Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zurich Insurance Group AG (ZFSVF, Financial) achieved a record Business Operating Profit (BOP) of $4 billion in the first half of 2024, driven by strong results in property and casualty, life, and farmers segments.
- The company reported a BOP return on equity (ROE) of 25%, indicating highly attractive returns on capital.
- Property and casualty insurance revenue grew by 7% in the first half, with particularly strong growth in retail.
- The life segment reported an all-time high BOP of $1 billion for the first half, with short-term protection revenues increasing by 25% year on year.
- Zurich Insurance Group AG (ZFSVF) completed the acquisition of 70% of Kotak General Insurance in India and announced an agreement to purchase AIG's personal travel insurance business, enhancing its global market position.
Negative Points
- The retail property and casualty segment reported a higher combined ratio of 96.4%, driven by elevated weather events and persistent inflationary trends in motor insurance.
- The company's performance in Germany was notably weaker, with a combined ratio above 100% due to increased claim frequency and weather events.
- Despite improvements, the Farmers segment faced significant catastrophe losses, impacting the combined ratio.
- The commercial motor segment continues to face challenges, with the need for further rate increases and portfolio adjustments.
- Zurich Insurance Group AG (ZFSVF) faces ongoing challenges in managing weather-related losses, with North America experiencing a higher cat loss ratio compared to the previous year.
Q & A Highlights
Q: Can you provide insights on the impact of above-normal weather losses on the combined ratio and clarify the threshold for NatCat classification?
A: Mario Greco, Group CEO, explained that the reserve adequacy, especially in casualty, is fully appropriate, with no need to adjust reserves except for commercial motor. The threshold for NatCat classification is $25 million. In North America, the cat loss ratio increased from 2.8% last year to 3.5% this year, indicating a 60 basis point improvement in the accident year combined ratio, excluding cats. In Europe, cat events increased from 90 basis points last year to 110 basis points this year, with additional smaller weather events impacting results.
Q: Given your confidence in EPS growth, should we expect the dividend to grow at over 10% CAGR?
A: Mario Greco, Group CEO, deferred the question to February next year, indicating that they would be happy to address it then.
Q: How quickly can you turn around the retail segment, particularly in Germany?
A: Mario Greco, Group CEO, acknowledged that the retail segment's performance, especially in Germany, has been slower to improve. The worsening results were mainly due to increased claims frequency and weather events in Germany. Actions have been initiated to address these issues, and the industry is expected to respond similarly.
Q: Can you discuss the rate development in commercial lines and any differences based on account size?
A: Mario Greco, Group CEO, noted that property rates are harder in the mid-market and softer for large accounts. Mid-market rates are still mid to high-single-digit, while large accounts see low single-digit increases. Casualty rates are in excess of claims costs, with workers' comp flat but with negative claims cost, indicating a positive outlook.
Q: What is the outlook for the Farmers combined ratio, and can you provide more details on the crop result?
A: Mario Greco, Group CEO, stated that the Farmers combined ratio issue is resolved, with a current ratio of 95% despite heavy cat losses. The crop result is expected to be better than last year, with a $100 million reduction in revenue due to commodity prices. The overall outlook for Farmers is positive, with room for growth in other states.
Q: How do you view the risks in the commercial segment, and can you comment on the strategy in Italy regarding FinecoBank?
A: Mario Greco, Group CEO, emphasized the importance of professional underwriting in commercial lines, particularly in property and casualty. Zurich has maintained its retention levels to avoid increased P&L volatility. Regarding FinecoBank, Greco categorically denied any interest in acquiring a bank, stating that Zurich focuses on life distribution rather than wealth management.
Q: Can you provide guidance on the European retail combined ratio and the situation in Switzerland relative to Germany?
A: Mario Greco, Group CEO, indicated that the European retail combined ratio, excluding Germany, is already in the 95%-96% range. Switzerland's retail combined ratio is at 97%, impacted by weather and cat events. Zurich aims to achieve a below 95% combined ratio for EMEA retail, with improvements expected in Switzerland.
Q: How does Zurich approach excess capital distribution in light of interest rate changes and SST constraints?
A: Mario Greco, Group CEO, clarified that excess capital distribution is driven by cash availability rather than SST constraints. Zurich distributes excess capital when there is available cash, as seen with the Farmers New World Life sale and subsequent buyback. The focus remains on cash prudence and profitable business growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
