Ladies and gentlemen, welcome to Swiss Life's presentation of the Q1 Results 2019 conference call and live webcast. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. 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 is my pleasure to hand over to Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. This is my first conference call as Group CFO, and I am looking forward to interesting discussions with all of you. I hope to meet many of you during the course of the next few months. Today, we are reporting on selected figures for the first three months of 2019. Please note that all figures quoted in this call are in CHF and are unaudited. Percentage changes are reported in local currency for our foreign business divisions. Let me start with today's key messages. Afterwards, I will provide more details on our segments. Fee and commission income was up 11% in local currency to CHF 429 million, primarily due to strong contributions from our own IFAs. Gross written premiums, fees, and deposits received increased by 44% in local currency to CHF 9.9 billion.
This growth was driven by our Swiss Group Life business. Insurance reserves, excluding policyholder participation liabilities, grew by 4% in local currency to CHF 164 billion, compared to CHF 159 billion at year-end 2018. Swiss Life Asset Managers achieved net new assets of CHF 4.6 billion in our third-party asset management. Total assets under management in our TPAM business now amount to CHF 77.2 billion. Direct investment income increased to CHF 1.07 billion. The non-annualized direct yield was 0.7%. The net investment yield was 0.6%, also on a non-annualized basis. Our SST ratio on January 1, 2019, as published and filed with FINMA, was 185%. I will now move on to our segment reporting, and I will start with Switzerland. Premiums substantially increased by 69% to CHF 7.8 billion. The overall market was up 10%. In individual life, premiums were up by 2% while the market was flat. Single premiums increased by 4%.
Periodic premiums grew by 1%. Single premiums increased by 158%. This premium growth was achieved while maintaining our underwriting discipline and our focus on capital efficiency. The market increased by 11%. During our full year 2018 call, we estimated for 2019 in the full insurance business around CHF 3.3 billion in single premiums and around CHF 350 million in periodic premiums due to new accounts, which are now included in our Q1 premiums. Please note that this increase in Group Life premiums is exceptional as it relates to our largest competitor pulling out of the full insurance market. We expect Group Life premiums to revert to a more normal level in 2020. Also, the profit contribution of this exceptional premium increase is limited. We expect a small double-digit profit impact in 2019. New business production with semi-autonomous solutions was up by 158%.
Assets under management in our investment foundation grew by 13% to CHF 9.6 billion, compared to CHF 8.5 billion at year-end 2018. Fee and commission income in Switzerland was up by 2% to CHF 67 million, due to Swiss Life Select and investment solutions for private clients. Turning now to France. Premiums decreased by 1% in local currency to CHF 1.4 billion. The negative development in our life business was largely offset by the positive development in our health and protection and P&C businesses. Overall, the market was up by 2%. In our life business, premiums were down by 6% in local currency, while the market was up by 1%. This is due to our focus on maintaining an attractive unit-linked share in our business. The unit-linked share in our life premiums was 45%, lower than the 50% for the full year 2018, but essentially double the market average of 23%.
In health and protection, premiums increased by 8%, while the market grew by 4%. P&C premiums were up by 5% in a market that was up by 3%. Fee and commission income was stable at CHF 77 million. Unit-linked fees increased due to the higher unit-linked reserves and positive net inflows. This increase, however, was offset by lower banking fees due to a reduced turnover of structured products. I will now continue with Germany. Premiums were up in local currency by 2% to CHF 371 million due to higher periodic premiums with disabilities and more than traditional products. The market increased by 8%, driven by single premiums. Fee and commission income grew by 10% in local currency to CHF 124 million, primarily due to a positive contribution from our owned IFAs. Moving on to our international unit.
Premiums decreased by 26% in local currency to CHF 420 million, mainly due to lower single premiums with private and corporate clients. Assets under control for high-net-worth individuals increased by 4% in local currency compared to year-end 2018. Fee and commission income was up by 33% in local currency to CHF 79 million, primarily due to the consolidation of Fincentrum. Higher revenues at Chase de Vere and net earned policy fees also contributed positively. Let's continue with Swiss Life Asset Managers. Commission income was up by 16% in local currency to CHF 174 million. This is largely due to the consolidation of BEOS and Livit Facility Management. While for the rest of the business, higher management fees on a growing asset base were almost fully offset by lower transaction fees.
Livit Facility Management is now reported on a gross basis, contributing around CHF 10 million to commission income with no impact on the segment result. Net new assets in our TPAM business amounted to CHF 4.6 billion. The net new assets split by asset class is 39% money market funds, 22% balanced mandates, 18% bonds, 14% real estate, 6% equity and 1% infrastructure. Excluding money market funds, net new assets were at CHF 2.8 billion compared to CHF 2.8 billion in the prior year period. Assets under management in our TPAM business increased to CHF 77.2 billion compared to CHF 71.2 billion at the year-end 2018. Turning now to our investment result. Our direct investment income increased by around CHF 30 million to CHF 1.07 billion, supported by an increasing rental income on our real estate portfolio and higher dividends on our equity portfolio. The non-annualized direct yield was 0.7%.
Our net investment yield decreased to 0.6% on a non-annualized basis. This compares to 1% in the prior period and is explained by the decreased valuation of our equity derivatives used to hedge the exposure. The appreciation of the equity portfolio does not flow through the income statement and is therefore not visible in the net investment result. The asset mix remained more or less stable with a slightly lower net equity exposure. The duration gap was around one. Moving on to our group solvency. On January 1st, 2019, our Swiss Solvency Test ratio was at 185%, as filed with FINMA based on the new standard model. You'll find this ratio and additional information in our financial condition report published on April 30th. As of today, we expect the SST ratio to be around 190%. Overall, capital market developments were positive.
Regarding Solvency II, on April 18th, 2019, our insurance entities in Europe disclosed their local solvency and financial condition reports. In this context, I can confirm that our Group Solvency II ratio was above 200% as of January 1, 2019, based on a standard model with volatility adjustment and without taking credit for any transitional measures. This brings me to the end of my speech. Overall, we had a good start into the first three months of 2019. That, at the same time, marked the start of our Swiss Life 2021 program. I am particularly pleased with the increase of the revenues at our owned IFAs and growing direct investment income. Moreover, we are on track with our 1 billion share buyback program. Until the end of last week, we have repurchased 943,800 shares for a total amount of CHF 395 million.
We will start with our detailed Swiss Life 2021 progress reporting during our half year 2019 results disclosure. I'm now ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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. 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 comes from the line of Peter Eliot with Kepler Cheuvreux. Please go ahead.
Thank you very much. I have three questions, please. The first one was on BEOS and Fincentrum. I was just wondering, can you quantify the impact that they had on the fee income? Also say whether there's any seasonality in those numbers or whether we can extrapolate those across the rest of the year. I guess maybe looking forward, can you update us on what extent you see the growth in fee income coming from organic and inorganic means? The second question was, I guess, just a general background, the real estate. There's a bit of concern, I guess, in the investment community about real estate and comments from FINMA and so on. Just thinking, in the hypothetical scenario, if capital charges were increased, I'm just wondering how you would think of that.
If capital charges were increased and your solvency ratio were to fall a little bit, would that have any impact on your ability to return capital? Would you simply react by lowering your solvency target ratio? Then finally, third question. You guided us to expect sort of a lull in asset management. Matthias, you said in your commentary that the non-recurring fees were indeed lower, nevertheless, we saw a very good result. Just wondering if you could update us on the outlook for the rest of the year and how you see the timing of those non-recurring fees. Thank you.
Thank you, Peter. Coming to the first question, BEOS has a contribution of around CHF 10 million to the fee income. There is a seasonality in that business in there. Fincentrum, on the other hand, that's in the international segment, was really the large part of the growth of the international fee income. To give you some indications under there, we expect probably a lower seasonality than BEOS. In terms of the growth ambitions, we have purchased BEOS and Fincentrum last year. They were included in our ambitions for Swiss Life 2021. As mentioned again and again, our plans are organic. We do not include any M&A prospectively to achieve our Swiss Life 2021 goals. On the second question regarding the real estate.
The things that we have heard now that you probably refer to from FINMA and from the Swiss National Bank, they essentially refer to the mortgage market. In the mortgage market, we have quite a low share as an insurance industry, but also as Swiss Life. Even more importantly, due to tied asset regulations, we have a very or quite a low loan-to-value ratio. Our average loan-to-value are below 60%. The things that we hear now in the press from FINMA is that they want to ask, especially the banks which typically have high loan-to-value to have higher amortizations by their clients of the mortgages. We do not see ourselves to be affected by that. There is no spillover from those discussions into the real estate capital charge discussion because in our real estate, we don't have any mortgages, obviously, to finance them.
We see that as we speak, as a topic that relates essentially to the banks as we are a minor player in the mortgage business. As mentioned before, historically, we have always had low loan-to-value ratios for tied asset regulation reasons. On your third question regarding the non-recurring commission income overall in Asset Managers, we had for the first quarter of 2019, 11% share of non-recurring income versus 14% at the prior year quarter. Now, prospectively, we think that we can increase this share of 11% but we will be, as we expect today, below the prior full year, which was at 22%. In terms of timing, this real estate business is sort of back-end loaded within the year.
Mm-hmm. Thank you very much, Matthias. It's very helpful. Maybe just to elaborate on that first point a little bit. If you're saying you can increase from 11% across the rest of the year, then it sounds like you feel in terms of timing, Q1 is perhaps slightly understated. Is that a fair interpretation?
Well, that's the nature of the business, that typically activity is low in the first quarter, then the activity is picking up versus the second half of the year. Sometimes, transactions that were scheduled for a quarter, let's say for example, the third quarter, the fourth quarter, they materialize at a later point in time. So it's non-recurring business by nature. We had a similar effect in 2018, and you cannot exactly time these single transactions. As said, they are non-recurring by nature.
Yeah. Okay. Thank you very much.
The next question comes from Andy Sinclair with Bank of America. Please go ahead.
Thanks. Good morning. Three from me, if that's okay. Firstly, was just on the Swiss sales jump after AXA's withdrawal from the market. Just wondered, you've clearly had a good boost in Q1, return to normal in 2020. What do you expect broadly for quarters two, three, and four through the rest of this year? Secondly, was just on France, on unit-linked sales. Clearly tougher on unit-linked sales for the whole market. Are you expecting some sort of rebound in the rest of the year? What have you seen more recently in terms of sales? Thirdly, just similarly to what Peter was asking to some extent on solvency. Good solvency number at 1st of January. Now that you've got full comfort on new FINMA model, I just wanted to make sure that you're reiterating that 140 to 190 target range. Thanks.
Okay. First, your question on the quarters Q1, Q3, and Q4 for the Swiss group life business. Most of the business in the Swiss group life business, in terms of new accounts, takes place in the first quarter. Essentially, the new accounts are now in the books. If there are new companies founded, we will see that as well in the Q2 to Q4. That is as in prior years. Q2 to Q4 will be already normal as well in terms of the Swiss business. Coming to France, I think you probably referred most likely to the life business. There, indeed, we have seen in the first three months, if we look at the month standalone, a clear improvement.
In terms of volumes, we expect that we see some catch-up for the half year. For the full year, we currently expect to be at prior year level or slightly above. We see the same dynamics that you mentioned. In terms of the solvency, we confirmed that the range of 140 to 190, that's what we said for the Swiss Life 2021 program.
That's great. Thank you very much.
The next question comes from the line of Michael Huttner with J.P. Morgan. Please go ahead.
Thank you. Good morning. Well done for executing on all this business in Switzerland. I had only two questions. The first one is, on that business you mentioned, I think, a figure of lower double-digit million as a profit contribution from this new. I just wondered if you can talk a little bit more about that, because AXA gave a figure of a reduction annually of, I think, CHF 20 million. I wonder if there's any. Are we talking about the same or is there something else where I'm missing maybe integration costs? I don't know. Anyway. Maybe if you can talk also in that BVG business a little bit about the profile of the books you've acquired in terms of your preference for younger portfolios and such. Then separately on the solvency and the residential mortgages question, can you maybe give a figure?
I understand the concern of the finance minister and the central bank is, and Swiss National Bank, is about residential stuff. I just wonder if you can break out your portfolio in your own real estate, not the mortgages. There might be a spillover, if banks are less willing to lend to residential, then maybe the value growth in residential might be a bit lower. I just wonder if you can give us a feel for the portfolio split at the moment and how you would see that more economic impact developing. Thank you very much.
Thank you, Michael. First on the question of profitability compared to what our competitor said. His figures were for his entire book, ours refer to what we have acquired. The calculation that we make in terms of the profit contribution in the first year is that we say, we have acquired CHF 3.3 billion. That's not only from AXA, that's the entire new business. Most of it comes from AXA. On the CHF 3.3 billion of the single premium that we have acquired, we can have a reinvestment return of 2% or slightly above. From 2%, we can retain 10%, so 20 basis points on the single premium. That gives us about CHF 6.5 million pre-tax. The second profit driver is the share of the risk premium and the cost premium that we can retain.
That cost and risk premium is about a quarter of the CHF 350 million that we got in terms of new accounts. That gives us another CHF 8 million-CHF 9 million if we do the math. We are on a pre-tax basis, somewhere between CHF 14 million, something around that. That's as mentioned, on a pre-tax base. That's how we derive our numbers that we have quoted. They are quite clear to derive, given the legal quote mechanics. In terms of the profile of the business that we acquired. I've mentioned that we have really maintained our underwriting discipline. We have, in the new business, acquired a slightly lower share of mandatory business compared to our own portfolio. As we already indicated at the full year call, it's 50/50.
The average age of the portfolio we have acquired is also somewhat lower than our portfolio. That's 1-2 years that the portfolio that we acquired is younger. This is important because as a result of that, we have a lower amount of conversion rate losses that we have to expect over the remaining lifetime of those contracts. That's, as mentioned at the full year call, the reason why this newly acquired portfolio even further improves the quality of our formerly existing portfolio. That was for us really key to focus on those contracts that really further improve our own portfolio. On the residential, on the breakdown of our portfolio in terms of real estate. We have that on page 63 of the full year portfolio. We have 32% that is residential, 45% that is commercial, and the remaining 23% of mixed use.
I think it's really important to stress that FINMA is really, at this point in time, focusing on the mortgage market for residential properties where they see kind of an overheating that is taking place. In terms of impact, we don't really see an economic impact if the prices in that segment should increase by a lower percentage point because we acquire real estate for the rental income and not the appreciation. For us, real estate is a substitute for long-dated government bonds that provide a recurring income that we need to pay the annuities of our clients.
That's very clear. Thank you so much. Thank you.
You're welcome.
The next question comes from the line of Werner Enz from NZZ. Please go ahead.
Yes, good morning. A question for clarification. The net growth in Swiss group life is very strong with CHF 3.2 billion. I wonder a little bit, could you give us more information about how much of the newly signed business is what they call in Switzerland, Vollversicherung, out of this CHF 3.2 billion? I suppose the rest would be a combination in the commercial customer channel, which is also going to semi-autonomous group life business.
Yes. I think the number I gave, the CHF 3.3 billion, that is really new accounts into the full insurance market. Clearly, we had also other movements. We had also new accounts that went into the semi-autonomous offering that we have. That was not the CHF 3.3 billion that I was mentioning in my talk. We also have typically some clients leaving us, either for other full insurance solutions or for semi-autonomous solutions. Did this answer your question or?
Yes. I understand that the new Vollversicherung, the new accounts the asset, the premium volume is CHF 3.3 billion.
Mm-hmm. Yeah.
Okay. Thank you.
Thank you.
The next question comes from the line of Ralph Hebgen with KBW. Please go ahead.
Hi, guys. Thanks for taking my question. I've got three points. One is a numbers question. Would you be able to tell us what the group life premium in Switzerland was in 1Q18, and also what the profit contribution of that business was in 1Q18? Second, if I exclude the incremental influx from the AXA market withdrawal, it looks as if underlying in Switzerland you had a decline in premiums by 10%. If I did that right, maybe you can first of all confirm this and then comment on that dynamic. The third, this is just picking up something else which we already discussed, which is the seasonality in the fee income contribution from BEOS. Would you be able to tell us more about that seasonality? Is it going to go up in the second quarter? Can we times it by four overall for the full year 2019?
That would be helpful as well. Thank you very much.
Maybe to your question on the group life business. The premiums that we had in the group life business was around CHF 4.2 billion in Q1 2018. There are always several things that contribute to that. There is new business that contributes to that premium. This component of the premium was clearly very extraordinary, but we also had a new business contribution in the last year's CHF 4.2 billion. We have also other contributions like new employees in existing contracts. There's also some dynamic there and people who are just topping up their pension. There are many things contributing to that. I wouldn't talk about a decrease of the premium group life. Obviously we do not disclose any profit contributions on that line of business. The second, I think I already addressed with that also the incremental influx in terms of seasonality at BEOS.
This is a real estate asset manager. It also has some transaction fees that it earns. As mentioned, we see some increase versus the following quarters.
Thank you very much.
The next question comes from René Locher with MainFirst Bank AG. Please go ahead.
You mentioned before a reinvestment yield of some 2%. If I do the math with this 0.7, I end up with a direct investment yield of some 2.8%. Nevertheless, despite the lower reinvestment yield you managed to keep the absolute amount of the direct investment income roughly CHF 1.1 billion. Perhaps you can just give me a bit more detail, what exactly happened here. Second question is on going back to the real estate market. I saw an interview with your macroeconomist yesterday, he was quite positive on the Swiss real estate market. This goes a bit hand in hand with what PSP, one of the largest real estate companies, reported with a lower vacancy rate down from 5% to 4.4%. Perhaps you can just give us a little bit more insight here, where you see your vacancy rate going.
Last question on this Fincentrum, I saw a press release, the press release was about a turnover in excess of EUR 60 million. Of this Fincentrum that was stated October 2018. You explained that the international business fee income, the growth of CHF 19 million was fully due to Fincentrum. Perhaps give us a little bit more details here. Is this brought out or is it fully consolidated already? Thank you.
Let me start with the last question on Fincentrum. This is fully consolidated, the contribution to the growth in international was from Fincentrum to a large degree. The underlying business, excluding Fincentrum, was also growing. It was not Fincentrum alone that contributed to growth, but also the underlying business contributed. In terms of vacancy rates, indeed, we see their good development. On the vacancy rate, we have the 4.6% at the year-end, I think that's essentially a good level. We have overall at Group 5%. I think we are still positive for the real estate market. That's also the reason why we continue to invest into real estate, because the premium that we own above risk-free are still attractive. That's our assessment of the real estate market. In terms of the reinvestment yields, indeed, our reinvestment yield is somewhat above 2%.
I mentioned the 2% before just to make the calculation a bit easier. It is somewhat above 2%, the reason that way we can maintain a good development on the portfolio is that we can also increase the investment income on the existing portfolio. This refers, for example, to loans, to infrastructure investments, but also on the real estate. We can, for example, in certain cases, increase the rents. We can, in certain cases, also lower the vacancy rate. There's really also many things that we can do on the existing portfolio to increase the investment income.
Interesting. Thank you very much.
You're welcome.
The next question comes from the line of Johannes Brinkmann from AWP. Please go ahead.
Good morning. How much of the increase of CHF 3.3 billion in Switzerland is coming from AXA?
The AXA contribution to the CHF 3.3 billion is the large part of the CHF 3.3 billion. We do not disclose on a specific basis what AXA is, but it was the biggest part.
Okay. The second question, are you satisfied with the development in France?
Well, we have difficult market environment there. We maintained a unit-linked share that is still double what the market average is. We actually also rejected some premiums in the life business to maintain quite a high share of unit-linked business. We see that the market is picking up. I think given that the circumstances are what they are in the capital market, we are, let's say, okay with that development, especially as we see these catch-up effects that I mentioned before. What is really a very positive development is that we are now growing in the P&C business and also specifically in the health and protection business where we achieved year-over-year an 8% growth, which was slightly above the market. Overall, given what the circumstances are, we're fine with the development in France.
Okay. Thank you.
The next is a follow-up question from Peter Eliot with Kepler Cheuvreux. Please go ahead.
Thank you very much. I had two follow-up questions, actually. I think you might have sort of partially answered the first one, which is I was going to ask what your market share in France unit-linked business actually was this quarter versus previous quarters. I think you partially answered that. If you do have the figures, that would be great. The second thing was just going back to your comments on the real estate. It sounded like you see that as an attractive investment opportunity as ever, and reading between the lines of your comments, my takeaway is that we should probably expect the share of your investment portfolio to sort of keep growing at the rate it has done. Is there any reason you'd sort of dissuade me from those thoughts? Thank you.
To the first question, I have at hand the unit-linked share of the market share in terms of unit-linked was 4% in Q1. This is essentially double the market share we have in overall premium. To be transparent, we don't have the prior year at hand. Actually, I just found it. It came down from 4.4% to 4% at Q1. We are still above our, let's say, natural market share, in Q1 2019, but it slightly came down compared to prior year.
Right
To your question on real estate. As mentioned, we are still seeking to target a net acquisition of CHF 1 billion per annum. That's for the reasons that we mentioned. If you look at the percentage share in the asset allocation, it has come down a bit for various reasons, but we are still looking to increase the exposure in monetary terms.
Great. Thank you very much.
The next question comes from the line of Frank Kopfinger with Deutsche Bank. Please go ahead.
Good morning, everybody. Apologies. I would like to go back to your development in the Swiss market and also to Ralph's question. Could you again, please comment on the underlying development excluding the AXA business in Switzerland? Also what the drivers behind this development are?
The periodic premium, if we would exclude the new business altogether, obviously we would get some decrease. We write new business every year, and we also wrote new business last year. If we would exclude, and I'm talking about the periodic premiums, we would have a stable development because as mentioned, we have written new business in the past just to acquire new accounts, and essentially the same holds true for the single premium. All in all, as we said, the Group Life business is a growing business because it essentially grows at least with the GDP.
If we maintain our share with the full insurance market where we still see strong demand from the small and middle enterprises, we do see this underlying growth because, as we mentioned, the 3.3 is not only AXA, but it's to a large degree, AXA.
Okay. Thank you.
Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Matthias Aellig. Please go ahead.
Thank you for your interest in Swiss Life and for your many questions. I look forward to talking to you again on August 13th to discuss our half year results. I wish you a nice day, and goodbye.
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