Hi, welcome to the Swiss Life presentation of the Q3 Results 2018 conference call and live webcast. I'm Irina, the Chorus Call operator. During today's recorded presentation, all participants will be listen-only mode. 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. If you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Buess, Group CFO of Swiss Life. Please go ahead, sir.
Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. Today, we are reporting on selected top-line figures for the first nine months of 2018. Please note that all figures quoted are in CHF and are unaudited. All growth rates are in local currency. Let me summarize today's key messages. First, our fee and commission income was up by 7% to CHF 1.2 billion. Our own IFAs and third-party products and services contributed positively. Second, our premiums grew by 4% to CHF 14.7 billion, mainly driven by France and Switzerland. Third, Swiss Life Asset Managers generated net new assets of CHF 5.2 billion in the third-party asset management. Total assets under management of our TPAM business amounted to CHF 66.3 billion. Fourth, our direct investment income was CHF 3.3 billion, which resulted in a stable non-annualized direct yield of 2.2%.
Our net investment yield stood at 2.2% on a non-annualized basis. Finally, our Swiss Life 2018 program is well underway. We are confident to achieve or exceed all our 2018 financial targets. Let me continue with more details on the premium and fee income development. Our premiums increased by 4% to CHF 14.7 billion. This is particularly due to the strong growth in our French and Swiss market units. Overall, our insurance reserves, excluding policyholder participation liabilities, were up by 2% compared to year-end 2017 and stood at CHF 160 billion. We continued our growth with capital-efficient products. The share of non-traditional products in our new business production was 92%. Our fee and commission income increased by 7% to CHF 1.2 billion. The owned IFAs grew by 10%. Our own and third-party products and services by 6%, and Swiss Life Asset Managers was flat. Let's have a look at our market segments.
I'll start with Switzerland. Premiums were up by 3% to CHF 7.8 billion, driven by group life. The market remained unchanged. In individual life, premiums grew by 1%. The overall individual market in Switzerland was up by 1%. Periodic premiums increased by 3%, while single premiums declined by 3%. Group life premiums grew by 3%, while Swiss group life markets remained unchanged. Our single premiums increased by 5%, primarily coming from existing clients. Periodic premium remained unchanged. We continue successfully to offer semi-autonomous solutions where new business production increased by 28% in the first nine months of 2018. Moreover, assets under management in our investment foundation grew to CHF 8.5 billion, compared to CHF 7.5 billion at year-end 2017. The fee and commission income in Switzerland was up by 7% to CHF 182 million. We continue to see increased demand for investment solutions for private clients, real estate brokerage, and Swiss Life Select.
Turning now to France. In our French market unit, premiums increased by 11% to CHF 4.3 billion in a market that is up by 4%. Our French Life premiums grew by 17% against a market which increased by 5%. We benefited again from our strong positioning in the high-net-worth individual and affluent client segments, our attractive unit-linked offering, as well as the high quality of our distribution network. The unit-linked share in our life premiums was 53%, substantially above the market average of 29%. In our new business, the unit-linked share accounted for 64% of the new business production. In health and protection, premiums were stable while the market was up by 4%. This lower growth than the market is due to the fact that we focus on profitability before growth. Our P&C premiums were up by 1%, while the market was up by 3%.
The fee and commission income in France increased by 5% to CHF 240 million as a result of the strong unit-linked business and the solid contribution from the banking fee. Moving on to Germany, where premiums grew by 2% to CHF 986 million, while the market was almost 4% higher. We saw higher premiums with disability and modern traditional products, both in group and individual life business. We continue to see good new business profitability, mainly in our disability offering. Our fee and commission income was up by 15% to CHF 332 million, given the strong contribution from our own IFAs and higher policy fees. Our own IFAs grew their revenues by 14% on a standalone basis. The number of financial advisors increased by 8% year-over-year. Let's now turn to international.
Here, premiums declined by 9% to CHF 1.6 billion due to lower single premiums with private clients, which more than offset the positive premium development with corporate clients. Assets under control for high-net-worth individual clients grew by 1% to CHF 20.1 billion. Fee and commission income was up by 7% to CHF 184 million. The main contributor to this increase was the strong growth of our own IFAs in the U.K. Let's move on with Swiss Life Asset Management. Here, income was flat at CHF 468 million. TPAM contributed CHF 240 million and PAM CHF 228 million. Recurring fees increased in line with the growing asset base, but we generated less fees from real estate transactions. Our non-recurring fees were 16% against 20% in the prior year period. There was also a negative effect due to the sale and deconsolidation of our Corpus Sireo real estate brokerage in Germany.
As mentioned at the half year, we expect a catch-up of non-recurring fees in the fourth quarter as the pipeline is full. In TPAM, net new assets amounted to CHF 5.2 billion. We saw strong inflows in the asset classes bonds, balance mandates, equities, and real estate. Our asset mix in TPAM's net new assets is 36% real estate, 34% balance, 25% bonds, 10% equities, 6% infrastructure, and 11% outflows in money market funds. Assets under management for TPAM increased to CHF 66.3 billion, substantially up from the CHF 61.4 billion at the year-end 2017. Let's have a quick look at our investment results. Our direct investment income grew by CHF 59 million to CHF 3.3 billion. This corresponds to a non-annualized direct investment yield of 2.2%, which was stable compared to prior year. This was possible thanks to our strategic asset allocation with long asset durations.
The net investment results increased to CHF 3.4 billion, which led to a non-annualized net investment yield of 2.2%. This is 38 basis points above the prior year number, given substantially higher net capital gains, mainly related to our decision to reduce our exposure in long-dated U.S. dollar-denominated corporate bonds, as told at our half-year disclosure. Moreover, valuation of our equity hedges increased and was only partly offset by realized losses on equities. We continue to see higher FX hedging costs. The asset mix remained in line with our half-year disclosure. The duration gap remained below one. Moving on to our group solvency. Our Swiss Solvency Test ratio was above 175% at September 30, based on our internal model approved with conditions. The increase compared to half year is due to the positive development of interest rates, credit spreads, and equity markets overall.
As of today, we expect to have an SST ratio of around 175%. As mentioned earlier, I am pleased to report that our Swiss Life 2018 program is well underway. We continue to improve our quality of earnings by growing the fee business, thanks to the strong growth of our own IFAs, the progress of our own and third-party products and services, and the contribution of Swiss Life Asset Management. We have already exceeded the announced CHF 100 million cost savings, which has further improved our operational efficiency, and our cash remittance to the holding company is substantially above the announced target range. Let me wrap up.
Overall, we are pleased with the course of the business in the first nine months, particularly with our growth of the fee and commission income, the premium development, our direct investment results, the net new asset generation in TPAM, and again, the very strong solvency ratio. I can therefore, with the usual disclaimer of any unforeseen developments, confirm that we are confident to achieve or exceed our 2018 financial targets. I am now ready to take your questions.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question from the phone comes from the line of Jonny Urwin with UBS. Please go ahead.
Hi there. Good morning, everyone. Thanks for taking my questions. Two for me today. Firstly, could you please give us a bit of color around your growth expectations from here in the fee and commission income? There's obviously a slowdown in Q3. I appreciate there are still real estate transaction fees to come in Q4 and probably some catch up for the full year, it still seems like the like-for-like is slowing a little bit. Any color there would be great. Secondly, are you seeing any additional opportunities yet in group life after AXA's withdrawal, or is it still too early? Thank you.
First of all, on the question about the asset management. As I mentioned in my speech, we expect to catch up in the fourth quarter because of the substantial real estate transaction fees that will come in. I expect that we will see an acceleration again compared to last year. I cannot give a number at this stage, I'm actually very positive on this one. On the AXA withdrawal, we indeed see a very strong new business pipeline. We have seen a substantial increase of new business volumes year to date. We have not yet seen the impact on our gross written premium, as mentioned also at the half-year disclosure. We expect strong premium growth next year because of the withdrawal of AXA because we see that some accounts want to stay in the full insurance solution.
Great. Thanks.
The next question from the phone comes from Michael Huttner with J.P. Morgan. Please go ahead.
Good morning. Good results, and well done for getting net inflows in asset management. It's fantastic. The one question I had was really on solvency. I just wanted to understand better a little bit the move from the over 170 at the half year to around 175 or over 175 now. Any clarity or, not clarity, you've given clarity. Any kind of details on this would be really lovely. Also to the extent that we'll move to a new standard model in January, can you talk a little bit more about that? How you see it, how the discussion is progressing or what the different modules might be. Finally, when you think about capital management, do you think about your figure today, the 175, and previously in the past, you were quite happy with 144 or something?
Are you thinking about how the new model and where, of course, we don't know what the parameters might be. Thank you.
Thank you, Michael. First, let me take your question on the new model before I give you a little bit the sensitivities of the SST. The new model that we will have to apply starting 01/01/2019, as mentioned before, is based on the standard model for both individual life and group life. So far, the models are plus minus six. There are some minor questions still that we have when we implement these models. I think we have way more clarity now on how to apply these models. As mentioned also in earlier calls, so far, FINMA has more or less kept the promise that the new model should not lead to higher capital requirements.
What we also will see is, obviously, we will see an uplift on the ratio because of the fact that we will be able to apply the Solvency II interest rate curve in our foreign subsidiaries, France, Germany, mainly. This will give a positive impact. Overall, I cannot give a number yet. We will give indication at the end of this month. Overall, I'm actually pretty pleased with the development there. Yes, there are still some discussions with FINMA. Of course, we always have to fight if there are some areas in the model that we think are not correct from our point of view. Overall, actually, there's way more clarity than before. Now on the movement of the 170 that we have announced at the half year to the above 175% SST ratio.
Obviously, there is a positive effect from interest rates because interest rates were slightly up. There was a positive effect also from the spreads. The spreads have a little bit narrowed between half year and the Q3. There was the equity market until the end of September were okayish. Overall, these were the major drivers. Obviously, we also have generated, because of our profitability, some additional capital, which has also helped to move things upward. On the capital management, we will also give more details at the end of the month. We expect to give you an idea of a target range for the Swiss Solvency Test at the end of this month.
Brilliant. That's really helpful. Thank you.
As a reminder, if you wish to register for a question, please press star 1 on your telephone. The next question comes from Andrew Sinclair from Bank of America. Your line is now open. Please go ahead.
Thanks. Morning, everyone. Two from me, I think. Just on Swiss Life Asset Managers, you've mentioned that you've got the one-off revenues in terms of real estate transactions still to come, but just wondered, are you seeing any underlying margin pressure or is it just a bit of a business mix effect of what's going on there? Secondly, just on the guaranteed rates, just wondered if you could give us any update on guaranteed rates from, say, the Federal Council. Thanks.
On the asset management, in our books, we do not see margin pressure in any of the areas that we are in. We think in real estate, actually, margins are extremely healthy. Especially in Germany, we see high demand for real estate. On the guaranteed rates, there was a proposal that is in front of the Federal Council to lower it from 1% to 0.75%. This proposal comes from a commission of the Swiss Parliament, or expert commission, I have to say, and the Federal Council have not yet decided. Usually, they follow this recommendation, but the decision has been delayed so far, so I'm not so optimistic. Let's see where it will end up.
That's great. Much appreciated. Thanks.
We have a follow-up question from Mr. Huttner from J.P. Morgan. Please go ahead, sir.
Thank you. It was two little questions. Yesterday, I attended a really good day, little advert for them, organized by S&P in London. Really good. The one thing they did say is that RT1, so I think this means restricted Tier 1 debt, is likely to become more expensive. I just wondered what your refinancing profile looks like and whether that's something we should think about. The other is always the potential risk, and I know in the past you've said, "No, no, nothing's happened," but maybe a confirmation would be very reassuring on this potential U.S. fine. Thank you.
On the potential U.S. fine, there is absolutely no news. I would not even use the word fine at this stage. We are in a dialogue with the DOJ. On the capital structure, we published this on page 27 of the, I think it was the half-year booklet. You can see exactly when each of the hybrids' call dates are. In addition, even a more detailed disclosure you will find in our financial report, in the financial statements.
Okay.
I'm not concerned, Michael, about our cost of debt. Actually, we still have some coming due that are pretty high coupons. I still expect our financing costs in the next two years to go down.
Brilliant. That's very good. Thank you.
The next question from the phone comes from René Locher with MainFirst. Please go ahead.
Yes, good morning, all. Just a quick question on Individual Life Switzerland. I saw a statistic that total assets under management in this third Pillar 3a is now at CHF 100 billion. What is interesting to see is that the growth rate over the last three to four years was, yes, some 3%-4%. Yeah, from that point of view, I'm wondering how Swiss Life is placing itself within the market in regard to these individual life products. Thank you.
We are in this business.
It doesn't play a very important role when it comes to profitability because there's a lot of competition in this business, as you know, because the banks are actually leaders in this business. For us, we have new products in the market that we sell. It's called FlexSave, and that's pretty successful. As you have seen, the premium growth was pretty low for the time being because I think these products will be more attractive only if interest rate environment is more attractive.
Okay. I was really surprised to see that banking, if we split this CHF 1.9 billion, banks are at CHF 56 billion and the insurance companies are at CHF 43 billion. Insurance companies grew by 4.1%. I was struggling a little bit to understand, which insurance company is growing or still growing in this third pillar product. Yeah, thank you very much.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Buess. We have one more follow-up question from Mr. Huttner from J.P. Morgan. Please go ahead.
I'm really sorry. Not delaying, and you probably say, well, actually, no, there's no update. Any kind of qualitative view on the progression of cash flow? I remember at half year it's fully on track, and your statement here is very clearly at or above targets for 2018. Just wondered, just on cash flow, whether you can add anything.
Yeah. On the cash remittance to the holding. As mentioned at the half year, we do not expect a big additional cash to the holding in the second half because most of the dividends are being paid in the first half. Just to give you an indication, I expect year-end cash remittance to be approximately CHF 100 m illion above the prior year end. Approximately CHF 100 m illion more than in the prior year at the year end. Prior year was CHF 598 million, so we will be close to CHF 700 million at the year end.
Fantastic. Well done. Thank you.
We have another question from Mr. Peter Eliot for Kepler Cheuvreux. Please go ahead.
Sorry to add a further delay actually, just to follow up on Michael's question there, actually. You previously said that you expect the cash flows to grow in line with earnings. I assume, does that statement remain true from that CHF 698 that you expect at the full year? Thanks.
Of course, this is the long-term view. Cash remittance should grow in line with earnings means that the cash remittance as a percentage of earnings will be stable, plus, minus. There should even be a little bit of a higher percentage over time that we can generate as cash because the two businesses' importance will increase. Again, as cash remittance, it mostly takes place in the first half of the year because of the dividends that are paid on the basis of the prior year earnings. Obviously, you will not see under the year a proportional development of the cash remittance to the earnings. You will only see it year after year after year.
Yeah. Thank you. Now, I guess my question was whether there was any one-offs in that expectation.
There are no one-offs in there. That's regular dividends that are sustainable.
Thank you very much.
There are no more questions at this time.
Thank you very much for attending today's call. My colleagues from the executive board and I are looking forward to welcoming you to Swiss Life's Investors Day on the 29th of November 2018 at our headquarters here in Zurich. Our business division CEOs will give a deep dive into each of our market units, and we will present our new strategic and financial targets until 2021. Thank you for your interest in Swiss Life and for your questions. Hope to see you soon. Have a nice day.
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. Goodbye.