Ladies and gentlemen, welcome to the Zurich Insurance Group update for the 3 months ended March 31, 2020 Conference Call. I'm Andre, the call's 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 and A session. The conference must now be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Richard Burden, Head of Investor Relations and Rating Sciences. Please go ahead, sir.
Thank you. Good morning, good afternoon, and welcome to Zurich Insurance Group's Q1 2020 Q and A call. On the call today is our group's CEO, Mario Greco and our group's CFO, George Quinn. As usual for the Q and A, when we get to it, can we kindly ask you to keep to a maximum of 2 questions. But before we start with the Q and A, Mario will make a few introductory remarks.
Go ahead, Mario.
Thank you, Richard, and good afternoon, everyone, and thanks for joining us today. We're living through an unprecedented head crisis. Over recent weeks, our priority has been to support our customers in local communities, while ensuring the safety and the well-being of our colleagues. We moved early to remote working, and our business has been fully operational throughout with our investment in the digitalization of our business over recent years paying off. Our business model and decisions taken over the years are designed to ensure that the group remains resilient.
Our group is highly diversified, both in terms of geography and business line with no dependency on any single market or business. Our focus on achieving returns through underwriting rather than investments has ensured that we have maintained a conservatively structured investment portfolio with relatively lower exposure to some of the more stressed industries and asset classes. In Life, we moved away from spread based savings already over a decade ago, thereby making our Life business more resilient to ongoing low investment fields, while also reducing our overall direct exposure to investment markets. Our unique Farmers business provides us with a high level of stable fee based earnings and non regulated cash remittances back to the group. Further, the balance sheet is strongly capitalized even under our own highly conservative BDCM ratio, which is calibrated to be consistent with AA rating.
On a regulatory basis, the Swiss solvency test ratio of 186% is also well above any requirements. This capital strength is complemented by moderate leverage and significant reinsurance protection. The Q1 saw the business continue to deliver a solid top line performance, with the crisis having only limited impact mainly in life sales in the quarter. Most importantly, we continue to see improved rates across the business, most notably in North America, and we expect this to continue. As an insurer, we are used to handling crisis and complex events like those that we are experiencing.
We have seen it before with events like Hurricane Katrina and the attacks on the World Trade Center. We have provided you with a number today for the potential claims related to the COVID-nineteen outbreak and see this well within our tolerances and similar to the claims from the 3 hurricanes of 2017. As we showed them, we're more than capable of managing such events. We expect the crisis to strengthen demand for digital interaction and more tailored services, And we are already looking beyond the current crisis to make the changes necessary to the business to adapt to what will be the changed world. The combination of our flexible and resilient business model, our committed employees and the strength of our balance sheet gives me great confidence that we will emerge strongly from the current period and in a position to take advantage of new opportunities as they present themselves.
George and I will now be happy to take your questions.
First question comes from the line of Peter Eliot from Kepler Cheuvreux. Please go ahead, sir.
Thank you very much and good morning, good afternoon all. I appreciate the extra disclosure and obviously the efforts that quantifying the losses, which I appreciate is a very difficult exercise. I'm just going to use my 2 questions, if I may, to just try and understand a little bit more about the assumptions that you've used behind that. So first of all, on business interruption, you on the point that more than 99% of your property policies do not cover COVID-nineteen. Because my reading of that is that you're relying, to an extent, on the physical damage clause maybe for some of those policies.
I was just wondering if you could specify which what proportion of the policies specifically exclude disease risk. And then my second question was on workers' compensation. And I mean, I guess, if you look at the WCIRB midpoint estimate, which they got to €11,200,000,000 if you your market share equates to a bit over €500,000,000 Obviously, you've quoted a much lower number in terms of your exposure, and I appreciate there's lots of moving parts there. I was just wondering if you could give us a sort of a rough walk from their number to your number, which looks in terms of your exposure, which looks like being about €30,000,000? Thank you very much.
Peter, it's George. So thank you. So let me start with the
policy of
what's being told by. So you see the comment in the presentation today, you mentioned it. So 99% of the policies didn't provide cover, the vast majority having a virus or similar exclusions. That means we're not relying on the property damage wording. So even if we believe that the wording excludes it, if you look at our standard contract language, we have, I mean, for example, in the U.
S, the ISO standard has the virus exclusion and both of our 2 typical standard blood veins have the virus exclusion. So they're not relying solely on property damage to give us comfort that we're going to avoid a challenge to coverage on the basis that it's not properly damaged. On the workers' comp sorry, on the workers' comp topic, I think the big difference between what you see in the either the WCI and B scenario or the NCCI paper that was out, I think, last week or maybe even last week. It's the type of products that we are offering. So I think it's not an issue if you walk through the assumptions, you get a different answer.
A large part of our book is high deductible. And I think as we've talked about it before, And that high deductible book means that we don't cover the ground up cost. So within any rebal scenario, most of the cost of that actually falls back on the client that we are providing the high excess coverage to. And I think that's why you see a difference in what you expect from a market share perspective from us and what you actually see in the calculating number that we have today. So in the deck that we've given, the range that we've given, the 30 to 150 is based on the bottom end to the midpoint of WCIRB using exactly the same assumptions as they have used only it's modeled on the entire U.
S. Book. The big difference is that high deductible feature.
The next question comes from the line of Vinit Malhotra from Mediobanca. Please go ahead.
Good afternoon. Hope everything is well. Thank you very much. So I had one in workers' comp which has been addressed. So thank you for that.
Next one is on the commentary about the economic impact, George and Mario. Let me say simply, if GDP globally or your markets settled, say, 4% or 5% this year. Would there be a material risk to the 750,000,000 dollars number? Thank you very much. That's my 2nd question.
So it's a slightly tricky question to answer, Vinit. So the I mean, what we've done today is to focus on the direct P and C client impact. I mean, there may be second order effects that we could see later this year or next year. I mean, there are obviously things like D and O or credit. And we don't believe we have a significant exposure to it either because of the size of the premium volumes in the overall portfolio or because of the insurance protection.
But if you see a very significant fall on GDP, you would expect to see a bit more distress in the real economy than maybe we see a really and that can have some impact. But again, from a direct claim effect, I know we've we haven't modeled that into it, but we tried to consider the impact of that in the scenario that we've given this morning. So for now, we're focused on the bright claim. If we do see GDP continue to weaken as a result of what's going on, I think the most likely thing you're going to see on us is probably less a bigger impact on the claim and more likely an impact on volumes because, of course, some of the premium flows are activity dependent. So blockage comp, as we discussed earlier, has a payroll component.
And so the standard payrolls for, we will see lower premiums. But the model is the direct claim impact at least 8%.
See. And if I can use my second option, please. The property premiums disclosure on the BI side, adding up to 8.7 percent or so, would we know what is the NP? Because the reason is that I understand from speaking to our team that there's a lot of fronting captive business there. And also that when I go back to Jim Sheer's line of Investor Day, the property exposure of, say, the commercial unit was only 26%, but these numbers today on the slide are much higher.
Is it possible to have a sense of the NAP or is it not a very good model? Just going to check.
So the you mean NEP specifically for business interruption or property in general, isn't it?
For property in general, please.
Well, I don't have it, but we can certainly get it for you. I mean, that's not difficult to do. So we can get it for you after the call.
Thank you. Thank you very much.
Your next question comes from the line of Nick Holmes from Societe Generale. Please go ahead.
Hi there. Thank you very much. Two questions. First is coming back on BI. I wondered, are you worried by legal risk?
I mean, if the maverick court rules with insurers should pay out, How big a worry is that for you? And then second, with the Z ECM, just going back to the calibration, I mean, why set it as 100%? Why not set it at 200% like SSD or Solvency II because that would sort of look better. So just wondered what your thinking is. I mean, because when it falls below 100%, what sort of message is that meant to spend to the market?
George,
can I take the first one?
The first one, yes.
Thank you. Look, Nick, I mean, we worry about everything because we're insurers and we're used to dealing with any kind of risks. So the definition, the answer to your question is yes. However, if the worry is that somebody will ask us to pay for things that we have never insured, that frankly is a worry that doesn't take long to be forgotten because then it can be valid for everything. And we're living in a world where nothing is anymore sense or certainty.
Here, we're not talking about interpretation. We're talking of things that don't exist. And so as such, then anything can be attributed to us Any kind of cost or need you have, you can raise it against insurance. And so you don't really worry for that because it's a kind of world where it's pointless to worry about.
So on the capital topic, so and it's a topic we've discussed several times in the past. I think the and in fact, we talked last year about the fact that after we saw the moves on interest rates in Q3 that we look at making some changes. And you can see that I mean, with FINMA support, we've moved to the FINMA curve, which of course is the standard approach in Switzerland. That from an SST perspective, again, gives us something that is, I guess, closer to the optical numbers that you see from the peer group, but again recognizing that, that number is still very conservative compared to the Solvency II basis. So why keep ZECN?
And really two reasons. So one is that I think we all know that in capital and I guess it's become more apparent, there's a number of capital regimes in there out there that have significant smoothing built into them. And you've seen that in terms of stress, it's become more hard to rely on those as the basis for a capital management policy because there are clearly fears that might go beyond the number or what the number would represent. So for us, even though Z ECM obviously represents an particularly tough test, it's obviously calibrated at 100 AA. AA, but the way we parameterize it is unchanged.
Do they have swap rates? We don't have ultimate forward rates. I mean, that for us, I think, is consistent with how we think about the risks that we run. And I think if we were to get rid of Fed ECM and try and live in a while everything was smooth and nothing was market neutral, I'm not quite sure where we'd end up. And I think you saw positive inertia from us.
So obviously, we paid the dividend back in April. We did, as requested, review the scenarios and the stresses that the company could be subject to. And even after that review at the end of March, we went ahead and paid because the those stresses and scenarios didn't, in our opinion, lead to a conclusion other than the one we previously reached. So I think actually having something that is a tough test, but maybe more reflects the reality and the kind of environment we're in today is a good tool to have in the toolkit. But when you think about comparison to the others, maybe you need to use the SSC number plus a bit to be able to get a valid comparison.
I think we're going to keep this combination because I think both of them play an important role.
Great. And very quick. Can I just have a very, very quick follow-up, which is with legal risk, are there any jurisdictions, for example, the U? S. Versus the U.
K. That you would be more worried about that there could be some maverick decision?
Not really. I mean, in both countries, and in fact, in this way, every country that we operate, there's an established legal process. I mean, we all know the quirks and some of the unusual features that some of these systems have. I mean, it's not as if this is a new topic. We know how to navigate it.
And as I said in response to Peter's call at the top of the discussion, I think we've got good contract wording. We have good defense to the challenge. And I'm sure there maybe there are others that are quite easier targets for this topic. And if someone decides there's something we want to go after, we believe we've got a good foundation and we'll defend ourselves.
That sounds very reassuring. Thank you very much.
The next question comes from the line of Edward Morris from JPMorgan. Please go ahead.
Hi, everybody. Thank you for taking my questions. I hope everyone's well. First question is on the topic of reinsurance. I wonder if you can just talk through whether the EUR 7.50 million assumes any benefit from any of the excessive loss reinsurance that you have?
Or is that only from quota share? And is there any particular attachment points or things that you would point us towards that give you confidence in that figure? Or should some of the assumptions change, etcetera? So just some comments on reinsurance would be good. And the second question really relates to underlying performance in some business lines, which I guess may actually see improving claims trends because of COVID, principally I'm thinking motor here.
I noticed €70,000,000 you talk about as providing support for customers. I wonder if that €70,000,000 has any significance. I'm just sort of thinking about how you're likely to think of individual business lines versus the group. Are you likely to return premium in books of business that are proving to be more profitable than expected? Or would you view it as a
group and manage on that basis?
So thanks, Edward. On the reinsurance, the modeling assumes that under the quarter shares are relevant to now. And that's just a simplification that is applied to make the whole process more straightforward. And as I look at the various contracts we have in place from the reinsurance perspective, I think most of them don't have pandemic explosions. But again, for the time being, the only assumption we've made is that the quota share on the property business in the U.
S. Attaches. On this underlying performance or and I guess we think about internally as the impact of frequency. So obviously, lower activity has an impact across the group. You're absolutely right.
We've highlighted today some of our businesses have connected to return some of that benefit we've seen so far into the early part of the lockdown. And the message we've given people is that this is really a it must be a market by market, but there can be a big tap from the group that says we want you to do this because every market is a bit unique in some way. And of course, in some markets, premiums may adjust naturally because of the nature of the way the premium is calculated. Individuals or companies may have other rights to sustain cover if you choose to. So again, we've encouraged the businesses to look at this, but we haven't set an expectation for what should be done.
On the I mean, who is the main target of this topic? Again, it's clearly more of a retail, yes, I mean issue than it is an issue of a bigger end of commercial. I mean, to the extent that risks are adjusted on some way, typical commercial contracts in the upper end will include some element of that. So I think our view would be that by and large, that feature to some degree, will exist already. Whereas on the retail side of things, that's less common.
And again, it's more important to think about it in that context. So that's why you've seen us do what we've done so far.
Okay. Thanks very much.
The next question comes from the line of Farooq Hanif from Credit Suisse. Please go ahead.
Hi, everybody. Two questions. First one, on pricing, to what extent was this going to happen anyway? And to what extent thus far are we seeing some sort of COVID related support? And do you think, given the experience in 2Q, that we might see some further acceleration in pricing?
Secondly, on your sensitivities, I noticed on Z ECM that your credit spreads have gone up, but interest rates gone down. Just wondering if there's anything special about complexity relating to credit spreads and activity that we should take into account. Thank you.
Thanks, Farooq. So on the pricing topic, that's a really hard question to answer. I mean, the only way I can really try and give you a sense of how we see it is that in order to be had planned for something this year and what we're seeing is significantly exceeding what we've anticipated from a planning perspective. So I think our view would be that there's this additional factor, which, of course, is squeezing capital and surplus across the industry is pushing pricing. And we see it not only in the U.
S. In the beginning of Q2, you also see it in Europe as well. In fact, the move in Europe, even though it hasn't reached the levels of the U. S, the move in Europe is more dramatic from where it started. So again, probably further acceleration.
For how long it's going to continue, I wouldn't like to predict. But certainly, we've seen a very strong pricing environment entering Q2. On sensitivities, I think the main driver of that is going to be a combination of just as the numbers drop, the discounting impacts become much smaller, so the optical sensitivity just naturally rise. And if you look at what we've done from a and we haven't done a tonnage, but we've done some things to take some of the some marginal risk off the table. We put in a bit more on the interest rate side than we had on credit.
But the credit activity is almost certainly due to the fact that just at these low interest rate levels, the impact is appears to be larger.
Okay. Thanks so much.
The next question comes from the line of Johnny Wu from Goldman Sachs. Please go ahead.
Hey, good afternoon, guys. Thanks very much. Just a couple of questions, again, around the sensitivity again of that SEK 750,000,000. I wonder if you can share with us, I understand that you don't have contingency across the group,
given that you're allowed the business to look at what the loss are. If you could just
give us an accurate view or full sensitivity to that 750 with regards to DI sub limits before reinsurance or average lockdown time frames that you've assumed for that $750,000,000 So we can get a sense of where that number could move to approximately. And the second question just relates to you've made a statement with regards to expenses. Are you providing sort of new guidance on expenses? Or are you saying you have flexibility on expenses? Thank you.
Thanks, Johnny. So on the first one, I mean the temptations want to give you all components of the model for me is quite high, but I'm not going to do it. And the main reason for that is if I look at the I mean, one of the key sources of BI that we have in the portfolio currently, that actually has a time limit in it today. So now that we've chosen extends beyond that, but one of the key drivers doesn't require that assumption to arrive at the number that we've achieved. So actually giving you a lockdown time frame doesn't wouldn't substantially help you understand the sensitivities that we would have for the timing topic.
More relevant on travel. So again, we've seen a time frame that certainly extends well beyond from where we are today. Travel because of the summer time frame can have a bigger impact, but that is reflected in the figures you've seen today from us. On expenses, I think we're not signaling that, I guess, we did start another large expense reduction plan. I think that what we are trying to signal is that we're trying to be as proactive as we can.
And the reality is that in our business, we have something, I mean, the obvious example is travel. So travel is allowed to be structurally affected by this for some time to come. And I think if we sell out any weighted and we do nothing, I don't think there's any hope in the short term that the picture improves. So I mean, we made the decision that we need to take action on that topic straight away. On the rest of it, on the expense topic more broadly, I mean, consistent with the investor presentation that we set out back in November last year, we had a number of areas where we were investing for growth.
And I think if you look at from where we stand today, some of that is still valid, some of that is not. And again, we're trying to react quickly to avoid that we build up an expense basis. It becomes a structural problem and prevents us from having the ability to respond to an environment that, in the aftermath of this, may reveal some different demands or needs in our customer base. But I mean, you've seen from us over the course of the last 3 years, we've managed the expense base tightly. That has not changed.
That will continue through the because of this year. But that comment, there's really a signal about us reacting to what we see and also try to anticipate kind of a change that is undoubtedly coming in the market and the way we operate both the distribution and with customers directly.
Next question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Thank you very much. And just like I just said, I hope there is a one of you is good as well. And 2 quick questions. One is a bit longer than my term was normal one. The first one is on the 2Q B bond portfolio.
And one is on the BBB- exposure and the second is on the rating downgrade risk. And the third one is on aviation. I see a figure for transportation by that. I'm sure that Aviation is just much more than this. And then on the €750,000,000 it's fantastic that you provide certainty, which really lovely.
And I suppose another way of asking the question my peers have asked is, how much of that certainty we should provide comes up from the fact that you do have a little bit of potential buffer on that? Thank you. And if I may, how big is that quota share?
Thanks, Michael. I hope you will too. I don't have all of the details of the portfolio split in front of me. I think if you go back and look at the year end numbers from February, and putting the BBB component, we haven't seen any significant migration impact at this stage. So if we were republishing the table today, they look a lot like the ones that you saw then.
So apologies, I don't have it at my fingertips. But what we gave for the year end would be a good indicator of the exposure at the end of the quarter. So on the leisure and airline side of things within the portfolio, again, it's a really small, it's probably a little bit of material. So 0.1% of the group's investments. If you look at the different components, we've got about a bit more than 40 in equity and the remainder is fixed income.
So much less than oneten of 1% on the airline footprint. What was the third question? You didn't quite catch
that. The third question, yes, sorry. The $750,000,000 so it's a lovely to have certainty and I admire it. But how much when you frame that, did you think that if things move a little bit that you can use a bit more buffer for motor? I just wondered to ask if that's right and maybe how to figure.
So the only thing I know that you read this, but I'm going to remind you that we carefully avoided the use of the word certainty in the press release. Actually, for the obvious reasons, there's quite a lot of uncertainty currently. On the absence of an assumption of the frequency benefit, and I think for the time being, just recognizing there are lots of moving parts, I've mentioned already that there are some things that are not modeled in fluoreans I gave earlier. And I think it's helpful to have frequency to set against that group for the time being. And obviously, as we go on to the year, the level of clarity will improve since it become clear and we'll update at that stage.
But it's for the time being, we thought about frequency as addressing some of the both the known unknowns and the unknown unknowns at this time.
Okay. And a quick share, please?
Sorry. I haven't given the number in the past, so I wasn't prepared to sign it today.
Okay. Thank you.
Sorry, Michael. No worries.
But it will be in the net premium figure you gave to renew?
It would. But you have to go back and get the gross figure in what that was. I mean, it's not a state secret. I mean, you can put on with some of the yellow books as well. So I mean, we talked about what we had last year.
I think that we had about I think the premium section we gave was about $600,000,000 That gives you a sense of how big that closure is quite precisely.
Fantastic. Thank you so much. Thank you.
The next question comes from the line of Michael Haidt from Commerzbank. Please go ahead.
Thank you very much. Good afternoon. Only one question on life insurance. Apparently, you have seen the first impact of the current COVID-nineteen crisis on your new business generation. I would like to get a better feeling on how sensitive the new business generation is to the lockdown measures that have been taken.
Given that the lock downs were basically put in place only mid March in Q1, I find the decline of the new business in Life quite significant. So is the extent of the decline result of the last 2 weeks in the Q1 or more was the decline more evenly spread over the Q1? Also, given that the Q2 is almost is now halfway through, can you give us an indication of new business generation in the how it was affected in the Q2 so far?
Yes. Thanks, Michael. So maybe a couple of things about the comparison year over year. So yes, and the answer is right. The lockdown component comes quite late in the quarter.
I mean, it varies market to market. So obviously, the Asian markets have been impacted for longer. But then you already saw, for example, in the Latin American business, both in stuff that we do directly plus the business that we get through the joint venture. That continued into the early part of the quarter. We have seen some improvement in the trend of new business.
It's not back to where it was before. I think we've certainly seen it improve and production has come up again. But there's still a gap that needs to be closed to bring us back to what you would have ordinarily seen. I think the other thing to keep in mind is the comparison to last year's number. Last year's number includes a pretty exceptional quarter the Swiss business.
So you may remember that there was some dislocation in the Swiss life market late, middle late 2018. And our team did a great job here in taking advantage of that. So part of the challenge that we got this quarter is that comparison to the prior. But the lockdown component is at the end of the quarter. It has continued, but we have seen certainly an improvement in some markets, albeit we still have room to improve further to get back to what we've seen before.
Thank you very much.
The next question comes from the line of James Shuck from Citi. Please go ahead.
Thanks. Good morning. Just one question for me, actually, and it's on the dividend. My
understanding is
that the dividend policy is to grow with underlying earnings and you have a floor level of 17 Swiss francs a share. I just came to know that there's some kind of soft ratchet on that number. So when it comes to making the full year decision, you look at the prior year and think, well, it's going to be something very abnormal in order to make an absolute reduction year on year. Thank you.
Thanks, James. So it's a topic that actually, we've discussed several times over the course of the last 3 or 4 years. If you think back to 2017, it was already a topic then. And of course, we had the impact of the 3 hurricanes in the U. S, which were a significant impact on the earnings for that year, a number that's not too far away from the figure we've given today.
If you remember what we did then and what we said to the market at that point was that we were trying to look through the temporary effects for the current year to look at the base and also spending as much time looking at the coming year what that would bring us in terms of capacity to make sure that the position that we adopted would be sustainable. No change to that process. I don't expect we get to the end of the year and we invent a new one. But of course, at this point in the year, it's just too early start to see the detail of that. But maybe seeing what we've done in the past in terms of process, I would expect we would do the same time again.
Okay. That's helpful. I actually do have a second question, if I may. I think you just mentioned in your early commentary around reinsurance coverage and protection. You said that most of your reinsurance cover doesn't have pandemic exclusions.
That's somewhat the odds from what we hear from many of the reinsurance companies that actually report that do actually explicitly say they do have pandemic exclusions.
Can you just shed a little bit
of light on your commentary versus my understanding?
It's a bit hard for me to do that because I can only really talk from their point of view. So I mean, some of the contracts that we have, have very clear pandemic exclusion to some extent. Why there would be a different picture presented to the market at large is not a question I'm capable of answering it.
Your coverage comes from a wide range of reinsurance providers, and it's most of those policies that don't have pandemic exclusions. Is that fair?
So again, I mean, the reinsurance coverage comes from names that you would be very familiar with. I mean, obviously, it would depend on which particular risks, in particular, reinsurers on, saying whether they would have more or less with us. But certainly, on the key contracts that we have, or key contracts with Evonik Station, and we have a large number of contracts that do not have pandemic installations.
Okay. That's very helpful. Thank you.
The next question comes from the line of Andrew Ritchie from Autonomous. Please go ahead.
Hi, there. I wonder, Georgi, if you just concentrate on the asset side for a minute and tell us, I mean Zurich has been quite practical in the past. And tell us if there were any kind of major shifts or I mean subtle shifts in asset allocation over the Q1 in response to market movements, thinking particularly in terms of low grade credit and the additional hedging either on credit or equities. So just what was the response on the asset side to the market moves? And second question, your COVID sort of first stab at the claims number,
I think,
excludes 3rd party losses. I think it's going to be 3rd party exposures. Just as a broad outline, just give us a sense of where the 3rd party liability exposure would arise. Obviously, it would be things like D and O, but is there any other exposure to things like health care liability that kind of stuff? Just some broad outlines as to the 3rd party liability trends and your sort of expectations there will be useful.
Yes. Okay. All right. So on the first one, I mean, we've made relatively small changes over the course of Q1. So it's a group of us we meet every week.
We review where we are. Open on the Chief Investment Officers and the leads on the asset side. And I think the team has done a nice one job and the way it restructured the portfolio before those things started. So I mean, as you've heard already on the airline side, we don't have a giant exposure. When we had the oil and gas topic a few weeks ago, we had already that we didn't have a major exposure there either.
The portfolio is pretty granular. So I don't think they're overweight in a particular name or geography. So what have we done? So we've we did put some hedge on equities, which would have been prolong, we'd like to be expecting some time probably middle of Q1. So that will have reduced the exposure that you saw reported at the end of the year.
The team had planned some technical changes around credit, And the only request we made to the team was, well, let's do it a little bit quicker than we had intended. That's not that significant in the size of the book that we've got, but it just takes a bit of the credit exposure down. And then the other one is interest rates. So I mean, just given the model that we have from a capital modeling perspective, and going back to the conversation that think I had the other with Nick on the Z ECM model. There's no UFR in there.
So there's an interest rate sensitivity that you guys have seen in the disclosed numbers. So I mean, we did we have taken some additional steps to, again, reduce the exposure that we have there. And just given that, obviously, the market is volatile, it's hard to do that in scale or size. So I mean, what we've really done is more at the margins than something that would present a dramatically different picture today. But those have been the key areas of focus.
So on the 3rd party side, I mean, D and O is the obvious one. The I mean, as you'd expect, by now, of course, we have notifications, not many, but we have a few. I mean, the challenge on DNO, I think, is until the dust settles and it becomes less of a bit of a free for all because of the market move and the issues start to focus on maybe companies who've got more particular issues and maybe more exposed. It's very hard to make any assessment of what happens on D and A other than we've got a big market move. And prior history has told us that that is normally accompanied by an increase in activity around DNO.
L. On the other third party topics, I think the one of the things we've been looking at carefully would be EPLI, so the employment liability side of things. There's obviously a specific liability on particular sectors. You mentioned health care. And I guess there, the I mean, again, the preoccupation is to try and look for areas where we believe there's a risk that we're overexposed or we have a particular large of disproportionate share of a particular sector.
And we don't see that at this stage. So when it comes back to the scenario modeling, none of these things pop up in the kind of depth or in the kind of size that would cause us significant concern at this stage. But again, the 3rd party had told that we'll play out probably long after this thing has reached some kind of equilibrium. So I mean, the true impact of that will all become clear with capacity quite a bit of time. But for us, given what we've done in frequency, given the scale that we have in our book, we think that's reflected in the scenarios we're getting today.
Okay. Thank you.
The next question comes from the line of John Hocking from Morgan Stanley. Please go ahead.
Good afternoon, everybody. I've got two questions, please. George, I seem to remember at the Investor Day, you talked about the credit and surety is a line where you were sort of pushing back against some of the sort of bottom up planning submissions from the BUs. Can you just talk a little bit about the credit maturity exposure in the book and how you see that developing? And then secondly, just to loop back on the question that Farooq asked, a possible question about sort of rates, etcetera.
I just wondered what your view was in terms of the weakness of the corporate sector and the ability to push through rate increases given all of your insolvencies and obviously the precarious trading position will come, please?
So on these 2 topics. So first of all, on credit surety. I think we talked already last year about the fact that from a strategic perspective, the group had decided that we weren't comfortable with a further expansion in capacity shortages because of what we saw in terms of the developing environment and also what we've seen through a number of idiosyncratic events that in themselves seem to portray any systematic challenge. We've seen a few more. And of course, you saw Thomas Cook last year, and Thomas Cook is not the only one.
So we've got a cap on things that squeezed the book quite a bit last year. And then beyond that, I mean, we haven't yet, as you can imagine, been able to increment a shrinkage in the book just given timing. Having said that, I mean, today, we did disclose our global surety reinsurance program. And I guess if you've had a chance to look at that, you'll get a sense of, I mean, why we've had such significant events, but we haven't caused significant impacts in the P and L. We renewed that contract earlier in the year.
As you can imagine, we paid more for it than we have in the past. It's obviously focused on surety, which is the bulk of our credit and surety book. So I feel that I mean overall, for a combination of what we've done in staffing capacity, what we've done on the reinsurance side, I think we feel comfortable that we're well protected. I mean, we can have things go wrong there, but the rest of something accumulates over a large number of names is obviously protected by the structure that's got in place. On the rate yes?
George, can I give you a little bit of rest?
Yes, of course, you can.
So on the market situation, guys, it's important to understand that the big portion of our commercial books are with midsize or global corporate accounts. And they are not immune, just to quote George from a while ago, But they're rather insensitive to what's happening, meaning that the business continues, that the readiness continue. And so they have no issues about following the market rates or about paying the premiums. The thing that we are very pleased to see is that the quality also of our contracts keeps improving. We signaled this already.
I think Jim talked about this in the November Investors Day, and this is continuing. So we are building a much better book on commercial, not just by the strength of the rates increase, but also by the conditions that we have in these books. And this is fairly independent from COVID. COVID is more an issue for individuals and SMEs, but has less of an impact on the big accounts.
Thank you, guys.
Thank you, Mario.
Welcome, George.
Thanks.
The next question is a follow-up question from Peter Elias. Please go ahead.
Thanks very much for the opportunity to come back. If I could mention 2 more. I mean, first of all, on capital fungibility, I mean, you mentioned the strong and unregulated nature of farmers in the start. I'm just wondering if you could sort of talk more generally about sort of any impacts on your ability to up stream cash, especially sort of regulatory elements? That was the first question.
And then the second one, on the SST versus Solvency II, you mentioned the 90 percentage points of the respective entities. I was just wondering if you could translate that into a group level delta.
So on the capital fungibility topic, obviously, the first point is the most important one to farmers. Obviously, it constitutes a large part of the cash flows, and it's not subject to any impediment. So we're in a relatively fortunate position compared to the industry in general. I mean, every year that starts, there's a very large part of the cash flow that's, I mean, pretty much guaranteed. I mean, more broadly on the regulatory side,
I mean,
you can imagine, regular contact with all of the key Tier 1 entities and monitoring their solvency. We're talking to them about what their plans are for dividend flows. I mean, it's just, again, it's way too early in the year to reach any conclusions. And certainly, if we would project out today, I certainly wouldn't plan for the same level of cash flow that we had anticipated, say, we've completed the planning at the end of last year. But that said, the cash flow that we would anticipate today, I mean, that's still a pretty healthy flow through the entire group.
So at this stage, I don't anticipate any issues. I do expect it to be somewhat impacted by the general environment. But obviously, the foundation that farmers give us is a great starting point for the year. On the can I calculate the 90% into our group impact? And probably the answer is no.
I'm just I'm not that smart. And I think the way you need to think about this is the terms of complexity because obviously, you guys understand that in general, we're comparing standards and model outcomes and how that would translate into individual model outcomes for some of the larger peers that we have in Europe is not really that clear to me. And also important to remember that when you move out of Europe, U. S. Gets a completely different treatment under Solvency II versus SST because, of course, in SST, we model it according to FINRA's requirements, and we don't have this equivalence assumption, which, of course, can create benefits around things like corporate bonds rates.
So I think all I can tell you is that it's not 90, but the number is not immaterial either. It would be a substantial uplift to the $186,000,000 that we've published today.
Great. Thanks very much.
The next question comes from the line of Thomas Fossard from HSBC. Please go ahead.
Good afternoon. Two last questions for me. The first one would be on the business trends. George, if you could share any revenue trends in April or May, just to have a feel of if you're already noticing some reduction in the business flow, not sure if you're making sense with what you just mentioned, but just to get a feel of how business is slowing down at the present time. Second question would be on the measures you've taken in light of the COVID crisis.
I mean, in terms of taking decision to shift the book towards different business lines, additional protections. On the asset side, I think that's you've said that nothing has really changed in Q1. But overall, I mean, any decisions you've taken for the remainder of the year in light of the year, in light of the crisis and in
light of COVID development? Thank you.
Yes. Thanks, Thomas. So on the first one, I think the short summary would be that from a rate perspective, the early Q2 indications are really good, and it's very strong across the 2 key markets, North America and Europe. And I think I mentioned earlier that if you look at Europe, it's more at the level of the U. S, but it had a much larger leap in April compared to what we've seen previously.
So rate is good. I think the challenge is going to be growth. So we've got a really good start for the year. The teams both in Europe and in the U. S.
Have done a great job. But I think if you look at current trends, so I think as you hear from the entire market and as you look at some of the broader industry analysis, you can see that new business has fallen significantly from what we've seen in prior periods. That's partially offset by the fact that retention is up significantly. So it's not a net fall, but it's that combination is what's really nice to tell people that I mean for the year in total, you probably need to expect a premium picture that's flat to maybe even slightly down for the full year. On business shifts, I mean, other things I've mentioned here on the call already around travel, I mean largely no.
I think the I mean, Maja has already mentioned the fact that the things we've done around the portfolio, the quality of the portfolio, the approach to underwriting, I mean, all of those things that we've already done, I think, have put us in very good stead for the environment we're now in. And at this point, at least, we don't see that there's a need to make further significant shifts. And so I haven't been a bit consistent as we go through this is actually more important.
Thank you. The last question from today comes from the line of Michael Huttner from Bloomberg. Please go ahead. Thank you so much. Can you hear me?
Yes. Go
ahead, Michael.
Yes. Sorry, sorry. Yes. So two questions. One is, what is the current prices?
How is that affecting the NRED Life integration in the booked optimum cash there? And the second is, you mentioned in your slides potential capital allocation to extract capital from non core businesses. And I thought, who is this relation in this? I wonder what that might be. Thank you.
Yes. Thanks, Michael. So I think it would be fair to say that if you look across the entire group, the team that has the most stress counting would be our Australian life team because they have the integration to manage. They've got the challenge of the current events to manage. And you've got the aftermath of the Royal Commission that took place down in Australia.
I think they're doing a great job. This will be a bit of a difficult year given that combination. I'm not going to give predictions for where the year will end. Today, there's a number of things that I talked about last year, For example, on the some of the steps we will make to adjust the portfolio to make it more profitable. The team has that in training.
And the key reasons and the key drivers behind the acquisition of ANZF, Interlife remain true today. So OnePass, that's a brand that we use, is a great addition to the portfolio. So that will be a slightly difficult year for that Life business as already for many of our life companies. On the non core businesses, I guess, in common with a number of friendly competitors, I mean, the answer is environment like this made me think again about the composition of the portfolio. And maybe your patience or enthusiasm for some things is a bit diminished.
So I think we're just signaling that the things that we've done already to regularly recycle capital away from risks that we think are purely rewarded to those that we think have a greater and more positive strategic impact on the company. That process is going to continue. And the fact that you can imagine, I guess, this current backdrop will get a bit more inventory.
Fantastic. Thank you very much.
Ladies and gentlemen, that was the last question. And I would now like to turn the conference back over to Mr. Bernden. Please go ahead.
Thank you very much everybody for dialing in today. Obviously, the IR team is available should you have further questions. So please feel free to reach out to us either via e mail or directly on the numbers on the website. Stay safe and have a good afternoon. Thank
you. Ladies and gentlemen, the conference is now over. Thank you for choosing Homeschool, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.