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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 Q3 Results 2021 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. Operator Instructions] At this time, it's my pleasure to hand over to Mr. 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 9 months of 2021. 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 grew by 15% to CHF 1.6 billion. All sources contributed positively. Asset Managers was up by 5%, owned IFAs by 16% and owned and third-party products and services by 20%. Gross written premiums, fees and deposits received decreased by 2% to CHF 15.2 billion due to Switzerland and International. Insurance reserves, excluding policyholder participation liabilities grew by 3% to CHF 176 billion compared to year-end 2020. Swiss Life Asset Managers recorded net new assets of CHF 6.3 billion in third-party asset management. Total assets under management in our TPAM business amounted to CHF 100.1 billion, and thus we achieved our CHF 100 billion target for year-end 2020 -- 2021, sorry. Direct investment income was at CHF 2.95 billion. Nonannualized direct yield was 1.7% compared to 1.8% in the prior year period. The non-annualized net investment yield stood at 2.0%, up from 1.4% in Q3 2020. Our SST ratio as of 30th of September 2021 was around 210%. As of today, we estimate our SST ratio to be around the same level. I will now move on to our segment reporting, starting with Switzerland. Premiums decreased by 15% to CHF 7.7 billion due to group life. The life insurance market was down by 9%. Premiums in individual lines were up by 4% to CHF 1 billion in line with the market. Periodic premiums grew by 3%, while single premiums were up by 7%. Premiums in group life declined by 17% to CHF 6.7 billion, while the market decreased by 13%. Periodic premiums fell by 3% and single premiums decreased by 29%. About 3/4 of this decline in group life single premiums can be attributed to lower volumes with new accounts, where the remaining quarter relates to lower premiums from employees entering existing schemes. We continued to focus on disciplined underwriting to protect and improve the quality of our full insurance book. In this context, assets under management in our semiautonomous foundations increased CHF 5.5 billion compared to CHF 4.8 billion at year-end 2020. The shift to growth in semiautonomous solutions results in lower reported premiums. Only risk and cost premiums are recorded, where the savings components are recorded off balance sheet as asset inflows in the respective foundations. This development is in line with our full range provider strategy and our established focus on quality before growth. Fee and commission income increased by 13% to CHF 242 million, primarily due to Swiss Life Select, our mortgage business and our businesses with unit-linked and investment solutions to private clients. Turning to France, premiums increased by 25% to CHF 5.6 billion. The market grew by 21%. In our Life business, premiums were up by 34% due to continued demand for our new pension products following strong growth in the prior year. The market was up by 35% which compares to a weak 9-month period in 2020 when it declined by 25%. The unit-linked share in our life premiums was 58% compared to the market average of 38%. Life net inflows were CHF 2.1 billion versus overall market net inflows of CHF 17.2 billion. In Health & Protection, premiums grew by 5%, while the market was up by 4%. P&C premiums were up by 11%, driven by modern products. Market growth was 4%. Fee and commission income rose by 25% to CHF 312 million. Unit-linked fee income increased as a result of high unit-linked reserves, which grew due to net inflows and the favorable financial market environment. We also generated higher revenues from structured products. I continue with Germany. Premiums grew by 5% to CHF 1.1 billion due to modern, modern traditional and disability products. The market decreased by 2%, driven by single premiums. Fee and commission income rose by 20% to CHF 478 million due to strong contribution from our owned IFAs based on a high number of financial advisers. This top line development also included, as mentioned on previous occasions, an extraordinary benefit of around CHF 15 million from a successful campaign based on the solidarity surcharge, which was discontinued for the majority of the German population at the beginning of 2021. The number of financial advisers advanced by 21% year-on-year to 5,371. This is an exceptionally strong growth. Moving on to our international unit. Premiums decreased by 16% to CHF 810 million due to lower premiums with private clients in Europe that were partly offset by higher premiums with private clients in Asia and with corporate clients. Fee and commission income was up by 17% to CHF 249 million, driven by high contribution from our owned IFAs, both in the U.K. and CEE, while the income with private and corporate clients were slightly higher. Let's continue with asset managers. Asset Managers' commission income rose by 5% to CHF 667 million. The increase is fully driven by higher recurring commission income. 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, which increased compared to the prior year period. Net income from real estate project development was at CHF 48 million compared to CHF 40 million in the prior year period. In our PAM business, commission income increased by 3% to CHF 284 million. This is due to higher recurring income. In our TPAM business, commission income grew by 6% to CHF 383 million. Recurring income increased by 16% given higher average assets under management. Nonrecurring commission income from transaction and performance fees was below the prior year period. Those figures exclude, as just mentioned, CHF 48 million of net income from real estate project development. The share of total nonrecurring income for TPAM, from transaction and performance fees, as well as from gains on ongoing and completed real estate development projects, was 21% of total income compared to 28% in the prior year period. Net new assets in our TPAM business amounted to CHF 6.3 billion compared to CHF 3.8 billion in the first 9 months of 2020. We achieved strong inflows in real assets of CHF 2.9 billion, CHF 2.6 billion in real estate and CHF 0.3 billion in infrastructure, which is above the prior year level of CHF 2.4 billion. Other inflows amounted to CHF 1.7 billion in money market funds, CHF 1.5 billion in bonds and balance mandates and CHF 0.2 billion in equities. Excluding money market funds, net new assets amounted to CHF 4.6 billion in the first 9 months of 2021 compared to CHF 3.5 billion in the prior year period. Overall, assets under management in our TPAM business were up to CHF 100.1 billion, compared to CHF 91.6 billion at year-end 2020. Turning to our investment result, our direct investment income remained essentially stable at CHF 2.95 billion. The non-annualized direct yield was at 1.7% compared to 1.8% in the prior year period due to a higher average asset base. Similar to our half year disclosure, we had an increase in rental income. About half of this increase related to new fund consolidation. The other half was due to higher rental income on a growing real estate asset base. Coming to the net investment yield, our non-annualized net investment yield increased to 2.0% compared to 1.4% in the prior year period. The contribution of the hedged equity portfolio was less negative than in the prior year period. We also had higher revaluation gains on real estate and net capital gains on loans and alternative investments. We also have substantial improved FX hedging effects, including a decrease in hedging costs to CHF 258 million from CHF 444 million in the prior year period. Those positive effects were partly offset by substantially lower gains in bonds. At the end of September 2021, net unrealized gains on equities amounted to CHF 2.8 billion compared to CHF 1.6 billion at year-end 2020. Net unrealized gains on bonds amounted to CHF 12.6 billion compared to CHF 18.2 billion at year-end 2020. The asset mix remained in line with half year 2021. The real estate exposure amounted to 22.8%. We had real estate revaluation gains of 2.1% compared to 1.3% a year ago, both on a nonannualized basis. Effective rent losses were less than CHF 10 million. Rent collections amounted to around 98% of rent income due in the first 9 months of this year. Our vacancy rate was at 4.2% at end of Q3 compared to 3.9% at year-end 2020. We expect vacancy rates for the coming year-end to be marginally above the current level. Moving to solvency and cash, our SST ratio was around 210% by the end of September 2021, and therefore, above our ambition range of 140% to 190%. As of today, the SST ratio is at about the same level. Cash at holding as of today is around CHF 1 billion, already deducting CHF 200 million for the senior green bond maturing in December. Let me sum up I'm very pleased with the strong performance of Swiss Life in 2021 so far, especially with the development of the fee businesses. We are about to successfully complete our Swiss Life 2021 program and expect to achieve or exceed the Swiss Life 2021 financial targets. We will report new targets for the next strategic program in November 25th. We look forward to seeing many of you in person at the Zurich Airport. For those who are not able to join in person, we will provide a live broadcast on the Swiss Life IR website. Thank you for listening. I am now ready to take your questions.
[Operator Instructions] The first question comes from Peter Eliot from Kepler Chevreux.
Congratulations on the good results. I have 3 questions, please. The first one was on the cash. I may have misheard you just now, Matthias. I thought -- I heard you say EUR 1 billion cash holding. I guess I would expect -- and you said CHF 0.8 billion at the half year, and I was expecting 30 to 40 in the second half of the year. So identify if I misheard you or if there's been a jump up. So I was wondering if you could just maybe guide us through the moving parts of that, very helpful. Second question, I was wondering if there's just any comments you can give us on whether the sort of strong momentum is continuing into the first half of Q4. I mean, in particular, I'd be interested in the current trends of the number of financial advisers. Are they still sort of growing at the same rate, for example? And you've probably got a decent view of the pipeline of the asset management business. Any comments would be very useful. Final question was on the SST. I guess it's now 20 points above the top end of your target range. I mean, obviously, it's a regulatory requirement. But other than that, I'm just wondering how much attention you pay to it these days, whether we should -- can basically dismiss it, just focus on cash. Any thoughts there would be useful.
Okay. Thanks, Peter, for your question. In terms of the cash at holding, you're right, I said it was CHF 1 billion cash holding. You may recall that we have issued a senior green bond in the course of September. And we have thought this was a 600 million issue in euro. We have put that forward, as mentioned, as a green bond, 200 million of that will be used to refinance a maturing green bond in December of this year. And we have now some of the cash still sitting at the holding and this remaining part will be invested over time according to the Green Bond framework that we have in place. Now in terms of the SST, with the framework that we have talked about now many, many times, the framework is still in place. There's no alternative I think that's what I can say in terms of the SST and related considerations. Now in terms of business, as you said, we have seen also in Q3 a strong momentum in the fee businesses with a 15% top line growth. A couple of thoughts maybe on Germany. Let me point out that this -- as mentioned, this development also included the special effects of CHF 15 million. And what I also would like to point out that on the adviser growth of 20%, this is in our view, an extraordinary high growth and maybe some operational considerations to be made. But by and large, I have to say, there is still good momentum. We see the pace as usual may depend, and we have, as mentioned, had some special effects in the year to date. I think in terms of Asset Managers business, yes, we still see good flows, and for the full year, I can just say, we know that some of the businesses, some of the -- especially the nonrecurring part of the TPAM income, we always see some volatility given the nature of nonrecurring income, but we expect to see a pickup in the share of nonrecurring income from the 21% that we had in Q3, maybe to something in the range of 25% to 30% for the full year '21.
That's very helpful. Could I just maybe come back quickly on the first point? I'm just wondering how that issuance sort of impacts on your sort of comfort zone of CHF 0.7 billion to CHF 0.9 billion. Has that affected at all -- yes.
No, I think that the comp range is an effect. It's CHF 700 million to the CHF 900 million. And that said, the proceeds of that green bond where we invested over time according to the green bond framework, which, by the way, is also publicly accessible on Swiss Life's website.
The next question comes from Michael Huttner from Berenberg.
And just like Peter said, well done, it's lovely results. I had a few questions. The first one is on the 5% growth in fees investments. I think I've got that figure right, I hope I have. It seems -- I don't want to be critical because these are amazing numbers, but given the strong growth in assets, there seems to be a slight lag. I don't -- to be too negative, but is possible -- normally, all the numbers beaten, there's a number where you think, whoo. So I just wondered if you can give a little bit of color on this. Is there a mix effect or something -- some seasonal something? The other is on the real estate. So the revaluations were fantastic. I think you said to 2%, it was 1.3%, I think, at the 6-month stage. I just wondered if you can give, sorry, 1.4% if you can give a kind of feel for what's happening in the market at the moment. I think at the 6 months stage, retail was down. offices were up a little bit, and residential was up a lot, and I just wondered if it's the same trends. And then the final one, the same as Peter, there seems to be a disconnect between the cash and the solvency, I mean cash is in line or a little bit better and some seems like completely different territory. And I just wondered if, if I think about the business model, what is happening here? Is it that the local units are no longer remitting or that you're investing more in growth?
Okay. Thank you, Peter. Let me start with the asset managers question. I mean, first of all, the 5%, that's the total Asset Managers fee and commission income. And this fee and commission income is composed of the PAM business, where we manage the on balance sheet assets. The PAM business had a growth of 3%, whereas the TPAM had a growth rate of 6% year-to-date. And within the TPAM business, as mentioned, we have various components. We have the nonrecurring income, which is volatile. And we have the recurring income. These 2 together, they led to the 6% recurring income has actually grown by 16%. So and this has been achieved on a growing asset base, as you mentioned, and what is not included in this plus 6% TPAM fee and commission income growth was the real estate project development gains, which were, let's say, CHF 8 million above the prior year period. So that's the number I gave. The increase from project development gains that rose from CHF 40 million to CHF 48 million. And this growth is not included in all the growth rates that we have mentioned in the press release or in my speech. So that hopefully gives you a bit of color that you can try to beat the numbers. What I also mentioned, and this is, let's say, from what I said, the transaction performance fees which we typically have in the TPAM business, they are below the prior year. And this may have led to the numbers as you have perceived them. Then in terms of real estate, as you mentioned, we have had additional revaluation gains in the current year. In the first 9 months, the 2.1%. They are above the prior year of 1.3%. If we look at the trend, and I'm going back to what I mentioned in the half year, 2020, '21, we had a positive revaluations on all segments of residential, office and retail. They all had positive revaluation gains. Clearly, residential as the most pronounced contribution to the revaluation gains, but I think the key to stress is also office and retail sub segments had positive revaluation gains that what we have discussed in the half year, and we can confirm the trends that we have reported back then. So I think that's to your second question. And the third one, to be frank, I mean cash and solvency, they are not related, I mean, if we have, and if we think about what has happened in the first 9 months, I mean the uplift of maybe let's say, 12 or whatever points compared to the year-end values. I mean, essentially 4 to 5 percentage points uplift of the SST ratio has been driven by the real estate valuation which is noncash. And in terms of the equity performance, we may have probably another 4 percentage point uplift in the SST. And as I mentioned, we had no cash impact from that equity performance in the holding because we have had the dividend as the main cash remittances, which took place in the first half of the year. And back then, we could report for the first 6 months, an increase cash remittance of about 7%. So I think it's important to understand that there is no link between, let's say, an improved SST and the cash at holding. What has moved the cash at holding as I mentioned before was the issuance of the senior green bond in September.
The next question comes from Rene Locher from Stifel.
First question is on the net investment yield, which is now at 2%, and I was just wondering if this could have a positive impact on the savings result, which was down to CHF 787 million in 2020. I mean just, of course, the number is just to get my view if these high net investment year, it could have a positive impact on the savings result. And then yes, we have started this revaluation gain. This is in line with what we hear from listed real estate company. And on the vacancy rate, you highlighted that we'll be slightly up compared to the 4.2% we have seen at the end of 9 months or I was just wondering what is the driver here.
Thank you, Rene, for the question. Let me start with the net investment yield. As we mentioned in the full year disclosure for 2020, I mean, we clearly highlighted that the savings result in 2020 was clearly negatively affected by COVID-19 effects that we had reported back then. And yes, in principle, the higher net investment yield in tenancy leads to a higher savings result. I think what you have to keep in mind that there is also policyholder sharing. So the uplift in net investment yield goes to a certain degree to the policyholder, always a bit depending on where the additional net investment income has accrued. But in principle, yes, you're right. Then to the question on the vacancy rate, we have reported 4.2% now for Q3. That's about to say or even actually the same level that we had for half year and the guidance is unchanged. And we say it will be marginally higher for the year-end 2021. So in that sense, nothing particularly new to report to you -- And I'm not sure you had -- whether you had a question on the revaluation gain.
No, no. I mean I highlighted this is in line what we have heard from [indiscernible]. But I'm just wondering what was the key driver? Was it like change in this country? Or was it higher rental income?
Well, the revaluation is not done by us. We have an external valuation agent. And they calibrate their models towards a these in the market. So the models calibrated to observe transactions in the Swiss market. And I think we can just speculate what transaction prices have been driven by, but I think the strength of that methodology is as mentioned, it is observed in the market.
The next question comes from Fulin Liang from Morgan Stanley. .
Good results. I have 3 questions, very quick one, please. The first one is, you mentioned that you are expected to achieve the financial target of 2021. And I just wonder, does that include the cost income ratio of your TPAM business because that one was apparently above 80% in half year results. So that's the first one. And the second one is should we expect to in terms of the technical interest rate enhancement, reserving enhancements, you didn't have anything in the first half. Should we expect you to do some enhancements as interest rates went down. That's the second question. The third one is, so the property revaluation as we are like another 1.5 months into the fourth quarter now, is there any kind of -- seems like the revaluation has accelerated actually from the first half? And what we should be looking at in the first -- in the fourth quarter?
Okay. Let me start with the last question. I've mentioned the revaluation -- the valuation then the result in revaluations that accrue in our P&L or not undertaken by us. It is the external valuation agent. But that that's the reason why we are not in a position to comment on that aspect. In terms of the technical rates and let's say the reserving, we do this assessment always perhaps year in full year depending on the current situation's prevailing at closing date. So here, it's a bit also speculation, but I could say there is a good probability that we will undertake some strengthening of the technical reserves. Now taking the financial targets, yes, we see that, as mentioned, we achieved or exceed all the targets, and this includes also the cost-to-income ratio in TPAM, which, by the way, just a reminder, we said we would achieve a level of around 75.
The next question comes from Parker Murray from Autonomous.
Just 2 questions both regarding the [indiscernible] actually. Firstly, could you just give us the full bridge for the CAT number? I think obviously, we started first half '21 at CHF 800 million. I take saying it's [ EUR 600 million ] from the senior bond issue, as EUR 200 million for the maturity, then it takes us to something around the 1.2 mark. I just if you could on the rest of the bridge there. And secondly, to a degree that you are obviously now over CHF 700 million to CHF 900 million kind of target range, would you be comfortable and able to execute share buybacks off the top of that?
Thank you, Falko. The connection is sometimes quite bad. So I try to understand to give you the answer to the question to the degree I understood it, and please feel free to get back if I missed something. In terms of your second question, Well, the framework that is relevant for capital management action is unchanged. With elements, there's a automation to that, and I think that's what we can say to that question. In terms of the first question, I understood it's about, let's say, the cash level and the evolution that we have had, essentially the bridge between the CHF 0.8 billion and the CHF 1 billion that we mentioned for Q3. So we had essentially 600 million addition to the cash flow. Most of the cash transferred to the holding from the opcos takes place in the first as of the year that's dividend income and the like, whereas guarantee fees, interest and the like is more evenly spread during the entire year. So coming back to the bridge, we have the CHF 0.8 billion. We have added CHF 600 million to the cash level. We have had essentially 1/3 of the vision that we have already invested according to the green bond framework. So that's downstreaming of proceeds into the opcos. We have essentially 1/3 or say to exactly 1/3 that we will use for the refinancing of a green bond that matures in the beginning of December this year. Two years ago, we have issued also a green bond with the first tranche during this December. And the third element is another 200 million which we will invest over time according to the green bond framework that I referred to before.
[Operator Instructions] We have a follow-up question from Michael Huttner from Berenberg.
I had a -- in Germany in the IFA business, the -- could we expect kind of fire sale effects similar in magnitude to the solid damage tax surcharge you did in the first half? Because the guaranteed interest rate is going to go from, I think, 0.9% to 0.1% or something in January? And then the second question is, given your business is changing so fast. The one number, which doesn't seem -- sorry, I keep being critical. The semiautonomous balance doesn't seem to go up that much. If I think about the volume of premiums which is not coming through the main account. So we're missing, I don't know, call it, CHF 1.5 billion or something in Switzerland. The growth in semi-autonomous and it seems to be like 200 million in the quarter, there seems to be a disconnect here maybe you can -- or maybe I've got to know that idea here.
Thank you, Michael. Coming to the first question, indeed, there is a lowering of the maximum technical interest rate scheduled for the beginning of next year. And historically, as you mentioned, this has typically led to a large increase of, let's say, of the production of guaranteed rate products in the German market. This has been observed in earlier years. I think this year, we do not expect a substantial impact. And 1 important point is that the German market and especially, let's say, in the declines or in the customer segment. We are active in this more and more focus on products without guarantees at all. I mean we keep talking about the success of our investor[indiscernible] , it's a pure unit-linked product that comes from our insurance business and this advice to our IFAs. So given that we have much less of, let's say, focus on traditional guaranteed products in the German new business production, specifically for Swiss Life, we do not expect here a significant effect from that lowering of the maximum technical rate. So I think that's a bit in view of that. On the second question, on the semi-autonomous business and the respective AUMs, we have had this growth from CHF 4.8 billion to CHF 5.5 billion at Q3. And for us, our focus not per se on, let's say, volume but on profitability. And what we have in the area of the semiautonomous business, we do not just want to grow excessively because this is that coming at the expense of the risk capacity of the foundation. So this if you grow too strongly, a dilution of the risk capacity because essentially, with all the new single premiums that's come in, you have by construction, let's say, a coverage ratio actuation from 100%. And if you grow too strong, you just dilute the existing risk capacity. So I think that's an important consideration to make.
We have a follow-up question from Peter Eliot from Kepler Cheuvreux.
Sorry to revisit the same point actually sound like a broken record, apologies. But just to clarify exactly how you think of it. In terms of the cash, you're at 1 billion now, but you plan to reinvest CHF 200 million over time. Just to clarify the situation, does that mean you think of yourself at the moment as being above comfort zone or in the middle of the comfort zone, i.e., do you think of yourself as having sort of the long-term levels being a CHF 1 billion or CHF 0.8 billion. That would be the first question. And then secondly, on the remittance again, I appreciate there's rounding involved and it's small numbers, but the normal H2 cash remittance, can you confirm if you've had that already, so if that's included in the numbers you've given or if that's still to come at the end of the year? And then finally, different subjects. International business, obviously, it suffered a little bit under COVID. It's picking up a little bit in Q3, but still not back to normal levels. Just wondering if you could sort of update us on the situation there and the outlook.
Peter, let me start with the last question. The international business. I mean what has clearly been strongly affected is the business with private clients. We have had, specifically in the prior year, huge effects in Singapore, the lockdowns there led to substantial low volumes. We have seen despite the ongoing lockdown situations in 2021, an uptick in premiums in the Asian private client business. What we have seen in Europe is for various reasons, I wouldn't attribute that to lockdown only, but the loan premiums with private clients that sometimes big tickets and 1 or 2 big tickets may make a big difference. But with this really very important to note is that in the IFA business, which is also part of the international division, we have seen strong growth of the fee and commission income. And this is true for both the U.K., where we have to chase the [indiscernible] brand. And also in CEE, I mean in Austria, Czech Republic and Slovakia, we have seen very good momentum in the IFA business and also the corporate business is doing well. So I think we are here despite the premium that catches lots of attention. We are on a good track when you look at the fee and commission income, that is probably more relevant for the profitability of the business. Now in terms of the question on the cash remittance in the second half of the year, we had -- you have always a bit of things coming here and then, but the small part of work comes in the second half of the year is mostly geared towards the fourth quarter rather than the third quarter. Now in terms of the first question of the cash at the holding we have the 1 billion, and I said, we have mentioned before, the 200 million that we have to invest over time per se, the framework would grant us time until 2031 because it is a 10-year bond that we have issued. And the framework calls for investment of that amount over the entire period of the bond, which I said is 10 years. So in terms of your question, are we above with, let's say -- or are we in the mid level, I would rather say we are somewhere in the middle, but it's, I think, a point that is judgmental because I said we have 10 years' time to invest that amount.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Aellig for any closing remarks.
Thank you for your interest in Swiss Life and for your questions. I wish you a nice day. Stay safe and healthy. Goodbye, and see you on the 25th.
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.