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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to Swiss Life's Presentation of the Q1 Results 2019 Conference Call and Live Webcast. I'm Alessandro, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. This is my first conference call as a Group CFO, and I'm looking forward to interesting discussions with all of you. I hope to meet many of you during the course of the next few months. Today, we are reporting on selected figures for the first 3 months of 2019. Please note that all figures quoted in this call are in Swiss francs and are unaudited. Percentage changes are reported in local currencies for our foreign business divisions. Let me start with today's key messages. Afterwards, I will provide more details on our segment. Fee and commission income was up 11% in local currency to CHF 429 million primarily due to strong contributions from our owned IFAs. Gross written premiums, fees and deposits received increased by 44% in local currency to CHF 9.9 billion. This growth was driven by our Swiss group life business. Insurance results, excluding policyholder participation liabilities, grew by 4% in local currency to CHF 164 billion compared to CHF 159 billion at the year-end 2018. Swiss Life Asset Managers achieved net new assets of CHF 4.6 billion in our third-party asset management. Total assets under management in our TPAM business now amount to CHF 77.2 billion. Direct investment income increased to CHF 1.07 billion. The nonannualized direct yield was 0.7%. The net investment yield was 0.6%, also on a nonannualized basis. Our SST ratio on January 1, 2019, as published and signed with FINMA was 185%. I will now move on to our segment reporting, and I will start with Switzerland. Premiums substantially increased by 69% to CHF 7.8 billion. The overall market was up 10%. In individual life premiums were up by 2%, while the market was flat. Single premiums increased by 4%. Periodic premiums grew by 1%. Premiums in group life were up by 75% to CHF 7.4 billion. Periodic premiums grew by 10%. Single premiums increased by 158%. This premium growth was achieved while maintaining our underwriting discipline and our focus in capital efficiency. The market increased by 11%. During our full year 2018 call, we estimated for 2019 in the full insurance business around CHF 3.3 billion in single premiums and around CHF 350 million in periodic premiums due to new accounts, which are now included in our Q1 premiums. Please note that this increase in group life premiums is exceptional as it relates to our largest competitor pulling out of the full insurance market. We expect group life premiums to revert to a more normal level in 2020. Also, the profit contribution of this exceptional premium increase is limited. We expect a small double-digit profit impact in 2019. New business production with semiautonomous solutions was up by 158%. Assets under management in our investment foundation grew by 13% to CHF 9.6 billion compared to CHF 8.5 billion at the year-end 2018. Fee and commission income in Switzerland was up by 2% to CHF 67 million due to Swiss Life Select and investment solutions for private clients. Turning now to France. Premiums decreased by 1% in local currency to CHF 1.4 billion. The negative development in our life business was largely offset by the positive development in our health and protection and P&C businesses. Overall, the market was up by 2%. In our life business, premiums were down by 6% in local currency, while the market was up by 1%. This is due to our focus on maintaining an attractive unit-linked share in our business. The unit-linked share in our life premiums was 45%, lower than the 50% for the full year 2018, but essentially double the market average of 23%. In health and protection, premiums increased by 8% while the market grew by 4%. P&C premiums were up by 5% in a market that was up by 3%. Fee and commission income was stable at CHF 77 million. Unit-linked fees increased due to the higher unit-linked reserves and positive net inflows. This increase, however, was offset by lower banking fees due to a reduced turnover of structured products. I will now continue with Germany. Premiums were up in local currency by 2% to CHF 371 million due to higher periodic premiums with disabilities and modern-traditional products. The market increased by 8% driven by single premiums. Fee and commission income grew by 10% in local currency to CHF 124 million primarily due to a positive contribution from our owned IFAs. Moving on to our international unit. Premiums decreased by 26% in local currency to CHF 420 million mainly due to lower single premiums with private and corporate clients. Assets under control for high net worth individuals increased by 4% in local currency compared to year-end 2018. Fee and commission income was up by 33% in local currency to CHF 79 million primarily due to the consolidation of Fincentrum. High revenues of Chase de Vere and net earned policy fees also contributed positively. Let's continue with Swiss Life Asset Managers. Commission income was up by 16% in local currency to CHF 174 million. This is largely due to the consolidation of Beos and Livit facility management, while for the rest of the business, higher management fees on a growing asset base were almost fully offset by lower transaction fees. Livit facility management is now reported on a gross basis, contributing around CHF 10 million commission income with no impact on the segment's result. Net new assets in our TPAM business amounted to CHF 4.6 billion. The net new assets placed by asset class is 39% money market funds, 22% balanced mandates, 18% bonds, 14% real estate, 6% equity and 1% infrastructure. Excluding money market funds, net new assets were at CHF 2.8 billion compared to CHF 2.8 billion in the prior year period. Assets under management in our TPAM business increased to CHF 77.2 billion compared to CHF 71.2 billion at the year-end 2018. Turning now to our investment result. Our direct investment income increased by around CHF 30 million to CHF 1.07 billion supported by an increasing rental income on our real estate portfolio and higher dividends on our equity portfolio. The nonannualized direct yield was 0.7%. Our net investment yield decreased to 0.6% on a nonannualized basis. This compares to 1% in the prior period and is explained by the decreased valuation of our equity derivative used to hedge the exposure. The appreciation of the equity portfolio does not flow through the income statement and is therefore not visible in the net investment result. The asset mix remained more or less stable with a slightly lower net equity exposure. The duration gap was around 1. Moving on to our group solvency. On January 1, 2019, our Swiss Solvency Test ratio was at 185% as filed with FINMA based on the new standard model. You'll find this ratio and additional information in our financial condition report published on April 30. As of today, we expect the SST ratio to be around 190%. Overall, capital markets developments were positive. Regarding Solvency II. On April 18, 2019, our insurance entities in Europe disclosed their local solvency and financial condition reports. In this context, I can confirm that our group Solvency II ratio was above 200% as of January 1, 2019, based on a standard model with volatility adjustment and without taking credit for any transitional measures. This brings me to the end of my speech. Overall, we had a good start into the first 3 months of 2019 that, at the same time, marked the start of our Swiss Life 2021 program. I am particularly pleased with the increase of the revenues at our owned IFAs and the growing direct investment income. Moreover, we are on track with our CHF 1 billion share buyback program. Until the end of last week, we have repurchased 943,800 shares for a total amount of CHF 395 million. We will start with our detailed Swiss Life 2021 progress reporting during our half year 2019 results disclosure. I'm now ready to take your questions.
[Operator Instructions] The first question comes from the line of Peter Eliot with Kepler Cheuvreux.
I have 3 questions, please. The first one was on Beos and Fincentrum. And I was just wondering what -- can you quantify the impacts that they had on the fee income and also say whether there's any seasonality in those numbers or whether we can extrapolate those across the rest of the year? And I guess maybe looking forward, can you see -- can you sort of update us on what extent do you see the growth in fee income coming from organic and inorganic means? The second question was, I guess, just a sort of general background of the real estate. There's a bit of concern I guess in the investment community about real estate and comments from FINMA and so on, and just thinking, in the hypothetical scenario, if capital charges were increased, I'm just wondering how you would think of that. If capital charges were increased and your solvency ratio were to fall a little bit, would that have any impact on your ability to return capital? Or would you simply react by lowering your solvency target ratio? And then finally, third question. You guided us to expect sort of a lower asset management. Matthias, you said in your commentary that the nonrecurring fees were indeed lower, but nevertheless, we saw a very good result. Just wondering if you could update us on the outlook for the rest of the year and how you see the timing of those nonrecurring fees.
Thank you, Peter. Coming to the first question. Beos has a contribution of around CHF 10 million to the fee income. There is a seasonality in that business in there. Fincentrum, on the other hand, that's in the international segment, was really the large part of the growth of the international fee income. So to give you some indications under there, we expect probably a lower seasonality than at Beos. In terms of the growth ambitions, I mean, we have purchased Beos and Fincentrum last year. They were included in our ambitions for Swiss Life 2021. And as mentioned again and again, our plans are organic. So we do not include any M&A prospectively to achieve our Swiss Life 2021 goals. On the second question regarding the real estate, the things that we have heard now that you probably referred to from FINMA and from Swiss National Bank, they essentially refer to the mortgage market. And in the mortgage market, we have quite a low share as an insurance industry but also as Swiss Life. And what is so -- more -- even more importantly, due to tight asset regulations, we have a very -- or quite a low loan-to-value ratio. Our average loan to values are below 60%, and the things that we hear now in the press from FINMA is that they want to ask, especially the banks, which typically have high loan to values to have higher amortization [by declines] of the mortgages. So we do not see ourselves to be affected by that. So there is no spillover from those discussion into the real estate capital charge discussion. Because in our real estate, we don't have any mortgages, obviously, to finance them. So we see that, as we speak, as a topic that relates essentially to the banks as we are a minor player in the bank -- in the mortgage business. And as mentioned before, historically, we have always had low loan-to-value ratios for tight asset regulation reasons. Then on your third question regarding the nonrecurring commission income overall in Asset Managers, we had for the first quarter 2019 11% share of nonrecurring income versus 14% the prior year quarter. Now prospectively, we think that we can increase this share of 11%, but we will be, as we expect today, below the prior full year, which was at 22%. And in terms of timing, this real estate business is sort of back end loaded within the year.
Matthias, it's very helpful. Maybe just to elaborate on that first point a little bit. If you're saying you can increase from 11% across the rest of the year, then I mean, it sounds like you feel, in terms of sort of timing, Q1 is perhaps slightly understated. Is that a fair interpretation?
Well, that's the nature of the business that typically activity is low in the first quarter, and then the activity is picking up versus the second half of the year. And sometimes transactions that were scheduled for a quarter, for example, the third quarter and fourth quarter, they materialize at a later point in time. So it's quite a -- it's nonrecurring business by nature. We had a similar effect in 2018. And you cannot exactly time these single transactions. As I said they are nonrecurring by nature.
The next question comes from Andy Sinclair with Bank of America.
Three from me, if that's okay. Firstly was just on the Swiss sales jump after AXA's withdrawal from the market. I just wondered, [indiscernible] in Q1, return to normal in 2020. But what do you expect broadly for quarters kind of 2, 3 and 4 for the rest of this year? Secondly was just on France, on unit-linked sales, clearly tougher on unit-linked sales for the whole market, but are you expecting some sort of rebound in the rest of the year? What have you seen kind of more recently in terms of sales? And thirdly, just as I guess someone -- Peter was asking to some extent on solvency. Good solvency number at 1st of January, now that you've got full comfort on new FINMA model, I just wanted to make sure that you're reiterating that 140% to 190% target range.
Okay. First, your question on the quarters, Q1, Q3 and Q4 for the Swiss group life business. Most of the business in the Swiss group life business in terms of new accounts takes place in the first quarter. So essentially, the new accounts are now in the books. We will have -- if there are new companies founded, we will see that as well in the Q2 to Q4, but that is as in prior years. So Q2 to Q4 will be already normal as well. In terms of the Swiss business coming to France, I think you probably referred most likely to the life business. There, indeed, we have seen in the first 3 months, if we look at the month stand-alone, I mean, a clear improvement. So in terms of volumes, we expect that we see some catch-up for the half year. And for the full year, we currently expect to be at prior year level or slightly above. So we see the same dynamics that you mentioned. In terms of the solvency, we confirm the range of 140% to 190%, that's what we said for the Swiss Life 2021 program.
The next question comes from the line of Michael Huttner with JP Morgan.
Well done for executing on all this business in Switzerland. I had only 2 questions. The first one is on that business you mentioned, I think a figure of lower double-digit millions profit contribution from this new, and I just wondered if you can talk a little bit about -- more about that. Because AXA gave a figure of a reduction annually of I think CHF 20 million. So I wonder if there's any -- are we talking about the same or is there something else I'm missing? Maybe integration costs? I don't know. Anyway. And maybe if you can talk also the -- in the BVG business, a little bit about the profile of the books you've acquired in terms of your preference for younger portfolios and such. And then separately, on the solvency and the residential mortgages question, can you maybe give a figure? I understand the concern of the Finance Minister and central bank is -- Swiss National Bank is about residential starts. So I just wonder if you can break out your portfolio in your own real estate, not the mortgages and -- because there might be a spillover if banks are less willing to lend to residential then maybe the value growth in residential might be a bit lower. And I just wonder if you can give us a feel for the portfolio split at the moment and how you would see that kind of more economic impact developing.
Thank you, Michael. Maybe first on the question of profitability compared to what our competitor said. Obviously, his figures were for his entire book. Ours refer to what we have acquired. The calculation that we make in terms of the profit contribution the first year is that we say, look, we have acquired CHF 3.3 billion. That's not only from AXA. That's the entire new business, but most of it comes from AXA. But then the CHF 3.3 billion of the single premium that we have acquired, we can have a reinvestment return of, let's say, 2% or slightly above, and the 2% -- from 2%, we can retain 10% so 20 basis points on the single premium, that gives us about CHF 6.5 million pretax. Then the second profit driver is the share of the thing -- of the risk premium and the cost premium that we can retain. That cost and risk premium is about 1/4 of the CHF 350 million that we got in terms of new accounts, so that gives us maybe another CHF 8 million to CHF 9 million, if we do the math. So we are on a pretax basis somewhere between, let's say, CHF 14 million, something around that. That's, as mentioned, on a pretax basis. So that's how we derive our, let's say, numbers that we have quoted. And they are obviously quite clear to derive given the legal, quote, mechanics. In terms of the profile of the businesses that we acquired, I mentioned that we have really maintained our underwriting discipline. We have in the new business acquired a slightly lower share of non -- of mandatory business compared to our own portfolio, I think it's, as we already indicated, that the full year, call it, 50-50. And the average age of the portfolio we have acquired is also somewhat lower than our portfolio, at maybe 1 to 2 years that the portfolio that we acquired is younger. This is important because as a result of that, we have a lower amount of conversion rate losses that we have to expect over the remaining lifetime of those contracts. And that's, as mentioned at the full year call, the reason why this newly acquired portfolio even further improves the quality of our formerly existing portfolio. So that was for us really key to focus on those contracts that really further improve our own portfolio. On the residential and breakdown of our portfolio in terms of real estate, we have that on Page 63 of the full year portfolio. We have 32% that is residential, 45% that is commercial and the remaining 23% of mixed use. But I think it's really important to stress that FINMA is really, at this point in time, focusing on the mortgage market for residential properties that -- where they see kind of an overheating that is taking place. Now in terms of impact, we don't really see an economic impact if the prices in that segment should increase by a lower percentage point because we acquire real estate for the rental income and not the appreciation. For us, real estate is a substitute for long-dated government bonds that provide a recurring income that we need to pay annuities of our clients.
The next question on comes from the line of Bernard [indiscernible] from [indiscernible]
A question for clarification. The net growth in Swiss group life is very strong with CHF 3.2 billion. I wonder a little bit, could you give us more information about how much of the newly signed business is what they are calling Switzerland [full] (spoken in foreign language) out of this CHF 3.2 billion. And I suppose the rest would be a combination in the commercial customer channel, which is also going to semiautonomous group life business?
Yes. I think the number I gave, the CHF 3.3 billion, that is really new accounts into the full insurance market. Clearly, we had also other movements. We had also new accounts that went into the semiautonomous offering that we have that was not the CHF 3.3 billion that I was mentioning in my talk. And we also have typically some clients leaving us either for other full insurance solutions or for semiautonomous solution. Did this answer your question? Or...
Yes. So I understand that the new full [ Fincentrum ], the new accounts -- the assets, the premium -- I mean the premium volume is CHF 3.3 billion.
Yes.
The next question comes from the line of Ralph Hebgen with KBW.
I've got 3 points. One is a numbers question. Would you be able to tell us what the group life premium in Switzerland was in 1Q '18? And also what the profit contribution of that business was in 1Q '18? And second, if I exclude the incremental influx from the AXA market withdrawal, it looks as if underlying, in Switzerland, you had a decline in premiums, about 10%. If I did that right, maybe you can confirm -- first of all, confirm this and then comment on that dynamic. And the third is just picking up something else, which we already discussed, which is the seasonality in the profit -- sorry, seasonality in the fee income contribution from Beos. Would you be able to tell us more about that seasonality? Is it going to go up in the second quarter? Can we times it by 4 overall for the full year 2019? So that will be helpful as well.
Maybe to your question on the group life business, the premiums that we had in the group life business was around CHF 4.2 billion in Q1 2018. There are always several things that contribute to that. There was new business that contributes to that premium. And this component of the premium was clearly very extraordinary, but we also had a new business contribution in the last year, CHF 4.2 billion. We have also other contributions like new employees. In existing contracts, there's also some dynamic there. And people are just topping up their pensions. So there are many things contributing to that. So I wouldn't talk about a decrease of the premium group life. Then the -- and obviously, we do not disclose any profit contributions on that line of business. The second -- I think I already addressed with that also the incremental influx in terms of seasonality at Beos. This is a real estate Asset [Manager]. It also has transaction fees that it earns. So as mentioned, we see some increase versus the following quarters.
The next question comes from Rene Locher with MainFirst Bank AG.
You mentioned before a reinvestment yield of some 2%. Now if I do the math with this 0.7, I end up with a direct investment yield of some 2.8%. And nevertheless, despite the lower reinvestment yield, you managed to keep the absolute amount of direct investment in the amount of roughly CHF 1.1 billion. So perhaps you can just like to give a bit more detail, what exactly happened here. Second question is on [indiscernible] to the real estate market. I saw an interview with your macroeconomist yesterday, and he was quite positive on the Swiss real estate market. And this goes a bit hand in hand with what PSB, one of the largest real estate companies, reported with lower vacancy rate, down from 5% to 4.4%. So perhaps you can just give us a little more insight here where you see your vacancy rate going? And the last question, on this Fincentrum I saw a press release and in the press release -- the press release was [talking about] a turnover in excess of EUR 60 million of [this] Fincentrum that was dated October 2018. And you explained that in the international business the fee income, the growth of 19 million was fully due to Fincentrum. So perhaps give us a little bit more detail here. Is this broader auto? Is it fully consolidated already?
Okay. Let me start with the last question on Fincentrum. This is fully consolidated, and the contribution to the growth in international was from Fincentrum to a large degree, but the underlying business excluding Fincentrum was also growing. So it was not Fincentrum alone that contributed to the growth but also the underlying business contributed. In terms of vacancy rates, indeed, we see there good development in the vacancy rate. We have 4.6% at the year-end, and I think that's essentially a good level. We have overall at group 5%, so I think we are still positive for the real estate market. That's also the reason why we continue to invest into real estate because the premium that we earn above risk-free are still attractive. So we -- that's our assessment of the real estate market. In terms of the investment, the reinvestment yield, indeed, our reinvestment yield is somewhat above 2%. I mentioned the 2% before just to make the calculation a bit easier. It is somewhat above 2%. But the reason [that way] we can maintain a good development on the portfolio is that we can also increase the investment income on the existing portfolio. This refers, for example, to loans, to infrastructure investments. But also on the real estate, we can, for example, in certain cases, increase the rents. We can in certain cases also lower the vacancy rates. So there's really many things that we can do on the existing portfolio to increase the investment income.
The next question comes from the line of [ Johannes Springman ] from [ AWP ].
How much of the increase of CHF 3.3 billion in Switzerland is coming from AXA?
The AXA contribution to the CHF 3.3 billion is the large part of the CHF 3.3 billion, but we do not disclose on a specific basis, what AXA is, but it was the biggest part.
Okay. And the second question, are you satisfied with the development in France?
Well, we have difficult market environment there. We maintained a unit-linked share that is still double what the market average is. We actually also rejected some premiums in the life business to maintain quite a high share of unit-linked business. We see that the market is picking up. So I think even that the circumstances are what they are in the capital market, we are, let's say, okay with that development especially as we see these catch-up effects that I mentioned before. And what is really a very positive development is that we are now growing in the P&C business and also specifically in the health and protection business, where we achieved year-on-year an 8% growth, which was slightly above the market. So overall, given what the circumstances are, we're fine with this development in France.
The next is a follow-up question from Peter Eliot with Kepler Cheuvreux.
I had 2 follow-up questions. Actually, I think you might have sort of partially answered the first one, which is I was going to ask what your market share in France unit-linked business actually was this quarter versus previous quarters? Was that -- I think you partially answered that, but if you do have the figures, that would be great. And the second thing was just going back to your comments on the real estate. I mean it sounded like you see that as an attractive investment opportunity as ever. And reading between the lines of your comments, my takeaway is that we should probably expect the share of your investment portfolio to sort of keep growing at the rate it has done. Is there any reason you'd sort of dissuade me from those thoughts?
Maybe to the first question, I have at hand the unit-linked share. The market share in terms of unit-linked was 4% in Q1. This is essentially double the market share we have in overall premiums. To be transparent, we don't have the prior year-over-year at hand. Actually, I just found it. It came down from 4.4% to 4% at Q1. So we are still above our, let's say, natural market share in Q1 2019, but it slightly came down compared to prior year. In terms of your question on real estate, as mentioned, we are still seeking to target a net acquisition of CHF 1 billion per annum. That's for the reasons that we mentioned. If you look at the percentage share in the asset allocation, it has come down a bit for various reasons, but we are still looking to increase the exposure in monetary terms.
The next question comes from the line of Frank Kopfinger with Deutsche Bank.
Apologies, I would like to go back to your development in the Swiss market and also to [Ralph's] question. Could you again please comment on the underlying development excluding the AXA business in Switzerland and also what the drivers behind those developments are?
So the periodic premium, if we would exclude new business altogether -- if we excluded new business altogether, obviously, we would get some decrease. But we write new business every year, and we also wrote new business last year. So if we would exclude -- I'm now talking about the periodic premiums, we would have a stable development because, as mentioned, we have written new business in the past just to acquire new accounts. And essentially, the same holds true for the single premiums. So all in all, we said the group life business is a growing business because it essentially grows at least with the GDP. And if we maintain our share for insurance market, where we still see strong demand from the small and middle enterprises, we do see this underlying growth because -- and that's, as we mentioned, the CHF 3.3 billion is not only AXA, but it's to a large degree AXA.
Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Matthias Aellig. Please go ahead.
Thank you for your interest in Swiss Life and for your many questions. I look forward to talking to you again on August 13 to discuss our half year results. I wish you a nice day, and goodbye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.