitivities and then you can come to the conclusion that if anything, our economic capital as of the end of the second quarter will be better than we have reported now for the first quarter.

Paul, it’s George. So on the $3 billion number, I guess I updated on the $3 billion number back at the Investor Day in May.

I think we believe we have a good line of sight where cash generation is coming out and we’ve been fairly confident for some time that we were going to exceed expectations both last year and again you’ve seen, we’ll exceed the target we set for this year. So what it really means though is that when we put the $3 billion together at the Investor Day I had anticipated what you’re seeing today.

So I’m not at this stage lifting the $3 billion number.

Okay. Thanks.

Yes, thank you. Good afternoon.

Two questions. The first is on the combined ratio improvement you said and remind us that you want to improve by 2% to 3% and that you had specific action.

And if I understood you correctly on the transcript you said these actions should already strongly materialize by yearend. Can you share with us what type of actions you have in mind that should lead to such quick materialization of an improvement of the combined ratio and loss ratio in particular?

And especially in the context of as you already mentioned, a rather weak pricing development in the recent quarter. And the second question is on the reserve release side, we note that Zurich we know is much lower in terms of reserve release than peers.

I wonder what is the driver is that basically you are not really experiencing the same benign claims inflation or why is it that peers basically report all much stronger reserve releases.

So, Thomas, on the first one, just to make sure that we’re very clear on when we expect to see various elements, so I think the comments in the transcript, I mean Martin made the comment that you start to see improvement by the end of the year which I think we also expect. I think be careful around the expense topic.

I mean the expense piece takes a bit more time because they need to move people around as part of that process. So in my transcript, I’d like to make it clear that I think you’ll see the benefits of that more clearly from the beginning of next year.

For us, what would drive the improvement on combined ratio, in market rate is not going to be the driver of this, so there is no assumption that the rate environment will help improve this. I mean again come back to what you had at the Investor Day, we have an approach that we described at tiering and has been very successful us in the past.

I guess at its simplest, it’s pruning out or pushing for much higher rate increase on the weaker part of the portfolio. And I guess, what that really means is it puts volume at better risk in the short term as we make sure we get the required level of profitability from the portfolio.

The second charge we have and it goes back a bit to Andrew’s comments earlier, it’s not a fixed target we’re aiming for in terms of the outside while things are moving, so of course we have to adapt and adjust to the external changes. And again come back to example the commercial auto topic, we saw rates that was more or less as we expected in Q1.

The market again is more competitive in Q2 and that again is an area that needs increased focus from us and that will mean reducing our footprint in U.S commercial. On the expense save, we have a number of things underway at the moment.

the first waves have started, so we start the communication to the staff, but again because of the need to transition, for example, for shared services, we’ll be up and running for a number of functions at the very beginning of next year. So you’ll only see the most significant impact of that in 2016.

And that will continue as a wave not just through the course of next year, but also beyond that as we achieve the larger $1 billion target that we have for expense saves. Reserve releases, so why we’re much lower than peers.

Without an in-depth knowledge of where the peers were, where the peers are and the immediate drivers. We’ve tried to be relatively transparent on what we expect.

We gave guidance bit more than a year ago that we expected to be in broadly in the range of 1 to 2 and generally we have been, a wee bit up and down, but given the way that we reserve and assuming that our reserves are adequate which we completely believe, the reserve in process we think will unwind a prudent margin that we add in the pricing process and hence the guidance that you hear from us.

Hi, Thomas, Martin Senn speaking. I just wanted to add to the first part on the question.

This is very important because with the rollout of the current strategic priorities, one key action is definitely looking for the turnarounds, South Africa, Middle East, Latin America, Brazil, in particular the motor business and one very specific, still high on our priority list follow up is the continuous improvement potential in South Africa, the Middle East and LatAm. And we believe that as we have made good progress particularly, South Africa, Middle East, that there is still about 0.5 percentage points improvement potential which is going to be one of the priorities still for the next 18 months.

And the pruning of the portfolio that you have mentioned, so basically you would expect to come as quickly through as by yearned already?

It’s in-flight already, Thomas. I expect you’ll see impacts by the yearend.

Okay, thank you.

You’re welcome.

Hi, everybody. Thanks very much.

Clearly you talk regularly about volatility in global corporates and sometimes you get it like you do in 2Q, but this is obviously something you can’t control easily with reinsurance because of the nature of how losses are distributed. But can you give us a sense of what you think normal volatility is in large losses?

You’ve got a 2 to 3 point combined ratio improvement target, but how much of that just could be swallowed up because of misfortune? And the second question I have is, on your 10% hurdle for use of $3 billion surplus capital or any acquisitions you may or may not make.

Do you still give yourself the same timeframe for 2016 for that or will you give yourself an extra one or two years’ worth of leeway. Thank you.

Farooq, I’ll start, I guess Martin may add to this, so on the volatility, ordinarily we look at the total volatility of the property portfolio. We haven’t in the past broken out the large loss piece and in fact you probably remember that we added large loss into the attrition I think about 15 months ago to try and simplify some of the explanations.

Of course given the size of the impact that we’ve had in this quarter, we have to breakout again. I can’t immediately give you a clear sense of large loss tolerance for volatility.

We have clear earnings volatility tolerance for all sources of claim. I don’t have a piece that would break out the large loss, we’ll have a look at it and come back to you.

On the time frame for the reinvestment or the return, the timeframe remains exactly the same.

So, just coming back on the large losses, would I be correct in thinking that you’re not thinking of changing anything in the way you reinsure your book to help this because it’s just bad luck. Is that correct?

Part of the challenge of a call like this is that I guess everyone scratches their head about it and ask me why do you end up here, I mean you get compared to peers? I think there is a risk that maybe you get pushed to do things that are uneconomic.

We annually review the reinsurance program. We’ll go through that process as we come up to the yearend.

I think given what we see in terms of volatility, given what we believe to be the underlying drivers, it wouldn’t actually help us achieve our goals if we were to buy a much more significant reinsurance program. End of the year we’ll look at reinsurance again, but at this stage, we have no plans to change the stance on reinsurance.

Thank you very much. Thanks.

Hi there, thank you very much. Two questions.

The first is on expenses. You say that the higher expense ratio is mainly due to mix effect and the Brazilian warranty business, but when I look at each geography, there does seem to be a general expense ratio drift UK, I mean looking at UK, Germany, Switzerland, Italy, they all got worse in the first half.

My question is really what’s causing that and when do you expect it to stabilize. George ,I think you said, we won’t see improvements until beginning of next year and I just wondered if you could elaborate a bit on that.

And then the second question is on German life. Can you remind us where you are with the ZZR, presumably you still have to add to it and my question is, just is there still a cost to shareholders from making additions.

It’s a bit of peak subject I think. Thank you very much.

Yes, thanks. Nick, so on the expense, and just to broaden the explanation, you picked out some of the bigger drivers.

So the impact of the extended warranty deal in Brazil, we have the impact of the comparison with the pension posted impact in the prior year. Again in the transcript we’ve also flagged the fact that there are other expense increases especially around some of the growth initiatives we’ve been running, which is why I think you see some of the expense increases in some of the countries that you mentioned.

So why does it take until the beginning of next year to turn around the expense picture? One, on the extended warranty transaction in Brazil, that contribution is driven by the fact that we’re amortizing an upfront cost but with no margin yet being here and that will start in a more significant way in Q4 and of course we’ll start to have that benefit where the revenues start to actually match some of the expense.

The pension piece you’re aware from last year is about 0.4 points on the expense ratio and mix, we have a better crop first half versus second half, so that also has a small impact. And then again the investments that we have been making and we continued in Q2, to position us for growth in some markets and clearly its improved customer experience in some of the key product areas.

The turnaround for us will be a combination of the extended warranty premium earning in with the margin and on top of that all the additional steps that we’re currently working on across the firm and in fact you may see in the quarter that we’ve incurred a bit more than $70 million of restructuring charge as we start to take the steps to create shared service centers, start to inform staff of the changes we’re about to make. You can imagine that to do that in a controlled manner without introducing undue risk into the process, there needs to be a reasonable transition period and that’s why it takes till beginning of next year.

On the ZZR topic, I gave an update at the end of last year where I indicated the total impact we anticipated from ZZR give an indication that if we did nothing, given what interest rates were at the end of last year, we’d anticipate seeing $100 million to $150 million impact from ZZR, which is shareholder relevant from about 2018 through 2021 while we would build the ZZR reserve up to the level required and implied by the smooth average impact of the interest rate. Obviously as interest rates arise, it’s beneficial so that reduces the impact, but if you look at the last six months, we’ve been down a lot; we’ve been up a bit.

At this stage, I wouldn’t change the guidance I’ve given you at yearend. I understand there is some discussion in Germany about how precisely ZZR should be applied across the industry.

There may or may not be changes, but in the absence of changes, the yearend guidance that I gave would be the best point to work from.

Okay, thank you. That’s very clear.

Just one very quick follow-up. On expenses, would you say that you are happy with where you are at the moment with the progress that you’re making.

And obviously you’re not happy with the expense ratio, but with the progress you’re making, is everything going as you would expect and everything on plan?

On the expense save it is.

Okay. Great.

Thank you very much.

You’re very welcome.

Thank you very much. Just one, two questions.

On the cash remittance, the over $3.5 billion and the new higher target of $10 billion versus $9 billion before, can you say a little bit where it’s coming from or what I’m not quite sure is this a dividend from the vague, from the non-life general insurance year 2014 payable in 2015, versus your expectation of the current business trends. And then the other question, so licensing is up a little bit.

So could you talk a little bit about the nice thing which is the improvement in life and maybe where you see that going? Thank you.

Thank you, Michael. So on the cash, first of all, you remember last year that we reported $3.7 billion for the year, $0.5 billion of which was really one-off.

This year we’ve indicated more than $3.5 billion and therefore in total we now expect to see more than $10 billion for the three-year period. Typically the cash that we receive in the current year is a reflection of the statutory declarations of the results of the prior year.

So what you’re really seeing here is cash flows up from the subsidiaries that by and large but not exclusively will relate to statutory earnings from 2014. Drivers of this, why do we continue to see outperformance, there will still be some one-offs we anticipate this year, so does the impact of the sales [remediate] annuity portfolio in the U.K which of course will be positive, we have another sale of an asset management business in the U.K which will also provide us with another small positive.

Again, we would expect -- and you see a bit in the free capital generation slide to maintain a very high rate of conversion of earnings into cash and given our outlook, I don’t see that that’s going to significantly change over the course of this year or next.

Brilliant.

Sorry, hi, Michael, before George goes into the life questions, well, let me just clarify a little detail. You mentioned the revised targets.

The targets have not changed. Its $9 billion plus by end of ‘16.

What we have done is just give you additional guidance terms that we have a clear expectation to exceed that target. Just want to be precise that this was not a target revision but guidance on the excess of it.

Yes, lovely.

Thank you.

On life, if you look across the entire book for life, we have a number of areas of strength, even some unusual areas. Germany life has a very strong performance in the quarter.

I think the standard one for me is Zurich Santander. Zurich Santander has growth in local currency of 50% in the quarter.

Wow.

I don’t think that’s going to be sustainable, but it’s a saying that the performance there is very powerful. I think the combination works extremely well.

And again going back to what we talked about at Q2 last year, at operation leverage around that transaction. Growth rates I think will stay high, north of the 50% level, lower double-digit range.

But a large element of costs piece there is fixed, so that should continue to help drive life in the right direction.

Perfect. That’s very good.

Thank you very much. Thank you.

Yes, hello. I have two questions.

The first one on U.S global corporate, you mentioned that you have taken steps to improve. It hasn’t been a nice quarter here.

Can you maybe just give a little bit more details on what exactly you do, in what sub segments or what large or small accounts you’re active to take corrective measures. Then the second one just shortly on the risk management, can you give us an update here, is there any change compared to last quarter or not?

If you look at the global corporate North America business, I think there’s two issues we’ve been focused on as we prepare for the quarter. So one is, obviously it’s a source of the large loss volatility.

There is a large element of that we see as temporary, so it will reverse. However, having said that, when we look at the tiering approach, we’re going to add a second step to tiering, which is around the volatility of the account.

So a bit come back to Farooq’s question about your appetite for volatility, we’ll address it partly through risk acceptance approach. So if we see clients that have traditionally, frequently been a source of volatility, that will push them down in the tiering and will therefore require much higher rate increase at renewal.

So that’s one area. The other area is, and we’ve discussed it again earlier in the call, commercial auto is a challenge for us.

If you break out just the global corporate component of commercial auto, we actually we saw good rate increase after the results of last year which of course were quite poor. So we saw good rate increase in Q1.

I think our expectation was that that would be sustained over a longer period and that would bring the overall combined ratio for commercial auto down from its current low hundreds level back into a territory where you can make a reasonable proposition that you are earning a good return on capital. Having said that, as I mentioned earlier, Q2, the trend hasn’t completely reversed but the achieved rate increase has dropped.

And it has dropped to a level that we don’t believe would maintain pace with the loss cost trend in commercial auto given the -- we talked a bit earlier around some of the economic frequency driven topics and commercial auto is clearly one of the lines that is impacted by that. And so that again is another are that we will push harder for rate, and that will almost certainly mean that the margins will shed some of that volume.

And those are two of the most obvious examples, Stefan.

Okay, yes, thanks.

On duration management, we don’t have a particular stance on duration, we are looking to be broadly ALM matched, and I think we are slightly long but in the scheme of things, it is not particularly material overall.

Okay, thank you. Yes.

Good afternoon, I have two questions please. Firstly, just I think you are conducting a retail portfolio review which has been ongoing for some time.

I just want to some kind of update on how that was progressing and in particular, I’m kind of interested in how you actually look at profitability metrics, you know, on that basis and for example, you have your BOPAT ROE target but I am kind of interested in divisional return on risk-adjusted capital within that division, please. Thank you.

And then secondly, the point you made around sort of capital compressing prices and somewhat in the commercialized, could you just shed a little bit more light on that? I’m interested in more insight into which lines of business and which territories you are seeing that most impacted?

Thank you.

So on the retail portfolio review, maybe I’ll start, and maybe, Martin, I can explain some of the metrics that we use as we evaluate the portfolio. And the one thing I can’t do, James, is give you a sense of where we are on the process against each of the different components.

Maybe just to recap, what we said at the Investor Day, we have looked at the entire retail footprint, we’ve put it through a series of decision points that we described at the Investor Day and we’ve concluded where do we believe we should grow either from a particular customer segment perspective or from a broader market perspective, where we believe we have niche-- and we don’t have many niches in the portfolio. And then we have everything else.

And everything else, there is a minimum return on capital requirements, for businesses to pass the first test. We look at it from two perspectives.

One is the end and return on capital for that business and the second is the market, the expectation, what the market will deliver over the medium term. When we look at what we have in the, I guess, what I termed the rest of the bucket, that doesn’t fit into the group that we are either actively looking to expand either organically or inorganically or doesn’t fit into niche.

We have a mixture of things in there, many of which don’t pass reasonable test for return on capital. We actually have some things in there that actually produce decent returns on capital.

It’s just that as we look at it today, it is not obvious that we are the best owner of some of those businesses in the long term, and obviously, as we prioritize the action that we are about to take here, we will prioritize dealing with the underperformers. But there are parts of the portfolio where I think the-- our ability to grow it within our strategic priorities is maybe less than perhaps others so you’ll see a mix of things from us over the course of the next year, some of which are clearly underperformers, some of which are simply about long-term strategic fit.

From my side, to add on the retail footprint question, I think we have spoken about that at length on the main words today and we showed you at the time how we evaluate our retail footprint. There was also a decision tree in the respective pack.

This process is very much ongoing and the-- after the sale of the Russian retail business, still in 27 markets. Leaders only in a few markets, which sort of, obviously, I would say guide in the direction that we have to address the issue and we are in the midst of this evaluation.

Our large [life] position account for about two-thirds of the retail GWP and AP for both GI and the GL respectively. So if there is more to say and to be much more specific and concrete, we will obviously come back to all investors and to all other stakeholders.

On the capital topic and the capital impact in pricing-- it is not particularly a unique thought and so again, starting from the reinsurance, it’s been the emergence of alternative forms of capital that has expanded supply, put pressure on pricing. That’s pushed through as the primary companies have benefitted from lower reinsurance rates.

That’s particularly impacted property and to put a number on it, for example in the U.S., one of the largest territories. I mean we see rates on the U.S.

property falling about 4% in the first half. And that we see as a continuation of I guess the facts I just described.

And is it fair to say that some of the trends that you are seeing in the U.S., do they -- is it starting to spread beyond the US and into Europe particularly on the commercial line side.

I’m not sure I would draw that conclusion. I think the -- I mean the cycle in Europe looks as though it lags a bit, so there is a possibility that it starts to feed in.

But when you look through our portfolio, U.S. property is the only one that stands out with a number that is as dramatic as the one I just gave you.

Everything else is either flat to positive or around that type of level. U.S.

property is the one that does stand out and has stood out for some time.

That is very helpful. Thank you.

Hi, good afternoon. Vinit from Mediobanca.

Just -- so if I can just ask George on the Z-ECM level, because in the 1Q, the comment was that -- in the 1Q results, the comment was that at 1Q, it was in the upper half of 300, 220 and it is coming a little bit more than one would have been anticipated, has there been any changes in any kind of market risk or any other treatment in the models or anything else that you think we should have-- you should think about. And the second question is-- I all these years, one of the topics that was supposed to help was the use of analytics and predictive analytics which you’ve also pointed to in the transcript as now running in 21 countries and NAC was the successful example.

So, where do you think the GC bit went wrong? Was the analytics still ramping up or was it relied too much on or any feedback there would be great.

Thank you, George.

Thanks, Vinit. I guess on Z-ECM, no model change in the number and so this is simply parameter updates.

And I guess, the upper half of the range, I guess, is to be a bit conservative so I mean you would imagine that, I didn’t know it to be 120 when we gave the upper half of the range, I thought I was going to be slightly lower than that. But the calculation is purely based on parameter updates, there is no model change.

On the use of analytics, I don’t think I’d point to a lack of analytics that’s driven the issue at global corporate. As I said earlier, large loss is the predominant driver of the issue there.

There is a bit of weakness on the liability side I described earlier but the standard factor is the impact of large loss and the impact in attritional in the quarter and again, we see both of these as natural volatility that can occur and it is something that we accept with the business model that we have so we retain probably more risks than most of our peers. We don’t conclude there’s an analytics problem or there is an underwriting issue, and again, I mentioned earlier, that what we have done to evaluate the losses that we have seen to try and draw conclusions as to whether there is some flaw on our underwriting process, or even just engineering stress and from what we see, there is no evidence of that.

Thank you, George. Can I just follow up on just quickly is so -- there seems to be a slower GC growth outlook, it used to be 3%-odd and now it is zero to slightly down for the year.

So clearly, you seem to be taking an action but then I’m not clear whether it’s something that would naturally improve or you need to take an action because something has been found to be inadequate or --

Again, I think it was -- I forgot who asked the question earlier but the -- and the question was what you are doing about what you see there? Things like the commercial auto side which is clearly not going to reverse, we have to take action and that will impact volume.

So hence, the guidance I’ve given you around expectations of top line for the remainder of the year. So we’ve become a bit more cautious around that.

But on the property side, I think we will evaluate how we tier clients, and in addition to [rate] profitability, also on volatility, and I think that is a prudent addition to the way we look at things but I don’t see that as a major analytics problem.

Thank you, George. Thank you.

You’re very welcome.

Thanks a lot. It’s Andy Hughes, but you can have a hug anyway.

So a couple of questions the first one on the Zurich rate tracker, so I’m just wondering if this tiering approach is distorting those numbers in anyway so for example if you have a client who you put in the lower tier buckets that you don’t like, you put rate increases on, they are going to leave and you are going to be cutting rates from the top tier that you are going to keep. Because obviously the Zurich rate tracker has looked quite good in the past relative to market rates and obviously market rates did tick down according to the indices in Q2 but your number started to look a little bit weak on the index and I am just wondering if that is having an impact.

And on the second bit, I’m just trying to get my head around is the outlook for top line and I guess this is probably the key thing. The outlook for flat to declining top line, I’m trying to square that with the comments you made about the expense ratio ticking up when volume is full.

It sounds like it is more like declining to declining top line and actually the combined ratio target is much more important than the top line in the general insurance business. So could you kind of put these things together and do you see some GDP growth helping that top line.

Is that why you think that things are going to be okay. Thanks.

Thanks, Andy. On the rate change, obviously the rate change does reflect the outcomes for us so it reflects what we are renewing as opposed to the totality of what was there and what might have been our approaching to tiering does impact that so that is it will look different from the market overall.

I’m not convinced that we have a more negative position on this than the market and in fact, overall, I’m not convinced of our perspective on rate or loss cost is significantly different from what I hear any of our competitors across the key lines. On the outlook for top line, my comment was really about global corporate.

Be careful on extending that to all of the other businesses, I think we still have investments and anticipation of growth and we had growth in a number of other markets but it is really intended to be a global-corporate-focused comment. On the GDP, GDP will help but not in the timeframe that we are talking about.

My sense is that the benefits of GDP feel to me as though they lag at the moment and the pricing dynamic feels about stronger than the GDP risk growth dynamics so I certainly think that over the next the remainder of this year and next year, I don’t think GDP growth will be a significant positive.

Can I ask a follow up on the first one, the rate tracker, I’m just trying to work out how it actually works? So if you do the tiering approach, would you have expected the prices the rating tiering approach to impact this tracker negatively anyway?

Or is this market impacts that are going on? Maybe you can separate out in terms of what is market impact and what is actual rating action being taken by you to rebalance the book?

Thanks.

It’s hard to do that; it’s the outcome for our portfolio which we have combination of -- I mean our request for rate increase in the market, competition against our offer. I certainly couldn’t just know what the split would be for you, Andy, I’m not sure we can do it but we will have a look.

Okay, brilliant. Thank you.

Hi there, just one quick question and apologies if I came a bit late on the call but I’m intrigued by the comments around the volatility being part of the metrics that you are now looking at and it sounds like on a per risk basis because I would have thought and you referred to it a little bit later, the core essence of your business is to take the volatility out of other people and corporate and individuals’ lives and absorb it within yourself. Is there a sense that, on a per risk level, that your businesses this seems an extraordinary question, is your business not diversified enough absorb a $50m loss, are we getting too excited on a quarterly basis because I would have thought that’s precisely what your business is there to do so I’m just intrigued a little bit more to know whether this is just a small thing that is going on or whether this is a core part of the transitional change that is going on within the business at a grassroots level.

Certainly it’s not a core change, you are absolutely right, if we start to force volatility out of the system, there will be no system pretty quickly. So our proposition to clients is that we protect them from uncertain events and the challenge we’ve had this quarter as we have more of those uncertain events than we normally anticipate to see.

I think we are trying to do on the tiering side, I think it is just to get a bit smarter about it so apart from [peer] rates and pay attention to volatility. If we are charging someone who produces relatively stable results over a long period, the same price as someone who has the same average answer, but much wider volatility, that is probably the wrong approach for us.

So, the good-- I don’t think you will see a fundamental change and all of a sudden Zurich becomes allergic to volatility, that wouldn’t work for us. I think at the margin, we can take steps that would reduce some of what you see in Q2.

Okay.

Good afternoon. Thanks for taking my question.

I’ve got two questions. Firstly, you have talked about the rate evolution on some of the lines, could you saw as in how does the claim inflation compares with rate on a group-wide level at this point in the GI book?

And secondly, you have taken an impairment of about $30 million. Could you say once more what this was for?

Thanks.

Thanks. So rate evolution, we would see loss cost inflation running at or slightly less than the headline rate improvement, so some relatively immaterial margin which is taking place currently.

On the impairment, I don’t want to identify the particular asset. It’s part of the life portfolio, it’s a relatively small number overall.

We’ve taken a $30 million goodwill impairment in the period.

Great. All right.

Thanks.

Thank you very much so two points. One your neighbor Swiss Re mentioned that they would like to move to half yearly reporting which I imagine would deal with a lot of the issues you identified that Q1 is less representative than half year and what is your stand on that?

And the other issue to take what sounds like more urgent action now that maybe you were contemplating in Q1 or in May. Does that mean that-- there is a risk, sorry, a chance that you could overshoot the target?

George, you’ve got a huge amount of experience on all these things and maybe you can kind of a bit [indiscernible] your view of that.

Thanks, Mike. The one that is absolutely clear to me and this wouldn’t be the day for us to talk about dispensing with half yearly or other quarterly reporting.

I believe in transparency. I think that the fact that you and the investors can see what we can see produces actually a system that helps people improve.

We can debate the quantity of stuff that we all pump out in your direction and whether we need it all but I’m actually a believer in relatively frequent clear information where we stand. I think it helps you achieve your goals.

On the second, I appreciate the flattery but you will appreciate that my immediate goal is not to overshoot the target but to deliver it and as you can see from today, we got some distance to go yet but again, we understand what we have to do, we have a plan to deliver it and we are confident that we will deliver the targets that we set out in May.

Thank you.

Thanks very much. I think that is a very good place to finish the call.

That was our last question. Obviously if you do have an follow ups, do call us in investor relations.

Thank you very much for dialing in and goodbye.