Swiss Life Holding AG (SLHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Swiss Life presentation of the full year results 2020 conference call and live webcast. I'm Constantinos, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Patrick Frost, Group CEO of Swiss Life. Please go ahead, sir.

Thank you. Dear analysts and investors, welcome to our conference call. As usual, Matthias Aellig, our CFO, and I will guide you through our 2020 results. Then we will have time for your questions. Naturally, the COVID-19 environment was challenging. However, despite the related restrictions, our employees and financial advisers took the opportunity to engage with our customers in a very positive way. Thanks to the use of digital tools such as video advice, they were able to be there for their customers at a time when many people were reviewing their financial situations. Life, pension and other financial solutions are and will remain relevant to people. I'm particularly pleased that our 2020 results reflect this. We increased our fee result by 11% to CHF 601 million. We have thereby reached the ambition range of CHF 600 million to CHF 650 million originally set for 2021. In addition to our advisory organizations in Germany, this growth is mainly attributable to Swiss Life Asset Managers' third-party business, TPAM. The expansion of our fee results helped to keep our net profit at a high level. In total, net profit declined by about CHF 150 million or 13% to CHF 1.05 billion. However, this decline is mainly attributable to one -- to 2 one-off effects unrelated to the pandemic: about CHF 50 million due to a positive tax one-off in 2019 in the context of the Swiss corporate tax reform back then; and a similar amount due to a provision for an expected agreement with the U.S. Department of Justice, DOJ. On the subject of this provision, in September 2017, Swiss Life announced that it was engaged in a dialogue with the DOJ concerning prior business with U.S. clients. The company is now in advanced discussions with the DOJ about the resolution of their inquiry. As a result, Swiss Life has taken a provision of CHF 70 million charged against its 2020 financial results to address the respective financial implications. The discussions with the DOJ are not concluded, and as a result, the final number could be somewhat higher. Although the precise timing cannot be predicted, the current expectation is that this matter will be resolved in the near term. Back to our profit figures. Our savings result decreased due to high market volatility in connection with the pandemic, although this was partially offset by the increased fee results. With a net profit at CHF 1.05 billion, Swiss Life is still in the upper half of the 8% to 10% ROE target range with a return on equity of 9.4%. Moving on, the risk result remained essentially stable at CHF 407 million. The new business margin improved from 1.9% to 2.6% and was thus significantly above the ambition level of 1.5%. The value of new business came to CHF 465 million. Despite the challenging year, we remain on track with our group-wide program, Swiss Life 2021, as shown by a look at our other targets. Swiss Life estimates its SST ratio at around 195% as of the 1st of January 2021. This is slightly above our strategic ambition range of 140% to 190%. The cash remittance to the holding company increased by 4% to CHF 784 million, and our operational efficiency figures have also further improved. The Board of Directors will thus propose a 5% increase in the dividend per share to CHF 21 at the upcoming AGM. Dear analysts and investors, our business model is resilient. The success of our 16,000 financial advisers in staying close to their customers supported our growth in insurance, asset management and financial advice in this challenging environment. COVID-19 mainly affected us to a market volatility which led to a lower savings result. This was partly offset by our strong fee result. Our annual results give us many reasons to be very confident about our future development. We're therefore able to confirm all our financial targets for this last year of our group-wide program, Swiss Life 2021. And on that note, I would like to hand over to Matthias Aellig, who will take you through our results in more detail. Matthias, over to you.

Thank you, Patrick. Good morning, ladies and gentlemen. I will start our 2020 results overview with selected P&L figures on Slide 8. Gross written premiums, fees and deposits received decreased by 12% in local currency to CHF 20 billion. This decline was anticipated and, as previously mentioned, is due to the exceptional demand in 2019 in our Swiss group life business. Fee and commission income was up by 11% in local currency to CHF 2.0 billion. All sources contributed positively as managers, our owned IFAs and the unit-linked business. The net investment result of the insurance portfolio for own risk decreased to CHF 3.7 billion in the context of COVID-19-related market volatility. Net insurance benefits and claims were down to CHF 15.6 billion, in line with premium development, including further reserve strengthening of around CHF 0.5 billion. Policyholder participation decreased to CHF 910 million, primarily due to Switzerland and Germany. Operating expenses were stable at CHF 3.5 billion. Profit from operations decreased to CHF 1.5 billion. This was a reduction of CHF 179 million, CHF 70 million thereof pertaining to a provision in the context of the mentioned DOJ matter, while CHF 25 million were due to FX inflation effects on profits from our foreign operations. Borrowing costs were stable at CHF 121 million. Our income tax expense was CHF 300 million. The effective tax rate was 22% compared to 21% in 2019. Last year, we reported a positive noncash tax one-off in the context of the implementation of the Swiss tax reform. Our net profit decreased by 13% to CHF 1,051 million. This was a reduction of CHF 154 million, CHF 49 million relating to the 2019 tax one-off, CHF 16 million to negative FX translation effects and CHF 55 million to the after-tax effect of the mentioned provision. Slide 9 shows the adjustments to our profit from operations. We adjusted the 2020 profit from operations to reflect restructuring charges and program costs related to the new accounting standard. We also adjusted the CHF 70 million provision recorded in the context of the mentioned DOJ matter. The net profit impact was CHF 55 million. This provision was recognized in the other segment, which comprises the holding company. The adjusted profit from operations decreased by 5% to CHF 1,572 million. As shown on Slide 10, this reduction included COVID-19 impacts in our savings result, primarily in Switzerland and France, due to lower net investment result. In addition, COVID-19 premium taxes and contributions put pressure on the risk result in France. These effects were partly offset by a strong fee result, mainly at asset managers and owned IFAs in Germany, where we took advantage of market opportunities to further grow our business. The same applies to the unit-linked businesses in France and Germany, where we achieved new business growth despite COVID-19, resulting in higher acquisition costs. Moving now to the segment results and to more details on the development of single profit sources. I will start with Switzerland on Slide 11. Premiums decreased by 18% to CHF 11.0 billion, in line with expectations and the overall market development. In individual life, periodic premiums grew by 2% while the market grew by 1%. Single premiums decreased by 22% compared to a 23% decrease in the market. Overall, the market was down by 3%, but our premiums were down by 6%. This is due to our higher share of single premiums compared to the market average. Premiums in group life were down by 19% to CHF 9.6 billion, while the market decreased by 22%. Periodic premiums grew by 1%. Single premiums decreased by 30%. As mentioned on numerous occasions, we reported an exceptional increase in premiums in 2019. This was driven by additional demand as our largest competitor pulled out of the full insurance business. Overall, premiums in Switzerland in 2020, excluding this exceptional increase, were 1% above the prior year level. The share of semiautonomous solutions in our group life new business production was 48% compared to 19% in 2019. Fee and commission income was up by 13% to CHF 298 million, primarily due to Swiss Life Select, our mortgage business and investment solution for private clients. Operating expenses decreased by 14% to CHF 361 million. This was due to an exceptional plan amendment in our pension scheme, reducing the future pension obligations. This benefit was noncash and has a net profit impact of about CHF 20 million. The segment result declined by 7% to CHF 830 million, primarily due to a lower savings result in context of COVID-19-related equity market volatility. The cost result was largely stable as the positive administration cost effect from the plan amendment was offset by higher acquisition costs due to new business growth in individual life. The fee result increased by 29% to CHF 26 million, supported, among other, by our mortgage business and investment solutions for third parties. The risk result increased by 2% to CHF 266 million, mainly due to group life with higher periodic premiums and lower claims. The value of new business decreased by 38% to CHF 191 million as higher volumes in individual life were more than offset by lower volumes in group life, where we had exceptional demand in 2019 for full insurance business, which has below-average margin. As a result, the new business margin increased to 2.5%, supported by the improved business mix also in individual life, partly offset by lower interest rates. Turning now to France. Please note that all figures quoted are in euros for our France, Germany and International segments. In France, premiums increased by 10% to EUR 5.9 billion. In our life business, premiums were up by 14%, while the market was down by 20%. This was achieved by new pension products. The unit-linked share in our life premium was 57% compared to the market average of 34%. Life net inflows were EUR 2.0 billion versus overall market net outflows of EUR 6.5 billion. In health and protection, premiums increased by 2%, mainly driven by the group business. P&C premiums were up by 5%, primarily due to motor products. Fee and commission income increased by 8% to EUR 316 million, mainly due to higher unit-linked fees given positive net inflows. Operating expenses increased by 4% to EUR 355 million due to business growth and investments in growth projects, such as the new pension product, credit life and digital client solutions. The segment result decreased by 18% to EUR 203 million, mainly due to lower savings, cost and risk results. The savings result decreased in the context of COVID-19. The cost result was down mostly due to higher acquisition costs related to strong new business growth in life. The fee result was up by 2% to EUR 76 million. The positive contribution, primarily from the life business, was partly offset by investments in growth initiatives, such as credit life and digital distribution. The risk result decreased by 9% to EUR 88 million. We had a positive claims experience in health and P&C due to lockdowns in 2020. On the other hand, we had COVID-19-related contributions of around EUR 50 million. Besides a general contribution, about 80% related to taxes on health premiums, thereof, about EUR 14 million to 2021 premiums. The value of new business increased by 16% to EUR 151 million due to higher volumes in life. Increased unit-linked share, the successful launch of new pension products and improved business mix in health and protection also contributed positively. The new business margin remained stable at 2.4% despite the strong decrease in interest rates. Moving on to Germany on Slide 13. Premiums were up by 5% to EUR 1.3 billion due to modern, modern-traditional and disability products. The market was stable. Fee and commission income grew by 15% to EUR 515 million, driven by a strong revenue increase at our owned IFAs due to growing number of financial advisers and productivity gains. The number of financial advisers increased by 11% year-on-year to 4,635. Operating expenses were up by 5% to EUR 234 million because of business growth as well as ongoing investments in growth initiatives, such as digital tools and interfaces for customers, product partners and intermediaries. The segment result was stable at EUR 168 million due to a higher fee result that offset lower savings, risk and cost results. The savings result decreased year-on-year, as expected. In 2019, we had, in the context of the [ zeta door ] financing, an extraordinarily high net investment result, including gains on interest rate derivatives. The cost result decreased due to higher acquisition costs, in line with growing unit-linked new business. The fee result was up by 32% to EUR 87 million, driven by strong business development and productivity gains at our owned IFAs. Besides operational leverage, this included a small net benefit with one-off character. The risk result decreased by 14% to EUR 28 million due to our disability business, primarily as a result of administration backlogs. The value of new business increased by 30% to EUR 72 million, mainly due to the continued success of unit-linked products. The new business margin improved to 3.5%. Turning now to the International segment. Premiums decreased by 39% to EUR 1.3 billion, primarily due to lower single premiums with private clients in Asia. This is the result of the early and lasting COVID-19 measures that led to reduced client activity and a postponement of face-to-face client meetings and medical underwriting. Fee and commission income was down by 8% to EUR 260 million due to lower business with private clients as well as fewer client interactions at owned IFAs in specific regions. Assets under control for high net worth individuals, one driver of fee income, decreased by 5% to EUR 18.6 billion as new deposits were more than offset by financial market movements and surrenders. Operating expenses decreased by 5% to EUR 97 million due to disciplined cost management. The segment result was stable at EUR 73 million. The fee result declined by 11% to EUR 48 million, in line with income development. The risk result increased by EUR 4 million to EUR 15 million, driven by higher risk premiums and a positive claims experience in the business with corporate clients. The value of new business decreased by 38% to EUR 30 million, mainly due to lower volumes. The new business margin grew to 2.6% as a result of an improved business mix in our business with private clients and higher profitability in the corporate client business. Let's move now to our Asset Managers segment that reports in Swiss francs. Asset Managers total income was up by 10% to CHF 936 million. In our PAM business, total income was stable at CHF 377 million. Higher recurring income due to higher average asset base was offset by lower real estate transaction fees. In our TPAM business, total income was up by 17% to CHF 559 million. Recurring fees increased by 13%, given a higher average asset base. Nonrecurring income was up by 30%. This included strong other net income from gains on ongoing and completed real estate project developments as well as higher nonrecurring commission fees such as performance and transaction fees. The share of total nonrecurring income for PAM was 30% of total income compared to 27% in 2019. Operating expenses increased by 8% to CHF 519 million due to further growth, primarily in real estate, process optimization and investments in digitalization. As reported already in half year 2020, we had an accelerated amortization of customer relationship assets, which is a noncash effect. The segment result increased by 12% to CHF 345 million. PAM was down by 7% to CHF 207 million. This is the result of stable income development being more than offset by higher expenses related to long-term real estate projects, such as a large development project in Basel. TPAM increased its segment result by 60% to CHF 137 million due to growing commission income, combined with an improved cost-to-income ratio and higher other net income. Other net income is, by definition, already net of expenses, and thus has a noticeable impact on the segment result in the period in which it occurs. Net new assets in our TPAM business amounted to CHF 7.5 billion compared to CHF 8.9 billion in 2019. We achieved strong inflows in real assets of CHF 5.6 billion, thereof, CHF 4.8 billion from real estate and CHF 0.8 billion from infrastructure, both significantly above the 2019 level. Inflows in other asset classes were below the prior year level and amounted to CHF 1.1 billion in bonds and CHF 0.9 billion in balanced mandates, while outflows in money market funds and equities combined amounted to CHF 0.1 billion. Excluding money market funds, net new assets amounted to CHF 7.6 billion in 2020 compared to CHF 7.8 billion in 2019. Overall, assets under management in our TPAM business were up to CHF 92 billion compared to CHF 83 billion at year-end 2019. Total assets under management came to CHF 270 billion. Let's move back to the group on Slide 16. Total operating expenses were stable at CHF 3.5 billion. Operating expense adjusted increased by 2% to CHF 1.7 billion. Direct investment income on Slide 17 decreased by around CHF 0.4 billion to CHF 4.0 billion. Our direct investment yield was 2.4%. About 1/4 of the reduction is due to negative FX impact, both on translation and coupons. We also had lower income on bonds due to past bond realizations and lower reinvestment yields as well as lower income on equities due to reduced exposure and lower dividend yields. Income from real estate also declined in 2020. First of all, we had movements in our real estate funds. This already affected the half year 2020 figures, as discussed in our speech back then. We have fully sold some funds, which led to lower income. We also have substantially reduced our ownership in some other funds. This is in line with our co-investment strategy in TPAM funds. Initially, our stake is often higher and is then reduced over time. This led to a deconsolidation of funds from an accounting point of view, and thus to a shift from direct rental income to dividends and gains in real estate funds. On top of that, the reduction included effective rent losses of less than CHF 10 million; higher operating expenditure, which are always netted in our total rental income; and a negative FX translation effect mentioned before. As said in the half year 2020 speech, real estate income is not always developing fully in line with acquisitions. Some of the real estate recently acquired is in the development phase and is thus not yet generating income, such as a large real estate development project in Basel. Net investment result decreased to CHF 3.7 billion. The net investment yield was 2.2% compared to 2.9% in 2019. Net capital gains amounted to CHF 110 million. This included realized gains in bonds and equities and positive real estate revaluations that were partly offset by impairments on equities as well as revaluation losses on equity hedging derivatives in the context of COVID-19-related equity market volatility. Moreover, net capital gains also included FX hedging effects, such as losses from the hedge of hedging costs as interest rate differentials narrowed in Q1 2020. However, this narrowing led to a decrease in hedging costs of CHF 227 million to CHF 547 million and will lead to a further decrease of hedging costs. Unrealized net gains on equities were stable at CHF 1.6 billion compared to year-end 2019. Unrealized net gains in bonds amounted to CHF 18.2 billion compared to CHF 15.1 billion. Our total investment result, including changes in unrealized gains and losses on investments, was 4.0%. Slide 18 shows the structure of our investment portfolio. The share of bonds was stable at 57%. The share of real estate increased to 21.7%. We had further real estate revaluations of CHF 0.9 billion and further net acquisitions of CHF 2.7 billion. Real estate continues to be a very attractive asset class from both an ALM and SST perspective, providing stable rental income at an attractive risk premium that match our long-term commitments on the liability side. As a result of this high-quality portfolio in attractive locations, our vacancy rate continued to be very low at 3.9% compared to 3.7% in 2019. We expect slightly higher vacancy rates in 2021. Revaluation gains were at 2.3% compared to 2.1% in 2019. Moreover, in 2020, rent collections amounted to around 96% of rental income due. Finally, our net equity quota was 3.5%. Our insurance reserves, excluding policyholder participation liabilities, increased by 2% in local currency to CHF 171 billion, primarily due to Switzerland, France and Germany. Shareholders' equity increased by 5% to CHF 16.7 billion due to higher unrealized gains in bonds and the net profit attributable to shareholders. This was partly offset by the dividend paid. Our total outstanding financing instruments amounted to CHF 4.4 billion. The capital structure and maturity profile remained well balanced. That brings me to our Swiss Life 2021 financial targets and the reporting on the progress. Let me start with the development of our profit sources on Slide 23. The savings result declined by 13% to CHF 787 million due to a lower net investment result. The risk result decreased by 1% to CHF 407 million, primarily due to France for the reasons mentioned before. It continues to be within our 2021 target range of CHF 400 million to CHF 450 million. The fee result increased by 11% to CHF 601 million, and thus reached the lower end of our 2021 target range of CHF 600 million to CHF 650 million. This was due to a very strong performance by asset managers and our owned IFAs in Germany. The cost result declined by 12% due to strong unit-linked new business production in France and Germany, which resulted in higher acquisition costs. The contribution from other, namely the holding, was down to a more normal level. In 2019, we benefited from realized gains and investments in the context of the former CHF 1 billion share buyback. Slide 24 shows our direct and net investment yields. Our reinvestment rate was 1.7% in 2020. Our average technical interest rate on Slide 25 decreased by 7 basis points to 1.05% due to business mix effects and further reserve strengthening of CHF 0.5 billion. With our disciplined ALM, we continued to successfully protect our interest rate margin. The interest rate margin remains safeguarded for more than 3 decades. Let me now briefly comment on Slide 27. The development of the fee and commission income increased by 11% in local currency to CHF 2.0 billion. Commission income at Swiss Life Asset Managers was up by 8% in local currency. This was entirely due to TPAM. As usual, commission income on this slide excludes all the net income, e.g., from real estate project development. Commission income from our -- from owned IFAs increased by 12% in local currency, while commission income from own and third-party products and services was up by 7%. Slide 28 shows our new business margin that increased to 2.6%, primarily due to an improved business mix in all our segments. In particular, Switzerland had a margin dilution in 2019, now reverted due to the exceptional increase in full insurance solutions following a competitive move. Our value of new business decreased to CHF 465 million, mainly due to the group life effect in Switzerland in 2019. Let me now move on to operational efficiency. In life insurance, the efficiency ratio improved to 35 basis points, primarily due to high life insurance reserves and the mentioned plan amendment in our pension scheme in Switzerland. Excluding this, the ratio would have been 39 basis points. At our owned IFAs, the distribution operating expense ratio improved slightly to 24% due to operational leverage. In our TPAM business, the cost-to-income ratio improved to 79%, in line with growing net commission income and improved operational leverage. The ratio includes the mentioned accelerated amortization of customer relationship assets in 2020. Excluding this, the ratio would have been 76%. Turning to capital, cash and payout on Slide 30. As of January 1, 2021, our Swiss Solvency Test ratio is estimated to be around 195% and, therefore, above our ambition range of 140% to 190%. As of today, the SST ratio is expected to be slightly higher due to positive equity markets and credit spreads tightening. The mentioned SST ratio includes our ongoing CHF 400 million share buyback, which was resumed in January and will run until the end of May 2021. Slide 31 shows our cash remittance. In 2020, we remitted CHF 784 million of cash to the holding company. This was an increase of 4% compared to 2019. The remittance ratio was 65%. It is calculated on the prior year net profit, which included the mentioned CHF 49 million tax one-off, which was noncash. Cash at holding at year-end 2020 amounted to slightly more than CHF 1 billion compared to around CHF 0.9 billion at year-end 2019. For the 2020 financial year, the Board of Directors will propose to the AGM a dividend of CHF 21, up from CHF 20 in the previous year. The payout ratio is 63%. Let me sum up and reiterate Patrick's earlier comments. I'm very pleased with the strong performance of Swiss Life in 2020. We have quickly adapted to the challenging environment and further demonstrated the strength and resilience of our business model. We are well on track with our Swiss Life '21 program, and I can therefore confirm all the Swiss Life 2021 financial targets. Thank you for listening, and back to you, Patrick.

Thank you, Matthias. Ladies and gentlemen, given the strong performance Matthias has just outlined, I'd like to take this opportunity to thank our employees and our financial advisers for the extraordinary commitment they have shown in these difficult times. They support our customers to lead a self-determined life. I'm very pleased about our results of 2020. The trust of our customers is reflected therein. Now it's time to hand over to you. Who would like to ask the first question?

[Operator Instructions] The first question is from the line of Sinclair, Andrew with Bank of America.

Three from me, if that's okay. Firstly, just on the dividend, you've gone a bit above your target payout ratio target range. Beaten expectations is great. But just really wondered what was the thinking about going above the target payout ratio level. Second question was just on cash remittances. You mentioned it was a bit lower, some noncash items in last year's numbers, lower that as a proportion of prior year's profits. Just really wondered, is there anything you can do to increase remittances further to, say, get liquidity to further accelerate the -- add to the buyback program? And third question was just really wondering if you could quantify the total COVID impact on the risk results. Just would be helpful to get a base for 2021.

So thanks, Andy. I'll take the first question, and the other 2 will be given to Matthias. Well, on the dividend increase, I mean it's driven by, number one, the strong cash remittance. So both in '19 and '20, we had a strong cash remittance I think in '19, it was plus 9%. Now it was plus 4%. Then in our SST, we're above our ambition range. And the net result was impacted by non-pandemic-related one-off effects, plus we've increased -- we've just said that we confirm all our Swiss Life 2021 targets. So we felt very comfortable with increasing the dividend.

I will take question number 2 and 3. I will start with the risk result. It's a bit difficult to say what is related to the pandemic and whatnot. Just as a reminder again that the French risk result includes EUR 50 million of contributions to the French state, if you wish, 80% thereof as a premium tax in health. And out of that 80%, around 1/3, around EUR 14 million relates to premiums in 2021, which we already booked in the financial year 2020. Now what does it mean in terms of, let's say, overall picture? And I think given the many effects in France, which also included clearly positive claims experience in the P&C and the health business, I would say that we were maybe EUR 10 million short of what we would have expected in a non-pandemic, in a non-COVID year in France, to give you sort of an indication on that. Maybe on the question on cash, related also to what Patrick said, we confirmed all of our Swiss Life 2021 targets, including the cumulated cash target of CHF 2 billion to CHF 2.25 billion. What can be done to accelerate cash? I mean as we discussed a couple of times, the fee business is closer to cash. And we have given ourselves the target compared to the prior year program to go up to the CHF 600 million to CHF 650 million of fee results.

The next question is from the line of Eliot, Peter with Kepler Cheuvreux.

The first -- the main question actually was just about sort of cash and solvency. I mean if I look at your cash holding, it's about at the target level that you sort of set. If I look at solvency, it's above your target, and you mentioned that it's higher today. And I'm guessing that still has a little bit of a drag from the higher volatility we've seen in corporate bonds. So maybe it even goes up further as that normalizes. So I'm just wondering, is there a way to get the sort of cash and solvency position more aligned? Is there a possibility of maybe some re-risking or anything else you can do to align those 2? That was the first question. The second area was just on your real estate portfolio. You mentioned that's increased further to nearly 22% of your portfolio. I mean I'm just wondering, at what point does that become an issue from a solvency point of view? And I guess on that as well, I was a little bit surprised to see the proportion of office buildings increased. I don't know if you've got any comment on what was driving that.

So thank you for the question. Well, first of all, just to clarify, the spike in volatility or, let's say, in credit spreads that led to higher solvency requirements for corporate bonds, that is here to stay. So that will not normalize back to any levels before. It is now in the time series and it will stay there. So -- but still, while re-risking, I wouldn't say there is much room for substantial re-risking or a huge change in the asset allocation. Yes, we've increased our equity exposure slightly, but these are small effects. And for real estate, no, I don't expect any negative impact in terms of solvency requirements because of a further increase of our real estate portfolio. However, in some instances, we do run into these old restrictions for tied assets. So of course, the more we build up, the closer we get to those limits that are valid for mortgages and real estate cumulatively, for example, in Switzerland. But so far, it's not, let's say, in the near future, it's not yet the problem, but we're getting closer. Then on the office, I think it was mainly the mixed-use real estate that was -- that increased. And this was due to the consolidation of one large commercial real estate fund, which counted completely towards mix. But let me just check if I mentioned that correctly.

Okay. Just looking at the presentation, it looked like office went from 30% at the half year to 32% at the full year, but that is just...

I have the year-on-year -- right, I have the year-on-year comparison in mind. And there, that's half year. So -- and we bought -- we had some acquisitions in Geneva and in Zurich, and we had some sales in the residential portfolio. So some office acquisitions in Geneva and Zurich and some residential sales in the second half of the year. So if you look -- yes, so you're right, half year on half year. Half year to full year, you're right, there was a slight increase.

The next question is from the line of Huttner, Michael with Berenberg.

And thank you for a lovely dividend. Two questions. One is, could you talk about the profile of your -- and the size of your investment in Basel in the real estate and when that will add to earnings? The second one is just like Andrew Sinclair, but this one refers to the group as a whole, and I'm being very lazy. What's the total impact of COVID? Something which we like -- I can remove from these results to give me an idea for 2021. And then the next one, the final one is just on the real estate revaluations. You said CHF 0.9 billion, and I couldn't work it out. I just wondered if you could give the percentage and maybe how you see that developing going forward.

Michael, we didn't get the first question. We did not understand the first question. Could you repeat?

I beg your pardon. Oh, yes. So it's about your project in Basel, when you could talk about the size of it and when it will add to earnings?

All right. Okay. So on the real estate revaluation, it was, I think, 2.3%. We had positive revaluations in all subsegments. So mostly in the residential part, of course, but also in offices. That might surprise some people abroad. But office demand is still strong. I mean we have -- in Switzerland, we have the lowest vacancy rate on our portfolio overall we've ever had at 3.6%. Yes, we expect a slight increase over the year, but we have not received any requests from our larger clients to reduce office space. So -- and this is true for the market overall. There's been a good revaluation run there, albeit below the average of these 2.3%. So going forward, I'd like to remind you also, if we look at how many companies were newly founded in Switzerland, it was up 5% last year. There is still the same amount of people working despite the strong contraction in the GDP. So we're quite optimistic going forward. Now more specifically for Basel, this is really a decade-long project. So it will take a long time before we will see rental -- or let's say, a substantial rental income. We already have some rental income there, but a more substantial rental income, I think, that will take another 5, 6 years or so. Then the COVID impact, I think Matthias can just repeat what he told.

Yes. Maybe I think Page 10 shows a bit on a qualitative basis where we have impacted. We can discuss in great detail what might have been the case, COVID-19. But I think we try to just illustrate where we have been hit. And clearly, it was the savings and the risk results that have been affected by COVID-19. Clearly, in the savings result, it was the market volatility. Specifically, on the equity markets, we derisked the equity portfolio for P&L reasons, for statutory reasons in the first half of the year. And we're participating in the rebound with a lower equity quota. And that was the first and foremost effect where we have been hit clearly this late. As you can see on Page 40, to substantial equity impairments which we compensated to protect the statutory results and the dividend capacity with bond realizations. The risk result is essentially affected in those areas outside life. In the life business, as we mentioned before, we have this balanced portfolio between death and older age annuity products where we have not seen anything particular. We have had the effects in the P&C and the health business. In France, we had lower claims due to the lockdowns, but the mentioned EUR 50 million of COVID-19-related taxes in France. So overall, as mentioned, I would say, the French risk result has been hit by something like EUR 10 million, which includes, as mentioned, this charge of EUR 14 million for the next year for the 2021 premium taxes. Fee result and cost results have been essentially not affected if we look at the group overall.

And outside of France, I think we can say there's been a very small hit in Germany in our disability business, which you might link to COVID because it took longer than usual to reintegrate some people, some customers in our disability insurance. But that had a small single-digit million impact, and there was no impact specifically in Switzerland or International. So it's really -- that's why Matthias keeps mentioning the French example because it was the biggest impact that basically, the French government was so successful in creaming off, let's say, the windfall gains of the health and, in part, non-life insurance industry, which we also are part of in France.

The next question is from the line of Hanif, Farooq with Crédit Suisse.

Firstly, you're hinting very strongly that because of the higher fee results, you should be able to increase the remittance ratio over time. I mean is that a fair logical assumption to make from here onwards? Secondly, in your asset management business, you talk a lot about nonrecurring commission. But it seems to me in TPAM that every year, you have nonrecurring commission because of performance fees, et cetera. So what is the true kind of nonrecurring element in that strong performance in fees and asset management, if you could talk about that? And then lastly, on the shift to semiautonomous, it's a really big increase. And I'm just wondering, is there any sort of particular one-off in that? Or do you see this continuing going forward? And should we now expect a focus on growing the fee income in Switzerland?

I may start with the first question. We confirm clearly the targets. We said in 2019, what we will do in terms of capital, cash and payout, and we confirm all those targets. Maybe on the semiautonomous business in Switzerland, yes, we have seen a jump from the 19% in 2019 to 48% in the business year 2020. Clearly, we had, in 2019, an extraordinary large share of full insurance because of that competitor's move out of the full insurance business. And that's the reason why back then, we had a higher share of that full insurance business, and therefore, also a lower share of the semiautonomous solution back in 2019. And clearly, also in Switzerland, we strive to increase the fee business. We have several, let's say, businesses that contribute to the fee result in Switzerland. We have the IFAs. We have the mortgage business that we really have been growing significantly last year. We have pension consulting. We have real estate brokerage and so forth.

And the...

Then on the asset management, yes, we have nonrecurring income in the TPAM business. The nonrecurring income amounted to 30% in the full year 2020. This compares to 27% in 2019. And yes, this business is -- this nonrecurring is part of the business in TPAM. We have indicated in our Investors Day back in 2018 a range of maybe 20% to 30% of nonrecurring income as part of the TPAM business.

And just to clarify, nonrecurring does not mean one-off. I mean it's just part of the business, especially in the real estate business, in project development, but also some performance fees that we distinguish between nonrecurring and recurring. But it's part of the business model. That's why we showed it at the Investor Day that this nonrecurring income, of course, happens again and again and again and again.

Can I just come back on the remittance ratio question and ask it in a slightly different way, to be opportunistic? So would it be fair to say that this could be an area that you would look at as a target to possibly revise or to look at again? Or do you think really, realistically, you're at the level now where you're taking out as much cash you possibly can from your current mix?

Look, this is really hugely driven by the composition of the net income, right? As long as real estate as the main contributor to noncash income keeps profit high, this is, in my view, a realistic figure. So no, we will not have a specific target, at least that's not planned to change towards a cash remittance in percent of previous year's IFRS net profit. As we indicated on Page 29, we don't have any plans to have a specific KPI around here. But yes, we do confirm our cash remittance targets. And yes, of course, we strive to continue to increase the million figures we get out of the business, especially as our fee result is expected to further increase.

The next question is from the line of Liang, Fulin with Morgan Stanley.

I have 3 questions, actually. One of them is just a follow-up of the remittance question. So in terms of the -- well, just we saw that the remittance ratio from the -- like the Swiss and France has increased quite a lot in 2020. And Patrick just explained, that depends on the composition of the net income. So just from a pure theoretical point of view, then I -- can I say that, in theory, that the cost results would be like 100% cash, fee results could be 100% cash? Then what is -- is there any theoretical limit of the saving results where you could upstream from the subsidiaries, like 60% remittance ratio or 50% or something like that? Because we saw that in Swiss and France, I did a very quick calculation that your remittance in Swiss and France has been approaching 65% to 70%. So just wanted to know that to what extent this ratio can increase further. So that's the remittance question. Then secondly is in terms of the business momentum. So we saw very strong business momentum like in France and Germany. I just wanted to -- is it fair to think that, for example, in France, the strong business momentum is partly due to the fact the other business channels were -- distribution channels were closed down, so therefore, you had this advantage and that could reverse when the life is back to normal? Is it fair to think that way? Or is this likely to continue the strong momentum? And then lastly is, again, that in TPAM, you have a highest -- your fee increase is actually higher than your AUM increase. Is that because of your -- is it fair to say that you actually -- the new flows is actually higher-margin business?

So first, on the business momentum in France, this was mainly impacted by us being very early in the starting blocks in October of 2019 with respect to this new generation of products in France around the so-called PACTE law, so -- which increases the transferability of old age provision. So we were very early on with coming up with this new product generations. We had very low competition back then. So we showed to our broker channel that we are very eager and very fast and innovative. And this has helped now even into this year, 2021. So we continue to see a good dynamic here last year and especially a high unit-linked part in this product range. So we're very happy with that. Of course, we expected -- and I mentioned this at half year, I believe that the competition will catch on. But at least last year, as Matthias mentioned, we had a very strong net inflow of CHF 2 billion, and the market outflow was, I think, was CHF 6 billion negative. So we're very proud of that. In Germany, it was a bit of a different story here. I think it was very positive that we had a strong flow towards our retail clients with also for Germany, let's say, a novel type of product with a very high equity component, which is not typical for our German insurance clients. And the reason here is that we have a lot of young clients because we have a very young distribution force. So our average adviser is 37 years old, whereas in Germany, they're -- in the rest of Germany, they're in their mid-50s, which tend to be much more conservative in terms of investing. Now in TPAM, the main reason why we had a larger increase of our income, total income, was because we had a strong bounce back in our other income. You might remember at our Investor Day in 2018, we warned that 2019 would be a weak year in terms of our project development income. And this has now bounced back, and it's even more than bounced back. I mean it's been the strongest with CHF 50 million, it's been the strongest year ever, and 2019 was CHF 30 million. That's the reason why we have the stronger increase there of our total income in assets -- in our TPAM business and the assets under management. And now Matthias will take the first question.

In terms of, let's say, the cash remittance, maybe a couple of words. If we go back also to our Investors Day, we have said that we have out of the IFRS net profit about 20% which is noncash. This relates to effects such as real estate appreciation and the like. We have there included also some effects like [ backing ] the deferral of acquisition expenses. And that brings us to about, let's say, 80% of the profit that can be returned as cash. And then we have also said that there is about, let's say, 10% of the net profit that is retained on a BD level to fund growth. I mean you need statutory capital. There are investments to be made, and that brings us then with a 10% to 20% level of profit retained at the holding to the 50% to 60%, let's say, payout ratio. Now specifically to your question, what does it mean in terms of, let's say, fee result and cost result? The fee result clearly is closer to cash. But also, in that business, there are certain investments to be made. That's clear. Also, these businesses have a cash need. And in terms of the cost result that you were also alluding to, it's important to keep in mind that the overall cost result in the area of acquisition is negative. I mean there, we pay out commission to brokers, to the sales force. And this is also, let's say, reflected in this 20% effect that I've mentioned at the beginning, which is a profit contribution that is noncash. And last but not least, what you need to keep also in mind is that the cost result and all these profit-based source components are on a pretax basis. So this is pretax. And the net profit or the local net profit, that's really what is the basis, the after-tax results, what can be transferred as cash to the holding. Now maybe also something in addition to the question you had on the development of the TPAM fee result. Yes, indeed, we had inflows in 2020 which had on average, a higher margin. And how can you see that? We said that out of the CHF 7.5 billion, about 3/4 is related to real estate and infrastructure, so real assets, as we call them, where the margins are substantially higher than in the securities area; and the CHF 5.6 billion in 2020 relates to about, I think, CHF 3.5 billion in 2019. So the money that we acquired in 2020, on average, have higher margins.

Just make sure I get the information. So all in all, we are saying that the remit -- so 2 things, the remittance from subsidiary to holding company is at broadly 70% would be the limit? And then the dividend payout ratio from the group to its shareholders is also broadly 70%?

That's a walk we have shown at Investors Day 2018. So we say essentially, conceptually 70%, and those around the figures can be dividend or transferred to the holding, but at the holding, we retain some cash to retain capital management flexibility. And therefore, we say not all of those 70% can be distributed as dividend to shareholders. And we said, that's about 10% to 20% that we retain at the holding, and that's how we then came to the 50% to 60% payout ratio, the dividend. And we say if we have enough cash at the holding and if the SST is above the ambition range, then we consider share buybacks as an additional mean to return capital to the shareholders. That's what we have done. 1 year ago, we announced back then the CHF 400 million share buyback that is now running. As discussed a couple of times in 2020, we temporarily suspended it, and we resumed it at the 4th of January this year and will finish it by the end of May of this year at the original amount and by the original end date.

The next question is a follow-up question from the line of Huttner, Michael with Berenberg.

Just really small stuff. On Basel, what is the total size of the project in money? And you mentioned a few times that the -- one of the metrics in real estate, I think the vacancy rate, would be diluted in 2021. And I just wondered, does that relate -- is this because of this project? Or what's the reason? And how much? And then the last question is on the Department of Justice provision. Is the CHF 70 million, is that the bulk of it? Or -- and you mentioned it could possibly be a bit higher. Is a bit higher really a small amount?

So on the last -- on the vacancy rate, yes, we just -- from these very, very low levels and the business contraction we saw last year, overall, we expect just as course of normal business that the vacancy can create -- the vacancy rate increases marginally, so only slightly. On the overall size in Basel?

We did not disclose the original, let's say, the transaction. What we said was what we paid at the beginning. But as Patrick mentioned, that is a project that will run for decades. I mean that's about developing part of the city. And this can, over time, reach probably CHF 2 billion or so in size. But that said, that's over time, over several years to come.

And the last question, could you repeat that one?

It was just on the Department of Justice, you said it could be a little bit more. And I just wondered, is a little bit more really a tiny amount more? Just to get a feel for it.

We said somewhat higher, and that's all we could say.

The next question is a follow-up question from the line of Eliot, Peter with Kepler Cheuvreux.

Three quick questions. One, just a follow-up, similar to Michael, on the vacancy rate. I mean you mentioned normal course of business. Could you just elaborate, is that sort of and is related -- I mean are your comments related to anything that you're actually seeing on the ground at the moment? Or is it just your sort of common sense, that's how you expect things to develop given the environment and given you're at low levels? That's great. That was the first one. Second one was France was depressed by investments in growth prospects. Just wondering whether you can add any comments to those and whether that -- those costs will continue. And then the third one was just looking at the cost/income ratio in the asset manager, obviously down very nicely in TPAM, but not in PAM. Just wondering if you could comment on the outlook there.

So with respect to reletting, that's basically common sense. We see some reletting with some rent-free periods. Now in the COVID crisis, so -- but there are no specifics. I mean some of the vacancies we have, we will refurbish. So they will go out of the figures for the next 2 or 3 years, but we've done that in the past decades already. So that's nothing to write home about. Of course, we have some buildings here and there where we had planned vacancies, but these decisions were taken well before the pandemic. It's just with the general uncertainty of the look -- of the outlook. But again, in Switzerland, we've really had -- 2020 will have the lowest bankruptcy rate for the last 10 or even 20 years. And we had about 5% increase of new businesses that were founded compared to the boom year 2019. And this has -- it's even been 20% of hairdressers and 20% of new companies in the retail area. For a large shopping center that we bought, we have long waiting list of people wanting to go in. So let's see how it then really develops in the course of 2021. Remind you that in 2020, we have the same amount of people working as we had at the end of 2019, so how might the whole thing look like in a boom year, which we expect now in 2021 with a GDP growth of 3% to 4% in Switzerland. I'm just mentioning Switzerland because we have 80% of our real estate in Switzerland. And then over to the investments in France, Matthias?

We had, as mentioned, a couple of investments in growth projects. One was this digital subscription tool in credit life. Credit life is something where we have seized a business opportunity. We continue to invest in that project. We had, to give you another example, this -- well, PACTE business opportunity that Patrick mentioned, we seized that in 2019. We have really built up that business and gained market share, and we have really achieved there also profitable growth in this business. And clearly, this kind of seizing of business opportunity requires investments. There may be, clearly, in the future, other business opportunities that we seize, but we make sure that this is profitable growth that we go after there. So yes, we continue to seize opportunities. Another area is, for example, non-life where we have built up our partnerships, and this is clearly an investment that needs to be made. And there, we will see additional investments over the future because we want to really build our business also in France. Maybe the question on the PAM business, as you said, we have reduced the cost-to-income ratio in TPAM. In PAM, we have, as explained, said that we are investing in these development projects in Basel. There is -- a lot of that is in the PAM area. And there, we have really additional staff that we just need to develop that project. And this is clearly coming at the cost. We have additional initiatives. There are some senior secured funds that we used to have essentially external. We now have internalized that, and this has clearly also added to the cost in PAM. And we have additional initiatives such as [ info tech ] that we're building up. All in all, I would say, we expect, for the year 2020 in PAM, a stable cost-to-income ratio.

The year 2021.

Year 2021, that's right. Sorry, 2021.

The next question is from the line of Locher, René with KBW.

So first question is on Slide 17. And when I'm looking at my model, we have this net investment income of roughly CHF 3.7 billion. So is it a fair assumption that I should allocate some 20%, 21% of this net investment income to the savings result in the profit by sources for roughly 20%, 21%? And then I'm still wondering how the reserve strengthening of CHF 0.5 billion Matthias mentioned, how is this playing into this calculation? That's my first question. And then the second one is on Slide 31. On the cash, I mean just -- I was just surprised to see that cash remittance by business line, that from the life insurance business, the share increased from 54% up to 62%, and the share from distribution, health, P&C increased. So I always thought that cash remittance out of the life business is a little bit limited. And then just a general question on Slide 38. So that's a typical Swiss question, the split between group life, individual life. And we have seen with the shift from AXA to Swiss Life what the profitability of the group life business is in Switzerland. So I'm not sure if you can give me some details, but could you comment a little bit about profitability of group life business and the profitability of this individual life business? I mean we are talking about CHF 830 million profit of operation from the Swiss business. And the reason why I'm asking there is this political discussion ongoing here in Switzerland that Swiss employers could be allowed to make additional payment in a third pillar program. So I was just wondering if you can comment a little bit on this development and what's the profitability of the individual life business.

So the share of investment yield that winds up in the savings result, that really depends on the composition of where this net investment result really is generated. So there are different legal quote mechanisms in the different business lines in different countries. So there is no rule of thumb on what proportion of the investment income then winds up in the savings results. And yes, the reserve strengthening is charged against the reserving -- against the savings results as always. And then for the other question, I hand over to Matthias.

Maybe as an addition to what Patrick just said, for the reasons mentioned, the share of net investment result that flows into the profit by source, the savings result varies from year-to-year. It was essentially 20%, 19.9% in 2019. It was 21.2% in 2020. So for the reasons mentioned, there is some variability over time. Now on the cash remittance, indeed, the life share increased. We had more remittance from Switzerland. There was, in the context of the French situation, we had a bit low profitability on the health and P&C businesses, while the French life business really went well. And please keep in mind that this is essentially the cash remittance that relates back to the financial year 2019 that was upstreamed in 2020. Now in terms of the profitability of the group life versus the individual life business. When we talk about the new business margins, we said that while the group life and, in particular, the full insurance business meets our hurdle rate for new business profitability, it is clearly below average. And this is exactly the reason that now in 2020, we have seen the new business margin going up in Switzerland and as a result also across the group, because we have written less group life business, less full insurance business in 2020 compared to 2019. So yes, individual life business and the new business value is of higher profitability than the group life business.

The next question is a follow-up question from the line of Huttner, Michael with Berenberg.

My last question, sorry. Just on the International, so no face-to-face or very few last year in Singapore and other places. Is that going to lead to kind of pent-up demand? So when the business opens up this year, there will be like a ton of business coming through?

Clearly, as I said, we have had less client meetings in that business, specifically in Singapore, where people fly in to meet in person, to have medical underwriting in person. And clearly, there, we have seen a slowdown. The team in International, specifically in Singapore, has pushed for kind of local business to be written. We have made sure -- they have made sure that they can write more of the business to local residents that has kind of mitigated the premium reduction a bit. But yes, we expect there some pipeline to materialize in 2021.

The next question is a follow-up question from the line of Sinclair, Andrew with Bank of America.

Just one final fairly high-level question from me, which is really just as the business mix continues to evolve towards more fee and maybe some more risk as well and moving away from traditional full insurance products to semiautonomous products, just really wondered if you could give us an idea of what's the direction of travel for capital requirements kind of over the next few years. Do you see a point where that can really start to reduce as the more capital-intensive products start to run off?

Well, we can refer there to the Investors Day 2018 where we have shown that this runoff of the total traditional back book will take a very long time. And this is particularly driven by the Swiss group life business, which, by design, always attracts new money also from the in-force business. And there, we have projected essentially a relatively flat development. Whereas for the business outside the BVG business in Switzerland, there is a bit of a quicker kind of reduction of the back book. But as said, this is a very slow trend to materialize. Back then, we said that excluding new business, so if we projected back then the business, excluding new business, we have maybe over a period of 7, 8 years a reduction of around CHF 10 billion of technical reserves, which is quite a small number in the context of our book of maybe CHF 150 billion, CHF 140 billion worth of traditional back book.

So nothing to say that the trajectory should be particularly different today?

No.

Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Mr. Patrick Frost for any closing remarks. Thank you.

That brings us to the end of our conference. We wish you all the best, and look forward to welcome you again on another occasion. Goodbye.

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