Okay, I think it's 3:00 P.M., so we'll start. Good afternoon, everyone. Thank you for joining us for our first In Focus session, which we hope will give you a better insight into our Canadian business. In due course, we'd love to provide you with a number of further deep dives into the businesses to help you better understand how we are transforming our performance to drive sustainable long-term growth. I'm shortly going to hand over to Jason Storah, who is the CEO of Aviva Canada, and Colin Simpson, CFO of Aviva Canada, who many of you already know, of course. Following their presentation, there will be an opportunity for you to ask questions about our Canadian business. But before I hand over to Jason, I wanted to quickly recap on Aviva's strategic priorities and the progress that we have made to date.
So just under a year ago, we announced our three strategic priorities of focus of portfolio, ensuring Aviva is financially strong, and transforming the operating performance of Aviva. As you know, we have substantially delivered on the first two of those priorities, announcing eight disposals in eight months, which will bring in GBP 7.5 billion in proceeds, strengthening our balance sheet, reducing the risk profile of the group, and significantly reducing our leverage. Our focus is now firmly on transforming the performance of Aviva so that we can capitalize on the significant growth opportunities across our three markets of the U.K., Ireland, and Canada, and across Aviva Investors. Over the next hour or so, you will see that we have a strong business in Canada that is well positioned in an attractive insurance market.
It is a business that already makes a significant contribution to group profitability and cash, but also benefits from and gives rise to significant synergies both in Canada and across the group. We will show that Aviva Canada has significant opportunities for sustainable and profitable growth. We have the COR capabilities and a clear path to transform performances so that our Canadian business will deliver even better returns for our shareholders. With that, I will hand over to Jason Storah.
Thanks, Amanda. Thanks, everybody, for taking the time to join us today. We're going to run through some slides, both Colin and I, just to give you an overview of the Canadian market and why we think it's attractive, the strengths of our business and its positioning, as well as the strategic priorities that we're pursuing going forward to drive improvements in performance. Then we'd love to just get into a discussion and Q&A, as Amanda said. Just to level set, for those of you who might not be familiar with Canada, we think it's a really attractive place to do business. There's a large affluent population, and it's the eighth largest GI market in the world, with CAD 69 billion in premium. Not only is this a large market, but it's growing at around 5% per annum over the last 10 years.
This high growth is supported by a relatively strong economy, with the second highest growth among the G7, which is helped by immigration, as around typically 300,000 new immigrants to Canada every year. That's helping to drive that steady population growth. Canada also benefits from a stable prudential regulator, sorry, a stable political and economic environment. I'll talk about the regulator in a second. We have a strong prudential regulator in OSFI, and that's certainly brought stability to Canada's financial services industry. This has been seen in how well Canada has withstood the last two global economic recessions. Lastly, Canada is a structurally attractive GI market.
It has high barriers to entry, partly due to strong regulation, but also due to consumer buying behavior, which we'll talk a little bit about today, the importance of strong, long-standing relationships with distributors, and the high retention rates that are typical in Canada. So we think it's a great place to do business, but it's a difficult place for new entrants to break into. We thought this next slide was useful to highlight some of the unique characteristics, which you may not be familiar with compared with the U.K. I'm sure that the U.K. is a market you're a lot more familiar with, so a bit of a comparison would be helpful. Our personal motor insurance market is regulated in each of the provinces. Actually, British Columbia, Saskatchewan, and Manitoba have their own government-run motor insurance.
So we only write personal property and commercial in those three provinces. What provincial motor regulation means is that we just have to seek approval from the regulators for price changes. That usually takes about three months. That's obviously very different to the U.K., but I think it actually helps create a more predictable and stable motor market here than in the U.K. The top 10 insurers make up almost 70% of the market. Whilst there has been a 12.5-point increase in the market share of the top 10 insurers over the last 10 years, that's largely through market consolidation. There are still over 90 GI companies in Canada. Brokers are still the dominant distribution channel at 64% of premium. There's been considerable broker consolidation here, with the largest 10 brokers now controlling about a third of the Canadian market.
Whereas the U.K. shifted a long time ago to PCWs, direct and digital, Canada hasn't yet. Only 1% of personal insurance consumers bought fully online last year. We're definitely seeing an emergence of the digital and direct propositions. COVID certainly accelerated that with changing consumer expectations now around digital self-service. Historically, though, Canadians like to speak with someone when buying their insurance. I think it's a combination of legacy technology that insurers haven't yet upgraded, the dominant role of brokers and the advocacy and advice they provide, and the fact that the average motor premium here is about CAD 2,000, which is notably higher than in the U.K.
One of the advantages that Aviva has in Canada versus the domestic insurers is that as this market evolves, and I'm sure it is going to follow the kind of consumer and digital trends of the U.K., we're able to tap into the U.K. team's expertise in customer and digital propositions. Not everyone in Canada is going to be able to make the investments needed to take advantages of these shifts. We are making the investments and will get the additional benefit from leveraging the U.K. expertise.
So look, if we and just moving on to slide eight, please, when you look at Aviva Canada, we are the number three position and have 8% market share. After growing the business by just under 6% per annum over the last decade, we're in striking distance of CAD 6 billion of premium. And last year, we delivered a sub-95% COR. Strategically, we have deep and long-standing relationships with brokers and a unique partnership with RBC that allows us to leverage the most recognized financial services brand in Canada. And we bring technical expertise, particularly in the claims area, as well as a very broad product range, including specialty personal lines and surety, which others just cannot match. From a financial perspective, we're cash generative and have obviously become a larger part of Aviva's general insurance operating profits.
Now, because of our geographic position and the nature of our risks, our risks diversify incredibly well. In fact, 60% of our Solvency II SCR diversifies away when combined with the broader Aviva group. Actually, we're able to crystallize some of this benefit by participating in the mixer. We currently have a 25% quota share with the mixer. When we team up with the U.K. business, we have serious reinsurance purchasing power. We actually benefit from incredible relationships across the organization with the reinsurers that goes all the way up to Amanda at the CEO level. If we go to slide nine, which takes a little closer look at the competitive landscape, you can see from the bottom of slide nine that the top 10 players have grown by an average of 7.6%, which is more than the market.
This has come through a combination of organic growth and consolidation. As number three, we're in an excellent position to benefit from a continuation of this trend. Unlike the banking and life insurance spaces, the P&C sector is still quite fragmented from a Canadian perspective. four out of the top 10 are mutuals, which does make for an interesting competitive dynamic. We know at least one of those is planning to demutualize in the near future. Lloyd's is an interesting one. They number four in the market, almost exclusively commercial lines. And they support a really vibrant MGA market in Canada. Now, their fairly frequent flow of capital into and out of the market does create for some commercial lines pricing volatility.
We're able to lean into this, lean into the hard markets at least, a little bit like what we've done over the last couple of years. Now, when you consider market share growth, underlying Canada is a stable market because of the high retention rates that Jason mentioned earlier. Therefore, M&A has played an active role in forming market leaders. And you can see some of the acquisition activity on the right-hand side of the slide. The final point I want to make is on ROE, which has a strong correlation with scale. Bear in mind this is presented on a Canadian IFRS basis, which includes the adverse impact of declining interest rates on discounted reserves. Our U.K. IFRS and Solvency II ROE are much stronger, particularly over recent years, as is the go-forward potential, which we'll get on to in a bit.
This correlation with scale is likely to persist as there are an increasing number of challenges for smaller companies, be it IFRS 17, keeping up with cybersecurity systems, pricing sophistication, and digital transformation. All of these make it more difficult for smaller players to compete, particularly when they don't have the scale and expertise that being part of the larger Aviva insurance group can provide. We expect this to drive further consolidation in the bottom 30% of the market.
Slide 10, if we could just move on. This shows our top-three position and how it's split across the provinces and our product mix. There we go. We've got strong market positions in most provinces, although Ontario stands out, which isn't a surprise because it is our home market. It has the largest population and GDP, and so it contains the biggest personal and commercial insurance opportunity across Canada. We operate in a broad range of segments, so our business is well diversified. We've got about 2/3 personal insurance, 1/3 commercial. We're looking for faster growth in commercial as that helps improve the diversity of our business even further. As you all know, Canada is a pretty big country, and it takes over seven hours to fly across.
What this size really means is that from an insurance perspective, we get really good geographic diversification of risks and earnings. Within the CAD 3.6 billion of personal insurance that you can see there, there's CAD 1.2 billion in specialty business. That's group home and auto, leisure and lifestyle, and high net worth. This is an attractive and fast-growing business for us. I strongly believe that we are best in class in Canada in this sector. We also have our partnership with RBC, which accounts for about CAD 850 million. I'll talk more about RBC in a second. Then we've got over CAD 1 billion in small to mid-market commercial. Our SME book has traditionally been focused on the smaller end of the market, but we've worked really hard on the performance and the product mix over recent years. We're seeing great results.
Our attritional loss ratio has improved steadily. Year to date, our average premiums are up 76% as we've deliberately moved up the curve to write larger accounts. Then our GCS business, which is going to exceed CAD 1 billion this year. So I just mentioned RBC, and I'd like to spend a few more minutes on it because it's a fantastic partnership. We acquired their GI business back in 2016. At the time, we entered into a 15-year distribution agreement. We both liked this partnership so much that we subsequently increased it by another five years. It's a really interesting partnership because with the bank act here in Canada, that means that banks can't sell insurance through their branches, unlike in the U.K. The RBC agency handles all of the marketing, sales, and service for the business.
They do this through two contact centers, 45 field stores, and over 460 sales agents. Then we're responsible for the underwriting, claims, products, and pricing adjudication, claims adjudication as well. RBC has the most recognized and well-respected brand in Canada. One in three Canadians banks with RBC. You might remember that we had to strengthen our reserves on this business a few years ago. But since then, the performance has been exceptional. Even in spite of that really strong performance over the last few years, I think the biggest opportunity is still ahead of us. The reason I say this isn't just because of the outlook for the retail personal insurance business, but also because I think there's great areas of product expansion and opportunities there ahead of us.
I'm going to try and bring this to life with one example, which hopefully shows you that opportunity. We have a really successful high net worth business that we launched about five to six years ago. But we launched it just with our brokers. And traditionally, that's a very broker-centric business with specialty insurers like Chubb and AIG. But then a couple of years ago, we launched it with RBC. And within the first 12 months, RBC became the biggest source of growth for us in the high net worth segment. This speaks to the power of the RBC brand, the access to great customers, and the untapped potential that remains, which is why I think we've got such a good opportunity ahead of us. And it's one that none of our competitors can compete with.
Just moving on to financial performance, you saw from Q1 that we had a really strong start to the year. But we've actually been on quite a journey over the past five years. We grew into the soft market with the acquisition of RBC and so had to take remediating actions in 2017 and 2018. We had over 40 distinct profitability actions that we tracked and executed on to bring profitability back to an acceptable level. This actually also highlighted areas that needed an overhaul, such as our claims management and parts of pricing. The performance during the period of recovery is strong, especially when you consider the adverse impact of COVID on our 2020 results as we set up business interruption reserves and accrued for higher contingent profit commissions. Now we've finished this period of recovery and are looking forward from a stable base.
We expect to generate consistent profits in excess of CAD 500 million, which is a level we haven't actually delivered to date. This translates to a 93%-95% COR. I just want to touch on expenses because operating efficiency is incredibly important to us at Aviva Canada. The 9.3 that you see on the slide is what we call the G&A ratio. So it excludes your premium taxes, your claims handling expenses, and your distribution expenses. It's effectively best in class. But we have still brought it down over the past five years despite investing in the business. Now going forwards, we expect to run at a G&A ratio below 9%.
As one of Aviva's COR markets, the opportunities to collaborate, leverage, and share our capabilities across the group have never been more prominent. The benefits flow both ways. You can see six areas of synergies here on this slide, along with some examples that I think give us a clear edge over local competitors because we're not just bringing our local scale to bear, but also the wider group resources and expertise. Colin talked earlier about the two-way capital and diversification benefits, as well as the reinsurance purchasing leverage that we get. There's a few other examples on this slide that I'd just like to mention. In technology, the Canadian team works really closely with the U.K. on our move to the cloud, Guidewire implementation, and cybersecurity. We've got a local team dedicated to building out the digital direct business here.
But we're also able to leverage the expertise of Quote Me Happy in the U.K. because there's nothing in Canada yet that comes close to the U.K.'s digital or direct landscape. We've built a really strong data science team here in Canada. And combining this with the strength of the U.K.'s analytics and pricing sophistication really helps enhance our speed to market with new models and trend analysis. And then we've made a number of talent moves back and forth. And at the moment, I've got several individuals from the U.K. in my claims and pricing teams. And there's a number of Canadians over in the U.K. working in the risk and surety teams. So moving people back and forth is a real asset for us in both the U.K. and Canada.
Just moving on to slide 14, I'd like to shift focus into the four strategic priorities for this business: delivering sustainable growth, investing in industry-leading capabilities, transforming the service experience through digitization, and then disrupting the market through innovation. I'm going to spend a minute or so on each of them. In terms of the first one, Colin mentioned that we've got CAD 6 billion of premium firmly in our sights. We've set clear expectations for both growth and underwriting performance across the portfolio. I would just say, I should just say also that the COR numbers on here all exclude any ongoing benefits or impact of COVID. While the dynamics are different across these three portfolios, we're going to grow all of them organically. If you look on the left-hand side with our retail personal insurance book, that's a relatively mature and stable market.
So I think that maintaining steady market-level growth of 3%-5% organically is quite sensible, particularly when we're looking at moving that business onto Guidewire and there's still current regulatory pressure on auto rates going forward. There might be some more upside with RBC. But again, I just want to see the dust settle on what happens in the auto rate market and what the market looks like generally post-COVID. The middle and right-hand columns on this slide, along with, sorry, the middle and right-hand columns make up almost 50% of our portfolio. And they are positioned for above market, above average market, above market growth, sorry. And they're going to deliver underwriting performance in the 92%-94% COR range. I mentioned our specialty PI business. Both Colin and I have referred to it.
If you combine that with our surety business, those are two examples where we're a market leader in Canada. That's CAD 1.6 billion of premium that's delivered sustained COR performance in the high 80s, low 90s over the last few years and is really, really well positioned to continue to do so. Although we haven't historically been a leader in our mid-market commercial, that's definitely changing. This is a CAD 400 million business that's delivered great results for us over the last couple of years. So I'm bullish about the outlook for us here, particularly with the trends we're seeing so far this year. And then finally, there's two areas on the right where we're going to accelerate growth to diversify our overall business. The first is our GCS corporate risk book, where there's an opportunity for us to write more Canadian multinationals.
And then the second is direct, and we've talked a little bit already today about that. We've got a small business today, and we're going to scale it up significantly going forward. So now I'd like to turn to some of the initiatives that are going to help drive this performance and this growth going forward. The items on the left of this next slide are the foundational capabilities that we're investing in. And on the right, you can see the 2023 aiming points that we've set out to demonstrate the clear benefits that these are going to deliver. I've mentioned our data science and analytics earlier. And we've incorporated AI and machine learning into all of our pricing models. And we're automating them to make model delivery twice as fast as it was before.
This will allow us to increase the frequency of our model refreshes, to spend more time on the quality of our model inputs and analyzing and understanding the outputs. We'll just support better decision-making so that we can adapt more quickly to market conditions. We're going to continue driving our expenses down through increased digitization, automation, and simplification. Colin just referred to that a second ago. I want to take a second to talk about claims. Our claims proposition at Aviva Canada is the best in the market. We're running at about 96% internalization, which drives our net promoter scores to be 20 points higher and average settlements in auto and property over CAD 700 lower than externally handled claims. We're seeing benefits come from our fraud analysis and analytics, sorry, and automation.
We've got an internal legal team of over 100 lawyers who do a brilliant job at defending our clients from frivolous or fraudulent claims. This is such a successful model that we've started to see a number of competitors in Canada copy us. Look, every year in claims, our objective is to just improve the operation by at least a point to help offset loss threat. The last comment I want to make here is about the people and culture in Aviva Canada. Our employee engagement is 16 points better than the top quartile financial services in Canada. 49% of our frontline leaders are women. 43% of our senior leaders are women. And over the last two years, we've tripled the number of visible minorities in all of our succession plans. Moving on, I think this next slide is pretty straightforward.
I'll just wait for it to move forward. We're on a journey to move our business from analog to digital. There's a number of proof points along the bottom showing the progress so far. There's more to be done here. Not only is this going to help improve our customer experiences, but it'll also generate increased efficiencies in our business. There are no clear digital winners in Canada today. My aim is that the kind of trajectories you're seeing on the bottom of the page are just going to get steeper because of the investments we're making and the access to experience from the U.K. The final priority is focused on market disruption. There's three components to this. As I mentioned earlier, we've made a significant investment in building up our data science and analytics teams, as well as leveraging the expertise in the U.K.
The brilliant thing about this part of our business is that we're nowhere close to exhausting the benefits that these teams deliver to our growth and profitability. And so far, we've focused a lot on personal insurance and claims, which we're going to continue to do. But we're also moving into we have already moved into commercial pricing, triage, and service. And then next in claims, where I said we're already a market leader, I've set the team a challenge of settling 60% of our auto claims and 40% of our property claims within 24 hours. Right now, we've been in the low single digits along with the rest of the market. But fast and fair claims settlement will be an unmatched experience for our customers and a significant differentiator for our business going forward. I've mentioned our direct and digital business a few times already.
The key point here is that we are going to make this a 100% digital business. No one is doing that today in Canada. Even though a couple of competitors have invested heavily in building out their direct business and capability and brands, there's a lot more to be done in the Canadian market, particularly when you compare to the U.K. Before we wrap up, I just wanted to share how we've defined what success will look like for us as we go forward and by 2023 across a number of outcomes. These are all based on organic underlying performance. As I said earlier, they exclude any of the temporary benefits or impact from COVID. We're going to deliver better than market performance on both top and bottom line. We'll ramp up our efficiency gains through digitization, automation, and simplification.
We'll continue to outperform the competition on our claims outcomes for customers. We'll deliver really strong financial returns for the group, which you can see here with CAD 1 billion of cash remittances and a Solvency II return on capital better than 15%. This is the final slide. There's four messages I'd just like to reiterate for you about Aviva Canada. The first is that we've got a really strong position with multi-channel distribution in a very attractive GI market. We're already delivering solid, strong, improving, and great underlying performance across the business. Second is that we're a market leader across a number of areas. I mentioned personal insurance, pricing sophistication, our specialty personal business, surety, and claims. The RBC partnership is a really unique opportunity for us going forward.
Plus, we're becoming and we're emerging as a market leader in our mid-market and GCS commercial business. Third, there are absolute tangible two-way benefits between Canada and the U.K., particularly on capital reinsurance and technical expertise. And this creates some competitive advantages to us over and above being a really strong standalone business. And then finally, as you saw on the previous slide, we've got a very clear outlook and a set of targets that we'll measure ourselves against in terms of the strategic, excuse me, operational and financial outcomes of this business. So with that, I'll hand back to you, Amanda.
So I'm going to take the first question from Farooq, please.
Hi everybody. Thanks very much for this. I must say, actually, your presentation is a lot better than some other companies have been given to this live. So well done.
Yeah, can you talk about the CAD 2,000 average premium for motor? What's driving that? Because your claims ratios look quite comparable. And is there an opportunity there? Secondly, your view on consolidation. Clearly, you've got a lot of cash and capital coming your way. And would it not make sense to look at that? And then lastly, on the expense ratio, so if you get to a less than 9% G&A ratio, in kind of our money type of expense ratio terms, how would that look? So I think you've got between 33%-34% expense ratio in 2020. So what would that sort of go to, all other things being equal? Thank you.
Thanks, Farooq. So I will let maybe Colin can answer the last question. And Jason, do you want to pick up the average premium and the consolidation point?
Yeah, yeah, for sure. Thanks, Farooq.
So CAD 2,000, I mean, that's a benchmark in Ontario. Realistically, in the last few months, that's gone down with the pressure from the regulator to reduce auto premiums with less people driving on the road. But what we see in Canada is historically, there's been quite a lot of leakage in the claim system. There's lots of players in the system, whether it's plaintiff lawyers that are looking to get cash payouts, treatment clinics, rehab clinics that take an awful lot of money out of the claim system. And actually, when you look at what the claimants end up getting, it's actually quite a small amount. So auto is a reasonably low-margin business. Retail auto, typically, we're happy with a COR in the 93%-95% range. So there isn't much margin there. And there's certainly a lot that gets paid out in claims.
But it's really because, it goes back to a number of regulatory interventions with the product and the sort of statutory payments and the way the different payments for different levels of bodily injury are just regulated in Canada. Is there anything, Colin, you just want to add to that piece?
I guess, Farooq, it's a first-party and a third-party product, unlike the U.K. So it's an incredibly rich product. But everything that Jason said just adds to the fact that, as well as the market just not being as big and as close together as other parts of developed markets, just leads to a very expensive auto premium.
Yeah. Just in terms of your second question, so consolidation, I mean, we definitely look at opportunities. Traditionally, in the Canadian market, we've seen about one insurer deal a year. There's lots of consolidation going on in the broker space.
My personal view is I don't actually think that's the best use of our capital to buy brokers and consolidate them. Broker valuations are pretty chunky. You're looking in the 4x-5x plus valuation range of revenue and 12x-14x EBITDA valuations. And we've got a really strong track record of growing organically without needing to use consolidation to drive our growth. But we'll always look at opportunities if they make strategic sense. Yeah, Farooq, on the expenses, I think you're rightfully pointing out that 9.3 to sub 9 doesn't probably move the dial on many forecasts. But that's not all that we're going after. So we are trying to target a sub-30% distribution ratio, including G&A premium taxes and, importantly, distribution expenses. So we do want to see that solely distribution ratio come down.
Okay. Thanks, both. The next question for Greig Paterson.
Greg, I think we can. Yes, we can.
Good. All right. One technical and two strategic. One is you mentioned those three markets where the regulator sets premiums. We've discussed that there's a headwind coming in the second quarter. But it's interesting that you linked it to COVID. Does that mean that once we go through COVID and understand where claims that there's potential for the regulator to allow increases? Or I'm trying to think more towards 2022 in that regard. So that's just a technical question. The second one is, and I did ask this before, Amanda, but in the first quarter, but digital disruption. I mean, is that a threat to you? And I mean, I've listened to lots of presentations like this from lots of companies. And the one that alarm bell that goes in my mind is technology arms race costs. Technology arms race costs.
And I've heard the story again and again and again over the years. And we never get the benefits. So just your thoughts on that. I mean, how are you going to get the benefits greater than the costs in the modern world? All right. Thank you.
Thanks, Greg. Brilliant questions. So Jason, do you want to pick up the first one? Probably the second one in the context of Canada, please. Because I think the digital market, it is different in Canada to perhaps than we talk about in the U.K.
Absolutely. So Greg, just with regards to auto, I mean, the three provinces I called out, BC, Saskatchewan, Manitoba, where we don't write auto business because they're government-run auto insurers.
But across the rest of the country, particularly Ontario, and then Alberta and Quebec, I would say, but definitely Ontario, we've had a lot of dialogue with the regulators about auto premiums, loss trends, and the rate reduction that we took actually last month. We did that with a very, very clear dialogue with the regulator about, "Look, we're happy to do this because obviously losses are down, frequency is down. But this is a low-margin product. And as we see driving start to increase, we're going to come back to you looking for easing off of those rate reductions." And we've really, really positive dialogue with FSRA in Ontario as the regulator, as well as the other provincial regulators. And actually, just to mention about the regulator, they are moving towards becoming more principles- and conduct-based, as well as still maintaining that rate regulation component.
So they want a transparent, open, forward-looking dialogue with insurers. And we're really well set up for that. And I would just say right now, we've got some assumptions in some very conservative assumptions in our plans going forward around when auto rates will start to go up again. It's early days. We haven't seen driving go back as much as we need. But at the appropriate time, we'll have that dialogue with the regulators. In terms of digital direct, I don't think it's a threat. I think it's a real opportunity. And I cannot state enough that the Canadian market is really, really in a very different spot to the U.K. And the U.K. is a lot more advanced, a lot more sophisticated. So I see it as an opportunity.
Locally, the team we've built, the tapping into, as I mentioned, folks like the Quote Me Happy team in the U.K., is great expertise as well. I should say that the money that we're investing in growing out the digital direct business is already factored into our plans going forward. We're making substantial investments. So one of the things that allows us to do that is Colin and the team, myself; we're driving efficiencies out of this business so that we can look at investing in what's the future and what are the capabilities that we need. But I really think it's an opportunity. The last point you mentioned there, and I think Amanda can relate to this, it's that patience factor of wanting to make the investment and see the return immediately, but also knowing that there's a bit of time required.
I think we've all got the battle scars of making investments and learning from different investments that we've seen before. So really exciting opportunity in Canada. I think the expansive opportunity in Canada is probably greater than the U.K. because we're so far behind the U.K. in this space.
Thanks, Jason. Okay. So should we move on to the next question? That's going to come from Larissa, please.
Good afternoon. Thank you for this opportunity. Two from my side, please. The first is sticking to the theme of utilization, but also the other improvements that you've spoken of. Can you give us some color as to how much you've earmarked, what your timeframe for implementation is, and what the impact may be on the underwriting margin? The second question pertains to slide 15, where you speak of your retail market versus your future growth markets.
Are there any areas of the business that you believe may or subpar and need specific help? Or is this a more growth-focused initiative?
Okay. Perfect. Jason, do you want to pick up the first question? And Colin, perhaps you could pick up the second question.
You know what, Amanda, do you mind if we switch?
No, that's fine. You do it. You do it. That's fine. Go for it.
Yeah. Thanks, Larissa. Look, we have a bit of a scarcity mentality here. We spend only what we need to. And if it doesn't work, we stop. So I can't give you we have got a budget over the next three years, but I don't want to give it to you because we might end up spending less if we're less successful in actually moving the market or more if we're more successful.
So just bear in mind that it's not going to cripple any financial statement that you see. But at the same time, it's meaningful enough for us to make a go at it. I wouldn't I think because it's in digital and retail personal lines mostly, you just have to be patient. So the next three years, underwriting margin is probably going to be unaffected by the investments that we're making. But just rest assured that in the three, five, seven years, we want this to make a real difference to the business.
Thanks, Colin. So just, Larissa, with the second part of your question, I mean, I have a view at the moment that there's quite a lot of uncertainty in the retail market going forward, particularly around rates. Auto rates, I think everybody expects them. And they're going to need to increase at some point.
But the timing of that is still a little bit uncertain. Property, on the other hand, is very, very, it's competitive and it's profitable. And it's a really attractive segment for us. And we've done really well over the last little while. I don't think there's anywhere that I would say we are subpar. I think but I will say that as we've focused the shift in our commercial business to more of a mid-market, what we call COR and mid-market, so moving up the spectrum, which has driven the 76% increase in average premiums, we have de-emphasized the small micro part of our portfolio. That's a very deliberate decision because you can spend an awful lot of time and effort on an CAD 800 or CAD 1,000 premium, and you quickly burn through your return on that business. So moving up market is definitely our focus.
But we haven't forgotten about the small micro commercial. And we're going to be doing a number of investments to grow that back again in the future. But I don't think we're subpar. I think we've emerged. If you'd asked me that question a couple of years ago, I think there's probably some segments that we would have said, "We've got a lot, we've still got more room ahead of us." But now, this is definitely a growth play for our plan going forward.
Okay. Thanks, both. Next question from Louise, please.
Hi. Good afternoon. Good morning, everyone. Thanks for taking my questions. Just two from me, please. The first one's on telematics, which I know you briefly mentioned on one of the later slides. I know that others in the Canadian market are building out their propositions.
Can you just give us a bit of information about the Aviva proposition? And just more generally on that, what is the regulatory environment like for telematics in Canada? And then my next question is on the commercial rate environment in Canada. I mean, on the lines where you're seeing commercial rate increases still, when do you expect these to moderate? Thanks.
Okay. Jason, over to you.
Perfect. Yeah. Thank you. So just first on telematics, we're going to be launching a telematics product at the end of this year. It's a we've watched what the market's done. And I think initially, when telematics was launched in Canada, a big push was just companies offering lower premiums out of the gate. And then there was a different regulatory environment. So increasing premiums was quite difficult.
But if I look about where we are in the Canadian market right now, where the regulator is, and we've got a regulator that's far more open to more agile pricing that represents the kind of individual driving behavior that really is individual driving behavior rather than broad brush approaches to perhaps telematics that have been taken in the past. So we'll have something in market end of this year, early next year. It's going to be a simple digital play. Really, really looking forward to it. And particularly looking forward to the kind of additional data that it's going to give. We've got millions of data points today, billions of different configurations. And certainly, the data and analytics capability, additional capabilities that we'll get through telematics are quite interesting.
In terms of your second point about commercial, look, in Canada, our commercial rates have been increasing for the last 18 months pretty steadily. And if you looked back to last year, at the beginning of last year, we were seeing really, really strong double digits. And I mean, 30%-80% rate increases on average, depending on the type of segments you were looking at. That's definitely eased off a little bit through the course of the year. And it's continued to ease off this year. So I would expect that maybe we've got another 12-18 months of strong rate growth. And then hopefully, we can get back to the kind of inflation plus rate increases that I think are more sustainable long term. But the great thing is we've got a number of segments that a couple of years ago were in real dire trouble.
Commercial property would be one example that was really underwater. Now, it's a reasonably healthy segment. And I think the proof of that is going to be when you see other capacity come back into the Canadian market.
Okay. Thanks very much, Jason, for that. And thanks, Louise, for the question.
Thank you.
Next question from Andrew Crean, please. Hi, Andrew.
Hello. Can you hear me?
We can. We can. Okay.
A couple of questions. Your target of hitting CAD 500 million of earnings each year, my memory is that Canada is an extremely volatile market, both because of weather and because of regulated pricing in motor, which almost drives the cycle. I actually caught you out, I think, a couple of years ago in terms of that.
Why do you think that you can sustainably hit more than CAD 500 million of earnings each year without volatility, which may take you lower? And going on from that question, your ROE targets of more than 15%, I don't think even Intact, which is a sort of market leader and has demonstrated better performance, profitability with greater consistency over time, really hits that kind of ROE. So why do you think you'll be able to do it?
Thanks, Andrew. Colin, I'm going to come to you for both of those, please.
Yeah. Thanks, Andrew. So the first point, you rightly mentioned that we got caught out. Actually, what contributed to us getting caught out is a reliance on reserve releases to generate profitability. And so obviously, that's not how you run a general insurance business.
We are basing our plans on clearly no prior development to support the earnings base so that we would and what happens is if you've got lots of prior development, you might not be as disciplined on your front-end pricing. That's effectively what happened. We've invested a lot in our pricing sophistication. We've taken out all assumptions of any sort of contribution from prior development so that every time we see a change in trend, we want to get into the regulator's office where we have great relationships and get the rates up or down. We believe with the investments that we've made in pricing sophistication, the more sophisticated way that we look at this business, we will be much quicker off the bat to handle the regulated price environment. We've also grown out of commercial lines business relative to personal lines.
So that's also helped stabilize. The final point I want to make is on the weather, which you rightfully mentioned. We have a lot more reinsurance purchasing than our bigger competitors. We buy down to quite low levels. But there is some protection. Clearly, if we have a ridiculous polar vortex, then I'm sure we will struggle to make a CAD 500 million profit in extreme weather. But I'm sure we would come to you and explain that away. But certainly, we don't expect to have an issue with the CAD 500 million on a go-forward basis. The ROE on a Solvency II, the ROE that we mentioned in the deck is a Solvency II ROE. So not quite comparable with Intact. And then I think the other point that you need to bear in mind is we have capital advantages over Intact by the nature of being a subsidiary.
So you can't really make an adequate comparison. But if you look at the CORs, we want to match them on a core basis. And we want to do it off a more efficient capital base. So that should lead us to generate a higher ROE.
Thanks, Colin.
Yes. Thanks, Colin. Next question, please, to Ming. Hi, Ming.
Oh, hi. Good afternoon. Could you hear me?
We can hear you perfectly. Yes.
Thank you. And thank you for taking my questions. My first question is on your 93%-95% combined ratio target. How much have you allowed for the normal weather? And could you give some color in terms of your reinsurance coverage? So in bad weather, we could sort of get a sense how much that's getting eaten. And my second question is, obviously, you've done a very good job in terms of recovery.
Now, you're in a very good position. Given the target you've set, why don't you just sell the business at a, say, attractive valuation? Or have you ever been approached? Or is your plan of hitting your target and maybe selling it? I just want to get a sense of that. Thank you.
Okay. I'll definitely answer the second question there. Colin, can I ask you to answer the first one, please?
Yeah. Of course. Ming, we budget for catastrophes. Cats take on a different definition in each country. But effectively, if a storm is big enough to be a cat, we declare a cat. We assume around CAD 220 million of cat losses in any given year. I will tell you, first half of the year has been a very quiet cat year.
Actually, July 2nd, we got hit with a hailstorm in Calgary. But it's cat season. So that's not at all unexpected. But that two to one is what we would budget for a full year. We have three reinsurance treaties. The main reinsurance treaty is a cat reinsurance treaty, which has a CAD 50 million retention. And that covers effectively a single loss limit. We then have a Cat agg treaty. So if we get a number of cats over a certain franchise limit, we only retain CAD 75 million and pass on to the reinsurers the excess of that Cat agg. And the third treaty we have is on a single loss event. We have an excess of CAD 10 million that we pass on to reinsurers. And that's leveraging the broader Aviva Group because we're able to get good reinsurance terms.
Thanks, Colin.
And Ming, to your second question, I think that whilst I think we all recognize the team has done a great job in turning around Canada, we do believe that Canada has a brilliant future. You've heard, I think, this afternoon the attractiveness of the market. You've heard about the strength that we have in that market. And the U.K., Ireland and Canada are COR markets for the group. And that hasn't changed. And we look forward to seeing, in another couple of years' time, Jason and Colin come back and tell us what they've delivered following the presentation today. So a COR part of the group. And we believe that the best is yet to come as far as Canada is concerned. It's the next question, please, from Dominic.
Hi, folks. Thank you so much for the presentation. Really interesting. And thank you for taking questions.
Really, just two questions about the market dynamics. The first is just on distribution. When I think of a broker-oriented personal lines market, I usually think that's a challenging market, particularly when it comes to owning customer relationships. And yet, this is a high-margin market. And I wonder if you could just give us a bit more detail on how the broker landscape works. So we're talking about mom-and-pop sort of small branches with limited ranges, or are these sort of nationwide full-range brokers? And how does that work? The second question is really just on regulation. It's such an important dynamic for Canada. What do you see as the sort of the regulatory changes? I think of sort of three categories there. One is the status of the pricing system.
I mean, very, very different from, say, the U.K. price approvals in so many of the provinces and quite long lead times. Secondly, on claims. I mean, Ontario, as I understand it, I wish I understood it better. But as I understand it, Ontario, there's sort of a cycle of interventions to change the claims dynamic in motor. Could you maybe give us some direction on that? And then finally, just on prudential capital regulation, any direction of travel there, any changes that you would like? Thank you.
Thanks, Dominic. So Jason, I think you're best placed to answer both of those.
Thanks, Amanda. Thank you, Dominic. Look, just on the distribution, I mean, I mentioned that 64% of the market is intermediated. And I think one of the things that's played into here, I mean, I mentioned before the high premiums in auto.
When people are paying those kind of premiums, they generally want to talk to somebody. They want that advocacy and advice that a broker gives. Another factor I would say is there aren't really strong brands in Canada. Quite often, you speak to people. They don't know the difference between their insurer and their broker. They might sort of see the two as interchangeable. So definitely, the high retention that people have seen traditionally has played a factor in that broker domination. But we've also seen about 4% of the market change over, sorry, yeah, 4% of the market change over the last few years moving from intermediated to direct. But it's not a tipping point. Look, I've been in Canada for about 19 years. Every year, somebody talks and speculates on the tipping point. Brokers are getting older.
The directs are going to take over. We just haven't seen that, which I know is very different to the U.K. experience. There's definitely a trend that's really picked up in the last few years around broker consolidation. If you'd wind the clock back five or six years, there'd have been maybe two or three strong, big, dominant consolidating brokers. We've now got 10 brokers that control a third of the market. Their appetite is pretty voracious to continue buying up the small local brokers. But we're also seeing an emergence of strong regional players that don't want a national presence. They want to really dominate in the regions where they're focused on acquisitions. In terms of the regulator, I mean, I think you actually nailed some of the comments I would say, Dominic. Definitely, we're seeing a move towards a principle-based focus.
We're not seeing any. I'm not expecting any of the regulators to say they don't want to focus on rates anytime soon. I think there's a lot of a journey that the regulators still have to make in the different provinces around moving towards focusing on customer outcomes and being principles-based. But there's a real journey there. And it's ironic because in the U.K., you've got the regulator that's now just recently focused more on pricing with the new business sort of decisions around not discounting new business. Just I'll say and maybe hand over to Colin as well with regards to the prudential regulator, OSFI. I mean, we've got a great relationship with OSFI. A number of us sit on working groups. Colin has been active in terms of advising the regulator on reinsurance guidelines. It's called the B3 guideline that they've been looking at.
We are very active with them on sharing the kind of stress and scenario testing that we do with our business. And I think they definitely see us as one of the thought leaders, I would say, in the space around how we stress our business, the type of scenarios we plan for. But they also pride themselves quite rightly with being conservative and protecting the Canadian market and the Canadian consumer. And I absolutely think that's going to continue.
Yeah. I can't add anything else onto that.
Okay. Thanks, both. So if anybody has any other questions, can you please raise your hand? We've got one more that we can see from here. And that is Ashik, please.
Can you hear me?
We can. Hi.
Hi. Thank you. And good morning, Colin. Good morning, Jason. And good afternoon, Amanda. Just a couple of questions.
So first of all, is it possible to share any thoughts about how do you reserve for your P&C business in Canada? I mean, what is the—do you set aside buffers in addition to the best estimate? What is those level? Just trying to understand if things go wrong on weather or any other issues, like what happened in 2016, 2017, how much buffer you would have to address those, at least in the short to medium term. That's number one. And secondly is how do we think about capital? Because if I look at your remittance guidance, I mean, it's north of CAD 1 billion. And I'm hoping these are all Canadian dollars. So it's north of CAD 1 billion for probably four stacks operating profit of CAD 1.2 billion. So that's an 80%-85% payout ratio. That's pretty good, I would say.
So what gives you enough confidence on that? And just connected to that, it also means that there is no even small bolt-ons, anything planned for the Canadian local market. I mean, if any funding is needed, it has to come from the center for any small acquisitions. Is that fair? Thank you.
Okay. Thanks, Ashik. Colin, do you want to pick those up?
Yeah. Thanks, Ashik. So just on the, let's take the capital position first. So you said north of CAD 1 billion versus if we say over CAD 500 million per annum for three years. So that's 2/3 of pre-tax operating profit. So you've got to tax it. So the only other thing I would say is that there are still capital efficiencies for us to go after that may produce a small additional benefit to the profitability action. But honestly, a 2/3 ratio is not that stretching.
And don't forget, when you look at our local stat returns, you've got to add in the contribution from the mixer because we do transfer business to the mixer. And that adds to the dividend-paying capacity. The question on reserving. So we reserve a best estimate. And then we have a reserve margin on top of that, a U.K. reserve margin. And there's no need to go into the detail of the U.K. reserve margin because we can't ever really tap into that. We always need to maintain the U.K. reserve margin as long as we're a going concern. So it's not really worth thinking of that as a buffer. What I will say with COVID-19, and this is consistent with just about every P&C actuary I've spoken to, is there's a lot of uncertainty out there. We don't actually know how driving trends are going to come about.
We don't actually know as people come back to work, we don't actually know how this reduction in frequency has translated into severity. Intuitively, it feels like if you've got fewer accidents on the road, they're probably going to be more severe because they're going to happen at a faster speed. So the actuaries in a period of deep uncertainty will clearly, they're clearly not going to err on the side of aggression. But fundamentally, we reserve a best estimate. We get the peer review on a local basis. We get an external third-party actuary firm once every three years. And we get people from the U.K. as well as our external auditors. So I genuinely wouldn't think about any buffers that exist in the reserves. But I really wouldn't want you to think that there's any risk of inadequacy.
On the point around capital, Colin?
The capital piece being how the remittances feed into the profit target. Was that?
No. Basically, I mean, just trying to understand, are you—so the capital you're retaining, is it just for the organic growth? Or does that provide any buffer to you to do some inorganic growth locally as well? I understand that it has to be small. But would you ask the center for any money? Or do you have any bandwidth to do it on your own there?
Well, our plans assume that if it's very small, we'll be able to afford it. But we would generally ask the group in the same way we did for RBC to fund acquisitions. There's no point in holding excess capital at a local subsidiary in the off chance that something comes along. It's just much easier to manage it with group treasury.
Thanks, Colin.
Thank you.
Okay.
Next question is from Steven Haywood.
Hello there. Thank you for taking my questions. Two questions from me, really, both about sort of current underlying levels. I really don't know the Canadian market that well. Can you talk about retention levels on the personal and commercial lines? Are we looking at really high 90% retention levels? Or are we somewhere down in the 60% levels here? In terms of other levels on inflation, can you talk about the underlying level of inflation that we're seeing? Is it particularly tied into U.S. commercial inflation levels at all for your Canadian commercial lines? Also, obviously, on the retail lines, you've had a one-off COVID deflation or lower frequency amount. Going back to normal levels, what would you assume is the normal inflation level for claims here? Thank you.
Okay.
Jason, do you want to pick up retention? And Colin, you can pick up in deep points on inflation.
Yeah. Thanks. Thanks, Steven. So the underlying retention in our business, I'll split personal and commercial. It's a lot easier to talk about personal. But we typically plan for and see a retention level in the mid-80s, 85-87. And then for some of our specialty business, our group home and auto and our specialty personal lines business, we routinely see retention in the 90s. In fact, for some of our leisure and lifestyle business, policies that we don't retain are when somebody sells their property or sells their product and doesn't need insurance going forward. So really, really strong retention that I think is notably higher than the U.K. In terms of our commercial lines, I mean, our small micro commercial business, the retention would be a bit lower.
It would probably be five to 10 points lower. It's a bit harder to track the retention in commercial given the different portions of our business. But in the large GCS side of our commercial, a loss of one account can really swing what the retention numbers look like in any given month. But the range that we have in personal lines is 85% plus. And in commercial lines, I would say it's 75%-85%.
Yes, Steven, on inflation, it's incredibly topical. I'll try and distill it into something that sounds simple because it's not. Because we have to break down every claims component into an individual line item. I think the closest measure that you can use is Canadian building CPI. I mean, obviously, you don't want any of the rent and shelter impacts of looking at any other CPI or PPI measures.
So we break everything down. And we all know lumber has been ridiculous. But actually, when you look at some of the wage inflation pieces, plasterers, builders, roofers, they've all actually gone up quite a bit. We get property inflation running at about 4%. And so that's effective. And we build that into our indications. And we build it into our pricing on an annual basis. It's really critical at this point in time that we get something right. What's helped a little bit is the weakening of the U.S. dollar against the Canadian. That does offset some of the U.S. auto parts. But I really like some of the initiatives that the claims team have put in to try and counter inflation, be it greater control of the supply chain, deeper vendor relationships, and some of the new contracts that we've been able to secure.
So I'm quietly confident that that 4% is going to be an overestimate.
Thanks, Colin. Back to Greg for the next question.
Yeah. I mean, just one of the questions you asked about running quite a tight ship and extracting profitability from your operations. That reminds me of another company called RSA. And that reminds me of about 10 years ago when they were running a regime like that. And they're putting so much pressure on the subsidiary CEOs that they actually had to resort to reform behavior. And I'm not suggesting you guys are doing that. But when I drilled down into detail in a post-op analysis of that with the management, I realized that, yes, that had gone on. But the central controls, the governance controls over the management of the subsidiaries, reserving, etc., were quite weak.
So I was just trying to understand if you could just give us some comfort around that. I mean, there's nothing wrong with running a tight ship. But if you put so much pressure on the subsidiaries, you tend to have nasty effects. Anyway, thank you.
Yeah. Okay. So maybe I can start. And then I'll pass to the Canadian team to finish that. I mean, so first of all, there has to be a tension between the group and the subsidiaries around whether it's cost control, etc. And you wouldn't expect me to say anything different to that. But what I would say is that there is a local independent board in Canada which has a non-executive chair and non-executive directors. And there will be a local audit committee, a local risk committee.
All the local governance that the Canadian team will flow through will have to pass those committees. That's a very, very important part of our governance. So the group would not be able to override the decisions and the governance that takes place there. But at the same time, of course, what we would expect from the group is that there is some sort of consistency and that the standards are the same, whether they're U.K. or Canada. We're all operating to the same governance framework. As much as it is relevant, obviously, sometimes that changes according to the local regime. But certainly, there will be no pressure from the group. And hopefully, Colin and Jason would be able to say that. That's not to say that we are not expecting the subsidiaries to perform very well, to have discipline around cost control.
When they want money for projects and they're investing in the business, that those projects deliver the benefits that they say they're going to. So I think you would expect to see that. But maybe I don't know whether Colin or Jason, you're both smiling. So I'm expecting you to say something.
No, Amanda, thanks. You actually took a number of the points I was going to make. I mean, just to build on that, I think we've got a really strong, rigorous process around our change budget, our portfolio on transformation, and just our business-as-usual spend. We have an operating expense base of CAD 600 million, give or take. And we're very, very keenly focused on that. But you referenced maybe some competitors. And I think the difference with those is we're not going to go on a starvation diet.
We know we've got to invest in this business. And we're looking at where we can leverage efficiencies and savings and reinvest appropriately for the sustainability of this business going forward. And with regards to controls and governance, I mean, I think the controls and oversight have never been stronger of the Canadian business, both locally with our board and then also from a group perspective, lots of dialogue and transparency. And one of the great things about being one of the three COR markets is there's lots of attention on, are we investing in the right ways? And are we making the tough decisions? So I think we're in a good spot on expenses and where we're investing.
Okay. Thanks, Jason. Colin, anything to add?
No, not, Amanda. Actually, you know what? Can I just address Ming's question earlier on the CAT losses? I added a rogue CAD 80 million.
Our CAT budget is actually CAD 140 million, not CAD 220 million. It must be the holiday blues.
That's your prerogative as the finance director, right? Thanks for clarifying that, Colin. Next, Colm, please, from UBS.
Thanks so much. Can you hear me okay?
We can, Colm. Yes.
Perfect. Appreciate the chance to ask a question. So just personally, on the current wildfires in Canada, I appreciate it's very early in terms of insured losses, etc. Just wondering if you can update on exposures to the affected regions and if you could just remind us of the reinsurance in place in terms of the net claims retention that Aviva Canada has. Second question, just on return on capital, you're targeting over 15%. Colin, you mentioned that included maybe some minor capital efficiencies on top. If I look back to 2019, I think of Aviva Canada posted a 15.3% return on capital.
So given the future targets baking improved profitability, I'm struggling to square why the return on capital target is not much higher than what was achieved in 2019. So perhaps you could maybe bridge my lack of understanding on that. Thank you.
Yeah. Thanks, Colm. Jason, would you like to pick up the first point around recent claims and reinsurance? And then, Colin, you can pick up on capital.
Yeah. So, Colm, I'll respond to that and also build on it. Because, I mean, the town of Lytton in BC is destroyed. The fire went through it at the weekend. And it's decimated. We actually have a very small, we knew before the fire hit what our exposure was, a small number of policies. And as I sit here today, we've actually only had a small number of claims come through, probably worth CAD 2 million.
But most residents haven't been able to get back into their town yet. So our exposure is in the CAD 10 million-CAD 13 million range, we believe, based on sum insured and number of policies. But there has been quite a serious loss of life. And that's also subject to just understanding the situation on the ground better. And once we can get in there, along with all the residents, we will. But certainly, very, very manageable. I will just talk as well because at the weekend, there was a hailstorm, a fairly significant hailstorm in Calgary, which was a second CAT. So you've got fire in BC and hailstorm, golf ball-sized hail in Calgary. We've certainly seen a sizable number of claims there. I think as of last night, we had about 1,400 claims between auto and property. The nice thing is they seem to be light damage claims.
So I would expect that's going to be somewhere in the $15 million-$25 million range. And I'm giving quite a range because I think we're still going to see a number of claims come in. And then what typically happens is the new claims notifications drop right off. So from a CAT perspective, and Colin, jump in here, but for any individual events like that, our net is $50 million. And if there's any one single loss that's really large, our net is $10 million.
Thanks, Jason. Colin, any other?
So, Colin, you asked on the return on capital numbers and highlighted that 2019 was actually higher than 15%. That was on a Solvency II basis and actually takes into consideration an improvement in the SCR. As you know, Solvency II looks forward. And so when your future profitability looks better, you get to take that into your SCR.
So that you wouldn't expect to recur. So on a go-forward basis, we still think 15% is the right number and a decent improvement.
Thanks, Colin. I think we are next going to Farooq again. Thank you, Farooq.
Hello again. Thanks for the opportunity. Can you talk about the long-term investment return? So what are the reinvestment rates that are relevant? And how should we model dilution or not in returns going forward? Thank you.
Colin?
Yes, Farooq. So I'll take it. In Canada, we've always maintained an incredibly conservative portfolio, mostly because it makes more sense to take equity and to take credit and equity risk in the U.K., particularly credit in the U.K. life portfolio. So we've always been at the sort of 2.2, 2.1 for some time. We expect this to come down to about CAD 1.9 million.
I think it was a CAD 20 million headwind on profitability. Saying that, the curve has picked up this year, as you all know way better than me. So we will not see maybe the unfavorable reinvestment rate that we saw. We're also looking at a couple of opportunities maybe in the private space. Nothing big, very measured that could help abate the decline. But, Farooq, if you model very modest deterioration in line with the risk-free in both the U.S. and Canada, where we invest, that should give you a good sense of the mild reduction. Thank you.
Thanks, Colin. And the final question of the afternoon goes to Dominic.
Hi. Thank you for taking another question. I'm afraid it's a relatively prosaic question about numbers. But let me ask it anyway.
If I multiply through your optimized, grow, accelerate sort of metrics, I think you get to a target of about 6%, maybe 5%-6% growth, which would be great. I'm just thinking about how much capital you need to retain to support that. Because at a 15%-20% return on equity, I think you need to retain something like 30%-40% of earnings, which obviously would reduce your remittance capacity. Is it that you're growing into lower capital intensity businesses? Is that the plan? Or that you're planning to use more reinsurance, maybe more internal reinsurance? Or is there something else that I might have missed? Because obviously, that's got a high rate of growth. So you'd have to retain capital to support it. Thank you.
Thanks, Dominic. Colin?
Yeah.
Dominic, the only thing I'd say is you're probably missing in your calculation the base. Right now, at the end of May, we had a 226% Solvency II ratio, which had I think that translates to not I think. It translates to about CAD 240 million of excess. So we will incrementally use that. But we're not starting from zero to grow the business from. We are also growing in some of the lower capital intensive metrics. And then also, don't forget, we're more personal lines overweight than commercial lines. And so when we do grow more in commercial lines, we do get some diversification benefits. So on our calculations, it costs very little to grow our commercial lines business.
Okay. Thank you.
Thank you. So I think that's the end. So thank you very much for the really strong engagement there.
Once again, apologies for the slight technical hiccup that we had. I think we managed to get back. Everybody answered. Everybody was able to ask their questions. We really, really appreciate that. As we said right at the very beginning, this is the first one of these that we will do. We'd very much welcome your feedback. It was very much a trial to see how it went. If you've appreciated it, then let us know. If we could do it better, then please let us know. We do really do welcome the feedback. I just want to say thank you to Colin and Jason there for doing a brilliant job, I think. We really appreciate that. Thank you very much for everybody for dialing in. See you all, hopefully, very soon.