Ladies and gentlemen, welcome to the Swiss live presentation of the Full Year Results 2018 Conference Call and Live Webcast. I'm Iruna, the Chorus Call operator. I would like to remind you that all participants have been in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Patrick Roth, Group CEO of Swiss Life. Please go ahead, sir.
Dear analysts and investors, welcome to the presentation of our 2018 full year results. Today is a special occasion. In addition to presenting last year's numbers, we can also discuss the completion of our 3 year Swiss Life 2018 group wide program and how successful it has been. But what really makes today extraordinary is that our financial statements will be presented by our group CFO of many years, Thomas Buitz, for the last time. At the risk of stating the obvious, it cannot be said often enough with his wealth of experience and entrepreneurial flair, Thomas deserves a great deal of credit for successful completion of 3 corporate programs in a row since he took up the CFO position in 2,009.
He has modernized the CFO area and together with his teams ensured that Swiss Life enjoys top financial health. We have thereby significantly increased financial market confidence in Swiss Life in recent years. In short, Thomas has done an outstanding job and I thank you very much indeed, Thomas. He will present the 2018 figures in detail following my introduction. Marcus Elic, Thomas' successor is also here today.
2018 was an eventful and successful year in many regards. And with a net profit of CHF 1,080,000,000, we are once again able to present a strong annual result. The fee result at CHF 488,000,000 8% higher than the previous year is also pleasing. The risk result, meanwhile, rose by 4% to 410,000,000 The value of new business was up by 10% at CHF 386,000,000. This resulted in a cumulative 3 year total in value of new business of more than CHF 1,000,000,000.
We have thereby exceeded the respective targets of our Swiss Life 2018 program. Furthermore, we managed to keep operating expenses stable and have thus achieved our cost ambition, while at the same time improving our efficiency ratios in all units. We're also proud of the fact that we increased the cash remittance to the holding company once again to almost CAD 700,000,000 This results in a 3 year cumulative total of CAD 1,900,000,000 cash. This result clearly exceeds our original ambition of CAD 1,500,000,000 in the Swiss Life 2018. Overall, we can say over the past 3 years that we managed to increase our profitability and the quality of our earnings clearly beyond what we had planned for at the time.
And just as importantly, our discipline kept Swiss Life on course as regards to its financial strength. Swiss Life estimates its SST ratio at above 180% as of the 1st January 2019 based on the new regulatory solvency model. Versailles' success is also visible in the increase of the dividend. At the AGM, the Board of Directors will propose a dividend of $16.50 per share for the 2018 financial year, more than double that of 2014 and thereby slightly surpassing the targeted payout ratio. So we have exceeded almost all of our Swiss Life 2018 financial targets and missed none of them.
And now, dear Thomas, the ball is in your
court. Thank you, Patrick. Good morning, ladies and gentlemen. I'll now provide more details on our 2018 results. Please note that all figures quoted are in Swiss francs unless I state otherwise.
Let me start with an overview of our P and L on Slide 7. Gross written premiums, fees and deposits increased by 2% in local currency to $19,200,000,000 This growth was mainly driven by our French Life and our Swiss Group Life business. Fee and commission income increased by 6% in local currency to $1,600,000,000 primarily due to strong contributions from our owned IFAs and asset managers. The net investment result of the insurance portfolio for own risk increased to $4,600,000,000 mainly driven by higher net capital gains. We use those gains to substantially strengthen policyholder reserves.
Net insurance benefits and claims increased to €14,000,000,000 mainly due to Switzerland, which includes further reserve strengthening of around €900,000,000 This amongst other factors led to a lower average technical interest rate that preserved our interest rate margin. Policyholder participation increased to $1,200,000,000 due to Switzerland and France. Operating expenses were up by 11% to $3,200,000,000 due to higher commission expenses, debt amortization and expenses related to newly consolidated businesses. Profit from operations grew to $1,500,000,000 driven primarily by our Swiss market unit. Borrowing costs decreased to $137,000,000 This was due to lower coupons on the refinanced hybrid.
Moreover, we fully converted our convertible bond at the end of 2017. We expect future borrowing costs to remain around the 2018 level. Our income tax expense increased to 3.18,000,000 dollars This corresponds to an effective tax rate of 23%, which is in line with our expected tax rate. Finally, our net profit was up by 7% to 1,080,000,000 dollars Slide 8 shows the one offs in our profits from operations. On the left hand side, you can see last year's adjustments, the restructuring charges, the one off gain in Germany and the positive currency translation effect.
On the right hand side, we adjusted the 2018 profit from operations for restructuring charges of $7,000,000 and for program costs related to a new accounting standard of $12,000,000 Adjusted for these one offs, profit from operations increased by 4% to $1,600,000,000 Moving now to the segment results, I'll start with the Switzerland on Slide 9. Premiums were up by 3% to €9,500,000,000 while the overall market increased by 1%. In individual life, premiums declined by 2%, while the market was stable. Single premiums decreased by 11% and periodic premiums grew by 1%. Premiums in Group Life were up by 3%, while the market increased by 1%.
Single premiums here increased by 4% coming from existing clients. Periodic premiums grew by 2%. We are pleased with the improving mix in our full insurance business with a higher share of non mandatory business. Please note that there was not yet a direct positive premium impact in Group Life from our largest competitive pulling out of full insurance. We expect to see this in our 2019 figures.
As of today, we estimate total 2019 new accounts in our full insurance business of around $3,300,000,000 in single premiums and around $350,000,000 in periodic premiums. Moreover, new business production with semi autonomous solutions was up by 75%, already including a positive impact from the changing competitive landscape. Moreover, assets under management in our investment foundation grew to $8,500,000,000 compared to $7,500,000,000 dollars at the year end 2017. Fee and commission income was up by 7% to 247,000,000 dollars Revenues increased with Investment Solutions for Private Clients and Real Estate Brokerage. On a stand alone basis, before intercompany eliminations, Swiss Life Select reported an increase in revenues of 2%.
Operating expenses were just below the prior year level at $397,000,000 due to our continued focus on strict cost management. The second result improved by 4% to $865,000,000 primarily due to the increased savings result. The savings result improved due to a higher net investment income and lower guaranteed interest expenses that were partly offset by a higher policyholder participation and additional reserve strengthening. The cost result decreased due to higher acquisition expenses and DAC amortization. The fee result was up by 31% to $18,000,000 with a higher contribution from Investment Solutions, 3rd party products and real estate brokerage.
The risk result remained stable at €251,000,000 dollars in both Group and Individual Life. The value of new business increased by 10% to $162,000,000 This is driven by the increased volumes and the improved business mix in Group Life, where we maintained our selective underwriting and the focus on capital efficiency. Individual Life business had a slightly lower contribution as a result of decreased volume. The new business margin of the direct business further improved. This was outweighed by the lower margin of the large transactions in assumed reinsurance.
As mentioned at the half year twenty eighteen, they are clearly priced above our ambition level of 1.5%. Overall, the new business margin decreased from 3% to 2.8%. Turning now to France. Please note that all figures quoted are euros for the Insurance segments France, Germany and International. In France, premiums increased by 6% to $5,100,000,000 in a market that was up by 4%.
In our Life business, premiums were up by 9%, while the market was up by 4%. The strong performance over the 1st 9 months of 2018 was partly offset by the negative development in the last quarter of the year due to unfavorable equity markets. The unit linked share in our life premiums was 50%, slightly lower than the 52% in 2017, but again substantially above the market average of 28%. We continued to benefit from our strong positioning in the high net worth individual and affluent client segments, our attractive unit linked product offering and the high quality of our distribution network. Net inflows grew by 15% to $1,700,000,000 with a unit linked share of 71%.
Total markets net inflows amounted to $22,400,000,000 In Health and Protection, premiums increased by 1%, while the market grew by 3%. Our P and C premiums increased by 1% in a market that was up by 3%. Fee and commission income decreased slightly by 1% to $269,000,000 Unit linked fees increased due to higher net inflows and reserves. However, this increase was outweighed by lower banking fees as we had a lower turnover of structured products due to the negative equity markets in the last quarter of 2018. Operating expenses increased by 1% to $301,000,000 efficiency gains were offset by business growth and investments in projects.
The second result rose by 2% to $239,000,000 with a positive contribution primarily from the fee and risk result. The savings result was basically stable. The cost result decreased due to the strong new business production in Life. The fee result was up by 12% to $67,000,000 primarily due to a higher contribution from unit linked business based on positive net inflows and growing reserves. This was partly offset by the already mentioned lower result in the banking business.
The risk result increased by 5% to 95,000,000 dollars mainly in the Health and Protection business due to growing volumes, partly offset by higher loss ratio in Non Life. The value of new business increased by 14% to $130,000,000 Higher volumes in our Life business were partly offset by a lower share of unit linked business still at the high level of 61%. In Health and Protection, we improved both volumes and the business mix. The operating environment contributed positively. The new business margin increased to 2.7%.
Moving on to Germany on Slide 11. Premiums were up by 2% to $1,200,000,000 due to higher periodic premiums with risk and modern traditional products. The overall market was up by 2%. Fiat commission income increased by 10% to 395,000,000 dollars driven by a positive contribution from our owned IFAs and higher policy fees. Our owned IFAs grew their revenues by 10% from a stand alone basis.
The number of financial advisers increased by 8% to 3,808. Dollars Operating expenses increased by 2% to $202,000,000 because of investments in growth initiatives. The second result decreased by 10% to €123,000,000 Let me remind you that there was a positive one off of €17,000,000 in 2017 from the release of the policyholder terminal dividend reserve to the ZZR. Investments the savings result adjusted for this one off decreased mainly due to lower net investment income as less realized gains were needed to build up the ZZR. The fee result was up by 1% to $58,000,000 The higher fee income was almost fully offset by higher absolute costs and investments in growth such as the new client portal and the advisor platform.
The risk result increased by 16% to $32,000,000 due to a positive claims development. The value of the new business increased by 10% to 42,000,000 dollars We achieved higher volumes in modern traditional and modern products at lower guarantee levels, while we had lower volumes in risk products. Overall, the new business margin increased to 3.4%. Turning now to the International segment. Premiums declined by 11% to 2,100,000,000 dollars mainly due to lower single premiums with private clients.
Higher premiums with corporate clients only partly compensated for this decline. Assets under control for prior clients decreased by 1% to 17,400,000,000 dollars as negative asset performance and surrenders outweighed new deposits. Fee and commission income was up by 11 as of mid October. Operating expenses decreased by 5% to 87,000,000 The second result increased by 27 percent to $58,000,000 due to the positive development of the fee and risk results. The savings and cost results were stable.
The fee result grew by 29% to $41,000,000 driven by Chester Wair and the business with private clients, partly offset by declines at other IFAs. The Ritz result increased by 75 percent to $10,000,000 due to a positive claims experience. The value of new business improved by 25 percent to $27,000,000 The higher contribution from corporate clients and the improved business mix in private clients were partly offset by reduced new business production. The new business margin increased by 1 point 4 increased, sorry, to 1.4%. Let's now move to our Asset Management segment that reports in Swiss francs.
This is Slide 13. Asset Manager's income rose by 6% to 7.30 €4,000,000 In our PAM business, the income growth of 7% to €321,000,000 results from increased real estate assets and the related property and portfolio management fees. In our PAM business, total income was up by 6% to $413,000,000 We reported higher recurring fees on growing assets under management. Included in our TPAM 2018 figure is Beos, which is consolidated since the end of August. This is partly offset by the deconsolidation effect due to the sale of the Corpus Cereo Real Estate Brokerage Business in 2018.
Total nonrecurring income, meaning transaction fees and net income from real estate project development, remained stable at 22% of total commission and other net income. At TPAM, nonrecurring income accounted for 33% of total commission and other net income in 2018 compared to 32% in the prior year. We already mentioned at the Investor Day that nonrecurring income from real estate project developments can vary depending on the quality of our pipeline and the number of projects being transacted in a given fiscal year. As it may take several years to complete such projects, we will see a lower contribution in 2019. This is due to the fact Corpus Iraeus historic project development pipeline is being completed, while we expect the contribution from our new projects to return to pre-twenty 19 levels in 2020.
Operating expenses increased by 5% to $365,000,000 due to business growth in EPAM, mainly in real estate. The second result increased by 5% to $272,000,000 PAM was up by 9% to $198,000,000 as we generated higher income at stable costs. TPAM reported a second result of $74,000,000 that came in $2,000,000 below the prior year level. We were pleased to see a catch up in the second half of the year. The acquisition of Beyers had a positive impact on the TPN segment results, but this was more than offset by the accelerated amortization of customer relationship assets in the context of previous acquisitions.
Net new assets in our pet EPAM business amounted to $8,400,000,000 following a strong last quarter in 2018. We generated net inflows primarily in Switzerland and mainly in real estate and balanced mandates that outweigh substantial money market outflows. Our asset mix in TPAM net new assets is 56% real estate, 50% balance mandate, 8% bonds, 8% equities, 4% infrastructure and minus 26% money market funds. Excluding money market funds, we generated net new assets of $10,600,000,000 in 2018, up from $7,400,000,000 in the previous year. Please note that the first time Beos consolidation was not included in the net new asset numbers.
Overall, assets under management in our TPAM business now amount to $71,200,000,000 Total assets under management were up by 4% to €232,600,000,000 mainly due to the mentioned net inflows in PPAM and despite a negative FX translation effect. 2 weeks ago, on the 12th February 2019, asset managers announced the acquisition of a premium office portfolio in Paris for €1,700,000,000 from Therese. Transfer of ownership is expected to take place in Q2 2019. The assets will be acquired by real estate funds managed by Swiss Life Asset Managers entities in Switzerland, France, Germany and Luxembourg, and thus providing our clients unique access to the central business district in Paris. Swiss Life will co invest and take a certain stake in the investment, which demonstrates the alignment of interest with 3rd party clients.
Let's move back to the group and have a look at our operating expenses on Slide 14. Our overall cost base increased by 11% to $3,200,000,000 due to higher commission expense, debt commoditization expenses and expenses related to newly consolidated businesses. Operating expenses adjusted for restructuring charges, scope changes and program costs for the new accounting standard increased by 1% to €1,500,000,000 We are pleased with the expense development in our insurance segments that reported a small increase in adjusted operating expenses of only €7,000,000 to €1,140,000,000 dollars Turning now to the investment results on Slide 15. Our direct investment income was up by 100 and $123,000,000 to $4,400,000,000 supported by higher dividends on equity investments and increasing rental income. Our direct investment yields slightly increased to 2.9%.
The net investment result increased to $4,600,000,000 which led to a net investment yield of 3%. This is about 50 basis points above the prior year level, primarily due to the increased valuation of our equity hedges that was only partly offset by realized losses on equities. We also reported higher revaluation gains in real estate and realized gains on alternative investments. FX hedging costs increased from $632,000,000 to 717,000,000 dollars Our total investment results, including changes in unrealized gains and losses from investments, decreased to 0.5%, mainly due to the credit spread widening. Slide 16 shows the structure of our investment portfolio.
The share of bonds decreased to 58.3% as a result of the tactical portfolio shift in the first half of twenty eighteen from long dated U. S. Dollar denominated bonds into equities and due to valuation losses. Our gross equity quota increased to 8% to benefit from attractive dividend yields. Our net equity exposure was 3.7%.
The share of real estate increased to 19.8 percent. Real estate revaluations of €700,000,000 and further net acquisitions of €2,700,000,000 dollars contributed to this. The risk premium on real estate remains very attractive. Our duration gap increased temporarily to 1.2 and is now back to 1 as of today. Our foreign currency exposure on the insurance portfolio remains hedged.
That brings us to insurance reserves. Our insurance reserves, excluding policyholderparticipation liabilities, rose by 2% in local currency to €159,000,000,000 due to net inflows of €2,700,000,000 and accrued interest partly offset by negative market movements. Turning now to shareholders' equity on Slide 18. Shareholders' equity decreased by 6% to CHF 14,500,000,000 The main drivers were unrealized gains sorry, unrealized losses on bonds and equities. The dividend paid to shareholders as well as the share buyback, while the net profit attributable to shareholders contributed positive.
Please note that we repurchased 227,700 shares by the end of December 2018, amounting to CHF 87,000,000. This increased to CHF 544,400 shares or CHF216,000,000 as of the 22nd February last week. The remaining shares up to the announced buyback of CHF 1,000,000,000 will be repurchased during the course of the year. You can find the daily details on our Investor Relations website. With this, I move on to our Swiss Life 20 18 program.
On Slide 19, you can see our 2018 financial targets. I'll provide more details on the following pages regarding the completion of our Swiss Life 2018 program. Let me start with our 1st thrust, quality of earnings and earnings growth on Slide 20. Our savings result was strong at $889,000,000 due to our disciplined asset and liability management and the successful protection of our interest rate margin. The major driver of the increase was Switzerland, more than offsetting the decline in Germany, while France and international remained stable.
The risk result increased to 410,000,000 dollars We exceeded the upper end of our 2018 target range of 350,000,000 to 400,000,000 All insurance units contributed positively. The fee result increased by 8% to $488,000,000 We clearly exceeded the upper end of our 2018 target range of $400,000,000 to $450,000,000 as all units reported an increasing fee result. The cost results declined due to increasing acquisition costs in both France and Switzerland and a higher debt amortization in Switzerland. Our next three slides show that we continue to benefit from our disciplined asset and liability management. We are pleased with the resilience of our direct investment yield in this challenging environment, supported by an increasing real estate and equity portfolio.
Our reinvestment rate in 2018 was 2.4%. Moving on to the average technical interest rate on Slide 22. In 2018, we further strengthened the technical reserve, which led to an 8 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 3 basis points. Overall, our average technical interest rate for the Swiss Life Group decreased by 11 basis points to 1.26% as of January 2019.
We are pleased with the sorry, we are very pleased that we were able to reduce the technical interest rate in Switzerland to now 92 basis points. This means we have again successfully protected our interest rate margin as highlighted on Slide 23. Please note that the initially mentioned reserve strengthening will have a positive impact on our 2019 technical guarantees and is thus not yet reflected in the interest rate margin of 2018 shown on this slide. Let me now briefly comment on the development of the fee and commission income. Commission income at Swiss Life Asset Managers is up by 6% in local currency.
Our owned IFAs increased their commission income by 10% in local currency, supported by higher productivity and an increased number of advisers. Business in own and third party products and services increased by 2% in local currency, primarily due to Germany and Switzerland, while higher uni linked fees in France were offset by lower banking fees. Overall, our fee and commission income increased by 6% in local currency to €1,600,000,000 Turning to the value of new business and the new business margin on Slide 25. All segments contributed to the increase in the value of new business from 3 €51,000,000 to €386,000,000 This is mainly due to substantial volume increase and the favorable surrender and biometric experience. Overall, we had a slightly negative development of our new business mix.
Still, we are very pleased with our new business margin of 2.6%, which is considerably above our ambition level of 1.5 percent. As Patrick mentioned, our value of new business for the 3 cumulative years 2016 to 2018 was above €1,000,000,000 and thus well above our target of more than €750,000,000 Our next financial thrust is operational efficiency. At the end of 2018, we had implemented $111,000,000 of our SwissLA 2018 cost savings initiative. All units contributed. We have thus exceeded our $100,000,000 cost savings target.
The slide shows our efficiency ratio. This is Slide 27. The group level sorry, at group level, we improved our efficiency ratio by another 2 basis points to 57 basis points. All Insurance segments contributed to this positive development. That brings us to the next financial thrust, capital cash and dividends.
In November 2018, we newly introduced our SST ambition range of 100 and 40% to 190%. We believe that for the new standard model valid as of the first January 2019, this is a sensible range with enough buffer. Given our preliminary SSD calculation based on the new regulatory solvency model, we estimate the SST ratio to be above 180% as of the 1st January 2019. This includes the impact from the negative equity market development, the credit spread widening and the decrease of interest rates in the Q4 of 2018. Please note that the estimated above 180% are after the deduction of the full amount of the share buyback, I.
E, dollars 1,000,000,000 and the lowered UFR. As of today, the ratio has improved by about 5 percentage points, in line with a more favorable equity market environment and tighter credit spreads. We will communicate the result of our full calculation in our financial condition report that will be published at the end of April 2019. Our Solvency II ratio was above 200% as of the 1st January 2019 based on the standard model excluding any transitional measures. Slide 29 shows our capital structure.
Our total outstanding financing instruments amount to $3,800,000,000 Our total hybrids, including hybrid equity, amount to $3,400,000,000 The share of equity within our capital structure is 76%. That will, of course, be reduced in line with our share buyback. The capital structure and maturity profile remain well balanced with a diversified denomination of debt in Swiss francs and euros. Please note that our Swiss franc denominated 225,000,000 senior bond matures in June 2019. We plan to refinance this bond.
Let me now move on to cash remittance. In 2018, we remitted $696,000,000 in cash to the holding company. This corresponds to 69% of the 20 17 net profit. As Patrick already mentioned, we clearly exceeded the 2018 cash remittance target of €1,500,000,000 dollars has remitted $1,900,000,000 in cash to the holding over the past 3 years. For the 2018 financial years, the Board of Directors will propose to the ATM an increase of the dividend to CHF 16.5, up from CHF 13.5 in the previous year.
This corresponds to a payout ratio of 51%, which is slightly above the upper end of our target range of 30% to 50%. Part of the total dividend payment will be paid in the form of a withholding tax free distribution from the capital contribution reserve. Let me sum up. We have again reported a strong set of results in a challenging environment. Our full year 2018 figures mark the successful completion of our Swiss Life 2018 program.
As you can see on Slide 31, we achieved or exceeded all our Swiss Life 2018 financial targets. This means that Twist Life has run 3 successful programs over the last 9 years. We have achieved substantial earnings growth and repositioned our company by diversifying the sources of profit to make us less dependent on capital markets. We have also increased the payout to shareholders based on the higher cash remittance to the holding. With Swiss Slide 2021 shown on Slide 32, we will continue our successful path.
We will further strengthen our earnings quality and grow our earnings, particularly by increasing our fee and risk result. We will continue to improve operational efficiency through keeping our cost discipline, further process automation and digitalization initiatives. Moreover, we aim to be even more attractive to our shareholders with the $1,000,000,000 share buyback and higher shareholder dividends based on our solid capital management and the increased cash remittance to the holding company. I truly believe that our disciplined execution will again enable us to deliver on this program and at the end of 2021. As Patrick has already mentioned, this is my last earnings call.
I want to thank you for your support during the past 9 years. I really liked my job. I was very fortunate to be part of the Swiss Life team, and I very much enjoyed the interaction with you. Thank you for being both challenging, but also respectful. Your hard work is important for our company and its shareholders.
I look forward to meeting many of you on my last roadshow during the next few days. Thank you again. And now back to you, Patrick.
Ladies and gentlemen, the floor is now open for questions. We'd like to go first.
The first question from the phone comes from the line of Peter Eliot with Kepler Cheuvreux. Please go ahead, sir.
Thank you very much. The first question was on Germany. The advice channel has shown very strong momentum there, but I guess we haven't seen it fully in the earnings due to the investments you've made. Just wondering if you could sort of comment on what you'd expect in the future, both in terms of the whether that momentum on the growth side can continue and whether we should still see the sort of strain of investments coming through? The second question was on cash flow.
I mean, obviously, congratulations on beating all of your targets. But I mean, the cash flow target in particular, you beat by a long way. I'm wondering if you could just sort of comment on where the big deltas were versus what you expected 3 years ago and what you actually achieved? And maybe just in respect of the 2018 figure, 696, I'm just wondering, could you just remind us how much of that is available to pay the dividend, so after holding costs? Thank you very much.
Okay. First, Germany, you mentioned rightfully that last year, we had quite some investments, and this led to, as you know, a only a slight increase of the fee result in Germany. Looking at the top line, we saw quite some momentum with a 10% increase of our sales in the owned IFA sales force. I can say that in the 1st months of this year, this momentum is continuing. Having said that, we expect still some investments this year.
But when you look at the forecast that we gave at the Investors Day for Germany, obviously, by the end of next year and by 'twenty one, we will see improved fee results, substantially improved fee results also coming out Germany. Looking at the cash flow, looking backwards a little bit. The major driver there why we have beaten our target was, on the one hand, the really very much improved solvency that enabled us to stream more cash up to the holding than initially planned, but also the very strong fee result because as you know, fee is more or less cash and we have exceeded substantially our targets on the fee results side. We said at the time SEK 400,000,000 to SEK 450,000,000 and at the end, we deliver now €488,000,000 fee result and this of course has also helped. Now how much is available of the cash?
We only have about around €20,000,000 costs €20,000,000 to €25,000,000 costs at the holding company. As I already mentioned also in prior calls, all the foreign debt is serviced the hybrid debt is serviced already out of the fixed life AG. And therefore, we do not incur a lot of costs at the holding company. The only debt that we have to service out of the holding company is the senior debt that we just mentioned. But at this low interest rate, that's very nominal numbers.
That's great. Thanks very much.
The next question comes from Michael Huttner with JPMorgan. Please go ahead, sir.
Well, first of all, congratulations and thank you. As Patrick said, thanks very much, Thomas. Astounding results and dividend was like, I had three questions. One is on the French Bank, the restructuring fees and the kind of volatility there. How do you see that developing?
The second is the very clear warning, I typed warning when I was writing as we were speaking on the lower contribution from non recurring income in the asset management business. And I just wondered if you could give us a feeling for how much that is in money. I suppose what I'm trying to say is, it feels like 2019 earnings may be flat as a result. And then the only other question is in terms of cash flows. You're now on €670,000,000 to €750,000,000 annual target you have for 20 19 to 2021?
And the fact that you're ahead, does it mean that you're kind of this is it, this is run rate? Or have you actually reached a new kind of a new level from which you can grow? Thank you.
Thank you for the question and also for your remarks. On the bank, the bank overall, the contribution of the bank to the bottom line doesn't move the needle, to be honest. But when you look at the top line, there, the banking fees are depending heavily on how much structured products fit an issue. And last year, in the last quarter, there was this equity market drop and especially the French market was down. And that's why we were not able to issue the same amount of structured products.
And this, of course, has hurt mainly the top line of the bank, of course, also a little bit the bottom line. But again, the bank will not move substantially the bottom line of the group. Because the bank, don't forget, it is a tool that we use for our very advanced product offering in the French market. On the nonrecurring, I already mentioned this and I think also Stefan Meckle at the Investors Day that we expect some kind of a a slowdown on the nonrecurring because of the pipeline development in Asset Managers, mainly in Corpus Cereo in 2019. This is not a profit warning because what we will see is we will see other income sources in the fee business replacing this.
However, we also mentioned that we expect a little bit of a back end loading of the asset managers, bottom line growth. So we will see better results than in 2021 2020. On the cash flow, no, we gave guidance at the Investors Day, and I don't think that this is the time to give more guidance as we are only 2 months into the New Year. So I think it should give you confidence, the number that we have disclosed today should give you confidence that we are well on track in delivering on the promise we made at the Investors Day, which is that we will over time generate enough cash to increase our payout to 50% to 60%.
Good. Thank you very much.
The next question from the phone comes from Farquhar Morey with Autonomous. Please go ahead, sir.
Good morning, gentlemen. Just two questions, if I may. Firstly, on the SST ratio, I just wondered if you could give us the bridge from the previous indication of 190 to 95 for the first half of twenty eighteen to the year end position of over 180? In particular, I'd just like to know what the impact was from volatile markets in the second half, if possible. Also, thanks for the year to date update on the SST ratio.
That's extremely helpful. Could I cheekily ask if that takes the ratio to over 190%, by the way? And then secondly, turning to the cost result for full year 2018 of negative €155,000,000 I just wondered if you could explain why that loss kind of increased and how we square it to the targets outlined in November, in particular the indicated improvement in the admin result. I'm particularly trying to understand, should I be thinking of the cost results staying at that kind of GBP 150,000,000 level going forward? Thanks.
Thank you. Let me take the last question first. We had an extraordinary write off of DAC in Switzerland, which decreased the cost result substantially. And therefore, I can tell that, no, we do not expect cost result to stay at this low level. We took this write off also because of the very good savings results.
So you always have to see the savings result and the cost result in a certain relationship.
Could I
ask the magnitude of that? I mean, and as you say, is that a kind of net it nets to 0 between those two lines?
Yes. You could actually look at this, yes, that way more or less. It depends a little bit in which business we realize the gains, for example, and which and then, of course, if we realize gains, for example, in a business where we debt, where we have a lot of debt, then you would accelerate the debt write off. That's the way it works. On the SSC ratio, we mentioned at the time that we had 190% to 195%, and this estimate was for June 2018.
And in the meantime, you can deduct about 8 points for the share buyback at the lower UFR and about another 8 percentage points for market movements, mainly spread widening. But we also have, of course, positive effects. We have substantial capital generation by the new business and out of the back book. So I believe and we did also took some measures when we saw the spread widening on the liability side. So all in all, we end up above 180 at 1,000,000 2019.
In the meantime, yes, we won another 5 points. And I cannot give more guidance. I can tell you we are getting close to the 190,000,000 but closed.
Okay, perfect. Thanks Rich indeed.
The following question comes from Kevin Ryan with Bloomberg Intelligence. Please go ahead, sir.
Thank you. I just have one question, which is on Slide 44 on the new business mix. Could you give us just a little bit of background behind the relative rise in traditional business last year, which is 19% of the total? And what the outlook is for that segment going forward?
Many thanks.
Thank you. Exactly. This slide really shows a substantial increase of the traditional business. The reason is simple. This is new business production.
And in the new business production, we always see already see the impact of the one competitor leaving the Swiss Group Life business. So we had very strong new production. You do not see this in the new business value yet. You will see this in 2019. But in terms of new business production, we have a substantial impact of the very strong production of the full insurance business.
When you exclude this, we are still at only 2% of traditional business share. So it's a onetime positive effect on the traditional business. I also mentioned in my speech that we expect for this year 2019 an additional SEK 3,300,000,000 of single premium, which is new accounts that came our way and €350,000,000 of periodic premium out of this market development.
Thank you.
The next question comes from Andrew Sinclair from Bank of America Merrill Lynch. Please go ahead, sir.
Thanks and good morning everyone and my congratulations to Thomas for an exceptional tenure really. Two questions for me. So firstly on Swiss Life Asset Managers, the cost income ratio has remained in the upper 60s despite the scale that's been added to the business over the last few years. I just wondered what you think can be achieved there to bring that cost income ratio down a bit? And secondly, it was just on the weighted duration gap.
I was having a look at I think it's gone over year for the first time in quite a long time. Just what's the reason for that? And is there any intent to address that? Thanks.
Let me start with your last question on the duration gap. We were at 1.2. Percent. The reason why we keep the gap open and it came up a little bit was clearly we have a very high share of real estate in our asset mix. And we do not give real estate a duration, and that's why we have to keep the gap open.
We had also the development in the last quarter on the equity markets and on the capital markets, And this also has widened the gap. And for us, it's clear, we want to be around or below 1, and we will keep it that way. So we are already back to 1 as we speak. Then on the asset management cost income ratio, I cannot give more information than we already discussed at the Investors Day. We have, of course, a clear target for the T PAM, which is to go to 75%.
We are currently at 89%, which is too high. 84% if we exclude the acceleration of the amortization of the mentioned customer relationship asset. So yes, there are measures in place to increase improve, sorry, this ratio substantial.
Understood. Thanks.
The next question comes from Franck Kompfenga from Deutsche Bank. Please go ahead, sir.
Yes. Good morning, everybody. I have two questions. My first question is on the savings result in Switzerland. It was EUR 628,000,000 which was significantly up.
In 2018, you already pointed to there is an offset with the cost result. However, if I take the underlying swing of the cost result, which was €50,000,000 and I would deduct it of the savings result, then still this is on a higher level. And within your program, you only pointed to a stable savings result, if I remember rightly. So what was the driver behind this? And would you say that this level, even if I adjust it, is sustainable?
And then secondly, on the impact of the withdrawal of this one big competitor, and you mentioned the numbers on the premium level already. However, could you also translate this into either value of new business or in bottom line effect?
Okay. Let me take the first Ralf's first question, which is the savings result in Switzerland. It was pretty high, to be honest, on the one hand. On the other hand, we always mention the ALM that we successfully manage very disciplined. And of course, yes, we still can achieve very attractive savings results at the end, but it was pretty high.
On the next question, which was about the AXA exit, we cannot at this stage translate it into bottom line. Of course, we will add this €3,300,000,000 of additional reserves, and you can use an average profit on €1,000,000,000 reserve, but we do not give forward looking guidance on our profitability at this stage. But it is very profitable, this business, because we stayed very disciplined underwriting despite getting a lot of additional accounts. And I can say that the quality of the new accounts is actually very good.
And what I can add on the savings result is that, of course, the past reserve strengthening also help to lower the average guarantees, which we'll see even more pronounced now going forward as the reserve strengthening this year has been quite substantial. And what has also helped is that our recurring yields have gone up by more than 100,000,000 dollars over the year on year comparison.
So does it mean that the $628,000,000 is a sustainable level from here?
It's pretty high. Okay.
Thank you.
The next question from the phone comes from the line of Jonny Urwin, UBS. Please go ahead.
Hi, there. Thanks. Good morning. Firstly, Thomas, thanks for your help and best of luck for the future. We wish you well.
Just two questions. So firstly, just thinking about the slowdown in nonrecurring fees and asset management. I know you flagged this before and it's probably a bit frustrating we keep asking, but there's a bit of focus on it this morning. I guess, I mean, overall, I know that the fee result growth will be back end loaded in this plan, but would you still expect the fee result to grow in 2019 for Asset Management and for the group? That's number 1.
And then secondly, on the SST, so close to 190 now, which is a great place to land after the market volatility we've seen. I guess, if you were to go over the 190, how quickly would you look to manage that? And what would be your preference in terms of deployment? Thank you.
Okay. On the fee result, yes, we expect the fee result to grow in 2019. On the SST, yes, we mentioned that if we go above 190, we would look into some actions. But my answer was we are exist.
Thank you very much.
We have a following question from Hetan Mikael from JPMorgan. Please go ahead.
I have two questions. The first one is to the savings result increase, you said higher investment income and lower guarantees, but also the policyholder participation increased. And if you can explain this a little bit just to have so we can have an idea of what could happen in 2019? And then the other question is really very standard one. Can you talk a little bit about your kind of deal pipeline or deal ambitions at this stage?
Thank you.
Okay. I'll take the one on the savings result and the deal pipeline. I hand over to my boss. The savings result, yes, the policyholder participation has increased. And the reason is simple, It's the reserve strengthening because reserve strengthening always as long as we have a positive interest rate margin, which is the case, goes at the expense of the policyholder.
And therefore, the policyholder will get a little bit higher participation. And that's the reason we strengthened the reserves by €900,000,000 in Switzerland alone. And this, of course, is for the account of the poverty.
Owner. So on the deal pipeline, I guess, there are 2 things to look at on the one hand, let's say, in terms of M and A. Here, there is nothing special to mention. We're not on an M and A buying spree. We have a bolt on acquisition strategy, so similar to what we've done over the last couple of years.
So there is really nothing special to mention here. Then on the real estate deal pipeline, that's also a question from time to time. Here we see a quite a good pipeline exemplified now by the large deal we did in Paris or in the course of doing. In Switzerland per se, which is an important source here, we see the pipeline still being difficult. So it's not that easy to source real estate and real estate projects in Switzerland.
Also in Germany, even though it's, of course, a huge market, as you know, the available building sites in German cities where the demand is highest is also not as easy as it was earlier on. So but overall, that should not impede us from reaching our targeted results.
Just a follow-up question here, and this is me, I didn't listen properly, not you speaking now, but earlier when Thomas was going through the results. The big acquisition Paris, I can't remember, it's about €2,000,000,000 or something. Did I understand correctly that part of it will be sold to the funds which will then send on to the policy the investors, the end investors and partly will be retained by PAN? Is that right? Or in order to align into Okay.
That's the alignment of interests and that's exactly the strategy, yes.
Brilliant. Thank you so much. Thank you.
The next question comes from Rene Laucher with MainFirst.
So I would like to start with this reserve strengthening. Thomas, you mentioned before €900,000,000 And I'm always struggling a bit to understand where this €900,000,000 are coming from. When I'm looking at Page 40, and I see that the net capital gains was €619,000,000 And I guess you explained before that, yes, this €900,000,000 are financed via net capital gains. Perhaps you can just expand a little bit where these reserves are coming from? That's my first question.
And then second question, just follow-up what Frank asked before on the Swiss business. I mean, I could also give us a little bit a negative spin, I guess, because now the average guarantee on your Swiss book is at 92 bps. Now your take on your balance sheet, €3,300,000,000 single premiums. Of course, I have no insight what kind of contracts these are. But I mean, in the mandatory business, you have to guarantee a 1%.
So from that point of view, it could also have a dilutive effect on your balance sheet. Perhaps you can explain a little bit. So you see and then on real estate in general, on Slide 40, I have seen that the direct investment income in real estate is up quite substantially year over year. So I'm just wondering if this is a sustainable level, this €959,000,000 current real estate. And then when I'm looking at the gains, it's €699,000,000 so that's a little bit more than 2% of revaluation gains in 2018, perhaps.
You can also give kind of number of this should look like in 2019, 2020. Thank you.
Okay. So I'll take the real estate questions and hand back over to Thomas then for the rest.
While on
the real estate, yes, of course, I mean the 959, those are direct investment income and they come through with a certain lag after the acquisition. So yes, of course, this level is sustainable and should be even better going forward. Whereas on the gains and losses, here, we've said in the past that we expect 1% to 2% of gains and losses on Real Estate. Historically, now over the last couple of years, it's been substantially stronger, especially last year again, but even the year beforehand. Going forward, it's just impossible to predict and of course, will depend on the relative value of real estate versus bond yields, which yields have come down contrary to the expectations that they would rise.
So the bid for real estate is still very well supported in our core markets. But over the longer term, yes, we expect something clearly lower than the $700,000,000 in underlying gains that we saw last year. And Thomas will now explain the relationship to the reserve strength in here.
Yes. When you go to Page 40, you can see that we have realized again the substantial amount of gains, mainly on the bond portfolio. And we also have realized gains on loans, for example. And we have realized gains, which are revaluation gains, mainly on real estate, mentioned by Patrick. And overall, gains realizations lead to lower expected current income on portfolio or current yield.
And that's why we put realized gains into the reserves through reserve strengthen. And you've seen that in Switzerland this year, we have lowered the technical interest rate substantially, the average technical interest rate by the €900,000,000 that we have put into the additionally into the reserve. And this, of course, you mentioned this €3,300,000,000 that we will get in additional accounts, I mentioned, in 2019. And your fear was that this will dilute our earnings. I can actually tell you this is not the case because the SEK 3,300,000,000 about 50% is mandatory business and there, yes, we have 1% guarantee.
The other 50%, however, is above mandatory business. And there, we only have to guarantee 0.25 percent, which means that we have to guarantee on the average on the 3,300,000,000 dollars about 65 basis points. Looking at our reinvestment rate, which is clearly above 2%, you know, last year, it was actually 2.4%. We still think this is attractive. So if there is no dilution there, and don't forget, we are also getting cost premiums where we do not have to add additional people to manage this business.
We also get risk premium, which is positive. So overall, this is a very positive effect. And to mention one thing also, there is a gross legal quote in Switzerland. So we also get the benefit of the gross legal quote as long as we can manage to have a positive interest rate margin.
Okay. That was very clear. That's all. Thank you very much.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Patrick Frost.
So this brings us to the conclusion of our conference. Dear analysts and investors, after the game is before the game, and indeed, we're already working hard for our ambitious plans over the coming 3 years and the new program Swiss Life 2021. Our capacity for implementation, our financial strength and our outstanding employees provide us with an excellent basis for Swiss Life to remain on a profitable growth course. Thank you for your attention and see you soon.
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 lines.