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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 the Swiss Life Presentation of the Q1 Results 2022 Conference Call and Live Webcast.
I am Sandra, the Chorus Call operator. [Operator Instructions]
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.
Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. Today, we are reporting on selected top line figures for the first quarter of 2022. Please note that all figures quoted are in Swiss francs and are unaudited. All growth rates mentioned are in local currency. Let me start with today's key messages. Fee and commission income was up by 14% to CHF 579 million. Asset Managers grew by 20%, owned IFAs by 2% and owned and third-party products and services by 12%. Gross written premiums, fees and deposits received increased by 3% to CHF 6.9 billion. All business divisions contributed positively.
Insurance reserves, excluding policyholder participation liabilities declined by 1% to CHF 173 billion compared to year-end 2021, mainly driven by capital market development.
Swiss Life Asset Managers recorded net new assets of CHF 1.2 billion in third-party asset management or CHF 1.9 billion, excluding money market funds. Direct investment income increased to CHF 0.97 billion. The non-annualized direct investment yield was 0.6%. The non-annualized net investment yield stood at 0.9%. The SST ratio on the first of January 2022 as disclosed and filed with FINMA, was 223%.
As of today, we estimate our SST ratio to be at around the same level.
I will now move on to our segment reporting, starting with Switzerland. Premiums increased by 1% to CHF 4.3 billion. The life insurance market was down by 2%. Premiums in individual life were down by 3% while the market increased by 1%. Periodic premiums grew by 2%, while single premiums were down by 19%.
Premiums in group life grew by 1% to CHF 4.0 billion, while the market decreased by 2%. Single premiums increased by 6% primarily due to higher premiums from employees entering existing full insurance schemes. Periodic group life premiums declined by 2%. This reflects the growth of the semiautonomous business, which results in lower reported premiums. That business only risk and cost premiums are recorded while the savings components are recorded off-balance sheet as asset inflows in the respective foundations.
Assets under management in our semi-autonomous foundations increased to CHF 6.3 billion compared to CHF 5.6 billion at year-end 2021.
As previously mentioned, the reported premium development demonstrates our continued focus on disciplined underwriting. Fee and commission income slightly increased to CHF 83 million, driven by Swiss Life Select.
Turning to France. Premiums increased by 8% to CHF 1.9 billion. The market grew by 3%. Now Life business, premiums were up by 9% due to continued demand for our pension and savings products. The market was up by 7%.
The unit-linked share in our Life Premiums was 61% compared to the market average of 40%. Life net inflows were CHF 0.6 billion versus overall market net inflows of about CHF 8.7 billion. Health and Protection premiums grew by 7%, mainly driven by the group business. P&C premiums were down by 3%, primarily due to fleet and home insurance products.
Fee and commission income rose by 25% to CHF 111 million. Unit-linked fee income increased based on higher average unit-linked reserves compared to the prior year period.
We also had a strong contribution from the banking business driven by exceptionally high revenues from structured products in a volatile equity market environment.
I will continue with Germany. Premiums grew by 5% to CHF 390 million due to modern traditional and disability products. The market increased by 4%. Fee and commission income rose by 3% to CHF 160 million. The number of financial advisers increased by 18% year-on-year to [ 5,733 ]. This top line development needs to be put in the context of an extraordinary benefit in the prior year period of around CHF 15 million from a successful campaign based on the solidarity surcharge, as mentioned throughout 2021.
Excluding this prior year benefit, income growth would have been 14% in Q1 2022.
Moving on to our international unit. Premiums increased by 2% to CHF 272 million due to higher premiums with corporate clients in the Global Employee Benefits business, while premiums with private clients slightly decreased. Fee and commission income was up by 12% to CHF 87 million primarily driven by high contribution from our owned IFAs, both in the U.K. and CEE.
Let's continue with asset managers. Asset Managers' commission income rose by 20% to CHF 241 million. This included the first-time consolidation of the Nordic company, NRP acquired end of 2021. On a like-for-like comparison, income growth would have been 15%.
As usual, the update on asset managers in Q1 and Q3 focuses on commission income and does not include other net income from real estate project development.
In our PAM business, commission income increased by 4% to CHF 93 million due to high transaction fee income. In our TPAM business, commission income grew to CHF 149 million. Recurring income increased by 30% or by 23% on a like-for-like basis, excluding the mentioned consolidation of the acquired company in the Nordics. Nonrecurring commission income such as transaction and performance fees increased by CHF 6 million year-on-year.
To make figures comparable to full and healthy disclosures, the share of total nonrecurring income for TPAM, meaning commission income as well as other net income eg from project development was 19% of total TPAM income compared to 14% in the prior year period.
Net new assets in our TPAM business amounted to CHF 1.2 billion compared to CHF 2.9 billion in the first quarter of 2021. We achieved good inflows in real estate in real assets of CHF 0.6 billion. Inflows in other asset classes amounted to CHF 0.4 billion in bonds, CHF 0.7 billion in balanced mandates, and CHF 0.2 billion in equities, while money market funds reported an outflow of CHF 0.6 billion.
Excluding money market funds, net new assets amounted to CHF 1.9 billion compared to CHF 2.0 billion in the prior year period.
Overall, assets under management in our TPAM business were at CHF 102.3 billion compared to CHF 103 billion at the year-end 2021. The reduction despite net new inflows was due to less favorable capital markets and a negative FX translation.
Turning to our investment results. Our direct investment income increased to CHF 0.97 billion compared to the prior year level of CHF 0.95 billion. Equity and real estate contributed positively, while income on bonds decreased. Non-annualized direct yield was stable at 0.6%.
The non-annualized net investment yield was 0.9% compared to 0.7% in the prior year period. The increase is due to a positive P&L contribution from equity hedging and other derivatives. We also had positive changes in real estate fair values. Hedging costs were still at prior year level. Those positive effects more than compensated for the lower investment result from bonds.
Unrealized net gains on equities amounted to CHF 2.4 billion compared to CHF 3.3 billion at year-end 2021. Unrealized net gains and bonds amounted to CHF 4.7 billion compared to CHF 12.1 billion at year-end 2021.
With respect to the real estate portfolio. Changes in real estate fair values amounted to 0.6% compared to 0.5% in the prior year period, both on a non-annualized basis.
Vacancy rates increased slightly to 4.2% from 4.0% at year-end 2021.
In the context of the recent increase in inflation and interest rates, our real estate portfolio continues to be attractive with about 3/4 of total rental income indexed to inflation or higher rates.
Moving to solvency, cash and payout. Our SST ratio was 223% on the 1st of January 2022. As of today, the SST ratio is at around the same level and therefore, well above our ambition range of 140% to 190%.
Liquidity at holding today amounts to around CHF 0.9 billion. This takes recent cash remittances to the holding company into consideration as well as outflows related to the dividend payment and the ongoing share buyback.
Our CHF 1 billion share buyback is on track with more than a quarter completed as of today. As announced, it runs until the end of May 2023.
Let me sum up. We are very pleased with the first 3 months of 2022 that also marked the start of our Swiss Life 2024 program. 2022 so far has come with clearly higher interest and inflation rates.
Also, in such an environment, we confirm all our Swiss Life 2024 financial targets. We will start with our progress reporting within our half year 2022 investor presentation.
Thank you for listening. I am now ready to take your questions.
[Operator Instructions]
The first question comes from Andrew Sinclair from Bank of America.
Firstly, just on reinvestment rates. Just really wondered if you can give us some context on what sort of reinvestment rates you're getting today with rates going a bit higher and how that compares to your earned rates.
Secondly was on asset management net inflows. Just if you can give us a bit of an idea of phasing through the quarter for different asset classes. Was there a big change in March? Or was it just a quieter quarter overall.
And thirdly was just on the competitive environment for Switzerland. Has there been any change? I know you wont talk about specific competitors by name, but I did comment that they've been able to write quite a lot more business in Switzerland in Q1. So I just really wondered if you can give us any thoughts on the Swiss environment.
Okay. Thanks a lot for the question. First in terms of reinvestment rates. Indeed, we have seen high rates. If we look at the first quarter of 2022, our reinvestment rate is maybe 2.3% as we speak. This is clearly above last year's reinvestment rate. Back then it was 1.4%, 1.5% like -- and for the full year, we clearly also expect somewhat higher reinvestment rates than the 2.3% that we have seen in the first quarter. However, please keep in mind that there's only a relatively small share of our investments that come due every year. Maybe that's on the first question. On the second, the phasing within the first 3 months, I think there's nothing particular to note. By the nature of the business we have, kind of, I wouldn't call it erratic, but deals come in that they do not come -- it's nothing special to note here compared to prior years. This is a business where we have quite some big tickets and timing is by the nature, not very predictable. So nothing specific to note there.
In terms of the competitive environment, as we reported, we have seen increased, let's say, activity in the [indiscernible] -- in the semi-autonomous business.
As mentioned, on various occasions, this does not fully translate into the premium development. The reason being that we have most of the semi-autonomous, let's say, inflows, the savings part, not recorded as premiums in the P&L, but also, let's say, that the group life business overall, I would say, it's okay. So nothing particular to note there as well.
The next question comes from Peter Eliot from Kepler Cheuvreux.
I have 3 questions, please. The first one, I guess, is similar, very similar to Andrew's. So apologies for going back on that. But it seems to me that the semi-autonomous market has been sort of strong -- very strong overall in Switzerland. So yes, I am sorry, if we're going over the same ground. But I'm just trying to understand what might be driving that. I mean, I'm just wondering if you can give any comments on the market or the demand overall rather than the competition from suppliers. The second question was just on France. Thank you very much for the additional detail about the structured products and success. Are you able to give us any sort of numbers on that, just to sort of understand the weight of that versus the unit-linked momentum.
And then finally, I'm possibly being greedy, but just on the asset management and some time, just wondering what insights you can give us in terms of the outlook post Q1 for the rest of the year? I mean, I guess, you've sometimes sort of given us insights into what nonrecurring proportion you might expect for the year. And I guess you've had a little bit more experience on flows since the end of the quarter. But just wondering if you can add anything sort of post the Q1 cutoff.
Okay. Maybe first on the semi-autonomous part of the business. Let me first talk about the second pillar market in Switzerland at large, so both semi-autonomous, autonomous and the full insurance market. I mean this market is growing essentially at GDP. I mean, Switzerland has a growing workforce, which is have heard about a multiyear low of unemployment rate in Switzerland. So there is structurally a growth of that second pillar market overall. And we are aware that there is, a lack of, let's say, public figures on, for example, semi-autonomous parts, we know what insurance market is.
But if you now think back and I talk about Swiss Life, we have been clearly tightening the underwriting in the full insurance solution which just makes that part a bit small. So there's intrinsically an increased focus in the semi-autonomous and the autonomous part. And I think that would have been, let's say, happening in the market.
And in addition to that, that's something that has been observed in the past as well after a couple of, let's say, strong equity market years, there is increased interest in semi-autonomous, let's say, solutions anyway, irrespective, let's say, of the effect of the underwriting that has been tied in full insurance market anyway. So that's a couple of thoughts on the semi-autonomous market.
Now in terms of the structured product in France, they have really contributed quite a significant share of the growth in Q1 of the fee top line certainly more than half that this was driven by the volatility in the equity markets. That was particularly high in the first 3 months. So we do not expect this extraordinary benefit from the bank to repeat for the second, the third and the fourth quarter, but the bank is well underway overall. Maybe that's a bit on the French question.
Now in terms of the asset managers, the outlook, as you say, we typically indicate also with the share -- the total share of nonrecurring income. Again, that's both fee income, but also this other net income from project development. We have had 27% in the full year 2021. We expect a bit [ abnormal ]share this year.
Having said that, it's by definition, a bit difficult to predict, but we are, as I said, see a bit a lower share of that for the full year in asset managers TPAM business.
The next question comes from Fulin Liang from Morgan Stanley.
I just have 2 questions, both one. The first one is just want to confirm that you mentioned that your investment -- net investment result was helped by the hedging you put in place, which more than compensate the bond market movement. But does that mean that if interest rates assuming they're putting on when you say the bond is that the interest rate related? So if interest goes down from here, would that actually reverse? I guess that's the first question.
The second one is also, I wanted to understand a bit more about the broader kind of business outlook, if the volatility of the market, especially equity market remain very high. When I say kind of your expectation on the business, specifically, like, for example, your impact to your unit-linked business impact to your structured product selling and as well as the impact to the remaining like the third-party other third-party IFA sales, which will feed into your fee income.
Thanks for the question. Maybe in terms of, let's say, the hedging point, let me make first to say the bonds we have on our balance sheet. They do not flow through the P&L because we carry them at what we call available for sale, and they only go to the P&L if we realize gains and losses on bonds. So there's no mark-to-market in the P&L for bond investments. What we have observed and we have -- I think we have been talking about that effect for many years, for many, many years now, the reinvestment rates on bonds have been below the coupons that were maturing. And that's, let's say, a secure trend of the current income on bonds that we reported over the years.
The point I've made on the derivatives was the following: we hedge our equity portfolio and when markets decrease, clearly, the hedging derivatives, appreciate in value and that goes to the P&L, whereas the change of the underlying equity does not go through the P&L. We have reported a decrease of the unrealized gains on equities, they have come down by about CHF 0.8 billion or so year-to-date.
The other hedging I was referring to was the foreign exchange hedging, the FX hedging. We hedge both the FX bonds, the U.S. dollar, the euro bonds, for example, we hold on the Swiss balance sheet. We hedge there the underlying, and we also hedge the hedging costs of those -- for those bonds. These fair value changes have also gone to the P&L. And given the rate differentials and the movements, this has had a positive impact.
Looking forward, the increasing interest rate differential will mean we will incur higher hedging costs now going forward. Maybe that's a bit the more detailed story about the hedging.
Now needless to say that we have on that, also the policyholder share all those movements, we just explained are clearly pre policyholder sharing, which have pick up the large part of the movements anyway.
Now in terms of what happens if the volatility in the equity market stays higher. I think the simple answer is the very large part of our business does not, let's say, depend on the equity volatility. And we picked out this positive effect from the bank because there we offer structured products, these structured products, they play the volatility in the equity markets, and they have met large demand in the first quarter of the year.
And so this may be a pocket of our business where we have, let's say, where we could take advantage of such volatility. The other business overall, I would say, is nothing particular to mention. The only point I'd like to make, and that's an observation we have seen, for example, already 2 years ago in the COVID context, our unit-linked customers, for example, in France, they do not get nervous once equity markets get a bit shaky. Maybe 10 years ago, this pattern has been different. But 2 years ago, we have seen that even if markets tanked, they have more seen it as an opportunity than a threat.
The next question comes from Thomas Bateman from Berenberg.
Three questions from me. I just want to touch on real estate valuations and yields. Reported again -- can you split out how much of this is attributable to refurbishments and how much is just general real estate increases in your core markets? And secondly, you noted that 75% of the real estate assets are linked to inflation of interest rates. Can you talk about the affordability of tenant in your core markets and consequent your ability to pass on rent increases to those tenants.
And finally, just in France, things are still very, very good here, kind of above your 6% to 8% guidance for the strategic period. I guess I'm asking is there any upside to this guidance? Or is the shape of the transition maybe to unit linked you'd expect to be faster in the early part and maybe slower in later part of the plan? And any color on the France guidance, for your guidance would be helpful.
Okay. Maybe first, the question on the real estate. You know refurbishment that that's part of normal business. And if we invest in, let's say, a certain amount. This amount typically increases the value of the property, but that's not per se a P&L effect. So to cut it simple. So the very large part of that CHF 0.6 billion is not, let's say, refurbishment, but that's what is going on in the market because as you know, we do calibrate or not read our external valuation agent makes the assessment of the portfolio, and that's essentially what's going on in the transaction market, the 0.6% that I have mentioned.
The second question, the inflation protection, the 3 quarters that I gave is essentially something that is anchored in the contract on the commercial part. It's simply part of a contract where you say more cheer of inflation is passed on. And in the residential area, it is a level or a link to the average interest rate of the mortgages outstanding. And that's the way this transmission works from higher inflation or rates to the rental cost for the tenants. That's in that sense, a contractual thing that is at work.
Now in terms of the French question, I'm not fully sure whether I fully got it. What I can say in terms of general outlook, we have still very high interest in our pension solutions. We are growing strongly, not at the same pace, maybe as last year, but we continue to see high demand for the pension solution, and we have also now a bit more than in the past, also focused on the savings part, both of which have very high unit-linked share the pension block of business, the periodic premium, even longer-term part of the business, the pension part has typically a higher unit-linked trade and the savings part.
But as I said, we are above the market in both case. So, we continue to offer attractive proposition there to our clients. And I think that's what I can give in terms of outlook, even though I have to admit that's things that we have mentioned in the past.
I guess where I was coming through on France was -- I think you've given guidance for the CAGR of about 6% to 8%. I appreciate there's a bit of a tailwind from the bank channel this year, but you're 25% up in local currency, it seems quite a long way ahead sorry, just coming back on the real estate. I think I was going more towards like your tenants have the ability to pay these higher rents? Or did you see any pressure on the increased vacancies or defaults there.
Yes. I wouldn't see any point where tenants could not afford it. I mean the business in Switzerland is going well. I mean we have -- as I mentioned, a very low unemployment rate, business activity is strong. So I wouldn't see any point why these payments could not be, let's say, afforded by the tenants. And I think at that point in time, it's important to note, when we talk, for example, inflation in Switzerland, we have had 2.5% let's say, I think in March, this is far below the figures you may hear from the U.S., from Europe. So related, let's say, also increases in rents are obviously much smaller.
What also may help as also an indication for the business activity in Switzerland, we keep seeing increased migration into Switzerland. So we have a positive momentum here. So no concerns that these rents cannot be afforded by tenants, be it on the commercial or the residential side.
Coming back to your question about France, yes, indeed, we -- the 25% are higher than the indication we gave at the Investors Day, but that said, we have 1 quarter and this quarter that we now have been reporting has had this very strong extraordinary benefit from the bank due to the special quarter in -- that we had. So we do not expect that to repeat for the following quarters.
[Operator Instructions]
The next question comes from Jimmy Fan from UBS.
I have 3 questions, please. So the first one is about interest rates. Given this new materially year-to-date, how will it impact your reserving assumptions and profitability models presented you can use a higher assumption in terms of long-term investment return maybe more also in terms of your discounting rate. Can you give a bit more color on the mechanism here that will be super helpful. And I guess also on land, what will be kind of the impact on your kind of local statutory earnings and solvencies as a result, I mean, these are key to your cash out-stream?
And my second question is on real estate. Given the interest rate has a direct impact on mortgage and the cost of borrowing and those are kind of two of the factors influencing the real asset price. Could you give a more kind of comprehensive view in terms of the key demand and supply drivers in the Swiss real asset market currency.
And my last question, did you say sorry, I didn't catch it quite clearly. Do you say the cash position, cash at holding at 1Q was CHF 1.9 billion?
Okay, thanks for the question. I start with the one of interest rates and the reserving positions. Yes, indeed, I mean, given that the rates have increased more than probably all of us have expected, let's say, a couple of months ago. There's clearly less pressure on the reserving side. There may be low numbers. There may be pockets where there are releases. I think the key point to keep in mind here what has been working when we had lower rates, namely that the policyholder sharing was in place is also working when it goes the other way. So there may be less pressure on the reserving, but there's also policyholder sharing of that when rates go up. That's the point on the reserving the same clearly holds through for the solvency, we have indicated the sensitivity of the SST ratio to rate movements.
I think the most recent one is what we have disclosed at the half year 2021. We will provide an update at the half year for the first of January this year. But generally speaking, that's a small percentage point number for a 50 basis point shift. So there's nothing particular to note there. In terms of local statutory accounts, clearly, there is a benefit similar to what we have discussed for IFRS lower pressure on the reserving, but also the policyholder sharing, which is at work there as well.
Over time, that's what we have mentioned before. We will benefit from the higher reinvestment rate, but also this one is, let's say, subject to the policyholder sharing. Now coming to the question of the interest rates on the real market, the dynamics and the demand, you mentioned the link to mortgages We have seen clearly this further positive change of fair values in real estate, in the segments we are in, that let's say, showing the underlying demand for this kind of asset. The offer, as we said, quite some good inflation protection, and we see continued demand for that asset class. For us, like many other institutional investments, we do not finance this kind of investment with mortgages. We have, let's say, the policy of the funds we invest for that, and so we have there probably a different dynamic than what you may read from would individuals face in terms of financing costs when they have their mortgage rates going up. That's maybe the question on the real estate.
The third question was on the real estate valuations maybe. As I said, we continue to have a positive outlook for 2021. We have said that we continue to expect positive fair value changes may be a bit less than in the past, but that's, I think, what we can say across all the markets we are operating in.
So I think just on my first question about the cash liquidity number -- yes.
The cash that we reported was -- now let me check whether I find the number. It was CHF 0.9 billion as of today. And this includes, let's say, all the movements that we have had since the year-end, that's namely the movements relating to dividend, share buyback and the like. So it's not CHF 1.9 billion. It's CHF 0.9 billion.
The last question for today comes from Rene Locher from Stifel.
Yes. Three questions, if I may. So first of all, just out of curiosity, these inflation-linked rent increases, I have learned from real PSP that they are using the November CPI in Switzerland. And then the updated rents will come into force January next year. I was just wondering, if this is the same with Swiss Life. And then the second question is on you have reported strong growth in IFA in Germany. And I have seen an article in [indiscernible] , commenting that often is looking into too high cost for life insurance distribution. I was wondering if you have heard something out of Swiss Life in Germany.
And last but not least, it's yes, a big picture question. I mean, a lot of discussion on interest rates, the analyst note with investors saw. So I was just wondering the CFO view on rising or higher interest rate? Is it positive, negative or net for Swiss Life?
Okay. Thank you for the question. To be frank, I cannot comment whether we use November or December or whatever kind of time for setting inflation, it's right. There is some lag between, let's say, the reading of the inflation and, let's say, the rent becoming effective. I don't know whether that's 1 month, 2 months or to be frank, there is a lag, but it's not something that, let's say, were reasonably to be frank. I think it's key that we have the ability unlike for a bond to have this transmission of higher rates and inflation to the cash flows. So I think that's, for me, the key point, whether that's 1 month or 2 months, I think that's less of a concern for us.
On the second point, yes, we have, as you said, seen this growth in the German adviser base and also in the fee income.
As I said, we have had this prior year benefit. We have heard that [indiscernible] is looking into that. We do not expect the follow-up on that, that would lead to a cap of distribution costs or anything like that. I think that's the comment I could make here.
In terms of rising interest rates, we have a business where we have quite some assets, fixed income assets. This is something that people talk about. But from an economic perspective, for a life insurance company, we see clearly benefits. I mean, overall, that's positive. I will not go into great detail and make boring lengthy statements about this. Overall, as said, it's beneficial. Some of the benefits, as referred to, may take a bit longer to materialize, such as the reinvestment rates. We may see in the very short run, some other effects. Where we talked about the reserve releases or the loan strengthening. There are many things that work. On the life insurance, I think that's the statement, it's beneficial, but there's the policyholder sharing on it.
In the other businesses, in terms of the IFA business, yes, there is -- whenever something changes, there is a need for additional advice. So I think there we have also a good thing.
On the asset management part, clearly, there is -- I don't need to tell you that, the AUM go down, fixed income valuations come down. Sorry to raise that point, there is maybe here and there a couple some less millions in terms of fee income. But overall, as I said, we see that as a positive development.
Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Matthias Aellig for any closing remarks.
They are very short. Thanks for your interest in Swiss Life and for your questions. I wish you a nice day. See you at the half year. Bye-bye.
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.