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

Ladies and gentlemen, welcome to the Swiss Life call on the full year 2022 under IFRS 17 Conference Call and Live Webcast. I am Sandra, the 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. Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our conference call on full year 2022 figures under IFRS 17. Please note that IFRS 17 figures are unaudited. Let me start with the key messages. First, we applied the IFRS 17 accounting standards retrospectively from 1st of January 2022, with effects on full year 2022 net profit, shareholders' equity and return on equity. The IFRS 9 accounting standard for financial assets is applied from 1st of January 2023 without restating the comparative period in financial report, which is disclosed under IAS 39. Nevertheless, we will give you today also an indication of the 2022 pro forma net profit under IFRS 17 and 9 as this will be the reporting basis for 2023. Second, the underlying business and the way we manage it is unaffected by the transition to IFRS 17 and 9, therefore, confirm our business strategy, its implementation in our Swiss Life 2024 group financial targets. Swiss Life 2024 focuses on key value drivers which are most relevant in explaining our growth and shareholder return ambitions. The fee result is essentially unaffected, and the cash remittance to the holding is completely unaffected by the transition to the new accounting standards as our dividends and solvency. IFRS 17 changes the presentation of the insurance business. The timing of the profit recognition in the insurance business is different, resulting in an IFRS 17 and IAS 39 2022 net profit of CHF 1.2 billion, and shareholders' equity of CHF 8.4 billion at year-end 2022. Those will be the figures that you can find in the financial supplement on our website and here on Slide 4. The return on equity is 13.9% on an unadjusted basis. We applied the IFRS 9 accounting standard on a pro forma basis to the 2022 figures, and the net profit reduces to CHF 1.03 billion. Coming to other key metrics. Fee result is essentially unaffected. With the transition to IFRS 17, we have refined our approach to reflect the unit-linked contribution of our Swiss Individual Life products. This is now fully shown in fee results. Cash remittance and dividends per share are unaffected. The payout ratio based on the 2022 IFRS 17 net profit was 74%, while not the key figure. The change in presentation of the insurance business also means that premiums, for example, will no longer be disclosed as part of the P&L. Including deposits received, they previously amounted to CHF 20 billion in 2022, while the new insurance revenue under IFRS 17 is CHF 8 billion. Similarly, also, the fee and commission income will not be disclosed in the P&L as in the past. Nevertheless, we will continue to report both premiums as well as fee and commission income with unchanged definition. The lower IFRS 17 net profit and shareholders' equity compared to IFRS 4 can be explained by the nature of our insurance business. The vast majority of our insurance portfolios has poised all the participation and is accounted for under the VFA approach. These are the Individual and Group Life businesses in Switzerland, the Savings and Pension business in France, the Insurance business in Germany and the Group Pension business at our International division. Our VFA portfolios account for about 98% of total net insurance liabilities and for about 80% of operating results from Insurance business. VFA business has a contractual service margin, or CSM, representing the stock of expected on earned future profits that are recognized in the balance sheet as a liability. The CSM absorbs together with estimate liabilities or BEL, current period changes of assets and liabilities. Samples are fair value changes of real estate, bonds and equities as well as reserve strengthening or releases. Profit is driven by the CSM release to P&L over time in line with the services provided for insurance contracts. The remaining Swiss Life portfolio -- insurance portfolios are measured as either PAA or BBA with PAA businesses being much more relevant for Swiss Life. Examples for PAA portfolios or the health and protection as well as P&C businesses in France, and the Group Risk business in the International division. In those non-VFA portfolios, and in assets not acting poised or the liabilities, equity instruments are also accounted for at fair value through P&L, unless we explicitly use fair value through OCI option. We chose the option for certain equities in some areas outside the VFA business. Reserve strengthening or releases also flow through P&L in the PAA portfolios. As in the past, real estate fair value changes continue to be accounted for through P&L without any smoothing over time. This means that there will be an immediate result contribution in those non-VFA businesses in a scenario of changing real estate fair values. Given most recent developments, we expect to see slightly negative real estate fair value changes outside of Switzerland, resulting in a headwind to insurance operating profits outside of the VFA business, duty from the French non-life businesses as well as assets not covering policyholder liabilities. Slide 6 was already disclosed in March of this year. Nevertheless, it continues to be very useful in illustrating the mentioned differences in profit recognition in the VFA business related to changes in asset and liability values by comparing IFRS 17 to IFRS 4. As said, the approach differs from the non-VFA business. Positive fair value changes and realized gains, for example, are accounted for in the P&L, but offset by the recognition of insurance finance expenses. Those expenses are recognized within the net investment result. First, the reduced the net investment result; and second, lead to an increase of the CSM and held in the balance sheet. Therefore, the immediate net P&L recognition will be zero. The P&L impact only stems from the CSM release over time in line with insurance services provided. This mechanism is mirrored in case of negative fair value changes or realized losses. For the VFA business under IFRS 17, the same smoothing over time applies the reserve strengthening or releases and also to direct investment income. All of that will be absorbed by the BEL and CSM and the CSM portion will be released to P&L over time with only a small fraction of it being recognized in the current period. This explains for the financial year 2022. As already mentioned during the call in March, lower IFRS 17 profit from operations of CHF 1.7 billion compared to the IFRS 4 level of CHF 2.1 billion. The reduction is driven primarily by the Swiss business for which individual and group life insurance portfolios are recognized using the VFA approach. More precisely, Individual Life business is driving the reduction in the Swiss IFRS segment result compared to IFRS 4. This is due to the different timing of profit recognition of asset and liability changes in the P&L, such as real estate fair value changes and reserve releases, which had a positive impact on the 2022 IFRS 4 segment results. Regarding France, we have a positive impact from the different timing regarding the recognition of acquisition costs in the VFA business. Under IFRS 17, acquisition costs are implicitly included in the BEL and CSM. There's also a positive impact from higher interest rates in the non-VFA business due to the discounting of current year PAA claims. The other business divisions are not materially impacted by the transition to IFRS 17, given the large fee result contribution to the segment result. Asset managers is totally unaffected. Slide 9 shows how the profit from operations translates to the IFRS 17 net profit of CHF 1.19 billion, which compares to the IFRS 4 level of CHF 1.46 billion. We already showed this directional impact of the new standard on the 2022 net profit components in our March disclosure. You might remember, the arrows indicating the reduction in net profit. Going forward, we will enhance the disclosure of the fee result and reported by business line, presenting asset managers, owned IFAs and the business with own and third-party products and services separately. This will provide more granularity to our profit presentation. I mentioned initially that the 2022 figures have not been restated for IFRS 17 as we start to apply the standard beginning of 2023. Based on a simplified pro forma analysis of IFRS 9 impact and accounting for some equity instruments at fair value to P&L outside the VFA business. Examples are the French non-life business. This would result in a net of CHF 1.03 billion. This is quite a sharp reduction resulting from negative equity market performance in 2022. To limit some of the earnings volatility relating to equity investments, we will apply the fair value through OCI option in 2023 to account for equity instruments in the non-VFA business more widely than in 2022, not to all of them. Coming back to full year 2022 under IFRS 17 and IAS 39. The main profit driver of the operating result of our insurance business was the CSM release of CHF 1.2 billion. This included the contribution of unit-linked business in scope of IFRS 17, for example, in France. This is, however, deducted from the operating result of the insurance business as it will be mapped as previously to the fee result. The portion of the release pertaining to the intergroup margin from Insurance Asset Management Services, this essentially eliminated within the insurance service results and thus the operating results. Also, non-allocated insurance operating expenses are directly charged to P&L outside of the CSM release, thereby essentially offsetting the corresponding portion of the release. The remaining profit contribution stems from the PAA Insurance Service results, the risk adjustment release and from total net investment result of VFA and non-VFA businesses, which is defined differently than under IFRS 4. It now includes net insurance finance expenses that offset the net investment income in the VFA business by increasing BEL and CSM on the liability side. Net insurance finance expenses also include fair value changes of underlying items recognized in P&L, the so-called VFA experience adjustments. We will continue to report on direct investment income and net investment income by asset class as in prior year half and full year investor presentations. Pretax CSM, as of 31st of December 2022, amounted to CHF 16.4 billion and is shown on Slide 11. It demonstrates a level of future unowned pretax profits relating to our VFA and PAA businesses. During 2022, we had positive contributions to the CSM from the expected business contribution and new business each amounting to CHF 0.6 billion. Experience adjustments reflect the impact on the CSM from the actual current period experience compared to expectations, such as, for example, pertaining to claims or expenses. Additionally, changes in actual projection assumptions are also included like future surrender, mortality or longevity assumptions. Altogether, the 2022 impact was minus CHF 0.1 billion. Economic variances include changes in economic conditions, such as interest rates, credit spreads, real estate and equity market movements and FX. The impact in 2022 was negative in the amount of CHF 1.1 billion due to negative equity market developments, higher credit spreads and FX translation effects, which were partly offset by positive real estate fair value changes. Impact from higher interest rates was positive in our insurance business. This was partly offset by the negative impact from higher rates on the Intergroup Asset Management margin, which fell from CHF 3.7 billion at the beginning of 2022 to CHF 3.3 billion at the year-end, and in addition, also by the lower nonallocated insurance operating expenses. As mentioned in March, the CSM includes the intergroup margin from Insurance Asset Management services similar to VNB or MCEV approach. Essentially, it relates to the asset managers PAM segment results, which declined in 2022 following lower bond and equity valuations. Slightly less than 10% of the total CSM relates to nonallocated insurance operating expenses. Those are not projected in the CSM that will be charged directly to P&L as incurred. The CSM release of CHF 1.2 billion reflects the pretax profit that is recognized in the P&L when the insurance services are provided. The pretax CSM release for Swiss Life was 7% in 2022, and thus within the indicated range of about 6% to 8% per annum. As a reminder, on the balance sheet, CSM is shown as part of the total insurance liability, which include unit-linked contracts and investment contracts with discretionary participation features. Those amounts to CHF 156 billion at the end of 2022 and comprise BEL of CHF 139 billion, risk adjustment of CHF 0.3 billion and mentioned CSM of CHF 16.4 billion. Investment contracts without discretionary participation features are not impacted by IFRS 17 and are reported in a separate line item. Those relate primarily to investment contracts in our International division and amounted to CHF 18.5 billion at year-end 2022. IFRS 17 shareholders' equity at year-end 2022 amounted to CHF 8.4 billion compared to CHF 9.5 billion under IFRS 4. Remember that upon transition, the new standard foresees to recognize profits that relates to future services in the CSM rather than shareholders' equity and to spread them over the remaining life of the contract. More precisely, it will be the shareholder share of unrealized gains and losses under all direct anticipating contracts that is now recognized in the CSM rather than in shareholders' equity. For Swiss Life, this includes unrealized gains and losses on financial assets and real estate fair value changes of the VFA portfolios. Retained earnings and accumulated other comprehensive income are thus lower under the new standard. It's also the reduction from the intangible elimination relating to that. Impact from liability valuations such as for PAA businesses partly offset the reduction of shareholders' equity. Looking at the graph to the right, IFRS 17 shareholders' equity declined from CHF 8.6 billion at the beginning of 2022 to CHF 8.4 billion at year-end, driven by the dividend payment and share buyback partly offset at the net profit. IFRS 17 shareholders' equity will continue to have some volatility caused by capital market movements, although much lower than in the past, as volatility is more limited to the non-VFA business. Certain volatility in OCI also arise from FX translation effects, and from fair value changes of VFA related assets measured at amortized costs, for which the accounting mismatch is recognized in OCI. Please note that the IFRS 17 open equity level has changed compared to the provisional figure disclosed in March. Given the aforementioned shift of unrealized gains and losses, the new shareholders' equity is best considered in conjunction with the CSM on a post-tax basis as it represents the stock of expected future profits. Both figures taken together amounts to CHF 21.4 billion as of 31st of December 2022. This is a substantial increase compared to the IFRS 4 shareholders' equity. In terms of capital structure, we will consider the post-tax CSM along shareholders' equity, even if it represents the stock of future expected profits. The share of senior and hybrid bonds has amounted to 19% at the end of 2022. On Slide 14, we show the IFRS 17 return on equity of 13.9% for the full year 2022. It is calculated on an unadjusted basis by taking the average IFRS 17 shareholders' equity and the 2022 IFRS 17 net profit, excluding minorities. Let me briefly speak about half year 2022 net profit as shown on this slide. To allow preparation for the upcoming half year 2023 disclosure, we have applied IFRS 9 to the half year 2022 net profit on a pro forma and simplified basis, accounting for some equity instruments at fair value through P&L outside the VFA business. This resulted in a net profit of CHF 560 million, given the negative equity market performance in 2022. This will be the reporting basis for 2023. Looking into 2023, there are some important considerations I'd like to share with you. We apply IFRS 9 from 1st of January 2023. It will also come with the accounting for equity instruments at fair value through OCI more widely than in 2022. We used the option for certain equities in some areas of non-VFA business, thereby losing the P&L contribution from expected gains and equities. The benefit is to somewhat reduced earnings volatility relating to equity instruments. Regarding shareholders' equity, the introduction of IFRS 9 will have a marginal impact. Independent from IFRS 9 and as mentioned a few minutes ago, given most recent developments, we expect to see slightly negative real estate fair value changes outside of Switzerland, resulting in a headwind to insurance operating profit outside of the VFA business, including assets not covering policyholder liabilities, where there is no smoothing over time. To wrap up, the IFRS 17 and 9 accounting changes will affect the presentation of our Insurance business on the balance sheet and the P&L as illustrated today. Our underlying business and the way we manage it are unaffected by the transition to IFRS 17, 9, and we confirm our Swiss Life 2024 strategy and its implementation. Let me remind you that higher interest rates are economically beneficial for our Life Insurance business. Some effects are immediately positive like reserve releases. Other materialize over time like higher reinvestment rates and increase of rental income due to the indexation to interest rates or inflation. All those effects will have a positive impact on local statutory accounting, which is unaffected by IFRS 17 and 9, and which is the basis for cash remittance to the holding company. We confirm all our Swiss Life 2024 group financial targets and expect to either achieve or exceed them as we are ahead in terms of return on equity and cash remittance. With this, I'm now ready to take your questions.

[Operator Instructions] The first question comes from Andrew Sinclair from Bank of America.

Three from me. But first, I just want to say thank you for the promise of more granular disclosure on the fee result. That will be really great to get when it comes. And if possible, it would also be great to get the CSM and CSM unwind broken down by business unit 2 that would allow much better forecasting. So 3 questions for me. First is on the CSM. It doesn't seem to be organically growing at a headline level. If I look at Slide 11, expected contribution and new business contribution pretty much offsetting the CSM unwind. Do you see the CSM growing? And if so, where is that coming from? Is it higher expected growth contribution, any structural positives in the variances and adjustment lines? That's question one. Question two, still looking at the CSM roll forward on Slide 11. I just wondered if you could break down some of the components a little bit more, where the reserve releases coming through? How much was that? And can you quantify the real estate gains and fixed income moves in 2022? And third was just if you could bridge the differences between shareholders' equity plus CSM, the CHF 21.4 billion versus risk-bearing capital under SST, which I think after -- even after deducting debt seems quite a bit higher than the IFRS 17 comprehensive equity.

Okay. Thanks, Andy on the -- for the questions. Let me start probably, let's say, with the organic growth, the CSM is essentially calculated like the best estimate liabilities as the name says, on the best estimate basis. So we do not expect, as we speak, let's say, significant structural, let's say, positive or negative. In terms of the growth you've mentioned, when we go back to the Investor Day 2021, we clearly have said that we want to grow the value of new business. And it's not one to one, let's say, to the new business CSM. There are many plus and minuses, but we said at Investor Day back then that we wanted to grow the VNB versus the previous program. And in the previous program, we said that we want to achieve accumulated VNB of more than CHF 1.2 billion. That was for the period '19, '20, '21. And I said, we want to clearly grow that for the current program, Swiss Life 2024. As a reminder, we had, I think, about CHF 0.5 billion reported VNB for the last year for the financial year 2022. Now coming to the question of the breakdown or the CSM role for within -- on Page 11. You mentioned the reserve releases that we have reported under IFRS 4 in 2022. They are together with many, many other effects, part of the experience adjustment as the negative minus CHF 0.1 billion. As I said, there are plus and minuses in there. And we also have plus and minuses in the economic variances, the CHF 1.1 billion negative or economic only, so there are no relevant nonoperating variances in there. And just to give you some flavor of the minus CHF 1.1 billion, it's about CHF 0.7 billion negative equity market development. It was about CHF 300 million FX translation effect. We had a significant reduction of the euro in 2022. And there was also a negative coming from the widened credit spreads in 2022. So those were the negatives that are part of the CHF 1.1 billion and we had then on the positive side, first and foremost, higher interest rates, higher interest rates had kind of 2 effects. One was kind of on the insurance part of the CSM. You know the insurance core, if you wish, there we had a significant positive. And on the Asset Management Services part, we have had a negative as said, there was a reduction overall of CHF 400 million for the true part. So you see there are quite some changes with different signs that are included in the CHF 1.1 billion negative.

Just before you answer the third question, just on those reserve releases. I mean, I think there's been some indication those reserve releases would continue to be a positive over the next few years. Should we look at that experience adjustment line as becoming a positive over the next few years? Or should I still be thinking about that as being roughly zero?

Look, as I said, there are so many things that flow in the -- it is -- I would just think a bit of it as a zero. But to confirm that on a statutory basis, on a statutory basis, we clearly expect those reserve releases coming through, as we mentioned at the full year disclosure, I mean and that's where it is relevant for the cash remittance, which we said is structurally enhanced because of that effect. But that's a statutory effect and what happens in the CSM is more, I would say, sorry for that, a presentational effect. If I go to the SST question. Going to that picture on page, let me check. The CSM plus the -- on Page 13. If I look there shareholders equity and CSM, the first important step is to note the entire SST unlike Solvency II is a pretax view. So kind of the starting position is not the CHF 21.4 billion but essentially, the CHF 24.8 billion or if we around, let's say, CHF 25 billion because SST is on a post-tax basis. And what we then have, let's say, as a peak movement is around CHF 15 billion, CHF 16 billion of what we call nonguaranteed best estimate liabilities. The SST is a pre-policyholder sharing view, so it's a total risk capacity, which is also different from the Solvency II. And then we have somewhat a harsh discounting under the SST, then under IFRS 17 in Switzerland, those are the govt rates and what have you, which is a negative. The scope is also a bit smaller than in SST. So there's maybe another, let's say, CHF 5 billion, CHF 6 billion difference. So net-net, we have maybe CHF 11 billion uplift, and we are at CHF 36 billion, CHF 37 billion and there are then plus and minuses on both SST and IFRS 17. To give some examples, we have goodwill, which is part of IFRS, but not part of SST. We have some things that go the other way around in SST, we deduct foreseen dividends and the like. And that's when we have then the net position of that, the CHF 34 billion RBC on the SST framework. So to put it simply, the big, big difference is really the fact that under IFRS 4 -- sorry, under IFRS 17, we recognize future policyholder bonuses as a liability, but this capital under the SST framework. So that's really the huge difference. And this -- and let me make that point again, these nonguaranteed best estimate liabilities or also under the IFRS 17 framework, risk absorbing. So if we have fair value changes that are negative, this nonguaranteed best estimate components also absorb part of it.

The next question comes from Nasib Ahmed from UBS.

Actually, I don't hear anything.

We will take the next question from Peter Eliot from Kepler Cheuvreux.

First one -- and thank you again for the presentation. Very helpful. The first one for me was you mentioned that you will account for more equities through OCI in 2023. Wondering if you can just give us a feeling for how much more, so what proportion of the volatility might disappear? The second question was, you mentioned real estate valuations, you expected negative revaluations outside of Switzerland. Wondering if you can just give us any sort of guidance on what you expect for the whole portfolio, so including Switzerland, given the statements? And third question, obviously, the capital structure, looks optically better under the new accounting. Just wondering if you can give us any guidance at this stage on what your sort of target capital structure might be.

Thanks, Peter. I'm aware you know this fair value through OCI option is not a very easy to understand thing. Now let me try to elaborate a bit in more detail to give you the full picture. I think first of all, it's important to acknowledge that in the VFA business, so where we have, let's say, this 98% of the liabilities and about 80% of the insurance profits, all the equities are fair value through P&L. Any changes there, as mentioned in great detail, is absorbed by either the BEL -- not either by the BEL and the CSM, so that's where we have essentially the usual, let's say, absorption of the volatility. Then we have for the remaining part, meaning the non-VFA businesses and everything that our assets not covering also the liabilities, the standard foresees to use this, let's say, fair value through P&L option as well. For 2022, we have not applied this fair value through OCI option in France. So entire French equity exposure outside of the VFA business kind of had this direct impact on the P&L, and that's where we have seen this -- significant part of this thing coming through. Outside France, we have in 2022, some of the equities at fair value, but the larger part -- sorry, fair value through P&L and the larger part at fair value through OCI. Now what will change in 2023? Outside France, we will essentially follow the same approach as in 2022. And in France, we will move from everything allocated to P&L, meaning nothing subject to the fair value through OCI option. We will significantly increase, let's say, this OCI option part and significantly means something well, you can think about, make your own estimates. We don't know at this point in time to what the exact number is, but it's really a significant uptick. Maybe that's the first question. The second one, the statement I made about the real estate valuation outside Switzerland. I think let me reiterate that we see for the portion outside Switzerland, a slightly negative change in the Swiss business -- or the Swiss real estate, I have to say, accounts for about 3 quarters of it, and you can think about what the mix will be. In terms of millions, it will be not so different from, let's say, we give for the non-Swiss portion of real estate. The third question on the capital structure. You should somehow already gave the answer yourself. It is an optical change. We have been saying many, many times in this call, in previous calls, IFRS 17 and 9 change the presentation of the business, but it does not change the business itself, the profile of the business, so I wouldn't attach too much weight to this, as you said, optical change of the capital structure.

The next question comes from Nasib Ahmed from UBS.

Okay. So first question, I think you mentioned in the walk for the CSM that the economic and other nonoperating variances has a positive from higher interest rates. I thought higher interest rates would have a negative impact on the market value of the credit book, so can you just explain where that's coming from? And then secondly, in the financial supplement, you've got the net gains and losses fair value through OCI, which is zero. Presumably, once you move to IFRS 9, that's going to have a non-zero number in there? Or should we always expect it to be 0?

Okay. Thanks. Maybe starting with your question on the interest rate contribution. First, it is important to acknowledge that the CSM at large has kind of 2 components. There is 1 component, if you wish, that relates, let's say, to the Insurance business to the contracts themselves. And there is another component on Page 11, that's what we call the margin from Insurance Asset Management services. Under MCEV framework, this was called look-through. Those are essentially profits that accrue in the Asset Manager segment that are economically related, let's say, to the insurance contracts. And this component, this second component, the Asset Managers part, if you wish, indeed has come down. You see that on Page 11. That's the reduction from CHF 3.7 billion to CHF 3.3 billion, and that's exactly the fact you've mentioned lower on valuations as a result of higher rates and higher spreads. The same effect, by the way, has been observed in the IFRS 4 reporting, let's say, of Asset Managers in the form of a lower PAM segment result. Having said that, on the kind of insurance part of the CSM, higher rates had a positive impact, but this is not, let's say, shown here in detail. Net-net rates have had a positive impact, I would say, of more than CHF 0.5 billion in the CSM. And here, you also see the view that we have clearly a positive impact from higher rates on the Insurance business. I mean, that's also what you see in the insurance part there. But it's kind of mingled together as we also include, as I said, the Asset Management Services in there. And where you also clearly would see it, that's not shown here is, BEL itself, I mean, have come down considerably during 2022 as a result of higher rates, but I think that's self-evident, if you wish. And then to be frank, I may not have fully understood the second question on the net gains losses. You're referring, I would say, to financial supplement. Is that correct?

Yes. So you've got net gains and losses, including impairment losses of financial assets at fair value through other comprehensive income and amortized cost, and that's 0 for half year and full year. Is that expected to be 0? Or is that going to change under IFRS 9?

Okay. I think what we will expect to see there are realized gains and fair value carried bonds that will flow through there. To be frank, the vast majority of our bonds will not be carried at fair value in the P&L, but in the -- clearly, in the equity, you will see it -- in the balance sheet, you will see it there.

Next question comes from Daniel Regli from Crédit Suisse.

It's probably a very simple question. But actually, I just wondered why did you retrospectively apply IFRS 17, but not IFRS 9 for the 2022 results?

Look, I think there are a couple of considerations to be made. I think for IFRS 17, it is very clear that the standard required and this is applied retrospectively. I think for IFRS 9, there was for quite some time, at least for us, not clear what the procedures are, what the implications are. And as we undertake finance transformation project, which not only focuses on the standard themselves, but because we are also, let's say, introduced new systems, it would then operational considerations that made us refrain from, let's say, also restating the 2022 under IFRS 9. We understand we are not the only company to have chosen that approach. There may be others that have also restated 2022 under IFRS 9, so there are various approaches in the market. But for us, it was really kind of this circumstance that we are also busy with upgrading our systems landscape. That's -- and I think that's a good point. We clearly wanted to give everybody also an indication what IFRS would mean if we had applied it for 2022 as well.

But just maybe quickly to follow up, obviously, in 2022, the IFRS 9 impact versus now the IFRS 17 result as you presented it, it was a negative one, and this was explained by negative equity market. So the expectation value going forward for the IFRS 9 impact on the IFRS 17 kind of results would more or less be neutral or can you give some kind of indication what kind of the gap will be between IFRS 9 and IFRS 17 basically or kind of both included versus only IFRS 17?

Look, I mean, we do not give guidance for our half year or full year 2023 results. I think we mentioned what the pro forma would have been in 2022. I think we also indicated on what scope we have applied the OCI option in 2022. We will expand the application of that fair value through OCI option in 2023. And in addition, we also mentioned what we expect in terms of fair value changes real estate.

The next question comes from Bhavin Rathod from HSBC.

I have 3. The first one would be on the real estate. If you could provide some color as in how much of the last year's fair value gain was attributable to VFA business versus the non-VFA business? The second one would be you mentioned about the headwinds coming from the real estate market outside Switzerland. It would be helpful if it could provide any indication on the magnitude of headwinds you are expecting from these markets? And thirdly, it would be helpful if you could provide any sensitivity to the CSM with respect to real estate market movement. Thank you so much.

Let me just give you a couple of points that -- and elaborate on them of what I've mentioned before. In terms of the fair value changes that we have had in 2022 asset. The VFA business, where we have this kind of smoothing over time, if you wish, we said that accounts for about 98% of the liabilities, but more relevant in that context, we're about 80% of the operating profit in insurance. So 20%, if you wish, of the insurance operating profit relates to businesses outside the VFA scope. Now you may assume that, yes, maybe there's a bit less of real estate allocated. Outside of the VFA, we say real estate is typically a good match for the long-term life liabilities. I think that's what I would say, let's say, retrospectively. And in terms of the 2023 headwinds, I've mentioned those real estate fair value changes, which we expect to be slightly negative for outside the Swiss real estate market, they will -- so meaning essentially France and Germany. There will be, let's say, giving those headwinds outside the VFA business. Within the VFA business, and let me mention that again, we have this buffering by both the best estimate liabilities and also the CSM. So I think that's a bit -- given the outlook on how this will feed through the P&L. What I can also say, and I think that's important not to be forgotten, we've also confirmed all, let's say, Swiss Life 2024 targets, we either expect to achieve them or to exceed them. We are ahead in terms of ROE and cash and cash is accumulated goal, but the ROE goal is one that applies for every single year of the 3-year program. In terms of the real estate sensitivity, we do not disclose here numbers. But what is important to think about is if you look, for example, into the sensitivity of SST, but there, we also provide a sensitivity. If you think about the conceptual difference between SST sensitivities and IFRS 17 sensitivity, huge portion or a large portion of a real estate negative fair value change is absorbed first by the best estimate liabilities in the VFA business, and the remaining part is absorbed then by the CSM, if you wish. I hope this gives some clarity on the mechanics.

The last question for today's call comes from Simon Fössmeier from Vontobel.

Simon from Vontobel. Two questions. First, on Slide 11 on the CSM walk. I'm not quite sure that I understand what is the expected business contribution in contrast to a new business, if you could explain that to me? I'm sorry if that's a very basic question. And the second question is on the payout ratio. How should we think about this going forward? I think in '22, as you've shown Slide 4, it was 75%. Is this a standard -- and then. Also on Slide 12, you're showing the dividend and the buybacks are actually higher than net profit. How should we think about this in the future? Should we think about this in accounting terms? Or should we go back to what you've always said is the cash level at holding level is what matters.

Thank you, Simon. First, on the Page 11. What is the difference between expected business contribution and new business. So the new business part, is really the CSM contribution from contracts underwritten during 2022, so everything that was newly acquired, new customers, additional contracts with existing clients, so everything that kind of was underwritten newly during financial year 2022 gives the new business CHF 0.6 billion, not exactly the same scope, but you can think of it of the value of new business, not let's say, expressed in VNB terms, but expressed in CSM terms, and expected business contribution is kind of the unwind of the contracts that were in force at the beginning of the year. So all the contracts have been underwritten before January 1, 2022, and what is driving this CHF 0.6 billion expected business contribution, this is essentially the excess return over the discounting. So on technical terms, we unwind with the real-world expectations going forward. And clearly, that makes the CSM bigger than what you would believe it is when you discount this kind of at lower rates. I think that's -- in terms of the question on the CSM role forward, I think on the payout ratio going forward and the -- I would prefer to come back what we we're talking about the full year disclosure and confirming what we said back then. At the end of the day, the dividends are paid from the -- the cash we upstream to the holding company, we talked about the benefit of higher interest rates. We expect, based on the additional reserve releases, we talked about a structurally enhanced cash remittance from the opcos to the holding. That's the reason why we have clearly this statement that we are ahead with the cash maintenance. And what we also said that we clearly have the ambition to continue to increase the dividend per share. I think we talked about that a lot in terms of the full year at 2022 closing in March. And I think that's essentially what is relevant, how to think about the payout ratio.

Mr. Aellig, so far there are no more questions from the phone.

Good. Then I thank you for listening and for your questions. Take care, and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.