Ladies and gentlemen, welcome to the Half-Year Results 2020 conference call and live webcast. I am Sandra, the conference 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. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Philipp Gmür, Group CEO. Please go ahead, sir.
Thank you. Ladies and gentlemen, welcome to our analyst conference call on the results of the first half of the 2020 financial year. Within the next 30- minutes, we would like to give you detailed information on our business development and the key financials of the reporting period. Following my introduction, our CFO, Paul Norton, will go through the financial figures. I would like to give you an update on the implementation of our strategy, Helvetia 2020. After my presentation, Paul Norton and I, as well as our Chief Investment Officer, André Keller, will be pleased to answer your questions as always. On slide three, I would like to share with you a brief overview of the main performance indicators. Paul will give you detailed information on the development of these figures later on. The first half of 2020 was marked by the COVID-19 pandemic.
Once again, we were able to demonstrate the stability of the business model and the solid capitalization of Helvetia in a difficult environment. Despite the pandemic, the business volume in the non-life business showed a significant increase of 9% in original currency. This is a pleasingly strong premium growth driven mainly by specialty markets and property insurance in Switzerland and Europe. In the life business, investment-linked products in Europe developed very positively with a currency-adjusted increase of almost 27%. Nevertheless, as expected, the total volume in the life segment declined by 14.5% in original currency due to the planned introduction of a new tariff in the Swiss group life, as already communicated. This led to a 3.2% in original currency decline in total business volume to roughly CHF 5.6 billion.
On the earnings side, as already communicated on August 25, Helvetia has experienced three key effects that are extraordinary in this form. The pandemic left a clear mark on the IFRS result after tax, which amounted to a minus of CHF 17 million in the first half of 2020. First, COVID-19 resulted in major distortions in the capital markets, which considerably weakened investment results in both the life and non-life business. On the other hand, the pandemic had an impact on the underwriting result in non-life business. In addition, a special effect, a one-off write-down due to the realignment of a project to renew the system landscape in Swiss non-life, was booked. Compared to the previous year, there was also no one-off positive tax effect in Switzerland. The net combined ratio in the non-life business was 95.9%, excuse me, which is a very good level considering COVID-19.
The losses due to the pandemic affected the combined ratio by 4.4 percentage points. Without these burdens, the ratio clearly met the strategic target, which shows the good quality of the portfolio. Paul will give you some more details later on. The life business also proved to be robust. The new business margin of 2.8% was well above the strategic target. In addition to lower discount rates and improved business mix, as well as product and tariff adjustments contributed to this development. Helvetia continues to have a strong capital position. The SST ratio was 235% as of January 1, 2020. According to estimates, the SST ratio at the end of June, and thus after the acquisition of Caser and its financing, continues to meet the strategic target of 180%-240%.
The implementation of the Helvetia 2020 strategy is proceeding successfully, and Helvetia is well on the way to achieving its strategic goals. At the end of June 2020, Helvetia successfully completed the transaction to acquire the Spanish insurance company, Caser, and its financing. The acquisition only affects the balance sheet and not the income statement of the half-year financial statements. Caser developed positively in the first half of the year in a difficult environment in the insurance business. Above all, we are also on the home stretch of reaching our financial targets 2020. I will come back to this later in the second part of my presentation. I would like to hand over to our CFO, Paul Norton, who will now provide you with the most important information about the financial figures.
Thank you, Philipp. Good morning, ladies and gentlemen. I'd also like to welcome you to our conference call today. Within the next approximately 25- minutes, I'll give you more detailed information on our financial performance in the first half of the 2020 financial year. For this conference, we have simplified the slide deck. The full presentation in the form we normally use, and with additional information, is on our website, available for download. I'd like to start with slide five, where we have summarized the main impacts of the COVID-19 crisis on the first half of 2020. As Philipp has already mentioned, the pandemic left a clear trace on the IFRS earnings after taxes. On the one hand, the pandemic had an impact on the underwriting results in the non-life business.
The net claims burden from COVID-19 due to regular claims from policyholders and from settlement solutions offered by Helvetia, especially on the Swiss epidemic insurance, amounted to CHF 89.4 million before taxes and mainly affected the Swiss business. Most of the claims payments Helvetia has incurred due to COVID-19 have been in connection with business interruption cover and travel and assistance insurance, primarily in Switzerland. The claims figure also includes the settlement solutions for Swiss gastronomy companies with a pandemic exclusion in epidemic insurance announced by Helvetia in May. This settlement solution was very well received, with over 95% of the affected companies agreeing to date. The successful implementation of the settlement solution provided security for customers and Helvetia. In Germany, there is a similar solution which has also been well received. On the life side, we've not seen any significant effects of COVID-19 on the margin after costs.
On the other hand, the coronavirus led to major distortions on the capital markets, which considerably weakened investment results in both the life and non-life business. There are two main reasons for this. Firstly, Helvetia classifies the significant part of its equity portfolio as held for trading, and consequently, gains and losses flow directly into the income statement, not as in many other companies through OCI in equity. Economically, the volatility is the same, and accounting choice just magnifies the P&L impact. On the right side of the slide, you can see how the investment losses are divided between the P&L and OCI. Of the minus CHF 365 million losses booked to P&L, some two-thirds related to equity related in insurance. As part of Helvetia's group risk management, a loss concept has been used for many years to limit extraordinary losses within the balance sheet year.
The implementation of the loss concept includes a dynamic adjustment of the hedging instruments to limit losses and protect the balance sheet against further downturns. This adjustment of the hedging instruments meant that Helvetia only partially participated in the subsequent recovery in the stock markets. Our prime aim was to protect the balance sheet and solvency, not the profit and loss account. I would also like to emphasize that we did not significantly realize investment gains, i.e., sell them, in order to compensate for book losses. The vast majority of our unrealized gains are in our bond portfolio, gives the higher coupons they own compared with current market yields.
We did not believe it was sensible to sell high-yielding bonds, which result in having to reinvest for the future at lower yields, just to make gains to compensate for short-term valuation fluctuations which affected the vast majority of the market. Coming to investment income was also impacted by COVID-19, which lowered dividends from equities and funds. Various companies were in parts of their dividend payments in response to pressure from regulators and politicians. Additionally, interest income was lower because of the ongoing low interest rate environment. On the volume side, the measures to contain COVID-19 led to a temporary fall in new business during the lockdown period, as well as a reduction in outflows. Nevertheless, we managed to achieve very pleasing growth in Europe and specialty markets in non-life business.
The distribution channels in Italy and Spain were less affected by the reduction in new business and proved to be stable, particularly in the life business, with excellent growth in investment-linked products. The impact of the pandemic on economic development will most probably lead to lower business volumes in certain lines of business in the future, e.g., the transport business. Let's turn to results by business areas on slide six. Slide six gives you an overview of the IFRS results after taxes of the individual business units. In terms of business areas, the COVID-19 pandemic affected both the life and non-life businesses. Both businesses experienced significantly weaker investment results due to the collapse of the equity markets and limited participation in the subsequent recovery, as the hedging instruments were adjusted consistent with the aim of protecting the balance sheet.
The non-life underwriting result was impacted by COVID-19 claims and higher costs due to projects and shifts in the business mix. Nevertheless, the combined ratio remains at a good level, which underpins the sound quality of our portfolio. The non-technical result was burdened by a special effect, a one-off write-down due to the realignment of a project to renew the system landscape in the Swiss non-life sector.
In the life business, the decline of the investment result was partially offset by a slightly higher margin after costs, driven by improved risk result and lower expenses for policyholder participation and for interest rate-related reserve strengthening. The new business also proved to be robust. The new business margin stands at 2.8% and thus remains well above the 2020 strategic target. The interest margin remained solid as well and only slightly decreased by five basis points compared to the previous year. The reason for this was a stronger decline of the direct yields compared to average technical rates. Decline in yields was due to the low interest environment and lower dividend income in the course of the pandemic. The successful implementation of a settlement solution in the non-life business, offered to customers with a pandemic exclusion in Swiss epidemic insurance, creates security for customers and for Helvetia.
In life insurance, Helvetia has also improved its risk position and strengthened future profitability by introducing a new tariff in the Swiss group life business. The result in other activities also fell compared with the previous year, mainly due to COVID-19 claims in group reinsurance and costs in connection with the acquisition of the Spanish insurance company, Caser, as well as higher project costs. With regard to reporting segments, the effects of the pandemic were strongest in Switzerland. Here, Helvetia posted a lower result than in the previous year in both the non-life and the life business. This is mainly due to weaker investment results in both business segments and in non-life to COVID-19 claims, as well as a special effect due to one-off write-down . The losses in the stock markets also significantly reduced the investment results in the non-life and life areas of the Europe Segment.
This was partly offset by a much stronger underwriting result in non-life business. Helvetia benefited from the good portfolio quality with low exposure to COVID-19 claims and a lower claims frequency during the lockdown period. Specialty Markets segment also posted lower investment income and a slightly lower technical result due to COVID-19 losses in active insurance. I will continue with our growth in business volume on slide seven. In the first half of 2020, Helvetia Group achieved a business volume of roughly CHF 5.7 billion. This equates to a currency-adjusted decrease of 3.2% over the previous year. Despite the COVID-19 crisis, we achieved a pleasing increase in premium volume in the non-life business of 9% in original currency. The growth was mainly driven by Europe and Specialty Markets, where premiums increased by 1.8% and 33% respectively.
The significant increase in the Specialty Markets segment can be attributed to a strong growth in all three market units, driven by both positive volume and price effects. In particular, I'd like to emphasize that Specialty Markets business has seen substantial rate increases as markets have hardened. Viewed by line of business, growth was particularly supported by the property business, engineering, transport , art, and active reinsurance. Motor business, by contrast, is under pressure in most European countries due to the lockdown restrictions. In our Swiss home market, we are able to increase premiums by 1.3%. Property business is benefiting from the expansion of partner business, so-called B2B2C business, showing 4.7% higher premiums. This growth was partially offset by lower volume in liability business. In the life business volume on group level declined by 14.5% in original currency.
Decrease is due to a strategic decision in the Swiss group life business. The introduction of a new tariff on January 1st, 2020, Helvetia strengthened the future profitability of the group life business. As expected, this led to a significant premium decline of 20.5% in this line of business in the first half of 2020. A strong development of the business volume with capital investment link products in individual life in all country markets of the Europe segment, plus 26.8% in original currency, had a partially compensating effect. The Helvetia model of an agile and service-oriented organization providing strong support for different sales channels and private customers were key in this development. I'd now like to move to the net combined ratio on slide eight. The net combined ratio amounted to 95.9% and thus increased compared to the previous year.
Thanks to the good quality of the portfolio, the ratio proved to be very robust despite high COVID-19 losses. The net claims burden from COVID-19 due to regular claims from policyholders and from settlement solutions offered by Helvetia, particularly in Swiss epidemic insurance, amounted to CHF 89.4 million before taxes and affected the combined ratio by 4.4 percentage points. One point I'd like to make here is there's still uncertainty in the market regarding the treatment of reinsurance recoveries, and this may take time to resolve and could lead to different results. We are nevertheless very confident that our insurance recoveries estimate at the present is robust. The relatively low impact is proving the resilience of the portfolio. Additionally, Helvetia benefited from a lower burden of major losses from natural events and lower loss frequency in individual lines of business as a result of the lockdown to combat the pandemic.
Cost ratio increased to 30.6%. The reasons were a higher administrative cost ratio, mainly driven by higher project costs, as well as a slightly higher acquisition cost ratio due to shifts in the business mix. The one-off write-down of the IT project in Switzerland is not included in the combined ratio. On a segment level in Switzerland, the net combined ratio was higher than in the previous year, mainly resulting from a higher loss ratio due to COVID-19 related losses. With 91.2%, Europe recorded a better net combined ratio compared to the first half of 2020. While the claims ratio improved, thanks to good portfolio quality, with a low exposure to COVID-19 losses and a lower claims frequency during the lockdown period, the cost ratio remained more or less at the previous year's level. All European market units achieved combined ratios below 100%.
In the specialty market segment, the net combined ratio increased slightly to 98.1%. Claims ratio slightly increased, predominantly due to COVID-19 losses. In active reinsurance, cost ratio was also slightly higher, mainly resulting from shifts in the business mix in active reinsurance. Slide nine shows the development of our investment result. With CHF 457 million, current income was below the prior year level. The reasons for this are the ongoing low-interest environment and lower dividends from equities and funds during the COVID-19 pandemic. Realized and book gains and losses amounted to CHF 365 million, minus a substantial decrease compared to the first half of 2019, which resulted from the equity market crash triggered by the COVID-19 pandemic. Helvetia only partially participated in the subsequent recovery in stock markets, as our priority was to protect the balance sheet, and we adjusted our hedges accordingly.
The remaining book losses were mainly due to FX movements on fixed income instruments, which are always booked through the P&L, since currencies deteriorated against the Swiss franc. Unrealized gains and losses recorded in equity remained almost unchanged, with a slight increase of CHF 24 million. As a result of development of the capital markets, investments with market risk of policyholders increased by CHF 121 million. On slide 10, I'll provide you with some details with regard to the impact of Caser on the half-year results. At the end of June 2020, Helvetia successfully completed the transaction to acquire the Spanish insurance company, Caser, and its financing. The acquisition only affects the balance sheet and not the income statement of the half year financial statements.
As you can see in the left part of the slide, the purchase price plus minority interest corresponds almost exactly to the net assets of the company. The transaction, therefore results in virtually no goodwill, only CHF 2 million, which means that the purchase price was reasonable and reflects the book value of the company. Financing the transaction was completed at the end of June 2020. Helvetia successfully placed 3.3 million new shares at a price of CHF 91 per share in a private placement by way of an accelerated bookbuilding process or ABB, generating gross proceeds of CHF 300 million. The ABB was very successful with strong demand, leading to an over-subscription and a very low discount of 2.3% to the last closing price.
We also issued a hybrid bond of EUR 600 million, which is eligible as equity for SST and S&P at a very favorable coupon of 2.75% per annum, which was also heavily oversubscribed. We believe that this shows the strength of support in both equity and credit markets for the Helvetia story. After financing of Caser, the leverage ratio now stands at 28% in line with our targets. I'd also like to repeat the information that we gave at the time of announcing the Caser acquisition, that we believe that the transaction is accretive to EPS in the first year. We move to slide 11. A first look on Caser's half-year results on a Spanish GAAP basis. Caser has developed positively in the first six months of the year in a difficult environment in the insurance business.
Risk premiums in the non-life and life business increased year- on- year. The growth rate is above the market. Underwriting also developed favorably in the life and non-life segments. Net income in the first half of the 2020 financial year amounted to EUR 62 million. I'd like to emphasize that due to the fact that Caser only reports on local GAAP, and the results also include certain one-off gains, its figures are only comparable to Helvetia's numbers to a very limited extent.
They can give a broad indication of results under Helvetia IFRS accounting policies, however. However, IFRS acquisition accounting will reduce profits in the following years. It's a bit similar to what we had under Nationale Suisse. Therefore, these figures should not be taken as guidance of future performance. Caser's half-year 2020 results have no impact on the Helvetia Group results because of the date of initial consolidation, and the acquisition only affects the balance sheet. On that note, I'll now hand over to Philipp Gmür again.
Thank you, Paul, for the details of our financial performance in the first six months of 2020. It is, by the way, the last time you present the Helvetia results. I come back to this later on. In the last part of the presentation, I would like to briefly show you an update on strategy implementation. The implementation of our strategy, Helvetia 2020, is proceeding successfully. Slide 13 gives you the usual complete overview where we stand in terms of implementation. I would like to go into more detail on two items. Let's move to slide 14. One milestone we achieved in the first six months this year is the acquisition of a majority stake in the Spanish insurer, Caser, announced in January. Helvetia is thus strengthening its core business, a key objective of our strategy.
The takeover was successfully completed at the end of the first half of the year after refinancing with equity and hybrid capital in a challenging environment. It should be particularly emphasized that the new shares created by way of the capital increase could be placed on the market only at a small discount, thanks to the high demand. Helvetia's anchor shareholder, Patria Genossenschaft, supported the acquisition and has purchased new shares at the issue price in proportion to its current shareholding of 34.09% in Helvetia. The acquisition represents a strategic milestone in the development of Helvetia. Caser will further expand the European business as the second pillar of the group and increase the importance of the attractive non-life business. Helvetia is also opening up valuable new sales channels in the area of bank distribution.
As Paul has already mentioned, Caser developed positively in the first half of the year in a difficult environment. Another important thrust of the current strategy period is the development of new business models. Helvetia has taken an important step in this direction with the launch of its own asset management products. Helvetia Asset Management launched its first real estate fund in June. The initial issue met with widespread interest and generated proceeds of CHF 450 million. With the launch of the real estate fund, Helvetia is broadening its product range and opening up new sources of income in the form of stable fee income. Finally, slide 15 shows that we are well on track to reach our financial targets. We are pleased with the development of the individual financial figures so far. The acquisition of Caser supports Helvetia's growth ambition without compromising its financial targets.
It is very important for me to emphasize that together with Caser, Helvetia will reach its volume ambition of CHF 10 billion by 2020, but without jeopardizing profitability. To the contrary, the transaction supports our strategy of profitable growth. Helvetia's operating businesses proved to be robust and resilient despite the consequences of COVID-19. In this respect, our geographical and business diversification was a major contributory factor. Of course, one-off special effects burdened our half-year results. However, if there are no more adverse developments in the second half of the year, we are confident to finally achieve the goals set forth in the framework of Helvetia 2020. This brings us to the end of the presentation. My colleagues and I would now be pleased to answer your questions. Thank you for your attention.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star one on a touch-tone telephone. You will hear a tone to confirm you have entered the queue. If you wish to remove your prompt in question queue, you press star then two. Participants are requested to use only a handset to ask any question. Anyone who asked question press star one at this time. The first question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thanks very much. My first question was on the non-life walk, actually on slide 29 from your extended slide pack. I'm just wondering if you can provide us with a little bit of help in understanding the moving parts. In particular, you show a 6.2 percentage points decline in the current year claims ratio. I think that comes from three things. A shift in the accounting, which shifts things into PYD. Probably some good claims from people driving less and things like that in the COVID environment, and maybe also an underlying improvement. I'm just wondering if you can help us understand, maybe quantify what those three things are, and in particular, if you're able to split out the PYD, that would be very helpful. The second area I wanted to focus on was on the investment portfolio.
I guess the credit ratings have seen a decline just naturally from bringing Caser's assets in, and obviously, Caser's assets were mostly rated triple B and below. I'm just wondering if you can say what your plans are going forward with that, whether there have been any sort of ratings migration that you've experienced to date, and how you see that portfolio, what your appetite is for re-risking going forward. Maybe on that side, you mentioned your net equity exposure at the end of June. I was wondering if you could give us an update, and also say what your view on real estate is in the current environment. Thank you very much.
Thank you, Peter. I would ask Paul to answer your first question regarding the non-life book, and then André to answer the question with regard to the investment portfolio. Paul, go ahead.
Okay. Peter, we don't give a great deal of detail for the half-year . A large part of the current year's claims ratio improvement has been due to the fact that people simply are not driving, and that we've had lower claims in those areas which have been affected by lockdowns. That's the major element of that. That's the most important thing I can say. You can see the COVID losses are pretty clear.
The net cat ratio has barely moved. Prior year claims development, there have been one or two larger claims. That's also due to the accounting element as well from the specialty markets business, which is growing, and that's based on an underwriting year basis, not on an accounting year basis. That's why. It was not a shift, it's the growth in the prior year's development. The reduction is mainly due to, A, underlying, as you said, and above all, due to the impact of less activity due to COVID.
Great. Thank you very much, Paul, and enjoy your retirement. It is very well deserved.
André ?
Peter, this is André speaking. The first part is about the credit portfolio. As you saw on the extended slide deck, which I would guide you to on the pages in like 49 and so on. You see that the acquisition of the Caser business brought government bonds, especially in Spain and Italy, with it, which mostly explains the credit rating. There was no general credit migration or negative credit migration in the overall book, so to say. As regards to the outlook of that, as normal course of business and portfolio construction, we will also review this portfolio. Given all the insurance specific constraints, like capital efficiency and others, we will also assess how to evolve that portfolio. There is no immediate change. It will be part of the strategic asset allocation process, which we adhere on an annual basis.
That's for the bond portfolio. The equity is the second. We included a slide in the extended slide deck, which is slide 45, and there you see the evolution of the equity exposure on the one hand, total equity exposure, and then including the hedges on a delta-adjusted basis. As part of executing on the loss limit concept, we are now gradually restoring our equity exposure back to the strategic asset allocation. You'll see the exact numbers on that slide on a quarterly increment. Third, real estate. I would say the real estate market outlook is dominated by the interest rate environment. As this is a cash flow-producing asset, it's definitely, I would say, well-positioned in comparison to other notional assets because it's a real asset.
I would then differentiate whether it's residential and commercial, and then refer to our own portfolio, which differs from the general market in two ways. First, it's a predominantly residential portfolio in Switzerland, so it has very little commercial exposure, and this is also in COVID times, I would say, a good feature. The second piece is that we do not actually acquire a lot of real estate in general because we have actually a quite huge pipeline of own development, which we can do above market rates from our real estate portfolio. That's something to consider. This also explains a bit the strategy with the real estate fund, which enables us to kind of nurture that ecosystem within the company.
Great. Thanks very much.
Okay. Are there more questions?
The next question comes from Simon Fössmeier from Vontobel. Please go ahead.
Thank you. Hello, everyone. First question is on the acquisition of Caser. I am still puzzled a little bit on the accretion. From what I see , you paid a little bit more than you initially planned, and obviously you had to issue more shares than initially planned, but it is still EPS and RE accretive. I just wonder if you could shed a little bit more light if anything else changed. Also, in the appendix, I see that you acquired 71% versus 70%. Is this just a rounding error? Finally, in the annual report on page 34, you are saying that Caser would have accounted for roughly CHF 50 million in profits, and that includes some special effects. If you could give us some idea of a potential run rate in the future, that would be great. Just some minor questions.
I saw that you had a change in the actuarial reserve in life, pretty high, CHF 2.2 billion. Is this because of the reduction of the BVG business? Finally, on solvency. I know you don't give an exact number, but 180%-240% is a pretty wide range. If you could maybe narrow that range a little bit for us, where it stands at half year. Finally, then, Paul, I just wanted to point out that Bank Vontobel has great retirement products, so maybe we should talk. Best of luck to you.
Okay, thanks for those three questions. First, the acquisition of Caser, then the actuarial reserves, and the solvency topic. I think I hand over to Paul.
Okay. I can do them in almost in reverse order, actually. You're right, the reduction in the reserves is due to the Carte Blanche, the new tariff. It is led to a large outflow of life reserves there. The solvency is at the lower end of the range. We don't want to give any more details at the moment. As you know, SST is quite volatile, it shifts up and down all over the place. Yes, the acquisition of 70%, 71% is roughly rounding differences.
There were some light adjustments at the very end. The price we paid was only slightly above what we had originally said. The original calculations we gave, the original estimate was, it is price accretive. Sorry, EPS accretive. From year one, from the full year one. The changes that have been made since the slight adjustment in acquisition price and so on, make no difference whatsoever really to that estimate.
Any guidance on the CHF 50 million profit contribution? Is that what we should expect going forward?
Um-
That would be relatively high if I just take the 49 multiplied by two. That would be substantial.
Yeah. I'd rather not, because it's all based on a local GAAP basis, and it was also net of acquisition costs we had. We had obviously, as you all know, investment banks don't come cheap. Plus, we had the integration costs for the IFRS. The GAAP is quite different. There are some one-off effects in there, both positive and negative. I don't want to be able to give any guidance. It give you a kind of rough indication. We're not talking about going down to CHF 20 million, anything like that. It's not going to be CHF 100 million either. It gives you some kind of rough indication, but unfortunately, we can't give more, and I think it'd be dangerous to do so.
All right. Thank you.
The next question is a follow-up question from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thanks a lot for letting me come back. Three further questions, if I may. The first one, on the COVID claims, that the net claims of 4.4 points, I think translates to CHF 90 million of claims. You mentioned the sort of reinsurance discussions were ongoing. Are you able to tell us what the gross claims are related to those CHF 90 million? That would be the first one. The second one, the non-life administration ratio. You mentioned the project costs there that have inflated it. Should we expect that level going forward, or is that an elevated, a sort of temporary one-off, as it were?
The third one, on Caser. I appreciate it's difficult to give a forecast for earnings or underlying earnings. At the end of the day, it's different accounting frameworks. Probably what the most important thing is at the end of the day is what the sort of cash flows or cash implications might be. I am just wondering if you can say anything on that, and I appreciate the short term is going to be some volatility. Do you have any feel for what it might be able to contribute on a long-term basis? Thank you very much.
Again, Paul, may I ask you?
We don't want to give out the net and the gross because it also shows what the net is and position vis-à-vis reinsurers and so on. We're leaving it at the moment deliberately at the net level. I think you understand with the situation we are in with discussing reinsurers, we just want to keep it really close to the chest. The non-life admin cost, we say there were several factors impacting the admin cost. Probably the largest single one was project cost, but it doesn't mean there are other impacts. The lower interest rates meant that the pension costs under IAS 19 increased. We also had a change in the commission cost ratio due to more B2B2C business and broker business in Germany.
The projects are also not just IT type costs, but they're also growth projects, particularly in the specialty markets business in France and specialty markets, Switzerland international, with new business lines being introduced. Of which happens to be that the one single element was project cost. At the moment, short-term, yes. Mid-term, we have started a project to improve the efficiency of our organization, starting in Switzerland and in the group functions, which will be one of the platforms for the 2025 strategy, which aims to improve efficiency and thus reduce costs overall. In terms of the cash implications for Caser, as you say, it's difficult to estimate. What I can say is that the banks that previously owned Caser wanted a dividend out of the company, and they got a dividend out of the company. It was a regular dividend.
Furthermore, they placed a hybrid in the market, which falls due for repayment next year in the spring. We will renew that very probably, and we will probably renew that internally. I think some of it is held by the existing banks, and some of it was placed with external investors. At the moment, our thought is, and it's not set in concrete, but that we can renew that internally, and that'll be another cash stream to us.
Great. Thank you.
The next question comes from René Locher from MainFirst. Please go ahead.
Good morning, all. I would like to start with this CHF 40 million one-off in the non-life business. Perhaps a little bit inside, what exactly happened, and what your plans are going forward in the IT non-life. That's the first one. In this context, on slide 20, you show the investments of your Helvetia Venture Fund. Just out of curiosity, I'm wondering, how do you control your investments? What the returns are, because I can see there are quite an impressive list. The second one is on slide 21, just for my understanding, on this and the Swiss real estate fund. You have now proceeds of around CHF 450 million. I'm just wondering where the real estate is coming from. Is that carving or carved out of your balance sheet, you pack it into a fund?
Just that I get a better understanding here. On slide 40, I guess you have explained this to me several times, but still struggling a bit to understand. Why do we have this CHF 4.2 billion classified as trading? Would it be easier just to reclassify it as available for sale? It's just accounting gimmick, but it would lower a bit volatility in your results. Last but not least, as a follow-up question on what Peter asked before on page 46. These bond credit ratings. For example, what is the reason for this increase in lower triple B and not rated? I guess this is also something to do with Caser. If you could shed a little bit more light here. Thank you very much.
Thank you, René. Five questions. Let me answer questions one and two, then ask André to answer questions number three and five regarding the Swiss real estate fund and the bond credit ratings. Paul will finally answer question number four regarding the investment portfolio classification. Okay. Question number one, our CHF 40 million one-off writing down due to an IT project in Switzerland. What are our plans? What we want to pursue is a consolidation of our different back-end IT systems in Switzerland. We have, of course, quite a lot of IT projects going on, be it with regard to front-end applications, to back-end applications, or enterprise content management topics. Why did we now write off this CHF 40 million?
We have a periodic review of our different projects, and we came to the conclusion that the risks to fulfill the targets we were setting forth for this project are too high. We came to the conclusion to better stop now than to try to work hard and to maybe to come to a better solution within one or two years' time. It was for risk reasons that we came to the conclusion to stop this project. However, it's not a stop of the digitalization initiatives we have in Helvetia, but we just want to choose another way to get there. Question number two. Our investments in our venture fund. As you probably know, we have CHF 55 million for this investment portfolio. We are, of course, regularly tracking the fund and its investments, and of course, the valuation of the different investments.
As we said when we were launching this fund, we have different goals with this fund. The first goal is to find investment opportunities which help us to bridge a modern world with the old traditional insurance world. A second goal might be to make an investment and, after a couple of years to divest it again. Finally, we want to earn money also. It's not that's only money to play with, if you will. The third goal is to, by investing in new ventures, to get access to new business ideas as well. So far, we are pretty happy with the development of the fund and the development of our investments. Now, André?
Yes, on the real estate fund. Let me give you a couple of details here. There was, as you said, a carve-out from the life insurance portfolios in the amount of a bit more than CHF 530 million . This was appraised by independent appraiser. Both actually, FINMAR, like Collective Investment Schemes Act, and the insurance authority were involved. They had to independently assess that this appraisal and the portfolio, which was carved out is representative of a general insurance real estate portfolio that we have in these two as legal entities. These are kind of mandatory criteria which we need to fulfill or others as well. Then it was kind of sold to the investment fund, and the investment fund then took CHF 450 million from unit holders and took CHF 80 million of leverage or mortgage financing.
This explains the CHF 450, which was the unit holders. CHF 530 million broadly held portfolios were carved out from the life insurance legal entity in Switzerland, appraised by independent appraiser, and sold to the real estate fund.
So-
That's okay.
Representative in terms of residential. Commercial use, in terms of geographic footprint, so broadly representative of our portfolio.
No, that's okay. Very quickly. I see the head of the companies. My question is, if I would be a life policy holder in Helvetia, I'm not sure if I would like the company to sell real estate to kind of an investment fund. This is just my general remark. I think this is how it's done in Switzerland.
One of the reasons why we carved it out was because we had an overhang in the, in the real estate. As I'm sure you're aware, the maximum you're allowed of real estate-
Yeah
Real estate-related investments is 35%.
Under the Firmengruppen rules. Because of the outflow of assets for the tariff transfer, we had to reduce that anyway.
Finally, it remains in the Helvetia universe, if you will.
Yeah.
The fund is managed and then we'll pay back the fees. Okay.
Yeah.
The other question is the credit ratings, which one?
Yeah. You were referring to slide 46 being extended slide deck.
Yes.
I would also add then slide 49. Alluded to before to Peter, this is really related to the Caser acquisition.
Okay.
With acquiring a Spanish insurance legal entity, you always have a lot of local bonds. In this case, it's a portfolio of Spanish, but also other sovereign bonds like Italy or France, Belgium, and other securities in these areas. The Triple B and not rated or below Triple B, and not rated, these are not Triple B or below Triple B, like high yield. These are not rated. What Caser has in their portfolio was structured vehicles that include also sovereign bonds. For example, the predominant part there are Spanish sovereign bonds, Italy, France, which they have packaged in structured securities. They are not rated, but it's not like high yield.
Okay
Kind of increased investment risk in the high yield part. It's structured vehicles which contain actually sovereign bonds, Spain, Italy, and France, and others.
Mm-hmm. Okay, thanks.
Now, Paul?
Yep.
Patient.
We organize a lot of our investments with the equities and funds within our own funds, so mixed funds.
These funds we set up for various operational reasons, it was much easier to handle. At the time, also for tax benefits. These funds are held centrally, and then the market units participate in them. The easiest way to do that from an accounting and an operational basis was to have them as fair value to profit and loss. Because it's extremely difficult to start consolidating internally AFS funds.
We realized a couple of years ago, or we looked at a couple of years ago and said, "Look, there's advantages, disadvantages and one disadvantage was the volatility." You see, IFRS 9 is coming in with IFRS 17, and it would've caused an awful lot of disruption just to set them up in a different way for a short time, and then to reset them up again to IFRS 9. We said, "Look, we'll look at the whole thing again when IFRS 9 comes in, and we can set them up differently if necessary then.
Okay, thank you. All the best, Paul.
Thank you very much.
More questions?
As a reminder, if you wish to register for a question, please press star and one. We have a follow-up question from René Locher from MainFirst. Please go ahead.
Yeah, just the final one. What about new financial targets and the Investors Day to fill you in?
Sorry.
Oh, sorry, Philipp. Yeah, Helvetia 2020 is now coming to an end. I was just wondering whether we get the new financial target matrix.
Yes. We are planning to hold an Investors' Day in the first half of the new year.
Okay.
Yeah.
Mm-hmm. Fine. Okay. Thank you very much.
If there are no more questions, let me say a word to our CFO, Paul Norton, as long as, hopefully, everybody is on the phone. He was now presenting the results for the last time since his stepping down as the CFO of Helvetia by the end of the month. Back in 2007, he was first presenting at an analysts' conference, at that time, the half-year numbers. Since then, he has been acting as CFO for more than 13 years. Holding a BA in History, Paul is more than an ordinary accountant.
He has a broad view of the developments in the world and in our industry specifically. He was modernizing our balance sheet management and strengthening the relationships with the financial analysts and the investors. At any time, Paul proved to be a reliable colleague and CFO. I would like to thank Paul for all what he's done during the last 13 years for Helvetia, for me, and I hope also for the analysts and the investors to explain our results. I wish you all the best for the future, Paul.
Thank you, Philipp. I'd also like to say, I started off, my first half year was also a crisis. As you remember, we had Hurricane Kyrill, and I had to present the results with a combined ratio for the first time and only time over 100%. I started the crisis. I finished with probably not the best results that one would expect to go out on, but I could probably joke that I'm the only CFO who actually cleans the decks for his or her successor, the other way around. I've had a great time for 13 years. I've very much enjoyed the interaction with you. You've always been very good, very understanding. We've had some good debates, some good interactions, and I also wish you all the best of luck, and I hope you'll be as supportive in that way.
Obviously critical, but supportive, but with my successor as well. Thank you.
Thank you, Paul. Is there any other question?
We have a follow-up question from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Sorry, I didn't mean to prolong the call. I pressed star one before your conclusions. If I've got the mic, then very quickly. I was just going to ask if you had any view on the life risk result, which is obviously very good this period, and just whether there's anything special there. Whether it's just normal volatility, whether there's anything that should sort of change our view on that going forward. Apologies for adding another one.
Yes, you're right. It's had a recovery. We've had over the last few years. You obviously follow us, Peter. We've had a deterioration in the risk results, and we've been monitoring it and trying to manage it, in particular in the BVG business. As a result of that monitoring and managing , the tariff changes and so on, the results have come back again.
I think, to be fair, actuaries in the past few years were also a little probably conservative in their estimates and their reserving for that, because they weren't sure how it developed. I hope it's sustainable. Obviously, you don't know. Mainly its invalidity business has caused a problem, and one of the features of a recession is that you tend to get more invalidity claims. Obviously, it may deteriorate given what's happening with COVID. It seems to be as if it's coming back to where it should be because of actions that we've taken.
That's great. Thank you very much, Paul. Again, enjoy your time off. Many thanks.
Thanks.
If there are no more questions, I would like to thank you very much for your attention, for your interest in Helvetia, and I hope to see or hear you again in due time. Have a good time.
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