Zurich Insurance Group AG

George Quinn - Chief Financial Officer

Daniel Bischof - Baader-Helvea Nadine Van Der Meulen - Morgan Stanley Dhruv Gahlaut - HSBC Peter Eliot - Kepler Cheuvreux Vinit Malhotra - Mediobanca Andrew Ritchie - Autonomous Paul De’Ath - RBC Sami Taipalus - Berenberg Michael Huttner - J.P. Morgan Nick Holmes - Societe Generale James Shuck - UBS Thomas Seidl - Sanford C.

Bernstein Andy Hughes - Macquarie Ralph Hebgen - KBW

Thanks, Richard. And good morning, good afternoon, to everyone on the call.

Thank you for joining us. So before we start the Q&A I’d like to make a few comments on the results.

I am pleased to report that today’s results showed that the management actions that we have taken today are leading to an improvement in the results with contributions coming from all of our three main segments. The GI combined ratio contains to improve on a nine month basis with the accident year loss ratio ex-cat down roughly 2 percentage points compared to the full year ‘15 results.

The Q3 discrete ratio is slightly higher than expected mainly driven by higher large loss in the quarter. We continue with re-underwriting actions and we are satisfied that we are delivering the expected underlying improvement with more to come.

For Q4, we expect the combined ratio to be in the range of 97%, 98%, which means that the full year ‘16 combined ratio would be slightly above 98%. It’s important to note that the achievement of 97%, 98% combined ratio is not the limit of our ambition for the combined ratio.

The lower underwriting result was offset by investment income, which is up 3% in local currency compared to the prior year and as in the second quarter, this results from higher dividend income and equities, and principally higher yields on inflation-linked bonds in Latin America that back our business in the region. And I guess, the point I really want to make here that this is not going to change by taking on additional asset risk.

The Group’s cap position is strong, with the estimated Z-ECM ratio above the midpoint target range at 113% as of the end of the third quarter. Lastly, we are working hard to position Zurich for the future and to shape a clear and simple Group strategy for 2017 and beyond, I will give you an update next week at our Investor Day on November 17th in London with focus on the strategic direction, technical excellence, financial targets and dividend policy.

Thank you very much for listening and we’ll move the Q&A.

Yes. Thanks.

Good afternoon. Two points, two questions from my side.

The first, one, just some your last comment on the attritional loss ratio for 66.6% in Q3, so if you strip out the RCIS impact and the large loss so the two events in Germany and U.K., you probably still slightly be above 65%, I mean, was this the level where you would expect the attritional loss ratio to be or if not, I mean, what’s the deviation and do you plan some additional corrective measure to take here? And the second one, on the reserve situation, just a clarification, I mean, the 1.8% reserve release, how is this split into the major segments and related to that you just mentioned that the claims frequency in the truck business or the commercial auto business are somewhat higher than expected, is that something that worries you?

Thank you, Daniel. Well, first of all, on the attritional performance.

So, I mean, if you look at the overall result for the quarter was slightly higher than we expected to be. And I think we are happy though that the action that we have taken through the end of last year and the steps that we have taken in the first half of this year, having the end time that we expected against the challenge we have had this quarter and you saw in the opposite direction last quarter in the -- unfortunately outcome has not been linear.

And I think you could strip a number components to come back to view that we would have achieved something in the 97%, 98%, and I mean, for us, I mean, what’s most important is, where we headed, what we delivered and if we look at the impact of the re-underwriting that we have done and the impact that would have on the portfolio, I mean, our conclusion is that we are achieving the goal that we set out. I mean, there will still be some volatility, if we look to Q2 we would had an underlying combined ratio somewhere in the 96%.

I mean, that was clearly partly due to good luck and we expressed not to change. I mean, this quarter we have loss volatility in the opposite side.

We look in detail what drives it and we are satisfied that it’s not driven by something that we haven’t yet tackled. We continue to work on re-underwriting.

So that’s a process that we will continue through the course of this year and to next. There are certainly areas of the portfolio which are not yet achieving the profitability that we want and you can see particularly in some areas of Global Corporate and that means that this process for us will continue into 2017, but we are happy that the trends that we are seeing on the attritional are the ones that we expected to see from a performance perspective.

On the commercial loss, so, I mean, commercial loss are generally continues to be a difficult market. I mean, we are seeing, I mean, at least from the surface appear to be significant rate and but the underlying loss cost inflation, I mean, driven by a combination of frequency and severity, and still higher we believe than the price action that we are seeing in the market.

So that’s a line that is not yet improving at the pace that we would like to see and from a capital allocation perspective, I mean, we are acting accordingly.

And 1.8% reserve release is more or less evenly split through GC, NAC and Europe?

So there is a slide in the pack that breaks [ph] 1.8% adjustment (6:08) businesses, if you look at each them, I mean, some are slightly stronger, some slightly weaker. I mean, from a line of business perspective go back to your earlier question.

I mean, generally it’s -- the mix is more positive coming from the shorter tail end of things and to the extent that we have any significant negative which of course much smaller may tend to be in the more long tail lines, I mean, that’s the general driver of the PYD in the quarter.

Excellent. Thank you.

Yes. Hi.

Good afternoon, gentlemen. I was wondering with regard to the combined ratio expectation for the full year.

You’ve said that it could come out slightly above 98%. Could you give a split between the expected loss ratio there and the expense ratio given you have been guiding towards 31% for the expense ratio previously?

And the second question is on the sales volumes, they were a bit pressured as I -- as expected I suppose, but particularly in Global Corporate also NAC and EMEA? Could you comment on how you see this develop for each region and in light of that also maybe comment on the rates -- an expected rate developments in the different regions?

Thank you very much.

Thanks, Nadine. So on full year expectation, I wouldn’t change the guidance I gave you earlier in the year.

So from an expense perspective, I mean, we expect end of the year, I mean, broadly in line with where we were last year and that will be a combination of an absolute expense cut, which I think is visible in the nine months financial statement, so we have made significant progress, that partly I will say, by the impact of volumes, which I am going to come until next and from a loss perspective again no change to and I mean, what we had expected to see there albeit was the qualification I gave a second go on the introduction. On the sales volume side, I mean, in general in the year-to-date we are still seeing reductions in GWP that are consistent with what we had anticipated would be needed to achieve the profitability that we had targeted for the year.

And from a rate perspective, if you look at the different markets and the information we’ve disclosed to-date, I mean, what you will see is that, I mean, in general we see, I mean, pretty solid rate across all of the market, I mean, the one area that stands has been slightly weaker is Global Corporate. I mean, that’s a very competitive market and in particular property in the U.S.

is a market where pricing is very competitive. I think from a trend or from an outlook view, sales volumes through Q4, I don’t expect to be very different from the year-to-date.

So, again, we will continue the re-underwriting process that we started, we will focus on making sure that we achieve the required profit and that should leave us less reduction in GWP for the year ex the RCIS acquisition that’s still in that mid single-digit range. From a rate outlook, I don’t really expect the trends that you see already in Q3 to change.

My guess is that Global Corporate will continue to be very competitive and we will still achieve higher rate outcomes on the remainder of the book. That will be I think better than the overall market performance currently.

Thank you very much.

Good afternoon. Thanks for taking my questions.

I’ve got two of them. Firstly, going back to slide seven, where you have given the retention by tier, could you quantify what percentage of business is sitting in Tier 4 and what is the combined ratio of that business at the end of nine months?

Secondly, for the Group as a whole, how does the claim inflation compared with the rate you’ve put in of 2% at the nine months stage? Thanks.

So on the tiering picture, Tier 4 varies quarter-to-quarter, and I think, generally the low end tends to be around the 10% and 12% and higher tends to be in the 17%, 18% range. So overall for the year, I mean, something and again mid-teen type level.

Can you remember what your second question was Dhruv?

And also on -- could you quantify what the combined ratio was for that Tier 4 at nine months?

No. I can’t.

I don’t have that in front of me.

Correct. Second was claim inflation versus price inflation on the overall book?

So, I think, I mean, again varies market-by-market. So I think the claim inflation we will see in the U.S.

is running a level that’s pretty close to the rate that we are achieving. So the margin improvement is currently quite modest particularly around the Global Corporate side of thing.

You see an outcome from a rate perspective is slightly positive, but claim inflation that will come probably slightly north of that. And the other markets though the impact is stronger and claim inflation is not strong, so I mean, across the portfolio we are seeing much stronger impact of rate outside of North America.

So the portfolio overall we see -- we still see a positive impact.

Okay.

We achieved in the claim inflation that’s not strong.

Perfect. Thank you.

Thank you.

Thank you. And I wanted to come back on the premium growth, first of all, I know you were sort of saying that was in line with expectations, but I guess, I was quite surprised by the big fall that we saw in Q3 and that sort of swing.

I mean, I appreciate you saying you exited the Australian business, et cetera. But even in NAC we’ve seen a huge swing from sort of plus 7% in Q2 to a minus 4% in Q3.

So I was wondering if you could just talk about the sort of historic developments. And the second question, I was wondering if you could talk about moving parts in the SST ratio.

I appreciate you giving us a Q3 figure, I was just, again, I guess, a little bit surprised by the extend of the fall from the full year and I was just wondering if you could split out some of the moving parts or maybe give us just Q3 number in terms of timing? Thank you.

So on the first one, Peter, on premium growth, you need to be a bit careful with NAC, because NAC has quite big account of business and that’s what drove some of the increase that you saw in Q2. So I think actually the year-to-date view is a better indicator, I mean, where we stand from an overall GWP impact.

I mean, still it has a relatively small effect, but I think, NAC is the biggest distorting factor between Q2 and Q3, and a large part of that explained by captive timing between Q2 and Q3. Overall, year-to-date premium growth is roughly where we expect, mid single-digit level and again, no reason to expect we are going to see a significant deviation from that.

And on the SST, I mean, the main reason for the highest activities, the way that SST achieve interest rate both from a discount rate perspective but particularly from a market value margin calculation perspective SST adds it to the target capital requirement, and of course, that makes it much, much, more sensitive to interest rate. I mean, there are other smaller differences but that explains the vast majority of the difference between the two numbers.

Okay. Thank you.

If I could just follow-up on that last point, I guess, we’re going to see that change now and it’s going to be move from the capital requirement to the available new capital. So I don’t know if you -- are you able to give us any sort of sensitivity of how big that positive impact will be?

If you bear with me, Peter, and come back to the Investor Day next week, I will do more on SST and Z-ECM and Solvency II generally, so what we are going to sanction there that addresses that particular. You are going to see more that relevant for comparing SST and Z-ECM and other capital measures.

Okay. Thanks a lot.

Yes. Good afternoon, George.

Just on the Global Corporate and I am looking at slide 10, and obviously, thanks for this additional disclosure today. But there’s been a lot of volume cut for three quarters now, pricing is not minus at least, it’s okay, zero, one.

I mean, what do you think needs to be done or maybe we wait for Investor Day, but what do you think is it just random large losses, is it, what do you think is driving such a high 84% kind of AY LR in this segment and what do you think needs to be done? So that’s the first question.

And second question is, again, we might discuss it next week, but the interest rate sensitivity for Z-ECM has increased a lot compared to the previous disclosure. Is there some more changes that we should be worry of?

Thank you.

Yeah. Thanks, Vinit.

So first of all on Global Corporate. So if you drill into the quarter and I mean, I think there are two big themes.

One, I mean, the market in general is very competitive, so it’s been much hard despite a reduction that we push through on the volume side to achieve quite rate outcomes that we were looking for and Global Corporate cost is particularly suppose to, I mean, one of the markets that’s particularly soft, which is U.S. property.

And I think if I look our U.S. property book we are planning for next year and it’s a difficult line of business to underwrite profit currently, I mean, you need to take relatively ambitious assumptions around nat cat incidents to really feel happy about North American property exposure currently.

The Global Corporate has same issues with the market, they -- we have some issues in our portfolio in general, the steps that we took at the beginning of the year around re-underwriting, around great use of reinsurance, I mean, that will start a bigger impact on the businesses we move on. Global Corporate has a particular challenge in the quarter though, so they have two areas, which European, there are being slightly problematic all.

So one was med mal in Spain and the other is financial lines in Europe and on both of those we have move loss for the year and that’s why you see this, I mean, very high combined ratio for Global Corporate for the quarter. I mean, having said all of that, though, I think, we are doing all the things that we expected to do, we are not looking for volume outcomes we are looking for profitability, that’s what the team continue to do.

And in fact, if I look at all the different parts of the portfolio, I mean, Global Corporate, and in fact, I mean, commercial and new organizational structure is one of the areas that we clearly need much more attention and re-underwriting as we go through 2017.

And just, pardon me, the almost $1.2 billion in NAP, is there a disclosure on how much of U.S. property, can we guestimate or in Global Corporate, sorry?

So our Global Corporate North American property book after reinsurance is, I think, between $300 million and $400 million, I mean, we will check and come back afterwards, but that type of order.

In the quarter.

No. In the year.

In the year, okay. Great.

I mean, the gross number is much higher, but that’s one of the areas where we put a fairly significant quota share contract in place at the end of last year.

Thanks.

On interest rate activity, and I mean, we changed the disclosures earlier in the year to try and bring in the non-financial market element, so before setting up to the end of last year, our interest rates activity were typically parallel shift and focus more on interest rate driven impact on AFR. And what we tried to do going through this year is to update that for the second order effect that signed and typically on liability side to make the disclosure more meaningful.

It doesn’t change our actual sensitivity, but I think, it’s a fair disclosure so we have tried to improve it.

Thanks for that. Thank.

Hi there. And I just wondered if you could come back on reinsurance.

I recall there was a purchase specifically to do with large losses last year, you bought at the end of last year and you were running up to the aggregate deductible on that. I think you were below that at the end of Q2.

I mean, maybe remind us where you are. I am struggling to see the benefit so far of what you’ve done given we’ve had another quarter now impacted by large losses.

So is there now more benefit because of where you are, is there a consideration that maybe you still need to think again about how much you buy? Just remind us -- and if there is a benefit, what it is and what your results would look like without that?

And then the second question is just following up, it sounds like and there was an element of loss pick true-up in Global Corporate. I mean, that’s unfortunate because we saw that several times last year.

Was it just on those lines you’ve identified, med mal in Spain, financial lines in Europe, there was no true-up in commercial also and what was the impact of that true-up on the loss ratio in Global Corporate? Thanks.

So on the reinsurance side of things, I mean, just to recap, changes that we made to reinsurance at the end of last year, I mean, the two most significant things we have done is, we have annual aggregate in place across the entire Group, couple large loss and we also have number of quota share programs in place and particular one that covers North American corporate business. I mean, we have had benefits from some of the quota share we put in doesn’t change the ratios but it certainly has impact to some of the individual line size exposures that we would have had as we gone without that.

On the large loss side, I mean, the charge in the large loss side is that the second quarter was relatively strong from a large loss perspective. So that means we haven’t attached that contract and from what we will see through end of the year, I still would not expected to attach the contract and it would require, I mean, a really poor quarter for that to be the case.

So at this stage, I mean, I’ll repeat something I think I said earlier in the year, and I mean, we think the steps that we are taking from an underwriting perspective will address loss issue and in fact half to some degree already this year, and I wouldn’t want to hope for a large loss experience in Q4 that would be significant enough to attach the reinsurance program. I think there our underwriting should take care of that.

And then no other run through benefits from the reinsurance program to-date?

Well, I mean, other than the various programs we put in place, and I mean, not just across property in North America, but against various sub-lines in the Group, but we have that benefits, the annual aggregate of sales hasn’t delivered benefits, because we have a much better performance on large loss.

Okay.

On the loss pick true-up, I only highlighted that to explain the level of combined ratio for Global Corporate for the quarter. I mean, I don’t think it’s particularly significant than the scheme of the Group, and of course, I haven’t highlighted the loss pick adjustments in other lines, it would have gone in the opposite direction, I was really trying to pick what the challenges were for Global Corporate and...

And just to confirm on, commercial obviously was the big true-up last year that you haven’t had true-up this year?

So our Global Corporate and the construction liability line that was the source of the Q3 problem have not changed.

Okay. Okay.

Thank you.

Yeah. Hi, there and couple questions please.

And I will move slightly away from the standard lines of the P&C business. And firstly, and just on Farmers, and looking at the underwriting performance there is still, obviously, struggling slightly in motor, and how do you see that impacting the growth trajectory of the topline in Farmers, and obviously, therefore, the impact on FMS?

And then secondly, just thinking about the political changes in the U.S. and have you had any in terms of change of heart at all, in terms of your hedging of cash flows in order to pay the dividend and given that might potentially more volatility going on in the near future?

Thanks.

Thank you for the second question. On the Farmers side of things, I mean, as you can see from the quarter, I mean, Farmers is, I mean, on the same track that we’ve seen earlier in the year.

The exchanges are still trying to address the profitability of the auto line and the steps we take to do that which will be about pushing rate, of course, we will generate more fees for us, because of our relationship with the exchange. I mean, we see the next step the exchange is taking to address the underperformance in auto is actually beneficial for Zurich and Zurich relationship.

That was the exchange. From a growth perspective, I think, if you look at the quarter and the, I mean, the in-force count dipped slightly.

I think the, and obviously, there is a limit how far you can push some of these rate topics without having any impact on policy count. I mean, the Farmer is, the exchanges have had to manage that balance and I think they have done that very effectively.

I guess the key point here is we expect to see this change take more rates and that will drive more fee income. And on the political changes, I mean, in general, let stay away from that topic, the -- I mean, from a corporate finance perspective for us, I mean, obviously, we pay attention to currency moves and I don’t see anything and either recently or currently in the outlook that would cause out the change view of how we should approach and how we deal with some of the foreign currency and that issues that we face as a Group.

I mean, in general I think it’s much better than that as if we take a very longer term view and a low some of the currency volatility to balance out, of course, if situation become more extreme than we would have a look at it, but, I mean, as of today, I mean, I was looking at the cost rate and I note today that the dollar is strong against the Swiss Franc than it was on Monday and more than that I have nothing to say on that political topic for the time being.

Thanks.

Yeah. Good afternoon, everyone, and thanks for taking my question.

The first one is just coming back on the topline but looking slightly longer term this time into 2017 and if I kind of square up what you’re saying about the competitive market and that your, perhaps, running slightly behind on the underlying loss ratio improvements. Is there actually any chance that you could grow your topline next year or should we sort of write that off?

And the second question is on the competitive environment in the U.K. and Germany, commercial lines.

Could you just give a bit more color on that please, because you’ve made a few remarks about that in your comments? Thank you.

Thanks, Sami. So topline and I think from -- and if I take a longer term view, and I mean, once we have completed re-underwriting, I mean, we will grow at rates similar to the market GDP rate in the markets where we operate.

And I mean, we don’t have an imperative to need to grow and we are not trying to achieve a particularly expense ratio outcome or far more focus on expense level from an absolute perspective. And it’s really market condition that will determine whether or not the company finds business sufficiently attractive to grew next year.

Having said all of that, I mean, today as I look at things, I mean, given the market conditions and given the market competitiveness and some of the re-underwriting that we still have to do, I don’t expect us to grow, I don’t expect us to shrink the rate we have this year, I don’t expected to grow next year. Competitive environment, U.K.

and Germany, maybe I think the U.K. is slightly more competitive and Germany given the price and rate trends that we see, and I mean, in general U.K.

is quite closer to the U.S. in terms of current market trends, Germany we still see as a market where, I think, if we select the portfolio correctly, and I mean, we can generate attractive returns and drive some margin improvement through the portfolio.

Okay. Great.

Thank you.

Thank you very much and I have two questions on the PYD. I think it was Q1 or maybe Q2, [inaudible] (28:52) competitors highlighted that there was a difference between the recent average of PYD of run-off profit and what you showed at the Group level, and I think, you’ve got the same in Q3, is that right?

And I just wondered, are you effectively adding more to reserves and is this a voluntary thing or is this a required thing, and I am guessing 2.9% is a country or the region run-off profit and 1.8% was Group level? And then on the -- you gave us 97%, 98% range and I really thank you for that for Q4, I find it very comforting, but given that you were maybe not quite so confident, but you still express a range for the full year and now you’ll be a little bit above that.

Where your cost of confidence coming from Q4, I think, Andrew Ritchie kind of made -- in your answer you made the point it wasn’t from the aggregate loss ratio -- loss cover. And I just wondered is there a moving part I am not seeing or have we -- are we kind of out of the season for large losses.

I just want to understand a little bit your thinking here? Thank you.

Yeah. Thanks, Michael.

So, on the first one. And we highlighted both on Q3 and in Q2, there was a difference between the, let’s call it, the regional reported PYD and the Group PYD, because we made a choice to take a more prudent view from an overall Group perspective.

I said at the end of Q2 that we would look to try and make sure we push that down into the business. We have done more of that in Q3, but we haven’t completely eliminated it.

So the Group again has taken a slightly more prudent view than the average of the positions presented by the geographic regions. I mean, what -- over time though I expect to eliminate that difference and to the extent the Group has a view for that to be recognized locally.

I mean, I think, I said explicitly before that one of the things that we would like to do over time and one is demonstrate consistency around PYD over a longer period simply the three quarters we’ve seen this year, so that’s something we would continue to focus on through Q4, Q1 and through the course of 2017, and at the same time to the extent that the local environment permits me and to be more prudent overall from a reserve perspective.

And that’s about $3 million year-to-date this difference.

Approximately.

Yeah. Fine.

That is…

On the 97%, 98% range, I mean, I think you were quite kind to me and so, I mean, I was confident Q2 and…

It’s not kindness you’re doing a really tough job, it’s not kindness. I appreciate what you do, sorry, sorry, I misinterpret it, no, it’s -- what you do is really hard.

So it’s not kindness, it’s just recognition.

The -- my confidence about our ability to achieve 98% hasn’t changed, I guess, what happened is that, the past hasn’t been as linear as I guess I would have hoped. And I mean, we are doing the things that we have indicated to take some of the volatility out of the system.

We’ll not remove all of it, so I mean, I can’t make a cash bank commitment in any given quarter will achieve a particular outcome. I look at the drivers of underlying performance, I look at the action that we have taken, particularly the impact that would have had in Q3, have we had forcefully entire.

I am happy with the trends that we see. And I mean we are going to get there, but we will be subject to some volatility even when we’ve completely re-underwriting the book, whether that’s by the end of this year or the end of next year.

But the underlying position is the thing that’s most important for me. I can see the improvements and that will show up in the financial performance.

And just -- may I just say quickly. And quarter-to-date we’re more like Q2, we’re light, right?

So, you have to come back in February for me to talk about Q4.

Okay. Okay.

Thank you.

Hi, everyone. Hi there.

Thank you very much. A couple of questions, the first is on the U.S.

business. Do you think the recent rise in bond yields is going to put more pressure on U.S.

commercial pricing? And kind of can you give us your thoughts on the outlook for pricing, because, obviously, it has been under pressure this year, but it’s performed I think a bit better than most people thought?

The second is on the Z-ECM ratio, I wondered if you could update us on your capital policy here, I mean, the ratio is looking stronger and I wondered what the surplus capital position is that you see within the Group, if any? Thank you.

Thank you, Nick. So on the U.S., in fact, I was asked the similar question on CNBC this morning.

I think, if you look at all the markets, the U.S. is the only one that stands out with a, I mean, relatively modest rise in bond yields.

Okay.

And I mean, it retrace that probably yesterday, I think, it would be a mistake certainly for us and my view as for the market in general to start to assume there is an upward track in bond yields and somehow we can anticipate that by pricing perceptive. And the point I made this morning was that, I think, everyone needs to continue to focus on adapting to this relatively low yield environment and if something else comes, I mean, that will be good, I mean, we will enjoy that went it appears.

Another thing on the bond yield topic, I mean, certainly from my perspective, hasn’t really had enough time to impact the pricing environment, pricing in the U.S., very competitive market, lots of well-capitalized competitors, everyone trying to make sure the hang on to the parts of the portfolio they like and competing for when things do emerge into the marketplace. So and even though, I mean, the trend is more negative from a pricing perspective as it was last year, I mean, I think, still the best you can say is the, I mean, maybe we are approaching a bottom, if you look at the trends, but the incremental is still slightly negative market wise and...

Sorry George, so you would expect pricing to start to stabilize next year, is that what you’re saying?

[Inaudible] (35:42) So the short answer is, probably, no, I think, you…

Okay.

I don’t really want to get into the position where I am trying to call a turn in the market, I mean, the stats that we are trying to take is, I mean, if you look at current trends, both from a financial market perspective and from a pricing and loss cost perspective, you should typically assume those continue, because that market turn is something that’s generally out of your control.

Okay.

We are not planning for that currently.

Sure.

And Z-ECM ratio and capital, generally, so, all I can really say there, I mean, we feel very comfortable with overall capitalization as you point out, I mean, Z-ECM ratio is slightly above the mid-point and I mean, but -- that hasn’t triggered some reconsideration by us of, I mean, whether there is a significant element of excess capital that we like to try and find something and [inaudible] (36:43) do with it, I mean, our focus is around the operational improvement required in the firm and I would say that we feel quite comfortable with current capitalization and wouldn’t necessarily look to change it.

Okay. Very clear.

Thank you very much.

Thanks.

Hi, George. Good afternoon.

I have three questions please. Firstly, could you just comment on the German life business, I am just interested to know whether the low interest environment will start leading to progressive DAC write-downs in the fourth quarter and into -- and beyond?

That’s my first question. Secondly, could you just update on the progress with distributing surplus capital from the U.S.?

I think there are plans to distribute that capital. I am just wondering whether you’ve actually progressed at all and over what timeframe you might expect to see that be distributed.

Then finally just more conceptual one, and obviously, you’ve changed your book of business a fair amount in pruning and re-underwriting, et cetera. By implication, do you have a fair amount of legacy business that you may or may not want to keep, just interested to know about the Rhode Island legislation and whether that could potentially lead you to take a good hard look at some of your closed book or run-off businesses and with a view to freeing up capital from them?

Thank you.

Yeah. Thanks James.

So on the German life business, the -- I mean, if I look carefully at the guarantees, I look at the running yield that we have in the book, I look at the benefit that we have from the unrealized gain position, I don’t see anything there that would suggest that we are at any significant risk, I mean, near and medium-term of DAC rate down. I mean, I think, what you do see in the German business is that, as we said before, you will see pressure from ZZR.

I mean, that will start during the course of next year with, again, a net double digits million dollar impact on life earnings and it will increase and over the course of, at least, our planning are rising, I mean, we expect to see total ZZR impacts of about $400 million, which would be between roughly 2017 and 2021, but not seeing anything on the DAC side, it was just a rate. And on U.S.

capital, and I think, probably the best way I can answer that question is to say that, I mean, I think, as you know, our cash planning for the year was probably depended on successful outcome and from that discussion. I see nothing that would cause me to change my view, what we expect to deliver on cash, which would mean that we will meet the more than $10 billion of net cash remittance that we guided to and in particular for this year, we will achieve at least the cash covered dividend, the similar dividend is unchanged.

On the Rhode Island topic, so I mean, something we’ve been looking at both this year and last year, I mean, conceivably, offers the possibility that you can achieve, I guess, both for U.K. and that would be a [ph] Part 7 (10:07) type outcome, I mean, the legislation is of interest to us, and I mean, it takes some preparation of the books of business that maybe applicable to before they would be ready to potentially transacted on, and of course, there aren’t many people who really have experience of buying on to this regime yet.

I mean, there is certainly something that we are looking at very carefully and it offers, certainly from zero perspective and more attractive outcome potentially because of the finality that really offers in comparison to the economic finality that reinsurance solution would typically offer. So Rhode Island is something that we are looking at.

Thank you very much.

Thank you. Good afternoon.

First question is on page 18 where you show the running year by asset class, a focus on debt. You are, I mean, you look back to ‘15, you showed basically reinvestment rate 2%, this year reinvestment rates dropping to 1.7%, yet running years have been rising over the same time horizon from 2.4% to 2.7%.

So you frequently mentioned on the inflation-linked bond in LatAm, is that the only explanation of what else is going on, because otherwise mechanically the regular yield on the fixed income portfolio must come down with this type of reinvestment rate? That’s the first question.

And the second is then you talked about the consistency on reserves. Now when I look at the segmental reserve disclosure on page 10, the last three years ‘13 to ‘15 you had basically zero reserves releases from Global Corporate and NAC, yet this year these two segments are the strong deliverers and I wonder why you find now the reserve buffer in those two segments, which caused problems in previous years?

To touch on the first one, on the running yield, I mean, you and I discussed this already on the Q2 call. I mean, the answer would be broadly same and in fact, I would agree with your hypothesis that the running yield must come down.

There is no way to avoid this. The only way that you could avoid it would be if you chose to take more risks and that’s not something that we intend to do.

But why are we not seeing it?

Well, two reasons I gave you in Q2. So LatAm and inflation impact and the impact of foreign exchange, that’s it.

On reserving and I mean, you talked about the consistency of reserving, I mean, I guess, we talked about consistency, I wasn’t trying to imply that, if it was consistently negative, we would continue that into the future. We’ve made some adjustments to reserving for in particular Global Corp and NAC, and those two topics we discussed last year, that’s obviously moved reserve position overall to different place.

And other than that, I mean, we are happy with the reserve position that we have across the entire Group. And I would expect over time, not everyone equally in every single quarter, but over time all the different businesses contribute to positive PYD and if you look at the numbers we have this quarter, that’s exactly what you see.

On the first point maybe just a follow-up, if you strip out inflation effects, what would be the running yield and fixed income in P&C, please?

I don’t have the number in my head, I am afraid.

Okay. Thank you.

Thank you.

Hi guys. A couple of questions if I could and the first one is on slide seven and the retention by tier.

Just looking at the Tier 4 and comparing that to the half year. So for the half year 62% retention and then you’ve got 60% retention for the nine months, and I thought quite a lot of this stuff renewed in the first quarter.

So has there been a material change in the Tier 4 retentions versus what you had seen in the first half of the year, in the third quarter? And I guess, the second question is on Global Corporate and the comments you made before about the rate change.

Because I can see the kind of Global Corporate Zurich rate change has dropped to zero from 1% in the previous quarter. But I am just wondering is there any way we can adjust this for the impact you’ve discussed for the benefit of reinsurance, because obviously these are gross premium numbers.

And so what would be a kind of more recent, because obviously, when we look at slide 23, it’s hard to see how the kind of combined ratio is going to improve, given that the rate changes coming through is quite low. And I am just wondering if we can kind of adjust this somehow for the reinsurance that you’ve put in place, you discussed earlier?

Yeah. Okay.

Thanks Andy. So on the Tier 4 topic, I mean, if you look at the size of Tier 4 slightly larger beginning of the year than the remainder of the year, I mean, we have a continual renewal, which means there is a significant Tier 4 element in pretty much every single quarter.

And I think, what you’re seeing in Global Corporate, as I see is the, I mean, the relatively competitive markets, I guess, everyone recognizes they are operating in and therefore, it’s, I mean, if they push for the rates that we’re trying to achieve, it’s a time to push for margin improvement that would outperform the market generally, I mean, that’s how it sound negative impact on retention and I don’t see it a dramatic shift in the retention dynamics between Q1, Q2 or Q3. Global Corporate rate change and the impact, you described it as the benefit of reinsurance.

I mean, actually going back to Andy Ritchie -- Andrew Ritchie question earlier, because we are not attaching the annual aggregate, I mean, I would estimate that the impact to reinsurance and Global Corporate would be slightly negative rather than positive currently. And I mean, obviously, if we are not recovering under one of the key contracts that will have some negative impacts on them.

I mean, I don’t think is particularly significant, but I wouldn’t quantify the impact of reissuance through the nine months as necessarily a positive Global Corp.

I was thinking more of the $300 million to $400 million property reinsurance you talked about rather than the aggregate one and -- on the property book, which obviously would -- on a gross rate premium basis would obviously deflate the numbers?

Yeah. So the -- I mean, I guess, it deflates and slightly distorts the numbers and there will be a seeding commission, I mean, I guess, the margin change from that would be really, really small.

I mean, I wouldn’t expect that, I mean, that would change the overall combined ratio in any significant direction, I mean, it will change dynamics between the OUE ratio and the acquisition cost ratio, I mean, it’s actually just brings the entire book down, slightly reduces the overall contribution of it to the overall performance. But I don’t think it would particularly be material.

Okay. Is there an obvious way, I am missing as to why this business kind of is going to improve with a very low rate change?

I mean, is it really the benefit of the mix we haven’t seen so far that will start to come through next year?

I think in the case of property, it will not improve because of rate change, it will improve because you write less of it.

Okay. Thank you.

Hello. Thanks very much.

I just have two questions if I may. One is one the life benefits from the assumption changes on consistency, I wondered how long you look at in terms of date or periods to change that whether it’s just the last -- the previous three months before Q3, I am talking about the $30 million benefit on that assumption?

And then second one, just on the point of reinvestment versus running yield point that was made earlier. You said that the foreign exchange in LatAm was the reason.

I just wondered if there was any increase in illiquid credit and whether that was partly to do with reason for the improvement in income as well? Thanks.

Thanks, Kelvin. So, on the first one, I mean, typically when you are looking at and experience update, you look at, I mean, you spilt the portfolio into cohorts and you look at the cohort back to inception, so the period over which you review it will vary, it would be very unusual that anything would be a short say the last three months.

I mean, you are typically looking at one, two, three of even more years of experience before you make a decision on whether you move consistency. And on the yield side of things, so and I mean, the yields that we in there for fixed income, I mean, its typically the market instrument based one, and so when we calculate that, we excludes, I guess, things like mortgages and loans, which typically are the last liquid end of the calculation.

So I wouldn’t expect that to have an impact on that.

Yeah. So, there’s not been an increase in illiquid credit investments in the quarter?

So, I am not aware of a significant shift into illiquids in the quarter.

Okay. Great.

Thanks very much.

Yes. Hi.

Ralph Hebgen from KBW. Just going back to the Global Corporate line, I mean, I know we discussed this in -- at some length.

It just looks as if the accidental loss ratio in 3Q injects quite a material element of volatility into how these things run from quarter-to-quarter. But George, last quarter you gave us quite a helpful commentary around large losses and where the large loss experience you had ran relative to your expectations and your budgets, in 2Q ‘16 there was a positive element.

I was just wondering whether you could give us a similar commentary, perhaps, at Group level and also specifically focusing on Global Corporate? So that’s the first one and the second one is coming back to what Andrew was talking about.

I do wonder whether -- I may look at this too naively, but it looks also to me as if you’re not seeing an obvious benefit from the excess of lost reinsurance program that you had. Are you thinking, I mean, is it actually appropriate for you to think about, perhaps, lowering the attachment point, so that you would get a positive impact on the volatility, which is arguably still present in the book?

And question number three is on life insurance. I saw just at the high level that’s very strong in the quarter and in terms of business operating profit.

Are there any special drivers behind that and where would you say, your guidance is now running. You said it’s like $300 million to $350 million per quarter, is that still what you are happy to repeat or is it at the upper or lower level of that range?

Thank you.

Yeah. Thanks, Ralph.

And so on the loss experience in the quarter, I mean, I have tried to avoid get into explaining how it would good have been for the claims that we’ve had in the quarter, some volatility is going to be expected. I mean, I think, one of the reasons I feel more confident this quarter compared to some of the experience, I guess, you guys shared with me last year, I mean, I think, we have much better information as to what we are changing, the impact of those changes on the book and our ability to take them forward.

I mean that’s something that drives some of the confidence around our expectation of the improvement and I guess Q3 is a reminder to all of us in particular me and it wouldn’t necessarily be a linear process. If you look at the loss experience from a loss perspective, I’ll cover at Group level.

And I mean, if we adjust for and if we adjust the actual experience for what we would have had been made all the changes, had it impacted the entire book, we would be better by 50 basis points to 100 basis points. But, of course, the most important issues is, we have to deliver it rather than talk about it.

But, I mean, overall, I am happy with the trend that I see in GI. On the excess of loss or annual aggregate contract and I mean, you are absolutely right.

I think, we so far have had no benefit from the contract. If I could read a contract it would allow me to define the attachment points at the end of the year, I would absolutely choose that one.

And I guess, we chose one based on the experience that we’ve had over in the last several years. And I mean, the aim wasn’t to put something in place, but we felt same we would attach during the course of the year, but it was designed to give us confidence for any reason we had to repeat last years’ experience, and you and we wouldn’t suffer the same financial impact.

In the event the year has turned out quite difference so far. We made more progress more quickly and in particular we benefited in Q2 from relatively late quarter from large losses.

And so, in fact, today which lead me to expect, as I said, I think, in response to Andy’s question earlier that the impact of the reinsurance will be negative. I mean, we won’t review the entire program and look at whether there are ways in which we should adapt or change it to make it more effective.

And I mean we put the contract in place for particular reason, that particular reason hasn’t emerged in the year-to-date and I think that’s actually good news rather than bad news. On life insurance and I think the only thing I would highlight for you in terms of one-off and in response to, I mean, Kelvin’s question was about the impact of the assumption changes.

We are not going to have them every single quarter and in this quarter they were about $33 million of positive impact on the result.