Ladies and gentlemen, welcome to the half-year results 2023 conference call and live webcast. I am Alice, 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 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, madam. Ladies and gentlemen, welcome to our analyst conference call on the half-year results, 2023. Within the next 30-40 minutes, we would like to give you detailed information on our business development and the key financials of the reporting period. After my introduction and a quick overview, I will hand over to our Group CFO, Annelis Lüscher Hämmerli, who will then go through the financial figures. Then I would like to give you an update on the implementation of our strategy, Helvetia 20.25. After my presentation, Annelis and I will be pleased, of course, to answer your questions as always. Let me turn to slide number 4 and give you the highlights at a glance. Helvetia looks back on a successful first half of 2023. I would like to highlight three aspects of this past six months.
First, our strong core business, second, our resilience, and third, the seizing of our growth opportunities. First, our strong core business backs the sustainable dividend promise. Helvetia's business volume grew by 6% at constant foreign exchange rate. The main growth driver was the non-life business, which was broadly supported across all segments and lines of business. We are very satisfied with this result. The IFRS 17 result accounts to CHF 258 million . What are the reasons for this result? We are benefiting from solid technical results and from a better performance of the financial markets. We therefore see ourselves on track to achieve our cumulative dividend payout target. Second, we still are pretty resilient given our capital strength. At the end of June, the estimated SST ratio remained at a high level of approximately 300%.
The resilience is also based on the business mix, which has continued to develop in our favor, thanks to growth in the non-life and in the fee business. Third, we are successfully seizing growth opportunities as part of our strategy. Once again, the fee business is worth mentioning. Strong growth and the contribution of already 5% to the group's result are mirrored in the results you see. More on this later from Annelis. Complementary acquisitions in growth areas. For Caser's non-insurance business in Spain and in embedded insurance, in addition to strong organic growth, the bolt-on acquisitions of Mobile Garantie in Germany. Furthermore, we successfully expanded our distribution channels. We are leveraging our Smile franchise in an international environment, and we also got new distribution agreement with Raiffeisen.
We are successfully following our growth path of the last two years, and we will continue on this track. More on the strategy implementation at the end of the presentation. Now, I would like to hand over to our CFO, Annelis Lüscher, who will present the key financial figures.
Many thanks, Philipp. Also from my side, I would like to welcome all of you to our conference call today. It is a very special result publication as it is the first under the new accounting rules of IFRS 17/9. Therefore, please note that all the IFRS figures in this presentation are based on the new accounting rules. The prior numbers have been restated accordingly. As always, we use a short version of the presentation for this conference. The full slide deck with additional information is available on our website. Now, let's first have a look at our financial targets. The next slide shows you which targets we have recalibrated to IFRS 17/9. So three of our financial targets of the strategy period 2025 are influenced by the transition to IFRS 17/9.
The combined ratio in non-life, the new business margin in life, and the overall return on equity . We have therefore recalibrated the target ranges for these figures based on the new accounting standards. In non-life, the combined ratio has seen both increasing and decreasing effects from the transition. For example, the new calculation method and the deduction of reinsurance commissions from revenue had an increasing effect on the ratio. The introduction of discounting, however, is decreasing it. Overall, the 2022 combined ratio did not change considerably due to the transition to IFRS 17. For that reason, our target range for the combined ratio remains the same at 92%-94%. We continue to focus on a broadly diversified portfolio with an attractive overall return on risk capital.
Considering the resulting shift in our business mix, with an increasing share of international business outside of Switzerland and the current market environment, this target range for the combined ratio remains ambitious. In life, the target range for the new business margin is increasing to 4%-6%. The reason for that is a mechanical uplift due to the transition to IFRS 17/9. Compared to the old embedded value methodology, the new business value is now gross of tax. Measurement differences overall also have a positive influence. Therefore, the recalibrated target range is above the old one. The return on equity also sees an uplift from the transition to IFRS 17/9. The new target range is three percentage points higher than before, at 11%-14%.
The main reason for this is that the denominator of the return on equity, the shareholders' equity, is lower under the new accounting rules. Besides these three recalibrated targets, we also increase our ambition relating to the fee business. Since introducing the 2025 strategy and acquiring Caser and its non-insurance business in 2020, the fee business has developed very well. With fee and commission income of CHF 351 million in 2022, we have already exceeded our previous ambition of generating fee revenues of more than CHF 350 million by 2025. Our different types of business fields in this area, such as the ecosystem health and care in Spain or third-party asset management, remain an attractive opportunity to further diversify our income streams in a capital-efficient way.
Therefore, we will continue to focus on growing the fee business and set a new target to reach more than CHF 450 million of fee volume by 2025. With that, let's turn to the key figures of Helvetia's performance in the first half of 2023 on slide 7. The half-year result in 2023 demonstrates that Helvetia is well on track to achieve the updated financial targets. In an environment that remains challenging, this once again proves the strength and resilience of our diversified business model. Helvetia generated an IFRS net income after tax of CHF 258 million. This corresponds to an annualized return on equity of 13.1%. This is at the upper end of our new target range.
The result was based on a resilient technical performance in both non-life and life, and supported by a good performance of capital markets. In line with our strategic ambitions, fee business continued to grow significantly. Fee and commission income increased by 10.2% at constant exchange rates to CHF 194 million. Fee business contributed close to 5% to the group's net income. At 94%, the combined ratio was at the upper end of our target range. In view of, in view of a challenging market environment, characterized by an above-average frequency of mid-sized claims and inflationary effects, the combined ratio remained on a robust level. Once again, it benefited from the broad diversification and profitable growth of the portfolio. The new business margin in life amounted to 5.6%, and thus was at the high end of our target range.
The increase compared to the prior year demonstrates our successful focus on growth in profitable lines of business in life insurance. The business volume was at CHF 6.7 billion. At constant exchange rate, this is an increase of 6%. Growth was driven by the non-life business, which showed a strong organic increase of 13.2%, 13.2%. In our three biggest country markets, Switzerland, Spain, and Germany, as well as in Austria, the growth rates of our non-life business were above market. We are thus further strengthening market position in our core business. I will give you more details on all these key performance indicators later. On the next slide, the next slide shows that we are also well on track with regard to our financial targets on cost efficiencies, capitalization, and dividend.
At the full year 2022, we had raised cost efficiencies of CHF 91 million, close to our target of CHF 100 million. In 2023, we are continuing our path of increasing efficiency, as can be seen in the development of the administration cost ratio in non-life. The exact figure of cost efficiencies achieved will again be reported on a yearly basis with the annual results. Helvetia capitalization remains on an excellent level. S&P has confirmed our financial strength rating of A+ in June, and our regulatory solvency, measured by the Swiss Solvency Test, continues to stay on an outstanding level. We estimate our SST ratio to be around 300% as of the 30th of June 2023. The resilient development of our core business and our outstanding financial strength form a solid basis for our payout policy of sustainably increasing dividends year per year.
Helvetia is aiming for a dividend distribution over 5 years of more than CHF 1.65 billion. With our strong capital position and the resilient development of our business, we are well on track to make a further step towards this target in 2023. Slide 9 provides you with an overview of the net income after tax of the individual segments and business areas. Helvetia generated an IFRS net income after tax of CHF 258 million in the first half of 2023. With a less benign claims environment and ongoing macroeconomic and geopolitical uncertainties, the market environment has been challenging. Against this backdrop, the results demonstrate the stability and resilience of our broadly diversified business model. Basis for the results were robust technical results in both non-life and life.
The resilient technical development was supported by a good investment result due to the favorable performance of financial markets. In non-life, the operating insurance service result remained on a solid level, slightly below the prior year. The market environment was characterized by an above-average frequency of mid-sized claims events and a few large losses in Europe. The non-life portfolio benefited from its broad diversification and profitable growth, which resulted in scale effects. Apart from the resilient technical development, the non-life business recorded an increase in its investment result. This was attributable to higher current income due to the rise in interest rates and book value gains from the positive performance of equity markets. In life, the main component of the result, the CSM release, remained stable, even though the contribution of Sa Nostra Vida, which was sold in the second half of last year, was not included anymore.
At the same time, the CSM stock was growing compared to the end of 2022. I will comment on the CSM development later in the presentation. In life, the investment gains and losses from market value fluctuations were largely buffered in the CSM, with no direct influence on the P&L. Fluctuations in market values of assets that do not cover VFA business resulted in book value gains and losses in the first half year. The other activities business area was influenced by the usual accounting effects from the consolidation of own investment funds and a one-off from the previously announced impairment at MoneyPark of CHF 27 million. Both the fluctuations in market values of assets categorized at fair value through profit and loss, and the one-off effect in other activities are non-operating in nature and blurring the picture on the development of our core insurance business.
For that reason, we will additionally disclose underlying earnings that exclude such effects with the full year results, as previously announced. Looking at the individual segments, we see that Switzerland, Europe, and Specialty Markets all increased their profit contribution. In Switzerland, Helvetia recorded a solid result of CHF 174 million. Technical results in both non-life and life remained stable compared to the prior year. In Swiss non-life, the operating insurance service result was on the level of the prior year. The business was thus able to compensate for an above-average frequency of mid-sized claims and the increased inflationary pressure. In the life business in Switzerland, the CSM release was slightly higher than in the prior year.
While the market fluctuations on equity investments were largely buffered in the CSM, the IFRS results was impacted by changes in the value of investments that do not cover VFA business. In addition, the one-off in connection with MoneyPark was booked in the other activities area of the Switzerland segment. Net income of the Europe segment amounted to CHF 107 million. The result in Europe was underpinned by a resilient technical development, even though the challenging market environment had an impact. In the segment non-life business, the operating insurance service result was somewhat below the prior year. A few large losses, an above-average frequency of mid-sized claims, and the persistently high inflation had an effect. Due to its broad diversification and focused growth, the portfolio remained resilient and profitable.
In European life business, the CSM release decreased mainly because the contribution of Sa Nostra Vida, which was sold in the second half of last year, was not included anymore. Both the IFRS results of non-life and life in Europe were also supported by the good performance of equity markets. Net income of Specialty Markets amounted to CHF 49 million. The non-life operating insurance service result of the segment increased. The portfolio proved to be resilient in view of the ongoing inflationary environment. Once again, it benefited from its broad diversification and the strong profitable growth over the past years. The result of the Corporate segment was below the prior year, was below the prior year result at CHF -73 million.
A higher technical result of the internal group reinsurance was more than offset by the usual accounting effects related to the consolidation of our own investment fund. Let's now have a more detailed look at the development of business volume on slide 11. In the first half of 2023, Helvetia successfully continued to grow its core business with a focus on profitable and capital efficient areas. We achieved a total business volume of CHF 6.7 billion. This equates to a currency-adjusted increase of 6% over the previous year. The growth was driven by a remarkable organic increase in the non-life business of 13.2%. We were able to increase premiums across all market units and lines of business. Growth in non-life was above market in our three biggest country markets, Switzerland, Spain, and Germany, as well as in Austria.
Helvetia was thus able to further expand its market shares. In Switzerland, non-life business volume increased by 10%. On the one hand, this was driven by broad-based growth across lines of business in traditional non-life. On the other hand, growth was supported by a strong development of embedded insurance business and online insurer, Smile. In the life business in Switzerland, Helvetia continued to focus on capital-light products. In individual life, we recorded a successful development of investment-linked insurance products and of deposits. Together, these capital-light products grew by around 20%. Business volume in Swiss group life was influenced by an ongoing market-wide trend of a shift from full insurance to semi-autonomous solutions. As expected, this effect resulted in a lower business volume compared to the prior year in the life business in Switzerland overall.
Helvetia is well positioned in this environment with its semi-autonomous products and flat rate risk solutions. As a result, the number of actively insured persons in Swiss group life increased in total compared to the end of 2022, despite the shift away from full insurance. In the Europe segment, Helvetia increased its currency-adjusted business volume in non-life in all country markets and all lines of business. The non-life business grew by 7.6%. With growth rates of more than 7%, the increase in non-life business volume was above market level in Spain, Germany, and Austria. In life insurance in Europe, total business volume was lower compared to the previous year. There were two main reasons for this development. First, business volume in the prior year still included the contribution of the Spanish company, Sa Nostra Vida, which we have sold in November 2022.
Second, in the current market environment, with higher interest rates, the volume of single premiums in investment-linked business in Europe was lower than in the prior year. The business volume of the specialty market segment again developed positively. It grew by 32.7%. Growth in this segment was due to the increase in new business, driven by our focused growth strategy in all three market units: Specialty Lines , France, and Active Reinsurance . In addition, increasing prices supported the growth in Specialty Markets . Rate hardening accounted for about one-third of the segment's growth. Now let me turn to slide 13 and the fee business. Helvetia has not only profitably grown its core insurance business in the first half of 2023. We have also achieved a strong development of fee business in line with our strategic ambition to grow these types of income streams.
The group fee and commission income rose by 10.2% at constant exchange rates to CHF 194 million. This increase was mainly driven by the expansion of Caser's non-insurance businesses around its ecosystem, Health & Care in Spain. Caser has further expanded the fee business with targeted bolt-on acquisitions. For example, it has acquired four dental clinics and a network of more than 10 veterinary clinics in the first half of 2023. Fee business also proved to be profitable. The fee result on the right side of the slide shows fee income after deducting the related costs. It amounted to CHF 16 million before tax in the first half of 2023. With this, fee business contributed almost 5% to the group's net income. We are now moving to the combined ratio in non-life on slide 15.
At 94%, the combined ratio was on a good level at the upper end of our targeted range. It increased compared to the prior year due to a challenging environment. In view of a less benign claims environment and ongoing inflation, the portfolio remained resilient. Once again, it benefited from its broad diversification and profitable growth. The claims ratio was one percentage point higher than in the prior year at 66.6%. The positive impact of a higher discounting effect and lower claims from large nat cats were offset by a less favorable general claims, claims environment. The market environment was characterized by an above-average frequency of mid-sized claims and persistent inflation. In addition, a few large losses, particularly in the segment Europe, had an influence.
Please note that Helvetia has also recorded a large loss in Switzerland and several weather-related claims in Italy and Switzerland in July. These are, of course, not yet reflected in the half-year result. Helvetia is closely monitoring claims inflation and frequency trends, and is continuously reviewing and adapting the pricing of its non-life policies. Against this backdrop, a positive development in Specialty Markets is worth mentioning, in particular in France and Active Reinsurance . Besides the higher discounting, the benefit of the rate increases we have seen in Specialty Markets over the past months and years started to become apparent. Helvetia continues to see attractive potential in the business field of this segment as a diversifying and growing part of our portfolio. The cost ratio, which includes non-fulfillment, non-fulfillment expenses, remained stable compared to the previous year.
An improvement in the admin cost ratio was mainly driven by scale effects resulting from the profitable growth of the business. This compensated for a slight increase in the acquisition cost ratio from shifts in the business mix, due to the growth of embedded insurance business, and also due to the different weights of the geographical mix, which becomes, with growing, stronger inflation in Europe, more tilted towards non-Swiss franc countries. Now, let's continue with life business and the development of the CSM on the next slide. As you know, the CSM shows expected future profits from the life insurance portfolio. Over the first half of 2023, the CSM has developed well. It increased by 8.5% compared to the end of 2022. You can see the drivers of the increase in the CSM book on this slide 17.
First of all, Helvetia was writing profitable new business in the first half of 2023, which increased the CSM by CHF 123 million. Operating variances mainly relate to model adjustments, assumption changes, and effect from buffering VFA variances on the VFA business. The second main driver of the increase of the CSM were economic variances. This positive effect of CHF 421 million is mainly driven by the good performance of equity markets, the development of interest rates, and lower credit spreads. This position also includes the positive contribution of the expected in-force return, which we plan to split out in the future. Finally, the profit released from the CSM to the P&Ls amounted to a stable CHF 189 million Swiss francs, as we have already seen on the previous slide.
I will continue with a closer look at the volumes and profitability of new business in life on the next slide. New business in life developed profitably in the first half of 2023. The strong margin of 5.6% demonstrates Helvetia's successful focus on profitability when writing new business. Helvetia generated a new business volume measured by the present value of new business premiums of CHF 1.5 billion. Despite strong growth in life reinsurance, where we only underwrite biometric risks, the overall volume was below the prior year figure. There were three main reasons for this development. First, Sa Nostra Vida was sold in the second half of 2022, and therefore was still included in the first half of the prior year.
Second, volumes with single premiums in investment-linked business in Europe were lower due to the market environment with higher interest rates. T hird, the increase in interest rates led to a higher discounting of new business volume. The main contributor to the volume of new business were investment-linked products. In individual life, the share of these capitalized products on new business was more than 80%. New business generated in the first half of 2023 was very profitable, with the value of new business increasing by 6% despite the lower volume. Accordingly, the new business margin increased to 5.6%, and thus was at the upper end of our target range of 4%-6%. Besides the growth in life reinsurance, the increase was driven by a favorable influence of higher interest rates on new business in Europe.
Let me now move to capitalization on the next slide. Helvetia's financial strength remains outstanding. This is demonstrated by both our regulatory solvency, measured by the solvency test and the financial strength rating assigned by Standard & Poor's. We estimate our SST ratio to be around 300% as of end of June 2023. This figure remains on an excellent level, considerably above the minimum of 140% we have set ourselves. Our financial strength rating of single A+ has been confirmed by Standard & Poor's by the end of June. The target of an A rating is therefore met. On the right side of the slide, you can see our capital structure, in which we consider the IFRS equity, the net CSM, and hybrid and senior debt.
With a leverage ratio of 28% at the end of June, our capital structure presents itself as solid and well-balanced. I will finish my part of the presentation with a wrap-up of the financial highlights of the first half year of 2023 on the next slide. The financial figures of the first half of 2023 once again proved Helvetia's profitability and growth potential. This is underlined by three aspects. First, we have a strong, profitably growing core insurance business. Our non-life business showed broad-based growth in the first half, which was above market in most countries. Both the non-life and life businesses recorded resilient technical results in a challenging environment. Second, Helvetia's capitalization remains on an outstanding level. This reinforces Helvetia's resilience, enable us to seize attractive growth opportunities, and support a sustainable dividend payout. And third, we are continuously seizing attractive growth opportunities.
For example, in capital-light fee business or in Specialty Markets , which continues to experience a very favorable market environment. All these positive developments are reflected in our ambition to sustainably create value and our updated financial targets for 2025. With the half-year results, we are well on track to reach these. With that note, I will hand over to Philipp Gmür again.
Thank you, Annelis, for presenting the financial figures of the past first half year. The strategy period lasts until the end of 2025, and what we have achieved so far is impressive. Of course, the numbers are a result of our strategic plan, and thus, I will give you an overview in the next slide of the most important milestones of the past few months. Let's turn to slide number 24. With the Helvetia 20.25 strategy, we are pursuing the ambition to be the best partner for financial security and to set standards in customer convenience and accessibility. In order to do so, we have defined four strategic priorities. This slide provides an overview of the most important achievements for each strategic priority. Let's first turn to customer convenience. As I said before, we have a new distribution agreement with Raiffeisen Switzerland.
It is a non-exclusive sales cooperation starting as of January 1st, 2024, and it means that Raiffeisen is distributing Helvetia's products. Second, if it comes to customer convenience, we have to take the opportunity which digitalization is bringing for all of us. We've introduced our chatbot, Clara, in Switzerland quite some time ago, and now we are using an open artificial intelligence ChatGPT technology on a test basis in order to make Clara even more effective. The digitalization of our core business is also well on track. In Spain, Helvetia offers the possibility to report motor claims directly in a newly launched customer app. In addition, we have automated the accounting processes at Active Reinsurance on the basis of a blockchain technology. This involves the processing of "normal settlements, premiums, and claims, as well as the payment process."
Currently, as much as 30% of all settlements can be handled in this way. Customer convenience is only sensible if we have the right offering for our customers. What have we achieved so far within the last few months in this respect? As we communicated some weeks ago, we are integrating the distribution network of MoneyPark into Helvetia's distribution organization in Switzerland. Our customers can now obtain everything they need related to real estate from a single source, be it real estate acquisition, financing, financial planning, or insurance. This is an important step in the further development of MoneyPark, as the distribution power of MoneyPark will be significantly increased. Furthermore, we were launching new products, such as a capital-efficient tranche product called Helvetia Value Trend in Switzerland, with a volume of roughly CHF 75 million at the end of June.
Here, we achieved a growth of over 5% compared to the previous year's tranche. Moreover, there are several new insurance products from Caser in Spain, for example, a digital health offering with unlimited online service advice, and a new term life insurance with an app that measures behavior and gives a discount if you take more than 10,000 steps a day. We are also expanding the product scope. For instance, if it comes to cyber, we are investing in cyber prevention and telling our clients how to focus on prevention, which is the only way to make risks such as cyber insurable. We are cooperating with a specific firm, which is an expert in this respect. Having customer convenience and making sure that we have the right offerings should lead to profitable growth.
As Annelis pointed out, the driver was the non-life business, with currency-adjusted growth of 13.2%. Specialty markets also developed strongly, with a currency-adjusted growth of more than 60, 36% in France and almost 30% in Specialty Lines . Similarly, Active Reinsurance , where one-third of the currency-adjusted growth of 34.1% can be attributed to rate increases . Apart from profitable growth and seizing the so-called growth opportunities we have when it comes to organic growth, we are also seizing growth opportunities if it comes to new business models or new partners. We are looking for targeted growth in the embedded insurance and fee business. Talking about the embedded insurance, we want to be present where the need for insurance arises. Therefore, we are strengthening this business area and have further developed it with the acquisition of Mobile Garantie in Germany, among others.
Talking about the fee business, Annelis has already explained the impressive growth of over 10%. In addition to organic growth, we are pursuing an active acquisition strategy, particularly in the non-insurance business of Caser in Spain. The fee business contributes nearly 5% to the group's results. This demonstrates the attractiveness and profitability of these new business areas. Furthermore, we are launching Smile on an international basis. As told you a couple of months ago, Smile has been present in Austria since 2022, initially with a household insurance product. In the meantime, we successfully launched the motor product, which is the first product that can be purchased directly from Smile.
The next step now is the launch of an app and the launch of the freemium model, a franchise we successfully launched like 18 months ago in Switzerland, which helps us to get access to non-insurance Smile customers and change them and transfer them into Helvetia customers. In the meantime, in Switzerland, we are very glad to have a rate of roughly 300 non-customers being transferred to Helvetia and or Smile customers a month. Furthermore, the Swiss Property Fund contributes to our commission income. It is today probably one of the largest property funds, which is not yet listed on the stock exchange. We have, however, as announced earlier, plans to list this property fund in due time. Finally, we are also successfully implementing a group-wide climate strategy. Let me very quickly wrap up. Helvetia is well underway.
We have good growth, we have a strong, resilient balance sheet, we have a very pleasing net income. We have the signal and the ambition to really deliver on our promise if it comes to dividends, and we see many opportunities going forward. With that, I would like to close our presentation and to go on with the questions, the Q&A session.
We will now begin the question- and- answer- session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to choose only handsets and eventually turn off the volume from the webcast. Only two questions might be asked in a row, then the line will be open to others. You can get back in line again for any follow-ups. Anyone who has a question may press star and one at this time. First question comes from the line of Simon Fössmeier with Vontobel. Please go ahead.
Thank you. Good afternoon, it's Simon from Vontobel. I have two questions. The first is on the CSM walk on page 17, the CHF 421 million economic variances. Can you give us an estimate of what would be a reasonable range in the future? Because that number is quite a swing. And what is the key driver for these economic variances? I would assume that's interest rates, but I'm not sure. And the second question refers to slide 29. That's the overview with the combined ratios. The majority of the combined ratios appear to be above 94%, and they appear to be trending up. And I'm not quite sure if that's accounting, if that's interest rates, or if this is some underlying problem. Are you taking any measures on the combined ratio? Thank you.
Thank you, Simon. I suggest that Annelis is coming on with the answers to both of those questions, starting with the CSM.
Yes, thank you, and hi, Simon, for the questions. So let's start at the CSM walk. So with your first question. So you asked about the 421 economic variance we see in our CSM walk. So a part of this economic variance is also the expected in-force return, which we have not yet separated, but which we plan to separate in the future. Now, to give you a bit an orientation on the size for the first half year, we expect when we separate this expected in-force return, that together with the new business CSM, that these two values together would more or less equal the CSM we pay out. So a part, a bit more than 10% of this CHF 421 million of economic variance will be in this expected in-force return.
Now, of course, there's still a part left, which needs to be explained. Now, if you remember SST discussions in the last 10 years, then changes in SST ratios are very similar to this economic variance, always influenced, besides other factors, of course, by changes in market values, such as interest rates, such as equity movement, so of the equity market, such as credit spreads. And all these effects have an impact on this economic variance. The important thing is here, as you of course know, that this economic variance is largely buffered in the CSM, and it's also the CSM or the economic variance may vary from half year or from closing to closing.
But still overall, the CSM release is and will remain pretty stable as we have shown in half year 2023. So this is to your first, first question. Then, second question, you were referring to the, to the combined ratios and, the development in the different segments. So I think what is, what is quite obvious that as we stated in the specialty market segment, we are profiting from the harder market environment and higher rates in the last years that are now becoming apparent. And, in the rest of the market, of course, since the end of 2021, we are, we are very actively managing inflation, meaning that besides automatic index-linked price increases, we are actively increasing prices, increasing pricing, sometimes even, several times a year in order to manage and, and, yes, to, to manage inflation.
So there are different effects in each market unit. And what we have also mentioned is that the higher frequency of above mid-size claims, of course, also affected us. What we always do in non-life is that we watch the frequency and the impact very closely and then take measures on price increases if it's necessary.
Okay, more questions?
The next question comes from the line of Peter Eliot with Kepler. Please go ahead.
Thank you very much. If I start with the two questions. Thank you. The first one would be on the life division again. I guess it's got a lot of moving parts, this period in particular. I'm just wondering if you can sort of help us look through those to sort of understand, you know, what it might have looked like without the economic variances. So, you know, I'm thinking basically, you know, if we take slide 31, but assume that assets had just returned their expected return, you know, rather than the large variances you saw. That'll be the first one. Second one, looking at slide 44, it looks like you've taken quite a big bet on equities from June.
Just wondering if you can talk us through what's happening there and the reasons for it. Thank you.
Peter, sorry. The, the second question, is dealing with the, the group investments?
Yes, exactly.
Slide 44.
Slide 44. Yeah, it seems the equity exposure after hedging has gone up 3.8% in June 2023. Just, yeah.
That's right.
Okay. So, again, Annelis, I ask you to first, referring to slide 31, answer the question, what would be or, or what a normalized, excluding the economic variances, life results would look like? And then, go to slide 44, explaining group investments and the strategy, if it comes to hedging.
So, I permit myself to start with the second question. So the hedging ratio on the equity exposure, this is actually quite a simple topic. The point is that we have adapted our hedging strategy also in the light of IFRS 17, meaning that due to the buffering of the CSM, we have less requirement for a strict or strong hedging overlay, but rather keep the exposure more open, let's say. So more direct equity exposure, or not more exposure, but a little more, a bit smaller exposure, but less hedging. So that's the first one.
And the second one is that due to the increasing equity markets, our hedge overlay, consisting mainly of options, of put options, was more out of the money, and therefore, the hedge ratio was a bit lower. So that's, that's that one, and then the second one on page.
31.
31. So what, what exactly are you interested in here?
Well, I mean, obviously, some large, I mean, I guess the items, the way we've seen very large movements, sort of year-on-year, or, I mean, if I look at, you know, the, the third line, for example, you know, you've, you've highlighted the CHF 106 million. But I'm wondering, you know, should I just literally back out that CHF 106 million to get a, a sort of normal run rate? And, yeah, then I guess the various items of the finance result as well, would be very helpful.
Yeah, so what we showed you here is actually the bridge, let's say, to the IFRS numbers. However, I would agree with you that it's in some part quite difficult to understand them, because there are some parts that are buffered in other areas. So for example, the variances from claims and expenses are then largely compensated in the insurance finance result and buffered in the CSM. So I mean, we could go through each of them. The important part is that we have the CSM release, which is quite stable. Then we have some smaller components out of the BBA business, moving a bit up and down, but at the end of the day, being almost neutral. And then.
Yeah.
We have a smaller impact from these assets, which are not allocated to the VFA business. However, what I can tell you now is the internal version on how we analyzed the insurance or the net profit, and it's not directly visible in this table.
Yeah. I guess, I mean, you know, what we're trying to do is look at, you know, what, what would a normalized result be going forward. So, you know, I guess if you, if you try and if one sort of tries to back out the, the, the economic variances, then, you know, it looks like the sort of underlying run rate for the insurance service result was about, you know, CHF 200 million. And then it, and, and it looks like the finance result, you know, was probably fairly neutral, or, or would be fairly neutral, if not for those economic variances. I don't know if you can confirm that or if I should just follow up offline in more detail with IR, but.
Yeah, I looked at it a little bit differently, but the bottom line, so this 140 and 137 actually are a more or less normalized result.
Okay, great.
So actually, I'm saying the same as you, but on another line.
Great. Okay, thank you.
Okay, more questions?
The next question comes from the line of René Locher, KBW. Please go ahead, sir.
Yes, good afternoon, all. I would also like to quickly discuss the CSM walk on slide 17. So just, as a general remark here, I mean, we have learned from your friendly competitors that the economic variance was negative in H1 2023, due to the strong Swiss franc and due to a drop in 10-year risk-free rate by 66 basis points, which makes sense to me. So, I mean, it's just interesting to see, you know, that you have such a strong uplift in these economic variance, and I, I guess it would be really very helpful if we get to hear a little bit more details. And then, the question is on the, the new business CSM. Here, again, you know, with, to comp these, I just take the new business value, which was CHF 83 million, shown on slide 19.
This is more or less the number which makes it into the CSM walk. With you, slide 19 is CHF 83 million, but the new business CSM is CHF 123 million. I was wondering, what's the delta here?
Okay.
That's, that's all you ask? Okay.
I'm coming, I'm coming back.
I take it as two questions. One referring to slide 17, the other one to slide 19. It's the delta of the CSM and the new business value, and the other question, how to cope with this.
Yes. So let's start with the economic variance and the CSM. So, if you think of what creates the CSM in a simplified world, you would have cash flows from assets and cash flow from liabilities, very simplified, going in the next years and discount them. And these cash flows have some equity components, have some credit risk components, and so on. Now, these patterns of cash flows for sure do not look the same for each company. As you know, implementing CSM and IFRS 17, the rules were clear, but the methodology in detail probably differs from company to company. Therefore, it's for sure possible that our sensitivity now looks different than other sensitivity of peers.
Our economic variance is the result of basically of the market movements, first, of interest rates, of course, the Swiss franc discounting curve we are using. Second, also of the euro discounting curve. It's also important in our business, then of credit spreads, and then, of course, of equity markets and a little bit of real estate markets. That had not a big influence in first half of 2023. So it's a whole complex mixture of market effects on a very large portfolio, creating a net effect in this economic variance at the end of the day. And of course, we are calculating sensitivities on the CSM and so on. But sensitivities would help to understand the movements, but also there, it's a bit similar, like in the asset world.
It could be that an interest rate makes a strange twist or movement in whatever direction, and then your, your classic parallel shift interest rate sensitivities to also not help to understand or to predict the results. Or what, what do I want to say? That the CSM movement or this economic variance is really no simple stuff. So of course, we will give you from time to time more, or we will, the plan is to give you more information, to give you sensitivities in order to be able to understand the movement. But it can still be, as with movement in the asset ratio, that, that it's, it's very hard to predict from a few sensitivities, how this economic variance moves from half year to half year. Then second, regarding the new business CSM and the new business value.
In a nutshell, the new business CSM, as you said, it is CHF 123 million in half year 2023, includes several components that we excluded for the new business value. The new business value of CHF 83 million does, does include the non-fulfillment expenses, which are not included in the new business CSM. Does include the CPI insurance, and does also has also some very small other adjustments. Why do we do that? Because we think to include the non-fulfillment expenses and the CPI insurance is a more economic reality than to not include them according to standard in the new business CSM. You can also find this information on page 64 of our half year report.
Okay, thank you.
Okay, more questions?
The next question comes from the line of Thomas Bateman with Berenberg. Please go ahead.
Hi, good morning, everybody. Good afternoon. Thank you very much for taking my question. I'd just like to talk about the pricing that you're getting in Switzerland. Obviously, there's quite good GWP growth there, but I was just wondering, what's the price effect in that market? My feeling is that claims inflation is low, no longer negative in Switzerland. And I just want to know what you're doing to kind of improve the combined ratio here, given there's probably been a relatively long-term deterioration in this market. And secondly, just on the combined ratio guidance, I think you're sticking at 92%-94%, but there's going to be a discounting benefit of almost 2%, two points per annum. So, I'm just wondering what's causing you to downgrade this guidance by about two points.
There's the first two questions are. Thank you.
Maybe I start with the guidance, and then, Annelis can answer the first question. You know, talking about the combined ratio, we are, of course, now, in a new, let's say, environment. And, at the same time, we have also specific effects, which are impacting our business, such as, as Annelis mentioned before, we benefited from lower Nat Cat cases in the first half of the year. At the same time, we had more mid-size claims in, specifically in the European segment. We have more specialty business, which is slightly increasing the combined ratio overall.
We have, looking at the business mix overall, slightly lower s hares of the business in Switzerland compared to the Specialty Markets and the European segment, and all those different elements are, of course, impacting the combined ratio. At the same time, we were discussing on whether we could still stick, given the whole environment, you were talking about inflation and so on, whether we could still stick to this KPI, 92%-94%, and we want to do so for the time being, for this strategy period. Taking into account all those effects you were talking about, but you know, there are positives and negatives, and we came out with the number we are presenting right now.
Oh, Annelis, go first.
Yeah. So on the non-life pricing in Switzerland, so as you assumed and mentioned, the strong price increases we have seen until now were predominantly in Europe, also, of course, due to the higher inflation in Europe compared to Switzerland. Until now, we have seen rather stable pricing environment. Of course, there is also in Switzerland, an indexation of some of the business lines or business areas. Basically, we are checking our prices regularly. We look at the claims development and also the claims development, meaning the size of the claims and the frequency of the claims, and try to have a long-term view on that. And we will continue to do that also and especially also in Switzerland.
In Switzerland, we also have the pricing power to do so.
Okay.
More questions?
The next question comes from the line of Chen Lu with UBS. Please go ahead.
Hi, good afternoon, everyone. Thank you for taking my question. Thank you for your comments on that Switzerland pricing. Just follow up on that. So you're growing premiums in non-life, but are you pricing ahead of inflation in all your markets and all your sub-segments? And secondly, how should we think about the combined ratio for the full year, given the July losses? And then for your life business. So, so you had some large reinsurance sales in 1H. So what, what type of business are you writing? And do you expect growth in total insurance in Swiss market? And, do you consider to exit the market in Switzerland? And finally, given higher interest rates, how should we think about reserve release outlook in life insurance? Thank you.
Okay. I would like to sum it up into two questions. One deals with the non-life and the perspectives going forward, and the other one with the life business. I suggest Annelis is then answering life business. I'm starting with the non-life business. You know, talking about inflation and pricing, of course, I mean, it's in naturally you might lag behind a little bit when increasing your rates because you do not know what the inflation rate looks like in, let's say, a year from now. And now we are, you know, going out with the new invoices. So, we are, of course, taking the opportunity to increase the prices as good and as far as we can.
However, we are also in a market environment we have to take into account. But, as we said before, we are pretty pleased with our pricing power in most of the markets. We might have less pricing power in Italy, specifically in motor. That's why we are pretty reluctant now in underwriting new motor business. Talking about the combined ratio going forward, we do not give any guidance as of the year end or year's end result. However, we have to take into account that we had quite a few nat cats in July and August. However, up to now, it is our assumption that this could, you know, end in a pretty planned, reasonable result until the end of the year.
It largely depends on what the nat cat events look like in the weeks to come. For instance, if we have a strong hurricane season, then we might be impacted. If we might have floods in Western Europe, we might have an impact. But you know, today we would suggest that we have a result which is coming out according to our plans. Now.
Regarding life insurance and life reinsurance, I hope I understood you correctly. So in life reinsurance, the type of business we write are biometric risks, so reinsurance of biometric risks, and that in worldwide portfolios. And yes, we plan to further grow there, completely in line with the Active Reinsurance growth strategy of growing diversified in the lines of business we have now set up. Then I also took up that you had a question regarding higher interest rate and life business. The point there is that higher interest rates are really interesting or are good for life business, because at the end of the day, what you earn is a sort of interest margin on the longer end of the interest rate curve.
And of course, if the interest rates are higher, this interest margin tends to be also higher, especially in nominal terms, and therefore, life business is very interesting for us.
Okay, more questions?
The next question is a follow-up from Mr. Eliot with Kepler. Please go ahead.
Thank you very much. Sorry. To add in a couple on non-life. The first one was just trying to understand the PYD development, so minus 4.9% for the half year. Are you able to explain the drivers of that? I mean, you say it's increasing due to inflation effects, and I'm just wondering, yeah, if you can expand on that a little bit, and remind us what we see in terms of reinsurance accounting under IFRS 17. The second one then was on the discounting benefit and the unwinding.
I mean, some other insurance companies have sort of given us rules of thumb for calculating it and then, and sort of guidance on the timing of, of how that discounting, you know, flows through to the unwind, you know, over how many years. Are you able to give us anything similar on that? And I guess the seasonality would be useful to understand there as well. So, you know, the discount benefits that we've seen in H1, you know, is there any sort of seasonality in that, or is it basically just sort of driven by interest rates in terms of what we should expect for H2? Yeah, sorry, a bit of an open question, but any help you can give us on those two subjects would be.
Okay.
Very helpful.
Thank you, Peter. Annelis, would you please answer those two questions?
Yes, of course. So we see that IFRS 17 has not only become more transparent, but more work for the CFO. No, joke aside. Regarding the previous year development, we have also restated towards IFRS 17, the previous year development, and it changed from 6% in half year 2022 to 4.9% in half year 2023, which is slightly less than in half year 2022. And this, these were really mostly effects from inflation, meaning that claim settlements at the end of the day were more expensive than initially thought, or than a similar pattern a year before. This had several reasons, also supply chain issues and so on.
Now, on the discount unwinding, this is really a tricky topic under IFRS 17, but what can I give you as a guidance or as a information? Of course, we don't give profit guidance, that's clear, but what we can give you is some kind of path, where do we come from until now. So we like to distinguish between discounting benefits from current accident year and unwind of discounting expense from previous accident years. Now, in the current accident year, if you look at the development of the numbers under IFRS 17, in half year 2022, we had CHF 45 million of discounting benefit, in full year 2022, CHF 108 million, and in half year 2023, CHF 87 million.
So there you see indirectly, of course, the effect of the higher interest rate environment during this, one and a half years. So as interest rates increase in 2022, it is to be expected that this non-life discounting benefit for the current accident year is markedly higher in full year 2023 than in full year 2022. As you see, the same, similar development from half year 2022 to half year 2023. Of course, here we assume no other changes and so on. If we now look at the previous accident year, there is there you see a similar pattern. So we had for half year 2022, we had CHF -11 million of discounting expense, full year 2022, CHF -26 million, and now in half year 2023, CHF -28 million.
So here, as interest rates increased in 2022, and as Helvetia's non-life book, non-life book has a rough average liability duration of relatively low 3.5-4 years, we would expect that this non-life unwind of discounting expense is markedly higher in full year 2023 than in full year 2022, similar to the comparison of the two half years. So I hope this rather, technical explanation helps you.
No, that's, that's helpful. Thank you. Could I just quickly follow up? I mean, I guess some people are, you know, showing a higher or a bit of seasonality. So, you know, for a given level of interest rates, a higher discount benefit in H1 than H2, because the percentage of unpaid claims is higher in H1 than H2. I'm just wondering if you might see a similar seasonality or if you would say, no, you know, H1 and H2 should be very similar, or again, I mean, if we could follow up offline, that's easier, but.
Yeah, H1 and H2 should be rather similar, so we do not see this kind of seasonality in our portfolios.
Okay.
Okay?
Great. Thanks very much.
Peter, so far,
Yes, thank you.
Are there any more questions?
Yes, we have a last question, which is a follow-up from Mr. Bateman, Berenberg. Please go ahead, sir.
Hi, thank you for letting me have another opportunity. The SST ratio is still very high, over 300%, but I think you often push us towards the net economic dividend capacity, which I think you have only updated until the end of 2022, CHF 0.8 billion. Can you give us any insight on what that might look like today? Is that going to be relatively stable or potentially increasing? And just the second question is on the acquisitions you've made in Spain, focused on fee income. I'm just wondering if the CHF 450 million guidance on fee and commission income reflects these acquisitions or if there's probably more upside to that. Thank you.
Let me answer the second question and then hand over to Annelis for the question whether the strong SST ratio has also an impact on the net economic dividend capacity or the guidance. The 450, you know, is a new number. We came up with 350, and then, as we said and pointed out again and again, what we promised with the acquisition of Caser proved to come true. And moreover, we could even increase, you know, a couple of the targets in the meantime. However, the, let's say, the increase from CHF 350 to CHF 450, or as you say, whether there is some potential or not, is not only depending on what we do in Spain.
You see, on the slide where we are explaining our fee revenues, that we have a couple of different buckets which are contributing to our fee income. So, we could not assume that the whole growth in that respect is coming up from Southern Spain. Now, SST and dividend capacity.
Yes, so as you mentioned, we update the net economic dividend capacity once per year. This has a reason, and the reason is that the net economic dividend capacity is based on local statutory closings, which are available once per year. As you know, that the dividends are always paid out of local statutory closing. And we expect this net economic dividend capacity to be rather stable and supporting well our targets of distributing more than CHF 1.65 billion of dividends for 4-5 strategy years until and with 2025.
It wouldn't.
Okay, thank you.
When we were increasing those targets, we were also taking into account what we are, you know, assuming going forward, and it doesn't make sense to increase the targets or to lower them every six months. So, we want to stick to the targets we were communicating when talking about the new strategy period. And, it was unusual, so to say, that we increased the targets within the strategy period. So I would not assume that we are increasing them again, you know, within the next couple of months.
Okay, that's it. I was just trying to get a gauge for, I think you said 4 veterinary clinics and some dental clinics or something. I was just trying to get a gauge for, for how much they might be worth. It feels like.
Okay.
Thank you.
Tom, are there more questions? If not, I would like to close this Q&A session and to take the opportunity to thank you for your interest in Helvetia. As you might know, it was my last Q&A session in this format. We are road showing tomorrow, for instance, in Zurich. But for this audience, it was the last time I had the pleasure to talk to you. I thank you very much for your trust into Helvetia. You had during my time as the Group CEO, and I hope you are sticking to Helvetia, also going forward. Thanks a lot, and I'm happy to see you again in due time. Bye-bye.