Ladies and gentlemen, welcome to the Swiss Life presentation of the half year results 2019 conference call and live webcast. I'm Sandra, 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. 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 Patrick Frost, Group CEO of Swiss Life. Please go ahead, sir.
Thank you. Dear analysts and investors, thank you for dialing in to our presentation of Swiss Life's half-year results. On our side, Matthias Aellig, our Group CFO, and I will be on this call. I will start with an introduction. He will then give a more detailed presentation and commentary on our figures. Half a year is a short time for a company that calculates in terms of decades on behalf of its customers. Nevertheless, as confirmed by our press release and earnings presentation this morning, we remain on track regarding the consistent implementation of our plans. Allow me to illustrate this point with some key figures from our half-year results. We increased our adjusted profit from operations by 6% to CHF 846 million. Net profit rose by 10% to CHF 617 million.
This includes a positive one-off tax effect of about CHF 30 million in the context of the Swiss tax reform. The cash remittance to the holding company rose by 8% to over CHF 700 million. It's also pleasing to see continued success in our fee income. Swiss Life posted a 13% increase of our fee income in local currency to CHF 876 million. The fee result, meanwhile, increased by 7% to CHF 260 million. As you know, premiums were particularly high for the first half of the year following the exit of a competitor from the full insurance business in Switzerland. Swiss Life posted premiums of more than CHF 14 billion, equivalent to a 33% increase in local currency. Our third-party business at Swiss Life Asset Managers acquired net new assets of CHF 6.2 billion.
As at the end of June, assets under management for third parties thus came to almost CHF 80 billion, 12% higher than at the end of 2018. Direct investment income was the same as the previous year at CHF 2.24 billion, and the net investment yield on a non-annualized basis was 1.3%, having been 1.7% in the previous year. Let's now turn to the value of new business. The VNB increased by about 80% to CHF 387 million. The new business margin was 1.8%, down from 2.6% in the prior year period. Both these developments are mainly due to the previously mentioned changes in the Swiss group business. Last but not least, Swiss Life increased its adjusted return on equity from 10.4% to 11.4% in the first half year. Overall, the figures show that Swiss Life has made a strong start to the new Swiss Life 2021 group-wide program.
That is due to the immense commitment of our employees and the trust displayed by our customers. I will now hand over to our CFO, who will give you a more detailed account of our performance. Matthias, the floor is yours.
Thank you, Patrick. Good morning, ladies and gentlemen. I will now provide more details on our financial performance in the first six months of 2019. Please note that all figures quoted are in CHF unless I state otherwise. Let me start with an overview of our P&L on slide six. Growth rate and premiums, fees, and deposits received increased by 33% in local currency to CHF 14.1 billion. This growth was driven by our Swiss group life business. Fee and commission income was up by 13% in local currency to CHF 876 million, due to the strong contributions from Swiss Life Asset Managers and from our own IFAs. As already mentioned during our Q1 call, this includes [inaudible], Fincentrum, and Livit Facility Management. The net investment result of the insurance portfolio for own risk decreased to CHF 2.1 billion, mainly due to lower net capital gains.
Net insurance benefits and claims increased to CHF 11.6 billion due to Switzerland. Policyholder participation decreased to CHF 0.6 billion, mainly due to Switzerland. Overall, we have strengthened technical reserves by about CHF 300 million. Please note that final policyholder participation and reserve strengthening is determined at the end of the financial year. Operating expenses were up by 12% to CHF 1.6 billion, primarily as a result of high commission expenses and expenses related to newly consolidated businesses. Profit from operations grew to CHF 830 million, with a positive contribution from the savings, risk, and fee results, while the cost result remained stable. Borrowing costs decreased to CHF 63 million. This is due to lower coupons on the hybrid refinance in 2018. Our income tax expense decreased to CHF 150 million.
This includes a positive accounting one-off of CHF 30 million in the context of the Swiss tax reform. We do not exclude to see an additional partial release of deferred tax liabilities in the second half of 2019. Our effective tax rate was 20%. Finally, our net profit was up by 10% to CHF 617 million, including the just mentioned positive tax impact of CHF 30 million. Slide seven shows the one-offs in our profit from operations. On the left-hand side, you can see last year's adjustments. On the right-hand side, we adjusted the 2019 half-year profit from operations to reflect restructuring charges of CHF 3 million and program costs of CHF 13 million related to a new accounting standard. Adjusted for these one-offs, profit from operations increased by 6% to CHF 846 million. Moving now to the segment results. I will start with Switzerland on slide eight.
Premiums increased substantially by 57% to CHF 9.6 billion, while the overall market increased by 7%. In individual life, premiums were up by 10%, while the market was up by 1%. Single premiums increased by 33%, primarily with modern and modern traditional products. Periodic premiums grew by 1%. Premiums in group life were up by 63%, while the market increased by 8%. Periodic premiums grew by 11%. Single premiums increased by 118%. This increase in premiums is primarily driven by our largest competitor pulling out of the full insurance business. It was achieved while maintaining our strict underwriting discipline to support capital efficiency. Premiums in group life, excluding this exceptional move, are above the prior year level. Therefore, as previously said, group life premium growth is exceptional in 2019. Single premiums will revert to a more normal level in 2020. New business production with semi-autonomous solutions was up by 22%.
Assets under management in our investment foundation grew by 18% to CHF 10.1 billion, compared to CHF 8.5 billion at year-end 2018. Fee and commission income was up by 6% to CHF 133 million, with an increased contribution from Swiss Life Select, our mortgage business, pension consulting, and investment solutions for private clients. Operating expenses decreased by CHF 4 million to CHF 194 million, mainly due to our disciplined cost management. There's also some seasonality. We expect full-year operating expenses at around the prior year levels. Please note that we now report operating expenses on all our business review slides on a non-adjusted basis. This is in line with the other information provided on the business review slides. The segment result improved by 5% to CHF 460 million, primarily due to higher savings and risk results. The profit impact from the exceptional premium increase amounts to a single-digit CHF million amount.
The fee result was up by 7% to CHF 15 million, with a higher contribution from Swiss Life Select, our mortgage business, and investment solutions. The value of new business increased by 169% to CHF 282 million, mainly driven by group life business, with a positive contribution also from the individual life unit-linked and the assumed reinsurance businesses. The new business margin decreased from 2.6% to 1.7% due to the shift in business mix towards full insurance solutions and the low interest rates. Turning now to France. Please note that all figures quoted are in EUR for the insurance segments France, Germany, and International. In France, premiums decreased by 1% to EUR 2.5 billion. We managed to almost catch up to the strong prior year level, benefiting life from the recovery of the equity markets and from a positive development in our health and protection and our P&C businesses.
The overall French market was up by 3%. In our life business, premiums were down by 3%, while the market was up by 3%. This is due to our focus on capital efficiency, which means maintaining an attractive unit-linked share in our business. The unit-linked share in our life premiums was 46%, slightly lower than the 50% for the full year 2018, but essentially double the market average of 24%. In health and protection, premiums increased by 4%, in line with the market. Premiums in our group business were up by 4%. Premiums in individual protection increased by 7%. Our P&C premiums were up by 4%, driven by fleets and motor products, supported by new partnerships. The market was up 3%. Fee and commission income decreased slightly to 1% to EUR 139 million. Unit-linked fees increased. Due to higher unit-linked reserves and positive influence.
This increase was offset by lower banking fees due to a lower turnover of structured products following the negative equity markets in the last quarter of 2018. Operating expenses increased by 2% to EUR 165 million. Efficiency gains were offset by business growth and investments in projects. The segment result rose by 4% to EUR 136 million, with a positive contribution from the risk and savings results. The fee result was down by 7% to EUR 34 million. The higher unit-linked fee result was more than offset by a lower result in the banking business. The value of new business decreased by 5% to EUR 58 million. Higher volumes in health and protection were more than offset by lower volumes, with a reduced unit-linked share in our life business, and by the strong decrease in interest rates. The new business margin decreased to 2.3%. Moving on to Germany on slide 10.
Premiums were up by 2% to EUR 603 million due to higher periodic premiums with risk in modern traditional products. The overall market was up by 10%, driven by single premiums. Fee and commission income grew by 8% to EUR 213 million, driven by a positive contribution from our own IFAs due to an increased number of financial advisors. The number of financial advisors now amounts to 3,990, up 8% year-on-year. Operating expenses increased by 8% to EUR 102 million because of investments in growth initiatives such as the digital client portal for our own IFAs and digital interfaces to intermediaries in the insurance business. The segment result was up by 6% to EUR 85 million, primarily due to the positive development of the savings result. Please note that this is again an unusually strong first half result.
As in 2018, we do not expect a linear development in the second half of the year. The fee result is down by 4% to CHF 39 million, as the higher fee income was more than offset by higher investments in growth initiatives. We expect to be above the prior year level by the end of 2019. The value of new business increased by 8% to CHF 24 million. We achieved higher volumes with modern products driven by the launch of a new unit-linked product. This reduced the overall guarantee levels significantly, while volumes with risk products declined. The new business margin decreased to 3.3%. Turning now to the international segment. Premiums were stable at EUR 808 million, following a strong second quarter. Higher premiums with private clients were offset by lower premiums with corporate clients. Assets under control for private clients increased by 5% to EUR 18.4 billion compared to year end.
Fee and commission income was up by 36% to EUR 144 million, primarily due to the acquisition of Fincentrum in October 2018. Higher revenues at Chase de Vere and higher contributions from both private and corporate clients also contributed positively. Operating expenses increased by 12% to EUR 51 million. This is due to the mentioned acquisition, while operating expenses in other businesses were stable. The segment result increased by 23% to EUR 35 million due to the positive development of the fee result, while the other profit sources remained stable. Fee result grew by 33% to EUR 28 million, in line with the positive income development. The value of new business improved by 30% to EUR 13 million. This was mainly driven by higher volumes and improved margins in our risk business and by higher volumes with private clients. The new business margin rose to 1.8%.
Let's now move to our Asset Managers segment that reports in CHF. Asset Managers figures include Livit Facility Management that is reported on a gross basis starting in 2019. Commission income is increased due to this consolidation effect by around CHF 20 million, with a PAM, TPAM split of around 60/40. Prior to that, it was consolidated according to the equity method, impacting only the segment result. Asset Management income rose to CHF 385 million. This is an increase of 18%, or excluding the just mentioned consolidation effect of 12%. In our PAM business, total income increased by 18% to CHF 177 million. This is the result of a higher asset base, primarily due to our interest rates and net insurance inflows. Moreover, we also have higher real estate transaction and management fees. In our TPAM business, total income was up by 19% to CHF 208 million.
The positive contribution from the acquisition of BEOS in 2018, and from high transaction fees was partly offset by lower other net income. Total non-recurring income for TPAM, meaning transaction fees and other net income, came to 23% of total income, compared to 24% in the prior year period. Operating expenses increased by 27% to CHF 229 million, due to BEOS and Livit Facility Management, as well as further organic growth, primarily in real estate. Excluding Livit Facility Management, operating expenses would have grown by 17%. The segment result increased by 7% to CHF 126 million. PAM was up by 11% to CHF 104 million, mainly as a result of the growing asset base and the higher real estate fees. TPAM reported a segment result of CHF 22 million that came in CHF 2 million below the prior year level.
This is due to a slightly higher cost income ratio and lower other net income that more than offset the positive fee income development. We expect to see a catch-up by the end of 2019, as the business is normally back-end loaded within the year, while operating expenses are more linearly incurred. Having said that, other net income from real estate project development is expected to come in below the 2018 level and will pick up again in 2020, as we have mentioned on previous occasions. We have started initiatives to shape our asset management organization in Germany to achieve further growth. Net new assets in our TPAM business amounted to CHF 6.2 billion. This is an exceptional growth. We do not expect a linear development in the second half of the year.
We generated net inflows primarily in the real estate and balanced mandates, as well as in money market funds. Our asset mix in TPAM net new assets is 34% real estate, 22% balanced mandates, 21% money market funds, 12% bonds, 7% equities, and 4% infrastructure. Excluding money market funds, we generated net new assets of CHF 4.9 billion compared to CHF 4.8 billion in the prior year period, when we had money market outflows of CHF 1.2 billion. Overall, assets under management in our TPAM business now amount to almost CHF 80 billion. Total assets under management were up by 7% to CHF 250 billion, mainly due to higher asset valuations in PAM and net inflows in TPAM. Let's move back to the group on slide 13 and have a look at our operating expenses.
Our overall cost base increased by 12% to CHF 1.6 billion, mainly due to high commission expenses and expenses related to newly consolidated businesses. Operating expenses, adjusted for restructuring charges, program costs for a new accounting standard, scope changes, and FX increased by 4% to CHF 773 million. In our insurance segments, adjusted operating expenses increased by 3% to EUR 575 million. As explained, this is primarily due to Germany and France. Turning now to investment results on slide 14. Our direct investment income was up by CHF 6 million to CHF 2.24 billion, supported by increasing rental income and income from infrastructure investments that outweigh mainly lower coupons. Our non-annualized direct investment yield decreased by four basis points to 1.4%. The net investment results decreased to CHF 2.1 billion, which led to a non-annualized net investment yield of 1.3%.
This is about 40 basis points below the prior year level, mainly due to low net capital gains, primarily from bonds, alternative investments, and loans. This was partly offset by higher revaluation gains in real estate and net realized gains in equities. FX hedging costs increased by CHF 30 million to CHF 376 million. Our total investment results, including changes in unrealized gains and losses on investments, increased to CHF 9 billion, mainly due to lower interest rates and also tighter credit spreads. Slide 15 shows the structure of our investment portfolio. The share of bonds increased slightly to 58.7%, mainly driven by the lower interest rates. Our gross equity exposure increased to 8.3%. Our net equity exposure was 2.9%. The share of real estate was more or less stable at 19.7%.
We have further real estate revaluations of CHF 0.4 billion and further net acquisitions of CHF 1.8 billion. The risk premium on real estate remains very attractive. Our duration gap was at one, and our foreign currency exposure on the insurance portfolio remains hedged. That brings us to the insurance reserves. Our insurance reserves, excluding policyholder participation liabilities, increased by 5% in local currency to CHF 165 billion. All units contributed to this. Turning now to shareholders' equity on slide 17. Shareholders' equity increased by 10% to CHF 15.9 billion. The main drivers were unrealized gains on bonds and equities and the net profit attributable to shareholders. This was partly offset by the dividend paid to shareholders and the share buyback. Slide 18 shows our capital structure. Our total outstanding financing instruments amount to CHF 3.8 billion. Our total hybrids, including hybrid equity, amount to CHF 3.4 billion.
The share of equity within our capital structure is 74%. It is calculated on shareholders' equity, adjusted for unrealized gains on bonds and other financial assets, in line with our new return on equity calculations. The capital structure and maturity profile remain well-balanced, with a diversified denomination of debt in CHF and EUR. I will now move on to our Swiss Life 2021 program. On slide 19, you can see our 2021 financial targets. I will provide more details on the Swiss Life 2021 progress reporting on the following pages. Let me start with the development of our fee business on slide 20. Commission income at Swiss Life Asset Managers was up by 22% in local currency. Commission income from our own IFAs increased by 20%, with a positive contribution from Switzerland, Germany, and international.
The business with own and third-party products and services increased by 3% in local currency, primarily due to Switzerland, Germany, and International. While higher unit-linked fees in France were offset by lower banking fees. Overall, our fee and commission income increased by 13% in local currency to CHF 876 million. Half of the growth is due to the acquisitions of BEOS and Fincentrum, and one quarter each is due to organic growth, as well as the consolidation effect of Livit Facility Management. This brings me to the fee result, as shown on slide 21. The fee result increased by 7% to CHF 260 million. As already mentioned, Asset Managers Switzerland and International reported growing fee results, while Germany and France reported a decline. Our next two slides show that we continue to benefit from our disciplined asset and liability management.
We are pleased with the resilience of our direct investment deals in this challenging environment with negative interest rates. This was supported by an increasing real estate portfolio and a reinvestment rate of around 2% in 2019 so far. Moving on to the average technical interest rate on slide 23. In the first six months of 2019, we further strengthened the technical reserves, which led to a two-basis-point decrease in the average technical interest rate. In addition, the shift to a more favorable business mix led to a further reduction of three basis points. Overall, our average technical interest rate decreased by six basis points to 1.2%. We are very pleased that we are able to reduce the technical interest rate in Switzerland to 88 basis points. Turning to the value of new business and the new business margin.
Decline of the new business margin is primarily due to the high new business production of full insurance solutions in Switzerland and the unfavorable development of interest rates. Nevertheless, our new business margin was above our ambition level of 1.5% in all our market units. The value of new business increased at the same time by 82% to CHF 387 million. Let me now move on to operational efficiency. As already mentioned, operational efficiency continues to be an important thrust also in our Swiss Life 2021 program. Taking into account the diversity of our businesses, we are addressing operational efficiency with three key performance indicators. In life insurance, the efficiency ratio improved by one basis point year-on-year to 19 basis points, primarily driven by the increase in life reserves.
At our own IFAs, the distribution operating expense ratio improved by one percentage point to 25% as high commission income outweighed higher expenses. In our GPEM business, the cost-income ratio increased to 96% from 94%. Please note that half-year figures are not fully representative, as TPAM income is back-end loaded within the year, when operating expenses are more linearly incurred. We expect to improve the ratio to below 90% at year-end 2019. Turning to capital cash and dividends on slide 26. In November 2018, we newly introduced our SST ambition range of 140%-190%. As of end of June 2019, our Swiss Solvency Test ratio is estimated to be around 200%. This is higher than the 185% as of January 1, 2019, in line with a more favorable equity market environment and tighter credit spreads.
You can see this ratio and our Solvency II ratio as of January 1st, 2019, on our next slide 27. As mentioned before, the new SST standard model has a low sensitivity towards interest rates and a relatively high sensitivity towards credit spreads. I refer to the right-hand side of the slide and the updated SST sensitivities as of January 1st, 2019. Slide 28 shows our cash remittance and the share buyback. In the first half of the year, we remitted CHF 708 million of cash to the holding company. This is an increase of 8% year-on-year. Coming to our CHF 1 billion share buyback program. By the end of June 2019, we have so far repurchased around 1.3 million of shares for a total amount of CHF 560 million. About one month ago, we have canceled 628,500 shares as approved by the recent AGM.
This reduces our current number of shares outstanding to around CHF 33.6 million. Let me sum up. Overall, we had a good start into the first six months of 2019, that also marked the start of our Swiss Life 2021 program. We will further strengthen our earnings quality and grow our earnings, particularly by increasing our fee and risk results. We are on track with the development of these two profit sources. With the fee results growing somewhat back-end loaded within our three-year strategic 2021 plan due to Swiss Life Asset Managers, as already mentioned. We are also on track with the value of new business, though this has become more challenging given the recent sharp decline in interest rates all over Europe.
Moreover, we will maintain our cost discipline to improve operational efficiency, especially in our TPAM business, with the goal to improve the cost income ratio to around 75% by the end of 2021. When it comes to capital cash and payout, I can report a healthy solvency and a growing cash remittance based on our disciplined capital management. We are also on track with our share buyback program. Our annualized return on equity was 11.4% at half year 2019. Let me now close by reiterating that we will continue with our disciplined execution of the Swiss Life 2021 program. Thank you, and back to you, Patrick.
Thank you, Matthias. Dear analysts and investors, the floor is now open for questions. 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. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. Webcast viewers may submit their question on writing via the relative field. The first question comes from Andrew Sinclair, BAML. Please go ahead.
Thanks. Morning, everyone. Three from me, if that's okay. Firstly, just really excellent solvency position today. Just wondered if you could talk a little bit about liquidity, how much accessible liquidity do you have today at the HoldCo, after allowing for completion of the existing buyback to facilitate further capital management, capital return? Secondly, just what actions could you consider or would you consider taking to facilitate extra capital return if you have the strong solvency position but not the liquidity? Would you consider raising debt, for example, or something along those lines? Third and finally from me, just on the Swiss tax changes. Just wondered if you could give us an update on your guidance for your tax rates going forwards. Thanks.
First of all, to cash, we had CHF 1.3 billion at HoldCo level at the end of June, and that will go down to a bit more than CHF 800 million by the end of the year after having completed our share buyback program. That's at the lower end of our comfort range of CHF 0.8 billion-CHF 1.0 billion in terms of cash at the holding company. In terms of further outlook, we now first want to complete our existing share buyback before talking about the future. Tax guidance. Here we had an effective tax rate of 20%, and that's also the guidance for the future, more or less at least.
Thank you very much.
The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. I had very similar questions, actually. I may be equally unlucky. Just quickly on Andrew's first point, the obvious source, I guess, for further liquidity from internal, without raising any debt or anything, is the free reserves. I think there's a significant potential if you wanted to use it to upstream some cash there. Are you able to talk at all about any sort of constraints that you might have there or how feasible that is? Second question. On the solvency moving parts, appreciate you've updated the sensitivities. I'm wondering if you can just give us a little bit of a walk from the 185 to the 200. In particular, how much from property revaluation and how much from ongoing capital generation. Maybe, sorry, if I could add a third question.
I note the cost, I assume that was IFRS 17 related in terms of the one-offs this period. Should we expect that sort of run rate going forward? I wonder if you could talk at all about that. Thank you.
Okay. Thank you. I'll take the first question, and Matthias will take the second and third question. On the further cash upstreaming from free reserves, that was the question. Well, first of all, these free reserves are technically labeled free reserves, but we do need a certain statutory equity to run the assets risks we're running. While in accounting terms it's called free reserves, in reality, those are not free reserves when looking at the risk-taking ability in a statutory world, which you know is also important to keep an eye on next to, of course, the economic solvency framework that we have. We stick to our Swiss Life 2021 guidance of our goal of trending upstreaming CHF 2 billion to CHF two and a quarter billion cumulatively over the years 2019, 2020, 2021.
There is let's say, we're not going to upstream at the detriment of our statutory equity. Over to Matthias.
To the question regarding SST, moving from the 185 that we disclosed at January 1st. If you have a look at the sensitivities, it was essentially the uptick in equity markets that contributed the biggest contribution to the positive movement. We had, let's say, somewhat similar positive contributions also from the real estate revaluations as you referred to, and the tightening of the credit spreads. Interest rates were, if you just look at the sensitivities disclosed, slightly negative. There you have to factor in that we have increased the assets duration during the first half of the year, which actually reduced that interest rate effect. Capital generation, I think we disclosed that in the financial condition report. It's probably safe to assume something of a similar order of magnitude for the first half of the year 2019 on a pro rata basis.
On IFRS 17, this is a program that runs over several years. We expect to incur further costs relating to the implementation of that program in the coming quarters and years.
Thanks very much.
The next question comes from Farquhar Murray, Autonomous. Please go ahead.
Morning, gentlemen. Just two questions, if I may. Firstly, just coming back to the IFRS accounting issue. Could you actually just quantify what you expect the ultimate project cost probably to be over the next couple of years? I imagine it's going to be probably a multiple of the 13 we've seen. More generally, do you have any sense of when you might expect to be able to report preliminary impacts in terms of equity and earnings going forward? More fundamentally, do you think IFRS 17 is going to impact how you run the business? On that, you are allowed to say no if you think that's the honest answer. Thanks.
We expect total project costs around IFRS 17, but that includes also new systems, and the like that we're introducing at the same time of about CHF 100 million in total. I don't expect any major changes in how we run the business as we already have well-established economic metrics for running our business. Which of course IFRS 17 aspires to also reflect in the accounting framework. Saying that, it will always then depend on how our investors deal with these accounting metrics. As you're well aware of, one thing doesn't change, and that is that cash remittance and dividends don't change in importance.
Okay. Just one quick follow-up, actually, because you mentioned the economic models you have in the background. Given the low rate background we've got at the moment, is there any kind of movement difference in the movements we're seeing between the SST ratio, which obviously moved positively in the first half, and the economic model that you have at all? Thanks.
Yes, that's correct. There is a difference. In the economic models, we do see a much more pronounced negative impact from the lower rates, but nothing that would change the way we're running the business. What that means, of course.
Okay
that the different operating units have to react or continue to react to these developments by improving their product mix, by reducing the guarantees we offer and the like. The product margins, the margins of our new business, we'll have to really keep an eye on.
Okay. Thanks very much indeed.
The next question comes from Jonny Urwin, UBS. Please go ahead.
Hello, good morning, everyone. Just two for me, please. Firstly, what's the outlook for the fee result growth in the second half of this year and into next year as well? I know we're expecting a bit of a slowdown driven by the project fees and asset management. It doesn't look like it's coming through yet, but I suspect it's more of a 2H impact. Any color there would be great. Secondly, just on the yield reductions here today. Obviously it's not terribly helpful. What's the need for further reserve strengthening, do you think, across the Life book, especially in Switzerland in the current yield environment? Thank you.
With respect to the fee result, we're well on track to our Swiss Life 2021 targets. If we look at the CAGR that we achieved this year vis-a-vis the one we have in our plans. You're right, in the second half of the year, we've indicated at the Investor Day, and we did so again at Q1, that now that we will see a reduction in the project development income coming through in the second half of the year. This will again pick up then in 2020. I think we're overall well on track. Obviously, this continues to depend on the markets, but we're well on track there. For the further reserve strengthening. As rates are coming down faster than we expected, we will have to reassess the situation at the end of the year.
Of course, the lower reinvestment rates that we will now have to factor into our model using the Swiss Association of Actuaries' approach might indeed lead to further reserve strengthening through the second half of the year. How much that is, of course, too early to tell.
Thank you.
The next question comes from Frank Kopfinger, Deutsche Bank. Please go ahead.
Yes. Good morning, everybody. I have also two questions. My first question is a general question on your low interest rate sensitivity of 4 percentage points. My understanding is that this is obviously driven by the new standard model. The separate question is, given that interest rates came down so dramatically and even as you just adjusted this model on a sector or industry basis, however, do you see a risk that FINMA might touch this model again and which could lead to higher sensitivities in this respect? Then secondly, again, on lower yields, do you see any impact from the lower yields on your cash generation ability?
Okay. Let's start with the standard model. As you know, we have quite a checkered history with FINMA regarding model changes. FINMA has stuck to its promises in, let's say, the recent two years. We don't expect any changes to the standard model. Let's say major changes. There might be smaller ones here and there. Also, FINMA is very much aware that we have a higher volatility of our solvency ratio, especially related to credit spreads than under Solvency II. Our ambitions, of course, are to lower that sensitivity and not to increase it. Now, with respect to interest rate sensitivity, yes, there you're right.
Similar to the last couple of questions, the standard model has a lower liability duration than the internal model. One of the reasons why we protected or even increased our solvency, our SST standard model solvency so much in the first half of the year is that indeed, we were extremely disciplined in increasing our assets duration and thereby keeping our duration gap stable at one. Bottom line is I don't expect any major changes. Now, lower yields should not majorly impact our cash generation ability because that is driven by our statutory results, which are very stable, which we even managed to increase in the first half of the year. Of course, very long term, low rates will have an impact, also on the statutory results. As you know, we've been saying this for quite some time, and we've managed to protect these results quite successfully.
Okay, perfect. Thanks.
Next question comes from Kevin Ryan of Bloomberg Intelligence. Please go ahead.
Thank you. I've just got a couple of questions around the Swiss full insurance solutions business. The first one is around the surge in premiums, which you've picked up from a competitor who must remain nameless, of course. Could you give us some color on what you are able to do differently from them, which will boost the profitability? That's question one. The second question is around the new business margin. I've seen that fall in the first half, partly driven, you mentioned by this Swiss full insurance solutions business. Is that likely to recover or are we looking at a lower overall group margin going forward? Thank you.
I'll take the BVG question, and Matthias Aellig, our CFO, will talk about the margins. What we showed at our investor day is that we are much better reserved in our group life business than the average market is, and we also have a lot higher recurring income than the average market did. Of course, both of that helps profitability. Having said that, even for us, the profitability coming from our full insurance business is clearly below average in terms of return on capital compared to other businesses we have. We do earn our cost of capital, in this business, and some of our competitors might have had other considerations in that respect. Again, as we said in November, we are much better reserved, and we have much better direct yields on our assets than our competitors have.
We're in a much stronger position to run this business profitably. Now to the margins, Matthias.
As you mentioned, if we look at on slide 24, if we see the negative 60 basis points on the margin, this is with 90% driven by this increase of group life volume. 90% of that margin decrease is due to that surge in BVG new business. Let me be clear also, if we look at the new BVG business acquired, it meets our hurdle rates, it was almost at the ambition level for the new business margin. It was below average. Going forward, if we have a more normal, so to speak, volume of new business in the BVG area, we expect margins to go up again.
Thank you.
The next question comes from Ashik Musaddi, JP Morgan, please go ahead.
Hi, this is Ashik Musaddi. Just a few questions I have, if you can help me. First of all, there is a bit of difference between SST Solvency II ratio and internal model. One part of this question is basically, how would the Solvency II ratio would have moved in the first half? Any color on that? Because Solvency II has more impact from interest rates than clearly suggested by your SST model. That's the first part of it. The second part of it, if I look at your economic model, which you have not given any color as to what the ratio is, but is it fair to say that it is above the ambition range at the moment? Where it would be if you categorize between your ambition range above capital or, say, below that?
Just trying to get a bit of sense as to the drop in interest rate, how much economic impact it would have on your balance sheet. The next question is on the cash remittances. Any possibility if you can give us more color as to where is this CHF 700 million coming from? Is it equally split between, in line with the profits, or is it skewed by any particular division? Thank you.
Okay. First, on the solvency, you're right. We have not given color on our internal model. The only thing I can say is that we are in our ambition range with respect to our internal model. Whereas we're above the ambition range with respect to SST. On the cash side, most of the money actually comes just simply from our major OpCo, so Swiss Life AG. That is the lion's part of the upstreaming. Of course, the fee businesses tend to have a higher percentage, whereas the insurance businesses tend to have a bit lower percentage of cash upstreaming with respect to IFRS earnings, but most of the money comes from the life insurance business.
That's very clear. Thank you.
For any further question, please press star and one on your telephone. Star and one. Gentlemen, so far there are no more questions.
Okay.
Excuse me to interrupt. We have a follow-up question from Mr. Ashik Musaddi, JP Morgan. Please go ahead.
Hi, thank you. Just a couple of follow-up questions. On your reinvestment yield, you mentioned that there could be some changes you would consider in second half. What sort of reinvestment yield assumptions are used in the current SST model? Any color on that would be great. Secondly, you mentioned that in very long term, low interest rates will have an impact on statutory results. Is it to do with the cash flow matching? For how long are you cash flow matched? When will it start having an impact? Is it fair to say that for the first 20, 25 years, it's cash flow match, and after that, there is some duration mismatch? Thank you.
Maybe on the question of the reinvestment rate. Within the SST model, everything is risk-free. That's by design of the model. That's what it is. I think the comment before was referring to the reserving situation where we anticipate that the lower yields in the capital market may influence the reserving position going forward. That's an assessment that we make for statutory and also for IFRS at the half year. The next time for the full year closing, and that's, I think, too early to tell something in terms of numbers. The second question regarding the yields and their impact on the cash remittance. I think we first have to say that due to the fact that we have so long duration and such a disciplined asset liability management, we have protected our interest rate margin for more than three decades.
That's what we keep disclosing at our investors day, and that's something we see clear benefits of having these long asset durations. It would take a very long time before we see an impact there.
Okay. That's very clear. Thank you.
We have a follow-up question from Farquhar Murray, Autonomous. Please go ahead.
Morning, gentlemen. Sorry for just extending the call. There is a quick question actually on the asset management business. Again, a very strong performance there in terms of growth in the segment result of 7%. I just wondered if you could help us maybe understand the organic component to that, if we strip out the BEOS acquisition. More generally, you suggested some catch-up in that business in the second half. Is that coming from higher real estate project realizations or higher activity in net new money? Can you put any potential magnitude around that catch-up in the second half? Thanks.
Yes. We said that we expect a catch-up for the second half of the year. Real estate businesses such as the one particularly from BEOS, they develop the business in the first half of the year and typically transact in the second half of the year. That's why the income is really back-end loaded, and that's the reason why we see a catch-up that brings us, in terms of segment result, above the level of 2018 in TPAM. I think that's the reason for that. It's more transaction-related, even though there's some contribution from net new assets, BEOS as well. In terms of the organic growth, the majority of the net new assets that we achieved out of the CHF 6.2 billion, that the vast majority was organic, and only a small contribution there came from the recent acquisition.
If we look at the plus 7% growth in the segment result year-on-year, how much of that was coming from BEOS?
I believe it was around CHF 3 million coming from BEOS, and the CHF 2.3 million in the first half coming from BEOS.
Okay. Small. Great. Thanks.
Next question comes from René Locher, MainFirst. Please go ahead.
Yes. Good morning, all. First, a technical question. Looking out on slide 36, there we can see that net capital gains amounted to CHF 138 million, mainly driven by, I guess it's our real estate revaluation gain. I was wondering, this CHF 138, have you used it to increase reserves? Because I see reserve strengthening on slide 23 resulted in a minus two basis points on the average technical reserve. The second question, just a general one. Just wondering your view on the proposal for pension reform in Switzerland. The proposal is out, and I haven't seen anything from insurance companies and neither from the Swiss Insurance Association. Thank you.
Well, yes. As Matthias said, we strengthened reserves by CHF 300 million in the first half, nothing new on that front. What we tend to do is that net capital gains, especially in the fixed income area, leads to lower reinvestment assumptions, and that then triggers these reserve strengthening assessments according to the Swiss Actuarial Society, and that was CHF 300 million in the first half. With respect to the political endeavors now pending at parliament or more specifically, the Swiss government here, the Swiss Insurance Association said that they welcome the different statements from the different associations that have said something about that. Of course, we welcome the immediate lowering of the conversion ratio of 6.8 to 6.0. We also welcome that it opens up the possibility for additional premiums for our business. We haven't said whether or not we welcome these explicit initiatives.
We said we are assessing, and we will assess the drafts that are due at the end of August for first pillar reforms from the federal government and the other drafts at the end of November for the second pillar reforms. We will then make our statements after the release of those drafts.
Okay. Thank you.
That was the last question, gentlemen.
Okay. That brings us to the end of our phone conference. Thank you again for joining us today, and I hope you enjoy the rest of the summer and look forward to seeing you again soon. Goodbye, everyone.
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