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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 2022 Conference Call and Live Webcast. I am [ Sandra ], the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [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 9 months 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 13% to CHF 1.745 billion. Asset Managers grew by 13%, owned IFAs by 6%, and owned and third-party products and services by 7%. Gross written premiums, fees and deposits received increased by 2% to CHF 15 billion. Insurance reserves, excluding policyholder participation liabilities, decreased by 3% to CHF 165 billion compared to year-end 2021, mainly driven by financial market developments.
Swiss Life Asset Managers recorded net new assets of CHF 6 billion in third-party asset management, while total assets under management amounted to CHF 100 billion. Direct investment income was at CHF 2.9 billion. The non-annualized direct yield was 1.8%. The non-annualized net investment yield stood at 2.4%. The SST ratio as of end of September 2022 was slightly above 200%.
I will now move on to our segment reporting, starting with Switzerland. Premiums increased by 1% to CHF 7.8 billion. Life insurance market was stable. Premiums in Individual Life were down by 3% to CHF 1 billion as the market increased by 2%. Periodic premiums grew by 2% as single premiums were down by 16%. Premiums in Group Life grew by 2% to CHF 6.8 billion, but the market decreased by 1%. Periodic Premiums decreased by 1% as Single Premiums were up by 5%, driven by higher premiums from employees entering existing full insurance schemes.
As mentioned on previous occasions, the growth in the Semi-Autonomous business results in lower reported premiums. In that business, only risk and cost premiums are recorded in the P&L, but the savings components are recorded off-balance sheet as asset inflows in the respective foundations. Assets under management in our Semi-Autonomous foundations were at CHF 6 billion compared to CHF 5.6 billion at year-end 2021. Fee and commission income remained stable at CHF 241 million. Higher fees from Swiss Life Select and our business with unit-linked solutions have been offset by a lower contribution from the mortgage business.
Turning to France. Premiums decreased by 1% to CHF 5.2 billion. In our Life business, premiums were down by 2%, following very strong growth in the prior years. Market was down by 1%. The unit-linked share in our Life Premiums was 62% compared to the market average of [ 39% ]. Life net inflows were CHF 1.8 billion versus overall market net inflows of CHF 12.8 billion. Health and protection premiums grew by 5%. Both the individual and group business contributed to this. P&C premiums were down by 4% driven by motor and private home insurance products. Fee and commission income rose by 9% to CHF 315 million. Unit-linked fee income increased as a result of 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 continued volatile equity market environment.
I continue with Germany. Premiums grew by 5% to CHF 1.0 billion due to modern, modern traditional and disability products. The market decreased 2%. Fee and commission income rose by 8% to CHF 482 million due to our owned IFAs. The number of financial advisers increased by 9% year-on-year to 5,844. 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. Excluding this prior year benefit, income growth would have been 13%.
Moving on to our International unit. Premiums increased by 30% to CHF 1.0 billion due to higher premiums with corporate and private clients. About 5 percentage points of the increase is due to the first time consolidation of elipsLife effective beginning of July 2022. Fee and commission income was up by 15% to CHF 272 million, driven by our owned IFAs and private and corporate client businesses. About half of the increase is due to the first-time consolidation of elipsLife.
Let's continue with asset managers. As usual, the update in Q1 and Q3 focuses on commission income. It does not include other net income from real estate project development. Asset Managers commission income rose by 13% to CHF 732 million. This included the consolidation of the Nordic company called SLAM Nordic, whereby the closing was done towards the end of 2021. In our PAM business, commission income decreased by 3% to CHF 272 million. Fee income from the real estate business increased as fee income from securities decreased due to the lower average assets under management. This follows financial market developments, in particular, higher interest rates.
In our TPAM business, commission income grew by 25% to CHF 460 million. Half of that stems from higher recurring income on a higher average asset base, and to a lesser extent, from higher non-recurring commission income. About 1/4 of the increase was due to inorganic growth from the mentioned acquisition. The remaining growth was due to the enhanced income presentation at one of our subsidiaries. The share of total non-recurring income for TPAM, meaning commission income as well as other net income relating to project development, with 16% of total TPAM income compared to 21% in the prior year period. For the full financial year 2022, we expect the share of non-recurring income to be higher than in 2021, driven by foreseen other net income.
Net new assets in our TPAM business amounted to CHF 6.0 billion compared to CHF 6.3 billion in the first 9 months of 2021. We achieved inflows in real assets of CHF 3.1 billion, around half in real estate and half in infrastructure.
Next, to real assets, we also have a long-dated experience in fixed income and equity mandates. Inflows in bonds and balanced mandates were CHF 1.2 billion and CHF 1.8 billion in equities, while we reported outflows of CHF 50 million in money market funds. Excluding money market funds, net new assets amounted to CHF 6.1 billion compared to CHF 4.6 billion in the prior year period.
Overall, assets under management in our TPAM business were at CHF 100 billion compared to CHF 103 billion at the year-end 2021. The reduction despite net inflows was due to less favorable capital markets and a negative FX translation.
Turning to our investment results. Our direct investment income decreased by around 70 million to CHF 2.9 billion. It was stable, adjusting for FX translation. The non-annualized direct yield was at 1.8% compared to 1.7% in the prior year period. The non-annualized net investment income increased by CHF 0.4 billion to CHF 3.8 billion, primarily due to positive P&L contribution from the hedged equity portfolio despite some impairments. We also had positive fair value changes in real estate as well as a positive contribution from the hedge of the FX hedging costs. This was partly offset by a small net loss in bonds. FX hedging costs increased to CHF 335 million, up from CHF 258 million in the prior year period.
Non-annualized direct yield, the non-annualized investment yield, was at 2.4% compared to 2.0% in the prior year period. At the end of September 2022, unrealized net gains on equities amounted to CHF 0.9 billion compared to CHF 3.3 billion at year-end 2021. Unrealized net losses on bonds amounted to CHF 5.5 billion compared to net gains of CHF 12.1 billion at year-end 2021.
With respect to the real estate portfolio, changes in real estate fair values increased to 1.6% compared to 1.2% at half year both on a non-annualized basis. Vacancy rates were at 4.2% compared to 4.5% at half year and [ 4.0% ] at year-end 2021.
Let me also reiterate the attractiveness of real estate. Real estate is an important asset class to back our long-dated liabilities in the context of our disciplined ALM. This means we hold real estate because of the regular rental income it provides, and not because of appreciation. Moreover, real estate is a capital-efficient asset class under the SST regime. The risk premium above the new Swiss [ government ] bond is attractive, specifically also when considering inflation. In the context of the increase in inflation and interest rates, I can report that about 3/4 of our total rental income is indexed to inflation or rates. Tenant asset and location quality is high in our real estate portfolio, with about 75% of our real estate being located in Switzerland. Economic fundamentals in Switzerland remains strong, which is the basis for the resilience of our real estate portfolio.
Moving to solvency and cash. At the end of September 2022, our SST ratio was slightly above 200%, and therefore, above our ambition range of 140% to 190%. This compares to a level of about 215% at half year, about 6 percentage points of the reductions are explained by 2 actions of about equal size.
First, the call of the hybrid loan in November, which was refinanced by senior bond in August. Second, some re-risking in terms of asset allocation moving towards corporate bonds and infrastructure equity. The remaining part is due to market developments, namely widening of credit spreads, negative equity markets and higher spreads between the Swiss swap and COVID yield curves. The latter led to a strong decrease in assets compared to liability valuations.
Please note that we do not benefit from higher interest rates in the SST framework, as shown in the sensitivities. Liquidity at Holding at the end of September amounted to around CHF 0.8 billion. Our CHF 1 billion share buyback is on track, with about 2/3 completed as of today. As announced, it runs until the end of May 2023.
Let me sum up 2022 so far has been characterized by Russia's war in the Ukraine, subsequent market turbulences, higher inflation and interest rates, as well as the strengthening of the Swiss franc. Also, in such a tough environment, we have managed to grow our businesses, which is pleasing. We confirm all our Swiss Life 2024 group financial targets as the current market environment also offers opportunities. For example, higher interest rates are positive for the savings result overall, which remains an important source of profit and cash remittance for the Swiss Life Group.
Thank you for listening. I'm now ready to take your questions.
[Operator Instructions] The first question comes from Andrew Sinclair from Bank of America.
Three for me, please. Firstly, just on the SST ratio. Thanks for giving a little bit of color on what the drivers were. I just wondered if you could put some numbers beside each of those drivers as well, just so we can kind of understand the moving parts and where it was maybe a bit different to where we might have expected?
And secondly was just on asset management net inflows. It sounds like really good net inflows in real estate and infrastructure in Q3. Just really wondered if you can give us a little bit more color on those? Was that kind of a small number of big inflows, or was it kind of just a general desire for those sorts of asset classes? And what's the sustainability of those net inflows?
And third question was just on reinvestment rates today. Just what are you seeing today, and how does that compare to your earned rates?
Andy. Let me start with the SST. I mean, the numbers I gave were half year, the 215% compared to slight above 200% as of Q3. As said, the first element is the hybrid loan that we call that comes through -- or it does not come yet at the first call date in November, we decided to pull that and kind of refinance it with a senior bond. So we have a drag on the SST, and that's about 3 percentage points. Then as I said, we have re-risked the asset allocation slightly, that's about 3 percentage points. The third, we are have increased exposure to corporate credit and also invested some additional pieces in infrastructure equity.
So the re-risking piece is about 3 percentage points. Then we have had -- on the markets, various points. The credit spread was widening, which was affecting the portfolio that may have been in the third quarter, I don't know, 1 to 2 percentage points. The equity markets [indiscernible] that was -- has cut off a couple of additional points as well. I think what is important is that we also have, on the positive side, the real estate fair value changes. You know the ones that I've mentioned before in the context of the investment income, they have also contributed positively to the SST ratio movements.
Now this is essentially what this -- let's say, pretty much straightforward. What we also had, and that's kind of a special effect to mention, is the swap spreads. So the difference between the Swiss COVID curve, which is relevant for the liability valuation, the SSTs online [ Solvency II ] based on [ COVID ] rates. And the swap curve, which is typically more relevant in the valuation of the asset side, and there was this spread that was widening. And I would say, in the third quarter, that added probably an additional 4 percentage points or negative. So that's a bit the breakdown of the various effects that have led to the movements.
Now in terms of the reinvestment rate, if we look at what we have had done this year so far for Q3, it was, let's say, around 3.4%. And for the full year, we expect something around 4% in terms of reinvestment rates and that compares to the yields mentioned before on the book. So we are clearly above more -- above the run rate of the portfolio.
And the last question, the net you asked in [ AM ]. I mean, we have had various components. I think, as mentioned, half of it was real assets, was about CHF 1.5 billion. In real estate, it was about the same size in infrastructure. There, we have seen quite some numbers in the incremental basis versus half year. And not sure whether you have referred to that and there, we have nothing, let's say, in particular to mention. But I think it's important to see it is -- those were essentially the drivers for the increased [ NNA ] in the third quarter. We have also had other effects clearly to mention, but the real assets were where we have made the biggest move forward.
The next question comes from Peter Eliot from Kepler Cheuvreux.
Two questions from me, please. The first one, just wondering if you could just give us some insights into the proportion of the potential customer base that your French private bank has already reached? I guess I'm just wondering whether all of the customers who might have been in the market for structured products have now bought them, or whether we can expect this to -- sort of momentum to continue. So yes, maybe some help on how we should think about that would be very helpful.
And then second question is, if I do the sums on the recurring fees on the third-party assets, then there seems to have been a big step up in the margin this quarter. I'm just wondering if I'm doing those sums right, or -- and if so, what's driving that? Yes. I don't know if you can add any -- help me out on that one a bit.
Peter. The first question in terms of, let's say, the banking business in France. As said, we do not expect that to continue even though not every single client of the bank has a structured product, but preference difference are different among the customer base. So roughly speaking, 1/3 of the customer base is invested in structured products, but not every single client needs or wants or fits the structured products. So to cut it short, we do not expect that trend to continue.
As I said, it's also supported by the very volatile environment that has allowed us to really seize the opportunity of that environment and launch these initiatives, but we do not expect them to consider like that.
And on the second question on the recurring fees, I mean, we have not disclosed any, let's say, margin number. So I'm not exactly sure what you were referring to. If I look at the -- at the NNA composition, we have essentially half of the NNAs that are real assets. And here, we say that the part of the business where the margins are substantially richer. And it's also, if we look at the AUM in total, we have essentially the same proportions. Around half of it or a bit more than half is, actually, the -- is real assets with the asset rich margins.
You may have referred to the comment in terms of the margin where I said -- talked about an enhanced income presentation as a driver of income that has no effect on the bottom line. That's just a presentational thing.
The next question comes from Thomas Bateman from Berenberg.
Just coming back to the development -- development fees or non-recurring fees, because I think you gave a comment saying that part of it wasn't included in the Q3 numbers. So I guess I'm just thinking, can you give us some more color on the development, please? There was about CHF 79 million last year, but I think you're indicating that should be a little bit better in 2022. Is my thinking right there?
And what's the outlook for elipsLife? I think you've got a nice insight into the type of volumes it's delivering already, but what type of growth should we assume from that part of the business?
And just again, going back to France and the structured product sales. I think year-on-year for 9 months quite but the Q3 looks quite weak, I appreciate some of that is FX. But are we already starting to see the slowdown in those structured product sales, or should we -- Yes. Maybe just a little any more color you can give on that?
Let me first start with the question on asset management. As you said, the top line figures, so the numbers in millions, do not include the other net income. The percentages I gave, total non-recurring income is part of the TPAM income -- the 16% for Q3 that compares to 21% in the prior year quarter. Those figures include other net income as well.
And there, in terms of outlook, I said that we expect a higher share of non-recurring income, so including other net income for 2022 compared to last year. And last year, if I'm not mistaken, I think it was 27%. So that's the comment on the asset managers part.
On elipsLife, we consolidated this acquisition effective beginning of July, and you have seen that it added a 5 percentage point to the premium growth and about half to the fee income growth. And [ elips ], you know at least that's an add-on in the corporate space where we focus on risk business. We have disclosed that transaction, some details when we announced it, it's a business that is operating mainly in Italy and in the Netherlands. I mean, that's where we have a strong presence. You know that's core pension business, and I think that's the point I can give.
What is important also to remind is that we have in the in-force situation where we are essentially 100% reinsured, which will change over time.
Now the third question in the French growth rate. The campaigns on the structured product side, that's working nice. It's about 2/3 of the growth that we reported for the French business relates to the bank. So as said, that businesses continue -- has grown until the third quarter, I said. Before I think it was -- to Peter's question, we do not expect that to continue. And the lower growth rate that you probably referred to compared to half year in the total fee income comes from the unit-linked business.
And what's the reason for that? I mean, market developments are such that the assets under management have come down year-to-date. Not compared to the averages, which are relevant for the fee income, but the fact that rates went up and the equity markets came down has been, let's say, eating into the AUMs of the French unit-linked business and has been, let's say, reducing the growth of the fee income. And last but not least, we also had a -- you may recall that a very strong Q3 2021. So that's a bit -- the color I can give on the French fee income development.
The next question comes from Simon Fossmeier from Vontobel.
It's Simon from Vontobel. Two questions. Usually, when the economy gets worse, people buy less life insurance and fewer investment products. That's not really visible yet. Do you think you can keep up the good growth rates if the economy that you're operating in are getting worse, or even going into a recession?
Second question is on IFRS 17. Some companies have published estimates on IFRS 17 and some are offering [indiscernible]. And I'm just wondering when you will be ready to give us some more information on the impact of IFRS 17 on Swiss Life?
Simon. In terms of the business, the demand, you know it from the figure so far. We do not see an impact from the economic situation. I think it's important to keep in mind, I'm talking also first and foremost about Switzerland. Employment is at its highest. The unemployment rate in Switzerland, I think, is around 2 percentage points. That certainly helps. If we look at the savings rates, for example, in Germany, yes, they are -- they are lower than what they have been during corona, which was extraordinary high in terms of the savings rate. But if you compare such quantities pre-COVID levels, we are essentially on a normal level.
So there is still demand here. People at this point in time continue to save. And clearly, there may be some situations where there is here and there, the higher inflation, energy prices that may [ feed ] through.
On the other hand, and I'm now referring to an example from the German business. I mean, in such a situation, it is also important that you optimize your personal financial situation, for example, by reviewing your [ P&C ] portfolio that we help clients make savings on their -- let's say, home insurance, car insurance and so forth. So as I said, it's also offering opportunities.
What is also, I think, in that context, important to note in terms of [ flat ] surrenders, we don't observe anything in particular that we would have to report to you now. So to put it simple, so far, we do not see any impact here.
And in terms of IFRS 17, I think first of all, and we've mentioned that before, I mean, IFRS 17 will not change the way we manage the business. It will not change the generation of cash and the upstreaming of cash to the holding company. But it is an accounting change that looms, and we will give some more color on IFRS 17 together with our full year 2022 disclosure on March 1.
[Operator Instructions] The next question comes from Jimmy Fan from UBS.
I have 2, please. So first one on real estate, and you mentioned this, and the inflow is still quite positive for the assets. And I guess, you still have many projects under development and presume that has -- already has some interest from clients that are putting money into those real estate projects. And I guess, I just want to get a sense of what's the supply and demand dynamic in terms of the pace you are developing these real assets versus the inflow that you could potentially see going forward here?
And secondly, I mean, given the LDI crisis that has happened in the U.K. recently, has there been any rethink about liability-driven investments [ risen ] for yourself and for the pension funds locally?
So let me first start with the real estate question.
As you said, we continue to have strong inflows, so it shows that there is demand there. We are also in a position that we can source new projects. So there may have been times where the market in the second quarter, maybe also at the beginning of the third quarter, has been slower. Potential investors but also sales of real estate that they have taken some time to assess the market, to look in which direction it's going. But we have really been in a position to purchase, let's say, also projects. So there is, I would say, kind of a good flow of business that is taking place.
In terms of the LDI thing, the situation, I would say, in Switzerland and specifically for us is completely different from what has happened. In the U.K., if I look at us as a company, I mean, we have discipline and stringent liquidity management and we have access to the repo, the value chain of the Swiss National Bank. So for us, that's something we have read in the newspaper, but that does not have any operational implications.
The next question comes from Rene Locher from KBW.
And just a follow-up question on real estate. I mean, it's really interesting to see a lot of negative headlines in the press, especially about the Swiss real estate market, but holding up very well. So it might be that the market is a bit sluggish to real estate market. So I was wondering if you can share your view on 2023? Then does it come as a surprise surprised to see that, I guess, was in September, you bought 2 real estates. I guess one in Germany, one in France together with Norges Bank Investment Management. So here, I was just wondering, is that a joint venture, or what should we expect here in the future?
And another question on these total assets under management in Semi-Autonomous. We are now at CHF 6 billion, so could you just elaborate a little bit on the parameters when you compare these Semi-Autonomous to the Traditional Life business? I was also wondering, do sales in Switzerland get different incentive if they sell traditional business, what is Semi-Autonomous pension scheme?
Rene. First, on real estate. As we said, we have seen positive fair value changes, 1.6 percentage points non-annualized. That, as we continue to inform, this is based on transactions that are taking place in the market. Valuation is done by an external valuation agent, which -- and translates what happens in the market to our portfolio, so that's essentially the market observations that drive that.
Now, what are our expectations going forward in the -- simply speaking, there are 2 things that you may consider. Clearly, there is the question of -- you're right, there are more alternatives in terms of investing also for us when it comes to investing new money, but it's something that really puts kind of a drag on, let's say, what we have seen in terms of valuation uplift in the past.
On the other hand, there is clearly a positive thing, that is the ability that we have to increase the rents, because they are either indexed to inflation or rate. So there are, let's say, 2 levers, if you wish. And we expect that to kind of even out and let's say that we expect, let's say, stable valuations going forward.
And I think that now seems to sound a bit technical. This is clearly on the base, and I think I alluded to that before. I mean, we have strong fundamentals in Switzerland. I mean, the economy is going very strongly. And I mean, as I said, record low unemployment rates, strong immigration and what have you, the things that we keep mentioning. I mean, for us, it is kind of [ stand ] because we know that, but it's kind of a stark contract to what happens in other markets, and that's really the basis for the resilience of our portfolio in addition to all what I have said, at the high quality in terms of location, assets and the tenants. So that's on the real estate.
Then the question on Norges Bank. Yes, that is a joint venture. We co-invest there in real estate. What is important to mention is that the numbers reported in Q3 do not include any of that JV.
Now the question on the Semi-Autonomous business, there are various considerations to make. Let me first say, in terms of [ fix ], I think the first point is that Semi-Autonomous business only shows up with a very small portion of premiums in our profit and loss account. Why is that? The biggest premiums in the BVG are the single premiums when somebody comes. The Swiss slide, when [indiscernible] transfers the huge amount, that's kind of a savings premium that does not show up in the P&L. And in terms of, let's say, the savings premium that comes in on a regular basis, that does not show up either in the P&L. So only a relatively small portion, risk and cost premium, maybe 25% of the regular premium is showing up in the P&L account.
Now in terms of, who goes to Semi-Autonomous business and who goes to full insurance? I mean, there's essentially 2 considerations. There's clearly a client need. I mean, some clients are best to serve when they are going into the Semi-Autonomous space, some are better served when they move into a full insurance solution, so that's kind of a key consideration.
And the other consideration really is what we talked about a lot in the past is the age structure of a new account because we also have to protect, let's say, the full insurance book because of future conversion losses coming from the annuitization. Clearly, with right now being substantially higher, this is kind of a less relevant consideration compared to the situation we had 2 years ago.
Next question comes from in Singh Samant from Citigroup.
First is just a follow-up on SST. So this re-risking of asset portfolio towards corporate credit and infrastructure equity, is it almost completed? Or could we see more changes in Q4 or probably next year?
And second, on the development projects, what sort of pipeline do you have in terms of residential or office mix, and which geographies you're seeing new projects to come in?
The first, in terms of the SST. Clearly, we said we have taken opportunities in the market, having taken on some additional risk, as said, in the area of credit and also infrastructure. And even though spreads have now come down a bit in October, really, there is potentially more to come. I mean, credit is now, again, an asset class. We think about investing, the overarching consideration when investing money is for us the capital efficiency. And for a long time, [ for ] credit was not attractive given the tight spreads and the high capital requirements in the SST.
But this has now changed as the spreads have widened and yes, we clearly think about further investments into credit. And as mentioned before, we have a long-dated experience, specifically also in corporate credit.
And in terms of the second question, if I understood it correctly, it was about the project development pipeline. We talked about many of the things we do specifically at Investors Day. We highlighted the focus on logistics, but we also gave an example of a large development in Germany that was [indiscernible]. Back at Investor Day, this is the kind of project that are large and they last, not for 1 year, for decades almost. We have something like that in Switzerland. But besides those, we have also things in Germany in the area of residential, health care, so there's many things where we pursue opportunities.
Just in terms of Swiss residential, are you seeing demand for new project development, or is it slowing down in terms of because the construction activity as such is sort of less compared to the previous quarter? So anything for Swiss residential?
Well, Switzerland, I said there's still a net migration into Switzerland. We have now also seen higher interest rates in Switzerland, which kind of makes it more difficult for people to buy their own apartment or their own single-family home. So there is clearly structural demand for residential real estate in Switzerland, given those 2 factors.
We have a follow-up question from Sinclair from Bank of America.
Two quick follow-ups for me. Firstly, just on -- any color on recommendations from relevant bodies for mandatory rates for 2023?
And finally, it was just on -- I think you mentioned that there were lower fees from the Swiss mortgage business. Just really wondered if you can give any more color on that? Because generally, it's been a pretty strong message on real estate. I just wondered what was going on in the Swiss mortgage business.
Well, maybe the first point is the CHF 240 million roundabout fee income in Switzerland, they have many con -- contribute and the mortgage business is one part of that, and it's probably not the biggest. But we have seen some lower volumes there. Rates have gone up and demand for mortgages has come down a bit. And it may be a bit what we have said before with the institutional [ investments ] that people are a bit having a wait-and-see attitude. We'll report on that in Q4. But again, it is not a big business that we are having there.
In terms of the minimum guarantee, I'm not sure whether you referred to that. That has been said the 1 percentage points -- 1 percentage point as in the past, so it is unchanged. I think there, it's important to recall that out of the CHF 160 billion worth of technical reserves, we have that about CHF 20 billion are subject to that mandatory rate of 1%. And that we have in the BVG business a block of business that's about equal size where we set the rate, which is the extra mandatory part.
We have another follow-up question from Thomas Bateman from Berenberg.
And just going back to your -- the comments you made on the hybrid versus senior bonds that you hold. Can you just give us or remind us of the kind of the cost of [indiscernible] SST eligibility? And you're kind of thinking between the 2 structures to the tune of CHF 450 million maturing in 2023 of senior debt. I'm just thinking, is that likely to be renewed on the same structure?
As said, we have decided to call the hybrid, which we have the first call date in November 2022. This CHF 470 million that we call, they are eligible for SST purposes, so they are risk-bearing capital. And we now have said, look, we refinance kind of on a cash basis that with the senior bond, which is not eligible to -- which is not eligible as SST. So we have taken out something that is eligible, that was eligible at half year. But that, we say, as we do not replace hybrid with another hybrid, you have to remove that from the SST calculation because clearly, at the end of the year within 12 months, it is not part of it anymore. So we removed that hybrid for Q3 2022, and this was the reason why we have had a drop of 3 percentage points because these CHF 470 million simply are not eligible anymore for SST purposes.
I guess I'm thinking slightly longer term. So you've got this -- the senior bonds, which seems to be a structure you prefer at the moment. But then in 2024, there's another CHF 600 million of hybrid which is coming up. Would you expect that to convert that to senior?
Look, that's, I think, too early to tell them.
We have a follow-up question from Peter Eliot from Kepler Cheuvreux.
Two for me as well. I just wanted to sort of pull together some of the comments you've made on the reinvestment. I mean, you've mentioned, Matthias, that real estate is still a very attractive asset class to you. Obviously, the re-risking, you're focusing more in other areas. So I'm just wondering whether we should still expect you to put new money to use in real estate? I know you may not be able to get sort of very specific guidance, but just how you're thinking about in terms of new money would be helpful.
Thanks, Peter, for the follow-up question.
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Sorry. Maybe I start again. So as I said, the overriding consideration is capital efficiency. That's really looking at excess returns versus the capital charge. And when we were talking 2 years ago, 3 years ago, we had essentially real estate that fit our criteria of capital efficiency, long-dated mortgages plus hedged equity and infrastructure equity.
Now, with spreads considerably widening or corporates, we have corporate bonds at this point in time as capital efficient reinvestment opportunities on the table. So we just have more choice in where and how to reinvest money, and that's the reason why we now have done this re-risking into corporate bonds. But really, going forward, we also expect to continue to invest in real estate. But again, there is more choice when having to reinvest new money.
The last question for today comes from Jimmy Fan from UBS.
Just a quick follow-up. On the re-risking that was mentioned and also considering the interest rate margin you have has been stable in a low interest rate environment, are you looking to widen that margin going forward given the significant policyholder carrying there? What does this really mean for the policyholder and the shareholder from a return perspective?
Maybe in terms of the interest margin, yes, we clearly expect the margin to widen, you may recall that at Investor Day, we said, yes, 3 decades with the prevailing interest rates as of [ then ]. Clearly, the margin is going to be wide, and why is that? Because we simply reinvest at high rates. And clearly, this will be shared between policyholders and shareholders.
But as mentioned, that's -- this higher reinvestment rates that we mentioned, together with the higher rates at large, this is a positive for the savings result going forward and therefore, also for the cash remittance. That's clearly the case. And there is sharing with the policyholder as in the past, I mean, just on a higher basis.
So having said that, I think it's important to mention that these higher reinvestment rates, this will feed through over time. And as we also discussed at half year, at the beginning, we have because of the higher rates and the higher differentials specifically of the interest rates at the short end, also higher hedging costs, which I mentioned in the speech. We have seen an increase here year-to-date, but this will continue to be a drag on the savings results as well, which we expect to reduce mix in the midterm because interest rate differentials, that's something we expect to [ converge ] again.
Okay. Thank you for your interest in Swiss Life and for your questions. Have a nice day, and goodbye.
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