At this time, it's my pleasure to hand over to Patrick Frost, Group CEO of Swiss Life. Please go ahead, sir.
Dear analysts and investors, welcome to our conference call on the 2022 full year results. Thank you for joining us today. As usual, I'll start with an overview of our results. Our CFO, Matthias Aellig, will then take over and comment on our performance in more detail. Afterwards, we will open the floor for questions. 2022 was a very eventful year. For Swiss Life, a highlight was the return to positive interest rates. We achieved the highest net profit ever, despite the renewed strengthening of the Swiss Franc and subsequent negative FX translation effects. I'd like to thank all our employees for this remarkable achievement. Adjusted profit from operations was up by 17% to more than CHF 2 billion. Net profit increased by 16% to more than CHF 1.4 billion.
The return on equity was 12.8%, thus above our target range of 10%-12%. The fee result grew by 13% to more than CHF 750 million. Cash remittance even increased by 21%, slightly more than CHF 1 billion. This development pertains to the 2021 local profit upstreaming, therefore, this direction of travel was already reported last August. Based on the strong development of our profitability and cash remittance, we propose to increase the dividend by 20% to CHF 30 per share. This corresponds to a payout ratio of slightly more than 60% in line with our Swiss Life 2024 targets. Needless to say, I'm very pleased with the development of Swiss Life in 2022. Higher interest rates are economically beneficial for us and our policy holders.
Many of the positive effects for us will be seen over time, as we have alluded to regularly in the past. One effect of higher rates has already materialized in the form of reserve releases. While we have not seen such an effect in many years, this is just the normal course of business for a life insurance company. Since 2012, during the long stretch with low and even negative interest rates, we strengthened policyholder reserves by a total of close to CHF 9 billion, with a higher part related to the Swiss BVG business than to individual life. This is quite an amount. The situation has changed, and for the first time in years, we have realized some of those reserves, essentially outside the BVG business.
Importantly, those releases were also recognized in local statutory accounts and thus are expected to contribute to a growing cash remittance in 2023 and thereafter. This comes on top of our cash remittance plans that we presented in a still negative interest rate environment in autumn of 2021. A higher level of rates is beneficial for Swiss Life, as mentioned, therefore, we expect to structurally exceed our cumulative cash remittance targets. Cash remittance is a very important KPI. It is the basis of growing dividends, we have the ambition to continue to increase dividends per share. Moreover, cash remittance is gaining an importance in the context of the transition to IFRS 17. Our CFO, Matthias Aellig, today will host a separate call on the topic. Please tune in. To wrap it up, this set of results marks a very strong start to our Swiss Life 2024 corporate program.
I believe that we are very well positioned to successfully continue our journey, and we expect to either achieve or exceed all of our group financial targets. I will now hand over to Matthias Aellig, who will take you through our financial results in more detail.
Thank you, Patrick. Good morning, ladies and gentlemen. I will start with selected P&L figures on slide six. Gross written premiums, fees, and deposits received increased by 1% in local currency to CHF 19.6 billion. Fee and commission income was up by 9% in local currency to CHF 2.4 billion. All sources contributed positively. Net investment result of the insurance portfolio for own risk increased to CHF 4.3 billion due to lower net capital gains. Net insurance benefits and claims were down to CHF 13.3 billion. This includes reserve releases of CHF 0.3 billion in Switzerland. As a reminder, back in 2021, we strengthened reserves by about CHF 300 million in the negative interest rate environment. Policyholder participation decreased to CHF 1.9 billion, driven by lower net capital gains. Operating expenses were stable at CHF 3.8 billion.
Profit from operations increased to CHF 2.1 billion. This is mainly due to higher savings result in Switzerland and due to higher overall fee result. Borrowing costs were at CHF 120 million. The income tax expense was CHF 479 million. Net profit increased by 16% to CHF 1.46 billion. We adjusted the profit from operations to reflect claims transformation expenses and FX translation effects. We also adjusted the 2022 financial year by CHF 34 million pertaining to a net gain on sale of a subsidiary that took place in Q4. It related to a facility management company that provided services to both PAM and TPAM. Adjusted profit from operations increased by 17% to CHF 2.1 billion. Moving now to the segment results, starting with Switzerland. Premiums were stable at CHF 9.9 billion, in line with the market.
Premiums in individual life were down by 4% to CHF 1.5 billion, while the market increased by 2%. Periodic premiums grew by 1% driven by unit-linked products. Single premiums were down by 19%. Premiums in group life increased by 1% to CHF 8.4 billion, while the market decreased by 1%. Single premiums increased by 2% due to higher premiums from employees entering existing full insurance schemes while periodic premiums were stable. Assets under management in our semi-autonomous foundations increased to CHF 6.2 billion compared to CHF 5.6 billion at the year-end 2021. Fee and commission income was down by 2% to CHF 322 million. Higher fees from Swiss Life Select were more than offset by a lower contribution from the mortgage business and from investment solutions for private clients.
Operating expenses were stable at CHF 446 million. We had investments in growth projects, such as the previously mentioned wealth management initiative. Those were essentially offset by a positive effect of about CHF 5 million due to a plan amendment in the owned IFA pension scheme, which was already included in our half year 2022 figures. The segment result increased by 36% to CHF 1.2 billion, driven by a higher savings result, while the cost and risk results were stable. The savings result significantly increased by around CHF 300 million in the context of rising interest rates. The main reason for the increase were reserve releases of CHF 300 milion , essentially outside of the BVG business, and therefore with a below average policyholder participation. Overall, we are pleased with the strong segment result as shareholders and policyholders got the benefit from higher rates in 2022.
This benefits also local statutory accounts, which are the basis of cash remittance. Fee result increased by 5% to CHF 30 million, mainly driven by the mentioned pension plan amendment. The value of new business increased by 8% to CHF 204 million. This is mainly due to the higher volumes of group life semi-autonomous solutions. In line with our Swiss Life 2024 financial targets and our continued focus on cash, we started to include cash remittance on each business division slide as of half year. For Switzerland, cash remittance increased by 6% to CHF 451 million. Turning now to France. Please note that all figures quoted are in euros for our French, German, and international segments. In France, premiums decreased by 3% to EUR 6.9 billion, while the market was stable.
In our life business, premiums were down by 5% following strong growth in prior years. The market was down by 3%. Since 2019, we have outperformed the market. Our premiums increased at a CAGR of 12% compared to 0% for the market. The unit-linked share in our life premiums was 63%, while the market was at 40%. Life net inflows were CHF 2.5 billion versus total market net inflows of CHF 14.3 billion. Health and protection premiums increased by 5% in both the group and individual businesses. The market was up by 6%. P&C premiums were down by 4%, primarily due to motor and home insurance products. Fee and commission income rose by 10% to CHF 422 million.
Unit-linked fee income increased based on higher average unit-linked reserves compared to the prior year. We also had a strong contribution from the banking business, given exceptionally high revenues from structured products. Operating expenses grew to CHF 378 million. Increase of 3% is due to investments in business growth and efficiency. The segment result increased by 5% to CHF 277 million. The savings result developed positively in all business lines except P&C. The cost result declined due to higher acquisition costs related to unit-linked growth in life. The risk result was down due to higher claims in the P&C business. This was partly offset by a higher risk result in health and protection following a first step of repricings. The fee result was up by 32% to CHF 136 million.
More than half of the increase was due to higher contributions from the unit-linked and the banking businesses. A smaller portion was due to positive contribution from a disposal of a small broker. The value of new business increased by 13% to EUR 181 million. This was supported by higher interest rates and a further improved business mix that more than offset lower volumes. Cash remittance increased by 55% to EUR 135 million, driven by a rebound in dividend payment, as seen already in our half year disclosure. Cash remittance was relatively low in 2021 relating to the 2020 financial year that was affected by the pandemic. Moving on to Germany. Premiums were up by 5% to EUR 1.4 billion due to modern traditional and disability products.
Fee and commission income grew at 3% to CHF 668 million due to our own IFAs. As previously communicated, this top line development needs to be put in the context of two extraordinary effects in financial year 2021 of around CHF 15 million each. One from a successful campaign based on the solidarity surcharge, the other based on the lowering of the guaranteed interest rate. Number of financial advisors increased year-over-year by 7% to 5,943. Operating expenses were up by 7% to CHF 261 million because of business growth and ongoing investments such as the regional IFA network expansion and further digitalization of the advisory platform. The segment result was down by 23% to CHF 177 million, primarily because of the savings result.
It was exceptionally high in 2021 due to the ZZR and other developments. The fee result was slightly down due to the mentioned investments. Regarding the other profit sources, the risk result slightly decreased, while the cost result increased mainly due to the updated act assumptions driven by higher interest rates. Value of new business was down by 15% to CHF 73 million. The focus on capitalized business continued with an increased production of modern traditional products. The risk business contributed less due to lower volumes and stronger discounting effects. Cash remittance increased by 23% to CHF 75 million, driven by the positive fee result development in the 2021 financial year. Turning now to the international segment. It includes effects from the acquisition of Elips Life consolidated beginning of July 2022.
Premiums increased by 21% to EUR 1.3 billion due to higher premiums with private and corporate clients. About 20% of the increase was due to Elips Life. Fee and commission income was up by 19% to EUR 373 million. About 80% of the increase was due to Elips Life. The remainder was driven by organic growth in the businesses with private and corporate clients and owned IFAs. Operating expenses increased by 37% to EUR 146 million. The increase is to a very large extent due to Elips Life. The segment result was up by 16% to EUR 100 million. The higher fee and risk results were partly offset by slightly lower savings and cost results. The fee result increased by 23% to EUR 81 million, mainly due to organic growth in all lines of business.
About one third of the increase is due to Elips Life. The value of new business grew by 20% to CHF 42 million, driven by the positive organic volume development with both corporate and private clients. Cash remittance increased by 22% to CHF 63 million due to the positive net profit development in the 2021 financial year. Let's move now to our asset managers segment that reports in Swiss Franc. Asset managers total income was up by 12% to CHF 1.14 billion. This included the consolidation of SLAM Nordic for the entire 2022 financial year. It also included the mentioned CHF 34 million net gain on the sale of the subsidiary, Livit Facility Management Services. About half of the net gain is reported in PAM total income, half of it in TPAM, as the company provided services to both.
The much larger Livit property management company remains a fully owned subsidiary of Swiss Life Asset Managers. Our PAM business total income was down by 3% to CHF 380 million due to the substantially lower average assets on management following the increase in interest rates and credit spreads. Income reduction was partly offset by the aforementioned net gain on sale reported as other net income. TPAM business total income was up by 21% to CHF 764 million. Half of that growth is organic, pertaining to higher recurring income and high net income from real estate project developments despite negative FX translation effects. Slightly more than a quarter of that growth is inorganic from the mentioned sale and the SLAM Nordic contribution.
The remainder is due to the enhanced income presentation at one of our subsidiaries without impact on segment result as mentioned throughout 2022. The share of total non-recurring income for TPAM, meaning commission income as well as other net income, was 31% of total income and therefore above the prior year level of 27%. Operating expenses increased by 5% to CHF 597 million, due to further business growth and investments. Segment result increased at 16% to CHF 433 million. The contribution of PAM was down by 7% to CHF 199 million, largely due to lower asset valuations. TPAM increased its segment result contribution by 47% to CHF 234 million, thanks to the strong other net income. Cost income ratio was stable at 79%. Cash remittance increased by 22% to CHF 285 million.
About half of the increase is based on the net profit development of the 2021 financial year. The other half of the growth is due to special dividends. Net New Assets in our TPAM business amounted to CHF 9.8 billion, up from CHF 9.4 billion. We achieved inflows in real assets of CHF 5.1 billion. Next to real assets, we also have comprehensive expertise in fixed income and equities. Excluding money market funds, Net New Assets amounted to CHF 8.8 billion, compared to CHF 7.5 billion in 2021. Overall, assets under management in our TPAM business were at CHF 105 billion, compared to CHF 103 billion at the year-end 2021. Total assets under management decreased to CHF 250 billion, driven by PAM, primarily due to lower asset valuations. Let's move back to the group.
Total operating expenses were stable at CHF 3.8 billion. Operating expenses adjusted grew at 6% to CHF 1.8 billion. Direct investment income decreased to CHF 3.9 billion. It was stable, adjusting for FX translation. Equities and real estate contributed more, while income from bonds and alternative investments decreased. Direct investment yield was 2.5% compared to 2.3% in 2021. The net investment result was down to CHF 4.3 billion due to lower net capital gains. The net investment yield was 2.7% compared to 2.9% in the prior year. Net capital gains decreased to CHF 830 million. This is primarily due to net realized losses on bonds and a lower contribution from real estate. Real estate fair value changes were positive below the prior year level.
We had a higher P&L contribution from the hedged equity portfolio despite impairments. We also had higher fair value changes from infrastructure, as well as a higher contribution from the hedge of the FX hedging costs. FX hedging costs amounted to CHF 539 million, compared to CHF 345 million in 2021. Hedging costs are expected to go up in 2023. This increase should be transitory. At the year-end, unrealized net gains on equities were CHF 1.5 billion, compared to CHF 3.3 billion at the end of 2021. Unrealized net losses on bonds amounted to CHF 7.9 billion, compared to net gains of CHF 12.1 billion at the year-end 2021. Slide 16 shows the structure of our investment portfolio. The share of government bonds declined primarily due to lower valuations. The share of corporate bonds increased.
As mentioned during our Q3 disclosure, we slightly re-risked our asset allocation given net corporate bond additions from around CHF 1.2 billion. The share of equities was at 8.2%. Our net equity exposure after hedging amounted to 4.5%. Following the drop in bond and equity valuations, the real estate exposure increased to 28.2%. It includes positive fair value changes of CHF 800 million . Fair value changes amounted to 2.0%, up from 1.2% at half year. Let me briefly reiterate the attractiveness of real estate. It is an important asset class to back our long-dated liabilities in the context of our disciplined ALM. We hold real estate because of the regular rental income it provides, and not because of appreciation. About three-quarters of that rental income is indexed to inflation or interest rates.
Economic fundamentals in Switzerland remain strong, which is the basis for the resilience of our real estate portfolio. Vacancy rates, for example, are at 4.0% in line with the prior year. You can find more data on our real estate portfolio on slide 60, and newly also on 61 in the appendix. Moving on to slide 17. Insurance reserves, excluding policyholder participation liabilities, decreased by 1% in local currency to CHF 169 billion, mainly driven by financial market developments. Shareholders equity decreased by 40% to CHF 9.5 billion. This was driven to a very large extent by the change in unrealized net gains and losses. Our total outstanding financing instruments amounted to CHF 5.1 billion at the year-end.
The maturing bonds in 2023 are already refinanced following the issuance of CHF 600 million of senior debt this January. That brings me to our Swiss Life 2024 program and the progress reporting. I will start with the profit by source development on slide 21. The savings result significantly increased to CHF 1.1 billion, driven by Switzerland in the context of rising interest rates. The risk result decreased primarily due to France and the mentioned reduction in our P&C business. The fee result increased by 13% to CHF 756 million, primarily due to DPAM, France and International. The cost result increased driven by Germany. The segment other showed a negative contribution due to realized losses on bonds and higher FX hedging costs. Fee and commission income increased by 9% in local currency to CHF 2.4 billion.
Commission income at Swiss Life Asset Managers was up by 7% primarily due to PAM. DPAM, due to DPAM. As usual, commission income on this slide excludes other net income such as income from real estate project developments. Commission income from owned IFAs increased by 1%, while commission income from owned and third-party products and services was up by 9%. Slide 23 shows our investment yields with the first rebound of the direct yield in a decade. Reinvestment rate was 3.5% in 2022, which is above the direct investment yield. Our average technical interest rate decreased by two basis points to 98 basis points due to business mix and FX translation. The mentioned reserve releases of CHF 300 million did not contribute to the average technical interest rate as they essentially pertained to a non-interest rate bearing liability outside the BVG business.
With our disciplined ALM, we continued to successfully protect our interest rate margin despite the drag from the increase in FX hedging costs. The value of new business increased to CHF 497 million. This was driven by the higher interest rates and continued active new business steering, resulting in improved business mix at overall lower volumes. The new business margin increased to 3.5%. Turning to capital, cash and payout. As of first of January 2023, our Swiss Solvency Test Ratio was estimated to be around 215%. It is well above the ambition range of 140%-190%. Sensitivities are mentioned on the right-hand side. Cash remittance to the holding company increased by 21% to CHF 1 billion. As mentioned, it includes a special dividend from Asset Managers and the rebound in France.
Liquidity at holding at the year-end amounted to CHF 800 million . Our CHF 1 billion share buyback is on track with more than 80% completed as of today. For the 2022 financial year, the board of directors will propose a dividend of CHF 30 to the AGM, up from CHF 25 in the previous year. The payout ratio is 60.5%. The dividend will be paid upon approval from the AGM on May 5th, 2023. Let me sum up. We are very pleased with our results. We confirm all our Swiss Life 2024 group financial targets and expect to either achieve or exceed them as we are ahead in terms of return on equity and cash remittance. Higher interest rates are economically beneficial for our life insurance business and the savings result.
Some effects are immediately positive, like the reserve releases seen today in our figures. Other effects materialize over time, like higher reinvestment rates and increase of rental income due to the indexation for interest rates or inflation. The savings result will thus remain an important source of profit and cash remittance for the Swiss Life Group. We will have our next trading update in May for the first quarter of 2023. It will focus, as in the past, on the usual top-line figures like fee income and premiums. With this, thank you for listening and hand back to you, Patrick.
All right. Thank you, Matthias. We're now ready for the Q&A session. Please note that we will take your IFRS 17 questions in the next call. Who would like to start?
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 only answer to asking a question. Webcast viewers may submit their questions in writing via the relative field. Kindly note that webcast questions will be answered after the call. Anyone with a question may press Star and One at this time. The first question comes from Andrew Sinclair from Bank of America. Please go ahead.
Thank you and good morning, and thank you for always a super comprehensive presentation. Three from me, please. Firstly, just on a holding company cash levels. Apologies, I think I missed the date when you were just saying it there. Was that figure as at January 1st, and could you give us the pro forma holding company cash figure for completion of the buyback? Secondly, was just on real estate. I like the new slides. It looks like for the first time that I can remember that you've had a slight negative net addition of real estate.
Just really wondering is there anything one-off there or do you think you're kind of now at a level you're happy with on real estate or kind of any indications there? Thirdly, was just building on what you said at the start of the presentation, Patrick, on cash remittances going forwards. Clearly a very nice number for 2022. I think 80% remittance. Just looking forward with that higher proportion of earnings coming from the savings result, should we still be thinking that remittance can remain kind of around that kind of 80% mark? Or even if the absolute terms goes up, might the percentage terms go a little bit lower in 2023? That's it for me. Thank you.
Let me start with the cash question. We don't give any guidance on the 80%. We stated that we expect to be structurally above the targets that we had in the past. I mean, why? That's because of higher interest rates, right? That help in many effects. First of all, we have higher reinvestment rates, which of course helps. Second of all, we don't have any more pressure to strengthen reserves. Third, on the contrary, with higher rates, we expect further reserve releases 2022 primarily, or almost exclusively outside of the BVG business. In the BVG business, there is no profit impact. Any reserve releases from BVG business would not have any profit impact. Now, turning now to real estate. Yes, you're right.
For the first time in a very long time, we've had negative net additions, albeit, it was basically around zero. With minus CHF 200 million. You know, this is down to some timing effects. We have increased our real estate assets under management overall in the TPAM area especially. Going forward, we still think that the real estate is attractive. Of course, given the level of rates. I mean, there is some competition in returns of attractiveness from fixed income investments now, given that rates are higher. On the other hand, the big advantage of real estate is that it's a real asset. We can, going forward, expect clearly higher rental incomes.
Last year, we had higher rental incomes on the commercial side because most of our commercial portfolio, I think around 90% is inflation linked. Of course, there's more to come this year. In Switzerland, it's a bit different. As you know, here, the potential to increase rental income on our residential portfolio is linked to a formula with some lags, here we expect more rental income over the coming years. The reason why we had an increase in rental income already last year was because we built 1,000 new apartments in Switzerland, which are 100% rented out. There's still a very strong demand in the residential area in Switzerland. Overall, the real estate market in Switzerland is very well supported.
With that, I hand over to the holding cash questions to Matthias.
Thank you, Patrick. Short answer is the CHF 800 million that I gave is at year-end. As of now, we are at about CHF 850 million . You know, the buyback run at about CHF 50 million-CHF 55 million a month negative. We also had the senior issuance in January, which added on a net basis about CHF 150 billion. That's how these CHF 850 million come about as of today.
Thank you very much. Just one final thing on the, on the real estate was, should I just see that we'll be returning slightly to net additions in 2023 from the sounds of things or should we keep it kind of flattish going forward?
I mean, that's too early to say, but yes, you know, from this point in time, I'd expect some net additions.
Perfect. Thank you very much, gentlemen.
The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much and congratulations also from me. Got lots of questions, to be honest. I'll try and limit it to three. First one on the reserve releases. I mean, I know you're guided on what to release, but you probably have more insight than us into sort of what to expect. I'm just wondering how, you know, we should think about it going forward. I mean, if interest rates stay at current levels, is it right to think that we shouldn't expect any more releases this year? Whereas if they go up we'll get, you know, further increases. Just to understand the mechanics a little bit. I mean, you mentioned, Patrick, at the start, you know, CHF 9 billion of reserve additions on the way down.
I'm wondering if you can tell us how much of that was in the non-BVG business and what the release was this year, just to get an idea of the magnitudes. On the dividend, I'm wondering if you can just give us any additional insight into your sort of decision process. I mean, I guess I think of the dividend ideally as a smooth progression and the buybacks being used for when you have extra cash. I guess, you know, if I was sitting in your shoes, I'd be thinking we have strong results and holding cash. I can afford the dividend now, but, you know, can I keep increasing it at CHF 5 per year?
I guess, you know, if you're thinking that, you know, the progression is, you know, sustainable, that's great. Some really good news. I'm just wondering if you can give us any insights there into how you think about that. Finally, on the real estate flows, great for 2022. Are you able to give us any insight into what you're seeing so far this year? I know it's early days, but, you know, any sign the appetite for real estate in your third party assets? Thank you very much.
Okay. The inflows on the real estate this year, as you said, it's very early, but they're slightly positive. Then on the dividend, we don't give any guidance outside of the directionality. We have the ambition to increase the DPS, but we don't give any guidance on how much. The other guidance you're well aware of is the payout ratio. Your question on the strengthening of the reserves of CHF 9 billion over the last 10 years or so. Here, it's around 30% is outside of the BVG business. You know, around CHF 3 billion. We released about CHF 300 million. Please be aware that we also have some policyholder participation in these releases also at the individual life level.
The last question, I'll hand over to Matthias.
Okay, thanks. Let me first make the comment that we reiterate or that we made on previous occasions. As you said, we assess the reserving position at every closing in terms of the adequacy. With IFRS 17, this will change fundamentally. We'll talk about it at the session 11. Here I can say on the IFRS 17, we will reserve at current best estimates and current rates, but the movement of the reserves on the IFRS 17 will not directly impact the P&L. I think what is probably more relevant to your question is what the situation looks like under the statutory accounting. There, the situation as follows, and Patrick alluded to it already beforehand a bit.
You know, going forward, we expect higher rental income on the real estate portfolio and also higher reinvestments to come through over time. These will first contribute to a higher investment income. They will secondly have less pressure on the reserving. Third, they will over time also contribute to reserve releases. This will also, as mentioned already, depending on the business line, be subject to policyholder sharing. All these things net-net will have a noticeable effect, support for our structural enhanced cash remittance.
That's great. Thank you very much.
The next question comes from Thomas Bateman from Berenberg. Please go ahead.
Good morning. Thank you very much for taking my questions. Congratulations. These are record numbers. For me, the increase in the dividend is a real sign of your confidence, which implies that the cash outlook is very strong. You said that you'd expect to beat your 2022/2024 target. I appreciate you don't want to give guidance on this, but maybe you just give some more color or maybe the order of magnitude, because it feels like you're guiding to a very strong beat on the cash. Could you also give us a little bit more understanding on the sensitivity to interest rates, particularly on the spreads that you're making on savings policies? What's the spread that you're making today?
Maybe if that increases by 10 basis points or so, how does that flow through into the savings results? Finally, just on asset management flows, pretty strong in H2, about CHF 6.8 billion. It feels like you're getting a little bit of more inflows into equities. Could you give us a bit of a feel for the demand you expect in 2023? Where are you seeing your clients? Which client base Are you seeing demand from, and what type of asset classes are they looking for or do you think they will look for in 2023? Thank you.
With respect to the cash outlook, we don't quantify it, but the reason why I said that we expect to structurally surpass our cash targets is because the reason that we expect to outperform this target is not just because of this year, right? I mean, everything is going very well. You've seen it, the fee result is up. The savings result is up for the reasons that we mentioned. You know, that's the color that we can give you with respect to quantities. For the rest, I hand over to Matthias.
Maybe in terms of the question on the spread that flows through with income goes up. I think there is one way to look at it, and if you say what share of the savings result, what the savings result is as a share of the total net investment income, that may give you some guidance on how much of an increase, let's say, yield actually hits the savings result. Clearly, this very much depends on, let's say, where this additional yield accrues. You know, we have in the BVG, the gross legal quotes are essentially 10% of it hits the pre-tax bottom line. It's a bit different in the French and the Swiss individual business.
It really depends where this accrues, but by and large, you can look at the share of the savings result in term percentage points of the net investment income. The last question, not sure whether I fully understood it, but we see clearly flows in Asset Managers, NNIT, PAM, that looks good, be it in fixed income, be it in balance, but also in the infrastructure equity area and clearly also in real estate.
That's right. Thank you very much and congratulations.
The next question comes from Farquhar Murray from Autonomous. Please go ahead.
Morning, all. I have two sets of questions, if I may. Apologies, I am gonna probably come back to the cash remittance target. Could I just ask how large a reserving headwind was budgeted for against the original CHF 2.8 billion-CHF 3 billion target? Presumably, if that's falling away, should we expect that result in basically a ratchet up in remittances from this year, essentially? Presumably, the kind of reinvestment improvement is a much more graduated kind of drift in terms of the remittance pattern going forward. Perhaps coming just back to the business, real estate development results were very strong. Is that kind of repeatable given the pipeline you're seeing at the moment?
Just coming back to P&C in France, how much of the reserving issue there was kind of genuinely inflation versus perhaps other things, just to get a sense of what was happening there? Thanks.
Let me start with the cash remittance. Clearly, when we indicated the cash target back at let's say 2021, we were in an era of low negative interest rates. Clearly we said back then that we anticipated kind of essentially stable, let's say, interest rate level. It was kind of not significant amounts, let's say, of additional strengthenings that we had, but clearly we had no potential releases or releases in scope of mentioning that target. You're right, this effect and the other one of the gradual increase of the reinvestment rate and also the increase of the rental income that, comes on top of what we had there, and that's what Patrick referred to as this structural enhancement of the cash remittance.
Again, all these effects are subject to the policyholder sharing to various degrees in the businesses we have. Net, it contributes to a structural uplift in the cash remittance.
Okay. Thanks.
Maybe I take the P&C question at this point in time, before Patrick then goes into the real estate. The P&C, if you look into the French market, strongly driven by natural catastrophes. We had quite some flooding in the summer 2022. I think that was the dominant effect, and it was less inflation that was hitting the result. There may have been small contributions here and there, but it was not the driver of it.
With respect to real estate and the increases in fair value that we've experienced, let's say over the last decade or so. Here we can say that, of course, I mean, higher rates are certain drag on valuations. However, as most of our portfolio is in Switzerland and we have lower vacancy rates, we also expect to have even lower vacancy rates in 2023 in Switzerland. As you know, we have every year, we have an increase in population. We have additional demand from the average square footage per person in Switzerland. We don't have any issues with respect to office demand as we mentioned throughout the COVID pandemic.
On the contrary, our real estate office space take up is strong in the major cities in Switzerland, with the exception of Basel, where we don't have a lot. You know, as I mentioned, we have the link to inflation in our commercial portfolio and even new leases that we sign, we sign at good levels. As soon as they're refurbished, we have a nice uplift, and even if they're not refurbished, we can hold lease payments, basically as if the contract keeps continuing. What we see is, yes, discount rates are slightly increasing in Switzerland, but the higher rental income expectation is at least compensating for that.
Nonetheless, of course, we don't expect a repetition of the fair value changes that we've seen over the last, the past averages. We do expect to see further increases in fair value changes, albeit as I mentioned, at the lower level. We also have new projects coming due, right? Once they're finalized, we see nice increases in valuations. Abroad it's a bit more volatile. In Germany, for example, discount rate increases are higher than in Switzerland. Here, in some individual cases as others, we have, we're, let's say a bit more cautious. Also in Germany we have very good locations.
It's early in the year, it's very difficult to say where rates will end at the end of the year. It's also difficult to say, you know, what growth will look like. Again, in Switzerland, we expect strong growth, low inflation, high migration, continued strong uptick in office demand, lower vacancy rates in both our offices and residential area. The market, despite what other countries are experiencing, is still strong. Not as strong as it used to be, we still like investing in Swiss real estate, and so do our clients.
Great. Thanks so much.
The next question comes from Jimmy Fan from UBS. Please go ahead.
Thank you for taking my questions. I have two, please. First around the savings results in Switzerland and you mentioned about this reserve release. I just want to understand how much of this reserve release will lead to higher cash remittance at the half year last year. Could you give a bit more color in terms of what kind of reserve release will lead to higher cash remittance, and what kind of reserve release will not lead to higher reserve release? Second question, I guess, like in the past if I net off the impact from, you know, the buyback program in the past you have always been accumulating excess cash over dividend payments around over CHF 200 million per annum in the past.
Is this still the level that you are aiming to accumulate going forward? You are comfortable over accumulating less amount of cash each year going forward?
Okay. Thanks, Jimmy. Let me start with the savings result first. I think the point I can make here is, you know, the reserve release is kind of a gross figure, and there is, depending on the line of business, there are different, let's say, levels of policyholder sharing or the other way around. There is a different level of shareholder share of that reserve release. As I mentioned, the CHF 300 million are mainly outside the BVG business.
We have a higher shareholder share in that area. As I said, or implied a higher than average share. If you look at the overall savings result, you may have seen that this was a quarter for the total, and this will also be a benefit for the local stat result. Maybe not to the exact amount because, you know, the current IFRS and stats are different, but a share of that reserve release will also be a benefit in the local stat results 2022. Maybe that's the first question. The second question, you know, we have the cash goals that we mentioned, and they're, as Patrick said, and we're ahead with them.
kind of the part that we retain, if you wish, is just the difference between, let's say what is upstream, what we have as cost, the little cost at the holding, and then what goes out as a dividend payment. This is not per se a target, but it is really as mentioned also at Investor Day, our goal to increase the cash returns to shareholders, which we keep in the focus.
Thank you.
The next question comes from Daniel Regli from Credit Suisse. Please go ahead.
Hello. Thanks a lot for taking my questions. I've primarily one follow-up question about this reserve releases again. Sorry to come back to this. Can you just give me kind of some feeling about how we should think about these reserve releases to develop over the next couple of years. As I understand you, this reserve release should rather accelerate a bit over the next couple of years before then kind of coming down again. What is kind of the time horizon you expect kind of positive reserve releases based on the current interest rate environment and until what time you more or less this positive impact will be neutralized again? One question on share buybacks. Obviously, you plan to complete your current share buyback program in May 2023.
Are there any further share buyback programs planned going forward? Thank you.
There is no news on any new share buybacks. I mean, that's clear. We don't pre-announce or comment on this. For the reserve release question, I hand back to Matthias.
Thank you, Patrick. You know, there are essentially two worlds. In both worlds we assess the technical reserves on a regular basis, essentially for each of the closing. Now, under IFRS, this changes. This is one of the worlds I mentioned. Going forward, we will see, I assume, some volatility of the reserving levels depending on, you know, the interest rates, the current interest rates, because, you know, reserves will be determined at current rates and using best estimates. Even the mechanics, I refer to more details for our 11:00 call, those reserve changes do not immediately hit the P&L given the mechanics of IFRS 17. There is one world which is kind of different from the statutory world, which I would like now to comment in detail.
The statutory world is the one that is, at the end of the day, relevant for the cash remittance. In the statutory accounting, it looks as follows: We expect that these higher rental incomes that we talk about because of their indexation to rates over inflation, that these higher rental incomes from the real estate and the higher investment income due to the reinvestment rates that are higher, which itself has a lag. They will feed through to the statutory income, to the statutory higher investment income. This will have first positive. There's a second positive. There is less pressure on the reserving, and there's also with a lag effect that we will have some releases over time.
This will have, then this positive effect on the cash remittance that Patrick went through in his intro, where he was talking about this structural enhanced cash remittance then.
Let's see. Understand.
The next question comes from René Locher from KBW. Please go ahead.
Yes. Good morning, all. Start with real estate before I have another question on these reserve releases. On slide 60, there you show your real estate portfolio and the breakdown by type. Now, some of the larger listed real estate companies, they were guiding for 2.6%-2.7% increase in the rents on the commercial side, given that this is inflation linked. I was just wondering if you could give us kind of a feel by how much you have increased, commercial rents. On the residential, which is at 43%, there, we have to focus on these, reference interest rate. I have seen a report from a larger bank.
They were guiding from an increase of 1.25% to 2.5% by 2025. This would trigger rent increase in the resi portfolio by some 20%. Perhaps you could just share your view on this because it's so important for cash on the local stat. If I can come back again on these reserve releases. On page 40, there you show that the segment result in Switzerland is up by CHF 325 million year-over-year, driven by the saving result. If I take a look at the cash remittance in Switzerland, it's up by, how much is it? CHF 26 million. I think I understand, you know, you have explained, you know, the statutory accounts, but question is, are these reserve releases cash items or not? Very simple.
Okay.
Thank you.
Yes, they are cash items, as we explained, because it feeds through the statutory result. Yes, there is some policyholder sharing, but it essentially feeds through the statutory results. With one year later, we will see that in the cash remittance, right? There's a year lag in the reported cash remittance figures and the statutory results, right? The cash remittance figures you see here, they belong to the developments of what happened two years ago versus what happened one year ago. There's a one-year lag to it. That explains why the segment results, you know, here under IFRS, but same thing is also true under statutory accounts, differs in the increase compared to the cash remittance. There's just a one-year lag in the reported figures. That's.
Okay. Yeah.
Second question. Yes. Depending on what happens to the so-called reference index in Switzerland, we've tried to explain that a number of times. In the past, there are large lag effects here, but we are coming closer to being able to increase residential rental incomes in the future in Switzerland. This depends on this, so on this index, which is a weighted average of all outstanding retail mortgage payments or residential mortgage payments in Switzerland. Just this morning it was announced that once again, this index is still stable. Once it increases by 25 basis points, which is sometime in the future, maybe this year, who knows?
That gives us the right to increase rental incomes by 3%, again, with a lag of three months for those people who have benefited from lease decreases in the past. People can ask for, or have been able to ask for reductions of their lease payments over the last years as this reference index has come down. You're right. I mean, if this index keeps increasing, you know, each time we can increase. At every 25 basis point increase, we can increase lease payments by 3% for those people who benefited from the reduction in lease payments.
For commercial, here, what you mentioned, for I guess the Swiss, the Swiss real estate companies in the area of commercial over the last year, so the reporting season 2022, we have not seen big increases yet because this, you know, was linked to the inflation rates of 2021 or, maybe, you know, it leaked into 2022. This will kick in this year, right? This year we expect to kick in an additional rental income on the commercial side in Switzerland and also abroad.
Okay. Very interesting. Thank you very much.
If I may, I mean, those are a lot of very positive developments, right? As I mentioned in the past, there was one negative related to higher rates, and That rates abroad tend to increase more than rents than rates in Switzerland, so interest rates. This of course then leads to a transitory increase in hedging costs, which we will especially feel this year, right? A lot of positive effects. One negative effect, which is the increase in FX hedging costs, which is to a large extent, again, like the positives shared with policyholders.
Thank you.
The last question for today's call is a follow-up from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much for letting me come back. Sorry, I just wanted to clarify a few points that were said, actually. First of all, on my original question and you said that You gave a number of CHF 300 million for 2022. I assume that was a net number in terms of shareholder benefit. I assume that the CHF 2.7 billion that you said has been released over the last 10 years outside of BVG was a gross number. Just wanted to confirm those and, you know, understand sort of how much potentially is still there to come back.
The second clarification was just on your comment just now, Patrick, about the, you know, the increase of 3% in rental income for those that have benefited from the decreases. Are you able to tell us how many people that applies to? How many people have applied and got the decreases? I'm just struggling to understand the materiality, because if, you know, if it's only a portion of your portfolio that gets, you know, a 3% increase, I'm sort of thinking that doesn't seem very material, you know, in terms of the overall Swiss Franc impact on your investment income. Just to clarify, that'd be great. The third point was on the hedging costs. Again, you just mentioned, you said those would be transitory.
I guess, are you saying that just because they're currently above, you know, long-term average normal levels? Do you have any extra insights there, over us as to how those might decline again in the near future? Thank you. Sorry for coming back.
Let's say the large increase is transitory, right? Hedging costs per se are here to stay. I mean, they've been around throughout the, you know, the last, 10 years, of course. You can calculate that by yourself, right? I mean, you can just look at the, at the forward, rate differential. You know, your fixed income experts can, you know, look at that. Well, what are the forward rate differentials year by year? You'll see, if you look at the forwards, the largest impact is this year, and then it will recede, right? You know, that gives you a good estimate for the pattern that, we face. It's a, you know, in dollars it's more, for the dollar portfolio, it's more, pronounced than for the euro portfolio.
Even for the EUR, relative to the Swiss Franc rates, it's about the same. For back to the apartment. I'd say about half of people who stayed in their apartments have asked for a reduction. Okay, you know, not everybody stays in their apartment. You know, these 3%, those are for every quarter, for every 25 basis points that this index increases, we can increase by 3%, right? Of course, again, if you look at the forward rates of fixed income, there are of course, many such 25 basis point steps implied in the forward curve. This effect of 50% decreases with every, you know, with every step. Let's say the net effect for us increases over time.
It not only accumulates, but it increases over time because, you know, for the, the second step of 25 basis points, it will be a lower of amount of people that had asked for reductions and so on. I wouldn't underestimate this effect. And the last point was back to Matthias.
The reserve strengthening and the releases, thanks, Peter. It's a very good question that it's important to clarify. The CHF 3 billion strengthening that Patrick referred to over the past decade was on a gross basis. The CHF 300 million release in 2022 was also a gross figure. It is before policyholder sharing. As mentioned, because it's outside of the BVG business, there is a lower policyholder sharing, meaning a higher contribution to the bottom line than what you would expect from the overall picture. It is gross, the CHF 300 million.
Great. Okay, thank you very much indeed.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks.
Ladies and gentlemen, thanks for the exciting Q&A session. This brings us to the end of our conference call. Thanks for your time and your questions. Again, those interested in IFRS 17, please dial into our presentation at 11:00 A.M. CET. Thank you and goodbye.
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