Ladies and gentlemen, welcome to the Swedish Insurance Group Q3 Results 2020 Conference Call. I am Ansanu, the co facilitator. 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 and A session. Conference must not be recorded for publication or broadcast.
At this time, it is my pleasure to hand over to Mr. Richard Burden, Head of Investor Relations and Rating Agency Management. Please go ahead, sir. Good morning and good afternoon, everybody. Welcome to Zurich Insurance Group's Q1 2020 Q and A Call.
On the call today is our Group CEO, Mario Greco and our Group CFO, George Quinn. As usual, for the Q and A session, we kindly ask you to keep to a maximum of 2 questions. But before we start the Q and A, as usual with the Q3, George will make a few introductory remarks before going on to your questions. George, I pass over to you. Yes.
Thanks, Richard. And good afternoon, good morning to everyone. Over the Q3, and the group overall has successfully managed, I mean, what has been a series of unprecedented challenges related to COVID-nineteen. Not only that, but a global recession and of course, a record number of hurricanes making landfall in the U. A.
We've continued to deliver strong growth in profit and casualty, driven by Commercial Insurance, but we've also seen our life business return to growth in Q3. In the P and C business pricing momentum in commercial remains strong both in North America and in other regions. And we expect this to continue through the remainder of this year and into next, which will support further improvement of the underlying accident year loss ratios. Our balance sheet remains very strong with conservatively calibrated ZECN solvency returning to the midpoint of the 100% to 120% target range. And over time, we think that HCM has served us well informed our decision to move away from interest rate sensitive life business already over a decade ago.
Having said that, the high level of calibration and conservative assumptions that underpin the model, I think we believe, cause unnecessary uncertainty. Therefore, we intend to change reporting from the Q4 to focus on the Swiss solvency cash ratio. It's obviously still conservative, but it's much more aligned to metrics that you see reported back to us. From the COVID-nineteen perspective, you'll have seen already today that we've reported claims met with the associated frequency benefits at an unchanged level since the end of the first half at $450,000,000 And I think as you know from entering the crisis, we worked hard to further clarify wordings, the quality is new and today I'm happy and I'm confident that we only have limited exposure to any new developments from the pandemic. The combination of a flexible and resilient business model and the increasingly evident transfer of higher commercial pricing gives me great confidence that will emerge strongly from this year's disruption and gain strong division to take advantage of new opportunities as they present themselves.
I'm now happy to take questions. We will now begin the question and answer session. The first question comes from John Hockington from Morgan Stanley. Please go ahead. Thank you.
Good afternoon, everyone. I'll have some two questions, please. Looking at the rate momentum, particularly in North America business, can you give a little bit of color in terms of what you're seeing for 3Q and Q2 and how that might be impacted by the types of mines that you'll see renewals in ABC quarters? That's the first question. And then secondly, on Farmers, obviously, the top line has been impacted by what's been going on in the world and also the rebates.
How often are you that once we get through this difficult period and we're going to see the top line go back to normal growth trends at the time? Thank you. Thanks, John. So on P and C, you see the overall headline numbers today and things have not slowed down in Q3. If you look at the key commercial markets, which are the main drivers for us.
And I think that North America in the overall picture would be, I think, pretty much exactly the same thing to the 1st decimal point. Within that, there's been a EBITDA movement. So you see property is we see property at roughly the same level. We would say that liability is actually progressively stronger again in the rate environment in Q3 compared to Q2. Motor slightly down compared to Q2, but obviously, poverty and liability dominates the book.
We started by just to continue. You've seen some of it come through the top line in the course of this year, obviously not a huge amount yet. You'll see more of them next year. And I think if we look at the growth rates that we're reporting today and we look at the plans that we have for next year, I mean, you will see a pickup in growth. I guess, head back at the half year that I mean, with currency, we thought that maybe the headline number would be flat through the year, maybe around the line up to I think we're going to be much stronger than that before we get to the end of the year.
And we'll be stronger than that again next year. On Pharma's, I mean, it's clearly got work to be done. Can you tell the impact? You cut out if you gave us all the special. Yes.
Sorry. So I was just saying that I mean, there are 2 more points related topics in the Pharma's number. Which is the return of frequency benefit is the impact of the commercial rate share. I mean, they are fulfilling rate at a lower level than we've seen in prior years, so that will have some confidence on it. Remaining focus both at the exchange and in the conversations that we have with them is try to draw that policy plan footprint because that's crucial for growth on this year.
I mean, we've seen some early positive earnings over the course of the last couple of months. I think obviously way too early to declare victory. But if that policy gains growth, property that we're completely focused on working through the management companies to try and support this change and delivering that. But farmers have more work to do. Next question comes from Andrew Ritchie from Autonomous.
Please go ahead. Hi there, George. A question, obviously, I'm aware of the large losses in Q3, but I wonder if you could just give us a commentary on the underlying more attritional loss type trend you're seeing. I mean, you strengthened slightly from the loss picks on liability in the U. S.
In the first half. I just wonder, I mean, it's hard to judge what's going on in the underlying loss environment. Do you have any updated view on underlying loss trends in some sensitive areas? And again whether indeed pricing is still for sure of any loss trend? That's the first question.
The second question is on a life outlook. There was a degree of confidence expressing a sort of recovery in profitability in the second half, at the half year, what's your latest thoughts on that? I mean, in particular, I guess, one area that's come to light additionally since the first half is Australia disability income and then it doesn't impact your outlook in that business? Yes. So I think on the just starting with what we've seen, Charlie, in terms of clinical profitability, I mean, trends ex COVID, ex CAT are very similar to the ones we saw in the first half of the year.
I mean, you obviously saw that improvement and we're seeing that significant price trend net of the impact of loss cost inflation and that feeds into our underlying performance. So when we get to the end of the year, I would expect to report a fair numbers and it would be completely in line with the commentary you're hearing around price. On what those trends, I mean, our view is not different today. I mean, it can bump around a bit, I mean, overall from a pricing perspective, obviously, within the loss cost elements we add into pricing, if we look on a basis. But we think it's more consistent with the U.
S. Peers. I mean, we see it around 5. And if I gave some commentary at the half. Of course, there's a wide range of actual assumptions underlying the business with excess GAO being the standard.
And I think from all the reviews that we've done, I think we're happy that what we've done is the social inflation trends. On the life outlook, recovery profitability. So we said before that the second half, there's actually second half weighted principally because of what we're doing in Australia. That continues to be true. So we haven't seen anything in the Australia market that is different from what we've expected.
And in fact, I'd say that if you're quite young, I think if you get off a computer, how do we see things today to how we saw them in the first half? I mean, we're now through a round of price change on the BI market. We've seen some, again, over the recent months, some good performance in the business following that. You will see an uptick of what we've indicated in the 30 half and that's significant contribution from the Australian Loews business, mainly because of what we do to be present. It obviously helps the entire market is doing the same thing.
So I mean, it creates a very positive trend. And my guess at this stage is that probably that trend of increasing prices is not over yet on the PI side of the Australian life market. The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead. Thanks very much.
I had 2 on the Z ECM, please. I mean, the first one, I mean, you've always been very clear on your target range under the ZECM ratio. I mean, now you're moving to SST being the primary reporting metric. I guess the obvious question is what's the target range you have in mind there? How should we sort of think about that?
And then the second question is, I understand there were some modeling changes this quarter to get you to post up to the sort of FMC framework. Just wanted to quantify what the sort of model changes was on the 37 months you reported this quarter? Thank you. Yes. Thanks, Peter.
So on the first one, if you allow it will come with the target range in February when we switched to SSC. We have done the work to try and calibrate it in a way that we think is consistent with what we do on the ADCM. We've also looked at what other people do in terms of the ranges they give. I don't think it's going to surprise anyone. I think the range will be very familiar when you compare it to what you would typically see from similar players in the European context.
And that's something that's formally going forward in February. From a more than change perspective, I mean, really what I'm saying, first of all, is that the vast majority of the change that we've seen on the EDPM is driven by market related movements in the quarter. Obviously, credit and equity generally been very positive and maybe slight offset, post fall accounting of interest rates. There are 2 relatively small adjustments we've made. One is around how we live it and kind of preserving for one life with net debt resistant between Medi Centimeters and SST.
And there's also a small update on the life replicated portfolio in the quarter. But the vast bulk of the change is also in that market, which I think is what you do spend. Great. Thank you. I think your main European target ranges.
I mean, it's probably a lot you can say on that, but I guess It's a good point. I think there's only so much that we can do to make the thing comparable. I mean, when I get through the social the full CS form, if you do exercise and it's not relevant for us anyway because of it's never actually switched from once. And I guess if we were very mathematically to say, you would end up with a different target range if you were trying to be conservative with European peers talking to SSP as a weaker more conservative measure of solvency. Having said that, I think that would be confusing for people to take that.
So it would be our intention and trying to accept the fact that this particular model is more conservative. I think most people they know as well and standing of roughly the range of conservatism that's in there. But we'll reflect the target range is pretty consistent with what you'll see from another period. So again, we won't surprise you by, say, bringing a lower target range because I think it's more conservative. We won't do that.
We'll stay consistent with the others. The next question comes from Anit Baruque from JBC. Please go ahead. Yes. Hi.
Thank you very much for taking your while. Just on the WCM, you're still going to be obviously using it internally to drive your economic thinking. But I'm not telling us what the number is. You know, we'll get less frightened when the thing falls below 100 and start asking questions on calls and stuff. So it does give you more leeway in the public sphere to do things that you might not otherwise do.
And the one hope really would be interest rate risk and asset risk. Just wondering if you could comment on that, whether that's something that in my view would be a good thing to align you with others. What are your thoughts on being at that leeway? And then secondly, on kind of underlying combined ratio picture. So if we take the first of 4.50 net, which clearly hasn't changed since 1H.
So you're kind of running at a 96% combined ratio in the first half, I'm guessing, with some additional kind of deserving. Just wondering what your thoughts are on underlying combined ratio? And then if we start thinking about next year, I mean, the numbers are astronomical here in terms of claim inflation versus the pricing versus mix change, just not the big numbers. If you could give us some thoughts to help people on modeling, that would be great on the underlying combined ratio, that's 1 in 'twenty one? Thank you.
Okay. So thanks. So on the Z ECN topic, I think, I mean, again, we'll do more than February. So we'll bring forward a better view of the target capital ranges. I mentioned earlier to Peter that we do expect that to be very much in line with what we've seen elsewhere.
We've had some significant conversations We've got a couple places where you see them somehow in the background, but showing it to you. And I think the way we're agreed to do this is that I mean, as a team will become fine measure for the company. So it will be more consistent. I mean for the reasons that you're all well aware of, I want to get the time consistent with the film and computer partners, but it's I think it's good enough for government wise. The thing to bear in mind though is that, I mean, we have a number of corporate finance measures that we need to manage day in, day out.
So even though we don't talk about S and P, a great deal today, it's obviously a single thing about a lot. We've got administrative liquidity models. We've got other capital models. All of these things have to be factored into the decision making. I think also, I mean, you can think of that as something that was kind of debentures and we all adopted it.
I think, I mean, obviously, it makes far more sense of history of railway loans. I mean, ZECM was a a development of particularly the way the company and the people who run the company think about risk. And even if we don't get Z ECM in the future, I don't think you'll see any significant change in how we perceive certain types of risk. And I think it's safer on the interest rate topic. That decision that we talked about a lot about 10 years ago, in fact more already to deprioritize the more interest sensitive JMP product.
I mean I wasn't around, but I'd be surprised if it was only for ECM that drove back to say, I think it's the sinking of the people around the table. If you take Z ECM over the next, I don't think it changes the perceptions that most of the key management team have at risk and how we should deploy our capital. But we will use SSP as the plan measure going forward. On the on what's happening underlying, I mean, it's actually an easier conversation to have in February because I'm going to use and from Andrew's comment earlier, I actually show you some numbers. I can show you the improvement.
And we can talk about what that means when you then roll that forward into next year. But I mean we expect to see a significant continuing improvement in clinical profitability. Margin improvement, a difference between the headline price and the underlying loss cost inflation is obviously more insufficient to offset other factors, for example, lower interest rates. What we do expect to see a continued improvement in the overall economics of the commercial part of our P and C business. But if you need it, we can do that in detail when you come back next year.
I think and to give you one jumping off point, I mean, I did talk at the past year call that when we saw that 710ths of a combined ratio or loss ratio improvement. If you take out the excess cash and COVID and other things, so we've thought ourselves towards the bottom end of the 95% to 96% range. And we expect that that will improve again before the end of the year. And that gives us a starting point for next year, which we expect to improve upon for that. Two questions on P&P.
The first one is, you've got brilliant rate rises this year. But what you know, listen to next year, do you think premium growth will begin to match rate rises? If I look at the jaws between rates and P and C growth, the jaws actually seem to be widening as the year goes on. So any thoughts on that for next year? And the second question is just on credit claims.
How is your confidence in your estimates? So has it changed over the year? Are you more confident now? Do you have any numbers on how the pricing on market rate is expected to be better than maybe how much maybe for the year to come up? Thank you.
Yes. Okay. So on the first one, if you allow for the time, I mean, the figures I gave earlier, I mentioned the 2018 2016 for commercial in U. S. And in Europe.
If you're low for the fact that commercial is about half of the book overall, you're low for the underlying loss cost situation, and that means you'll see about half of the headline number come through as growth. We're all starting to see a much higher cost rate this year. I would allow for us to do things around the portfolio to try and improve some of the characteristics. Some of the things we talked about really before, is, for example, from a credit perspective, this feels like a good point at which I think about starting to reign in capacity. So I don't think you'll see precisely 50% of the headline number, but you'll see it get much closer next year.
So you should see a significant growth rate in the P and C business overall, in terms of far more significant than this initiative. COVID claims, so I think there's a I guess the psychological thing in the end of the COVID-nineteen outbreak around, I mean, can you feel incredibly confident? And then there's a mathematical thing. We've been running this process since around March. And the components have moved around a bit, but the totality of what we reported, I mean, hasn't changed significantly.
We've reported today that the net number is in the same territory. We've looked at the risks that we have from what's taking place now in Europe and whether that might drive, I mean, the possibility of another significant loss. And when we run the models, we don't see that outcome. And of course, that's a combination of the exact circumstances of what's taking place now. But actually, more importantly, the fact that in some of the things that gave rise to claims before, I mean, the limits are exhausted or the contracts are renewed on a different basis.
So I mean, it's not that we have 0 additional risk. But when I look at what the scenarios tell me, I mean, maybe we should have a large property loss equivalent. So I wouldn't say that we don't pay attention to it and we're not careful, it's not a major source of concern for us. I mean, we think that we have the COVID topic and more or less actually behind it at this stage. And from an IBNR perspective, I think you said it's a half year that half of an IBNR, hour.
Believe or not, that continues to be true today. Hi there. Thank you very much. Two questions. The first is with business interruption.
Do you have any concerns left about legal rulings or do you think we can now basically draw a line under that issue? And secondly, with the dividend, is there any concern you have that the Swiss regulator might try to copy the French and Italian and become a little bit stricter? Thanks very much. Thanks, Nick. So on the BI so risk is adverse legal ruling certificate.
If we look at all the exposures that are out there, I don't think that we have a view that we have any particular material there. I mean, certainly, there's always a risk in one particular action or in one particular court case, you can lose. But I mean, the trends that we've seen are technically fairly favorable for the insurers. And if you look at, I mean, the U. S.
As an example, I mean, the wording, the exclusions have generally held up well there. I think SBA in London has been the exception so far, although I would point out that certainly on our own wording and our position is upheld. So I wouldn't be surprised if along the way and by along the way I mean probably over the next year or even longer, we do from time to time see something go against that Azuric or the industry at large. From what we can see in terms of what that would mean financially, there's nothing that's particularly troubling me at this point. I think we have a good estimate.
We certainly have some residual risk, but the residual risk is a very small proportion of what we've seen in the first wave. So I guess, I'm confident as you can be around something that you don't control when you're at a legal prospect. And from a dividend sorry, Nick. So from a dividend perspective, I mean, I think just from a general regulatory perspective, I mean, I think we benefited from the fact that FEMMA took a facts and circumstances approach to the payment of dividends last year. So Tim asked that all the facts institutions, including these companies, take a look at the scare scenarios and form the view of those risks prior to the payment of dividends.
So I mean we did that, but you've already seen that that led to the same decision as the one that was taken initially. I mean, I'd be confident that FINMA is likely to do something, although I mean, it will probably depend on the circumstances that we find ourselves in, in January February of next year. But I mean, the most important thing that we can do is make sure the company is well capitalized, make sure that we've got the cash in the right places, make sure we deliver the performance underlying that we've committed to. And I think at that point, we've done everything that we can. I think the positive thing is that I mean, FINDA has demonstrated that a pretty consistent organization.
We have conducted stress tests over the course of the year. So I think we're well informed in terms of where the industry stands and where the individual companies stand. So while I can't tie their hands, and I'm very confident that we'll continue to look at it case by case rather than take care. A very broad brush approach, which for me, personal doesn't make sense. That's great.
That's great. Thanks very much. The next question comes from Denise Manosa from Bank of America. Please go ahead. Yes, good afternoon to answer.
My two questions. The first one would be, just looking at the same figures in LatAm, there is a question for me that in the life we saw what would be a 22% growth. And in more life we still see compression and in life I mean in non recognition the mark consumer business. If you could just comment on what you're seeing in the LatAm business? First question, please.
Second question is, with the pickup in U. S. Tenure, the reinvestment really produced quite as an update. Do you think this is going to be a topic for next year's pricing or a few levels in this sense that we can going out to? Yes.
Thanks, Puneet. So I think in LatAm, it's okay. We're in different channels, so that has some impact. So the life growth that you've seen has been driven by a very strong recovery from the joint venture of Santander. So I think between the Zurich team and the Santander team and the various companies there, they've done a great job in finding ways to bring that growth back.
It's not the first time we've seen that from them. So I'm not surprised that they've again demonstrated a really superior sales capacity. I think the challenge on the P and C side is, I mean, we're more maximum human. It's typically not it's not always linked to the same things that cause you to interact in a branch or with a bank cash machine where you can actually buy actually through Santander products in Latin America. And it's typically much more connected to mass consumer brand white bag sales.
I think that's been a bit harder to try and find ways to bring back. I mean, from what we see the partners do, I think, mutual confidence, you start to see that growth coming back. It's just taking a bit longer. And I think the circumstances for the retailers is it may be slowing more charging than it has been for the banks. I think that's part of why you see this the slight lag on the P and C side versus what I said.
On the 10 year rates, so obviously the increase in the 10 years, it's a relatively recent phenomenon. So we haven't tried to update the numbers this week to precisely model what the impact of that is going to be. I mean, obviously, I can see the reinvestment rates that we've run at in the P and C business through Q3. And I think year to date, it hasn't really changed the picture significantly from what you saw for the half year. And I think I think the point that we're not a highly interest rate sensitive business.
So if we do see in the U. S. Market interest rates pop up, I mean that does allow some room to, in fact, a slightly lower technical margin, but yet achieve the same overall economics. I think in my experience, there's definitely a bit of a lag. So I think actually if we see a sustained pickup in the 10 year, there's probably a period where that actually gives a bigger benefit to the insurance.
But it won't last forever and the market will eventually correct. But if we do see a sustained pickup, I think that will actually work in our favor in the short term. And from a longer term perspective, I don't think it changes that much. The key drivers are the other things we've discussed at this point. The next question comes from Edward Morris from JPMorgan.
Please go ahead. Hi everyone. Thank you for taking my question. The first one just relates to the targets that you outlined around the year ago, the impact of the day, I think, first of all, this year hasn't quite turned out as expected. So I just wondered if you could update on how you're thinking about these targets over the 2020 to 2022 period.
Your ROE, cash remittances, EPS growth. It should be really recalibrating our expectations around 2023 now. And I'm just interested in your ability to deliver them for next year and then in 2022? And then second question, I mean, thank you. You've already given quite comments on how you think the regulator will think about the dividend.
I wonder if you could just provide a few more thoughts on your own view of the prospects for dividend growth this year. Obviously, earnings are a little lower than maybe expected. I'm conscious that Swiss francs means that the dollar cost of your dividend has increased this year. And some of the commodities in the sector are going to be margin towards having a flat dividend. So I just wondered if you could have any thoughts on how you're likely to push that decision later on?
Thank you. Yes. Thanks, Edward. So I think on the targets, in the last target cycle, it was really important to us that every single year, we take all the boxes on the targets. When we set the targets last time, I think one of the targets, which was the EPS growth, I mean, I think that was always something you had to measure over the course of the 3 year period.
So we certainly had the same aspiration around ROE and instrument. Now of course, as you point out, this is a year that we did not anticipate. I guess no one did. Having said that, we said at the half year that our expectation is that through the course of the 3 years period, we can deliver the targets that we've committed to. That's ROE, that's cash and remittance and that's the share growth that we introduced just over a year ago.
Just about a year ago. So as I think of next year, and I'm not going to try and qualify them all. I think on the ROE side of things, I expect a significant bounce back. I don't necessarily anticipate at this stage that the pandemic topics continue to have a significant impact in the next year other than the change in the expectation of what's going to drive the group's performance, I. E.
Something that's maybe a bit more a bit less retail oriented and a bit more commercially driven. From a cash and written perspective, I guess it's pretty clear that there's going to be the low run rate this year. And we may see at the very start of the year, there will still be some impacts from financial markets related to COVID or actual COVID claims. But over the course of the year, I'd expect to start to see a comeback in line with the run rate. And I mean, we've been looking at it very recently.
So our expectation is that by the end of the 2 year period, we will achieve at least the commitment we've made of €11,500,000,000 of cash commitments. Earnings growth, obviously, this year is going to be significantly disturbed. It takes a new basis into next year. So I'm not going to make any promise. All things being equal, you're going to see a much higher growth rate.
But of course, it's the start to aims, which is not important. And all of what we currently do is aimed at making sure that we can drive performance that we can afford to. So if you think of each of those three things in that context, and also comments around timing that we are committed to the targets that we gave last year. We're not revising them. On the dividend topic, it's tempting that I'm going to resist the temptation to start giving my views.
I think all I can say this, David, you have a policy. And you guys have seen us operate this policy for the last 3 some years. Within that period, we've had some volatility. So you've got a guide into how we think about that topic there. It's quite muddy expectation as we have a policy and we're going to apply that policy.
At this point, I can't do more than that. Next question comes from Michael Huttner from Ladenburg. Please go ahead. Two questions. One is on the U.
S. Tax. And if I seem to remember last time when the dropped, it infected your remittance from the U. S. And the second one would be on the combined ratio.
Your comments today seem much more positive than half year. They were already a bit strong at half year, but I'm kind of guessing much for the half underlying this year. And at the half year, I seem to remember you were kind of pushing away, pushing back to thinking that maybe we could reach 93% or below at some stage in the foreseeable future. But it sounds like this is actually something you're beginning to think. Is that a fair comment?
And have you built kind of reserves using all these benefits, which would allow you to do that? Thank you, Michael. So first of all, on U. S. Tax, we don't know what will happen in the tax rate yet, but maybe just a helpful reminder to everyone that about half of the profitability comes from the U.
S. So therefore, for each one additional point of changes, one point on the tax rate, you can expect about a half point change on the tax rate. From a remittance perspective, I guess, mean appreciating that I don't know what will come. The impact on remittance last time came from the some of the additional one to 1, the actual change in rate, in particular, the so called tax. I mean, I have no idea what will happen with that.
I mean, if I just assume it will stay in place, it doesn't become more onerous. I wouldn't expect other than the incremental tax costs we've seen any significant impacts on U. S. Remittance to the group. But mean, obviously, it's very early stages, but there are largely very high level proposals.
It's not even clear that the authorities exist in the right parts of the U. S. Legislative process to actually push through some of these things. I think the only way I can really say at this point is for every 1% move and the change in the rate the U. S.
Would enact, you can expect about a half point change of the group. On the combined ratio, so first of all, I apologize. I'm going to resist the temptation to go along with some of your forecast about the future. Maybe just to reiterate some of what I said earlier. So I think we're towards the Portmein, the Portmein, the Portmein of the Portmein, the Portmein of the 95, 96 range.
I expect to see a solid improvement through the second half of the year on an ex cat basis. Again, I think without the hedging point for this year and a revised view or an updated view of what's happening on price, I mean, it would be a bit of a bit mad for me to give you forecasts today. But I mean, the one thing that's safe to me, and it's I can see it in the numbers, our ex cat accident year performance continues to improve, which is exactly what we expect to see if we're in the right environment, but we're currently in. And maybe just a quick follow-up, and I know you've answered each question very quickly, but you kind of indicated or maybe I misunderstood that adjusted for interest rates, you're still improving, the profitability in C and C is improving. Surely that would mean that you'll reach your target now rather than be in line, That's clearly our target?
So you need to think of, I was taking some from the technical side, I. E, the margin improvement in the context of duration of the asset. So we're on the team team, right, since you've got about a 5 year duration, you need to increase it So that will at least offset. And I think the point I made earlier was that we're actually above that point today. You have to hold on to it for 5 years and to achieve that outperformance over the period.
I certainly have a certain visibility into the future, but I'm not sure I'd be yet ready to give you a view that far out. But currently, at the moment, what we're seeing is more positive. I mean, I think one thing to keep the main goal for Michael, I think you said earlier in the year that in commercial, certainly much stronger than we had allowed for in the targets that we established at the Investor Day back in November last year. But having said that, we need that strength because life will not be quite as strong and farm will not be quite as strong as the underlying assumptions that we had when we put those targets together. So we're not on the needs at higher rates and to help those existing income challenge.
It's also going to help us with some of the pressure that I think you've generally seen around the retail side of the business. So, early commitments but that we also lever the targets that we signed up to. And we are going to, I can't promise we're going to do better than that. Thank you, Ashford. Just acquired many things yourself in that time.
I'm just wondering if I could give you an opportunity to remind us of how you're thinking on M and A has evolved over time frame and how your sort of priorities might have changed and whether post COVID world, there might be some opportunities or any general comments that you might be able to make on this outlook? Yes. Thanks, Neil. Richard was telling me that we're coming to the end of the Q and A. So I was hoping that I would avoid this question.
So you're absolutely right. There are things being worked. I appreciate the way you phrased that. And I think for us, our approach to M and A has been I mean, I think it's well signaled. The types of things that we do, the things we've done in the past, they're a pretty good guide to what we think about in the future.
So it tends to be in market focus where we're not dealing with large multi market integration topics. I don't think our philosophy is necessarily going to change. In general, that's what's pretty well for us. I think from our perspective, there's no reason to change that. I will add the normal disclaimer though that I mean, the responses that I gave to Michael earlier about targets that we have for the 3 year period, they're entirely organic.
They don't require the alignment on a doing M and A at any point on the cycle. So there's no pressure or driver to do that. But of course, it's the right opportunity emerges. It would help us get to one of our strategic priorities a bit quicker and the price is right, then of course, we would think of it. But there's no change in the way that we think about compared to what you've seen from us over the course of the last several years.
Thank you. I think that was our last question. So thank you very much everybody for dialing in today. Obviously, if there are further questions, the Investor Relations team is available. Please do my hesitate to reach out to us.
Otherwise, stay safe and have a very good afternoon. You may now disconnect your lines. Bye.