Ladies and gentlemen, welcome to the Swiss Life presentation of half year results 2020. I am Ira, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions in writing via the relative field. Kindly note that webcast questions will be answered after the call. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Patrick Frost, Group CEO of Swiss Life.
Thank you. Dear analysts and investors, welcome to the presentation of Swiss Life half- year results. Thank you for taking time for us today. I'll start by explaining some key figures as usual. Matthias Aellig, our CFO, will then take you through the half year results in more detail. We are, of course, looking back over a very demanding six months. I'm proud that we've worked so successfully during the COVID-19 crisis, despite developments on the financial markets, uncertainty among our customers, and the associated sociopolitical debates. The resilience of our business model is one factor that kept us on track. However, it wouldn't be much use if we hadn't been able to rely on the tremendous engagement of our staff. The Swiss Life teams, working exclusively from home at one stage, showed strong drive to ensure we could accompany our customers through these difficult times.
Our considerable investments in digitalization in recent years helped us in that regard. Let's now go to the specifics. Net profit decreased by 13% to CHF 537 million compared to the same period in the previous year. The decrease of CHF 80 million is mainly due to the lower savings result in connection with financial market developments and a positive tax one-off of CHF 30 million in the context of the Swiss Corporate Tax Reform in the previous year. Foreign currency effect also had a negative impact. Positive developments in the fee and risk results did not fully offset all those factors. Given the circumstances, I'm very satisfied with the earnings development. We again achieved an adjusted return on equity of over 10% for this half year. The fee result improved by 6% to CHF 267 million. We also increased the cash remittance to the holding company by 6% to CHF 748 million.
Regarding the value of new business, we recorded an expected decline of almost 50% to CHF 204 million, despite an increase in the margin to over 2%. There is a straightforward explanation for that. The volume of new business last year was exceptionally high due to the exit of a competitor from the BVG full insurance business in Switzerland. You can see on slide 4, COVID-19 has of course also left its mark on our results. In view of the extraordinary situation, allow me to give you some details on how the pandemic impacted our profit sources. It mainly affected our savings result. This remains the most important profit source in our business, even if we have continuously reduced its share in the past decade, particularly in relation to the fee result.
With regard to our investment portfolio, I would like to mention that the negative impact on equities was partially offset by realized gains on bonds, as well as real estate revaluations. Our risk result was not affected by the pandemic. On the contrary, there was no perceptible impact on life insurance, and we even showed positive development in the non-life business in France. As already mentioned, we also posted a pleasing performance in the fee business. It would have been better still if the crisis had not reduced the value of assets under management and slowed down business activity. The impact on the cost result was negligible. Our assumptions for the second half of the year are based on our internal economic outlook, which assumes a U-shaped recovery in the developed economies.
The recovery is already visible in some relevant indices and in the fact that certain industry sectors have bounced back quickly. Within Europe, we expect Switzerland to outperform other economies in terms of growth momentum and to return to its pre-crisis GDP level in the second half of 2021. Let's go to slide 5 now. Overall, despite an extremely challenging environment, we're on track and are able to confirm all our financial targets for Swiss Life 2021. This entails those targets, like the return on equity of 8%-10%, that are valid for each and every year, including 2020. That's because the resilience of our business model has proved itself in the following ways. We were able to continue our business without interruptions, thanks to our digitally supported advisory networks. On the financial markets, we reduced our equity exposure to secure our statutory financial statements.
Moreover, we can confirm that our positive interest rate margin remains safeguarded for more than three decades. Furthermore, our real estate holdings with historically low vacancies and further revaluations once again proved a haven of stability, which is very important in times of great uncertainty. Real estate continues to be attractive with revaluation gains of 0.8%, not annualized, and a low vacancy rate of 3.8%. Rent collections amounted to around 95% of rental income due in the first six months. Finally, our financial strength is reflected in the increased cash remittance to the holding company, in our dividends paid, and our strong solvency, which stood at over 185% as of mid-year, and is thus at the upper end of our ambition range of 140%-190%. Now over to our CFO, Matthias.
Thank you, Patrick. Good morning, ladies and gentlemen. I will now provide more details on our financial performance in the first six months of 2020. Please note that all figures quoted are in Swiss francs unless I state otherwise. Let me start with selected P&L figures on Slide 8. Growth rate and premiums, fees, and deposits received decreased by 16% in local currency to CHF 11.6 billion. This decline was anticipated and, as previously mentioned, is due to the exceptional demand in 2019 in our Swiss group life business as our largest competitor pulled out of the full insurance business in 2018. Fee and commission income was up by 10% in local currency to CHF 916 million. All sources contributed positively: Asset managers, our own IFAs, and the unit-linked business.
The net investment result of the insurance portfolio for own risk decreased to CHF 1.9 billion in the context of COVID-19 related financial market development. Net insurance benefits and claims decreased to CHF 9.3 billion in line with premium development, mainly due to Switzerland. Policyholder participation decreased to CHF 0.5 billion, primarily due to a reduction in Switzerland and Germany. Overall, we strengthened the technical reserve by about a quarter of a billion. Please note that, as usual, final policyholder participation and reserve strengthening is determined at the end of the financial year.
Operating expenses were down by 3% to CHF 1.6 billion, primarily due to lower commission expenses. Profit from operations decreased to CHF 765 million. This is essentially the result of the COVID-19 related financial market developments that primarily affected the savings result due to lower net investment income.
The reduction also includes negative FX translation effects of CHF 19 million from our foreign operations and their profits. Borrowing costs decreased to CHF 59 million. This includes the effect of the refinancing in 2019 of a matured senior bond with a comparatively high coupon and positive FX translation effects on Euro bonds. Our income tax expense increased to CHF 169 million. The effective tax rate was 24% compared to 20% in the prior year period. Last year, we reported a positive tax one-off of CHF 30 million. This was a non-cash accounting effect in the context of the implementation of the Swiss tax reform in several cantons. We expect the tax rate for the 2020 financial year to be around the half year level, depending on the geographic split of profit generation. Our net profit went down by 13% to CHF 537 million.
This is a reduction of CHF 80 million, thereof CHF 30 million pertaining to the just mentioned tax one-off in 2019 and CHF 13 million pertaining to negative FX translation effects from our foreign operations. Slide 9 shows the adjustment to our profit from operations. On the left-hand side, you can see last year's adjustments, including a CHF 19 million FX translation effect relating to the decrease of the Euro by about EUR 0.07 year on year. On the right-hand side, we adjusted the half year 2020 profit from operations to reflect restructuring charges and program costs related to a new accounting standard. The adjusted profit from operations decreased by 6% to CHF 780 million. Moving now to the segment results. I will start with Switzerland on Slide 10. Premiums decreased by 24% to CHF 7.3 billion. The overall market decreased by 23%.
In individual life, premiums were down by 7%, while the market was down by 4%. Periodic premiums grew by 2%. Single premiums decreased by 26% due to lower COVID-19 related business activity. Premiums in group life were down by 25% to CHF 6.6 billion, while the market decreased by 27%. Periodic premiums grew by 1%. Single premiums decreased by 40%. I've mentioned on numerous occasions we reported an exceptional increase in premiums in 2019. This was driven by additional demand as our largest competitor pulled out of the full insurance business. Overall, premiums in Switzerland in the first six months of 2020, excluding the exceptional increase in premiums in the prior year period, are 2% above the prior year level as we acquired new accounts and achieved higher premiums with existing clients.
The share of semi-autonomous solutions in our group life new business production was 42% compared to 20% in the prior year period. Assets under management in our investment foundation grew by 6% to CHF 11.7 billion, compared to CHF 11 billion at year-end 2019. Fee and commission income was up by 5% to CHF 141 million, primarily due to our mortgage business, investment solutions for private clients, and real estate brokerage. Operating expenses remained stable at CHF 194 million, in line with continued cost management. The segment result declined 10% to CHF 415 million, primarily due to a lower savings result.
The savings result declined in line with a lower net investment result due to the COVID-19 related financial market developments, while the risk and cost results improved slightly. The fee result was down by 8% to CHF 14 million, mainly due to COVID-19 related expenses. The value of new business decreased by 69% to CHF 87 million.
This is mainly due to the exceptional demand in group life in 2019, following the mentioned withdrawal of a competitor. While volumes in individual life increased with a high share of capitalized products. The improved business mix in both individual and group life business was offset by lower interest rates. As a result, the new business margin was stable at 1.7%. Turning now to France. Please note that all figures quoted are in euros for our France, Germany, and international segments. In France, premiums increased by 7% to EUR 2.7 billion. In our life business, premiums were up by 9%, while the market was down by 27%. This is a very pleasing achievement, which is supported by new pension products both in the individual and group life business.
We also reported a high level of premiums in our savings products, even though business activity in this area was slightly reduced in Q2 due to COVID-19. The unit-linked share in our life premiums increased by 12 percentage points to 58%. This compares to a market average of 35%. Life net inflows were at CHF 0.9 billion, versus overall market net outflows of CHF 4.7 billion. In health and protection, premiums increased by 5%. P&C premiums were up by 5%, driven by motor products supported by new partnerships. Fee and commission income increased by 9% to CHF 152 million. Unit-linked fees increased due to positive net inflows that more than offset the negative financial market effect on assets under management. Unit-linked reserves were, on average, higher in the first six months of the year compared to the prior year period.
Moreover, brokerage fees and revenues from structured products increased in times of volatile markets compared to the prior year period. Operating expenses increased by 3% to CHF 170 million due to business growth and investments in growth projects, such as the new pension product and digital client solutions. The segment result decreased by 8% to CHF 125 million, mainly due to lower savings and cost result. The savings result decreased due to a lower net investment result in the context of COVID-19. The cost result was down due to higher acquisition costs related to strong new business growth in life. The risk result increased due to lower claims in health and P&C during the COVID-19 lockdown, and partly offset the lower savings result. We expect claims, especially in health, to catch up in the second half of 2020.
The fee result was up by 13% to CHF 39 million, in line with fee income development. The value of new business increased by 13% to CHF 65 million due to higher volumes in life, with a considerably increased unit-linked share. In health and protection, we also improved the business mix. The new business margin increased to 2.4% despite the strong decrease in interest rates. Moving on to Germany on slide 12. Premiums were up by 4% to EUR 629 million due to higher premiums with modern traditional and disability products. The overall market was up by 4%, driven by single premiums. Fee and commission income grew by 16% to CHF 247 million, driven by a positive contribution from our owned IFAs due to an increased number of financial advisors and productivity gains supported by our digital platform with features such as video advice.
The number of financial advisors increased by 8% year-over-year to 4,317. Operating expenses increased by 9% to CHF 111 million because of business growth as well as ongoing investments in growth initiatives, such as digital tools and interfaces for customers, partners and intermediaries. The segment result was up by 9% to CHF 92 million, primarily due to higher fee and savings result. The risk result was at the prior year level, while the cost result decreased slightly due to higher acquisition costs in line with increasing unit-linked business. The savings result increased in the context of ZZR financing as we realized higher gains in bonds. We expect less ZZR-related realizations in the second half of 2020. The fee result was up by 11% to CHF 44 million, driven by a stronger contribution from our owned IFAs. The value of new business increased by 15% to CHF 27 million.
We achieved higher volumes with modern products, which further reduced the overall guarantee level. The new business margin remained at a high level of 3.2%. Turning now to the international segment. Premiums decreased by 14% to EUR 694 million due to lower premiums with private clients in Asia as a result of early COVID-19 measures, leading to postponement of face-to-face client meetings and medical underwriting. This was partly offset by higher premiums with private clients in Europe and with corporate clients following new contract acquisitions. Assets under control for high net worth individuals, one driver of fee income, decreased by 5% to EUR 18.6 billion compared to year-end 2019. As financial market movements and surrenders more than offset new deposits. Fee and commission income was down by 9% to EUR 130 million.
This is due to COVID-19 impact on the business with private clients, given lower assets under control, as well as due to fewer client interactions at owned IFAs. Operating expenses decreased by 5% to CHF 48 million. This is due to disciplined cost management in all lines of business. The segment result increased by 2% to CHF 36 million. The risk and cost results developed positively while the savings result was stable. The fee result declined by 8% to CHF 26 million in line with the income development. The value of new business improved by 36% to CHF 18 million. The high contribution from corporate clients and improved product mix were partly offset by a low new business production with private clients. The new business margin increased to 2.8%, also due to continued margin management. Let's now move to our asset manager segment that reports in Swiss francs.
Asset managers total income was up by 9% to CHF 419 million. In our PAM business, total income was stable at CHF 177 million. Higher asset management fees on a higher average asset base in the securities business were offset by lower real estate transaction fees. In our TPAM business, total income was up by 16% to CHF 242 million, primarily due to higher recurring fees that were up by 17%. Other net income also increased and outweighed lower real estate transaction fees. Other net income includes gains on ongoing and completed real estate development projects. Total non-recurring income for TPAM, meaning transaction fees and other net income, came to 23% of total income compared to 23% in the prior year period. This share tends to be lower in the first half of the year as the non-recurring income is more back-end loaded within the year.
Operating expenses increased by 10% to CHF 253 million due to further growth, primarily in real estate and due to accelerated amortization of customer relationship assets, which is a non-cash effect. The segment result increased by 7% to CHF 135 million. PAM was down by 6% to CHF 98 million. This is the result of stable income development being more than offset by higher expenses related to long-term real estate projects, such as a large development project in Basel. TPAM increased its segment result by 73% to CHF 37 million. This is due to a growing commission business and also due to higher other net income. Other net income is, by definition, already net of expenses and thus has a noticeable impact on the segment result in the period it occurs. Net new assets in our TPAM business amounted to CHF 1.4 billion, compared to CHF 6.2 billion in the first six months of 2019.
We achieved inflows of CHF 1.4 billion in real estate, CHF 0.5 billion in bonds, CHF 0.4 billion in balanced mandates, CHF 0.3 billion in infrastructures. Those were partly offset by outflows of CHF 1 billion in money market funds and CHF 0.1 billion in equities. Excluding money market funds, net new assets amounted to CHF 2.4 billion in the first half of 2020, compared to CHF 4.9 billion in the prior year period. Q2 standalone showed a trend back to inflows supported by more favorable financial markets. Q2 standalone net new assets amounted to CHF 1.4 billion, with a flat development of money market funds.
Overall, assets under management in our TPAM business were stable at CHF 83 billion. The split by asset class is 42% real estate, 21% balanced mandates, 21% bonds, 7% equities, 5% money market funds, and 4% infrastructure. Total assets under management came to CHF 256 billion compared to CHF 254 billion at year-end 2019.
Let's move back to the group on slide 15 and have a look at our operating expenses. The overall cost base decreased by 3% to CHF 1.6 billion, mainly due to lower commission expenses. Operating expenses, adjusted for restructuring charges, program costs for a new accounting standard, scope changes, and FX increased by 4% to CHF 820 million. In our insurance segment, adjusted operating expenses increased by 2% to CHF 573 million. As explained, this is primarily due to Germany and France. Turning now to the investment result on slide 16. Our direct investment income was down to CHF 2 billion. We had lower income on bonds due to past bond realizations and negative FX impacts, both on translation and coupons. We also had lower income on equities due to a reduced exposure and due to lower dividend payments in the COVID-19 environment. Income from real estate also declined year on year.
First of all, we had movements in our real estate funds. We have fully sold some funds which led to lower income. We also have substantially reduced our ownership in some other funds. This is in line with our co-investment strategy in TPAM funds. Initially, our stake is often higher and then reduced over time. This leads to a deconsolidation of funds from an accounting point of view, and thus to a shift from direct rental income to dividends and gains on real estate funds, meaning that the overall net investment result from real estate remains unaffected. Moreover, the reduction includes also effective rent losses and the negative FX translation effect that were offset by higher rental income on past real estate acquisitions. Please note that real estate income is not developing fully in line with recent acquisitions.
Some of the real estate acquired in the past 12 months is in the development phase, this does not yet generating income, such as a large real estate development project in Basel. Our direct investment yield decreased to 1.2% on a non-annualized basis compared to 1.4% in the prior year period. The net investment result decreased to CHF 1.9 billion. The non-annualized net investment yield was 1.1%, compared to 1.3% in the prior year period. This includes net capital gains of CHF 36 million, composed of COVID-19 related realized losses on equities, impairment on equities and bonds, and positive revaluations on equity derivatives, as well as realized gains on bonds and positive real estate revaluations. Moreover, it also includes FX hedging losses resulting from the hedge of hedging costs as interest rate differentials narrowed.
This led to a decrease in hedging costs of CHF 40 million to CHF 336 million, and will lead to substantially lower hedging costs going forward. The mentioned bond impairments pertain largely to senior secured loan funds and amounted to CHF 66 million, most of which are valuation losses rather than defaults. We continue to have high unrealized gains on bonds of CHF 16.2 billion, compared to CHF 15.1 billion at year-end 2019. Our total investment result, including changes in unrealized gains and losses on investments, was at 1.1%, despite higher 10-year govie rates in Switzerland. Slide 17 shows the structure of our investment portfolio.
The share of bonds increased slightly to 57.7%. 95% of our total bond portfolio is investment grade, 5% is below investment grade, primarily due to our senior secured loan funds that are included in our corporate bond portfolio. The share of real estate increased to 21.1%.
We had further real estate revaluations of CHF 0.3 billion and a further net acquisition of CHF 1.1 billion. Real estate continues to be a very attractive asset class from an ALM and SST perspective, providing stable rental incomes at an attractive risk premium that match our commitments on the liability side. You can find more details on our real estate portfolio in the appendix on page 59. As a result of this high-quality portfolio, our vacancy rate continues to be very low at 3.8% compared to 3.7% at year-end 2019. Moreover, in the first six months of 2020, rent collections amounted to around 95% of rental income due. Our net equity quota decreased to 2.7% compared to 4.1% at year-end 2019. In the context of the COVID-19 related financial market developments, we have sold some equities and increased our hedging. Our duration gap was at 1.3.
It has increased slightly due to a lower asset duration contribution in 2020, resulting from credit spread widening. Please note that our foreign currency exposure on the insurance portfolio remains hedged. As mentioned on previous occasions, we do not hedge the FX translation effects from our foreign operations and their profits. I will now move on to insurance reserves. Our insurance reserves, excluding policyholder participation liabilities, increased by 1% in local currency to CHF 167 billion, primarily due to Switzerland and Germany. Turning now to shareholders' equity on slide 19. Shareholders' equity decreased by 5% to CHF 15.2 billion.
The main drivers of this reduction were lower gains and losses on bonds and equities, as well as the dividend paid to shareholders. This was partly offset by net profit attributable to shareholders. Slide 20 shows our capital structure. Our total outstanding financing instruments amount to CHF 4.3 billion.
Our total hybrids, including hybrid equity, amount to CHF 3.3 billion. The share of equity within our capital structure is 71% and therefore within our reference level. The capital structure and maturity profile remain well-balanced with a diversified denomination of debt in Swiss francs and euros. That brings me to our Swiss Life 2021 financial targets. Let me start with the Swiss Life 2021 progress reporting and the development of our fee business on slide 22. Commission income at Swiss Life asset managers was up by 8% in local currency. Commission income from our owned IFAs increased by 8% with the largest contribution from Germany.
The business with own and third-party products and services increased by 6% in local currency, driven by France and Switzerland. Overall, our fee and commission income increased by 10% in local currency to CHF 916 million. The fee result increased by 6% to CHF 267 million.
Even though not shown on this slide, I would like to comment on the other profit sources. The savings results declined year on year due to a lower net investment result in the COVID-19 context. This decline came from Switzerland and France and was partly offset by a slightly higher savings result in Germany. The risk result increased primarily due to lower claims in health and P&C in France, and also due to slightly better claims development in Switzerland. The cost result declined slightly due to higher acquisition costs in France and Germany, in line with strong unit-linked business production. Our next slide shows the 2020 half year yield development. Our direct investment yield on a non-annualized basis declined slightly in this challenging environment to 1.2%. This compares to our annualized reinvestment rate of 1.6%. Moving on to the average technical interest rate on slide 25.
In the first six months of 2020, we further strengthened the policyholder reserves by around a quarter of a billion. This led to a one basis point decrease of the average technical interest rate. In addition, the shift to a more favorable business mix led to a further reduction of one basis point. Overall, our average technical interest rate decreased by two basis points to 1.1% as of the end of June 2020. This rate is annualized, while the yields on the previous page are not. We are very pleased that we were able to reduce the average technical interest rate in Switzerland to 78 basis points. Turning to the value of new business and the new business margin on slide 26.
Our margin management paid off in all segments with measures such as improved business mix in Switzerland, continued shift to products with low guarantees in France and Germany. The continued focus on risk business in international. This led, despite the substantial decrease of interest rates, to a new business margin of 2.1%, which is above our ambition level of 1.5%. The value of new business decreased to CHF 204 million due to the exceptionally high new business production of full insurance solutions in Switzerland in 2019. Let me now move on to operational efficiency. In life insurance, the efficiency ratio improved by one basis point to 18 basis points, primarily driven by the increase in life insurance reserves. This ratio is not annualized. At our owned IFAs, the distribution operating expense ratio improved slightly as high commission income outweighed higher expenses, and it stands at 25%.
In our TPAM business, the cost income ratio improved to 94% from 96%, in line with growing net commission income and improved efficiency. This half year 2020 ratio includes the mentioned accelerated amortization of customer relationship assets. Excluding this, the ratio would have been 86%. Please note that the cost income ratio tends to be higher in the first half of the year, as the operating expenses are more linearly incurred, while the income is more back-end loaded within the year. Turning to capital cash and payout on slide 28. By the end of June 2020, our Swiss solvency test ratio is estimated to be above 185%, and therefore, at the upper end of our ambition range. As of today, the SST ratio is around 190%, in line with more favorable financial markets.
Supported by our disciplined asset and liability management, our solvency remains strong even after financial market developments in 2020. This SST ratio includes the entire share buyback of CHF 400 million, which is temporarily suspended in line with other major-listed banks and insurance companies in Switzerland. On our next slide, you can see the SST ratio and our Solvency II ratio at the beginning of the year. On the right-hand side of this slide, we report, as usual, our SST sensitivities as of 1st of January 2020. As I mentioned a few minutes ago, we have almost halved our net equity exposure since the beginning of this year. This means that our SST sensitivity towards equity market developments is now reduced accordingly. Let's move on to slide 30 that shows our cash remittance. In the first half of 2020, we remitted CHF 748 million of cash to the holding company.
This is an increase of 6% year-on-year. Cash at holding as of today amounts to CHF 1 billion compared to CHF 0.9 billion at year-end 2019. This is after accounting for the dividend of CHF 20 per share for the financial year 2019, which was fully paid in 2020 as planned. At the end of July, we canceled the remaining shares which purchased under the CHF 1 billion share buyback. This share buyback was completed on December 5th 2019. The current share count as of today is 32 million. Our new share buyback, which was started on March 3rd, 2020, keeps being temporarily suspended. We will provide another update on the situation at our Q3 result disclosure. Let me sum up. Today, we report pleasing 2020 half year results given the COVID-19 situation and its headwinds. Our business model has again proved to be resilient.
The main effects from COVID-19 for us arise from negative financial market developments and the related impacts on our savings results. This was mitigated by higher fee and risk results in the first six months of 2020. In the anticipated U-shaped economic recovery, we expect the 2020 financial year savings result to remain below the level of 2019. Our solvency remains strong at above 185% and thus at the upper end of our ambition range. We have further increased our cash remittance and have paid the entire dividend for the 2019 financial year. We are on track with our Swiss Life 2021 program despite headwinds from COVID-19, and I can confirm our Swiss Life 2021 targets. This also pertains to those targets, like the return on equity of 8% to 10%, that are valid for each and every year, including 2020. This brings me to the end of my speech.
Thank you for listening, and back to you, Patrick.
Thank you, Matthias. Dear analysts and investors, the microphone is now yours. Who would like to ask the first question?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you've 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 use only handsets. Webcast viewers may submit their questions in writing via the relative field. Anyone who has a question may press star and one at this time. The first question is from Andrew Sinclair from Bank of America. Please go ahead.
Thanks. Morning, everyone. Three from me as usual, if that's okay. Firstly, just on real estate experience. Just really wondered if you could help me reconcile the 95% collection of rents with real estate's investment income, direct investment income being down about 10% year-on-year. I thought despite the real estate bit growing over the year, maybe I'm missing something completely obvious, but just if you can help reconcile that for me. Secondly, was just on the suspended buyback. I realize you said you'll give an update at Q3, but is it sufficient to have regulators back on board for buybacks? Or would you want an SST ratio back above 190%? How are you thinking about that? Thirdly, just on the corporate bond portfolio, actually, you've got about 38% of the portfolio triple B, and then about 12% sub-investment grade.
Just really wondered if you could give us some more color on sector exposures of those holdings. I think as far as I've seen, unless I'm mistaken, the sector breakdown is only at portfolio level. Just really wondering amongst those triple B and sub-investment grade, if you could give us a bit more color. Thanks.
Let me start with the buyback question you had. As said, we will give you an update in Q3. In regard to the question you had, when we suspended temporarily the share buyback in March, we said we have done that in line with other major banks and insurance company in Switzerland. That was the trigger, and that's what we can say in that. The next update is in Q3, which is November sometime. In terms of the real estate, maybe I have not fully understood the question, but I try to phrase it as follows. We have essentially the rent collection, which is measured on the rent due. That's where we have the 95%. We looked what is due and there the rent loss is where we have forgiven the rent for one or two months is not included.
The rental losses are below CHF 10 million. Of the rest, the collection is, as said, around 95%. What has driven, let's say, the direct investment income or the income on real estate that has come down year-over-year is, as we said, an accounting effect that is driven by the deconsolidation of funds, which has led to the fact that what was previously direct rental income is now, after the deconsolidation that took place since half year 2019, this income is now recognized as dividend income and revaluation gains. That's one of the reasons for the decline. Then we have, as mentioned also, FX translation effects, the mentioned rental losses. On the other hand, on the positive side, we also invested again into new real estate.
Also, as mentioned, some of the investments we have undertaken in the past 12 months was into real estate development projects that do not yet generate income.
On the corporate bond side, you just see, as you already mentioned, the disclosure we have on the total portfolio. We don't have a disclosure on, let's say, the triple Bs, double Bs, and single Bs. As far as I recall, there's nothing really special to mention on that side, let's say vis-à-vis an index. I think the thing that is important to mention is that we have practically no exposure to the weaker parts, so the triple Cs, double Cs, and so on. As you can see, we had, even in this difficult period, very low impairments in the bond portfolio. The impairments that we have disclosed.
38
37 of the booklet if
38.
38 of the booklet, where you see that we have the CHF 66 million of impairments. This was primarily because of the loan portfolio, which is held indirectly, and that was not because of a default. So we did have one default of an energy company, I think, which had been generating impairment, which was not even a default, but was an impairment around CHF 16 million. The rest is basically simply a lower market value of the indirectly held- loan portfolio, and that is most of the high-yield portion anyway. So we don't hold a lot of high-yield bonds anymore.
Thank you.
The next question is from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. If I could just start with just a quick follow-up on that rent collection. The 95% figure, I'm just wondering, could you give us what that was last year or what you might expect that to be in a normal period, just for comparison? Would it be very close to 100% or? What that was? On cash, impressive number. I guess cash always lags earnings to an extent. I'm just wondering if you can give us any guidance on the outlook for next year or any sort of hints on things that might impact the cash flows to expect for next year. In particular, maybe ease of up streaming in the current environment. Finally, I guess on the running yield, I think the half-year figure is probably exaggerated a little bit from the loss of dividend income, et cetera.
I'm just wondering if you could give us a guide to what the annual running yield of the portfolio is, what the drop is from last year. On that one, I appreciate the three decades of interest rate margin safeguarding that you've reiterated. Apologies for my poor memory, I was wondering if you could just remind us exactly the assumptions going into that in terms of reinvestment rates in particular. Thank you very much.
Okay. I'll have another go at the rent collection part. The reason why we mentioned this is because there was some very low rent collection at some property companies in the U.K. and similarly, we thought it would be helpful to give you some guidance on where we stand. Actually, this 95% is actually fairly conservative. The figure is actually a little bit higher. It includes basically, the rent collection that is due, but that was not paid in cash. We still expect most of those missing 95% to be collected in the second half of the year as the actual rent that was not collected because of defaults or because we forgave the rents to the leaseholders was actually below CHF 10 million. A very low figure.
We do expect to catch up too in the second part of the year. Last year, this rent collection figure was around 99%. Here you have the comparison. As basically the missing part accounting-wise does not show up because we still expect to collect it. Of course, this has nothing to do with the deconsolidation effects that Matthias mentioned on the lower rental income that we've disclosed, which is primarily due to deconsolidation effects because we sold off some of our indirect fund holdings on real estate to third-party investors. I hope that clarifies that point.
Yeah. That's great. Thank you.
I'll hand over to Matthias for the other two.
Maybe in respect to the question, cash, I can confirm that this year's cash comes up as planned. We are here on the way as planned. Prospectively, I just can confirm that we say that all Swiss Life 2021 targets are valid. This includes, first of all, the dividend payout ratio of 50%-60%, and also the cash transfer to the holding, which is cumulated to CHF 2.25 billion. That would be confirmed. That's really then also the basis for the dividend payout, which is paid in cash. In terms of the question on the running yield, I think that given that we now do not hold too much equities anymore, I think it is probably a rather good approximation to think about doubling that.
Yes, there is a bit more in the first half of the year, but I think essentially doubling is not too bad an approximation. The last question, I think, was on the interest rate margin, if I understood that correctly. What the assumptions were, is that what you asked?
Yes, exactly. You've reiterated the three decades.
Yeah. Actually, I just want to remind myself the assumptions behind that.
Yeah. I think that's a disclosure we have made on the Investor Day 2018. I think, first of all, it's important to know that we do not include any gains on risk there or risk profits or fee income. It's purely the interest rate margin, excluding the other income sources we have. We project their existing portfolio of bonds and other assets, we assume the reinvestment rate to be based on the forward rates with a marginal pickup, given the fact that we also include the higher risk corporate bonds. That's essentially what we assume. In terms of the BVG business, we also include conversion losses, especially on the mandatory part, which are substantial as we all know.
That's great. Thank you very much.
The next question is from Jon Hocking from Morgan Stanley. Please go ahead.
Hi there. Morning, everybody. I'm just standing in for my colleague, Fahad Changazi. I've got three questions, please. Firstly, could you give some comments in terms of whether you've seen any persistency impacts, particularly on the investment products in the first half? That's the first question. Second question, on the third-party asset management cost income number, I know there was the one-off that you highlighted from accelerated amortization. Are you still confident in your ability to hit the 75% target in 2021? Finally, sorry to come back to the rent collection piece, but on the property portfolio, how should we think about the valuation impact of the rent collection? Is it just a very temporary effect in the first half, and shouldn't have any particular impact on the valuation of the portfolio? Thank you very much.
I'll take the easy question, which is the rent collection part. You should not extrapolate that for the whole year. This was really a temporary thing as we mentioned. I don't expect any impact on valuations of our real estate portfolio. I think one thing that really underlines that is that our vacancy rate remains very close to the historic low we hit at the end of last year, where we were at 3.7%, and we are now at 3.8% yet. I expect that to go up slightly over the course of the rest of the year. I don't expect a valuation impact, to the best of my knowledge, and at this point in time. The rest for Matthias.
Maybe first, concerning the persistency impact. Overall, we have essentially not seen any noticeable change in surrenders of the policies. There may be in the very low percentage points or fractions of percentage points. There may have been variations, but that's nothing that we see as a major concern. In certain areas, we have seen that there are deferrals of premium payments that have marginally gone up, but that's typically more in the savings rather than in the investment product space. To cut the long story short, there we have not seen substantial impacts in terms of persistency behavior. Coming to the TPAM cost-income ratio, we confirm all the Swiss Life 2021 targets, including the TPAM cost-income ratio of around 75%.
Okay. Thank you both. Very kind.
The next question is from Thomas Bateman from Berenberg. Please go ahead.
Hi. Good morning, and thank you for taking my question. Just going back to real estate a little bit, but thinking slightly longer term. Appreciate that you don't expect any sort of valuation impacts in the shorter term, but given large office users like BP and Allianz are saying that their demand for offices could shrink, how do you think that sort of trend might impact your portfolio? Thank you.
Of course, there are always certain risks to office portfolios, given the economy slowdown, given social trends. A time back ago, we thought the inner cities would not be competitive with much more modern office space at the periphery. It showed that since Roman times, people like to be where all the others are. The city center vacancy rates we had 10 years ago when we bought a lot of buildings from banks, they filled up very quickly. I cannot exclude that at some point in time we will have a reversal of such trends. At the moment, I suspect that this COVID-19 crisis will lead to a higher office demand simply because the space and distancing rules will remain important, and we've all learned that people don't like to be crammed into tiny offices.
Our portfolio is really geared towards city centers and the CBDs of the different cities. I also remain optimistic for the longer term that there will continue to be an office demand. Of course, I might be wrong. The other trend we've been talking about now for 10 to 20 years is that the internet retail sales will kill off high street retail space and other retail space. I'd just like to remind you that the segment of our real estate portfolio with the lowest vacancy rate is actually not our residential portfolio, but is our retail portfolio, where our vacancy rate remains below 2%. That's another trend that the warners of the past decade and more have been wrong about. People like to go to the city centers, and I continue to be optimistic about that.
Of course, there are tons of people who say otherwise. In the end, you'll have to make up your mind yourself. We remain very confident about our real estate portfolio.
That's all right. It's good to hear some positivity, corroborations towards the results. Thank you.
For any further questions, please press star and one. The next question is from Jonny Urwin from UBS. Please go ahead.
Hi, everybody. Good morning. Hope everyone's well. Just three from me, please. Firstly, thanks for the real estate commentary. I think it's reassuring. When we're thinking about investments in new real estate assets, I wondered, has there been any need to change your investment framework or your return hurdles? Has there been any shift in the underlying view of risk? That's number 1. Number 2, what's your expectations for the BVG rate-setting process outcome delivered in the autumn? Thirdly, are you expecting any changes to SST model calibration post-COVID-19? Is there any reason for the regulator to tighten the model again? Mindful that we've only really just seen some stability in the last couple of years, so I'd be keen to hear your thoughts there. Thank you.
Let me take the real estate question again. Yes, our hurdle rates have definitely come down over the last decade, year by year. Of course, as we have been buying real estate, these hurdles have come down. Why? Because we primarily look at it as a surrogate for long-term bonds to source Swiss franc-denominated cash flows. That's the main reason, because our government almost issues no very long-term debt. For us, the need to source cash flows on assets which will be around into the rest of the century and possibly into the 22nd century, that's the reason why we buy real estate and we price that real estate, those holdings, vis-a-vis the very long-dated bonds in the portfolio, and that rate differential remains very close to the all-time highs we saw last year. That's the way we think about it.
We don't have, let's say, absolute hurdles to buy real estate. Yes, we have ventured into, over the last 5 to 10 years, into some real estate that we didn't do before. As you know, we bought BEOS, for example, where we had some light industrials and some logistics. We also, several years ago, built up a small portfolio in the healthcare area in Germany and France. Those three segments are actually doing very well from the changes we're seeing in our society around the internet, the shopping, delivery of packages, care for the elderly, and the like. We're seeing a very strong performance of that part. We've also have a very low part in hotels on our balance sheets, which we've had for quite some time. For example, our former headquarters in Germany has been converted into a hotel.
We have some other very low hotel exposure. I think it's around CHF 300 million overall. Of course, those assets are suffering. We will also, with The Circle development at Zurich Airport, where we own 49% of, have another hotel or convention center exposure here. Here, by now 83% of the space has been rented out, but we will see some delays in, of course, the cash coming through vis-a-vis the original expectations from those convention centers and hotels. We have very low exposures to restaurants, to the rest of the travel industry. Again, yes, here and there we have some special assets, but that's included basically in the other part of the portfolio. A large part of that is actually doing very well and benefiting from that, with the exceptions of hotels where we have a low exposure.
For the other questions, I hand over to Matthias.
Thank you. Coming first to the question on SST. We have had, as an industry, very long discussions with FINMA to establish this SST standard model, which is now really a solid base. The model itself, I think we do not expect changes there. There's a process which is called maintenance. That's a model maintenance. There we do not see big things coming. There's one subtle aspect in terms of calibration of the model. What do I mean? The capital charge, I'm sorry for becoming a bit technical. The capital charge is essentially the average of, let's say, historical volatilities. Now as we progress, we have included the high volatilities, especially in the corporate spread area in the month of March and April. This leads systematically to an increase of the capital charge for corporate bonds.
This is an effect of around 10 percentage points. These 10 percentage points are already included in the SST figures we have disclosed today. In terms of the BVG rate setting, how should I say? This is a political process. This is a parliamentary decision, which is typically taken in the fourth quarter of the year. I think it's too early to speculate what it is. I think two or three comments that are important. First of all, the level of the guarantee is not that relevant for us because it is a gross legal quote. As long as we are above the guarantee, it doesn't change our profit. The second one, which is also important to keep in mind, and I refer there to the booklet on page 46.
In the appendix, you see that we have a total of insurance reserves of around CHF 183.7 billion. Out of this amount, it's essentially those CHF 20.5 billion at the very right-hand side at the bottom, which is the mandatory part of the BVG business, which is subject to this parliamentary or essentially a decision of the Federal Council, I have to say. Yes, there is something going on, but as indicated, we're not that much affected as it may seem.
Thank you.
The next question is from René Locher from Stifel. Please go ahead.
Yes. Good morning, all. I would like to start with page 5. Just a clarification there. Just highlight that the balance portfolio of mortality and longevity risk. I was just wondering if I look in the SST report 2019, on page 55, I would conclude that you are much more exposed to longevity than mortality. Just as a clarification. The second question is on page 29. I have to admit, I am not an SST specialist. Nevertheless, quite interesting to see that sensitivity to interest rates. Now in H1 2019, it was -4 basis points, so 50 basis points move in interest rate. Now it's down to -1 percentage point. I was just wondering how you can explain that.
Third question is on. Interesting to see that nobody asked that question before, I remember a few weeks ago, there were quite a little bit of action in the market when Generali was forced to increase the reserves in the Swiss book. Perhaps you could just share a bit of a light, how you see your reserves position in Switzerland. Next one on the Glattzentrum. I'm just wondering if you could provide a few key figures here. If I may, last one. Switzerland used to be kind of a role model in old age provision now. The pillar business. It's, yeah, let's put, a little bit stretched. In the press you can see a lot of articles that politicians would like to push a little bit the third pillar business. That means individual saving for old age.
Yeah, I was just wondering what your view is on this topic. Thank you.
Well, obviously, we don't have anything against pushing the third pillar as that's an important part of our individual business, which tends to have a higher profitability than the second pillar. We, of course, like to hear that from the political side. Now on Glattzentrum, which is the most successful shopping center in Switzerland, just north of the city boundary of Zurich. It's very well located, with extremely low vacancy rates. All of that has been bought for third-party clients. It's really the best-run center in Switzerland. We expect the closing at the beginning of the fourth quarter. We have not disclosed in agreement with the seller any figures.
I'll hand over to Matthias on the other question.
Thank you. First coming to the question of the financial condition report. What you see there, I'm sure you refer to page 6 of the financial condition report. When you compare with the components for insurance and in mortality risk. I think what you need to keep in mind is that the numbers that are shown there refer to what happens if there is a long-term change of mortality or longevity assumption. I wouldn't extrapolate what you see there to the situation we have right now in a pandemic where we have kind of a spike, a one-year event, so to speak, that takes place. Therefore, I would not translate one into the current situation. As you say, we have a balanced portfolio of mortality and longevity risk.
That's the reason why we have not had a noticeable impact on the risk result due to the life insurance business. As mentioned, we had a positive impact in the current situation from the other business lines in the risk result. Now, in terms of the reserving, well, we do not comment on what others do. What our approach is, that we assess the adequacy of our technical reserves on a semiannual basis for half year, full year. That includes the traditional reserve and that also includes unit-linked portfolios that we have for example, on our Swiss books, also those that have guarantees in there. To give you a figure, in our book in Switzerland, in the individual life business, we have around half a billion of unit-linked reserves with a guarantee, which is roughly speaking, 2% of our individual book in Switzerland.
Okay. Just quickly on page 29, the sensitivities. Interesting to see, if I compare H1 2019 with H1 2020, from H1 2019 interest rates move 50 basis points minus four percentage point. Now it's down at minus one percentage point.
Sorry, René , I didn't mean to not answering this question.
Sorry.
Yes. I think what you essentially see both with the minus one and the minus four is that, in the standard model, we have essentially no significant interest rate sensitivity. I think that's the key message of that sensitivity, and I wouldn't attribute too much weight to that change from the minus one to the -4%. What is important is that we have the duration management based on an economic view.
Not on the SST standard model, which given its structure, a bit of a different interest rate sensitivity.
Okay. Wonderful. Thank you very much. Have a good day.
There are no more questions at this time.
That brings us to the end of our conference call. Once again, thank you for taking part. I hope you enjoy the rest of the summer, and hope to see you soon. Thank you and goodbye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.