Ladies and gentlemen, welcome to the Zurich Insurance Group Q3 2021 Results Conference Call. I am Sandra, the conference 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. Jon Hocking, Head of Investor Relations and Rating Agency Management. Please go ahead, sir.
Thank you. Good morning and good afternoon, everybody. Welcome to Zurich Insurance Group's Nine-Month 2021 Q&A Call. On the call today we have our Group CFO, George Quinn. Before I hand over to George for some introductory remarks, just a reminder to the Q&A, please keep your questions succinct. George, thank you.
Thank you. Good morning, good afternoon, to all of you. Thank you for joining us. Just before we start the questions, a few introductory remarks. As you've seen from today's press release, the group has continued to make strong progress towards its 2022 strategic and financial goals. The underlying operating trends for the business continue to be very strong, and we expect this to continue through 2022. Rates have continued to be very strong, with, for example, at the nine-month point in North America, increases 13% with 12% in the discrete third quarter. We've absorbed the impact of several major events throughout the course of the year, including the June weather events in Europe, the major flooding in Germany in July, and Hurricane Ida in the U.S. in August.
We estimate the impact of Hurricane Ida to be around $450 million. The combination of substantial rates and the strong market discipline extends the very positive outlook for margin improvement. In the life business, we've reported life and new business value up by 25%, helped by a favorable mix and higher sales, and we continue to manage the business for value rather than volume, with a focus on our preferred segments of protection and unit linked. Farmers has benefited both from the inclusion of the MetLife P&C business that we acquired earlier this year and also growth on a like for like basis.
The group's SST ratio remains very strong at 203%, up materially from the 182% that we reported at the beginning of the year, but down modestly from the 206% at the end of the first half. As we plan for the transition to IFRS 17 in 2023, we've adjusted assumptions to reduce the potential for volatility in our life business post-adoption. We may take some additional steps as we continue to optimize for IFRS 17, but I don't expect this to be significant. With that, I'd be happy to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to unmute only handsets while asking a question. Anyone with a question may press star and one at this time. The first question comes from Louise Miles from Morgan Stanley. Please go ahead.
Hi there. Good afternoon. Just two questions from me, please. The first one is on the life APE. I noticed the life APE for third quarter in 2021 was down quite a bit. It looked like it was down about 10% versus 2020. Are you able to give a bit more color on this? Presumably some of it's FX, but I think there must have been something else as well that I've missed. On the second question, I guess I'll ask a quick one on the life back book transactions. Obviously you said at the beginning of the year you aim to do something in 2021. We've got less than two months left now. You know, what exactly is the update here?
you know, has there been an unexpected delay or were you always expecting it to be an announcement at the very end of the year? If you can, are you able to kind of give us a bit of color on the Life back book transaction market conditions at the moment? Thanks.
Thanks, Louise. On the first one, on APE, Europe's got a slightly tough comparison to the prior period, in that they had a very large transaction. They had a one-off deal that helped boost the volumes last year. However, I mean, as you can see from the new business values, we've actually driven a substantial improvement in new business margin over the course of the year, which has benefited new business value development. On the Life back books, I'm gonna resist the temptation to say too much because I'm gonna cover it in some depth at the investor update next week. I think all I would say is that it's a very high priority. We are very keen to demonstrate progress rather than talk about it.
In terms of my view of timing, I'd like to see it faster, but we're working as fast as we can currently to try and demonstrate progress. If you allow me, I'll come back to it in more depth next week. From a perspective of the market, I mean, there's considerable interest in the market, so there's a buyer pool out there that I think that constructs a good indication of what the market price is for these types of assets. From what we've seen, the types of prices that we would expect to achieve are consistent with what we would need to get to live up to a commitment that the things that we do in the back book should be ROE accretive. I'll come back to it in more depth next week, if you permit me.
Yeah, that's fine. Thanks very much.
Thank you.
The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. My first one, George, I'm wondering if you're just able to comment on how comfortable you are with your reinsurance cover as it stands at the moment and any thoughts you might have on, you know, looking into next year, you know, whether I mean, obviously depends on prices, but whether you might be looking to pick up more cover next year. And then the second question was just on the solvency. I just wondered if I could sort of clarify the process that led to the assumption change. I mean, my take is that your work on IFRS 17 just caused you to take a closer look at the assumptions and in taking that closer look, you decided to strengthen the assumptions. Is that correct, or is there a sort of closer linkage to IFRS 17? Thank you very much.
Yeah, thank you. On the reinsurance topic, I don't expect us to significantly change the program that we've got in place. I think we like a combination of something that gives us some protection from frequency, and of course, something more significant that protects us from severity. We would be looking to maintain the structure in a form that's as close as we can, the one that you see today. I think when it comes to more cover, I mean, to be honest, I would rather manage the incoming risk than look to buy more reinsurance, if we feel that there's a pressure to do that. I guess we'll come back to this topic later in the call.
From a... I mean, from an overall perspective, I mean, we've just been through the planning process for next year. We've allocated out the capacity. Our expected losses from nat cats is consistent with the level that we've communicated in the past. We'll use the incoming side of things to manage it more than, you know, get too reliant on the reinsurance side. On the solvency topic, I mean, it's an interesting one because you've got this quite unusual and probably at least partly unexpected connection between SST and IFRS 17. Of course, the key connection is best estimate assumptions. I mean, we're about to move into a parallel run for IFRS 17 next year, which means we're about to hit the transition date for us.
If we leave any vulnerabilities, particularly on the life side, on the best estimate assumptions, there's a risk that they're P&L relevant for us in pre-volatility. Rather than get to the point where we see this in the middle of next year and we have to rerun the entire thing, I mean, this feels like the right time to address this issue now. We've been looking at the assumptions that we have in the life portfolio, and if we feel we have a vulnerability or a concern, we want to try and make sure that doesn't show up as P&L volatility within IFRS 17.
Great. That makes a lot of sense. Many thanks, George.
Thank you.
The next question comes from Michael Huttner from Berenberg. Please go ahead.
Thank you very much. The, I really only have one question is, where is all this growth coming from? Is the world really growing at 11% at the moment? I don't get it. I must be getting very doddery and old and thinking, ooh, the world used to grow at 3%. Is it sustainable? Or should we start saying, oh, you know, Zurich is a growth stock and we should trade you at 30x or something? That's really my only question. Thank you.
Michael, I mean, what you're seeing at the moment is obviously a combination of very strong rate on the commercial side, and that completely outweighs anything that's happening around GDP. I mean, I think the really positive perspective from what we see, at least in Q3, is the rate continues to be very strong. We've seen it come down very slightly in the U.S. I mean, I expect that we'll continue to see a significant positive gap between headline price and loss cost trend, I mean, well into next year, which means we'll continue to see margin expansion, I mean, play out for at least another 12-18 months, everything being equal.
I mean, the GDP part. I mean, you've been around long enough to recognize in the past that even when GDP is strong, if the cycle is not your friend, you don't see the GDP benefit there either. So I mean, I know you know, but you need to view GDP from a longer term perspective. We've also had the benefit in this quarter. I mean, we highlighted the growth in customer numbers. So our retail business has been doing pretty well. Part of that is clearly a rebound from what's been happening over the course of the last 18 months. As some of the key markets have opened or become more open, we've seen a significant rebound in retail activity, which has been a significant tailwind for us.
As we look into next year, I still expect the group overall, retail and commercial, to produce overall growth rates that are well above GDP.
Fantastic. I'm in for the ride. Thank you.
Thanks, Michael.
The next question comes from Andrew Ritchie from Autonomous. Please go ahead.
Oh, hi there. My first question is, it's one question in the sense it's one sentence in the press release I think we could do with a lot more color on. The sentence is technical profitability is expected to continue to improve despite cat losses, which are three to four points higher than long-term average. Yeah, I guess it leads me to two related questions. What do you mean by technical profitability is expected to continue to improve? I mean, I think if I mathematically work out, you know, what you're implying for the full year 2021 cat load. I think at the half year you said it'd be up about five points. If I assume an average in Q4, it now looks to be more like six-6.5.
Are you suggesting that the underlying excess CAT has improved sufficiently to offset that miss, if you like? Also you use the term long-term average. I guess the problem is the long-term average keeps going up. How comfortable are you? You said in the past an average of 3.5. Is that still the right number? Second question, maybe it's not a question, maybe just a comment. I thought we had dealt with the life assumption changes in the SST updates in Q4 2019. Sorry. Yeah, in 2020. Beginning of 2020. I guess. Are we to assume that this has follow through impacts on the likely emergence of cash in the life business, or not? I'm confused. Thanks.
I'm sorry to hear you're confused, Andrew. On the first part, on the CAT losses. The comment I'm making is about the I mean, as you'd expect, given the rate that we see and the rate in excess of loss cost trend, we're continuing to see a significant improvement in the X CAT combined ratio for the group. You saw evidence of that at the first half and even with the very significant cat losses that we had, we produced a very strong technical performance. I think, I mean, the comment in the press release wasn't intended to mean that, I mean, no matter what happens from a CAT perspective, we can absorb all of that, 'cause that's clearly, I mean, that's not possible for us to do given you can have short-term volatility from CAT.
The comment I was making there was really about what we're seeing in terms of the underlying trend, which continues to be very strong. As I guess the key thing then becomes what do you think the CAT load should be? I mean, I mentioned in response to the earlier comment, I think it was from the earlier question from Peter. We've just been through the planning process. I think you're certainly right. If you look at the last five years, I mean, last year, if you include COVID, we had more significant losses. 2017 was also a pretty significant year. Again, if we look at what we believe.
If we look at what the models are telling us, updating it for current trends, we want to maintain a cat load for the group that's around this level that we've indicated is our long-term average. That means that if necessary, we'll take steps to make sure that what we bring into the portfolio in the first place gives us a higher confidence that that's the outcome at the end of the process. We're not sitting here simply accepting what comes through, not necessarily believing a very long-term view on the model side. I mean, we actively manage this to try and maintain an outcome that's consistent with the guidance that we give you. This is a pretty extraordinary year. I mean, if you look at what's happened, I mean, you've seen it. We've seen the Texas Freeze.
We've seen the hailstorms across Germany, Switzerland, Austria at the end of Q2. We've then got the floods, principally in Germany, in the middle of July. We've then got hailstorm again in Europe towards the end of July, and we cap all of that with Hurricane Ida at the beginning of September. I mean, if you ask me, do I think that's a new norm? I don't believe that. It is clear that there's an increasing frequency and severity trend around cat events. It is a topic I'm also going to cover at the investor update next week, and I will get into a bit more depth about what we're doing to make sure that what I'm describing to you is the outcome that we achieve on the SST assumptions.
I mean, we've now been running the IFRS 17 environment for quite some time. I'd say that we start to get a bit more familiar with how it works and some of the key drivers within it. I suspect there's still quite a bit more learning to be done before we get to the publication points in 2023. Here, mainly because of the way that CSM works, and the risk that we start to import significant volatility into the life result, I want us to be more conservative around some of the key assumptions in life just to reduce that risk to an acceptable level. I think we're trying to be prudent today rather than to reflect a particularly negative view of our life business. We don't have that. On the cash side of things.
Sorry.
Sorry, go ahead.
Yeah, no. Okay. Sorry, I was about to address the cash. Sorry.
On the cash, I don't expect it to have a significant impact on cash. I mean, what we've done is, it's not tiny, but given the period over which this impacts local statutory performance, you won't see this have any meaningful impact on cash.
To be clear, there's no impact on IFRS 4. Well, I guess we've got Q4 or the second half 2021 and full year 2022. There's no impact on that?
No, there's no impact. I mean, the key issue here, without getting into a long lecture on IFRS 17.
Yeah, please don't.
I mean, IFRS 4 is. Maybe you look at, let's call it significant groupings of individual contracts to construct portfolios, and you look at headroom across the entire portfolio. IFRS 17 changes the approach to that. It means you're just at more risk of volatility around some of the longer term assumptions in a way that you wouldn't recognize in IFRS 4, because you'd have positive headroom from other parts of the portfolio that would offset. I mean, that's the motivation for today. You won't see it in IFRS 4.
Can I cheekily ask, back to the non-life underwriting question? Are you suggesting? Clearly it's not been possible to offset all of the additional CAT. I get that, but are you suggesting we shouldn't necessarily assume a bottom line impact of all the additional CAT? Do you see what I mean? I think you were willing to give color around that back in Q1, I think.
Yeah. I would summarize it exactly as you have just done. I don't expect to offset all of it, but given the improvement we're seeing, I expect to absorb some of it.
Okay. Excellent. Thank you.
The next question comes from Will Hardcastle from UBS. Please go ahead.
Good afternoon, everyone. Just the first one is just a clarification on that CAT losses year to date. So you're running three to four points above. I'm just trying to understand, is that for the nine months run rate, or that's what you're saying for the full year? Just linked with that, I guess how far through the aggregate protection are you at nine months? Is there any color you can provide on that? Then the second question, just thinking about, you know, clearly very good about the rate exceeding loss cost inflation for longer. I guess just whilst we're talking about inflation within that, is there any early signs of any emergence quarter-over-quarter? I think it was fairly sanguine at the half year. Just if anything's caught your attention quarter-over-quarter that's noteworthy. Thanks.
Yeah, thanks, Will. The three to four points is year to date. I guess without making any forecast for Q4, we've had a reasonably quiet quarter so far. In general, Q4 is one of the quieter quarters in the year. On the aggregate, I think I mentioned this to you guys earlier in September. I mean, given the number of losses, I suspected back in September that we would go through the aggregate. You can imagine, given the numbers that we've had, that we have. CAT aggregate at this point is exhausted. Having said that, all of the regional CAT towers are currently untouched. The group still has significant protection against severity. On the inflation topic.
It depends whether we're talking inflation in the traditional sense or inflation in the social inflation sense. Maybe I'll cover both. I think in the traditional sense of the CPI topic, I mean, actually where we see it, I mean, point where we spend more time on it is actually in a bit of a competition for talent. In some of our markets, we're seeing quite a bit of demand. We've got a good team. They tend to be attractive to other organizations. We've had to work hard to try and make sure that we hang on to them. We've certainly seen some impacts of inflation from that competitive aspect. I mean, otherwise, on the traditional inflation side, it hasn't shown up in a particularly significant way.
I mean, there's certainly some of it already in Texas Freeze. We talked about that at the half year. I mean, we don't see significant evidence that it's having a continuing impact on the portfolio. For the time being, inflation, despite the headlines, for example, from last night, is manageable for us. On the social inflation side of things, reality is that courts, particularly in the U.S., are still reasonably quiet. We haven't seen the throughputs that we might have expected. I mean, the most recent work we've done on underwriting, I mean, that leads to no significant change in the loss cost assumptions that we had before. We're still in that 5%-5.5% type range if we're focused on the U.S.
Thanks, George. Just as a follow up on Q4, I guess you're saying they're typically quieter because it's not the classic U.S. hurricane period. Is that right? Obviously, we can get CAT losses in Q4, but how much right? I'm thinking, you know, is it well below that sort of long term average for the annual run rate? Is that the message normally?
Yes. You can definitely get CAT losses in Q4. If you're as old as me, you'll remember some of them. I guess the point I was making. As you say, it tends to be a lighter quarter than certainly than Q4, for example. I guess the point I was just making was that so far, albeit we still have another half of the quarter to run, it's been reasonably quiet.
Okay. Thanks.
The next question comes from William Hawkins from KBW. Please go ahead.
Hi. Thanks, George. Andrew stole my thunder. I'd kind of echo his question and implied comment about this technical profitability statement. Can I just clarify, your answer was helpful, but I'd like to just understand the why. I mean, you were very clear saying, you know, you've taken more Nat Cats, but hopefully some, but not all of this will be absorbed by the underlying experience. What exactly is the underlying experience? Is it kind of one-off in nature or something that's sustainable? 'Cause the bigger picture that you are giving us is, you know, there's no major change in your rating commentary relative to June. My guess would be, if anything, inflation is a bit worse rather than a bit better. To the extent that you are absorbing some of these Nat Cats, what is enabling you to do that?
I don't know, it could, for example, just be timing issues that you've decided to be more optimistic in your initial loss picks, but it may be something more fundamental. Secondly, please, when you're talking about the rating outlook, a lot of what I'm hearing from you is kind of that kind of term stronger for longer. You're talking about the good news lasting for longer. What do you actually think about the good news in itself? Because as you said, we have seen the U.S. rate increases fading slightly. So is it your expectation that they continue to fade or remain at this level, but just we should take the clock out longer? Or are you actually optimistic that maybe rates could tick up again given the pressure that people are seeing?
Lastly, please, just to check, I think you may have just alluded to this, but I wanted to check. I've had a rule of thumb from you in my mind at the group level that we've got about 8% rate increases, about 5% claims inflation, so the net benefit to the attritional loss ratio per year is about 3 points. If that understanding has been correct, is that sort of still where we are, or do you want to nuance the 8 - 5 = 3?
Thanks, Will. On the first one, I guess what I would say is that I'm a cautious person. I think I tend to have a more conservative outlook of what might happen with price than certainly recent experience would have taught us to expect. I guess what makes sense in the answer to Andrew, we're getting more price than I expected we would when I commented back at the half year. Which I guess connects to the second question about rate outlook. I expect it to moderate. I mean, to be honest, I know I made a comment on the Q2 call that this environment seemed to be lasting for longer than certainly I expected. I had an investor criticize me for potentially talking down the market.
I'm not trying to talk down the market. I don't want us to be optimistic about where pricing is headed. The one thing that's absolutely crystal clear is that this thing has sustained itself for much longer than certainly I would have expected. That additional benefit that it brings us will help us deal with that Nat Cat topic that we covered earlier. I do expect it to moderate. I mean, the comment I would make today, I mean, given where we are currently, I mean, I would expect us still to be positive on price versus loss cost trends through most, if not all of next year.
That would push the point at which we would hit peak or low. I'm not sure what the right characterization would be, but the strongest outcome for underwriting margin. It would push that somewhere into 2023 at this point. On your rule of thumb, I mean, it's not bad. I think the only thing that I might recommend. I think 5% overall on the inflation side is probably higher than I would have had in my very simple rule of thumb. It's not gonna be very far away.
Thank you, George. That's helpful.
You're welcome.
The next question comes from Vinit Malhotra from Mediobanca. Please go ahead.
Yes, good afternoon, George. Thank you. So my two questions, both on the non-life side. Just coming back to the Hurricane Ida CAT loss of $450 million, you said. I mean, I would have guessed it would have been lower because many of the peer group we can see were somewhat in line with the three hurricanes individually in 2017. This $450 million feels a bit higher. Also given that it might have some aggregate cover benefit, I'm not sure again. If you could just comment a bit about, is this $450 million a bit higher or anything that you can add to that, please would be helpful.
Second thing is, BI litigation is now a sort of happily forgotten topic or at least favorably emerging topic, compared to six, or eight, or nine months ago. Is there any room you think for reserved PYD movement, given that we have seen several favorable outcomes on litigation BI in the U.S. mainly? Could that be somewhat helpful also in this very busy CAT year from a PYD perspective? Thank you.
Thanks, Vinit. It's slightly hard to compare things to the peer group. I mean, we do a regular update to leadership here around what we see in the peer group. I mean, certainly year to date, what we've seen from the U.S. peers, we don't think we are out of line compared to others. We would see ourselves as about midpoint on the effects so far. I mean, it doesn't make a difference on how we manage the topic, but certainly compared to U.S. peers, we don't see ourselves as an outlier. On the BI litigation topic. I think in the U.S., I don't expect the U.S. outcomes to lead to changes.
I mean, from a very early stage, we've established reserves for the claims that we knew we would have to cover. We've had pretty good success. The industry has generally on the motion to dismiss approach. I don't really expect that to change, given how far we now are through the process. If you look at the remainder of what's out there, I mean, the U.K. continues to bundle along. I mean, there's a couple of topics that are being tested in the U.K. currently. I mean, you'll appreciate I can't speak to any of them specifically other than to say that, I mean, we feel comfortable with how we are reserved around the U.K. topics. I mean, the one place that has produced a particularly positive outcome is Australia.
We saw a ruling in the appeal court in Australia a few weeks back that was heavily favorable for the insurers. That's currently being appealed this month. I don't remember precisely when we'll hear the outcome. If that stands up on appeal, I mean, that does offer a modest potential positive for us. I mean, the reality is that on the BI litigation topic, actually, to the extent we're successful, most of the benefits probably flow to reinsurers. In the context of Australia, we would also keep some of that. We'll wait for the appeal process to complete before we reach re-provision.
All right. Thanks a lot for your help then.
The next question comes from James Shuck from Citi. Please go ahead.
Hi. Thank you. Good afternoon, George. So a couple of questions. On Farmers, just looking at the growth in premium income posted at nine months. A like-for-like basis is up 7%, but the like-for-like basis on fee income is only up 1%. There seems to be a slowdown in management fees certainly at the headline level. I think you're running at 7% plus 17% at H1, and that declines to 13% at nine months. If there's any insight into what's happening there, please be helpful. Secondly, just more broadly, I mean, we have a lot of focus on U.S. commercial lines and the rate outlook. Just keen to get your thoughts on commercial lines, particularly in the EMEA region.
Whether we're starting to see signs of hardening market beyond the U.S. and some of the factors that are affecting that, please. Thank you.
All right. Thanks, James. On the Farmers topic, I think there are two key topics that bridge between the two issues. What we've reported today is GWP. Of course the driver eventually is the earned premium, because that's the input into the fee calculation. It's also impacted by the fact we've got some costs running through on the restructuring side related to the MetLife P&C acquisition. Those costs will probably still run through most of next year. As we get into the back end of next year, you'll start to see not only the 7% margin you expect to see on the original Farmers business, but also a 7% margin on the acquired MetLife P&C business.
I think the reason why you then see this delta between first half and second half, in the first half of the year, some of the Farmers growth is driven by the absence of the rebates that were provided, when the lockdown started, and that also distorts, what we then earn by way of the first half and second half. I mean, the good news on Farmers is that, I mean, we have growth, in the underlying Farmers portfolio. The MetLife P&C acquisition goes very well. Our rollouts, of the approved Met products, into the exclusive agent channel and in fact the rollout of that into the independent agent channel, where essentially the exchanges now offer for the first time a standard product rather than non-standard product, has had very high take up.
I mean, albeit we've only had a few months, the revenue trends that both we and the exchanges see have certainly exceeded the expectations that we had at the point that we struck the deal. On commercial, you're right, I mean, we do tend to focus more on the U.S. market just because there are so many external sources of perspective on price. If you look at Europe, which means the U.K. especially when it comes to commercial, again, it has been very strong. It's also started to moderate in Q3. Again, we're not seeing a significant drop off. I think you'll see a gradual decline over the course of the end of this year and well into next year.
If you look at commercial beyond the U.K., so I mean, it never really saw the run up in rates that you saw in the U.S. and U.K. markets. One of the things that we've been trying to do internally is address the issue of U.S. liability written out of continental Europe, which of course should attract the same pricing trends as we've seen for the risks written directly. That's been tougher in the market in continental Europe, a bit less support for it. The one last positive thing I'd probably draw out is, I mean, trends in Germany have been good more recently. It's still U.K., U.S. are the dominant factors in those trends.
That's great. Thank you very much. George.
The next question comes from Thomas Fossard from HSBC. Please go ahead.
Yes, good afternoon. Two questions. The first one would be on the dividend outlook. I appreciate it's still pretty early and the year is not over yet. Any comment, George, that you would like to make in light of the CAT load environment and yeah, the profitability of the group so far and the growth as well that you expect to report this year and next year in terms of premium growth. Yeah, how should we factor all these elements in your thinking regarding the dividend? Second question will be related to the inflation topic and more specifically on wages pressure maybe in the U.S. I know that your workers' compensation book is excess layer.
Maybe you're a bit more insulated to any things happening on this side. At what kind of level of wage increases you would be less comfortable regarding the profitability of your workers' compensation book? Thank you.
Thanks. Thanks, Thomas. I was joking with Mario before we started that before the Q&A was over, I would have covered my entire presentation for the investor update, which is now a real risk because I think you're rounding out the last pieces of it. I will do something that's a bit more detailed next week around the dividend topic. I think today I did want to reiterate the commitment that we've made to investors. We've got an earnings target through to the end of next year. As you've heard today, we fully expect to achieve that. It's important to us that investors benefit in the same way.
While I can't comment on the dividend decisions we're gonna make for the end of this year and signing off for the end of next year, I would expect dividends to track those commitments. On the CAT topic, I mean, I'll repeat what we said previously. I mean, unless there's something about the CATs that change our outlook, and again, in my opinion, there is not, we will look through these events when it comes to making recommendations to the board and to shareholders on dividends. If you look at the history of the last few years, I mean, we've had periods when the effective payout has been above 75% and periods when it's been below.
That's kind of what you need to expect, given that we can't eliminate all the volatility, even if we want to try and make sure that it's pretty tightly controlled. If you bear with me and you have time next week, I will comment a bit more specifically on this issue. On the wage pressure topics, are there, I.. Sorry, mate. Growth. What was the question on growth, Thomas?
Dividend.
Oh, growth and the dividend. Yeah.
Yeah. No, growth impacting the dividend.
Okay. You mean, capital utilization.
Yeah.
Impacting dividend?
I think this was the question.
All right. Not a concern for me. I mean, we're looking at the plan through to 2023. We were looking at how much organic capital we expect to generate, and we were looking at how much growth we expect to generate and therefore use of that organic capital. Even if we have more significant growth rates in the plan than you might be accustomed to, given Zurich's history, we are still not using all of the organic capital that we generate. The growth in business is not constrained by dividend, and dividend will certainly not be constrained by what we do on growth. On the wage pressure topic. Again, I'm gonna touch on inflation next week because it's obviously an important topic.
I mean, wage inflation because of how it plays into the cost of living adjustment and workers' comp and because of the way that workers' comp benefits are structured, that all combined with the point that you made about the high deductible nature of what we do, I don't expect this to be a significant issue for us. I mean, in essence, we end up with a reasonably. I mean, again, I'll quantify it more precisely next week, but a very significant part of our portfolio ends up being more of a catastrophic type cover for major injury and other types of very significant workers' comp claim, rather than the run-of-the-mill slip, fall, injury stuff that is mainly actually covered by our clients.
The wage increase topic doesn't appear to be, it certainly hasn't traditionally been a major issue for us. I mean, if you look at what we've got, because of the nature of what we end up covering, medical cost inflation is ordinarily the much more important driver of our outcome.
Excellent. Thanks a lot, and see you next week.
See you next week. Yeah. If you haven't already recognized it, the Group CEO, Mario Greco, is also in the room with us.
Sorry.
As a reminder, if you wish to register for a question, please press star and one. We have a follow-up question from Michael Huttner from Berenberg. Please go ahead.
Fantastic. Thank you so much. I was just asking for maybe in terms of the CEO will answer an update on deal appetite and I think George at our south side kind of group virtual meeting you kind of spoke a little bit and I think we asked about Australia. The other question is it's really very geeky. The natural catastrophes what impact do they have on cash remittances you know either the timing or the amount? That's all. Thank you.
Yeah. Okay. The man on my left is shaking his head, so he's gonna decline the opportunity to answer your question.
Sorry, Michael.
I mean, no change, Michael. I mean, I think I mean, obviously, we're focused on doing the things that were part of the priorities that we set out at the end of 2019. I mean, you'll remember that none of those priorities were M&A. I mean, we have the luxury that we have a very strong balance sheet. If the right thing comes along at the right time, at the right price, then we have the flexibility to take a look and decide whether it makes sense. But it's not a major theme for us. On the cap-
You did mention-
I'm sorry.
We did discuss, I don't know if you mentioned, I probably mentioned, you probably didn't. You know, there was a story, I don't know where it came from, that Zurich was looking to sell bits of business to any operations.
Yeah, I think that was you rather than me.
Probably. I think it was actually Reuters. I don't think I made it up completely.
Which I'm sure you didn't, but as you can see, I'm not gonna comment on that type of rumor. Second part, the second issue, I think, was the impact on cash remittance. I mean, we give an update at the half year of what we expected. I mean, this will sound slightly odd, but it is what it is. I mean, given the flexibility that we have in the cash remittance plan, I don't expect to significantly deviate from that. Now, I know that some of you will be thinking that, "Well, what about the impacts as we move into the early part of next year? Does it have an impact on dividends that we declare then?" I mean, we've just been through the detailed planning process.
We think we have got a pretty good line of sight to what the cash flow should be up from the businesses next year, even allowing for the events that we've seen. We're highly confident that we're gonna deliver the cash remittance commitment that we've made.
Brilliant. Thank you.
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