Ladies and gentlemen, welcome to the Swiss Life 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 will be 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.
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 three-year Swiss Life 2018 group wide program and how successful it has been. What really makes today extraordinary is that our financial statements will be presented by our Group CFO of many years, Thomas Buess, 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 our successful completion of three corporate programs in a row since he took up the CFO position in 2009. 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 as such, thank you very much indeed, Thomas. He will present the 2018 figures in detail following my introduction. Matthias Aellig, Thomas's successor, is also here today. 2018 was an eventful and successful year in many regards, with a net profit of CHF 1.08 billion, we are once again able to present a strong annual result. The fee result at CHF 488 million and 8% higher than the previous year is also pleasing. The risk result, meanwhile, rose by 4% to CHF 410 million. The value of new business was up by 10% at CHF 386 million. This resulted in a cumulative three-year total in value of new business of more than CHF 1 billion.
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 CHF 700 million. This results in a three-year cumulative total of CHF 1.9 billion cash. This result clearly exceeds our original ambition of CHF 1.5 billion under Swiss Life 2018. Overall, we can say over the past three years that we managed to increase our profitability and the quality of our earnings clearly beyond what we had planned for at the time. 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 of January 2019, based on the new regulatory solvency model. Swiss Life's success is also visible in the increase of the dividend. At the AGM, the board of directors will propose a dividend of CHF 16.50 per share for the 2018 financial year, more than double that of 2014, thereby slightly surpassing the targeted payout ratio. We have exceeded almost all of our Swiss Life 2018 financial targets and missed none of them. 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 CHF unless I state otherwise. Let me start with an overview of our P&L on slide seven. Gross written premiums, fees, and deposits increased by 2% in local currency to CHF 19.2 billion. 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 CHF 1.6 billion, primarily due to strong contributions from our own IFAs and asset managers. The net investment result of the insurance portfolio for own risk increased to CHF 4.6 billion, mainly driven by higher net capital gains. We used those gains to substantially strengthen policyholder reserves.
Net insurance benefits and claims increased to CHF 14 billion, mainly due to Switzerland, which includes further reserve strengthening of around CHF 900 million. This, amongst other factors, led to a lower average technical interest rate that preserved our interest rate margin. Policyholder participation increased to CHF 1.2 billion due to Switzerland and France. Operating expenses were up by 11% to CHF 3.2 billion due to higher commission expenses, DAC amortization, and expenses related to newly consolidated businesses. Profit from operations grew to CHF 1.5 billion, driven primarily by our Swiss market unit. Borrowing costs decreased to CHF 137 million. This was due to lower coupons on the refinanced hybrids. 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 CHF 318 million.
This corresponds to an effective tax rate of 23%, which is in line with our expected tax rate. Our net profit was up by 7% to CHF 1,080,000,000 . Slide eight 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 profits from operations for restructuring charges of CHF 7 million and for program costs related to a new accounting standard of CHF 12 million. Adjusted for these one-offs, profit from operations increased by 4% to CHF 1.6 billion. Moving now to the segment results. I'll start with the Switzerland on slide nine. Premiums were up by 3% to CHF 9.5 billion, 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 competitor 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 CHF 3.3 billion in single premiums and around CHF 350 million 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 CHF 8.5 billion compared to CHF 7.5 billion at the year-end 2017. Fee and commission income was up by 7% to CHF 247 million. Revenues increased with investment solutions for private clients and real estate brokerage. On a standalone basis before intercompany eliminations, Swiss Life Select reported an increase in revenues of 2%. Operating expenses were just below the prior year level at CHF 397 million due to our continued focus on strict cost management. The segment results improved by 4% to CHF 865 million, 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 CHF 18 million, with a higher contribution from investment solutions, third-party products, and real estate brokerage. The risk result remained stable at CHF 251 million in both group and individual life. The value of new business increased by 10% to CHF 162 million. 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 2018, 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 in euros for the insurance segments France, Germany, and International. In France, premiums increased by 6% to EUR 5.1 billion 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 first nine 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 EUR 1.7 billion, with a unit-linked share of 71%.
Total market net inflows amounted to CHF 22.4 billion. In health and protection, premiums increased by 1%, while the market grew by 3%. Our P&C premiums increased by 1% in a market that was up by 3%. Fee and commission income decreased slightly by 1% to CHF 269 million. Unit-linked fees increased due to higher net inflows and reserves. 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 CHF 301 million. Efficiency gains were offset by business growth and investments in projects. The segment result rose by 2% to CHF 239 million, 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 CHF 67 million, 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 CHF 95 million, mainly in the health and protection business due to growing volumes, partly offset by a higher loss ratio in non-life. The value of new business increased by 14% to CHF 130 million. 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 EUR 1.2 billion due to higher periodic premiums with risk and modern traditional products. The overall market was up by 2%. Fee and commission income increased by 10% to EUR 395 million, driven by a positive contribution from our owned IFAs and higher policy fees. Our owned IFAs grew their revenues by 10% on a standalone basis. The number of financial advisors increased by 8% to 3,808. Operating expenses increased by 2% to EUR 202 million because of investments in growth initiatives. The segment result decreased by 10% to EUR 123 million. Let me remind you that there was a positive one-off of EUR 17 million in 2017 from the release of the policyholder terminal dividend reserve to the ZZR. 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 EUR 58 million. 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 EUR 32 million due to a positive claims development. The value of the new business increased by 10% to EUR 42 million. 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 EUR 2.1 billion, mainly due to lower single premiums with private clients. Higher premiums with corporate clients only partly compensated for this decline. Assets under control for private clients decreased by 1% to EUR 17.4 billion as negative asset performance and surrenders outweighed new deposits.
Fee and commission income was up by 11% to CHF 225 million. This is due to higher commission income from Chase de Vere and the first-time consolidation of Fincentrum as of mid-October. Operating expenses decreased by 5% to CHF 87 million. The second result increased by 27% to CHF 58 million, due to the positive development of the fee and risk result. The savings and cost result were stable. The fee result grew by 29% to CHF 41 million, driven by Chase de Vere and the business with private clients, partly offset by declines at other IFAs. The risk result increased by 75% to CHF 10 million due to a positive claims experience. The value of new business improved by 25% to CHF 27 million. 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 to 1.4%.
Let's now move to our asset manager segment that reports in Swiss francs. This is slide 13. Asset managers income rose by 6% to CHF 734 million. In our PAM business, the income growth of 7% to CHF 321 million 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 CHF 413 million. We reported higher recurring fees on growing assets under management. Included in our T PAM 2018 figures is Bâloise, which is consolidated since the end of August. This is partly offset by the deconsolidation effect due to the sale of the Corpus Sireo real estate brokerage business in 2018. Total non-recurring income, meaning transaction fees and net income from real estate project development, remained stable at 22% of total commission and other net income.
At key PAM, non-recurring 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 non-recurring 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 Sireo's historic project development pipeline is being completed, while we expect a contribution from our new projects to return to pre-2019 levels in 2020. Operating expenses increased by 5% to CHF 365 million due to business growth in key PAM, mainly in real estate. The segment result increased by 5% to CHF 272 million.
PAM was up by 9% to CHF 198 million, as we generated higher income at stable costs. Key PAM reported a segment result of CHF 74 million. That came in CHF 2 million below the prior year level. We were pleased to see a catch-up in the second half of the year. The acquisition of Bâloise had a positive impact on the key PAM segment result, 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 key PAM business amounted to CHF 8.4 billion, following a strong last quarter in 2018. We generated net inflows primarily in Switzerland, and mainly in real estate and balanced mandates that outweighed substantial money market outflows.
Our asset mix in key PAM net new assets is 56% real estate, 50% balanced mandates, 8% bonds, 8% equities, 4% infrastructure, and minus 26% money market funds. Excluding money market funds, we generated net new assets of CHF 10.6 billion in 2018, up from CHF 7.4 billion in the previous year. Please note that the first time Bâloise consolidation was not included in the net new asset numbers. Overall, assets under management in our key PAM business now amount to CHF 71.2 billion. Total assets under management were up by 4% to CHF 232.6 billion, mainly due to the mentioned net inflows in key PAM and despite a negative FX translation effect. Two weeks ago, on the 12th of February 2019, asset managers announced the acquisition of a premium office portfolio in Paris for EUR 1.7 billion from Terreïs. 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. 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 third-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 CHF 3.2 billion due to higher commission expense, DAC amortization 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 CHF 1.5 billion. We are pleased with the expense development in our insurance segments that reported a small increase in adjusted operating expenses of only CHF 7 million to CHF 1.14 billion.
Turning now to the investment result on slide 15. Our direct investment income was up by CHF 123 million to CHF 4.4 billion, supported by higher dividends on equity investments and increasing rental income. Our direct investment yield slightly increased to 2.9%. The net investment result increased to CHF 4.6 billion, 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 CHF 632 million to CHF 717 million. Our total investment result, 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 2018 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%. Real estate revaluations of CHF 0.7 billion and further net acquisitions of CHF 2.7 billion 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 one as of today. Our foreign currency exposure on the insurance portfolio remains hedged. That brings us to insurance reserves. Our insurance reserves, excluding policyholder participation liabilities, rose by 2% in local currency to CHF 159 billion due to net inflows of CHF 2.7 billion and accrued interest, partly offset by negative market movements.
Turning now to shareholders' equity on slide 18. Shareholders' equity decreased by 6% to CHF 14.5 billion. The main drivers were 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 positively. Please note that we repurchased 227,700 shares by the end of December 2018, amounting to CHF 87 million. This increased to 544,400 shares or CHF 216 million as of the 22nd of February, last week. The remaining shares up to the announced buyback of CHF 1 billion 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 2018 programs. 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 first trust, quality of earnings and earnings growth on slide 20. Our savings result was strong at CHF 889 million 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 CHF 410 million. We exceeded the upper end of our 2018 target range of CHF 350 million to CHF 400 million. All insurance units contributed positively. The fee result increased by 8% to CHF 488 million. We clearly exceeded the upper end of our 2018 target range of CHF 400 million to CHF 450 million, as all units reported an increasing fee result.
The cost result declined due to increasing acquisition costs in both France and Switzerland, and a higher DAC 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 eight 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 three 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 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 own IFAs increased their commission income by 10% in local currency, supported by higher productivity and an increased number of advisors. Business in own and third-party products and services increased by 2% in local currency, primarily due to Germany and Switzerland.
While higher unit-linked fees in France were offset by lower banking fees. Overall, our fee and commission income increased by 6% in local currency to CHF 1.6 billion. Turning to the value of new business at the new business margin on slide 25. All segments contributed to the increase in the value of new business from CHF 351 million to CHF 386 million. 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%. As Patrick mentioned, our value of new business for the three cumulative years, 2016 to 2018, was above CHF 1 billion, and thus, well above our target of more than CHF 750 million. Our next financial thrust is operational efficiency.
At the end of 2018, we had implemented CHF 111 million of our Swiss Life 2018 cost savings initiatives. All units contributed. We have thus exceeded our CHF 100 million cost savings target. The slide shows our efficiency ratio. This is slide 27. At group level, we improved our efficiency ratio by another two 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 140%-190%. We believe that for the new standard model valid as of the 1st of January 2019, this is a sensible range with enough buffer. Given our preliminary SST calculation, based on the new regulatory solvency model, we estimate the SST ratio to be above 180% as of the 1st of January 2019.
This includes the impact from the negative equity market development, the credit spread widening, and the decrease of interest rates in the fourth quarter of 2018. Please note that the estimated above 180% are after the deduction of the full amount of the share buyback, i.e. CHF 1 billion and the lowered UFR. As of today, the ratio has improved by about five 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 of January 2019, based on the standard model, excluding any transitional measure. Slide 29 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 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 CHF 225 million senior bond matures in June 2019. We plan to refinance this bond. Let me now move on to cash remittance. In 2018, we remitted CHF 696 million in cash to the holding company. This corresponds to 69% of the 2017 net profit. As Patrick already mentioned, we clearly exceeded the 2018 cash remittance target of CHF 1.5 billion as we remitted CHF 1.9 billion in cash to the holding over the past three years.
For the 2018 financial years, the board of directors will propose to the AGM 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%-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 Swiss Life has run three successful programs over the last nine 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 Life 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 results. 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 CHF 1 billion 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 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 nine 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. Now back to you, Patrick.
Ladies and gentlemen, the floor is now open for questions. Who would like to go first?
We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one. 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 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. Obviously, congratulations on beating all of your targets. 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 three years ago and what you actually achieved. And maybe just in respect of the 2018 figure, CHF 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. This led to 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 first months of this year, this momentum is continuing. Having said that, we expect still some investments this year. When you looked at the forecast that we gave at the Investors' Day for Germany, obviously by the end of next year and by 2021, we will see substantially improved fee results also coming out of 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. As you know, fee is more or less cash, we have exceeded substantially our target on the fee result side. We said at the time, CHF 400 million to CHF 450 million, at the end, we deliver now a CHF 488 million fee result, this, of course, has also helped. How much is available out of the cash? We only have about around CHF 20 million costs, CHF 20 million to CHF 25 million 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 Swiss Life AG.
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. At this low interest rate, that's very nominal numbers.
That's great. Thank you very much.
The next question comes from Michael Huttner with J.P. Morgan. Please go ahead, sir.
Well, first of all, congratulations and thank you. As Patrick said, thanks so much, Thomas. Astounding results, and the dividend was like, woo. 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 you 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 am trying to say is, it feels like 2019 earnings may be flat as a result. The only other question is in terms of cash flows. You are now on CHF 670 million to CHF 750 million annual target you have for 2019 to 2021.
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 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, it doesn't move the needle, to be honest. When you look at the top line, there, the banking fees are depending heavily on how much structured products we can issue. 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. This, of course, has hurt mainly the top line of the bank. Of course, also a little bit the bottom line. Again, the bank will not move substantially the bottom line of the group. The bank, don't forget, is a tool that we use for our very advanced product offering in the French market.
On the non-recurring. I already mentioned this, and I think also Stefan Mächler at the Investors' Day, that we expect some kind of a slowdown on the non-recurring because of the pipeline development in asset managers, mainly in Corpus Sireo, in 2019. This is not a profits 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. We will see better results than in 2021 and 2020. On the cash flow, we gave guidance at the Investors' Day, I don't think that this is the time to give more guidance as we are only two months into the new year. 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%-60%.
Brilliant. Thank you very much.
The next question from the phone comes from Farquhar Murray with Autonomous. Please go ahead, sir.
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%-195% for the first half of 2018 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? Then secondly, turning to the cost result for full year 2018 of negative CHF 155 million, I just wondered if you could explain why that loss 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 result staying at that CHF 150 million level going forward? Thanks.
Thank you. Let me take the last question first. We had an extraordinary write-off of debt in Switzerland, which decreased the cost result substantially. Therefore, I can tell that, no, we do not expect the cost result to stay at this low level. We took this write-off also because of the very good savings result. You always have to see the savings result and the cost result in a certain relationship.
Could I just ask the magnitude of that? As you say, is that nets to zero between those two lines?
Yeah, you could actually look at this that way, more or less. Depends a little bit in which business we realize the gains, for example. Then, of course, if we realize gains, for example, in a business where we have a lot of debt, then you would accelerate the debt write-offs. That's the way it works.
Okay.
On the SST ratio. We mentioned at the time that we had 190%-195%, and this estimate was for June 2018. In the meantime, you can deduct about eight points for the share buyback at the lower UFR and about another eight percentage points for market movements, mainly spread widening. We also have, of course, positive effects. We have substantial capital generation by the new business and out of the back book. We also took some measures when we saw the spread widening on the liability side. All in all, we end up above 180 at 1/1/2019. In the meantime, yes, we won another five points. I cannot give more guidance. I can tell you we are getting close to the 190, but close.
Okay. Perfect. Thanks for it 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 already see the impact of the one competitor leaving the Swiss group life business. We had very strong new production. You do not see this in the new business value yet. You will see this in 2019. 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. It's a one-time positive effect on the traditional business.
I also mentioned in my speech that we expect for this year, 2019, an additional CHF 3.3 billion of single premium, which is new accounts that came our way, and CHF 350 million 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, morning, everyone, my congratulations too, to Thomas for an exceptional tenure, really. 2 questions from me. 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. Secondly, it was just on the weighted duration gap. I was having a look at it. I think it's gone over a 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. 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. For us, it's clear we want to be around or below one, and we will keep it that way. We are already back to one as we speak. 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 TPAM, 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. Yes, there are measures in place to improve this ratio substantially.
Understood. Thanks.
The next question comes from Frank Hömpen 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 CHF 628, which was significantly up. In 2018, you already pointed to there is an offset with the cost result. If I take the underlying swing of the cost result, which was CHF 50 million, I would deduct it off the savings result, and still this is on a higher level. Within your program, you only pointed to a stable savings result, if I remember rightly. What was the driver behind this? Would you say that this level, even if I adjust it, is sustainable? Secondly, on the impact of the withdrawal of this one big competitor, 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 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. Of course, yes, we still can achieve very attractive savings results at the end. 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 CHF 3.3 billion of additional reserves, and you can use an average profit on CHF 1 billion reserve, we do not give forward-looking guidance on our profitability at this stage. It is very profitable, this business, because we stayed very disciplined in the underwriting despite getting a lot of additional accounts.
I can say that the quality of the new accounts is actually very good.
What I can add on the savings result is that, of course, the past reserve strengthenings 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. What has also helped is that our recurring yields have gone up by more than CHF 100 million over the year-on-year comparison.
Does it mean that the CHF 628 is a sustainable level from here?
It's pretty high.
Okay. Thank you.
The next question from the phone comes from the line of Jon Hocking, 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. Firstly, just thinking about the slowdown in non-recurring 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. 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 one. Secondly, on the SST, 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. My answer was we're getting close to 190, therefore, at this stage, I do not expect this luxury problem to exist.
Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. We have a following question from Michael Huttner from J.P. Morgan. Please go ahead.
Thank you very much. I have two questions. The first one is, the savings result increased. You said higher investment income and lower guarantees, also the policyholder participation increased. I just wondered if you can explain this a little bit just so we can have an idea of what could happen in 2019. The other question is really very standard one. Can you talk a little bit about your deal pipeline or deal ambitions at this stage? Thank you.
Okay. I'll take the one on the savings result. The deal pipeline I hand over to my boss. The savings result. Yes, the policyholder participation has increased. The reason is simple. It's the reserve strengthening. Reserve strengthening always, as long as we have a positive interest rate margin, which is the case, goes at the expense of the policyholder. Therefore, the policyholder will get a little bit higher participation. That's the reason we strengthened the reserves by CHF 900 million in Switzerland alone. This, of course, is for the account of the policyholder. The deal pipeline, I guess there are two things to look at. On the one hand, let's say in terms of M&A. Here, there is nothing special to mention. We're not on an M&A buying spree.
We have a bolt-on acquisition strategy, similar to what we've done over the last couple of years. There is really nothing special to mention here. On the real estate deal pipeline, that's also a question from time to time. Here we see quite a good pipeline exemplified now by the large deal we did in Paris, or we're in the course of doing. In Switzerland, per se, which is an important source here, we see the pipeline still being difficult. 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. Overall, that should not impede us from reaching our targeted results.
Just a follow-up question here. This is me. I didn't listen properly, not to you speaking now, but earlier when Thomas Buess was going through the results. You know the big acquisition in Paris, I can't remember, it was about CHF 2 billion or something. Did I understand correctly that part of it will be sold to the funds which will then sell on to the end investors and partly will be retained by PAM? Is that right?
Yeah, that's correct.
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 Locher with MainFirst. Please go ahead.
Yes. Good morning, all. I would like to start with this reserve strengthening. Thomas, you mentioned before CHF 900 million, and I'm always struggling a bit to understand where this CHF 900 million are coming from. When I'm looking at the page 40. I see that the net capital gains are CHF 619 million, and I guess you explained before that this CHF 900 million are financed via net capital gains. Perhaps you can just explain a little bit where these reserve strengths are coming from. That's my first question. The second question, just to follow up what Frank asked before on the Swiss business. I could also give it a little bit of a negative spin, I guess, because now, the average guarantee on your Swiss book is at 92 basis points. You're taking on your balance sheet CHF 3.3 billion single premiums.
Of course, I have no insight, what kind of contracts these are, but in the mandatory business, you have to guarantee 1%. From that point of view, it could also have a dilutive effect on your balance sheet. Perhaps you can explain a little bit. 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. I'm just wondering if this is a sustainable level, this CHF 959 million direct investment income in real estate. When I'm looking at the gains at CHF 699, that's a little bit more than 2% of revaluation gains in 2018. Perhaps you can also give a number how this should look like in 2019, 2020. Thank you.
Okay. I'll take the real estate questions and hand back over to Thomas then for the rest. On the real estate, yes, of course, the CHF 959, those are direct investment income. They come through with a certain lag after the acquisition. 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%-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. Of course, will depend on the relative value of real estate versus bond yields, which as you know, yields have come down contrary to the expectations that they would rise.
The bid for real estate is still very well supported in our core markets. Over the longer term, yes, we expect something clearly lower than the CHF 700 in underlying gains that we saw last year. Thomas will now explain the relationship to the reserve strength in here.
When you go to page 40, you can see that we have realized again, the substantial amount of gains, mainly on the bond portfolio. We also have realized gains on loans, for example. We have realized gains, which are revaluation gains, mainly on real estate, mentioned by Patrick. Overall, gains realizations lead to lower expected current income on portfolios or current yields. That's why we put realized gains into the reserves through reserve strengthen. You've seen that in Switzerland this year, we have lowered the technical interest rate substantially, the average technical interest rate, by the CHF 900 million that we have put additionally into the reserve. This, of course, you mentioned this CHF 3.3 billion that we will get in additional accounts, I mentioned in 2019. Your fear was that this will dilute our earnings.
I can actually tell you this is not the case because the CHF 3.3 billion, about 50% is mandatory business. There, yes, we have 1% guarantee. The other 50%, however, is above mandatory business. There we only have to guarantee 0.25%, which means that we have to guarantee on the average, on the CHF 3.3 billion, about 65 basis points.
Looking at our reinvestment rate, which is clearly above 2%. If you know, last year it was actually 2.4%. We still think this is attractive. There's no dilution there. 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. Overall, this is a very positive effect. To mention one thing also, there is a gross legal quote in Switzerland. 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 as well. 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.
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 three 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.