Ladies and gentlemen, good morning. Welcome to the First Life Presentation of the Q1 Results twenty sixteen 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 and A session.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Thomas Puez, 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 Investors 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 €6,700,000,000 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 deemphasize capital intensive single premium products. Second, our fee and commission income was up by 3% to €332,000,000 which is in line with our Swiss Life 2018 target.
Third, Swiss Life Asset Managers generated net new assets of €2,300,000,000 in our third party Asset Management. Total assets under management in our TPAM business amounted to 41,600,000,000.0 Fourth, our direct investment income remained stable at EUR1.1 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. Fifth, our SST solvency ratio as filed with FINMA was 146% on 01/01/2016. And finally, our Swiss Life twenty eighteen program is well underway.
We are on target regarding cash remittance to the holding company and have already implemented onethree of our cost savings initiatives. Let me give more details on the premium and fee income development. Our premium income decreased by 10% in local currencies to 6,700,000,000 There were two major reasons for this decline. First, we kept a clear focus on profitability. As
Day, mentioned at our
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 year end twenty fifteen. 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 €332,000,000 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 €4,900,000,000 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 fourth quarter in the 2015. Moreover, assets under management in our investment foundation grew by 4% to €5,800,000,000 Fee income in Switzerland was up by 15% to 61,000,000 This is the result of increased revenues from Swiss Life Select and our real estate brokerage. On a stand alone basis, Swiss Life Select increased its revenues by 23%. Turning now to France.
Premiums decreased by 2% in local currency to EUR 1,100,000,000.0 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 Annie Health Reform. Growth in our Individual Protection business was 9%. Premiums in group standard health solutions were up by 45%.
Our P and C premiums were down by 2%, while the market was up by 1%. Fee income in France decreased by 10% to EUR 59,000,000, mainly as a result of lower private banking fees. Turning now to Germany, where premiums were down by 4% in local currency to €347,000,000 while the market decreased by 9%. In line with our focus on capital efficiency, we continued to deemphasize 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 EUR 94,000,000. This increase is entirely due to our owned IFAs that grew their revenues by more than 17%. The number of financial advisers 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 €364,000,000 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 €18,300,000,000 Fee income international was down by 3% in local currencies to 55,000,000 Commission income from owned IFAs declined by 2%. Chase De Weir 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 €133,000,000 of which Kepam contributed €65,000,000 and PAM 68,000,000 Strong net new assets from TPAM and the higher average asset base in PEM were important drivers. In TPAM, we generated net new assets of 2,300,000,000.0 Assets under management for TPAM increased to €41,600,000,000 compared to €38,800,000,000 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 result at the prior year level of 1,100,000,000 Hence, 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. However, 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 01/01/2016, 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 01/01/2016 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 V and B 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. And at the end of the first quarter, we have already implemented about onethree 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 Our first question comes from Michael Hockner, JPMorgan. Please go ahead.
Fantastic. Thank you so much and thanks for such a clear presentation. And so I just have two questions. The first one on Solvency II, can you give a little bit more background or color to this number? So maybe remind us how much the add on or the haircut you had from Finmark was recently and whether this is after the dividend.
And when you say it's resilient now, it's just kind of within a range or is it a precise number? And 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 yourself relative to Solvency II? And then on the cash flow, you'd say this has started. Can you give can you say where and how or how much to give a bit more color and a bit more feel to 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 January 1. And you remember that at the year end communication, we mentioned that we expected this to be around 140,000,000 and you see it's now above 140,000,000 with €146,000,000 As of today, I estimate to be the number above 140,000,000 still resilient. We had various impacts.
If you look at our sensitivities that we have published in the booklet for the Investors 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 will have a negative impact because of lower interest rates. And we had some positive impact because of changes in the asset mix. So all in all, I assume the best guess is that it's almost a wash. And therefore, we do not expect that this rate will be below 140,000,000 It will be actually close to what we have mentioned as being the rate the ratio, sorry, for the beginning of the year.
That's for the SST. Now 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. And what you also have to bear in mind that 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 keep we will keep you posted also at the half year, we are using there the standard model for Solvency II. And usually, standard models on the Solvency II give you lower Solvency II ratio. So that's for Solvency II. Now on the cash remittance, we have announced at the Investor Day that we will send up over the next three years 1,500,000,000.0 of cash to the holding company. And I cannot yet give numbers, but I can tell you we are well underway.
And at the half year, we can give you numbers for the first half of the year in our disclosure then. But we are very well underway remitting the first tranche of the €1,500,000,000 that we have mentioned at the Investors Day.
Next
question comes from Peter Eliot, Kepler Cheuvreux. Please go ahead.
It sounds like quickly, actually, just initially, just follow-up. You mentioned, Thomas, that the 146 was slightly better than the number you were sort of previously guided to in net of UFR. I'm wondering if you could just sort of say what maybe what the sort of moving parts were or whether the initial number was just a very rough number. And then have two questions, please. On the you've said throughout that you've been very, very disciplined.
And I'm just wondering, do you think would you be able to give us sort of a very rough feel to 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? And then secondly, the cost measures that you when you mentioned the strong progress on the cost initiatives, I'm just wondering to what extent we should maybe expect any sort of front loading, 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. And I'm always a little bit careful and conservative giving numbers out to the market that I have not yet calculated. And therefore, was obviously pleased to see that the 146,000,000 was above the estimate that we gave to the market at the year end communication. So 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. Then the other point on the value of new business. What I can say is that we are still despite the actually even lower interest rate environment now, we are still confident that we will deliver on the promise to generate €750,000,000 of new business value over the next three years despite this environment, despite our decline of the single premium business because we really did this apart from France, which I will and the international, which I mentioned. But 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 impact on our new business value. So 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, the way.
But in Germany, the good news is that we are very successful in the protection in the biometric products. And therefore, I expect actually there are 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 it may 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 twenty fifteen.
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. So I'm actually there pretty positive that we the French and the international businesses will catch up because there, it's not a question of profitability. The business there is profitability is profitable mainly also in the French market, our unit linked business that we have such a success in the years past 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. And the project view means that onethree of our measures project wise are implemented. And if, of course, the run rate of these measures may only start, let's say, somewhere in April because it's implemented at the March. And don't forget that we also have announced that we will invest a certain amount of money in our growth initiatives. And thus, I think our goal is clear.
We want to keep the cost base flat. That's the goal. And there, I'm pretty optimistic that we will achieve this.
Great. Thanks very much.
Next question comes from Stefan Schurman, Bankfontobil. Please go ahead.
Yes. Two questions. The first one, just a small one You state a small decrease in international of 3%. Can you just maybe explain why that is?
And the second one on single premium decrease, especially in Switzerland. I mean, I think from a profit perspective, for the source perspective, we should expect some negative here for the risk result. But for the reminder, I think there shouldn't 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 negative impact on the results on the bottom line because of the lower single premium business. And even the impact on the risk result will be extremely limited. So I'm actually 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 is it will be the case.
Then 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 insurance business.
And there, we have lower setup fees because when we generate additional policies there, usually, we are getting a setup fee. And we also have lower assets under management, a little bit lower assets under management in our high net worth individual business. So this was the main driver of the lower fee income. And in addition, we also had, unfortunately, in Austria in the Ondaire phase, that is the second part of the fee income source in international, we had lower sales of our owned IFAs in Austria. However, however, and I mentioned this in my speech, we are very, very pleased with The UK development.
There we saw the best result ever in our chase de wer market unit.
Yes. Thank you.
Next question comes from Jonny Urwin, UBS. Please go ahead.
Hi, good morning everyone. Thanks for the presentation. Very useful as always. I just have one question left actually. And I was thinking about the sort of allocation of IFRS earnings.
I know in the past, we sort of rule of thumb was to think about the allocation as 20% for growth, sort of 50% for capital build or so and then the rest is the payout ratio. I mean going forward from here, I guess the growth profile is looking like it's changing a little bit. The market looks tough. It looks quite difficult out there for you guys and you're reining in the traditional businesses you have been and growing in capital light products. I mean, when I think about your allocation of IFRS profits going forward, obviously, payout ratio targets changed.
But I mean, is 20% or 30% for growth still appropriate? Or even is less than that? That's all for 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. And yes, we are growing. We may be growing in the first quarter a little bit less than expected in France and in France and in International. But in Switzerland, we are absolutely in line with our plan.
And we made this very clear at the Investors Day. We really put profitability before growth, and we want to become more capital efficient. And 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. So at this stage, after one quarter, it's too soon to tell.
Okay. Thanks very much.
Next question comes from Andreas Frik, Bank of Belvieu. Please go ahead.
Good morning. Thank you. I have 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 don't I'm not sure whether you already gave a number on the development of the single premiums in the group life business in Switzerland.
And actually then also in this regard, the question is, I mean, you asked not only you, but all Swiss insurance, life insurance compensates and have been benefiting from a shift from autonomous pension funds to insurance the full insurance solution provided by insurance companies. And 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 minus 14%. The periodic premium was flat. The single premium development of the entire market was minus 13%, so almost in line with our development.
Now 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. So you don't just look at the number minus 14%, but also look at the basis effect that we really had very strong single premium growth a year ago. And in the meantime, we have tightened even our underwriting standards. And so for example, we really look at capital efficiency of new business even much closer.
And we also offer more semi autonomous business. And I've mentioned this. This was substantially up against the prior year. So 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.
And 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 Rene Lohr, MainFirst Bank. Please go ahead.
Yes. Good morning, everybody. A couple of questions. First on the lower business volume, don't we think also a little bit about a potential expense overrun?
So I mean, you know,
just simply you you just mentioned that cost remains stable and now could really happen that we are going to see even a lower business volume. So could that not trigger or result in some, how can I say, further cost reduction? And then on the second question on this fee and commission income, I guess it's becoming more and more important. So perhaps you can explain a bit. Like for someone in Switzerland, know, you just mentioned the Swiss like Select had a very good start to the years.
I was wondering where is the fee income coming from? What kind of products are these guys selling? And perhaps also in France, you mentioned that private banking fees decreased a little bit. A little bit of feeling of what what kind of products you're selling here. And then I saw in a in a interview, it was Eva Fuller.
He was talking about that Swiss Life is now getting more and more in direct competition against banks so that you are planning to offer bank like products in the near future. And I guess he was he was not referring to mortgages. So my question is, can you as an insurance company sell bank like products without the banking license? And then, yeah, also related to to to fee income, you know, the the growth in third party asset management. Can you give a little bit more insight what 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 €2,300,000,000 you can say that around half of it came from Switzerland, was generated in Switzerland, about €800,000,000 in France and about 400,000,000 in Germany, which is actually a very nice number because in Germany, we just started with this business. So we are very pleased. Looking at the various areas, obviously, a dominating area was still the real estate area, followed by bond mandates and money market mandates.
So that's the third party asset management. 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. And the efficiency ratio puts your expense base in relation to the technical reserves. And there, I can tell you that in the first quarter, we still saw growth of the back book despite lower premium.
So all in all, actually, our efficiency ratio was even better than in the prior year. And I see continuing this because we are very successful in reducing lapses. And 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 overall. So that's my
Thomas, can I just like yes, very simple guy? Also Michael is a user worker at Swiss Life. What I want to say is at the end of the day, you have now reported, let me see, like a single premium business, 60% less premiums. So just in simple terms, at the end of the day, this should trigger lower workload at the head office. And with that, you need less employees at the head office.
This is what I was referring to.
Yeah. But but premium, again, is not directly linked to activity. You may write three or four big ticket items. And especially in the single premium business, you have huge ticket items. And 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. So there's no direct link. It's
not the
same as, say, in the motor insurance business where each contract has approximately the same size. So in non Life, it's different. In Life, there's not a direct link. And 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. So there's a lot of activity, a lot of processing staff needed still. Of course, most of it in the meantime will be automated, but a lot of staff needed. And still, premium is lower, but the margin is higher. So activity doesn't really go exactly alone, especially in the Life business with premium.
Now on your next question. In Switzerland, indeed, Switzerland Select was very successful. They are selling third party products. They are selling mainly also investment products and also non life products. And 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.
On the what was the next one? The French banking fees, a year ago in the first quarter, 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. That's why their fee income was lower than a year ago. Then on Ivo Vohler's remark on banking products, I think it's a little bit it got a little bit exaggerated, his quote. He was mainly referring to the funds.
We are selling more and more funds. And for funds, for selling funds and also for issuing funds. Don't need banking licenses. Yes. Okay.
Thank you very much.
You. Thomas, can I quickly just a follow-up question on yeah, this SSD? It looks like a never ending story. But what I hear in the market here in Zurich is that we might see FINMA moving to a standard model my 2018, but a standard model which is much more in line with the insurer's internal models. Can you, yes, just put a little bit of flavor into these what to expect long term view on the SST ratio?
Yes. As you know, 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. And this conversation is very, very constructive, very I have to say, very good conversation that we are having there. And but the work has just started. And it is very too soon to tell what the outcome will be.
From our perspective, I do not expect negative impact. Okay. It's soon.
Yes, yes. No, no, I mean, what I think at the end of the day, if you have really a standard model, which is more in line with your internal model, would reduce workload and would also reduce well, I mean, investments because at the end of the day, you're spending that much money on your SST model to your internal model, you know. So what I wanna say is it will be good news to have a standard model which is more in line with your internal models.
Okay, you. I think we now should give up the thoughts of the opportunity Yes, to sure.
Next question comes from Andrew Sinclair, Bank of America Merrill Lynch. Please go ahead.
Thanks, everyone. Good morning. Two quick questions from 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 haven't been any change, but also when you're commenting on the SST changes, I think you mentioned that there have 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. And 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. But in the mean in the interim, we will always give you guidance where we think we are compared to our last published numbers. So that's what you will get for sure.
And the other additional disclosure is all 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 an impact on a positive impact or negative on the Swiss Solvency test ratio. So for example, if we keep, for example, the bond portfolio, the same percentage at the total asset mix, but we sell, say, high yielding bonds, then this has a positive impact on the Swiss Solvency test ratio. And in our case, one positive impact came also from the higher value of the real estate portfolio.
Very good. Thank you very much.
Next question comes from Daniel Bishop, Badri Helvea. Please go ahead.
Yes, good morning. Just one follow-up please. I mean, as reported top line development might be a bit misleading here. I mean, are you considering to publish net flows also on the insurance side on an interim basis in the future? And maybe related to that, I mean 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 the number.
And I can say that insurance reserves, all in all, were up by more than 1%. And 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. And you also see and this I have mentioned even in my speech, you see a negative of negative development in an international where the insurance reserves are more assets under management there.
Okay, thanks.
Ladies and gentlemen, there are no more questions.
So 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 1136, and I wish you all a good day. Thanks a lot. Bye.
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