Welcome to the Swiss live presentation of the Q3 Results 2018 Conference Call and Live Webcast. I'm Irona, the Chorus Call operator. During today's recorded presentation, all participants will be a listen only mode. 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 Thomas Boues, 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 1st 9 months of 2018. Please note that all figures quoted are in Swiss francs 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 SEK 1,200,000,000. Our owned IFAs and 3rd party products and services contributed positively. 2nd, our premiums grew by 4% to $14,700,000,000 mainly driven by France and Switzerland. 3rd, Swiss Life Asset Managers generated net new assets of SEK 5,200,000,000 into 3rd party asset management.
Total assets under management of our TPAM business amounted to $66,300,000,000 4th, our direct investment income was EUR 3,300,000,000 which resulted in a stable non annualized direct yield of 2.2%. Our net investment yields stood at 2.2% on a non annualized basis. And 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 SEK 14,700,000,000 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 EUR 160,000,000,000. We continued our growth with capital efficient products. The share of nontraditional products in our new business production was 92%. Our fee and commission income increased by 7% to EUR 1,200,000,000.
Dollars The old 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 $7,800,000,000 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 market remained unchanged. Our single premiums increased by 5%, primarily coming from existing clients. Biotic premium remained unchanged.
We continue successfully to offer semi autonomous solutions where new business production increased by 28% in the 1st 9 months of 2018. Moreover, assets under management in our investment foundation grew to SEK 8,500,000,000 compared to SEK 7,500,000,000 at year end 2017. The fee and commission income in Switzerland was up by 7% to EUR 182,000,000. 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 EUR 4,300,000,000 in a market that was 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%. Now a 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 and C premiums were up by 1%, while the market was up by 3%. The fee and commission income in France increased by 5% to EUR 240,000,000 as a result of the strong unit linked business and the solid contribution from the banking fees. Moving on to Germany, where premiums grew by 2% to 986,000,000 dollars while the market was almost 4% higher.
We saw higher premiums with visibility on 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 EUR 332,000,000 given the strong contribution from our owned IFAs and higher policy fees. Our owned IFAs grew their revenues by 14% on a stand alone basis. The number of financial advisers increased by 8% year over year.
Let's now turn to international. Here premiums declined by 9% to 1,600,000,000 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 SEK 20,100,000,000. Finance commission income was up by 7% to SEK 184,000,000. The main contributor to this increase was the strong growth of our owned IFAs in the UK.
Let's move on with Risk Life Asset Management. Here, income was flat at SEK 468,000,000. PPAM contributed SEK 240,000,000 and PAM, EUR 228,000,000 Recurring fees increased in line with the growing asset base, but we generated less fees from real estate transactions. Our nonrecurring fees were 16% against 20% in the prior year period. There was also a negative effect due to the sale and deconsolidation of our Corpusireo real estate brokerage in Germany.
As mentioned at the half year, we expect to catch up of non recurring fees in the Q4 as the pipeline is full. In TEPAN, net new assets amounted to DKK 5,200,000,000. We saw strong inflows in the asset classes, bonds, balanced mandates, equities and real estate. Our asset mix in PPAM's net new assets is 36% real estate, 34% balanced, 25% bonds, 10% equities, 6% infrastructure and 11% outflows in money market. Assets under management for TPAM increased to $66,300,000,000 substantially up from the $61,400,000,000 at the year end 2017.
Let's have a quick look at our investment results. Our direct investment income grew by €59,000,000 to 3,300,000,000. Dollars 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 result increased to SEK 3,400,000,000 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 at our half year disclosure. Moreover, valuation of our equity hedges increased and was only partly offset by realized losses on equity. We continue to see higher FX hedging costs.
The asset mix remained in line with our half year disclosure. The duration gap remained below 1. Moving on to our group solvency. Our sweep 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 SSD ratio of around 175%. As mentioned earlier, I'm pleased to report that our 3 slide 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 diaphase, the progress of our own and third party products and services and the contribution of Twistlife Asset Management. We have already exceeded the announced EUR 100,000,000 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 1st 9 months, particularly with our growth of the fee and commission income, the premium development, our direct investment results, the net new asset generation in PPAM 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'm now ready to take your questions.
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. 2 for me today. So firstly, can
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. And I appreciate that there are still real estate transaction fees to come in 4Q and probably some catch up for the full year. But it still seems like the like for like is slowing a little bit. So any color there would be great.
And 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 Q4 because of 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, but I'm actually very positive on this one. On the ex service role, 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 impacts on our growth rate in premium, as mentioned also at the half year disclosure. So we expect strong premium growth next year because of the withdrawal of because we see that some accounts want to stay in full insurance solution.
Great. Thanks.
The next question from the phone comes from Michael Huttner with JPMorgan. Please go ahead.
I had good morning and good results and well done for getting net inflows in Asset Management. This is fantastic. The one question I had was really on solvency. And 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 clarity you've given clarity, but any kind of details on this would be really lovely. And then also to the extent that we'll move to a new standard model in January, can you talk a little bit more about that And how you see it? How the discussion is progressing? Or what the different modules might be?
And then finally, how when you think about capital management, do you think about your figure today, the 175 percent and previously in the past you were quite happy with 144 percent or something? Or do you 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 imply starting 1onetwenty 19 is, as mentioned before, is based on the standard model for both individual life and group life. And so far, the models are plusminus6. There are some minor questions still that we have when we implement these models, but 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, Spain. So this will give a positive impact. But 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. But overall, actually, there's way more clarity than before. Now on the movement of the SEK 170,000,000 that we have announced at the half year to the above 175 percent SST ratio.
Obviously, there is a positive effect from interest rates because interest rates were slightly up. Then there was a positive effect also from the spread. The spread has a little bit narrowed between half year and the Q3. And then there was the equity markets until the end of September were okayish. So 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. Now on 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.
The next question comes from Andrew Sinclair from Bank of America. Your line is now open. Please go ahead.
Thanks. Good morning. I have one. 2 for me, I think. Just on the on self life asset managers, you've mentioned that you've got the one off revenues in terms of free to stay transaction 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? And secondly, just on the guaranteed rates, just wondered if you could give us any update on guarantees rates from, say, the Federal Council? Thanks.
On the asset management, we do 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 current hit rate, there was a proposal that is in front of the Federal Council to lower it from 1% to 0.75%. This proposal comes from Commission of the Swiss Parliament or expert commission, I have to say. And the Federal Council have not yet decided.
So 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 had a follow-up question from Mr. Huttner from JPMorgan. Please go ahead, sir.
Thank you. It was 2 little questions. Yes, I intended a really good day, little adverse for them, organized by S&P in London, really good. And the one thing they did say is that our Tier 1, so I think this means restricted Tier 1 debt is likely to become more expensive. And I just wondered what how what your refinancing profile looks like and whether that's something we should think about?
And then 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. Sign. Thank you.
On the new on the potential U. S. Sign, there is absolutely no news. I would not even use the word sign. At this stage, we are in a dialogue with the DOJ.
Then on the capital structures, we published this on Page 27 of the I think you got the half year booklet. You can see exactly when each of the hybrid call dates are. And in addition, even a more detailed disclosure you will find in our financial report, the statements.
So okay, okay. No, no, no.
I'm not concerned, Michael, about our cost of debt. Actually, we still have some coming due that are pretty high coupons, and I still expect our financing costs in the last 2 years to go down.
That's very good. Thank you.
The next question from the phone comes from Rene Lojour with MainFirst. Please go ahead.
Yes, good morning. Just a quick question on Individual Life Switzerland. I saw a statistic that the last from the management in this 3rd pillar A is now at CHF 100,000,000,000. And what is interesting to see is that the growth rate was over the last 3 to 4 years was, yes, some 3% to 4%. And yes, 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 a leader in this business. For us, we have new products in the markets that we sell. It's called FlexSafe, and that's pretty successful. But 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 rates are interest rate environment is more
attractive. Okay. Now I was really surprised to see that banking, if we split this €100,000,000,000 bank, are at €56,000,000,000 and the insurance companies are at €43,000,000,000 and insurance companies grew by 4.1%. So I was struggling a little bit to understand which insurance companies is growing or still growing in this 3rd pillar product. But yes, thank you very much.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Bouaz. We have one more follow-up question from Mr. Hapner from JPMorgan.
Please go ahead.
I'm very sorry, not delaying and you'd probably say, well, actually no, there's no update. But any kind of qualitative view on the progression of Castor? I remember at half year, it's fully on track and your statement here is very clearly at or above targets for 2018. And I just wondered just on cash flow, whether you can add anything?
Yes. 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. But just to give you an indication, I expect year end cash remittance to be approximately SEK 100,000,000 above the prior year year end. So approximately SEK 100,000,000 more than in the prior year at the year end. And prior year was SEK 600 sorry, SEK 5 98,000,000 was the prior year.
So we will be close to SEK 700,000,000 at the year.
Fantastic. Well done. 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, but just to follow-up on Michael's question there actually. You previously said that you expect the cash flow to grow in line with earnings. I assume you that does that statement remain true from that 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, plusminus. There should be even be a little bit of a higher percentage over time that we can generate as cash because the 2 businesses' importance will increase. But again, as cash remittance 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 revenues to the earnings. You will only see it year after year after year.
Yes. 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.
So thank you very much for attending today's call. My colleagues from the executive board and I are looking forward to welcoming you to Thrift Life's Investors Day on the 29th 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.