Ladies and gentlemen, welcome to the Zurich Insurance Group Q3 Results 2019 Conference Call. I am Shay, the Chorus 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 Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Richard Burden, Head of Investor Relations and Rating Agency Management. Please go ahead.
Good morning, good afternoon, everybody, and welcome to Zurich Insurance Group's Q3 2019 call. On the call today is our group CFO, George Quinn. Before we start with the Q and A, George will make a few introductory remarks.
And when we come to the Q
and A, can I, as usual, ask you to keep your questions to a maximum of 2? If we have time, we'll come back to you after if you have follow-up questions. George, let me pass over to you now.
Thanks, Richard, and good morning and good afternoon to all of you, and thanks for joining this call on our Q3 results. So before we move to the Q and A, just a few initial remarks on the Q3. Just as a reminder, the focus of the Q3 releases, as you've known from the past, typically on revenue trends. We've got some qualitative commentary around the performance of the business. And we will, of course, provide the full detail of the full year.
However, I can confirm that we remain fully on track to meet or exceed all the targets for this year. Over the 1st 9 months, we've continued to progress the strategy of focusing our customers and developing our distribution, while at the same time simplifying operations. And I'm pleased to say that this has been rewarded by solid development across our business. If you allow me, I'll turn briefly to P&C because I'm sure that many of the questions will relate to the current pricing and claims trends that both we and the industry in general are experiencing. P and C pricing trends have continued to accelerate, particularly in specialty and in North America with rates comfortably ahead of loss cost trends.
Outside in North America, commercial lines rates also show signs of improvement. And in addition to pure rate, we're also increasingly seeing improvements in terms of conditions. We're also increasingly optimistic that the current trends will sustain themselves through 2020 and continue to broaden out other geographies. The increases, as you've seen from today's press release, are also increasingly being seen within our P and C top line, And that will be supportive to earnings over the coming year as well as the growth and the rate and then to the P and L. Turning to claims trends, which I know has received a lot of attention in recent weeks.
We're obviously not immune from the general market trends and recognize many of the comments from our key peers, particularly in the U. S. But I would remind you that we took action beginning already 4 years ago. And those actions are focused to a large degree in the lines that have been in the headlines, namely commercial auto and general liability, where we're taking clear action in terms of loss mix and on volumes. And as such, I feel that we are probably in a relatively better position to manage some of these trends than maybe the average in the industry.
Just turning to recent weather and weather trends and following on from the relatively light weather and nat cat trends in the first half, trends have been more normal since the half year. Based on our current expectations around crop and the impact of cat that we've seen in Q3, we would expect the combined ratio to be slightly higher than the midpoint of the 95%, 96% combined ratio range that we've talked about previously. Our Life business continues to deliver on a strategy of focusing on capital light savings and protection business with our Swiss and Irish businesses continuing to show particularly strong performance, particularly in corporate life and pension sales. And I mean, we continue to believe that the strategy is the right one, especially in this low yield environment, but it cannot insulate us completely. We'll work hard to compensate, but I expect that the life business will face some modest headwinds from interest rates.
But against that, P and C will not only benefit from a positive trend that's continuing longer than we'd initially anticipated, but also one that's still accelerating and one, as I mentioned earlier, that we expect to see broaden into the European markets. Pharma continues to deliver a steady performance and continues to execute on its customer focused strategy and the surplus continues to build and is now an all time high. I mean, that business continues to perform very well. Z ECN ratio is 113% in the upper half of our target range, and the reduction since the end of Q2 principally reflects the falling yields over the course of the quarter. I mean, as you'd imagine, we continue to have substantial capital flexibility.
Mario, I and the entire team look forward seeing many, if not all of you at the Investor Day next week, where we'll give you further insights into how we're thinking about the future. So if you don't mind, please focus your questions today on the quarter or the year to date. We'll now be happy to start the Q and A.
We will now begin the question and answer session. The first question comes from the line of Nick Holmes, Societe Generale. Please go ahead.
Hi, there. Thanks very much. I have
I have just one question, which is, what
are your thoughts about making changes to the bond yield sensitivity in the Z ECM ratio calculation? Because it's just clearly too conservative, isn't it, compared to peers?
Thank you, Mitch. Nick. I wondered how long I'd have to wait for that question. So maybe for the benefit of everyone who maybe doesn't understand it, I mean, quite as well as you and some of your colleagues. So obviously, we apply an internal model when we model the impact of interest rates.
That model is entirely based on swap curves. There is no ultimate forward rate. And I think I mean, that has the impact that well, I think most observers can readily, easily recognize that in the real world, we probably have less sensitivity to interest rates than certainly our European peers. Our public sensitivities are higher, principally because of the absence of that ultimate forward rate. You've seen the impact of interest rates in the quarter, and that's principally driven by Germany.
So I mean, it's a very strict market view of things. I mean, despite that, the capitalization is still strong, but we are going to take a look at it. And I can't tell you today what we'll do. And I think as you probably also where hope is looking today at the Solvency II UFR construct. We had some rough back of the envelope work.
And we estimate that if we apply the Solvency II type UFR to our model, we'd increase the Z ECM ratio by about 20 points. So we need to take a careful look at this because, of course, many things are very complex and we kind of unintended consequences. I mean probably all I can say today is I'll update you further when we come back at the full year, but it is a topic that we're looking at to try and find a way to be more consistent with the peer group.
That's really interesting. Thank you. So are you saying that EUR113,000,000 would be EUR 133,000,000 dollars with a UFR?
So we estimate roughly. So I mean, we obviously have a very sophisticated internal model. We've done a far more simplistic calculation. I'm not sure I'd necessarily claim that it would be precisely 133, but we estimate that the difference of the current Solvency II UFR applied to ZDCM is at the order of 20 points versus where we are today.
Okay. Thank you, Dan. That's very clear. Thank you very much.
Next question comes from the line of Vinit Malhotra, Mediobanca. Please go ahead.
Well, yes, good afternoon. Thank you very much. So one question on the top line reported today. And George, you just said that you expect pricing, etcetera, to improve outside U. S.
As well. Now in the EU segment, we can see very strong growth as well. So I think it was 5% 1H, 6% for 9 months, like like. So and in the past was linked to the Swiss business and you mentioned Italy, I think, in the past. Could you just comment a bit about where this growth in the Q3 probably came in?
My second question is just on the Swiss francs sorry, on the Z ECM, the kind of volatility, if you like. I was advised that as of now, the Red ECM is probably closer to 120. Now if I just look at the Euroswap curve simplistically, it's up around maybe 30 basis basis points. You show a 10 point of sensitivity. So again, from 1.1.3 to 1.20, is there something else that has happened in quarter to date?
Or is it just the fact that we can't just simply integrate that Euroswap and apply it to the sensitivities because of definition? Just any comment would be helpful.
Yes, great. Thanks, Denis. So on the growth topic, the I mean, Europe Swiss business is the one that still stands out as driving growth. But I mean, we see growth across mainly driven by commercial. So commercial is the one that actually sees most of the rate in Europe.
And in fact, if you look at retail in Europe, we would see the impact of pricing on retail as being, I mean, quite a bit lower than the far more positive environment we see around commercial. But Swiss is the strongest, then the UK, but for example, both Italy and Spain also contribute over the course of the quarter. On Z ECM, I think the challenge with Z ECM well, not the challenge with Z ECM, the challenge was modeling interest rates, the sensitivities tend to be parallel shift. And if everything was parallel shift, there would be perfect guides. The challenge for us, and it goes back again a bit in the asset and neck earlier.
I mean, it's really the long end in some markets that's had an impact on us. And because we have no UFR in the model, I mean, we are exposed to that entire movement. Whereas, for example, if the German curve flattened, if we'd have UFR, you probably wouldn't see the impacts of that. So my apologies, but it's hard to use those simple sensitivities, but it's very hard to give you a sense of, I mean, how the model responds to steepening or flattening or twist. I mean, it's obviously a very complicated topic.
But I mean, just to go back to what you said, maybe we haven't formally estimated it, but given the interest rate moves we've seen, and given other changes that we anticipate, I mean, today, we would anticipate that we would be back lately very close to the top end of our target range.
Thank you very much.
Next question comes from the line of Henry Luicchi, Autonomous. Please go ahead.
Hi, there. George, it's inevitable that we're going to touch on the U. S. Casualty topic. You used the phrase at the beginning, not immune.
I just want to explore what you mean. I guess you mean you're seeing you're observing those trends for severity and a bit of frequency. It's not requiring you to further increase loss picks or is it and that's being offset by something else? Or is it causing you to think about the seasoning of loss picks and maybe holding on to reserves for a longer because of the uncertainty of the environment. So I'm just trying to reconcile the phraseology not immune versus it doesn't sound like it's causing you to kind of change guidance.
The other phrase I picked up at your opening comments was you talked about headwinds from low rates in life. Are you referring to the sort of economic effect of low rates or on IFRS earnings? And I'm curious to know what you're referring to. It's just things like you said, are drag or something? Or what were you intending to mean by that?
Thanks.
Thank you. So the let's start with liability. So the no immune comment, so if we had a full quarter as well as the disclosure and we were talking about PYD, I'd be giving you a number for PYD that you would all instantly recognize, and you would ask me to break it down. And within that, you would discover that there are several gross large positives. And maybe a bit 3rd or 4th in the list would be an adverse number, and that would be what we've done in our general liability reserving in the quarter.
I think obviously, if you look at the same market dynamics as everyone else, the I mean, from as far as we can tell, excess GL is still the main issue in the U. S. It certainly has broadened across a larger group of lines, but we see it mainly in excess GL. And it seems to be more a severity issue than a frequency issue from our stats. But again, I mean, within the scope of our overall loss picks and overall reserving, I mean, we're happy that we can manage that.
And in fact, maybe one comment that's slightly forward looking. The thing that we had not yet done in Q3 was to complete our workers' comp reserve review. And I think as we've talked about before, I mean, we benefited from the fact that we've seen pretty strong positive development around workers' comp. And that's certainly been a significant benefit for us in managing the market challenges that we see around GL. One other comment on commercial volatility, that was also a topic for some of the peers last week.
I mean, we haven't we've seen almost no movement in commercial loss. So I think if you look at the 2016 and 2017 half of the years, we have a very immaterial positive reserve development. I think if you look at the industry on paid to incurred and compare them to us, we compare very favorably. And in fact, I think if you isolate, say, the top 4 carriers of which I would view us as 1, Again, I think we compare favorably within that group. So I think the comment was just to recognize that there is something taking place.
We benefit from under pricing dynamics. So I mean, this line of business sees the most price action. If you look at the year to date, rates on the GL side probably entered double digits sometime end of Q1, beginning of Q2. And by the very end of Q3, it's almost doubled again. So I mean, there is a market pressure that's driving that, but I think we're happy that we can manage the challenges that this line can be closer to it.
So on the Life comment, so the Life comment was intended to be, I mean, not a very scientific or mathematical comment, so maybe one that was a bit more economic in terms of outlook rather than immediate IFRS impact. I mean, really just to reiterate, I mean, we have a book that I mean, it's generally positioned well for a low interest rate environment. But positioned well doesn't mean that in every circumstance, it will produce significant earnings growth. And as I look forward and if I compare it to the last 3 years where, I mean, life has been the, I guess, the positive surprise from an external perspective, well, P and C had to work hard to deliver mix performance. I mean, I suspect we'll see P and C pick up some of the significant benefits we talked about really from rate, whereas I expect life to slow down a bit just given some of those economic headlines.
Okay. Thanks.
Next question comes from the line of James Shuck from Citi. Please go ahead.
Hi, good afternoon. Two questions from me, please. On Pharma's, you had some issues around kind of trying to sell live products through the farmers' networks. Q3 seems to have got a bit better versus H1. Just be interested to see whether you've actually seen any tangible improvement there.
And also on the P and C side, as Pharma Zone grew QWP at 1% at 9 months, that's the same as H1. I'm still waiting for that to accelerate a little bit. I know you mentioned the Eastern States improving, but the headline still isn't. And I would have expected the Uber deal to contribute towards that. And I guess kind of how's your claims experience going with Uber in the light of 1 of Pharma's competitors withdrawing from that segment?
That's the first question. Secondly, just around crop insurance, please. What was the crop insurance experience in Q3? And when you're guiding towards slightly above the midpoint of 95%, 96% for the year, what are you assuming for crop within that, please?
That's the longest series of 2 questions I've ever had. So on the first of all, on farmers. So I think the short summary here would be that there's a long way to go, I think, yet before we'd be happy with the progress that we see on the life side of farmers. I mean, I know that and the team at Farmers New World Life are working hard there. I mean, there are some operational changes they've made to try and create focal points, so we really have the expertise to do this well, both within Pharmacy Worldwide Sciences and within the exchanges.
So we think the benefits are still yet to come, and we wouldn't necessarily yet start to celebrate what we've seen in Q3. There's room for very significant improvement. On the growth topic for the exchanges, in this case, I think Uber actually works against them because, of course, this is a GWP story. So we're talking about a comparison to a period that had, I guess, one of the first Uber contracts against one that doesn't. And while I hesitate to say if you take something out and the comparison all looks fabulous, I mean, if you do look at the ex Uber picture, it's pretty consistent with what we've seen in the last couple of years.
So the I mean, the growth rate would be higher if I take out the growth in the prior period driven by Uber. So it's a slightly strange concept. I think Uber works against them rather than that to help them. On it's almost impossible for me to comment on the motivation for the withdrawal of the exit of this relationship that otherwise existed between Uber and another insurance company. All I can say is certainly based on the feedback that I've heard from Jeff and the team, this relationship runs well.
We don't see it deviate significantly from your expectations. And I know the team enjoy working with Uber, and they're hoping to be able to support them further in the future. On crop insurance, what am I assuming? So again, I'm not sure if I had the opportunity to speak to you guys as a group just to make sure that everyone's got the same information. I was asked about Crowe back at the BAML conference by the investor side.
And basically, what I said to them there is that preventive planting, as I guess you guys have heard already, from some of the more important peers in the market. I mean, that is going to produce a cost to the business. So having had, I mean, what really, I mean, 3 absolutely fabulous years in crop, we're going to pay a bit back this year. The estimate that I gave around the end of September was that we would expect to see and just to keep it simple, combined ratios were probably edging into the 3 digit area. So I think then I was thinking maybe high double digits, low triple, but I think today, I would be in the low triple digit range.
So we're talking, I mean, somewhere 7, 8 points above our normal expectation. That assumption is purely preventive planting. So there's nothing in there about the revenue outcomes. We don't see any signs in the market that there's any cause for an expectation around the revenue outcomes that would be different from the plan. But we wouldn't know for sure until we get to a period that will run up to somewhere early December.
Just given the late planting for a number of our farming clients, the season will probably run a bit longer than it normally does. But it's prevented planting. And I'm assuming about 7 or 8 points on crop versus our normal expectation. Great. Thank you, George.
Next question comes from the line of Farooq Hanif, Credit Suisse. Please go ahead.
Hi there. Thanks very much. Can you comment in year to date what's been happening in your shift towards the kind of mid corp segment in U. S. Commercial that you highlighted and kind of what progress you're making there?
And then secondly, the strong LatAm growth in P&C, to what extent is this inflationary versus real customer growth? Thank you.
Thanks, Farooq. So the story on the mid market part of the commercial business in the U. S, what progress have we made? We've got some more expenses, which is the main summary so far. So I mean, Kathleen and our team are working hard to reshape our existing mid market business, but I think more importantly to create a footprint that will serve mid market clients and the brokers in a way that, that mid market segment expects to be served.
But mean, to be honest, I don't expect that to be a significant generator of technical profit. I mean, in fact, not only this year, but also next year. We're more likely to see additional costs in the U. S. As we build the necessary footprint.
I mean, that's within the guidance we have given for the cost outcome for this year. And you'll need to come to next week's Investor Day to hear more about the cost picture that we assumed for the next 3 year period. Strong LatAm, so the I think if you're looking at like for like, so that adjusts for the impact of transactions, but also for foreign exchange. And of course, as soon as you adjust for foreign exchange, you will pick up some inflation impact. I mean, we have a reasonably sizable business in Argentina that's mainly retail auto focus.
That's a business that is almost entirely and it's imported, So therefore, it carries quite a bit of inflation risk. But it has the products are structured in a way that they typically reprice very quickly, deductibles typically float. But it's a result that when you get back to a dollarized answer pretty quickly, but it will tend to overstate the growth on a like for like basis. So inflation in Argentina is probably slightly flattering the growth rate that we're achieving in Argentina.
But just coming back on that, I mean, you're still quite happy that you're getting decent double digit growth underlying?
Yes. So I mean, I think the and again, if I look to I mean, a good indicator across the entire region, which is the joint venture, I mean, they're back well into double digit growth again. I mean, I think we're back in the 20s. So even if I extract a reasonable number for the impact of inflation, some of the stronger inflation markets, I mean the underlying is still strong positive growth.
Okay. Thanks so much.
The next question comes from the line of John Hocking, Morgan Stanley. Please go ahead.
Hi, good afternoon everybody. Just got two questions please. Just given what you're saying about your sort of relative reserving position in the U. S. And both rates and TNCs moving in the right direction, Are there any sort of lines of business where you had sort of reduced exposure that budgets are now attractive enough to sort of tilt back into those lines?
So first question. And just second on Farmers, given where the surplus sits now, is there an opportunity for the exchanges to accelerate into the expansion states? Or is capital really not what's holding that back?
Thank you.
Thank you, John. So the on the reserving and the impact of things we've done in the past in terms of reduced exposure, could we reevaluate risk appetite? And so the answer is yes. But it probably goes in both directions, though. So on the positive side, I mean, I think you guys are all aware that I mean, we have a reasonable we have 2 very substantial shares in place in the U.
S. 1 is around the casualty book and one is around property. The casualty one is intended to be strategic and therefore longer term and therefore, when you shouldn't expect to see any significant change there. That's not true of the property position. That was always intended to be a bit more tactical.
I mean, we have been looking at that quite closely. Just given the trends that we're seeing in property, we may reduce the session to the quota share as we come up to renewal at the beginning of next year. I don't think we'll eliminate it entirely well. We just see how the market settles. But certainly, that would provide some I mean, reasonably modest incremental growth to the U.
S. Book. One additional comment to make on that, though, we're not intending to carry more cat risk. So we will spend a bit more money at the same time making sure that we hold the retentions at the levels that you guys have seen in the prior presentation. On the flip side though, the we're starting to limit the and this is a global comment rather than North America.
We're looking to limit the business around credit maturity. I mean, based on the feedback that we get, I mean, growth is almost limitless around that topic or the potential for growth is almost limitless. And we've told the business earlier this year that at least as step 1, we do not want to see capacity grow around that topic. And that's principally driven by the fact that, I mean, while we don't see broad themes in credit surety, you do see an individual markets, idiosyncratic topics and they range from things like Carillion in the UK a year ago to most recently Thomas Cook in Germany. And you guys have seen the impact of that.
On us, we will have a combination of both retention at the level that you're fairly familiar with and the additional cost that we'll incur in reinstating the reinsurance. So I think probably the book will shift a bit into next year and the year after, more likely it moves a bit more short tail. But with the additional caveat that I think we've currently reached a tipping point for our appetite around credit. And in fact, that may even start to scale back as we move into the latter stages of the credit cycle. And I've talked so long in answering your first point that I've forgotten your second point.
What was the second question, John? Sorry.
Just on the pharma surplus and whether that's giving you opportunity to expand faster.
So the short answer is yes. So the I mean, I think the issue for the firm is I don't think it's not a capital issue that holds the exchanges back here. It's just I mean, you need the right people with the right skills and the right capabilities to do this in the right way. And of course, they don't grow on trees. So that tends to be something that limits it by more than many other factors.
Great. Thank you very much.
Next question comes from the line of Jonny Urwin, UBS. Please go ahead.
Hi, thanks for taking my questions. Just to focus on the casualty stuff a bit more. So
I was trying to gauge, George, is that comment that you're not immune to these trends? Is that incrementally more cautious versus 2Q? Secondly, the I think you mentioned in the past that U. S. Loss trend was running around 10 bps higher than Europe.
Is that still the case? And are you seeing any deterioration on your GL book? Or is it just building in a
bit more prudence? Thank you.
So the I think I mean, the real reason for the comment I made at the start was simply to reflect the fact that I mean, we recognize within our portfolio, the general trends that I think we hear from others. They haven't had the same financial impact on us for a number of reasons, which range from some of the steps that we took some time ago to repositioning some of these businesses. So that could be loss picks, it could be the size of the business, it could be the reinsurance program that we have in place around casualty in the U. S. But I mean, there's no doubt, and in fact, I think I mentioned it already last year when we had either Q3 or full year, I mean, we already sort of adverse on the USGL book, but we had the benefit that we had a very substantial positive reserve development around workers' comp.
That trend hasn't changed into this year. We've tried to make sure that we reflect our expectations for this year and the loss picks that we made earlier in the year, But there's certainly more inflation across the entire market than we would have anticipated a year ago. I don't expect though that that's going to cause us a significant challenge in our results for 2019. I mean, we believe that we can manage that within the overall portfolio we have. So I guess maybe slightly more cautious, but I'm not trying to signal that we think we have a problem here.
I mean, quite the contrary, I think we've got the ability to manage this. On loss cost trends, so if you look at the U. S, the U. S. Is probably up by maybe 20, 30 basis points over the figures I gave back in the Q2 call, I mean, Europe tends to be a bit more stable around this topic.
So I wouldn't have expected the picture to change markedly other than having net net, we see a bit more loss cost inflation in the U. S. Thanks, George.
Next question comes from the line of William Hawkins, KBW. Please go ahead.
Hi there. Thank you very much. First of
all, George, is there any chance you could give us an update on where you think your SST ratio has moved to by the middle of the year or maybe the
end of September? Some kind of update on that would
be helpful. And then secondly, I think you've alluded to this in passing, but just
to be explicit, you made the
comment about your combined ratio. Given that you said that you at the first half, you expect your investment income to be stable for the full year versus prior year. Are you sticking with that statement? Or would you like to be a little bit more cautious on the outlook for P and C investment income given how yields have fallen?
And I suppose if you
can just think about next year
as well and the answer to that would be helpful.
Thank you.
Yes. Good. Okay. So apologies on the excess detail, I cannot give you an update today on that. SST is a different methodology from ZECM.
SST does permit a slightly a bit more conservative UFR methodology than the Solvency II. So I don't have a number for you, but directionally, I mean, if you applied that FST permitted UFR, you would not expect to see the same size of movement that you've seen in ZECM. On the investment income topic, with the caveat that I gave earlier that you need to adjust for the hedge fund topic in the investment income. So for the yield component, no change to our view that maybe we'll expect to see something broadly similar. But of course, if interest rates remained where they are, where they were, if that makes sense, where they are.
I mean, they're still lower than they were certainly in the first half of the year. And that would have an impact on investment income expectations for next year and potentially beyond. I think the only thing to bear in mind there is that I mean the duration of the liabilities and therefore the assets is around 5 years. So it's a reasonably slow burn. But I mean just given where we are, interest rates remain where they are, more likely that's a bit of a headwind rather than a tailwind for us.
And I know it's a really complicated equation in practice, but I mean, are you guys comfortable that in general you can pass on the strain of low yields to the customer by adjusting the combined ratio down even at this very low level for yields?
So I think whether it's because of interest rates, whether it's because of the GL topic, whether it's because of nat cat accumulation over the last few years, When you've got a rate environment that is way ahead of loss cost trend, and in fact that gap has opened up again in Q3. So I think that there's a piece in there that I guess you could attribute to the impact of yields. But it's hard to do that very scientifically. So I think the overall rate environment is doing more than enough to help us with the yield issue currently.
That's great. Thank you.
Next question comes from the line of Peter Eliot, Kepler Cheuvreux. Please go ahead.
Thanks very much. George, I just want to follow-up quickly on your comment on Thomas Cook because apologies if I'm behind the curve here. But last time we spoke, I thought that the message was we shouldn't really expect anything material. I know you seem to say something a little bit different. So I was just wondering if you could update me anyway on your thinking there and any quantification you could give would be great.
And the second thing was just since we're on FST and modeling, What if I take the opportunity to ask? Your interest rate sensitivity in your FST is relatively high. And that compares to peers who show very little sensitivity. My understanding was that the new SST framework was very insensitive to interest rates. So I was just wondering if you could explain that to me or why you have the large sensitivity?
Thanks.
Yes. Thanks, Peter. So on Thomas Cook, I think last time we met, I talked about the loss. I gave it a very broad indication where the loss would fall. The thing that I left out of that conversation was the impact of reinstatement premium.
I don't expect the combination of these two things to be particularly significant in the group's results for the year. But certainly, if you look at well, you can buy can. If you look at our Q3 results, I mean, there's a delta in there that's driven by crop and Thomas Cook. But I mean, for example, the I mean, if you think about normal retentions, I mean, today, I would expect Thomas Cook, the net claim payment plus the reinstatement premium to be around twice our normal retention levels. On SST modeling, the answer is relatively simple and straightforward.
Currently, I mean, modeling of interest rates doesn't take full advantage of the USR, the SST permits. And that's why you see this much more sensitive picture in our SST than you might see elsewhere. I mean, that's obviously a topic that as we look at the need to be a bit more consistent that we're also going to consider as we approach the year end.
Yes. I mean, if I can just follow-up that very quickly. I mean, obviously, the Z ECM is used for your internal view and management view. And my interpretation is that the SST really, its only purpose is regulatory. So I guess I'm just wondering why there should be any need to divert from the regulatory framework?
Yes. It makes sense to be aligned.
So it's perfectly clear. We don't deviate from the regulatory framework because that wouldn't be permitted. We agree with them the approach that we take. Because I mean, one of the challenges with these complex models is that the overhead of running these things is pretty substantial. So to the extent that we can have consistency between them, it makes life a bit easier.
So we've taken a relatively pragmatic approach to some of these topics in the past and agreement with the regulator. But I guess that did not anticipate the size of the move that we saw back in Q3. But I agree with you. I mean, the SST says an important part of this for the regulator. I mean we will have another look to see if there is something we should do.
But I guess just recognizing that, of course, I mean, we don't have freedom in SST. That's something that if we do wish to change things, FINMA will expect to review and take their decision on whether they're comfortable with any change we may or may not propose in the future.
Okay. As we have no more questions on the call, I'd just like to thank everybody for dialing in today. If you have any follow ups, please feel free to contact the IR team. Otherwise, we look forward to seeing you all in London next week.
Thank you.
Ladies and gentlemen, this concludes today's Q and A session. Thank you for participating and wish you pleasant rest of the day.