Ladies and gentlemen, welcome to the Swiss Life call on the full year 2022 under IFRS 17 conference call and live webcast. I am Sandra, the call's call operator. I would like to remind you that all participants have been 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 1 on your telephone. Webcast viewers may submit their questions in writing via the relative field. Kindly note that webcast questions will be answered after the call. For operator assistance, please press star 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.
Good morning, ladies and gentlemen, welcome to our conference call on full year 2022 figures under IFRS 17. Please note that IFRS 17 figures are unaudited. Let me start with the key messages. First, we applied the IFRS 17 accounting standard retrospectively from 1st of January 2022, with effects on full year 2022 net profit, shareholders' equity, and return on equity. The IFRS 9 accounting standard for financial assets is applied from 1st of January 2023, without restating the comparative period in financial report, which is disclosed under IAS 39. Nevertheless, we will give you today also an indication of the 2022 pro forma net profit under IFRS 17 and 9, as this will be the reporting basis for 2023.
Second, the underlying business and the way we manage it is unaffected by the transition to IFRS 17 and 9, therefore confirm our business strategy, its implementation, and our Swiss Life 2024 group financial targets. Swiss Life 2024 focuses on key value drivers, which are most relevant in explaining our growth and shareholder return ambitions. The fee result is essentially unaffected, and the cash remittance to the holding is completely unaffected by the transition to the new accounting standards, as are dividends and solvency. IFRS 17 changes the presentation of the insurance business. The timing of the profit recognition in the insurance business is different, resulting in an IFRS 17 and IAS 39, 2022 net profit of CHF 1.2 billion and shareholders' equity of CHF 8.4 billion at year-end 2022.
Those will be the figures that you can find in the financial supplement on our website and here on slide 4. The return on equity is 13.9% on an unadjusted basis. If we apply the IFRS 9 accounting standard on a pro forma basis to the 2022 figures, the net profit reduces to CHF 1.03 billion. Coming to other key metrics, fee result is essentially unaffected. With the transition to IFRS 17, we have refined our approach to reflect the unit-linked contribution of our Swiss individual life products. This is now fully shown in fee result. Cash remittance and dividends per share are unaffected. The payout ratio based on the 2022 IFRS 17 net profit was 74%.
While not the key figure, the change in presentation of the insurance business also means that premiums, for example, will no longer be disclosed as part of the P&L. Including deposits received, they previously amounted to CHF 20 billion in 2022, while the new insurance revenue under IFRS 17 is CHF 8 billion. Similarly, also the fee and commission income will not be disclosed in the P&L as in the past. Nevertheless, we will continue to report both premiums as well as fee and commission income with unchanged definition. The lower IFRS 17 net profit and shareholders' equity compared to IFRS 4 can be explained by the nature of our insurance business. The vast majority of our insurance portfolios has policyholder participation and is accounted for under the VFA approach.
These are the individual and group life businesses in Switzerland, the savings and pension business in France, the insurance business in Germany, and the group pension business at our international division. Our VFA portfolios account for about 98% of total net insurance liabilities and for about 80% of operating results from insurance business. VFA business has a contractual service margin, or CSM, representing the stock of expected unearned future profits that are recognized in the balance sheet as a liability. The CSM absorbs, together with best estimate liabilities or L, current period changes of assets and liabilities. Samples are fair value changes of real estate, bonds, and equities, as well as reserve strengthening or releases. Profit is driven by the CSM release to P&L over time, in line with the services provided for insurance contracts.
The remaining Swiss Life portfolio, insurance portfolios are measured as either PAA or BDA, with PAA businesses being much more relevant for Swiss Life. Examples for PAA portfolios are the health and protection, as well as P&C businesses in France and the group risk business in the international division. In those non-VFA portfolios and in assets not backing policyholder liabilities, equity instruments are also accounted for at fair value through P&L, unless we explicitly use the fair value through OCI option. We chose the option for certain equities in some areas outside the VFA business. Reserve strengthening or releases also flow through P&L in the PAA portfolios. As in the past, real estate fair value changes continue to be accounted for through P&L without any smoothing over time.
This means that there will be an immediate result contribution in those non-VFA businesses in a scenario of changing real estate fair values. Given most recent developments, we expect to see slightly negative real estate fair value changes outside of Switzerland, resulting in a headwind to insurance operating profits outside of the VFA business. TG from the French non-life businesses, as well as assets not covering policyholder liabilities. Slide 6 was already disclosed in March of this year. It continues to be very useful in illustrating the mentioned differences in profit recognition in the VFA business, related to changes in asset and liability values by comparing IFRS 17 to IFRS 4. As said, the approach differs from the non-VFA business. Positive fair value changes and realized gains, for example, are accounted for in the P&L, but offset by the recognition of insurance finance expenses.
Those expenses are recognized within the net investment result. First, they reduce the net investment result, and second, lead to an increase of the CSM and L in the balance sheet. Therefore, the immediate net P&L recognition will be zero. The P&L impact only stems from the CSM release over time, in line with the insurance services provided. This mechanism is mirrored in case of negative fair value changes or realized losses. For the VFA business under IFRS 17, the same smoothing over time applies to reserve strengthening or releases, and also to direct investment income. All of that will be absorbed by the Bell and CSM, and the CSM portion will be released to P&L over time, with only a small fraction of it being recognized in the current period.
This explains for the financial year 2022, as already mentioned during the call in March, a lower IFRS 17 profit from operations of CHF 1.7 billion, compared to the IFRS 4 level of CHF 2.1 billion. The reduction is driven primarily by the Swiss business, for which individual and group life insurance portfolios are recognized using the VFA approach. More precisely, individual life business is driving the reduction in the Swiss IFRS segment result compared to IFRS 4. This is due to the different timing of profit recognition of asset and liability changes in the P&L, such as real estate fair value changes and reserve releases, which had a positive impact on the 2022 IFRS 4 segment result. Regarding France, we have a positive impact from the different timing regarding the recognition of acquisition costs in the VFA business.
Under IFRS 17, acquisition costs are implicitly included in the Bell and CSM. There's also a positive impact from higher interest rates in the non-VFA business due to the discounting of current year PAA claims. The other business divisions are not materially impacted by the transition to IFRS 17, given their large fee result contribution to the segment result. Asset managers is totally unaffected. Slide 9 shows how the profit from operations translates to the IFRS 17 net profit of CHF 1.19 billion, which compares to the IFRS 4 level of CHF 1.46 billion. We already showed this directional impact of the new standard on the 2022 net profit components in our March disclosure. You might remember the arrows indicating the reduction in net profit.
Going forward, we will enhance the disclosure of the fee result and report it by business line, presenting asset managers, owned IFAs, and the business with own and third-party products and services separately. This will provide more granularity to our profit presentation. I mentioned initially that the 2022 figures have not been restated for IFRS 17, as we start to apply the standard beginning of 2023. Based on a simplified pro forma analysis of IFRS 9 impacts and accounting for some equity instruments at fair value through P&L outside the VFA business. Examples are the French non-life business. This would result in a net profit of CHF 1.03 billion. This is quite a sharp reduction resulting from negative equity market performance in 2022.
To limit some of the earnings volatility relating to equity investments, we will apply the fair value through OCI option in 2023 to account for equity instruments in the non-VFA business more widely than in 2022, not to all of them. Coming back to full year 2022 under IFRS 17 and IAS 39. The main profit driver of the operating result of our insurance business was the CSM release of CHF 1.2 billion. It included the contribution of unit-linked business in scope of IFRS 17, for example, in France. This is, however, deducted from the operating result of the insurance business, as it will be mapped as previously to the fee result. The portion of the release pertaining to the intergroup margin from insurance asset management services is essentially eliminated within the insurance service result and thus the operating result.
Non-allocated insurance operating expenses are directly charged to P&L outside of the CSM release, thereby essentially offsetting the corresponding portion of the release. The remaining profit contributions stems from the PAA insurance service result, the risk adjustment release, and from total net investment result of VFA and non-VFA businesses, which is defined differently than under IFRS 4. It now includes net insurance finance expenses that offset the net investment income in the VFA business by increasing L and CSM on the liability side. Net insurance finance expenses also include fair value changes of underlying items recognized in P&L, the so-called VFA experience adjustments. We will continue to report on direct investment income and net investment income by asset class, as in prior half and full year investor presentations.
The pre-tax CSM as of 31st of December 2022, amounted to CHF 16.4 billion and is shown on slide 11. It demonstrates a level of future unearned pre-tax profits relating to our VFA and PAA businesses. During 2022, we had positive contributions to the CSM from the expected business contribution and new business, each amounting to CHF 0.6 billion. Experience adjustments reflect the impact on the CSM from the actual current period experience compared to expectations, such as, for example, pertaining to claims or expenses. Changes in actual projection assumptions are also included, like future surrender, mortality, or longevity assumptions. The 2022 impact was minus CHF 0.1 billion. Economic variances include changes in economic conditions, such as interest rates, credit spreads, real estate, and equity market movements and effects.
The impact in 2022 was negative in the amount of CHF 1.1 billion due to negative equity market developments, higher credit spreads, and FX translation effects, which were partly offset by positive real estate fair value changes. The impact from higher interest rates was positive in our insurance business. This was partly offset by the negative impact from higher rates on the intergroup asset management margin, which fell from CHF 3.7 billion at the beginning of 2022 to CHF 3.3 billion at the year-end, and in addition, also by the lower non-allocated insurance operating expenses. As mentioned in March, the CSM includes the intergroup margin from insurance asset management services similar to the VNB or MCV approach. Essentially, it relates to the asset manager's PAM segment result, which declined in 2022 following lower bond and equity valuations.
Slightly less than 10% of the total CSM relates to non-allocated insurance operating expenses. Those are not projected in the CSM, but will be charged directly to P&L as incurred. The CSM release of CHF 1.2 billion reflects the pre-tax profit that is recognized in the P&L when the insurance services are provided. The pre-tax CSM release for Swiss Life was 7% in 2022, and thus, within the indicated range of about 6%-8% per annum. As a reminder, on the balance sheet, CSM is shown as part of the total insurance liability, which include unit-linked contracts and investment contracts with discretionary participation features. Those amount to CHF 156 billion at the end of 2022, and comprise Pell of CHF 139 billion, risk adjustment of CHF 0.3 billion, and the mentioned CSM of CHF 16.4 billion.
Investment contracts without discretionary participation features are not impacted by IFRS 17, and are reported in a separate line item. Those relate primarily to investment contracts in our international division, and amounted to CHF 18.5 billion at year-end 2022. IFRS 17 shareholders' equity at year-end 2022 amounted to CHF 8.4 billion, compared to CHF 9.5 billion under IFRS 4. Remember that upon transition, the new standard foresees to recognize profits that relate to future services in the CSM rather than shareholders' equity, and to spread them over the remaining life of the contracts. More precisely, it will be the shareholder's share of unrealized gains and losses under all direct participating contracts, that is now recognized in the CSM rather than in shareholders' equity.
For Swiss Life, this includes unrealized gains and losses on financial assets and real estate fair value changes of the VFA portfolios. Retained earnings and accumulated other comprehensive income are just lower under the new standard. It's also the reduction from the intangible elimination relating to that. Impact from liability valuations, such as for PAA businesses, partly offset the reduction of shareholders' equity. Looking at the graph to the right, IFRS 17 shareholders' equity declined from CHF 8.6 billion at the beginning of 2022, to CHF 8.4 billion at year-end, driven by the dividend payment and share buyback, partly offset by the net profit. IFRS 17 shareholders' equity will continue to have some volatility caused by capital market movements, although much lower than in the past, as volatility is more limited to the non-VFA business.
Certain volatility in OCI also arise from FX translation effects and from fair value changes of VFA-related assets measured at amortized costs, for which the accounting mismatch is recognized in OCI. Please note that the IFRS 17 open equity level has changed compared to the provisional figure disclosed in March. Given the aforementioned shifts of unrealized gains and losses, the new shareholders' equity is best considered in conjunction with the CSM on a post-tax basis, as it represents the stock of expected future profits. Both figures, taken together, amount to CHF 21.4 billion as of 31st of December, 2022. This is a substantial increase compared to the IFRS 4 shareholders' equity. In terms of capital structure, we will consider the post-tax CSM along shareholders' equity, given it represents the stock of future expected profits.
The share of senior and hybrid bonds does amount to 19% at the end of 2022. On slide 14, we show the IFRS 17 return on equity of 13.9% for the full year 2022. It is calculated on an unadjusted basis by taking the average IFRS 17 shareholders' equity and the 2022 IFRS 17 net profit, excluding minorities. Let me briefly speak about the half-year 2022 net profit, as is shown on this slide. To allow preparation for the upcoming half-year 2023 disclosure, we have applied IFRS 9 to the half-year 2022 net profit on a pro forma and simplified basis, accounting for some equity instruments at fair value through P&L outside the VFA business. This resulted in a net profit of CHF 560 million, given the negative equity market performance in 2022.
This will be the reporting basis for 2023. Looking into 2023, there are some important considerations I'd like to share with you. We apply IFRS 9 from 1st of January 2023. It will also come with the accounting for equity instruments at fair value through OCI, more widely than in 2022. We use the option for certain equities in some areas of non-VFA business, thereby losing the P&L contribution from expected gains on equities. The benefit is to somewhat reduce the earnings volatility relating to equity instruments. Regarding shareholders' equity, the introduction of IFRS 9 will have a marginal impact.
Independent from IFRS 9, as mentioned a few minutes ago, given most recent developments, we expect to see slightly negative real estate fair value changes outside of Switzerland, resulting in a headwind to insurance operating profits outside of the VFA business, including assets not covering policyholder liabilities, where there is no smoothing over time. To wrap up, the IFRS 17 and 9 accounting changes will affect the presentation of our insurance business on the balance sheet and the P&L, as illustrated today. Our underlying business and the way we manage it are unaffected by the transition to IFRS 17 and 9, and we confirm our Swiss Life 2024 strategy and its implementation. Let me remind you that higher interest rates are economically beneficial for our life insurance business. Some effects are immediately positive, like reserve releases.
Other materialize over time, like higher reinvestment rates and the increase of rental income due to the indexation to interest rates or inflation. All those effects will have a positive impact on local statutory accounting, which is unaffected by IFRS 17 and 9, and which is the basis for cash remittance to the holding company. We confirm all our Swiss Life 2024 group financial targets, and expect to either achieve or exceed them, as we are ahead in terms of return on equity and cash remittance. With this, I'm now ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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. Questions on the phone are requested, use only handsets and eventually turn off the volume of the webcast. Webcast viewers may submit their questions in writing via the relative field. Kindly note, the webcast questions will be answered after the call. Anyone with a question may press star and one at this time. The first question comes from Andrew Sinclair, from Bank of America. Please go ahead.
Thank you. Good morning, everyone. Three from me. First, I just want to say thank you for the promise of more granular disclosure on the fee result. That'll be really great to get when it comes. If possible, it'd also be great to get the CSM and CSM unwind broken down by business unit 2, that would allow much better forecasting. Three questions from me. First is on the CSM. That doesn't seem to be organically growing at a headline level. If I look at slide 11, expected contribution and new business contribution pretty much offsetting the CSM unwind. Do you see the CSM growing, and if so, where is that coming from? Is it higher expected growth contribution?
Any structural positives in the variances and adjustment lines? That's question one. Question two, still looking at the CSM roll forward on slide 11. I just wondered if you could break down some of the components a little bit more. Where are the reserve releases coming through? How much was that? Can you quantify the real estate gains and fixed income moves in 2022? Thank you very much. Third was just if you could bridge the differences between shareholders' equity plus CSM, the CHF 21.4 billion versus risk-bearing capital under SST, which I think after even after deducting debt, seems quite a bit higher than the IFRS 17 comprehensive equity. That's 3 for me. Thank you.
Okay. Thanks, Andy, for the questions. Let me start probably, let's say, with the organic growth. You know, the CSM is essentially calculated like the best estimate liabilities, as the name says, on a best estimate basis. We do not expect, as we speak, let's say, significant structural, let's say, positive or, or negatives. You know, in terms of the growth you've mentioned, you, you know, when we go back to the Investor Day 2021, we clearly have said that we want to grow the value of new business, it's not a 1-to-1, let's say, to the new business CSM, there are many plus and minuses.
We said that Investor Day back then, that we wanted to grow the VNB versus the previous program, and in the previous program, we said that we want to achieve accumulated VNB of more than CHF 1.2 billion. That was for the period 2019, 2020, 2021, and I said we want to clearly grow that for the current program, Swiss Life 2024. As a reminder, we had, I think, about half a billion CHF reported VNB for the last year or so for the financial year 2022. Now, coming to the question of, you know, the breakdown or the CSM roll forward on page 11.
You mentioned the reserve releases that we have reported under IFRS 4 in 2022. They are, together with many other effects, part of the experience adjustment of the negative minus CHF 0.1 billion. I said there are plus and minuses in there. We also have plus and minuses in the economic variances. The CHF 1.1 billion negative are economic only, so there are no relevant normal operating variants in there. Just to give you some flavor of that minus CHF 1.1 billion, it's about CHF 0.7 negative equity market development. It was about CHF 300 million FX translation effect.
You know, we had a significant reduction of the EUR in 2022. There was also a negative coming from the widened credit spreads in 2022. Those were the negatives that are part of the EUR 1.1 billion. We had then, on the positive side, first and foremost, higher interest rates. Higher interest rates had kind of two effects. One was kind of on the insurance part of the CSM, you know, the insurance core, if you wish. There we had a significant positive. On the asset management services part, we have had a negative asset. There was a reduction of overall EUR 400 million for the look-through part.
You see there are quite some changes with different signs that are included in the -1.1.
Just before you answer the third question, just on those reserve releases. I mean, I think there's been some indication those reserve releases would continue to be a positive over the next few years. Should we look at that Experience Adjustments line as becoming a positive over the next few years? Or should I still be thinking about that as being roughly zero?
Look, as said, there are so many things that flow in there. It is... I would just think a bit of it as a zero. To confirm that on a statutory basis, we clearly expect those reserve releases coming through, as we mentioned at the full year disclosure. I mean, that's where it is relevant for the cash remittance, which we said is structurally enhanced because of that effect. That's a statutory effect, and what happens in the CSM is more, I would say, sorry for that, a presentational effect. Should I go to the SST question, though?
Perfect. Thank you.
You know, going to that picture, you know, on page... Let me check. The CSM plus the on page 13. If I look there, shareholders equity and CSM, you know, the first important step is to note that the entire SST, unlike Solvency II, is a pre-tax view. Kind of the starting position is not the CHF 21.4, but essentially the CHF 24.8, or if we round, let's say CHF 25 billion, because SST is on a post-tax basis. What we then have, let's say, as the big movement is, you know, around CHF 15, CHF 16 billions of what we call non-guaranteed asset testing liabilities.
You know, the, the SST is a pre-policyholder sharing view, so it's a total risk capacity, which is also different from the Solvency II. Then we have somewhat a harsh discounting under the SST than under IFRS 17, you know, in Switzerland, those are the Govvi rtes and what have you, which is a negative. The scope is also a bit smaller than in SST. There's maybe another, let's say, CHF 5, 6 billion difference. Net-net, we have maybe CHF 11 billion uplift. Then we are at CHF 36, 37 billion, and there are then plus and minuses, you know, on both SST and IFRS 17.
You know, to give some examples, we have goodwill, which is part of the of IFRS, but not part of SST. We have some things that go the other way around. In SST, we deduct foreseen dividends and the like, and that's when we have then the net position of that the CHF 34 billion RBC on the SST framework. To put it simply, the big difference is really the fact that under IFRS 4 - sorry, under IFRS 17, we recognize future policy, all the bonuses as a liability, but as capital under the SST framework. That's really the huge difference. Let me make that point again, these non-guaranteed best estimate liabilities are also under the IFRS 17 framework, risk absorbing.
If we have a, fair value changes that are negative, this non-guaranteed best estimate components also absorb part of it.
Super helpful. Thank you very much, Matthias.
You're welcome.
The next question comes from Nasib Ahmed from UBS. Please, go ahead.
Actually, I don't hear anything.
We will take the next question from Peter Eliot from Kepler Cheuvreux. Please, go ahead.
Thank you very much. First one, and thank you again for the presentation, very helpful. The first one from me was, you mentioned that you will account for more equities through OCI in 2023. Wondering if you can just give us a feeling for how much more, so, you know, what proportion of the volatility might disappear? The second question was, you know, you mentioned real estate valuations, that you expected negative revaluations outside of Switzerland. Wondering if you could just give us any sort of guidance on what you expect for the whole portfolio, so including Switzerland, given those statements?
Third question, you know, obviously the capital structure looks optically better under the new accounting. Just wondering if you can give us any, you know, guidance at this stage on what your sort of target capital structure might be. Thank you very much.
Yeah, thanks, Peter. I'm aware, you know, this fair value for OCI option is not a very easy to understand thing. Let me try to elaborate a bit in more detail to give you the full picture, you know. I think, first of all, it's important to acknowledge that in the VFA business, the where we have, let's say, this 98% of the liabilities and about 80% of the insurance profits, all the equities are fair value through P&L. Any changes there, as mentioned in great detail, is absorbed by either the Bell, or not either, by the Bell and the CSM. That's where we have essentially the usual, let's say, absorption of the volatility.
We have for the remaining parts, meaning the non-VFA businesses and everything that are assets not covering policyholder liabilities, the standard foresees to use this, let's say, value through P&L option as well. For 2022, we have not applied this fair value through OCI option in France. Entire French equity exposure outside of the VFA business kind of had this direct impact on the P&L, and that's where we have seen this significant part of this thing coming through. Outside France, we have, in 2022, some of the equities at fair value, but the larger part at fair value through P&L, and the larger part at fair value through OCI. What will change in 2023?
Outside France, we will essentially follow the same approach as in 2022. In France, we will move from everything allocated to P&L, meaning nothing subject to the fair value through OCI option. We will significantly increase, let's say, this OCI option part. Significantly means something well-. You can think about, make your own estimates. We don't know at this point in time to what the exact numbers is, but it's really significant uptake. Maybe that's the first question. The second one, you know, the statement I made about the real estate valuation outside Switzerland. I think, let me reiterate, that we see for the portion outside Switzerland, a slightly negative change.
You know, the Swiss business or the Swiss real estate, I have to say, accounts for about three-quarters of it. You can think about what the mix will be. In terms of CHF millions, it will be not so different from, let's say, we give for the non-Swiss portion of real estate. The third question on the capital structure, you know, you somehow already gave the answer yourself. It is an optical change. We have been saying many times in this call, in previous calls, IFRS 17 and 9 change the presentation of the business, but it does not change the business itself, the profile of the business.
I wouldn't attach too much weight to this, as you said, optical change of the, the capital structure.
Okay, thank you very much. The next question comes from Nasib Ahmed from UBS. Please go ahead.
Hello. Hi, can you hear me now?
Yes.
Perfect. Okay. First question, I think you mentioned in the walk for the CSM, that the economic and other non-operating variances has a positive from higher interest rates. I thought higher interest rates would have a negative impact on the market value of the credit book. Can you just explain where that's coming from? Secondly, in the financial supplement, you've got the net gains and losses from fair value through OCI, which is 0. Presumably once you move to IFRS 9, that's gonna have a non-0 number in there, or should we always expect it to be 0? Thanks.
Okay, thanks. Maybe, starting with your question, on the interest rate contribution. You know, first, it is important to acknowledge that the CSM at large has kind of 2 components. There is 1 component, if you wish, that relates, let's say, to the insurance business, to the contracts themselves. There is another component on page 11, that's what we call, you know, the margin from insurance asset management services. You know, under MCV framework, this was called look through. Those are essentially profits that accrue in the asset management segment, but are economically related, let's say, to the insurance contracts. This component, this 2nd component, the asset management part, if you wish, indeed, has come down. You see that on page 11.
That's the reduction from CHF 3.7 billion-CHF 3.3 billion. That's exactly the effect you've mentioned. Lower bond valuations as a result of higher rates and higher spreads. The same effect, by the way, has been observed in the IFRS 4 reporting, let's say, of asset managers, in the form of a lower PAM segment result. Having said that, on the kind of insurance part of the CSM, the higher rates had a positive impact. This is not, let's say, shown here in detail. Net, net rates have had a positive impact, I would say, of more than half a billion CHF in the CSM. Here, you also see the view that you know, we have clearly a positive impact from higher rates on the insurance business.
I mean, that's also what you see in the insurance part there. It's kind of mingled together as we also include, as I said, the asset management services in there. Where you also clearly would see it, but that's not shown here, is the L itself, I mean, has come down considerably during 2022 as a result of higher rates. I think that's self-evident, if you wish, so. Then, to be frank, I may not have fully understood the second question on the net gains losses. You're referring, I would say, to the financial supplement. Is that correct?
Yeah. You've got net gains and losses, including impairment losses of financial assets at fair value, through other comprehensive income and amortized cost, and that's 0 for half year and full year? Is that expected to be 0, or is that going to change under IFRS 9?
Okay, I think what we will expect to see there are realized and realized gains and fair value carried bonds that will flow through there. To be frank, the vast majority of our bonds will not be carried at fair value in the P&L, but clearly in the equity, we'll see it in the balance sheet, you will see it there.
Okay. Understood. Thanks.
The next question comes from Daniel Regli from Credit Suisse. Please go ahead.
Good morning, thank you for my question, probably a very simple question. Actually, I just wondered, why did you retrospectively apply IFRS 17, but not IFRS 9 for the 2022 results?
Look, I think there were a couple of considerations to be made. I think for IFRS 17, it is very clear that the standards require it, and this is applied retrospectively. I think for IFRS 9, there was for quite some time, at least for us, not clear what the procedures are, what the implications are. As we undertake a finance transformation project, which not only focuses on the standard themselves, but because we are also, let's say, introduce new systems, it were then operational considerations that made us refrain from, let's say, also restating the 2022 under IFRS 9. We understand we are not the only company to have chosen that approach.
There may be others that have also restated 2022 under IFRS 9. There are various approaches in the market. For us, it was really kind of this circumstance that we are also busy with upgrading our systems landscape. I think that's a good point. We clearly wanted to give everybody also an indication what IFRS would mean if we had applied it for 2022 as well.
Just maybe quickly to follow up. Obviously, in 2022, the IFRS 9 impact, versus now the IFRS 17 result, as you presented it, was -1, and this was explained by negative equity markets. The expectation value going forward for the IFRS 9 impact on the IFRS 17, kind of results, would more or less be neutral? Can you give some kind of indication what kind of the gap will be between IFRS 9 and IFRS 17, basically, or kind of both included, versus only IFRS 17?
Look, I mean, we do not give guidance for our half year or full year 2023 results. I think we mentioned what the pro forma would have been in 2022. I think we also indicated on what scope we have applied the OCI option in 2022. We will expand the application of that fair value through OCI option in 2023. In addition, we also mentioned what we expect in terms of fair value changes real estate.
Okay, thank you.
As a reminder, if you wish to register for a question, please press star and one. The next question comes from Bhavin Rathod from HSBC. Please go ahead.
Hi, good morning. Thank you for taking my question. I have three. The first one would be on the real estate, if you could provide some color, as in how much of the last year's fair value gains was attributable to VFA business versus the non-VFA business? The second one would be, you mentioned about the headwinds coming from the real estate market outside Switzerland. It would be helpful if you could provide any indication on the magnitude of headwinds you are expecting from these markets. Thirdly, it would be helpful if you could provide any sensitivity to the CSM with respect to real estate market movement. Thank you so much.
Okay. Let me just give you a couple of points that and elaborate on them of ones that I've mentioned before. You know, in terms of the fair value changes that we have had in 2022. As said, the VFA business, where we have this kind of smoothing over time, if you wish, we said that accounts for about 98% of the liabilities, but more relevant in that context, were about 80% of the operating profit in insurance. 20% if you wish, of the insurance operating profit relates to businesses outside the VFA scope. You may assume that, yes, maybe there's a bit less of real estate allocated outside of the VFA.
You know, we say real estate is typically a good match for the long-term life liabilities. I think that's what I would say retrospectively. In terms of you know, the 2023 headwinds I've mentioned, those real estate fair value changes, which we expect to be slightly negative for outside the Swiss real estate market, So meaning essentially France and Germany, they will be giving those headwinds outside the VFA business. Within the VFA business, and let me mention that again, we have this buffering by both the best estimate liabilities and also the CSM.
I think that's a bit giving the outlook on how this will feed through the P&L. You know, what I can also say, and I think that's important and not to be forgotten, we've also confirmed all, let's say, Swiss Life 2024 targets. We either expect to achieve them, or we see them. We are ahead in terms of ROE and cash. You know, cash is a cumulative goal, but the ROE goal is one that applies for every single year of the 3-year program. In terms of the real estate sensitivity, you know, we do not disclose here numbers.
What is important to think about is if you look, for example, into the sensitivity of SST, that there we also provide a sensitivity. If you think about the conceptual difference between SST sensitivities and IFRS 17 sensitivity, a huge portion or a large portion of a real estate negative fair value change is absorbed first by the best estimate liabilities in the VFA business, and the remaining part is absorbed then by the CSM, if you wish. I hope this gives some clarity on the mechanics.
Yes, it does. Thank you so much.
The last question for today's call comes from Simon Fössmeier from Vontobel. Please, go ahead.
Thank you. Simon from Vontobel. Two questions. First, on slide 11, on the CSM walk, I'm not quite sure that I understand what is the expected business contribution, in contrast to new business. If you could explain that to me. I'm sorry if that's a very basic question. The second question is on the payout ratio. How should we think about this going forward? I think in 2022, as you show on slide 4, it was 75%. Is this a standard? Also on slide 12, you're showing that the dividend and the buybacks are actually higher than net profit. How should we think about this in the future?
Should we think about this in accounting terms, or should we go back to what you've always said is the cash level at holding level is what matters? Thank you.
Thank you. Simon, you know, first on page 11, you know, what is the difference between expected business contribution and new business? The new business part is really the CSM contribution from contracts underwritten during 2022. Everything that was newly acquired, new customers, additional contracts with existing clients. Everything that kind of was underwritten newly during the, financially 2022, gives the new business CHF 0.6 billion. Not exactly the same scope, but you can think a bit of it, of the value of new business, not, let's say, expressed in P&L terms, but expressed in CSM terms. The expected business contribution is kind of the unwind of the contracts that were in force at the beginning of the year.
All the contracts have been underwritten before January 1, 2022. What is driving this CHF 0.6 billion expected business contribution, this is essentially the excess return over the discounting. On technical terms, you know, we unwind with the real-world expectations going forward. Clearly, that makes the CSM bigger than what you would expect, believe it is when you discount it kind of at lower rates. I think that's in terms of the question on the CSM roll forward. I think on the payout ratio going forward and the I would refer to come back what we were talking about at the full year disclosure and confirming what we said back then.
At the end of the day, the dividends are paid from the cash, the upstream to the holding company. We talked about, you know, the benefits of higher interest rates. We expect based on that, based on the additional reserve releases, we talked about, you know, a structurally enhanced cash remittance from the opco to the holding. That's the reason why we have clearly this statement that we are ahead with the cash remittance. What we also said, that we clearly have the ambition to continue to increase the dividend per share.
I think we talked about that a lot, in terms of, the full year, 2022 closing in March, and I think that's essentially what is, relevant, how to think about the payout ratio.
Thank you.
Mr. Aellig, so far there are no more questions from the phone.
Good. I thank you for listening and for your questions. Take care, and goodbye.
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