Ladies and gentlemen, good morning. Welcome to the Swiss Life Presentation of the Q1 Results 2018 Conference Call and Live Webcast. I'm sorry, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be 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 Mr. Thomas Doos, Group CFO of Swiss Life. Please go ahead.
Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. Today, we are reporting on selected figures for the Q1 of 2018. Please note that all figures quoted in this call are in Swiss francs and are unaudited. I'll start with today's key messages.
Afterwards, I'll provide more details on our segment. Fee and commission income was up by 9% in local currency to €395,000,000 dollars due to strong contributions from Swiss Life Asset Managers, our owned IFAs and our own and third party products and services. Gross written premiums, fees and deposits received increased by 4% in local currency to 7,000,000,000 dollars This growth was driven by our French Life business and the corporate business in our international market unit. Swiss Life Asset Managers acquired net new assets of $2,400,000,000 in our 3rd party asset management. Total assets under management in our TPAM business now amount to $63,600,000,000 Direct investment income was resilient at $1,000,000,000 which results in a stable non annualized direct yield of 0.7%.
The net investment yield increased to 1% on a non annualized basis. Our SST ratio on January 1, 2018, as published and filed with FINMA, was at 170%. We continue to be well on track to achieve or exceed all our Swiss Life 2018 financial targets. Let's have a deeper look at the premium and fee income development. As already mentioned, premiums increased by 4 percent in local currency to $7,000,000,000 Our insurance reserves, excluding policyholder participation liabilities, grew by 1% in local currency to $161,000,000,000 We continue to focus on capital efficient products.
The share of nontraditional products in our new business was stable at 93%. Fee income increased by 9 percent in local currency to $395,000,000 Swiss Life Asset Managers grew by 11%, the owned IFAs by 8% and the owned and third party business by 4%. Moving on to our mid market segments, I will start with Switzerland. Premiums were flat at €4,600,000,000 The overall market decreased by 2%. In individual life, premiums were flat in line with the market.
Single premiums decreased by 5%, periodic premiums grew by 2%. Premiums in group life were stable. Periodic premiums were down by 2%. Single premiums from existing clients increased by 3%. The Swiss Group Life market decreased by 2%.
We continue to offer semi autonomous solutions. The share of semi autonomous solutions in our new business production was stable at 17%. In absolute terms, we reported a substantial increase compared to the prior year period. Moreover, assets under management in our investment foundation grew by 10% to CHF 8,300,000,000 compared to CHF 7,500,000,000 at the year end of 2017. Field commission income in Switzerland was up by 5 percent to $65,000,000 due to Swiss Life Select and our real estate brokerage.
The sale of mortgages and investment solutions to private clients contributed as well. Turning now to France. Premiums increased by 17% in local currency to $1,400,000,000 in a market that was up by 5%. We are particularly pleased with the premium development in our Life business. Here premiums were up by 30%, while the market was up by 6%.
We benefited from our strong positioning in the high net worth individual and affluent client segments, our attractive unit linked product offering as well as the high quality of our distribution network. Our unit linked share in our life premiums increased to 58%, which is again substantially above the market average of 30%. In Health and Protection, premiums decreased by 3%. Growth in our individual protection business was 3%, while our individual health business is down by 5%. Premiums in group health and protection solutions decreased by 2%.
Our P and C premiums were down by 2%. Fee and commission income increased by 6% to 79,000,000 primarily as a result of the strong development of our unit linked business and increasing banking fees. Turning now to Germany. Here, premiums were flat in local currency at 3.75000000. Dollars Higher periodic premiums with visibility and modern traditional products offset the decline in single premium.
The overall market increased by 2%. Fee and commission income increased by 16% in local currency to $116,000,000 due to the strong growth of our owned IFAs and higher policy fees. Our owned IFAs increased their revenues by 10% on a stand alone basis. The number of financial advisers was up 9 percent year over year. Moving on to our international business, where premiums increased by 12% in local currency to $582,000,000 This was mainly due to higher single premiums with corporate clients.
Premiums with private clients as well as assets under control for high net worth individuals remained stable. Field commission income was up by 3% in local currency to 60,000,000 euros Commission income from our owned IFAs increased primarily due to the strong contribution from Chase de Vere, while net earned policy fees declined. Let's continue with Swiss Life Asset Management. Commission income was up by 11% in local currency to 100 and $52,000,000 driven by both PAM and TPAM. TPAM increased its commission income from $65,000,000 to $77,000,000 due to a growing asset base and higher fees from real estate management.
Net new assets in our TPAM business amounted to $2,400,000,000 Excluding money market funds, net new assets were $2,800,000,000 compared to $1,800,000,000 in the prior year period. Assets under management in our TPAM business increased to $63,600,000,000 compared to $61,400,000,000 at year end 2017. Turning now to our investment result. Our direct investment income was stable at $1,000,000,000 supported by an increasing rental income on our real estate portfolio. The non annualized direct yield was flat at 0.7%.
Our net investment yield increased to 1% on a non annualized basis. This compares to 0.5% in the prior year period and is explained by the positive valuation of our equity derivatives used to hedge our equity exposure, while higher FX hedging costs and the increased average asset base had a negative impact on the net yield. The asset mix remained more or less stable with a slightly higher net equity exposure. Duration GAAP remained below 1. Moving on to our group solvency.
On January 1, 2018, our Swiss solvency test ratio was at 170% as filed with FINMA based on our internal model approved with conditions. You find this ratio and additional information in our financial condition report first published on April 25. As of today, we expect the SST ratio to be a few percentage points higher. Overall, capital market developments were slightly positive. We also had a positive contribution from the 2 hybrid debt tranches issued in March.
Regarding Solvency II, last week, our insurance entities in Europe disclosed their local solvency and financial condition reports. In this context, I can confirm that our group Solvency II ratio was above 200% as of January 1, 2018, based on the standard model with volatility adjustment and without taking credit for any transitional measures. Turning to the Swiss Life 2018 program. Slightly more than 2 years into the program, we are well on track to achieve or exceed all our announced financial targets. We continued to improve our quality of earnings by further growing the fee business.
Let me remind you that our fee business is pretty diversified, and I'm pleased that all of our 3 fee sources, asset management, IFAs as well as the owned and third party business developed positively. Moreover, all our market units kept their focus on profitable and capital efficient growth. We are therefore well on track to achieve our value of new business aspiration. Finally, we have already implemented more than $90,000,000 of our $100,000,000 cost savings initiatives. This allows us to invest in growth and digitalization while keeping our operational expense base flat.
Let me wrap up. We have again reported a strong set of numbers in the 1st 3 months of 2018. I'm particularly pleased with the continuing strong growth of our fee and commission income that will further improve the quality of our earnings and with the resilience of our direct investment income. I can therefore confirm that we are well on track to achieve or even exceed all our 2018 financial targets. I'm now ready to take your questions.
We will now begin the question and answer session. The
first question actually was on the inflows. I was wondering if you could just give us the composition of the TPAM inflows in the quarter. It would be very helpful. And then the second one, Norma, questions was on the financial condition reports that you mentioned. I mean, you've talked about some very good numbers both on Solvency II and under SST.
I mean, I guess your peers were have been showing numbers sort of well over 200%. And I'm just wondering if you can give us any sort of more insights into how you think about your ratio sort of on an absolute or relative basis. Appreciate we might have to wait until the Capital Markets Day for a lot of that. And I guess specifically when you look at the financial condition report, there's quite a lot of variation between companies and the type of risk. And from a sort of slight perspective, you show reserves on a gross basis rather than a net of your peers.
And I'm wondering if you're in our positions, what would you like to look at if you're looking at these reports? Thank you very much.
Maybe your line is muted.
Thank you very much, Pinter, for this question. First of all, the net new assets in the Q1 were split as follows. We had 20% in bond mandates. We had 60% in balanced mandates, 4% in equity, 31% in real estate and minus 15% was in money market. So we had outflows in the money market.
When we look at the assets under management in the Q1, the SEK 63,600,000,000, 23% was in bonds, 20% in balance, 7% in equity and 37% in real estate, 2% in infrastructure and 11% in the money market. When we look at the inflows into Q1, the net new assets was almost entirely in Switzerland and in the UK. So in France, we did not see net inflows because we had the outflows of the money market. On the second question on the SEC ratio. Yes, indeed, when you look at the group ratios, where it's a combination of Life and Non Life business, our number looks to be low because, and we mentioned this many times, the Swiss solvency test is treating the Life business much harsher than the non Life business.
If we just look at the Life business, and I think that's the way to look at, We see that our ratio is in the middle of the pack, even a little bit above average. There are the usual suspects there who do not have full insurance solutions, and they have higher ratios. But all in all, we are very pleased with the 170% of the group and with the 174% of our Swiss Life AT ratio. Now of course, when you compare the various financial condition reports, you have to be aware of the fact that these models are very different. They vary a lot.
Especially our model is different because FINMA, one of the conditions FINMA imposed on us, and I really have to say imposed on us, is that we have to look at it on a gross basis, meaning that we are not allowed to model policyholder bonuses as liability. And therefore, our risk bearing capital as well as our target capital are very much inflated. However, there will be more comparability starting next year as most of the companies in Switzerland. I think there's only 2 exceptions, which are the 2 big ones, Swiss Re and Zurich. All the others will move to a standard model in the Group Life business.
And we are currently also working jointly with FINMA on a new standard model for the Individual Life business. Of course, I would look at the model without all these policyholder bonuses because I think the way FINMA has imposed this on us is completely flawed. We do not like this. But it's the way it is. They are the regulator, and therefore, that's the way we had to publish
it. Next question is from Michael Huttner, JPMorgan.
And you must be very, very pleased with everything going on exactly. Two questions. One, I didn't catch your Swiss francsitu number. I know you said it, but I was I'm really sorry I didn't listen. The second is the policyholder bonuses not as liabilities on a gross basis.
If I were to try and estimate a net basis, should I would it be fair to retrieve the EUR 22,200,000,000 of policyholder bonuses and to deduct them from both the top line and I mean the thing above the ratio and the thing below the ratio? And the other thing is given you do sound quite comfortable with your solvency, A, why did you raise EUR 600,000,000 debt? And B, what is this to kind of fund the buyback? Thanks.
Let me answer your last question first. Why have we issued the €600,000,000 hybrid? First of all, we have to refinance €300,000,000 in August. And we wanted to early on be in the market because market conditions were extremely good, and the conditions we got were actually super. And from this perspective, half of this will be used to refinance the hybrid in August.
The other half, it was very good conditions in the market and we took advantage of it. And but stay tuned, we will inform at the Investors Day what we will do in the capital management area in the future. On the question of the Solvency II ratio, we do not disclose individual Solvency II ratio for Switzerland. We only disclosed for the group, and there we say it's above 200%, which I think is a very pleasing number compared to our peers, especially when you take into account that we do not take any transition measures into account, even not in our German for our German portfolio. On your second question, I don't think this is a fair way to do it.
I also would say, please wait until next year when we have 3 d models that are calculated on a comparable basis because just deducting numbers and doing some arithmetic with the published numbers doesn't do a real good it doesn't give you a real good impression. It would be could be misleading. So from this perspective, I wouldn't do that.
And just to go back on the Solvency II ratio, so no conditionals, no transitionals. But do you use volatility or dynamic volatility when you think about the above 200%?
Yes, indeed, we do, yes.
Okay. The next question is from Daniel Bischoff, Baader Verwer. Please go ahead.
Good morning, everyone. I have two questions as well. The first one is on the withdrawal from AXA, from the full insurance solution. I mean, you immediately published a press release signaling that you're open for business there. But Swiss Life has also become quite a bit more selective and they started to push the semi autonomous business.
So I was wondering how you look at this huge potential of accounts maybe looking for new providers. And would also be interested to know what you've heard from the brokers? I mean, I appreciate you cannot talk about AXA, but more in general, I mean, what's the feedback from the intermediaries on the full insurance solution? And the second one is one on the
asset side. So you have
a relatively high corporate bond exposure in U. S. Dollars, I think roughly $18,000,000,000 And some peers reported that given the increased hedging costs, this is no longer an attractive space. So I was wondering how you look at this and whether you made some changes here.
Okay. First, let me address the AXA move. Of course, I will not comment on AXA. But we made it very clear that we are committed to this full insurance solution model. At the same time, of course, we are expecting some new business inflows there.
However, we also made clear right from the beginning that we will keep our underwriting discipline in this space. And therefore, we do not now we don't sit here and wait until everybody joins our full insurance solution. We will be very selective and keep being very selective on the underwriting. This is the policy that we have followed in the last few years, and this has served us very well. The broker community, yes, of course, we got a lot of broker reactions.
Of course, there were a lot of brokers asking, would you take our accounts into your full insurance solution? However, I think what this will do overall to our business, the jury is still out and we still have to wait until these accounts come into the market. So these were only preliminary reactions that we saw. On the corporate bond exposure, we have reduced U. S.
Dollar bond exposure already. Of course, we have on the old portfolio, we have high book yields. And therefore, the problem you mentioned is mainly a problem in the on the reinvestment space. We also see that we are looking under the new models at the capital efficiency of these bonds. And you mentioned correctly that given the extremely high hedging costs that the reinvestment rate on U.
S. Dollar bond exposure is not very attractive for Therefore, capital efficiency is also questioned. But here again, stay tuned, we will inform about our investment strategy also in more detail at the Investor Day in November.
All right. Thank you very much.
Next question is from Guillaume Horvath from Exane. Please go ahead.
Yes, good morning. Two questions, please. The first one is, you mentioned that in terms of total assets, real estate represents something like 37%, I think. I'd like to have an updated view on where you see the market going here. Are you still confirming this market will evolve positively in the future?
And the second question is, would you be able to give us an update on the potential litigation with the U. S. Authorities regarding international and the life insurance product that the book you acquired sold in the past? And would this potentially put a halt to some of your capital return ambitions in the future? Thank you.
Thank you for this question. First of all, I mentioned the real estate of 37%, and this is the real estate in our TPAN business, meaning 3rd party asset management business. So it's not the real estate on our balance sheet. The share of real estate on our balance sheet is a little bit above 18% currently. But you asked for our view on the real estate market.
It's still attractive. We still see a very good risk premium, and you have to look at the attractiveness of this market from a spread perspective. And we have currently one of the highest spreads ever in the Swiss real estate market when you compare the yields that we are getting on the real estate to the COVID bond yield in Switzerland. And therefore, we think it's still attractive. We also see, by the way, and we have disclosed this at the year end, we see a very stable, even last year, a little bit lower vacancy rates into Swiss market, which also gives us some confidence.
And what you also have to consider is that the Swiss economy is again growing and has accelerated its growth, and this will also support the real estate market. And therefore, our view is still pretty positive. Looking at the DOJ situation, there is no news on the DOJ situation. We have talks. And if there is any change, any news, we will, of course, let you know.
And what would be your, I mean, your worst case scenario in this particular case? And once again, would it be potentially a reduced or when considering capital return in November 2018?
There is no such consideration, and I do not give any projection on this outcome of this. There are some numbers in the market, but I do not give an indication here.
Okay. Thank you.
Next question is from Andrew Sinclair, Bank of America Merrill Lynch. Please go ahead.
Thanks. Just 2 for
me, if that's okay. Just wondered again on the recent SST disclosure. I just wanted to take your thoughts on organic capital generation and what you've seen years to date on your SST capital generation. Secondly, it was just on premium growth in France. It seemed to be really strong in the period.
I was just wondering if you could give us any indication on how repeatable that was going through the rest of the year. Thanks.
Yes, strong. Let me answer your last question first. The growth in France was extremely pleasing. The 30% in the Life business is really a number that you cannot repeat every quarter. And therefore, I do not expect the 30 percent to continue.
However, I expect very positive development to continue in the French market because all the positive aspects that I have linked for many years, already focused on pushing unit linked, and the entire French market is moving now towards unit linked. And we have an extremely strong distribution in the French market, actually managed and run by an actuary. And this also helps because we really understand not just how to sell things, but also how to sell profitable things to the clients. I think overall, we will keep the positive momentum. But the 30 percent, I think, is really is a positive, extremely good effort.
On the Swiss Solvency Test capital generation, we indicated for the full year 2017 a substantial capital generation. You can find this number in the financial conditions report under the TAG Business Development. I think it was SEK 1,300,000,000 that we have shown there. We do not give, obviously, year to date numbers, but we see good progress, and we estimate to be a couple of percentage points higher in our asset ratio as of today.
Understood. Thank you.
Next question is from Jonny Arounian, UBS. Please go ahead.
Hi, good morning. Just 2 for me on the SST again, please. So firstly, could you help steer us on the potential SST ratio uplift from the application of euro swap curves to European businesses? That would be helpful. And secondly, I understand you're lobbying FINMA to be able to apply diversification benefit between market and credit risk, which you're not currently able to do, but some of your peers are.
I wondered what would the potential uplift be to the FST ratio from that and how are discussions going? Thank you.
Let me answer again your last question first. Here, I have to manage expectations. I do not expect in the near future that we will get diversification between market and credit. So here, I have to manage expectations. Of course, we think there is diversification, and we still push hard with the FINMA responsible to get it.
We also have in the Swiss Insurance Association a study where we try to convince our colleagues at FINMA, but it will be it will take some time. And here, I have to manage expectations. When we look at the applying the Solvency II curve, yield curve for our foreign businesses, mainly for us, this is the French, the German and the Luxembourg business. I expect a real noticeable positive impact. But I hope you understand that I, at this stage, cannot give a number, but it will be a positive impact.
Thank you very much.
We have a follow-up question from Michael Huttner.
So on the Department of Justice, I suppose maybe you've already answered, but does it mean you've kind of fully reserved or you're fully comfortable that there wouldn't be any kind of impact on your profit? And on the EUR 1,300,000,000 capital generation figure in that lovely report last week, was there I mean, is there an exceptional in there, which one could say, well, actually, that's not organic capital generation. I don't know, bond issuance or yes, any kind of help on this? You can see I'm a bit tongue tied. I can't think what it would be, but because there's no breakdown on the figure that that's why I'm asking for a little bit of help.
Thank you.
First of all, on the DOJ, it's extremely difficult to comment on this because it's in so early stages. And therefore, not a lot of conversations. There is not a clear view on anything at this stage. But I do not expect an impact on dividend capacity at this stage. On the business development or capital generation in the SSD, yes, we have 2 movements there.
In the €1,300,000,000 there is €500,000,000 convertible and another €500,000,000 negatives of dividend. So these 2 are washes.
Okay. So the and then the final question. You know the 170% ratio, which is very sticky. So I know you've moved up from 140% to 170%, but I imagine your peers have moved up from, I don't know, 170% to 260%, whatever. Is the reason your ratio my feeling that your ratio is much more sticky because you've got these huge lumps of policyholder bonuses, which can't actually because they're so big, they don't move very much, the ratio itself tends to stay where it is.
Really the model as well. So there is but there's various reasons to that. Also, we have disclosed our sensitivities. And when you look at our sensitivities, there was not a lot of movements on the macroeconomic side in the capital markets. But I cannot speculate on numbers of our peers because I do not know their models in detail.
So it's very difficult to explain. But again, I think let's wait for next year. Then I think we should be more comparable.
And is there a movement within FINMA as you publish more of these numbers and you become we become more comfortable with them to kind of use the standard model and all these things to try and limit capital management?
Limit what?
Capital management, in other words, to make sure that not too much gets paid out too quickly?
You have to ask Finmark. I would be negatively surprised if there was.
Okay, okay. Lovely. Thank you.
Next question is from Parqo Harmare, Autonomous. Please go ahead.
Good Morning, gentlemen. Just a quick question on the kind of net investment return in the quarter. You mentioned that most of the gains came from equity derivatives. Yes, indeed.
Yes, indeed.
Okay, perfect.
There are no more questions at this time.
So thank you very much for listening in. I'm very much looking forward to hearing you and seeing you, some of you again, at the half year results disclosure, which will take place on August 14. Thank you very much, and have a good day.
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