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Operator: Ladies and gentlemen, welcome to Zurich update for the 9 months ended September 30, 2025 Conference Call. I'm Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mitchell Todd, Head of Investor Relations and Rating Agency Manager. Please go ahead, sir.
Mitchell Todd: Good afternoon, everybody. A warm welcome to Zurich Insurance Group's Third Quarter 2025 Results Q&A Call. On the call today is our group CEO, Mario Greco; and our Group CFO, Claudia Cordioli. Before I hand over to Claudia for some introductory remarks, just the usual reminder, please for Q&A. We kindly ask you to keep to a maximum of 2 questions. Claudia, over to you.
Claudia Cordioli: Thank you, Mitch. Good afternoon, good morning, everyone, and welcome. Thank you for joining us today. I'm here with our Group CEO, Mario Greco. Before we take your questions, I'd like to share a few reflections on our results for the first 9 months of 2025. Zurich has delivered another outstanding performance with strong group-wide revenue momentum at excellent levels of profitability and returns. Our resolute focus on execution, coupled with a uniquely diversified business model contribute to the long-term delivery of shareholders' returns in the top quintile of the broader industry. There are 3 important aspects of the results that I would like to share with you. First, Property & Casualty achieved record gross written premiums of $38.9 billion, up 8% year-on-year with all regions contributing positively. Retail delivered exceptional growth with gross written premium up 16% year-on-year and 7% on a like-for-like basis. A strong environment for rates is complementing the management actions that we are undertaking to sustainably elevate profitability. Greater sophistication on pricing, customer segmentation and claims management are all combining to enhance our retail margins. This is an area that we will explore more at our upcoming Investor Day. However, we observed already profitability progressively -- progressing strongly with a combined ratio improving approximately 2 points year-over-year. Our motor book continues on an improving path with a combined ratio better by almost 5 points year-on-year. Similarly, our broader German retail business recorded a combined ratio decrease of more than 11 points. Our Commercial Insurance business continues to grow profitably. Supported by superior risk selection, our focus on global specialties and middle market units as well as the benefits from portfolio management actions taken over prior quarters. Specifically, with respect to specialty middle market, we have invested over a multiyear period in those 2 key strategic priorities. An important pillar is the targeted recruitment of underwriting talent widely across our business. In the U.S. alone, we have hired more than 100 middle market and specialty underwriting professionals, all operating out of an expensive network of more than 30 locations. The underlying strength of our middle market business has also offset ongoing actions to prune parts of our U.S. program business, which didn't meet our strict underwriting standards. It is important to recognize the truly global complexion of these businesses. For example, our middle market footprint at the 9-month stage is 40% international in terms of gross written premium. And here, we are earning positive rate across the portfolio. In EMEA specifically, revenue grew at low double-digit percentage rate in the first 9 months of the year. To capture the full market potential of specialty lines, we are establishing a dedicated global specialty unit. This team will operate out of London and integrate and leverage our global capabilities to drive expansion of our approximately $9 billion portfolio of diversified exposure. We believe the high barriers to entry and prerequisite risk expertise in these business areas will drive attractive long-term earnings growth and shareholder returns. We look forward to presenting you with an opportunity to meet our leadership teams from both specialty and middle market at our upcoming Investor Day. Across our broader Commercial P&C business, we still observe stability on industry terms and conditions and ongoing opportunities for capital deployment to attractive margins and returns. Aggregate commercial rates remain in positive territory. North America, our largest region, grew rates by 2% and EMEA at minus 0.8%. Thanks to our targeted growth strategy and a proactive portfolio management in areas such as U.S. programs and crop, we have driven sequential improvement in the combined ratio from the half year to the third quarter while growing our business. We benefited from a lighter natural catastrophe experience during 2025 versus our expectations of a normalized annual cost load of 2.5% to 3% range. Set against the devastation recently observed from Hurricane Melissa, it is a timely reminder of the elevated climate risk and wide protection gap affecting many global communities. With this climate risk profile in mind, we have structurally reduced our U.S. hurricane average annual loss exposure by 25% over the past 4 years, contributing to our strong performance on U.S. hurricane loss experience. Turning to Farmers Exchanges. We see further evidence of a meaningful transformation. Gross written premiums advanced 5% to $22.6 billion. I want to draw particular attention to the significant transition to underlying growth of 103,000 new policies in the last 6 months. October results indicate that policy growth outpaced the average policy growth achieved during the third quarter. The fundamental repositioning of the Farmers Exchanges is manifesting in organic growth for the first time in over a decade. Additionally, an exceptionally healthy surplus ratio of 50.9%, up more than 500 basis points from the half year means the exchanges have established a fantastic platform to achieve the mid- to high single-digit growth ambition announced earlier this year. Lastly, our Life business continues to deliver profitable growth. Gross written premiums rose by 11% to $26.8 billion and fee revenues increased by 17%. Growth was driven by strong demand for capital-efficient savings and protection products. New business continued to show attractive margins at 6%, up from 5.7% reported in the first half. This led to $879 million of new business CSM, the highest 9-month level since the introduction of IFRS 17, with a sequential acceleration in the third quarter. Protection continued to grow profitably with gross written premium up 6% in EMEA and APAC on a like-for-like basis. Furthermore, a robust sequential improvement was evident in Latin America in the third quarter as bank distribution sales activity in Brazil returned to more normal levels. Populations are aging, government debt is burgeoning and increasing levels of wealth accumulation gives us a lot of confidence there is highly attractive long-term opportunity to address the sizable life protection gap. This further augments our earnings generation and is consistent with our focus on capital-light, high cash conversion insurance profile. Now let me briefly touch on our capital position. Zurich's SST ratio remains very strong, estimated at 257% as of September 30, reflecting profit generated in the period and positive financial market performance, partially offset by dividend accrual and the redemption of subordinated debt during the month of October. This balance sheet solidity is a direct consequence of our disciplined capital management approach, high return earnings and prudent reserving philosophy. Looking ahead, we entered the final quarter of the year with strong financial resilience and a clear focus on executing against our 2027 financial ambitions. At the 9-month stage, we have made a strong start to the new financial plan. Our diversified business model, disciplined underwriting and capital strength all positions us well to capture future growth opportunities and deliver attractive industry-leading returns for our shareholders. Thank you for your attention. Mario and I are now happy to take your questions.
Operator: [Operator Instructions] The first question comes from Andrew Sinclair from Bank of America.
Andrew Sinclair: Just a couple for me on Farmers, if that's okay. First, I just wanted to understand what's been filed on prices for Farmers just to understand that, could see that we're getting the policy count growth, but just to understand as well what's the picture for pricing? And second question, I guess, is kind of similarly related to that, 50.9% surplus is just a great number, but how is that going to be used? How should we think about the combined ratio Farmers should be running with? And are you happy to see that? And would farmers be happy to see that surplus go back down again?
Claudia Cordioli: Andrew, thank you for your questions. On the points on your first question on the rates that have been filed, not much change compared to the first half of the year. They continue to see positive rate development in the homeowners and in the auto space. That hasn't changed significantly. For the time being, as you've seen from the press release, but also the combined ratio disclosures we've made in H1, the exchanges are seeing very high profitability. So the rates they are getting are sufficient to address the loss cost ratios. On the surplus, definitely #1 priority for them is growth at this stage. So this is the first and foremost use of the capital surplus they've got. You should also expect from the conversations the exchanges are having with insurers, including ourselves that the quota share might go down. So those are all discussions that are ongoing. It's too early to make any disclosures, obviously, subject to negotiations, but that's also directional, the thinking.
Operator: The next question comes from Michael Huttner from Berenberg.
Michael Huttner: Fantastic. One is on credit and one is on the granularity of maybe the pricing maybe. On credit, so we had first brands, and I never know the right name, is it Two-color or Tricolor. Can you talk a little bit about how your credit portfolio is positioned and whether that was a risk and whether you've changed things as a result? And then on the granularity of pricing, I think I understood you to say that North America commercial up 2%, EMEA commercial down 0.8%. So that would mean 1% for commercial. Is that right? And could you possibly -- and I know you've never given this before, so -- or maybe you'll give it on the 18th of November, I don't know. give us a feel for the different areas of pricing. So I'm asking a lot, but just in case North America commercial in Q3 stand-alone, I guess that's quite negative. But then you've got mid-market specialty crop, I'm not sure you could define pricing for that and captives. And I just wondered whether -- how are these various portfolios looking at the moment?
Claudia Cordioli: Michael, so on credit, just to give you a broader -- from a broader perspective, 40% of our asset portfolio is invested in sovereign and cash. And as you know, we run a very prudent ALM to the level that one could define that boring, I guess. We only allocate 5% of our strategic asset allocation to private credit. This is a portfolio of high quality that has been built over a long period of time across different geographies, sectors, largely investment grade. So nothing for us to change there. I mean no exposure of note to the names you mentioned. And yes, that's an exposure that I absolutely feel comfortable with and no need for us to change anything in the allocation. On the granularity of pricing, yes, so we in average across many lines of business and market segments, as you said, we are observing 1.5% increase in rates for North America commercial. Europe is slightly negative. And actually, even there, you see a difference between Continental Europe that's still positive and actually holding very nicely compared to the U.K. that's starting to moderate in a few lines, particularly in property, same as the U.S. So there's quite a difference between lines, as you said, between different products and different customer segments. The overall rate moderation is driven by the profitable lines, namely property and more visible in the E&S space and large corporates. When it comes to motor, excess liability, primary liability, rates are still positive. In motor, we are still seeing 15% and excess liability is also double digit up. Obviously, as we said in previous calls, there's also loss trends to be addressed here, but we are seeing a very positive profitability there. Financial lines looks in the third quarter to starting to slowly ticking a bit less negative. We see whether this is a durable development or not in the quarters to come. But to summarize, we are seeing very attractive margins across the book. This is what gave us the opportunity to actually improve our underwriting performance. So in terms of loss ratio, we've been sequentially improving attritional ex cat, ex PYD loss ratio, both in EMEA and in North America. We're very confident that we can continue to grow. And this is not an easy and obvious thing, by the way. The teams have done a great job in continuing to grow the top line while improving the loss ratio, and I'm very happy about that.
Mario Greco: Michael, if I can add a point, if I look at our line, and I'm talking for U.S. now, property is the only one which has a reduced path of rates compared to last year. Liability is hardening. Motor is as hard as it was last year. Specialty is hardening and workers' comp is slightly better than last year, but I would say it's fundamentally unchanged. Property is the only one where there is softness, and this is just reflecting the nat cats. It's going to change with nat cats because the margins remain very high. And then if the season continues like this, property will remain weak at when we have the first natural event, property will turn around.
Claudia Cordioli: You were asking about the segments as well, Michael. So on mid-market, overall, we are seeing a 3% rate improvement and zooming in into North America is actually 4% -- so it's still a very positive rate environment across all the lines there. North America large accounts is actually showing very good profitability, increasing significantly year-on-year as a result of cat experience, but it's also the result of the rates that we are getting through in excess liability and motor. So both very profitable, as Mario said.
Operator: The next question comes from Andrew Baker, Goldman Sachs.
Andrew Baker: First one, just on the sequential improvement in the commercial loss ratio that you just mentioned. Clearly, there's quite a lot going on here beneath the service of the pricing environment, the portfolio improvement on the commercial auto and crop side, you've done other pruning. You've got mix benefits coming through for the mid-market specialty. I guess, directionally going forward, are you still expecting an improvement in that commercial loss ratio going forward? And then secondly, on the LatAm PVNBP, can you just clear up, so I know in the second quarter, there was the issue of Brazil and the incentives at Santander, which sounds like it's now behind us. And then it looked like there was an unfavorable assumption update. Are you able to just pick me apart what's going on for that LatAm PVNBP number?
Claudia Cordioli: Thank you, Andrew. So on the sequential improvement of the loss ratio, the teams are working in that direction and the fact that we've got some pruning actions that we've started to take in the second half of last year and are starting to earn through the combined ratio gives a strong foundation for that. That said, we'll have to see how crop plays out. This is still, at this stage, an unknown, obviously, yields and prices are not set yet. So we'll have to see. In terms of underwriting actions that have been taken in the U.S. program space, in the captive space, in the motor book more broadly and crop, all the meaningful actions have been taken. So I would expect the improvement to continue to play through the combined ratio. As I said, subject to some factors in crop and in other lines that at this stage, we don't know about.
Mario Greco: PNVP is Brazil is Santander, which is recovering but hasn't completely recovered yet. They need time to go back to the volumes. They have corrected the organization. They have corrected the reasons, but the numbers are not yet back. All other countries are positive, double-digit positive. The only negative one is Brazil.
Operator: The next question comes from Kamran Hossain from JPMorgan.
Kamran Hossain: First question is on hiring and kind of where you've expanded the underwriting footprint. I thought the color you gave this morning was really useful. Could I just ask in terms of how much you're spending on that at the moment? Obviously, you have to bring people in, they have to put the business on the books, so it takes some time. Any idea on the impact on the expense ratio or the cost to achieve that from hiring new underwriters would be really helpful. The second question is just on, I guess, middle market overall. I know you've kind of disclosed today about the core portfolio growth. Just wanted to understand if the U.S. program and the E&S trimming is finished now and what size -- what the absolute size of the business is now versus the $10 billion target?
Claudia Cordioli: Thank you, Kamran. So on hiring and the expansion of the footprint, we gave some indication at year-end. Now we are in the middle of the hiring and the opening of, I believe, 5 new offices this year in U.S. So we'll give an update at the end of the year. As we mentioned in the first half, this is visible in the expense ratio. I expect the teams that are coming on board to start actively producing business next year. And I think we said from a middle market perspective, each underwriter would be expected to bring premiums between $8 million and $9 million. So it's substantial what these people will bring onboard.
Mario Greco: And this was all budget for us. This was all planned, budgeted and it's moving according to the plans we had. And so for us, there are no surprises into these numbers into these developments.
Claudia Cordioli: Exactly. So I would expect the OE ratio to improve accordingly, Kamran, next year. On the core portfolio and the actions that we've taken, on the motor business, roughly 95% of the actions have been taken. So there's only small things that are still being undertaken. The vast majority has happened. So from a GWP perspective, the biggest chunk of the reduction has been coming through. It will earn through insurance revenues, say, over time.
Operator: The next question comes from Vinit Malhotra from Mediobanca.
Vinit Malhotra: So just my 2 questions. The first one would be this very interesting remark on construction where you've talked about the technology investments and infrastructure. I'm just curious, is there -- I mean, some of these are kind of newish maybe data centers or I don't know, how have you thought about the risks here? I know the current combined ratio you noted is very strong. You said it's even better than the 85% for specialty lines. So just curious to know about this line and also about risks there. Second question is just wanting to hear again, the commercial management of margin strategy, just so that I'm fully on board, there is -- I mean, you see -- other than property, the pricing seems to be holding up okay. but you're still pushing on with the middle market and specialty lines such that even when the main commercial market other than these 2 falls in margin, then the margins are offset in the middle market and specialty. Is that still the plan? And is your confidence in that plan even more so now? Or I'm just curious to hear your thoughts on it. Of course, we might hear more at the Investor Day, but just more today.
Mario Greco: So look, Vik, this is Mario. Construction and Infrastructure is a line of business where we're probably world leader. We have many hundreds of specialized underwriters, risk engineers. We do it worldwide. The risks are the risks of every construction and infrastructure building. It's about building the plant, the factory, whatever you're building. There is no special risk about data center. It's a construction like anything else, and we have specialized engineers and risk assessors to do that. I think you probably had in mind kind of liability risks, but that's a totally different story. Construction and Infrastructure is about realizing the plant. And there, again, I mean, we have a ton of experience, and this is a great opportunity these days, and it's a line of business which is growing very high double digits around the world. On -- I mean, the benefits that we see coming to us as improvement of loss ratio and combined ratio, we think they will continue to be visible because we are more and more moving our portfolios towards middle market specialties, and they have a lower than the other lines. So this is what's driving our constant improvement of profitability, and this will continue because we will continue growing in these lines. And even the fact that we now organize ourselves with the global specialty unit in London means that we will further double down on the growth opportunity that exists in these lines.
Claudia Cordioli: Okay. And on construction, just -- and please, Vinit, join us for the Investor Day, Saad Mered, who is leading the new specialty global unit will talk specifically about construction and U.S. construction as a bit of a deep dive. But to give you a sense of what Mario was saying, I mean, what industry-leading means, they are working on 250 data center projects. It's a very large franchise in terms of expertise. It's been growing 10% year-on-year. So it's definitely a major business line for us. It's one where we see great potential to grow.
Operator: The next question comes from William Hawkins from KBW.
William Hawkins: First of all, could you be clearer, please, about where we are relative to budget for 9-month catastrophes? Because you were already 1.8% at the first half, which was already way below the budget, as you said, and 3Q does feel like it's been very, very benign. So we could be talking easily about a 1, if not a 2 percentage point tailwind to your underwriting performance? And related to that question, I guess the more important one is, to the extent that it does seem clear that this is a tailwind, how are you thinking about using that to smoothen performance through to the end of this year? So is it an opportunity for higher loss picks or lower reserve development? Or do we just get excited about a onetime boost to profit this year? And then the second question, please. You've alluded to it, but could you be clearer about the Farmers combined ratio in the third quarter? It really does imply that it's been extremely low even after the 91% great result you had in the first half. And again, I'm just kind of reflecting again how this should be changing my thoughts for the outlook because I think your legacy guidance is still to be better than 100%. And obviously, you're smashing that at the moment. And I don't really know if that's just -- we get excited about some very short-term great improvement and the normalized figure is still closer to 100% or if you're now much more confident that the turnaround does mean that a sustainable combined ratio is more in the low 90s or even 80s?
Mario Greco: William, the combined ratio improvement is very visible even after cats. And yes, I appreciate that so far, the season has been for us benign as a result of events, but also as a result of our selection of cat exposures. But we are improving our margins even irrespective of this. Now unfortunately, we're not giving these numbers. They're not audited. So I'm not going to go into the details, but please stay on my words that it is improving irrespective. We don't do window dressing on that. So you shouldn't expect us to cook up in any possible way the numbers by year-end. We do very final value assessment of the claims each year. And we have been building reserves, but that was very evident and declared over the past years, but we're not planning any kind of window dressing by year-end. On Farmers, look, farmers continue to run at a mid-90s combined ratio. They -- that's very good because it will give them space to continue growing the business without impacting -- without damaging the surplus of the exchanges. And look, guys, I mean, honestly, neither us nor the exchanges have any plan to go back to low 30s in the surplus. We need the buffer because different from what many of you have thought, if the exchanges run short of surplus, we don't have -- we can't help them. So the only way to avoid any possible risk for us in limiting the growth is to keep the surplus well above the minimum levels. And so we're fine with the surplus at high level. This means that our growth ambitions can be supported and the combined ratio of Farmers is further helping this surplus stay high.
Operator: The next question comes from Dominic O'Mahony from BNP Paribas Exane.
Dominic O''mahony: Most of them have been addressed already, but if I can ask 2. One was, Claudia, you very helpfully gave a lot of very granular data points in your opening remarks. And I just wanted to check on one of them. I think you said there was a 2-point improvement in combined ratio. Was that -- is that 9 months? Is that 3 months? Is that normalized -- not normalized for cat? Is that discounted? Is it undiscounted? Sorry for the detailed question, it would just be helpful. And then secondly, there's been some discussion in the industry about frequency benefits, in particular, in European motor, good weather, I think, meaning people have been crashing less. Could you make a broader comment about what frequency trends you've observed, whether you recognize what I just said about motor frequency -- and indeed, if there's been any particular trend worth calling out in North America?
Claudia Cordioli: Thank you, Dom. So going back to your -- to the first question, the 2 points that comprehends everything. But it's not only the cat piece that drives it. There's also a significant improvement on the attritional side. So that's really an underlying profitability improvement story. On the frequency, I mean, in line with the comment on attritional, we are seeing actually improvement on frequency. We're seeing sequentially that going -- becoming better throughout the year and year-on-year.
Operator: We now have a follow-up question from Michael Huttner from Berenberg.
Michael Huttner: Fantastic. I have 2 questions. One, please, can we have a full hour for the call because it's lovely to listen to you. Sorry, I'm panicking a bit here. But the more real question is on German Life. So I saw on the tape that you -- Claudia, you're saying that you're still interested in selling or in discussions, whatever. I understand from the past that it doesn't actually boost your solvency because it's only a tail risk. It doesn't have an immediate impact. But I guess it changes your thinking about how you look at your own capitalization. And my question here is, let's assume, and I'm assuming here that the benefit in your own mind kind of thinking broadly would be -- let's put a number, let's say, $20 billion portfolio, let's say, 15%, so that's $3 billion. I know I'm exaggerating, but how would you allocate that? And I know it's a leading question, but we were in Switzerland last week, the guys there, the PMs there would love to see a little bit of a buyback. Would you -- could you kind of give maybe $1 billion to buyback and $2 billion to deals? Or how are you thinking? Anyway, there we are.
Mario Greco: Before Claudia answers you, I just want to remind you that we already did a buyback for this transaction.
Michael Huttner: That is true. Accepted.
Claudia Cordioli: Answers the question. So it's still interesting to us and actually strategic. So we still want to, over the short to medium term, find a solution for the book, Michael. So we will most likely see an impact and benefit in the SST ratio and not as big an impact on the cash side, which is, I mean, going back to the question on the buyback sort of motivates the reason why we're not planning a big share buyback after that.
Michael Huttner: Very, very clear. But there is a follow-up. Sorry, I was kind of bearing it, but I'm pushing my luck here. How are you thinking on deals? So the way I see you fix everything, everything is looking pretty good, maybe commercial lines could be better, but who knows. And if I were you, I'd be doing this on the table and thinking what can I buy? Are you thinking about that?
Mario Greco: Any idea you have?
Michael Huttner: I don't know. No. I don't know. It was just a question.
Claudia Cordioli: We are always looking at opportunities, Michael. So we are very focused on organic growth, as we always said, but we're always looking at opportunities. They just need to be attractive and accretive. That's the thing. And it's not so easy to find good targets at reasonable valuations these days, but happy to get ideas.
Operator: Ladies and gentlemen, this was our last question. I'd like to turn the call back to Ms. Claudia Cordioli for closing remarks.
Claudia Cordioli: Thank you very much. So thank you for the questions and the interest in Zurich. Before we close the call, just to reiterate a couple of points that we just discussed. Zurich has delivered an outstanding performance in the first 9 months of the year, and we are very proud of what the teams have achieved, both in terms of growth and underlying profitability across all business segments. The financial resilience of the company with an SST ratio of 257% and the high cash conversion profile positions us strongly to execute our 3-year targets in the best long-term interest of all our shareholders. Thank you very much.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.