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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 the Swiss Life Presentation of the Q3 Results 2019 Conference Call and Live Webcast. I'm Miruna, the Chorus Call operator. 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're reporting selected top line figures for the first 9 months of 2019. 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. Afterwards, I will provide more details on our segments. Fee and commission income was up by 17% to CHF 1.3 billion. Swiss Life Asset Managers grew by 25%, our owned IFAs by 24%, and our own and third-party products and services by 6%. Gross written premiums, fees and deposits received increase by 25% to CHF 18 billion. This growth comes mainly from our Swiss Group Life business. Insurance reserves, excluding wholesale participation liabilities grew by 6% to CHF 165 billion. All units contributed to this. Swiss Life Asset Managers achieved net new assets of CHF 6.5 billion in our third-party asset management. Total assets under management in our TPAM business now amount to CHF 80 billion. Direct investment income was at CHF 3.3 billion. The nonannualized direct yield was 2.0%. The net investment yield stood at 1.9% on a nonannualized basis. Our SST ratio was slightly above 200%. I will now move on to our segment reporting, starting with Switzerland. Premiums substantially increased by 48% to CHF 11.6 billion, driven by the group life business. The overall market was up by 4%. In individual life, premiums grew by 9%. The overall individual market in Switzerland was up by 2%. Periodic premiums increased by 1%, while single premiums, mainly with modern and modern traditional products, grew by 30%. Premiums in Group Life increased by 54%. The market increased by 4%. Periodic premiums grew by 12%, while single premiums increased by 90%. This increase in premiums is driven by additional demand as our largest competitor was pulling out of the full insurance business. It was achieved while maintaining our strict underwriting discipline to support capital efficiency. As I said in the Q1 and half year calls, this growth in 2019 is exceptional. Single premiums will revert to a more normal level in 2020. Overall, premiums in Group Life, also excluding for this exceptional move, were above the prior year level. New business production with semiautonomous solutions was up 4%. Assets under management in our investment foundation grew by 21% to CHF 10.3 billion compared to CHF 8.5 billion at year-end 2018. Fee and commission income in Switzerland was up by 9% to CHF 198 million due to Swiss Life Select, our mortgage business, pension consulting and investment solutions for private clients. Turning now to France. Premiums increased by 1% to CHF 4.2 billion. The slight decrease in our Life business was offset by the positive development in our health and protection and P&C businesses. Overall, the market was up by 4%. In our life business, premiums were down by 1%, while the market increased by 5%. This is due to our continued focus on maintaining an attractive unit-linked share in our business. The unit-linked share in our life premiums was 46%, essentially double the market average of 24%. In health and protection, premiums increased by 4%. The market was up also by 4%. Premiums in our group business were up by 6%. Premiums in individual protection increased by 7%. And premiums in individual health grew by 2%. P&C premiums were up by 7%, driven by modern products supported by new partnerships. The market was up by 3%. Fee and commission income rose by 3% to CHF 238 million. Unit-linked fees increased due to higher unit-linked reserves and positive net inflows. This was partly offset by lower banking fees due to a reduced turnover with structured products. I continue with Germany. Premiums grew by 4% to CHF 982 million. We achieved higher periodic premiums with disability and modern traditional products, both in Group and Individual Life. The market increased by 11%, driven by single premiums. Fee and commission income was up by 12% to CHF 359 million, driven by the strong contribution from our owned IFAs due to an increased number of financial advisers. Moving on to our International unit. Premiums decreased by 16% to CHF 1.3 billion mainly due to lower single premiums with private and corporate clients. Assets under control for private clients grew by 9% to CHF 20.6 billion compared to year-end 2018. Fee and commission income was up by 35% to CHF 240 million. All business lines contributed to this. Main drivers were Fincentrum, acquired in October 2018, and organic growth of Chase de Vere as well as its private and corporate clients. Let's continue with Asset Managers. Asset Managers figures include Beos, acquired last year at the end of August, and Livit facility management reported on a gross basis starting 2019. Livit facility management contributed CHF 30 million to the total commission income. Asset Managers' commission income rose to CHF 574 million due to higher management fees on a growing asset base and higher transaction fees. This is an increase of 25%, or excluding Livit facility management, of 18%. TPAM contributed CHF 305 million and PAM CHF 269 million to total commission income. The share of total nonrecurring income for PAM, meaning transaction fees and other net income, was stable year-on-year at 24% of total income. Net new assets in our TPAM business amounted to CHF 6.5 billion compared to CHF 5.2 billion in the prior year period. Net new assets split by asset class are 32% real estate, 23% balanced mandates, 20% bonds, 11% money market funds, 9% equities and 5% infrastructure. Excluding money market flows, net new assets were at the prior year level of CHF 5.8 billion. As mentioned at half year, we had extraordinary strong inflows in the first 6 months, and we did not expect a linear development in the second half of 2019. Assets under management for TPAM increased to CHF 80 billion compared to CHF 71 billion at year-end 2018. The split by asset class is 41% real estate, 20% each are bonds and balanced mandates, 8% equities, 6% money market funds and 3% infrastructure. Turning now to our investment result. Our direct investment income slightly decreased by CHF 35 million to CHF 3.254 billion. High rental income on our real estate portfolio was offset by lower coupons on bonds and slightly lower dividend income. On an FX-adjusted basis, direct investment income was slightly above the prior year level. The nonannualized direct yield was 2.0%, down from 2.2% in the prior year period also due to the basis effect from higher asset valuations. Our nonannualized net investment yield decreased to 1.9% from 2.2% due to higher asset valuations and lower net capital gains on bonds, alternative investments and loans as well as a higher drag due to FX hedging. This was partly offset by higher real estate revaluation gains and net realized gains on equities. The asset mix remained in line with half year 2019. Moving on to solvency. Our SST ratio was slightly above 200% by the end of September 2019. This increase compared to full year is due to tighter credit spreads, more favorable equity markets and the real estate appreciation. As of today, the SST is essentially on the same level. Moreover, our duration gap is around 1. This brings me to the end of my speech. Overall, we had a good start into the first 9 months of 2019 and to our Swiss Life 2021 program. With regards to our first strategic thrust, quality of earnings and earnings growth, we are on track with the development of our fee business. I am particularly pleased that all units contributed to a growing fee and commission income so far in 2019. We're also on track with our second thrust, operational efficiency. We will maintain our cost discipline in all lines of business. When it comes to our third thrust, capital cash and payout, I can report a healthy solvency. Also, we are close to completion of our CHF 1 billion share buyback program. Thank you for listening. I am now ready to take your questions.
[Operator Instructions] The first question from the phone comes from Andrew Sinclair with Bank of America.
Just three questions, if that's okay, from me. Firstly, I just wondered if you can give us a quick update on the outlook for nonrecurring fees in asset management? Secondly, just sticking with asset management, as you mentioned, you gave guidance at H1 that inflows might be a bit slower in H2. I just wondered if you'd give us any update on the outlook in Q4, given we're a month and a bit in already, as you've kind of seen the trends of Q3 or seeing a bit of a pickup again? And third and finally, just year-on-year fee growth -- fee income growth in International was particularly strong. I just wondered how much of that was from acquisitions versus what was the organic growth within International for fee income.
Thanks for the question. Let me start with the third question to fee growth in International. As you mentioned, there has been a quite strong contribution from the acquisition of Fincentrum as the full. I would say that contributed, let's say, 80% to 85% of the growth. But the rest of the business, as we mentioned also in the speech, were also contributing to the growth. The second question, when it comes to asset management, indeed, we already gave, let's say, some guidance for the entire program for Asset Managers. What we said already at Investor Day 2018 was that, in 2019, we would see, let's say, the historic project development pipeline from Corpus Sireo that dry out and that we would have a somewhat back-end loaded plan for Asset Managers. Now this -- before, let me continue on that, before in 2020, we would see, again, a start of a higher contribution from the project development coming from the pipeline that was developed under the Swiss Life brand won after we have taken over Corpus Sireo back in 2014. Now this will particularly become clear in the fourth quarter of 2019, this project development effect. However, as mentioned in the half year call, we have the clear guidance that we see a catch-up in terms of segment result for the fourth quarter. So 2019, we see a clearer catch-up for the full year compared to half year in terms of the TPAM segment result. Now in terms of the nonrecurring fees we had -- the nonrecurring fees in TPAM, we had 33% in 2018. As you mentioned, we have now 24% in the fourth -- in the third quarter, and we see somewhere in between the current level in Q3 and what we had in last year. So that's a bit when it comes to the nonrecurring fees. In terms of NNA, we had a particularly strong half year, and we clearly flagged that we would not expect that to be repeated in the second half of the year. If we look at the flows, excluding money market compared to last year, we are still prior year level so nothing to be particularly worried about. I hope I covered all the 3 questions?
I think so, yes.
The next question from the phone comes from Peter Eliot with Kepler Cheuvreux.
I apologize, Matthias, for asking on capital management because I know you all said the wrong time to comment on any further actions at this point, but I was wondering if you could just clarify your policy a little bit. Because, I mean, at the Investor Day last year, obviously, the -- you said you've returned capital above 190% SST, but since then, it's obviously become clear that it's really the holding cash that's the binding constraint, not the SST ratio. So I was wondering if you could just give us a little bit more detail on how you think of that. Would you -- will you -- do you sort of plan to review the position once a year in February? And you said, so, CHF 0.8 billion to CHF 1.0 billion. I'm wondering if you holding cash level. I'm just wondering, is it really sort of CHF 0.8 billion or CHF 1.0 billion, which is in your thinking? And I'm wondering whether you take into account the fact that you're about to receive large dividends internally.And related to that, I'm just wondering whether you can -- could you give us an update on what your current holding cash position is and what you expect it to be at year-end, whether it is the same outlook that you had at H1.
Thank you, Peter, for the question. I think you already answered most of the question yourself. Indeed, we now want to really focus on the complete thing, the running share buyback before we start talking about the future. But let me confirm the framework that we have established in 2018 at Investor Day and that's really the cornerstone of how we think about that. And this framework foresees 2 dimensions that we take into account when -- to consider potential capital management actions. And the first one, as you said, is the SST ratio of 190% or it has to be in excess of 190% that we consider potential capital management actions. And the second dimension is to have enough cash at the holding. As you mentioned, we have this internal defined comfort level, which is CHF 0.8 billion to CHF 1.0 billion. That's still the framework that we apply in thinking about potential capital management actions. Now in terms of holding cash, we were at Q3 at around CHF 1 billion. Back then, the share buyback was probably around completed by somewhere between 80% and 85%. As of today, we expect to be, in terms of comfort range, in the middle of it by year-end after having completed the share buyback. So that's essentially the update on -- in terms of capital management.
The next question from the phone comes from Jonny Urwin with UBS.
So just one main question, really. So I think you were seeing some drag from the project development fees in Q3, but it sounds like there's more to come in Q4. But what's been clear is there are other parts of the business which are kind of performing a bit better in terms of the fee income growth. So could you just run us through those? I think you mentioned some transaction fees in the third quarter. It looks like the proprietary asset management businesses is doing very well and the owned IFA channel as well. So just a bit more detail around those areas because I think that they are an important offset for the project fees this year.
Yes, indeed, we have 3 sources of fee income that now had, I would say, different growth dynamics. Year-to-date, we have, in terms of the asset management, which I would like to talk at the end about, a strong growth of 25%. There were a couple of effects in there, but let me first move on to the owned IFA channels. We had in Germany, which is, let's say, the biggest contributor to the owned IFA channels, a substantial organic growth of 12%. This is well supported by a higher adviser base. And there, we also keep investing. So that business is really going well. We had also seen a quite strong growth in fee income in the Swiss business, part of which is also the owned IFA channel, which also works well and also contributed to the IFA channels and particularly also to the strong growth was the International IFAs, most of which, as I mentioned before, 80% to 85% of the growth there came from this acquisition last year, but also, our IFA in the U.K., Chase de Vere, developed positively. So that gives you a bit of a flavor of how the IFA channels developed. Now in terms of own and third-party products and services, we have seen there this 6% growth. And this includes the unit-linked business in International, where we had a growing asset base and also includes the unit-linked business in France. The unit-linked business in France also had similar to the International business, also a slightly higher asset base and also a growing fee income there. But yes, we still feel a bit there the capital market decline from last year. In 2018 in the fourth quarter, we have seen a contraction of the asset base there and following a decrease of some appetite for unit-linked solutions in France, which now also led to the fact that we have a slightly low life premium there. So that's a bit what we can say there in terms of the unit-linked business in France for the Life business, which also then, over time, feeds into the fee result owned and third-party products and services. We expect a catch-up in terms of Life premium for year-end. And so that's big dynamics there. What I also have to mention is that we have other businesses. We have the banking business in France, which now is below prior year-over-year due to low restructured product turnover, but we have also many other smaller businesses that contributed positively, pension consulting in Switzerland and mortgage business in Switzerland and the like. So this should give you a bit of a flavor for this third bucket. And now I come back to, let's say, the Asset Managers business, where we have this 25% growth of the top line. As mentioned, there is this consolidation effect of Livit debt and services. They were already included last year on an equity consolidated basis, so the profit was recognized. Now we do it in the growth space, and this contributed about 7 percentage points to those 25% growth rates. Then we have here the acquisition of Beos, which also contributed. And if we account for that, there is still, let's say, around the 10 percentage point growth in Asset Managers in what we would call on an organic basis. And this organic basis is supported, first of all, by the PAM business, where we have a growing asset base. We have an increased real estate share and the related transaction fees. But also in the TPAM business, we have seen such an increase, and that's driven and supported by the higher asset base. And there, I come back to the previous question. For the TPAM business, we confirm for TPAM is catch-up. We have seen in half year a segment result that was below half year 2018, and for Q4 2019, we see a clear catch-up.
The next question from the phone comes from Kevin Ryan with Bloomberg.
It's Kevin Ryan from Bloomberg Intelligence. I just wanted a little bit more clarity on your group life and pensions business you're putting on this year. I mean, Swiss Life was very much, to my mind, being the market leader domestically in this area forever as far as I can remember. So what I really want to know is what's so attractive about this new business you're picking up from AXA? And given the regulatory challenges, which have also been around forever in this business space, why do you want to do it? That's what I didn't quite get.
Thanks for the question. We have been, as you mentioned, within the fear of the full insurance, together with a company that has now pulled out of it one of the big players. But this full insurance market is maybe 20% of the total second-tier market in Switzerland because we have there also the autonomous solutions, which account essentially for 80% of the full second-tier market. Now why have we taken in additional business? We have been in a position to improve our, let's say, portfolio because we could apply really disciplined underwriting. We maintained that disciplined underwriting, and this allowed us to have, on average, younger people, younger portfolios coming on to our books. So on average, I think the business we acquired is 1 year younger than what we had on the books. We have also a lower share of the so-called mandatory business, and this translates into an improvement also from our business. And this was also visible at half year. I mean, the business we acquired meets our hurdle rates in terms of value of new business. It is a below-average profitability, but we are above the hurdle rate, and that was visible also at the VNB development at the half year. In addition, what we also have to say, there is quite a contribution to the risk result from this business because there's some clear risks over there. We have contributions to asset management. And what we also have to say and not forget is that, when looking at the competitive situation, we think and we have disclosed that also at Investors Day that we have a bit -- a better positioning on both the asset side and the liability side. And those consideration in aggregate led to the decision to be here with a selective underwriting in a position to acquire that business.
The next question comes from Jackie Cui with JPMorgan.
Just one quick one. Can I ask what is the Solvency II equivalence of that above 200% SST ratio, please?
Yes. We are, first of all, not in a position to report -- to have to report Solvency II as a group. For us, SST is the relevant solvency yardstick. As an additional information we have been disclosing for several years now, an indication, and this indication is that we are above 200%. This was already the case a couple of years ago and has been the case since then every time.
The next question comes from Simon Fössmeier with Bank Vontobel.
It's Simon. Three quick ones, if I may? Firstly, the growth in Swiss Individual Life of 9% looks very strong, maybe more than twice the market growth. What's driving that? And secondly, the International business, the growth there seems to be below consensus. I was just wondering if there's any particular reason for the relatively weak growth? And finally, on the return on investments, the 1.9%, that's down a little bit more than expected, not much though. I'm just wondering if that's a concern for you, if this is a quarterly blip, if you manage this at year-end, and how one should model that going forward. I think you said something like a decline of 10 basis points per annum would be a reasonable assumption if this is still valid.
Okay. Let me maybe start with the last question, the net investment income has many components. The driver -- one of the drivers was slightly higher FX hedging costs. This is, as we speak, not a concern. For full year, we expect the numbers to be around 2.5% if nothing very unusual happens at the capital market. Then in terms of the group, the Individual Life business, in Switzerland, you know that growth was driven by the single premium business. We have there attractive propositions. We have there modern and modern traditional products, which really fits the needs of the clients, and that's the reason why we have been outperforming so far this year the market. Now in terms of the International premium. You know that's a business with very wealthy people. Those are typically large and very large tickets that come in. It is, colloquially speaking, lumpy business. And to that end, this reduction is not the concern either for us because there, the profit driver is the assets under management in that business, and this asset base has grown by 9% year-over-year.
Gentlemen, that was the last question.
Okay. Thank you for your interest in Swiss Life and for your questions. I look forward to talking to you again on February 28, 2020, to discuss our full 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.