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

Ladies and gentlemen, welcome to the Swiss Life Presentation of the Half Year Results 2021 Conference Call and Live Webcast. I'm Hailey, 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 is my pleasure to hand over to Mr. Patrick Frost, Group CEO of Swiss Life. Please go ahead.

Dear analysts and investors, welcome to the Swiss Life Half Year Conference. Thank you for taking the time to join us today. As usual, following my initial appraisal of our half year results, our CFO, Matthias Aellig will go through our reporting in more detail. We will then open the floor for questions. Swiss Life can look back on a successful first half year. The results show that we are making excellent progress towards achieving all our goals under the Swiss Life 2021 corporate program. We again showed significant improvements in our insurance advice and asset management businesses. So we've come to the pandemic well as a company. We were able to grow in the areas of strategic relevance to us such as the fee result, cash remittance and profit from operations, not only compared to the first half of 2020, but also compared to the first half of 2019 before the COVID crisis. Let me provide some specific key figures from the first half of 2021 to support my statements. Net profit rose by 15% to CHF 618 million. The adjusted return on equity was 11.3%, which was significantly above our ambition in the context of our Swiss Life 2021 program. We grew fee income by 15% to around CHF 1.08 billion. The fee result was up by 14% to CHF 309 million. This is very pleasing and compares to a level of CHF 260 million in the first half of 2019. The value of new business came to CHF 252 million, an increase of 24%. The new business margin increased to 3.1% against 2.1% previously. And finally, the cash remittance to the holding company rose yet again by 7% to CHF 798 million. We're very well on track with the Swiss Life 2021 program and confirm the corresponding financial targets with us creating a strong foundation for the further development of our group over the coming year. I now hand over to Matthias to provide a more detailed account of our figures.

Thank you, Patrick. Good morning, ladies and gentlemen. I will start with selected P&L figures on Slide 6. Gross written premiums, fees and deposits received decreased by 7% in local currency to CHF 10.9 billion, mainly due to Switzerland. Fee and commission income was up by 15% in local currency to CHF 1.1 billion. All sources contributed positively as managers, our owned IFAs and the business with own and third-party products and services. The net investment result of the insurance portfolio for own risk increased to CHF 2.2 billion. Net insurance benefits and claims were down to CHF 7.7 billion as a result of premium development. Policyholder participation increased to CHF 1.1 billion due to Switzerland, Germany and France. We strengthened reserves by about CHF 100 million. As usual, final policyholder participation and reserve strengthening is determined at the end of the financial year. Operating expenses were CHF 1.8 billion. Profit from operations increased to CHF 876 million. This is mainly due to higher savings and fee results which more than offset a lower risk result. Borrowing costs increased slightly to CHF 62 million. Due to the early refinancing of a hybrid bond in March, the call date in September. Our income tax expense was CHF 196 million. Effective tax rate was 24% and thus at prior year level. Our net profit increased by 15% to CHF 618 million. Slide 7 shows the adjustments to our profit from operations. We adjusted the profit from operations to reflect finance transformation expenses, which are the program costs related to the new accounting standards and systems. The adjusted profit from operations increased by 13% to CHF 889 million. Moving now to the segment results, starting with Switzerland on Slide 8. Premiums decreased by 20% to CHF 5.9 billion, primarily due to the group life business. The market was down by 11%. Market figures are provided as usual by the Swiss Insurance Association. Effective 2021, the figures exclude 1 large competitor, which decided to leave the association. Premiums in individual life were down by 1% to CHF 689 million, while the market increased by 4%. Periodic premiums grew by 3%, while single premiums were down by 13%. Premiums in group life were down by 22% to CHF 5.2 billion, while the market decreased by 14%. Periodic premiums fell by 4%, signal premiums decreased by 38%. About 3/4 of this decline in single group life premiums can be attributed to fewer new accounts but the remaining quarter relates to lower interest of employees in existing schemes. We continued to focus on disciplined underwriting to protect and improve the quality of our full insurance book. In this context, assets under management in our semiautonomous foundations, increased to CHF 5.4 billion compared to CHF 4.8 billion at year-end 2020 or CHF 4.4 billion at the end of June 2020. The shift to growth in semiautonomous solutions results in lower reported premiums. Only risk and cost premiums are recorded where the savings components are recorded off-balance sheet as asset inflows in the respective foundation. This development is in line with our full range provider strategy and our established focus on quality before growth. Fee and commission income was up by 12% to CHF 157 million, primarily due to Swiss Life Select and our businesses with unit-linked and investment solutions for private clients. Our mortgage and real estate brokerage businesses also contributed positively. Operating expenses increased by 4% to CHF 200 million, driven by the in-sourcing of mortgage administration and investments in growth projects such as further digitalization of the advisory model and process optimization. The segment result increased by 10% to CHF 458 million, primarily due to higher savings result supported by more friendly markets. The risk and cost results were marginally higher. The fee result increased by 23% to CHF 17 million, supported by Swiss Life Select, investment solutions for private clients and other effects. The value of new business is essentially stable at CHF 88 million. The active new business steering in this low interest rate environment led to higher shares of capital-light products in both individual life and group life. The new business margin increased to 4.4%. 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 27% to EUR 3.5 billion. The market grew by 25%. In our life business, premiums were up by 38% due to continued demand for our new pension products following an already strong growth in the prior year. The market was up by 42% which compares to a heavily depressed first half in 2020. The unit-linked share in our life premiums was 58% compared to the market average of 38%. Life net inflows were EUR 1.2 billion versus overall market net inflows of EUR 10.9 billion. Health and Protection premiums increased by 6%, mainly driven by the group business. The market was up by 4%. P&C premiums were up by 11%, primarily due to modern products. Market growth was 4%. Fee and commission income rose by 21% to EUR 183 million. Unit-linked fee income increased as a result of higher unit-linked reserves which grew due to net inflows and a more valuable financial market environment. We also generated higher revenues from structured products. Operating expenses increased by 1% to EUR 172 million due to business growth and investments in growth projects such as credit life and digital client solutions. The segment result increased by 6% to EUR 132 million. The savings result developed positively based on a high net investment result. The cost result declined due to higher acquisition costs related to strong new business growth in life. The risk result decreased considerably as the prior year period benefited from very low health and P&C claims in the context of COVID-19. Moreover, in 2021, Coverage and Health increased based on a governmental prescription affecting the entire French health insurance sector. The fee result was up by 27% to EUR 49 million, in line with the income development. The strong increase in value of new business by 43% to EUR 94 million was driven by higher volumes in both Life & Health and Protection. The new business margin decreased slightly to 2.3%, mainly due to the higher health coverage mentioned before. Moving on to Germany on Slide 10. Premiums were up by 5% to EUR 661 million due to modern, modern traditional and disability products. The market was down by 2%. Fee and commission income grew by 19% to EUR 295 million due to a strong contribution from our owned IFAs based on an increased number of financial advisors. This top line development also included, as mentioned in the last Q1 call, an extraordinary benefit of around EUR 15 million. It relates to a successful campaign based on the solidarity surcharge, which has discontinued for the majority of the German population at the beginning of 2021. The number of financial advisors increased by 18% year-on-year to 5,107. Operating expenses were up by 3% to EUR 115 million because of business growth as well as ongoing investments in growth initiatives such as digital tools and interfaces for advisors, customers and product partners. The segment result was up by 41% to CHF 130 million. All profit sources contributed to the positive development, primarily the savings and fee results. The savings result increased due to an exceptionally high net investment result based on higher revaluation gains on investments. Moreover, we again realized fixed income instruments in the context of the ZZR financing for the entire financial year. Therefore, we do not expect further invested or related fixed income realizations in 2021. In other words, there is a front-loading of the savings result of about EUR 20 million, with no repetition in the second half of 2021. The fee result was up by 26% to EUR 55 million, driven by strong business development at our owned IFAs. The value of new business increased by 36% to EUR 37 million, mainly due to increased volumes in modern and risk products. In addition, the guarantees of modern traditional products were further reduced. The new business margin improved to 3.4%. Turning now to the International segment. Premiums decreased by 35% to EUR 451 million due to lower premiums with private clients in Europe that were partly offset by higher premiums with private clients in Asia and with corporate clients. Fee and commission income was up by 15% to EUR 151 million driven by higher contribution from our owned IFAs, both in the U.K. and CEE, while the income with private and corporate clients were stable. Operating expenses increased by 4% to EUR 50 million due to investments in process optimization and digitalization. The segment result was up by 17% to EUR 42 million, with a higher contribution from all lines of the business. The fee and savings results developed positively, while the other profit sources were essentially stable. The fee result increased by 23% to EUR 32 million. This is due to our owned IFAs, achieving higher revenues and productivity gains, resulting as an example, from virtual advice. The value of new business increased by 7% to CHF 19 million, mainly driven by higher volumes in risk business. The new business margin advanced to 4.7%. Let's move now to our Asset Managers segment that reports in Swiss francs. Asset Managers total income was up by 6% to CHF 445 million. The increase was driven by higher recurring income. In our PAM business, total income was up by 3% to CHF 183 million. Higher recurring income due to a higher average asset base was partly offset by lower real estate transaction fees. In our TPAM business, total income was up by 8% to CHF 262 million. Recurring income increased by 18%, given a higher average asset base. Nonrecurring income was down by CHF 13 million due to lower other net income from gains on ongoing and completed real estate development projects. Other nonrecurring income, such as performance and transaction fees was stable. The share of total nonrecurring income for TPAM was 16% of total income compared to 23% in the prior year period. Operating expenses increased by 6% to CHF 267 million due to further growth, process optimization and investments in digitalization. This included the discontinued use and thus, the recognition of a brand asset of CHF 7 million in the context of the merger of Corpus Sireo into Swiss Life Asset Managers Germany. The segment result increased by 4% to CHF 140 million. PAM was roughly stable at CHF 97 million. Higher income was 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 contribution by 16% to CHF 43 million due to growing recurring income, combined with an improved cost/income ratio, which is partly offset by lower other net income. We expect other net income to catch up in the second half of the year. Net new assets in our TPAM business amounted to CHF 4.6 billion, compared to CHF 1.4 billion in the first 6 months of 2020. We achieved strong inflows in real assets of CHF 2.2 billion, there of CHF 2.0 billion from real estate and CHF 0.2 billion from infrastructure. This is above the 2020 level when we achieved inflows in real assets of CHF 1.6 billion. Inflows in other asset classes amounted to CHF 1.7 billion in money market funds, CHF 0.4 billion in bonds and balanced mandates and CHF 0.3 billion in equities. Excluding money market funds, net new assets amounted to CHF 2.9 billion compared to CHF 2.4 billion in the prior year period. Overall, assets under management in our TPAM business were up to CHF 98.9 billion compared to CHF 91.6 billion at year-end 2020 and CHF 82.9 billion by midyear 2020. The drivers were strong net new assets, supported by market performance and favorable FX effects. Total assets under management came to CHF 27.4 billion. Let's move now back to the group on Slide 13. Total operating expenses increased by 11% to CHF 1.8 billion, primarily due to higher commission expenses. Operating expenses adjusted increased by 3% to CHF 863 million. Direct investment income, on Slide 14, decreased by around CHF 55 million to CHF 1.97 billion. Our non-annualized direct investment yield was 1.1%. Income on bonds was down due to past bond realizations and lower reinvestment yields. Income on equities was also lower due to reduced average exposure in nominal terms compared to the prior year period and thus lower dividend payment. This was partly offset by higher rental income that increased by CHF 45 million. About half of this increase was related to new fund consolidations. The other half was due to higher rental income on a growing real estate asset base. Rental income included effective rent losses of less than CHF 10 million in the context of COVID-19 as well as higher operating expenditures, which are always netted in our total rental income. The net investment result increased to CHF 2.2 billion. The non-annualized net investment yield was 1.3% compared to 1.1% in the prior year period. Net capital gains amounted to CHF 422 million. This increase compared to the prior year is primarily due to higher revaluation gains on real estate and net capital gains on loans and alternative investments as well as a substantial improved FX hedging effects including a decrease in hedging costs to CHF 174 million from CHF 336 million in the prior year period. Those positive effects were partly offset by lower gains in bonds and negative P&L contribution of the hedged equity portfolio, including valuation losses on equity hedging derivatives in the context of a positive market environment. Unrealized gains within equity portfolio are recognized as other comprehensive income. Unrealized net gains on equities were CHF 2.9 billion compared to CHF 1.6 billion at year-end 2020. Unrealized net gains on bonds amounted to CHF 13.2 billion compared to CHF 18.2 billion at year-end 2020. Our total investment result, including changes in unrealized gains and losses on investments, fell to minus 0.9% as a result of higher interest rates. Slide 15 shows the structure of our investment portfolio. The asset mix remained essentially in line with year-end 2020. The share of bonds declined primarily due to lower valuations resulting from higher interest rates. The real estate exposure increased to 22.6% and includes further real estate revaluations of CHF 0.5 billion and further net acquisitions of CHF 0.3 billion. The share of equities increased in line with valuable financial markets. Our net equity exposure after hedging amounted to 4.4%. Let me give some additional color on the real estate portfolio. Our vacancy rate decreased to 4.2% compared to 4.7% at the end of the first quarter of the year. This was due to reletting activities, as mentioned in the Q1 2021 call. We expect vacancy rates for the year-end to remain at around the current level. Rent collections amounted to around 98% of rental income due compared to 95% in the prior year period. The majority of uncollected rents in the context of COVID-19 is due to rent deferrals as rent losses amounted to less than CHF 10 million. Insurance reserves, excluding policyholder participation liabilities on Slide 16 increased by 2% in local currency to CHF 175.7 billion, primarily due to France, International and Germany. Shareholders' equity decreased by 6% to CHF 15.7 billion compared to year-end 2020. This is due to lower net unrealized gains on bonds. The share buyback completed in May and the dividend paid, which was partly offset by the net profit attributable to shareholders. Our total outstanding financing instruments amounted to CHF 4.9 billion, including an overlap from the early refinancing of hybrid bond in March with a call date in September this year. That brings me to the Swiss Life 2021 financial targets and how we have progressed. Let me start with the development of our fee business on Slide 20. Fee and commission income increased by 15% in local currency to CHF 1.1 billion. Commission income at asset manage -- at Swiss Life Asset Managers was up by 9% in local currency. This was primarily due to TPAM. As usual, commission income on this slide excludes other net income, such as income from real estate project development. Commission income from owned IFAs increased by 19% in local currency, while commission income from owned and third-party products and services was up by 17%. The fee result increased by 14% to CHF 309 million. This very pleasing and compares to a pre-COVID level of CHF 260 million in the first half of 2019. Let me also briefly comment on the other profit sources. The savings result increased year-on-year due to a higher net investment result primarily due to France and Germany. It is now essentially back in the half year 2019 level. The risk result, as I mentioned earlier, decreased primarily due to France. It is around the half year 2019 levels. The cost result remained stable year-on-year and is also around the level of the first half of 2019. The half year 2021, profit from operations was CHF 876 million, as initially said. This compares to a pre-COVID level of CHF 830 million in the first 6 months of 2019. As just explained, the growth stems essentially from the fee result. Slide 22 shows our nonannualized direct and net investment yield. This compares to an annualized reinvestment rate of 1.2% in the first 6 months of 2021. Our average technical interest rate on Slide 23 decreased by 2 basis points to 1.03% driven by business mix effects. Slide 24 shows our new business margin of 3.1%. This compares to 2.1% in the prior year period and to our ambition level of 1.5%. The increase is primarily due to an improved business mix with a focus on capital-light business with low or no guarantees at all. In this persistently low interest rate environment, our value of new business increased by 24% to CHF 252 million. Let me now move on to operational efficiency. In life insurance, the efficiency ratio was essentially stable at 18 basis points. At our owned IFAs, the distribution operating expense ratio improved to 21%, primarily due to Germany and the benefit from the solidarity surcharge as well as due to International. In our TPAM business, the cost income ratio improved to 84% in line with growing net commission income and improved operational leverage. The half year 2021 ratio included the derecognition of the brand asset. On an adjusted basis, the ratio was 80% compared to 86% in the prior year period. As usual, the cost-income ratio tends to be higher in the first half of the year as the operating expenses are more linearly incurred whereas the income is more back-end loaded within the year. Turning to capital, cash and payout on Slide 26. By the end of June 2021, our Swiss Solvency Test ratio is estimated to be around 205%. As of today, the SST ratio is at about the same level. This compares to an SST ratio of 197% at the beginning of the year shown on Slide 27, together with the SST sensitivities as of January 1, 2021. In the first 6 months of 2021, cash remittance to the holding company increased by 7% to CHF 798 million. Cash at holding as of today amounts to CHF 0.8 billion compared to slightly more than CHF 1 billion at year-end 2020. The current cash level includes the cash remittances to the holding company just mentioned, as well as outflows for the dividend payment of CHF 21 per share, including the withholding tax. It is also net of the completed CHF 400 million share buyback and the DOJ payment of CHF 70 million. Our past cash comfort level of CHF 0.8 billion to CHF 1 billion was taking into consideration a potential DOJ payment. Our new cash comfort level going forward is CHF 0.7 billion to CHF 0.9 billion. Let me sum up and reiterate Patrick's earlier comments. I'm very pleased with the strong performance of Swiss Life 2021 so far, especially with the development of the fee business. We have again improved the quality of our earnings and demonstrated the resilience and strength of our business model in an environment that remains challenging. We are very well on track with our Swiss Life 2021 program. And I can again confirm all Swiss Life 2021 financial targets. We will report new targets for the next strategic program this fall on November 5. We look forward to welcoming many of you in Zurich. Thank you for listening, and back to you, Patrick.

So thank you, Matthias. We're now ready for your questions. Who would like to go first?

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

Firstly, just on remittance, really helpful details that you given us, just really wanted to check. I know remittance tends to be H1 weighted. Just really wondered if you're expecting any more in H2 this year? Secondly was just on your debt position. You mentioned the refinancing of the CHF 450 million callable in September. But I think you've also got about CHF 200 million of senior maturing in H2. Just really wondered if you could give us your thoughts on whether you'd like to refinance that? Or would you be bringing debt a bit lower in your leverage range. And thirdly, I just really wondered if you could give us the actual numbers for the risk and saving results at half year? It seems to have been pretty strong savings results in Germany, maybe a bit tougher in risk in France. But just for a group level would be useful, it'd just be really useful to have that split at half year as well as full year.

Thanks, Andy. I'm happy to take your questions. In terms of the remittances, we have the typical pattern that you mentioned that we get most of it in the first half year, and there's essentially no big remittance that we expected in H2. There is stuff like some fees, interest in loans and the like. But there's probably nothing more to expect than what has come in the prior year. So that's around maybe CHF 35 million, CHF 40 million, that order of magnitude. In terms of the debt position, yes, we have refinanced the hybrid due in September in -- already in March, taking advantage of the environment and we tend to have the tendency of early refinancing and that what has happened to the debt. So the hybrid debt position is also something to be expected for the senior bond coming due in December. And given the early refinancing, and I think that's what you probably referred to, there was a slight deviation in the reference level with the call of the hybrid in September, we expect to be within the range. Now in terms of the PBS, the profit by source, we have an established practice of disclosing the full year numbers, including the business division slide, but I think what has been very particular this year was that the prior year was very strongly affected, as mentioned by the COVID-19 situation, which meant for 2020 a strong reduction in the savings result given the development in the capital markets back in 2020. As mentioned, we are now back essentially on a level of pre COVID-19 in terms of savings result despite the ongoing low interest rate level in terms of risk result, and I think that's important to stress we had -- have mentioned before, essentially nothing to report in the life insurance part of the risk results, but we had excess gains in health and P&C in France in the prior year half year. You may recall that in the full year, it is normalized as these benefits got taxed away by the French government half year 2021, we had really an extraordinary high risk result, which now has come back in a more normalized situation.

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

And again, lovely results. I have 3 questions. Cash guidance, expenses and COVID-19. And on cash guidance, you've reduced your comfort guidance range. And I was just wondering -- it's a very cheeky question. Does this mean we're more likely to see buybacks at some stage in next -- in the medium term? Given that solvency is extraordinary, and now you've reduced the kind of -- you reduced the hurdle or the benchmark for cash to be retained. The second is on expenses. I was just wondering, so expenses to me seem to have grown a lot. You've mentioned in various countries, investment in digital persists and whether it's various bits, which is lovely. And I just wondered how much of the growth in expenses can be related to these kind of investments in longer-term projects rather than the day-to-day just to get a feel for what growth might come from these extra investments? And then the last one is COVID-19. So this is a real very vague question. It seems as if there's no crisis anymore, it's almost back to normal. And I just wondered, if I think very high level, how can I picture -- how do you see the world post the pandemic? How different is it? And how does that -- would that affect your strategy? It really is an open question. I don't know the -- obviously, I don't know the answer. We all imagine more working from home and stuff like that, but here we are.

I'll take the last question first. So I mean, as most others, we're not sure how the whole thing will spell out, but we're quite optimistic that we'll continue to do well in this post pandemic world. Yes, of course, there are some discussions around vacancies in the real estate portfolio, but we're confident, and we still don't see any issues for our office portfolio. Why? Because we have these very good locations and the inner cities still see strong demand. Of course, we'll have a bit more working from home than precrisis. Of course, we've had some benefits in our -- especially last year in our IFA business because people were willing to listen to our advisors. So maybe going forward, once everything is normalized, we'll see less growth here. But I think the main impact from the pandemic came from the savings result and the level of rates, this is by far more important for us, how the post-pandemic world will affect financial markets than, let's say, what the impacts are on home office or the IFA business, et cetera. So we continue to depend on financial markets. I'll hand over to Matthias for the other 2 questions.

Thank you, Patrick. Let me start for with the question on the cash level. As mentioned, we have the reduction of the cash comfort level, which is driven by the settlement of the DOJ payment. In the past, we have earmarked this wished -- certain amount for a potential claim. This now has been settled. The cash that -- with that holding has been reduced. That's the reason for this adjustment of the cash comfort level. So the settlement that we reported about in May this year. And coming, let's say, to the more broad question you raised. In terms of share buyback, we have the established framework we talk about every call. I will not go through the details, but the 2 criteria that we have in place, the SSD and the cash level, that's completely unchanged, and there's nothing new to report there. In terms of the expenses, as you mentioned, we have strong business activities and some of the expenses are more or less directly related to the business activities, there are phone calls that need to be taken, transfers that need to be organized. So there's one driver which is really a very operational increase, which goes with the business activities. And as you mentioned, we also continue to invest into the further development of the business. And I think we signed here a good balance between, let's say, profit and investments into growth. Clearly, those investments, we focus in terms of strategic growth areas that we have going forward. I think what is probably also important to note, and I mentioned that in the speech, on the Page 13, where we show the expenses, the larger part of the increase is driven by commissions. So the new business activities and on an adjusted basis, scope, FX and the like, the growth is 3%.

[Operator Instructions] And the next question is from the line of Peter Eliot of Kepler Cheuvreux.

A few follow-ups, please, actually. Firstly, on -- coming back to the risk result. I mean a great sort of results overall, but that was probably the one area where I was maybe a little bit optimistic. And if I look back, I guess, last year for 2020, you were sort of ended at the lower end of your range, and it seems like you're maybe a little bit behind the sort of 2020 run rate, especially in France. So I'm just wondering how I should think about the outlook there. Is there room to sort of improve that? Yes, I mean, I guess, in France, in particular, you had a run rate of about CHF 100 million a year pre-COVID. Is that an appropriate level going forward? Or any more sort of detail you could give us there would be very helpful. Secondly, coming back to the capital structure. I appreciate the refinancing, et cetera. If I make that adjustment, then I think you're basically at 70% or 70-point something, but towards the bottom of the range. So I'm just wondering, how does that -- how do you think of your sort of flexibility there? Yes, that would be great. Any thoughts? And then finally, on the cash holding the comfort, CHF 700 million to CHF 900 million. Is that something we should now think of as a long-term level? Or is there anything else that's sort of in your thinking there that might change over the near term? I mean I guess the DOJ was an obvious one. So maybe there is nothing else, but useful to think of that to understand whether there's anything that might drive that to change in the future?

Okay. Let me start with the last question. Yes, the CHF 700 million to CHF 900 million, that's something we think about as a long-term level, given the business structure that we have. And we have said we trigger words to actually review and adjust the cash comfort level in the current period. In terms of the adjustment to the reference level, if you adjust that, we are at 71%. And clearly, the reference level, it's called reference level, and there is a range. It's not the point. We give 70% to 75%. And as an example, at full year 2020, we were at 72%. So there is a range, and we also say there is a range for it. This means it's not an extremely tight thing. In terms of risk results, let me first start with the fact that we have confirmed all Swiss Life 2021 targets, including the risk result, which we have with a goal of CHF 400 million to CHF 450 million for the full year 2021. I think in terms of France, which you rightly point out as the [indiscernible] point here in the risk result discussion. 2020 was certainly not a year where we had a normal run rate. There were so many effects that affected the 2021. 2020 results, let me remind us of the key drivers. In the first half of the year, we had, as mentioned, that excess gains in health and P&C. Why was that? People did not drive any more to the same level as before the pandemic, there was less claims in home insurance and particularly, people could go less often to see dentists, the opticians and the physicians. So as a result, we had a much lower claims level in the half year 2020. Those benefits cost then, as mentioned, taxed away by the French government. They imposed a premium tax in health which essentially cost of, I think, CHF 42 million in the second half of the year. This CHF 42 million refer to both the 2020 and the 2021 health business, but the full amount, the CHF 42 million was recognized in the financial year 2020. What we also have in France that comes a bit to the current year outlook. There was the introduction of a new governmental prescription in the health business that's this -- 100% [indiscernible], which puts the burden for the health claims more on the French state and the insurance sector. And this has already last year, but more prominently this year led to a worsening of the claims ratio in the health business. As a result, we see the French risk result clearly under pressure this year, and this will also have an effect on the group's total risk result for 2021, but as mentioned, we confirm the goals of CHF 400 million to CHF 450 million.

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

I got 2 questions, please. The first one is, I noticed there isn't much reserve enhancements during the first half of '21. I'm just wondering, does that mean actually the -- is the whole kind of interest rate downward pressure on your liability side is approaching an end? Or -- and looking forward, what's your expectation on that one? So the first one. The second question, just so I just want to clarify one number. So your cost income ratio of TPAM business is 75% end of this year, while your current cost/income ratio is 80% for the half -- first half adjusted by the brand write-off issue? And does that mean that we should be expecting roughly 60% kind of cost income ratio in the second half of '21? -- sorry, 70% of '21, sorry.

Okay. Let me start with the first question on reserving. We assess the reserves always for each valuation date, and we apply here and we have to apply the guidance of the Swiss Actuarial Association. And what is driving simply spoke and the reserving assessment is clearly, the assets we hold, the returns we expect on the asset we hold, but also clearly, the yields at which we reinvest. And simply speaking, and the result of that aggregate is then to say whether we need and by how much to further strengthen the results. What now has happened in the first half of the year until 30th of June is that rate in Swiss franc and euro have increased considerably. And this has clearly eased the pressure on the reserving positions. But to be frank, we do not know how capital market interest rates will develop over the past. So I think it's difficult to in the future. So we don't know how this will develop going forward. But that said, we do this reassessment at each and every closing. Now in terms of the cost-income ratio, the target that we gave for the Swiss Life 2021 program is around 75%. So around 75% is the goal that we have said, and we have confirmed that level. Now what is the dynamics, there is typically, and [indiscernible] that we observe every year that the first half of the year typically has higher cost-income ratio. Why is that? Many of the, let's say transactions that contribute to nonrecurring income, such as development fees, transaction fees and the like, they are coming more towards the end of the year, while the expenses are incurred more linearly. So yes, we expect a similar trend this year.

We have a follow-up question from the line of Michael Huttner.

I was going to ask you on that topic. The -- how much could we expect because you gave us the mix, 16% in the first half of kind of transaction fees versus 23% last year. So I just wondered whether you have an amount in mind or some guidance. The second is the amazing new business margin in Switzerland, the 4.4%. Is there anything unusual in there? Or is it -- how sustainable is it? Because this is -- this doesn't look like Switzerland, which is low interest rate country, it looks like Italy or something. And then the last question is on -- I'm hesitating. But on the IFAs, so you grew in Germany, 18% to 5,100. Is there any kind of limit? Or can you just keep growing?

Okay. Let me start. First, with the new business margin, Switzerland, the 4.4% is really driven by both an improved business mix within the Swiss individual and the Swiss group life business. So in the Swiss individual business, we now have a further increased share of capital-light products. There is one product that even has a negative interest rate guarantee. And on the other part of the business or the product, even a unit-linked share of maybe 60%, 70%. So it's a hybrid product. And also in the -- in the group life business, we have had this reduction of the full insurance part in the new business, which you also have seen as a premium reduction. On the other hand, we also have written a lot of semi-autonomous and risk business in the group life business. This one is less visible in the premiums as mentioned. And this is -- this clear let's say, shift towards a capital-light business that has driven this increase of new business margin to 4.4%. So to come to your initial question. No, there's nothing funny in it. It's just a change in the business mix, if you wish. How sustainable is it? The 4.4% is essentially 3x the ambition level. So per se, there's no problem if this margin comes back. As mentioned on previous occasions, we do not optimize the margin per se, but we want to maximize the value of new business and then over time, clearly, the P&L contribution of the business. So it's perfectly conceivable that this margin can also come down a bit. So this is kind of the way we also steer the business. Now in terms of the nonrecurring income, it's a [indiscernible], sorry for that. As mentioned, we expect the share of nonrecurring clearly to be higher versus the end of the year, those activities are back-end loaded within the year. As an example, in the last year, we had the 23% at half year. At full year, we were at 30%. The nature of the business is that it's a bit difficult to predict. We are at half year a bit behind last year, and this is likely also to be the case in terms of share for the full year. Coming to the third question, we are growing nicely. In Germany, we have added 18% of IFAs. And clearly, we are working hard to continue the growth. Clearly, we also need to make sure that we can maintain the quality of the education, the processes and the like, but that's probably the stuff I can mention to you.

The next question is from the line of René Locher of Stifel.

Four questions, if I may. So the first one is a simple one on Slide 8. you're showing here that the market in Group Life decreased by 14%. I mean partially, I think this is only traditional full insurance in Switzerland. The second question is on Slide 10. And here also from my understanding, I mean we can see very strong fee income. I was wondering, how do you finance the ZZR? Is this just out of the insurance business? Or can you use part of the strong fee result to finance the ZZR. Then on Slide 28, here, again, I guess, a bit of misunderstanding from my side, but I always thought that the current year cash remittance depends on the net profit achieved last year. So now last year's net profit was down some 13%. And despite that, the cash remittance is up by 7%. So yes kind of a misunderstanding from my side, I guess. And then last but not least, on Slide 36, I see you have very strong direct investment income in real estate and also the revaluation gains are substantially up year-over-year. So yes, perhaps you can shed some light here on this positive development in real estate. And perhaps you can also elaborate what is the impact from Circle at the airport?

I'll give it a try. So yes, on the premium development, of course, primarily driven by our BVG business. That's also the reason why we had this 20% reduction in premiums. Of course, the individual life market has done better. And especially the periodic premiums. But you're right, I mean, it's primarily driven by the BVG Group Life business. That's both the overall market and, of course, our figures. Now on Germany, the ZZR that set out, that is only financed within the insurance portfolio. So it doesn't have anything to do with the fee result. Here, what happens? And remember, the reason why this increases the IFRS figures, if we do gains realization is because the liabilities -- statutory liabilities created by the ZZR are not reflected in the IFRS best estimates. So that's the reason why there is basically a neutral statutory effect by realizing bonds and increasing the ZZR, but there is a positive IFRS impact, which Matthias quantified as being around CHF 20 million. Then on the remittance question, there was a very similar effect there. The cash remittance, of course, it depends on the results of last year. But it depends on the statutory results of last year. Primarily, that's one of the key drivers. That's why you have some discrepancies of the IFRS results and the cash remittance. And the cash remittance was driven by AM, for asset managers, the term and IFAs and international. Then the last question was on the Page 36, so around investment income. And here, I guess, the positive point is that we have a bounce back now of rental income of around CHF 50 million. And there, we've already included some income from Circle, which is the development, which was completed -- almost completed towards the end of last year. It's not totally completed yet. And so we expect a further increase of rental income coming from Circle this year and then again next year. So we'll have some tailwind here going forward. Then the other key points that Matthias mentioned, of course, we had a bit of a reduction on the bond income. Why? Because of gains realizations last year. But of course, the slowdown of direct investment income has slowed. So over the last 11 years, I think we had -- it was about 7 basis points per year, which direct investment income yields came down last year. It was a lot more. I think it was around 20 basis points. So we were back to normal, more or less. So I'm always talking half year figures here. And of course, we've had a big swing in equity contributions to net investment income. I think what is also notable is that equity is a bit counterintuitively, have contributed negatively to net investment income. And that implicitly means we've had a big buildup of unrealized gains in the equity portfolio, which was up to CHF 2.9 billion at half year, if I recall correctly. And of course, we've also had a well-flagged benefit from much lower hedging costs this year compared to half year. And I think you also saw the improvement of the real estate revaluation gains, which, by the way, again, were in all subsegments. So residential, retail and commercial real estate, all experienced positive revaluation gains. Again, this year, this half year, as was the case last year.

The next question is from the line of Singh Samant of Citi.

So this is France, which is slightly interesting in terms of the premium growth on a continuous basis. And in Q1, we saw like 17% growth. And in this quarter also, there is a huge growth. I believe there's like easy comparator or comparable last year. But how should we think about it going forward? That's my first question. And second, on International segment. If you compare the Q2 premiums, it was like 50% down year-on-year largely with lower contribution from private clients. But here also, how should we think it going forward in a normalized rate? And what are the challenges you are facing and how do we see it going forward? Third, on the cash remittances, I believe you gave a breakup by business line in your annual slides previously. So can you just provide any indication of half yearly cash remittances given that largely remittances happening in first half only. So what is the breakup by business lines, if any indication, that would be helpful.

Okay. Then let me take the question on France. As you said, we have achieved strong growth in the French business, particularly in the life business in France. The driver of that started essentially in 2019. Then a new law was established in France. It is called Loi PACTE or PACTE law. This created a prerequisite for a new product generation in the Swiss Life, France was very quick, if not the first, among the first companies to offer that new pension product, which is characterized by a very high share of unit-linked. That's an area where we have a strong expertise. And this really has been the growth driver for the past, let's say, 24 months almost. I mean, we first established the individual version of that product and then rolled out the group version of that product. And if you look at that product in isolation and dispension PACTE product, we have a market share in that product area that is well above, let's say, our natural market share. If you also look at the inflows that we generate, the CHF 1.2 billion mentioned compared to the market of CHF 10.9 billion, we have an above average, let's say, market share. And to be frank, we always think at one point in time, this will attract competition from other companies. But so far, we managed to grow in that particular area above our natural market share. How long we can do that, I think it's difficult to assess. But so far, we have the right ingredients, if you wish to be competitive and outperform the market there. In terms of International, yes, you mentioned the dynamics. We had discussions last year, most of the lockdowns affecting Asia. We have things lockdown situations affecting Europe this year. This is a business where we have big tickets and 1 or 2 big tickets may really change the picture quarter-on-quarter, I think it's difficult as a result to really give an indication of premiums forecast. But structurally, there is demand for that product type. We are also rolling out a new version with an increased risk coverage also in Europe. And we are positive that the market is picking up. Now in terms of the cash remittance. In terms of segments, let me give the sort of the following indication what has been driving the increase of cash remittance versus prior year is AM, asset managers, which is a fee business. We have also seen an increased contribution from our German IFA business. So also fee business and also International could increase the cash remittance versus prior year.

And we have another follow-up question from the line of Michael Huttner.

Sorry about that. It was just on the investment income from equities. The -- so this was down from CHF 193 million to CHF 146 million. And -- but the -- I tried to compare with last year's figures. And I may -- I'm probably reading them wrong, but it looks as if you had less equities last year, so at the half year last year, 2.7% net hedges; this year, 4.4%. Gross of hedges 8.2% last year and 9.9% this year. Has there been a shift somewhere?

I think what is always important here, of course, on the one hand, the dividend yields. But it's the underlying portfolio, you mentioned and the combination of both just led to this decrease of about CHF 50 million in direct investment income if you compare half year 2021 with the half year in last year. So it's really the nominal level. And what we mostly talk about is the hedged equity levels, which is now at around 4.5%, if I recall correctly. And last year, I think it was around 3-ish.

And there are no more questions at this time. I would like to turn the conference back over to the speaker for any closing comments.

So that brings us to the end of our conference. Again, thank you for your time, and I look forward to seeing you again in November. In the meantime, I wish you a pleasant rest of the summer. Good health and all the best. Thank you, and see you soon.