Ladies and gentlemen, good morning. Welcome to the Swiss Life presentation of the Q1 Results 2016 conference call. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Thomas Buess, Group CFO of Swiss Life. Please go ahead, sir.
Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. With me are Heidi Hinterhuber from Investor Relations and Christian Pfister from Group Communications. In today's call, I'll give you an update on selected figures for the first three months of 2016. Please note that all figures quoted in this call are reported in Swiss francs and are unaudited. Let me summarize today's key messages. Afterwards, I'll provide more details on our segments. First, our premium income in local currencies decreased by 10% to CHF 6.7 billion. This decline is mainly due to our focus on profitability in the low interest rate environment. We also continued to redirect growth to capital-efficient offerings and de-emphasized capital-intensive single premium products. Second, our fee and commission income was up by 3% to CHF 332 million, which is in line with our Swiss Life 2018 target.
Third, Swiss Life Asset Managers generated net new assets of CHF 2.3 billion in our third-party asset management. Total assets under management in our key plan business amounted to CHF 41.6 billion. Fourth, our direct investment income remained stable at CHF 1.1 billion, with a non-annualized direct yield of 0.7%. Our net investment yield stood at 0.7% on a non-annualized basis as well. Finally, our SST solvency ratio, as filed with FINMA, was 146% on January 1st, 2016. Our Swiss Life 2018 program is well underway. We are on target regarding cash remittance to the holding company and have already implemented one-third of our cost savings initiative. Let me give more details on the premium and fee income development. Our premium income decreased by 10% in local currencies to CHF 6.7 billion. There were two major reasons for this decline. First, we kept a clear focus on profitability.
As mentioned at our Investor Day, capital efficiency of our new business remains paramount in this low interest rate environment. The share of non-traditional products in our new business mix was 94%, excluding Group Life Switzerland, compared to 92% at the year-end 2015. Second, we saw a slow start in our French and international market units. However, we do expect a catch-up in France and international already in the second quarter. Our fee income increased by 3% in local currencies to CHF 332 million. Swiss Life Asset Managers grew by 3%, the owned IFAs by 13%, while our own and third-party products decreased by 6%. Please note that our fee and commission income shows a seasonal development, and the second half of the year is generally stronger, particularly in our Asset Managers business. Let's have a look at our market segments.
In Switzerland, premiums declined by 9% to CHF 4.9 billion, whereas the market showed a decrease of 6%. The decline should not come as a surprise, as we have already guided at our Investors Day and our full year 2015 disclosure that single premium business is likely to decline. This is in line with our focus to protect our margin in the negative rate environment. In individual life, premiums decreased by 23%, while the market was down by 6%. The decline is entirely due to our substantially lower single premium business, which decreased by 60%. Our periodic premiums showed an increase of 7%. Premiums in Group Life were down by 7% due to lower single premiums, while periodic premiums remained flat. The overall market decreased by 5%. We continue to push semi-autonomous and pure risk solutions.
The share of semi-autonomous solutions in our new business production increased to 8%, compared to 2% in the first quarter of 2015. Moreover, assets under management in our investment foundation grew by 4% to CHF 5.8 billion. Fee income in Switzerland was up by 15% to CHF 61 million. This is the result of increased revenues from Swiss Life Select and our real estate brokerage. On a standalone basis, Swiss Life Select increased its revenues by 23%. Turning now to France. Premiums decreased by 2% in local currency to CHF 1.1 billion in a market that was up by 4%. In our life business, premiums were up by 1%, while the market increased by 5%. We cannot be pleased with this slow start. However, after a good month of April, we do expect a catch-up in the second quarter. The unit-linked share in our life premiums was 39%, while the market reported 18%.
In our new business, the unit-linked share accounted for 56%. In health and protection, premiums declined by 7%, while the market was up by 3%. This decline is entirely due to our individual health business, which declined by 17%, reflecting the LAMal health reform. Growth in our individual protection business was 9%. Premiums in group standard health solutions were up by 45%. Our P&C premiums were down by 2%, while the market was up by 1%. Fee income in France decreased by 10% to CHF 59 million, mainly as a result of lower private banking fees. Turning now to Germany, where premiums were down by 4% in local currency to CHF 347 million, while the market decreased by 9%. In line with our focus on capital efficiency, we continued to de-emphasize traditional savings products.
We partly compensated this decline by increased volumes of our modern traditional pension products and our offering for disability insurance. Please note that we have substantially increased the share of risk products, which have lower premiums but higher margins. Fee income in Germany was up by 8% to CHF 94 million. This increase is entirely due to our own IFAs that grew their revenues by more than 17%. The number of financial advisors was up by 4% against the prior year period. Moving on to our international segment. Here, premiums were down by 41% in local currencies to CHF 364 million, as we were less successful in selling big-ticket policies than in the prior year. However, given the recent activity, we expect a catch-up during the rest of this year. Assets under control for high-net-worth individual clients declined by 4% to CHF 18.3 billion.
Fee income international was down by 3% in local currencies to CHF 55 million. Commission income from owned IFAs declined by 2%. Chase de Vere had its best quarter ever, while Swiss Life Select Austria was impacted by the challenging stock market. Let's move on to our asset management. In our asset management business, commission income was up by 3% to CHF 133 million, of which TPAM contributed CHF 65 million and PAM CHF 68 million. Strong net new assets from TPAM and a higher average asset base in PAM were important drivers. In TPAM, we generated net new assets of CHF 2.3 billion. Assets under management for TPAM increased to CHF 41.6 billion, compared to CHF 38.8 billion at the year-end 2015. As you can see, we are well on track to achieve our Swiss Life 2018 targets. Let's have a quick look at our investment results.
Supported by our long durations, Swiss Life could maintain its direct investment results at the prior year level of CHF 1.1 billion. Our direct investment income in absolute terms remained stable in a continuously very low interest rate environment. Our direct investment yield was unchanged at 0.7% on a non-annualized basis. Our net investment result was 0.7% on a non-annualized basis. This is about 20 basis points below the prior year number due to the lower net capital gains. We can confirm our guidance that we expect to achieve a net investment yield of at least 3% for the full year 2016. I'm saying this with the usual disclaimer of any unforeseen development in the financial markets for the rest of the year. The asset mix remained more or less in line with our full year disclosure. The duration gap remained low at around one.
On January 1st, 2016, our Swiss Solvency Test ratio was 146%, as filed with FINMA, based on our internal model approved with conditions. As of today, we expect the ratio to be pretty resilient. We will continue to provide SST sensitivities for the 1st of January 2016 in our half year 2016 booklet. As mentioned earlier, I'm very pleased to report that our Swiss Life 2018 program had a good start. All our market units kept their focus on protecting the margins. Due to the continuing pricing and underwriting discipline, we are confident to achieve our VNB ambition despite the even lower interest rate environment. This is confirmed by the fact that the share of traditional products in our new business production was only 11%, including Group Life Switzerland. This is the lowest share ever. In line with our target, we are substantially increasing cash remittance to the holding company.
At the end of the first quarter, we have already implemented about one-third of our cost savings initiatives. Let me close by reiterating today's key messages. Given the challenging market environment, we are satisfied with the course of the business in the first quarter, particularly with our growth of fee and commission income and the development of our direct investment results. Premium development was modest, but it was mostly deliberately steered to protect our margins and to further improve capital efficiency. Our Swiss Life 2018 program is well on track, and we are confident to achieve our 2016 financial targets. I'm now ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. Participants are requested to use only handsets when asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Michael Huttner, J.P. Morgan. Please go ahead.
Fantastic. Thank you so much, and thanks for such a clear presentation. I had just two questions. The first on Solvency II. Can you give a little bit more background or color to this number? Maybe remind us how much the add-on or the haircut you had from FINMA was originally, and whether this is after the dividend. When you say it's resilient now, is this kind of within a range, or is it a precise number? Maybe, I don't know, to the extent that Swiss Re has published all these reconciliation, maybe you can reaffirm or say again how you see yourselves relative to Solvency II. Then on the cash flow, you say this has started. Can you say where and how or how much, just to give it a bit more color and a bit more feel for it? Thank you very much.
Okay. Thank you, Michael. First, on the SST. Here, I mentioned that our final calculation ended up showing 146% as of the first of January. You remember that at the year-end communication, we mentioned that we expected this to be around 140, and you see it's now above 140 with the 146. As of today, I estimate to be the number above 140 still resilient. We had various impacts. If you looked at our sensitivities that we have published in the booklet for the Investor Day last November, and you apply those sensitivities, I can say that you have a positive impact since the beginning of the year because of the narrowing spread environment. You have a negative impact because of lower interest rates. We have some positive impact because of some changes in the asset mix.
All in all, I assume the best guess is that it's almost a wash, therefore, we do not expect that this rate will be below 140. It will be actually close to what we have mentioned as being the ratio for the beginning of the year. That's for the SST. We still stick to what we always mentioned, that in our case, the difference between SST and Solvency II is between 40 to 60 percentage points. You cannot compare our ratios to Swiss Re. Swiss Re is a different business first. What you also have to bear in mind there is that Swiss Re is using for both for Solvency II and for the Swiss Solvency Test, an internal model.
We are using for the Solvency II ratio that we have published at the Investors Day and that we'll keep you posted also at the half year. We are using there the standard model for Solvency II. Usually, standard models under Solvency II give you lower Solvency II ratio. That's for Solvency II. Now on the cash remittance. We have announced at the Investors Day that we will send up over the next three years, CHF 1.5 billion of cash to the holding company. I cannot yet give numbers, but I can tell you we are well on the way, and at the half year, we can give you numbers for the first half of the year in our disclosure then. We are very well on the way remitting the first tranche of the CHF 1.5 billion that we have mentioned at the Investors Day.
Brilliant. That's really helpful. Thank you.
Next question comes from Peter Eliot, Capital Group. Please go ahead.
Thank you very much. Perhaps I could quickly actually just initially just follow up. You mentioned, Thomas, that the 1.46 was slightly better than the number you were sort of previously guided to net of UFR. I'm wondering if you could just sort of say maybe what the sort of moving parts were or whether the initial number was just a very rough number. Then I had two questions, please. You've said throughout that you've been very disciplined. I'm just wondering, would you be able to give us sort of a very rough feel for how the value of new business that you've written might compare maybe on a sort of like-for-like basis, so constant assumptions versus before, and maybe as a result of the sort of economic movements we've seen?
Secondly, the cost measures, when you mentioned the strong progress on the cost initiatives, I'm just wondering to what extent we should maybe expect any sort of frontloading, therefore, of costs when it comes to the H1 results or whether that's just in line with your plan. Thank you.
Thank you. First, the number we gave at the year-end communication was a rough estimate. I'm always a little bit careful and conservative giving numbers out to the market that I have not yet calculated. Therefore, I was obviously pleased to see that the 146 was above the estimates that we gave to the market at the year-end communication. There's no specific reason now for why it's higher. At the time, my hope was that it will be higher, but we are very conservative giving estimates to the market. The other point on the value of new business. What I can say is that despite the actually even lower interest rate environment now, we are still confident that we will deliver on the promise to generate CHF 750 million of new business value over the next three years, despite this environment.
It is despite our decline of the single premium business, because we really did this apart from France and the international, which I mentioned. In Switzerland and in Germany, we really did this in order to protect our margin and in order to protect new business value, in order to not sell business that may have negative impacts on our new business value. I'm still confident that we will deliver on this promise despite this very rough environment, especially in the individual life business in Switzerland and in Germany, by the way. In Germany, the good news is that we are very successful in the protection in the biometric products, and therefore, I expect actually there even a better result than in the prior year. In France and in international, I mentioned it, obviously there was a slow start.
However, I have seen now activity in both businesses, and I'm confident to see a catch-up because a first quarter sometimes also a little bit might have a basis effect because you had in the prior year some big-ticket items, for example, in international, which actually was the case in the first quarter 2015. We had substantial big-ticket items. We didn't write these in the first quarter of this year, so we may write some in the second quarter, and then we immediately will see a catch-up. I'm actually there pretty positive that the French and the international businesses will catch up because there it's not a question of profitability. The business there is profitable, mainly also in the French market, our unit-linked business that we have such a success with the years in the past years.
Now on the cost measures, here I can say that do not expect any front loading there because we always report about a project view. The project view means that one-third of our measures project-wise are implemented If, of course, the run rate of these measures may only start, say, somewhere in April, because it is implemented at the end of March. Do not forget that we also have announced that we will invest a certain amount of money in our growth initiatives. Thus, I think our goal is clear. We want to keep the cost base flat. That's the goal. There, I am pretty optimistic that we will achieve this.
Great. Thank you very much.
Next question comes from Stefan Schürmann, Bank Vontobel. Please go ahead.
Yes. Hello. Two questions. The first one, just a small one on fee income. You state a small decrease in international of 3%. Can you just maybe explain why that is? The second one on single premium decrease, especially in Switzerland. I think from a profit perspective, profit by source perspective, we should expect some negative view for the risk result. As a reminder, I think there should not be much of an impact from this decrease in single premium business written in the first quarter. Is that right?
It's absolutely right. You will not expect a negative impact on the results on the bottom line because of the lower single premium business. Even the impact on the risk result will be extremely limited. I do not see an impact of the lower premium in Switzerland on the Swiss profitability. I know it's a bold statement, but I think it will be the case. The other one on the international fee income. International has mainly, when it comes to fee income, two sources. One is obviously the international high net worth individual business. That is a fee business. It's not really a quote-unquote, insurance business. There we have lower setup fees because when we generate additional policies there, usually we are getting a set of fees. We also have a little bit lower assets under management in our high net worth individual business.
This was the main driver of the lower fee income. In addition, we also had, unfortunately, in Austria, in the own IFAs, that is the second part of the fee income source in international, we had lower sales of our own IFAs in Austria. However, I mentioned this in my speech, we are very, very pleased with the U.K. development. There we saw the best result ever in our Chase de Vere market unit.
Okay. Yeah. Thank you. Yep.
Next question comes from Jonny Urwin, UBS. Please go ahead.
Hi. Morning, everyone. Thanks for the presentation. Very useful as always. I just have one question left, actually, and it is thinking about the sort of allocation of IFRS earnings. I know in the past, rule of thumb was to think about the allocation as 20% for growth, 50% for capital build or so, and then the rest is the payout ratio. Going forwards from here, I guess the growth profile is looking like it is changing a little bit. The market looks tough. It looks quite difficult out there for you guys, and you are reigning in the traditional businesses you have been and growing in capital-light products. When I think about your allocation of IFRS profits going forward, obviously the payout ratio target has changed, but is 20% or 30% for growth still appropriate, or is it even less than that? That is all from me. Thank you.
When you look at the structure of IFRS profits, we have published this in our booklet also at the Investors Day, page eight, actually. You can see the profit by source there. Yes, we are growing. We may be growing in the first quarter a little bit less than expected in France and in international. In Switzerland, we are absolutely in line with our plan. We made this very clear at the Investors Day. We really put profitability before growth, and we want to become more capital efficient. Therefore, at this stage, I cannot say that we need less capital for growth than what we have also shown in the booklet on page 24. It was in my presentation at the Investors Day. At this stage, after one quarter, it is too soon to tell.
Okay. Thanks very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Next question comes from André Frick, Bank Vontobel. Please go ahead.
Good morning. Thank you. I've just a small question on the single premium development in the Group Life business in Switzerland. Actually, Thomas, I did not really get the number. I'm not sure whether you already gave a number on the development of the single premiums in the Group Life business in Switzerland. Actually, then also in this regard, the question is, you have, not only you, but all life insurance companies in Switzerland have been benefiting from a shift from autonomous pension funds to insurance, the full insurance solution provided by insurance companies. The question here is, how much of the reduction of this single premium volume is actually related to this, I would say positive effect that is obviously fading now?
Okay. Thank you, Andy, for this question. First, the single premium in Group Life was -14%. The periodic premium was flat. The single premium development of the entire market was -13%, so almost in line with our development. Why is single premium not up at the same pace as a year ago? First, of course, a year ago, we had really a lot of new accounts that came to us. You don't just look at the number -14, but also look at the basis effect, that we really had very strong single premium growth a year ago. In the meantime, we have tightened even our underwriting standards. For example, we really look at capital efficiency of new business even much closer. We also offer more semi-autonomous business. I've mentioned this was substantially up against the prior year.
Yes, the single premium was lower than a year ago, but the major reason there is clearly tougher underwriting standards. We still see some movement from semi-autonomous solutions to the full insurance solution. However, to a lesser extent and mainly focused on smaller companies. Obviously, when you look at smaller accounts, you don't get as much single premium business as when you look at medium-sized accounts.
Thank you very much.
Next question comes from René Locher, MainFirst Bank. Please go ahead.
Yes. Good morning, everybody. Couple of questions. First on the lower business volume. Don't we think also a little bit about a potential expense overrun? I mean, just simply you just mentioned that cost remains stable and now could really happen that we are going to see even a lower business volume. Could that not trigger a result in, how can I say, further cost reduction? On the second question on this fee and commission income, I guess it's becoming more and more important. Perhaps you can explain it a bit. Like for someone in Switzerland, you just mentioned the Swiss Life Select had a very good start to the year. I was wondering, where is the fee income coming from? What kind of products are these guys selling? Perhaps also in France, you mentioned that private banking fees decreased a little bit.
A little bit of a feel in on what kind of products you're selling here. I saw in an interview, it was Ivo Furrer. He was talking about that Swiss Life is now getting more and more in direct competition against banks, that you are planning to offer bank-like products in the near future. I guess he was not referring to mortgages. My question is, can you as an insurance company sell bank-like products without a banking license? Also related to fee income, the growth in third-party asset management. Can you give a little bit more insight, where the growth is coming from? Thank you very much.
Okay. Let me start with the last question because that's the easiest one.
When I look at the Third-Party Asset Management, the net new assets of CHF 2.3 billion, you can say that around half of it came from Switzerland.
Was generated in Switzerland. About CHF 800 million in France and about CHF 400 million in Germany, which is actually a very nice number because in Germany, we just started with this business. We are very pleased. Looking at the various areas, obviously, dominating area was still real estate area, followed by bond mandates and money market mandates. That's the Third-Party Asset Management.
Okay, thanks.
Now on the expenses. I do not expect expense overruns because premium is not in the life business. The real metric to compare expenses to. That's why we have started to publish what we call the efficiency ratio.
The efficiency ratio puts your expense base in relation to the technical reserves.
There I can tell you that in the first quarter, we still saw growth of the back book despite lower premium. All in all, actually, our efficiency ratio was even better than in the prior year. I see continuing this because we are very successful in reducing lapses. If you can reduce lapses, keep lapses low, and keep your back book at the same level and expenses at the same level, you will not see expense overruns.
So that's my.
Thomas, can I chip?
Yes.
Yeah. Very simple guy, and also Michael, he used to work at Swiss Life. What I want to say is, at the end of the day, you have now reported, let me see, like in single premium business, 60% less premiums. Just in simple terms, at the end of the day, this should trigger lower workload at the head office. With that, you need less employees at the head office. This is what I was referring to.
Yeah. Premium again is not directly-
Yeah
linked to activity. You may write three or four big-ticket items, and especially in the single premium business, you have huge-
Yeah
ticket items. I mentioned the Group Life business. Obviously, we have the underwriting guys in place. If they are more restrictive in the underwriting, it doesn't mean that they have less work. Actually, they even do more work when they are more restrictive. There's no direct link. It's not-
Okay
same as in the motor insurance business where each contract has approximately the same size. In non-life, it's different. In life-
Okay
there's not a direct link.
Actually, I also mentioned one point, which is interesting. I mentioned that in Germany, we are writing a lot of additional disability business.
This is very small premium business, but high activity business, but high margin business. There's a lot of activity, a lot of processing staff needed still. Of course, most of it in the meantime will be automated.
A lot of staff needed. Still premium is lower, but the margin is higher. Activity doesn't really go exactly along, especially in the life business, with premiums. On your next question. In Switzerland, indeed, Swiss Life Select was very successful. They are selling third-party products.
They are selling mainly also investment products and also non-life products. Don't forget, they also are very successful in selling products with risk riders.
Because usually they always sell a product with a risk rider, and therefore they're also selling periodic premium products, a lot of periodic premium products.
Okay.
What was the next one? The French banking fees. A year ago in the first quarters, we had quite some issuance of structured products in French markets through our private bank there, and we didn't have the same volume in the first quarter of this year. Their fee income was lower than a year ago.
On Ivo Furrer's remark on banking products, I think it got a little bit exaggerated, his quote.
He was mainly referring to the funds. We are selling more and more funds.
For selling funds, and also for issuing funds, you don't need banking license.
Yeah. Okay.
Thank you very much.
Thank you. Thomas, can I quickly just a follow-up question on this SST. What I hear in the market here in Zurich is that we might see FINMA moving to a standard model by 2018. A standard model which is much more in line with the insurer's internal models. Can you just put a little bit flavor into this, what to expect, a long-term view on the SST ratio perspective?
It is true that there is a working group, a joint working group between FINMA and the Swiss Insurance Association-
that has just started to discuss a potential standard model for the Group Life business.
This conversation is very constructive. I have to say, a very good conversation that we are having there. The work has just started.
It is too soon to tell what the outcome will be. From our perspective, I do not expect negative impacts.
Okay. Thank you.
It could be.
Yeah. At the end of the day, if you have really a standard model which is more in line with your internal model, that would reduce workload and would also reduce investments, because at the end of the day, you're spending that much money on your SST model to your internal models. What I want to say is it'll be good news to have a standard model which is more in line with your internal models.
Okay, got it. Thank you.
Thank you.
I think we now should give other shareholders the opportunity-
Yes. Thank you so much
to ask questions.
Next question comes from Andrew Sinclair, Bank of America Merrill Lynch. Please go ahead.
Thanks, everyone. Good morning. Two quick questions remain for me. Firstly, it was just on the asset mix for the investment portfolio. I thought you said at one point during your comments that there hadn't been any change, but also when you were commenting on the SST changes, I think you mentioned that there had been improvement in the SST ratio from changes in the asset mix. I just wondered if you could clear that up for me, if there's been any changes there. Secondly, just on the SST ratio, just wondered how regularly should we expect updates on this ratio in future? Thanks.
Thank you. Last question. We will give a fully calculated ratio every year, because we only have to file with FINMA every year. In the interim, we will always give you guidance where we think we are compared to our last published numbers. That's what you will get for sure. The other additional disclosure will also depend a little bit on market practice, which is still developing. On the investment portfolio, yes, indeed, there was not big shifts, but sometimes small shifts within asset classes can also have a positive impact or negative on the Swiss Solvency Test ratio. For example, if we keep, for example, the bond portfolio, the same percentage as the total asset mix, but we sell, say, high-yielding bonds, then this has a positive impact on the Swiss Solvency Test ratio.
In our case, one positive impact came also from the higher value of the real estate portfolio.
Very good. Thank you very much.
Once again, for questions, please press star and one. Next question comes from Daniel Bischof, Baader Helvea. Please go ahead.
Yes, good morning. Just one follow-up, please. As reported, top-line development might be a bit misleading here. Are you considering to publish net flows also on the insurance side on an interim basis in the future? Maybe related to that, you mentioned the reserve base grew in Q1. How did this compare to last year, and what is the regional split here?
Yes. Actually, we already do this. We are publishing at the half year. We are publishing our insurance reserve development. It's true we have not published it now, but I gave an indication and a number, and I can say that insurance reserves, all in all, were up by more than 1%. When I look at the geographies, not unexpectedly, you see actually an increase of insurance reserves in Switzerland. You see flat insurance reserves in France. You see a decline in Germany, not unexpectedly, because that's on purpose. You also see, and this I have mentioned even in my speech, you see a negative development in international where the insurance reserves are more assets under management there.
Okay, thanks.
Once again, for questions, please press star and one. Ladies and gentlemen, there are no more questions.
Thank you very much for calling in and for your questions. I am looking forward to talk to you again at the half year disclosure. It's on August 11, 2016. I wish you all a good day. Thanks a lot. Bye.
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