Ladies and gentlemen, welcome to the Zurich Insurance Group half year results 2021 conference call. I am Sandra, the call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Richard Burden, Head of Investor Relations and Rating Agency Management. Please go ahead, sir. Thank you. Good morning, good afternoon. Welcome to Zurich Insurance Group's first half 2021 results Q&A call. On the call today is our Group CEO, Mario Greco, and our Group CFO, George Quinn. Before I hand over to Mario and George for some introductory remarks, just a reminder for the Q&A, we kindly ask you to keep to a maximum of two questions in the first time round, and if we've got spare time at the end, we will come back to you. With that, Mario, over to you. Thank you, Richard, and good morning, good afternoon from myself. Let me just have a few remarks as an introduction, then we pass to Q&A. This morning, we published one of the strongest-ever first-half results for Zurich. Our earnings are back to pre-pandemic levels despite the continuing impact of the public health crisis and a very high level of natural catastrophes. This performance reflects the improvements made to the business since 2016 in terms of underwriting, simplifying our business, and delivery for our customers. Our focus on customers is leading to higher levels of customer satisfaction, and this drove the growth in customer numbers by approximately 600,000 in the first half and supported growth in revenue across all of our businesses. Since 2016, we have reshaped and improved our property and casualty portfolio. This is allowing us to take full advantage of growth opportunities within our commercial insurance business as price increases in terms and conditions further improve. Property & Casualty gross written premiums grew an excellent 16% in the first half, while combined ratio fell to its lowest level in over 20 years, despite more than six points of natural catastrophe losses. We expect pricing to remain strong through the remainder of 2021 and into 2022, we're well-placed to achieve a further strong growth and margin expansion. Our consistent focus on protection and unit-linked life business continues to pay off, we have improved margins within the business through continued product development and selective repricing. These actions led to a 44% increase in life business operating profits to an all-time high level. Farmers Management Services saw a return to growth in the first half, driven by the improved growth at the Farmers Exchanges, where expansion in the agency force and improved productivity supported growth. With a further strengthening of the Exchange's distribution through the completion of the acquisition of the MetLife property and casualty business, I'm confident of the growth outlook for the Farmers business. This year's extreme weather events, which have touched most parts of the world, underscore the risk of climate change and the need for businesses to take immediate actions. Over the first half, we have continued to strengthen our own commitments to reduce CO2 emissions through new intermediate targets for both our own operations and investments. As part of these commitments, we're planning further actions to reduce emissions related to travel, vehicle fleets, buildings, food, and real estate over the second half of this year. We will publish news in the next three weeks about that. The group simplification and strengthening of the business over recent years, together with our very strong balance sheet, positions us well to continue to take advantage of opportunities to grow all of our businesses and earnings as economies emerge from the COVID-19 pandemic. I have great confidence in the strength of our business and the skills of our employees to maintain this momentum and to deliver on our goals. Thank you for listening, and we're now ready to take your Q&A. We will now begin a question and answer session. Anyone who wish to ask a question or make a comment may press star one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue you may press star two. Participants are only requested to use handset while asking a question. Anyone with a question may press star one at this time. The first question comes from Louise Miles from Morgan Stanley. Please go ahead. Hi. Thanks for taking my questions. I'll stick to two. My first question is on the P&C business and on the PYD. For the group, it was 2.5% in the first half. It's a bit higher than previous years, and it's 4.8% in North America. Can you give us a bit of commentary on the outlook for the second half? Should this trend be expected to continue? Just the rationale for a certainly perceived higher level in the first half of 2021. Looking at the SST, you've just published 206%. Just thinking about the SST ratio towards the second half of this year. Presumably it's going to hit somewhere close to 210%, given that net capital generation or net dividend payment is probably going to be positive. You're getting very close to that 210% kind of upper end of your range. I know you don't have a range, but that's probably broadly equivalent to the 120% on your Z-ECM. I also note that your debt leverage has spiked up a bit this year. If you have excess capital, are you going to prioritize de-levering or are there other things that you'd like to do with that? Thanks. Thanks, Louise. On the PYD first, you're right, we are above the normal range that you'd expect to see from us in the first half of the year. It's driven by the U.S. If you look across the business, I'd say that the pressure in the first half of the year was certainly upwards. I think given the strength of PYD in the first half, I'd be surprised if we were fully within the range for the full year. I expect, at this point at least, that for the second half we'll be back in the 1%-2% range. We do have our regular workers comp review coming up in the third quarter, so I don't yet know what that's going to show us. Certainly at this stage, I'm thinking that one to two in the second half with potentially PYD for the full year, slightly above the normal guided range. On SST, I'm going to resist the temptation to create an upper bound around it, because we tried really hard to get rid of that last year. I think from a capital perspective, we're obviously in a good place. We've had a significant move up through a combination of the market changes and the impact of operating capital generation in the first half. I think you're right. You would expect to see that rise in the second half of the year. What would be the priorities? I think at this stage, the past is a pretty good guide to the future. I think if you look at the various leverage metrics, we're pretty green on almost all of them, apart from the tangible debt leverage metric. We're not able to say of that, but it's not something that's causing us any significant concern. I think from our perspective, we remain able to take a look at things that are out there if we think they're advantageous for strategy and would help financial performance. As always, the targets and the plans don't depend on this. It's nice to have the flexibility. We ought to explore them if they do come up. Very helpful. Thanks. Thank you. The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead. Thanks very much. The first one, after the great results today, on an underlying basis, you've basically already reached your 15% BOPAT ROE that you were hoping for or sort of thinking indicatively you might be able to achieve by next year. I was just wondering if you could tell us what you think, if anything, is still to come from that ROE walk that you showed us. I guess I'd be especially interested in where we are in the buckets of portfolio quality and capital allocation, which you'd hoped would add 2.5 Points combined. That's the first question. Second one, the P&C investment income. You were saying $50 million per annum decline. Now you're saying $100 million for 2021. Just wondering what's happened to make this sort of fall faster than expected and whether we should expect that it's continued falling at that rate. Any clarity there would be great. Thank you very much. Peter, thanks. On the first one of the media asked me about that topic this morning, and it gave me flashbacks to November 2019 when I don't think anyone in the room was concluding that the targets were easy to achieve. I think you need to look at them all together. The delivery of the ROE target is something that's extremely important. I think we've made great progress on that. As you point out, I'll come back to this in a second. There are some things we want to do around capital allocation that continue to be important to us, but we also need to take care of the cash target. We need to take care of the earnings target. All of these things are priorities for us. When it comes to management of the capital, obviously the back book topic is high on the list of priorities. I'm probably not going to say too much about it today because I think it's fair to wait until we've actually done something, and then we can talk about what that means and the benefits that that brings us. I think in the same way that you've seen us be disciplined around capital allocation in the past, we will do that in the future. We have a particular interest on the back book side of things. On the investment income gains. I think in the past, we certainly indicated a range. I think I've also talked about the fact that you need to take the duration of the book into account. If you look at the gap that we have between book yields and reinvestment yield, it would imply something. Maybe not quite 100, but certainly something pretty close to it based on what we see currently. I guess, what changes? Well, that gap between the book and the reinvestment yield changes in both directions fairly frequently. We update to give you a sense of what it currently looks like. I can't tell you that it's fixed here because, of course, it's partly dependent on the future track of interest rates. Seen from today, with today's gap, the upper end of that range is the more likely outcome. Okay. Thank you very much. Thank you. The next question comes from William Hawkins from KBW. Please go ahead. Hello. Thank you for taking my questions. George Quinn, on Slide 20, the Asia Pacific Life BOP is still bouncing around quite a lot. I am trying to figure out what you consider normal. When we are thinking about the future, what any incremental impact of OnePath may or may not still be taking account, presumably through integration costs, but still have more to go on the synergies. If you just help me understand a bit about what is normal in the outlook for the Asia Pacific Life BOP. Secondly, please, when you are talking about the north of CHF 4 billion cash remittance hoped for on Slide 9. If we are thinking about the incremental increase in that relative to what you achieved last year, the CHF 3.4 billion. Should we be assuming that pretty much all of the incremental increase is coming from non-life? Are there material moving parts in Life Farmers or the group center? Thank you. Yeah, thanks, Will. On the first one, on APAC Life BOP, I think what you're seeing this year is, it's a big rebound in Australia. That's obviously driven by the acquisition. I wish I could tell you the integration was over. It's not quite over yet. It should be over by about the end of this year. In terms of incremental expectation, given what the team are telling us, we're not quite at the business case that we presented back at the end of 2017 when we announced the transaction. I'm still optimistic that we see a bit more from where we are today. I think there is room for Australia to improve further. Obviously, a big driver of the benefit has been the recent repricing. We think there's also some product redesign to come in the market in Australia, which will actually dampen some of that volatility that's been a challenge in the market in the past. The end of this year should see more or less the end of the integration cost side of it and the full benefit of the synergies that we had planned for the transaction. On the cash remittance topic. Is it all P&C? The short answer is definitely no, because I think if you think of what drives this, obviously, a big chunk of it is earnings for this year. Some of it's going to be catch up for what's happened in the prior year, because, of course, what we've had at the very start of this year is really still impacted by the impact of COVID on earnings and in some cases on balance sheets. If you look at what we did last year, even though we had a very significant cash generation, there were one or two regulators who were still encouraging businesses to wait. While it wasn't that material for us overall, those tended to be more life oriented than P&C. I think you'll see a wee bit of a bounce back from life as well. Obviously the strength of P&C earnings is going to be a significant driver. That's really helpful. Thank you, George. Thank you. The next question comes from Michael Huttner from Berenberg. Please go ahead. Fantastic. It sounds like a very short call. The results are so good. I have two questions. One is there more? Here it sounds mysterious. It's not mysterious. When you sell insurance policies, the premiums are booked over a year, effectively, there's a lag benefit to price increases. I just wondered if you could give us a figure for how much we could add for the lag to the figures you've published today. The other figures which would be interesting, I think it's on slide six. You show some mysterious bars, I was just wondering whether you could give us the numbers, effectively, the inflation costs which you're seeing. Thank you very much. Yeah. Thanks, Michael. On the first one, I try and avoid to give forecasts, because Mario will remember them and hold me to them. I can tell you that I will. He's so happy with the results, he's not listening. I am. You are? Oh, dear. The point that you make though, Michael, is absolutely valid. Clearly, I think there's two things to bear in mind. I think we all have an expectation that pricing will continue to benefit earnings from where we are now. There's not only a lag benefit from the price increases that we've seen. If you look at price trends in the market, it looks as though this trajectory in the commercial market is going to be pretty gentle. I think in the second half of the year, I'd be surprised if it was as strong as it was in the first half. I'm already surprised it was as strong in the first half as it was in the second half of last year. You will see further benefits from P&C. All things being equal, which is the claims experience, would expect to see further improvement in the underwriting margin for P&C. On slide six, there's two ways you can do this, because the IR team actually use a spreadsheet. I think the thing is to scale, but that's a bit unhelpful. We're seeing a loss cost inflation around the same level as the end of last year. Somewhere around the five mark, maybe just slightly above. Some of the drivers to what we've seen before, no real change. There's not a lot of new information in the market. We've seen some of these larger settlements that have been announced around opioids and the Boy Scouts topic. On the broader social inflation topic, the courts are just starting to reopen. It's still too early to get a read on trajectory. Given what we've seen in the past, we feel pretty comfortable with our overall inflation assumption, but somewhere in that 5.5 type range. Brilliant. Thank you very, very much. The next question comes from Andrew Ritchie from Autonomous. Please go ahead. Oh, hi there. Two questions, please. First of all, George, are you encouraging us on the life business to basically take the BOP reported, adjust for the $50 million positive one-off, but add back the COVID losses, and that's new run rate for life? The problem is the life business has a lot of variables in recent years, acquisitions, a lot of FX noise, and COVID. I just wonder if maybe there's noise as well because the underlying is overstated slightly because the COVID's overstated because there's allocation issues there. I guess, can you give us any guidance as to what you think the kind of right run rate is for life now, and has there been a step up, and is that just sort of more normal markets that's driving that? Second question, Farmers. What are the tools, and what are the protections in place for the surplus ratio in the second half of the year? Because the surplus ratio have ticked down more than I expected. I thought Farmers had bought MetLife at below book, so I thought there'd be a gain there. Are there any remaining tools to use for that surplus ratio, and what are the CAT protections, remind us about those? Should there be an active season in the second half? Thanks. Great. On the first one. I think if you look at what's changed over the prior year, then I think the most obvious standout feature is the topic that I covered earlier with Will. We've managed to get the Australian business, and when I say we, I'm talking about our CEO and the team in Australia, because it's not as if I've had much to do with it. They've managed to get this thing back more or less on track. I think in terms of what's sustainable and durable, that change is not something I expect to see reverse anytime soon. The issue around COVID mortality versus excess mortality generally. We've certainly seen that in the Farmers book, which I guess is not really relevant to the life gains, but the point is. For example, if you look at the performance from a mortality perspective, Q1 is really heavy for excess death claims driven by COVID-19. They still have excess death claims in Q2. They actually have superior mortality overall. I think there is some of this that you need to be a wee bit careful of in terms of the temporary impacts. Having said that, if I was looking at how I would do this, I would certainly adjust for the topic that we discussed on the calls this morning in Europe. If I chat to the Australians, they don't add back everything that we've seen from the Australian improvements in the first half. They're assuming that some of the claim experience is temporary. As I mentioned also to Will, I think we'll also see further improvement from them through the second half of this year into next. From a run rate perspective, I think we're probably slightly better than the 10% above gains that we gave compared to the numbers for last year. I agree that I'd want to be a wee bit careful around some of the mortality benefit we've seen in some of the markets more recently. On the exchanges, I'm going to make a caveat to begin with. I'm not the CFO of the Farmers Exchanges. I obviously have a very keen interest in these topics in the same way that you do. I'm going to be careful about how much information I get into, because that's really a topic for them rather than for us, given they're an independent organization. On the surplus. Why might the surplus be a bit lower than perhaps an external observer would have expected? They've ended up deciding to place less reinsurance. If you think of how that transaction's worked for them, I think what you described in terms of the acquisition of something at a discount is true. They certainly had intended earlier to increase the core share by more than they have in the end. I think that's driven by a feeling that maybe they have more reinsurance protection than they feel they need. I guess part of that will be driven, if you look at the historical reference points for the surplus ratio for Farmers, it's not quite as high as it's been in the last 18 months, but it's been a lot lower than the figure they've ended up with. From a reinsurance structural protection perspective, they still have in place the structure that has protected them very effectively over the course of the last two years, in particular, dealing with wildfires. There's no significant change to how that operates compared to the past. I know talking to the team at Farmers on the exchange side, they feel comfortable with their capital levels and don't feel that it's a topic of particular constraint for them. Okay, thanks. The next question comes from Will Hardcastle from UBS. Please go ahead. Oh, hi. Afternoon, everyone. Reverting back to slide six, if that's okay, and thinking about commercial and North America specific, if we were to carve out North America commercial standalone, is it possible to give us a broad idea of the extent of underlying improvement year-on-year on margin or half-on-half? Is this trend accelerating or slowing down? Given, I guess, what Michael was saying about the not immediate recognition of the price and the spread so narrowed a few points, presumably we should be expecting a similar level of improvement over the next 12 months, given the pricing trajectory you discussed. The second one is on expense ratio. I guess, can you give us an idea of how much of this improvement is sustainable? To what extent is there operational leverage at play, and how much is perhaps one-off-y if traveling and stuff reverts back to some form of normality? Thanks. Yeah. Thanks, Will. Maybe if I reverse the order of, not the questions, but the point you made on ZNA. I think it would be, other than going back to Michael's point about the lag effect of the price rises that we've seen, I think to assume that pricing continues with the same spread over loss cost inflation that we see, in the first half is, I think a touch too aggressive for me. I think as we go through planning this summer, I don't expect to see a significant drop in what we expect to see in the commercial pricing dynamic. I don't expect it to be quite the same as we've seen in the past. We wouldn't be planning for that. You would anticipate seeing year-over-year improvement, but not quite at the same pace as we've seen in the first half of this year. In terms of quantum, if you look at the covered businesses that commercial rate indicator is talking about, it's about half of ZNA's book, maybe slightly less, but around that type of level. I think using that and assuming that it can earn in fully over about an 18-month period, that's a pretty good guide to how I would model the margin expansion that we see between price and loss cost trend. On operational leverage, again, it's a good point. Obviously part of what we've benefited from over the course of the last 12, 18 months is maybe a slightly lower expense base than you'd anticipate to be sustainable. Mario did make the point in his intro to the call that there are some aspects of what we do that, seeing from today and especially from this week with the IPCC report earlier in the week, there are elements of the operating model change that, forget expenses, just from a sustainability perspective, we want to see changed. In fact, we were communicating that last night to our leadership team. I do expect that some of this comes back, but I'm not convinced it's particularly material. In fact, the concept that we typically discuss with the businesses in planning, we have an internal concept called growth credit. Basically, to the extent that businesses can present credible plans around growth, we will allow them to grow expenses, not at the same rate as top line, but certainly at the level required to make sure that clients are looked after as we would expect them to be looked after. I think there is a bit of operational leverage. You will see some of those back, but I don't think it's that significant in the context of the overall group. Brilliant. Thanks. The next question comes from Anthony Yang from RBCCM. Please go ahead. Hi. Thank you. Just one question, actually, on the life book. I see your plan is to focus more on capital light and protection businesses. Could you give some color on what's your plan on the corporate savings and savings annuity plays in the future? Because I think slide 22 seems that the NBV for these two business lines are low. Thank you. Yeah. Thanks, Anthony. We prefer protection. That includes the corporate market. We are a significant player in corporate, and we try and leverage the relationship we have through the large commercial P&C business that we have, to get good access to organizations that are looking for corporate risk protection. It tends to be a more competitive market, though. The distribution mechanism tends to mean that the pricing is quite keen. Seen from a Zurich perspective, these tend to come in obviously large total amounts. We don't have quite the same overhead that you'd have, say, for example, in a retail business, which I guess is pretty obvious. For us, we refer to it as corporate life and pensions. It's the protection and the savings component. I'll come on to the annuity component in 1 second. It's something that's an area of interest for us. We are looking to grow that, but you are right that the margins are not as strong as we see in other parts of the book, but that's not a key concern for us. On the annuity topic, annuity is not a preferred risk for us. The asset risk that comes with annuities and annuitization options is not something that sits well within our capital model. We tend to either avoid it or look for other ways to offer our clients the ability to seek annuities with third parties. The annuity side of the risk profile is not an area of particular focus for us. Cool. Thank you. The next question comes from Ashik Musaddi from JP Morgan. Please go ahead. Thank you. Good afternoon, George and Mario. A couple of questions I have is, first of all, on cat losses. We have been seeing that cat losses for most of the insurers and reinsurers have been pretty high for the last three, four years, and we are seeing the same again for the first half as well. Swiss Re at one point did mention that companies need to be mindful of increasing cat losses. Don't know what it was intended for. Was it for primary? Was it for themselves? Who knows? Clearly, there is some evidence about climate change, et cetera. How do you think about your 3% budget for cat losses? Do you think that needs to be higher and some of the prices increased could basically help support you move that number higher before impacting any profitability? That's the first one. Secondly, I'll just go back to the previous question around annuities. Yes, you made it very clear annuities is not really a preferred business. How would you think about your U.K. life business overall? Is that something you would continue to maintain, which would include other parts as well, just not annuity? How would you flag that? Thank you. Great. On the cat topic first, I think you're right. Just one point. When we updated guidance at the beginning of this year, we raised the cat load to be 3.5% just for everyone's benefit. I think it's a tricky topic because on one hand, these are clearly annual contracts, so we're not taking long-term bets on the risk that climate continues to drive significant increases in cat claims and cat losses. I think at the same time, though, obviously, the catastrophe business is a very hard business to judge on any short-term period. You need to be careful with the capacity that you deploy. I think for us, that's why it's important to try and just be relatively consistent around the proportion of risk that we carry that's related to the cat, we don't try and expand into a market that we perceive as being particularly profitable because of the volatility that it brings us. I think consistency is going to be the most important topic for us here. We do look at it pretty carefully. In fact, earlier this week, Kristof, who runs the North American business, his team, were talking to me and Sierra, who's the Head of Commercial, about our stance around particular cat risks over the course of the next couple of years. I think we have views on how we can optimize this into the future. It's a hard business to take a significant directional bet on because of the volatility. I think that's really something that's best left for the reinsurers. On the annuities, actually, we like the U.K. life market. The team there are very focused on protection products. They've had a new product in the market for about 24 months now. They've had quite a bit of success in selling it. The annuitization of the annuity part of the business that we do in the U.K., we've been pretty successful at reinsuring that in blocks as we go. The U.K. team have managed over time to keep any exposure that the business brings from an annuity perspective, actually quite low. Annuities is not an issue in the U.K. U.K. life market is one that we like. I continue to look for further growth there. That's very clear. Thank you. Thanks a lot. The next question comes from Vinit Malhotra from Mediobanca. Please go ahead. Good afternoon, George and Mario and everybody else. The first topic is from my side on frequency benefits of COVID-19. I can see from some of the notes that 1.2 points has been the benefit in H1, giving us a 58.3% attritional loss ratio. Would you be doing just adding it back in and then trying to work out the whole spread between pricing and claims inflation, which you talked about? Or would you say that in the new post-COVID-19 world, we're going to continue to have some benefits? Just curious to hear your thoughts on frequency trends and benefits. Second topic is just a clarification. I've seen some media, I think from a media conference about your comment on German floods of EUR 150 million-EUR 200 million, maybe it's euros. What I'm trying to understand is that the 5% outlook today for the full year nat cat seems to imply that H2 being perceived as a 3.5% kind of normal cat H2. Is that the correct reading, or are you expecting significant reinsurance recovery from German floods? Any clarification would be helpful. Thank you. Yeah, thanks, Vinit. On the frequency topic, honestly, I don't have a really good answer for you immediately. I'd need to go and ask someone closer to the underwriting on that topic. If you'll allow me, I'll get Richard and the team to come back to you on that. It feels natural, it feels reasonable to me that there must be some impact on how we approach it. I don't know off the top of my head on that one. If you'll allow us, we'll come back. On German floods, EUR 150 million, EUR 200 million is the number. You're absolutely right that the gains we've given around cat for the second half is not that we're incredibly optimistic that we're going to see a very benign second half of the year. Just given the way the reinsurance program is structured, that does provide us with some measure of protection. Therefore, that's what drives our outlook for the second half. I think if we'd had a quieter first half, we'd be giving you a slightly different perspective on the second half of the year. Yeah. Thank you. The next question comes from Thomas Fossard from HSBC. Please go ahead. Oh, yes. Good afternoon. Two questions from the P&C side. The first one will be related to maybe to complement the question from Michael and Will. Can you talk a bit of your economic combined ratio? Actually, you reported this morning quite nice improvement in the reported combined ratio. What about the economic combined ratio and also because you're pointing in your comments to a higher reserving situation or a better reserving situation at the end of H1. Looks like potentially you may have moved again the loss pick. Any information on this would be of interest. Second element would be on the 8% P&C growth in retail. Look like pricing is still around zero. Could you be a bit clearer on where the growth is coming from and what is driving this? Thank you. Thanks, Thomas. On the first point on the economic combined ratio, I guess we all have to agree on what economic combined ratio meant. I assume we are talking about time value of money mainly rather than the capital charges. I guess the key issue being that, given the comments earlier about the impact of interest rates, some of that movement in the combined ratio is actually required to maintain earnings. I guess you can see that the impact of the improvement in technical underwriting profit completely overwhelms the impact of interest rates, even if you model it forward for the entire duration and the entire turnover of the portfolio. I do not have a number I can give you for the economic combined ratio. I guess the good news is, when interest rates are this low, there won't be that much difference between an economic combined ratio and the actual one that we're currently printing. You mentioned within that, you raised the issue of loss picks. I don't think we've changed the philosophy in the first half of the year. We've tried to be pretty consistent. The loss cost trend that I mentioned earlier is pretty much in the same area that we had for last year. That means we're carrying the same assumptions through into these loss picks for inflation as we start 2021. I think if anything, the very recent experience on the more recent years is probably slightly better as we ended 2021 than we would have assumed a year earlier. I exclude liability from that, given that that takes some time to develop. At least the early signs around the reserving at the end of 2020 would give me the impression that things are actually stronger than we would have assumed a year earlier. On the retail side of things, we do have pretty strong growth in retail. I think that's probably one of the more surprising things for me. I think we, or certainly I had anticipated that retail might be under more pressure than has transpired. I think because of the way the particular market positions that we have, that we're not so concentrated in some of the ultra competitive parts of the market where maybe some of the frequency change and the point that Vinit mentioned earlier has started to feed back into pricing. If you look at our retail markets, we've seen pretty good growth everywhere. The Zurich business in Latin America, where because of the later incidence of COVID, they've had more restrictions. For example, the mass consumer business in Brazil has had a pretty tough first half to 2021. The retail business has gone well, and it's gone well pretty much across the board. As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is a follow-up question from Mr. Andrew Ritchie from Autonomous. Please go ahead. Oh, hi there. Sorry to return to the topic of reserves. I can see there's been some holding back of the divisional PYD at Group center, but I'm more interested in specifically North America. I remember, George, last year, you strengthened some of the casualty years, including recent years, against reinvesting some of the work comp releases. Has that continued in the first half? I'm just trying to understand if you're still holding loss picks up in some of those casualty classes, given there's really a lack of data on claims for the last 12-18 months. That's the first question. The second question, you acquired a financial advisor business in Italy recently. This is your first foray. That was a slightly surprising acquisition. Maybe just outline what the rationale was behind that deal. Thanks. Yes, thanks, Andrew. At least we have your name the right way around now. On the reserves. What to say on this? Absolutely. picks for the current year, I mean, they're not particularly different from what you've seen in the prior year. We did go back and address some older year issues that you can associate with some of the public changes around some of the mass torts. I think that's why you might see the picture that you see from North America. It's probably important to point out that that's ahead of the workers' comp review that will take place in Q3. I think from a reserving position, I thought we were in a good place end of last year. Seeing from today, I'd say that we're in an even stronger position overall. On the financial advisor business, I mean Can I add a point to this, Andrew? Also, remember that we are in the hardening markets, and this is something that always happens in the hardening markets, where one of the benefits is that you negotiate better terms and conditions with the clients. Actuaries and claims people continue to reserve for the past conditions, right? Because they don't base their assessments on future. They only base their assessment on what they've seen already. The knowledge there is the past, and the past is different and worse than what we have today in the books. That creates a typical situation in the hard market that reserves are better quality, in a sense, than ever before. That happens every time. We're seeing this happening even this time. On the acquisition that we made very recently, or we've announced recently, this wasn't something where we sat down earlier in the year and said, "You know what? We need to go out and acquire some financial advisors." This is something that is clearly connected to the relationship we have with Deutsche Bank. Already, this is a group who sells Zurich product. For us to take this step will benefit the business in Italy from a longer-term perspective. It doesn't change the group's stance on how we expect to run the business in future. Okay, thanks. Andrew, remember that we have been working with this network for almost 15 years, successfully for us and successfully for them. For us, it was a natural thought when we heard that Deutsche Bank was selling them to consider the acquisition. Now this gives us the opportunity to connect them to the insurance agents and use the customer basis of the insurance agents to foster the sales results on the life side. This network is quite good at selling unit-linked products, which is also our priority in Italy. So it was just grabbing a nice opportunity in the market. Okay. Thank you. The next question is a follow-up from Mr. Vinit Malhotra from Mediobanca. Please go ahead. Thank you for the opportunity. Trying to follow up again on the combined ratio elements. On this pricing, George Quinn, if I look at the Europe and North America commercial, the European commercial pricing, 2Q is roughly 13%, and almost very close to the 14% of North America. Could you just comment on where this is coming from? 1Q was 11%. While everybody in the world talks about moderation, here we have European commercial actually adding 2 points versus even 1Q. Any comment on that would be very interesting. Second question is just on slide 18, I think. The one where we show the retail SME KYC, all that cat covered. It's nice to see an 80 basis point improvement. I thought for a while this segment was kind of flattish. Could you say where this could be coming from? Because I presume COVID-19 frequencies and everything is cleaned out here. Any comments are also interesting. Thank you. Yeah. Okay. On the first one, U.K., that's U.K. commercial market that's driving this. I think I talked already at the end of the year that the U.K. was catching up pretty rapidly on the U.S. That's why you see the outcomes that you see here. I think if you look at the retail business generally, and look at where the improvement is coming from, it's a wide range of markets. In fact, it's easier probably to exclude some of them than to list all of them. A market where traditionally you don't see a lot of price movement, and we tend to be a much bigger motor player, which is a market that has more challenges, is Switzerland. Here, it's not a big driver of what you're seeing in terms of the improvement. If you look at all the others, most of them tend to contribute in some way. Overall, the picture is still fairly flattish. The business benefits from the fact that the point that you made earlier about frequency, maybe some of the change in behavior, we benefit more from that than we do from pure price, don't we? Right. Thank you. Appreciate it. We have a follow-up question from Michael Huttner from Berenberg. Please go ahead. Thank you. You've probably said this already, so apologies. How much of the aggregate cover have you used up, and how much is still left before you hit the retention before you benefit from the cover? The second, this is really cheeky. Is there anything you can say about dividends? I was trying, if I phrase the question politely, it would be to say, well, if I pretended to be a board member, I'm not, then I would look at the excellent solvency, the wonderful cash, and the clear strong trend in net profit, and I'd be ready to put a big increased number. I'm not sure if the board thinks like that, or do they think more in terms of what's sustainable? Thank you. Thanks, Michael. I thought the first question was quite cheeky already. All I can say on the first topic is that we weren't in the aggregate at the end of the first half. As I mentioned earlier, just given the cat load assumption that we have, any reasonable modeling, allowing for the franchise requirements on the cat, would suggest that we will attach it at some point in the second half of the year. I can't give you a current update. Well, can't is not the right one. I won't give you a current update, is probably the more accurate statement. Sorry for that. No, it's okay. On the dividend topic, I think all the things that you listed as considerations are correct. The only thing that's a wee bit off is time. Typically, the board does this starting in December. It won't be until the end of the year that this is a topic that we get into in depth with the board. Lovely. Thank you very much. The last question for today's call is from Peter Eliot from Kepler Cheuvreux. Please go ahead. Thanks very much for the opportunity to add some. First one, I guess you've given us very clear guidance on what the pricing and loss cost inflation is doing, so we can model the outlook. You've also mentioned the tighter terms and conditions. I'm just wondering if qualitatively, George, you could sort of give us a feel for how you'd be building that into our model as well and the sort of materiality of that on the margin outlook. That was the first one. The second one, just returning to your guidance. I guess you've upped a little bit the outlook for the Group Functions and Operations in terms of drag there. Just wondering if there's anything in particular that surprised you in that segment. Those bits, two. Thank you. Thanks, Peter. I'll do the GF&O and all change first. Not really. There's a series of drivers of it. We've got a bit of adverse FX in the first half, where we got some financing costs related to the Met deal. We've given up some investment income. I'm currently charging the businesses less for services than we were at this point last year. I think probably the only change that I've decided to make is that I'm not planning to go back and charge them more and take it back to where it was, say, at the half point last year. That puts more pressure on the corporate center to adapt and adjust. I think generally, that's a good pressure to have in the first place. On the tighter terms and conditions, it's a really tricky one. I guess if we went back to prior hard markets, you have to go back quite a long time to find the last one. The way that I remember it, and it is the way I remember it rather than I can prove it, is that that tends to be the aspect that has more longevity. It tends to be the thing that eliminates some of the frequency. The deductibles have gone up. Some of the soft market options that you give to customers to put claims to you, they're removed. In terms of quantum, I honestly don't know today. In fact, I think if we could put a quantum to it, I think the chief actuary would have another reserve strength addition to offset it for the time being, until it was proved. I think it's something that will benefit us, and not just this year, but actually even more as we move into the future. I can't give you any sense of size and not even a materiality. I think it's extremely important for us, and it's one of the things that Sierra and the entire commercial team actually focus on most, because it's a thing that will still be here when the rate's not quite as high as it is today. That's great. Thanks very much. Well, thank you everybody for dialing in today. If you do have any further questions, the IR team is ready to take them offline. With that, thank you and goodbye. Can I interrupt you just for a second? I guess you guys are all aware, this is Richard's last outing as our head of IR. Well, at least you hope it's the last outing as head of IR. On behalf of Mario and the entire team, I just want to say thanks for the fantastic job you've done, Richard. I'm sorry to see you leave this role, but I'm looking forward to seeing you in the Europe job. I'm looking forward to it, too. And with that- Thank you, Richard. Thank you, everybody. 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.