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

Ladies and gentlemen, welcome to the Swiss Life Presentation of the Half Year Results 2023 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. Patrick Frost, Group CEO. Please go ahead, sir.

Dear analysts and investors, good morning, and thanks for you all for joining this call. Today, we publish our financial results for the first half of 2023. Those are reported under the new IFRS 17 and IFRS 9 accounting standards. Our CFO, Matthias Aellig, will walk you through the details in a couple of minutes. Prior to that, I'll start with an overview on the key figures on Slide 3. Swiss Life achieved a 12% growth in net profit and a 2 percentage point growth in return on equity. On a comparable basis, this means comparing both years under IFRS 17 and IFRS 9. I'm very proud of our teams across the group as this growth was achieved despite the subdued real estate markets. Those put a drag on the net investment income, given negative real estate fair value changes. Also, Swiss Life Asset Managers reported a lower segment result due to a lower contribution from real estate transactions and real estate project developments. Still, we managed to increase the operating result from insurance business and kept the fee results almost stable, given a higher contribution from owned IFAs in Germany and the other fee businesses in France and international. The SST ratio was stable at around 215%. Cash remittance increased by 9% to well over CHF 1 billion. This development is based on the current year upstreaming of local profits achieved in 2022. As already mentioned at our full year results communication in March, we expect to structurally exceed our cumulative cash remittance targets set at our Investor Day in 2021. Why? Because the higher level of rates is beneficial for Swiss Life. We continue to see reserve releases on the local statutory accounting which is the basis for cash remittance to the holding company. Such effects are only visible over the long run under IFRS 17 and IFRS 9 accounting. Cash remittance is important. It's the key driver of dividend payments, and we have the ambition to continue to increase dividends per share. Cash remittance is also relevant in the context of additional total shareholder returns, as shown on Slide 4. Over the past decade, we've continuously increased dividends per share. Since our first share buyback and recent history in 2018, we've added the additional cash returns to shareholders having implemented 3 buyback programs totaling CHF 2.4 billion. Striving for and achieving higher cash returns to shareholders was and is an important financial ambition of our Swiss Life 2024 program. Share buybacks are not implemented by any automatism even if the 2 well-known conditions of, a, having enough cash at the holding level; and b, being above our SST ambition range are favorable. If the conditions are met, we assess the situation. Based on that, today, we announced a new share buyback program of CHF 300 million running from October '23 to March 2024. To wrap it up. As initially mentioned, we have some headwinds from the subdued real estate markets, especially at Asset Managers. We expect a clear improvement in their fee result contribution next year. We also expect broadly stable real estate valuations in 2024, even if some weakness of this year might lead into next year. I can therefore say that we are very well on track with our Swiss Life 2024 program, and we expect to either achieve or exceed all our group financial targets. With this, I hand over to Matthias, who will take you through the financial results in more detail.

Thank you, Patrick. Good morning, ladies and gentlemen. I will start with some introductory comments on Slide 6 that echo what we mentioned in June at the IFRS 17 call. We have applied the IFRS 17 accounting standard retrospectively from 1st of January 2022. The IFRS 9 accounting standard for financial assets is applied from 1st of January 2023, without restating the comparative period in the financial report, which is disclosed under IAS 39 that will be replaced by IFRS 9 starting 2023. Within this presentation, we will also show comparable half year 2022 profit from operations and net profit under IFRS 17 and 9, to allow for a like-for-like comparison. As usual, half year figures are unaudited. Let me now deep dive into selected P&L and other figures. Insurance revenue increased by 21% to CHF 4.5 billion. More than half of the increase is due to the acquisition of elipsLife. The remainder stems from additional DIA revenues in France and from higher expected claims and insurance service expenses. CSM release also increased to CHF 666 million. Insurance service expenses increased in line with insurance revenue to CHF 3.7 billion. Net investment result was CHF 70 million. Please note that this is not comparable to the net investment results definition of prior years as it includes IFRS 17 related insurance finance expenses and VFA experience adjustments. Moreover, the CHF 70 million pertain to the result under IFRS 17 / 9, while the prior year is reported under IFRS 17 and IAS 39. Profit from operations amounted to CHF 836 million. In the prior year period, it amounted to CHF 999 million under IAS 39 or on a like-for-like basis, to CHF 801 million under IFRS 9. Borrowing costs increased to CHF 65 million. This is mainly due to higher refinancing costs. Income tax expense fell to CHF 141 million. The reduction is mainly due to a positive tax one-off of CHF 32 million in the context of a final tax assessment and the change in the geographic profit emergence. Net profit amounted to CHF 630 million. This compares to prior year number of CHF 710 million under IAS 39 or on a like-for-like basis, CHF 560 million under IFRS 9. We continue to disclose premiums, fee and commission income, net investment income and operating expenses as we did in prior year reporting. Gross written premiums, fees and deposits received increased by 8% in local currency to CHF 11.5 billion, increase primarily due to elipsLife. Fee and commission income was up by 6% in local currency to CHF 1.2 billion due to higher contributions from Germany, International and France that outweighed lower income from Asset Managers in Switzerland. Net investment income of the insurance portfolio for own risk was CHF 1.7 billion. We renamed it to net investment income to distinguish it from the net investment result in the IFRS 17 P&L. Again, the prior year is reported under IFRS 17 and IAS 39, while the current period reflects IFRS 17 and 9. Operating expenses, excluding variable costs, came to CHF 945 million. On Slide 8, we show the adjusted profit from operations, taking the negative FX translation effect into consideration. Moving to the segments, starting with Switzerland. Premiums increased by 2% to CHF 6 billion. Life insurance market was up by 1%, and Premiums in Individual Life were up by 26%, while the market increased by 9%. Periodic premiums grew by 2%. Single premiums more than doubled driven by new modern traditional products. Premiums in Group Life decreased by 1%, while the market decreased by 2%. Single premiums increased by 2%, primarily due to high new business. Periodic premiums fell at 3%. Assets under management in our semiautonomous foundations increased to CHF 6.9 billion compared to CHF 6.2 billion at year end 2022. Fee commission income was down 4% to CHF 156 million due to Swiss Life Select. Segment result increased by 6% to CHF 448 million driven by higher operating result from the VFA business. Assets not covering liabilities, which are outside of the VFA business also contributed slightly more. The fee result declined by 10% to CHF 27 million. Value of new business increased by 8% to CHF 125 million, mainly due to higher volumes in Individual Life. Cash remittance was up by 27% to CHF 535 million. This was due to the higher 2022 net profit in the context of increasing interest rates. Please note that we remit the vast majority, not the entire 2022 statutory profit to the holding. This decision was taken in view of lower interest rates at the time when we upstreamed statutory profit compared to the interest rate level at year end 2022. Turning now to France. Please note that all figures quoted are in euros for our French, Germany and international segments. In France, premiums decreased by 4% to EUR 3.4 billion the total market, including banks, was up 6%. Now Life business premiums were around 7%, following strong growth in prior years. The market was up by 6%. Since 2019, we have outperformed the market. Our premiums increased at a CAGR of 10% compared to 2% for the market. Unit-linked share in our life premiums was 63%, but the market was at 40%. Life net inflows were EUR 0.9 billion, versus total market net inflows of EUR 4.1 billion. Health and protection premiums increased by 8%. Both the group and individual businesses contributed positively, market was up by 6%. P&C premiums were down by 2%, primarily due to [indiscernible] products. Fee and commission income rose by 9% to EUR 229 million. We had a strong contribution from the banking business, given continued high revenues from structured products. Unit-linked fee income also increased based on higher average unit-linked reserves compared to the prior year period. The segment result grew by 26% to EUR 163 million. This is due to a higher fee result and a higher operating result from the Life business. P&C business also contributed more due to an improvement of the loss ratio, including low [indiscernible] events. The operating results from the Health business declined despite tariff increases due to the negative claims development. Both non-life operating results were affected by negative real estate fair value changes while positive fair value changes on equities, it only partly flow through the P&L as we are using the fair value through OCI option more widely, as mentioned in our IFRS 17 call in June. Fee result was up at 18% to EUR 80 million, primarily driven by the banking business. The unit-linked business also contributed slightly more. The value of new business increased by 3% to EUR 85 million due to higher volumes in the Health business. Together with the positive development of interest rates, this more than offset lower volumes in life. Cash remittance increased by 20% to EUR 154 million due to the prior year result development. Moving on to Germany. Premiums were up by 3% to EUR 719 million. Market was down by 8%, driven by lower single premiums. Fee and commission income grew 18% to EUR 379 million, primarily due to the strong productivity of owned IFAs, while the insurance business also contributed to this increase. The number of financial advisers increased year-on-year 3% to 6,016. The segment result was up by 13% to EUR 115 million. This is essentially due to a particularly strong half year 2023 contribution from owned IFAs to the fee result. The operating result from insurance business was slightly down. The value of new business increased by 7% to EUR 37 million. The focus on capital-light business continued with higher production of modern traditional products. Cash remittance increased by 37% to EUR 94 million. The increase stems from the insurance business for which that set our related constraints regarding dividend upstreaming no longer apply in the current interest rate environment. Turning now to the International segment, which includes effects from the acquisition of elipsLife consolidated at the beginning of July 2022. Premiums increased to EUR 1.4 billion due to higher premiums with corporate clients. About 95% of the increase was due to elipsLife. Fee and commission income was up by 20% to EUR 198 million. The increase was due to the corporate business Income from private clients declined as the lower average assets under control. Owned IFAs also reported a small decline in fee income, partly related to negative FX translation effects. Segment result was up by 13% to EUR 55 million. This was due to higher fee results and a slightly higher operating result from insurance business with corporate clients. Fee result increased by 12% to EUR 44 million, mainly due to the business with corporate clients. Owned IFAs reported a decrease in fee result due to the aforementioned FX translation effects and expenses related to the rebranding of the [indiscernible] Advisory business into Swiss Life Select. Value of new business significantly increased to EUR 33 million driven by higher volumes in the group risk business, which was supported by the inclusion of elipsLife. Cash remittance was stable at EUR 54 million despite higher full year 2022 segment result. This is due to acquisition-related effects and a slightly higher tax rate. Let's move now to our Asset Managers segment, which reports in Swiss francs. Asset management topple income was down by 13% to CHF 441 million. Out 20% of the decline is due to negative FX translation effects. The remainder can be attributed almost equally to the sale of Livit facility management services in Q4 2022. And to the real estate business, with lower transaction volumes and lower income from project development. Now our PAM business, total income was down by 16% to CHF 154 million. About half of the decline is due to the sale of Livit facility management services. The other half is due to lower average assets under management and lower real estate transaction fee income. In our TPAM business, total income declined by 11% to CHF 288 million due to the impact of the aforementioned sales as well as lower nonrecurring income from real estate transactions and project development. Negative FX translation effects also contributed to the decline. The share of total nonrecurring income for TPAM, meaning commission income as well as other net income was 11% of total income, and therefore, below the prior year half level 16%. For the full financial year 2023, we expect the share of nonrecurring income to be almost in line with our Swiss Life 2024 indication. Segment result decreased by 23% to CHF 119 million. The sale of Livit facility management services had a low single-digit million impact. The contribution of PAM was down by 11% to CHF 84 million, largely due to lower asset valuations on average. The TPAM segment result contribution fell by 41% to CHF 35 million, driven by the lower contribution from the nonrecurring business and also by negative FX translation effects. Cost income ratio was 81%, largely due to lower net commission income. Cash remittance declined to CHF 218 million. 2022 cash remittance included a special dividend of about CHF 25 million and was thus exceptionally. In 2023, cash remittance was strongly impacted by a time lag between full year 2022 income recognition and distributable cash remittance related to real estate project developments. Net new assets in our TPAM business amounted to CHF 6.9 billion, up from CHF 3 billion. We achieved inflows in real assets of CHF 2.3 billion next to real assets. We also had strong inflows from bonds. Excluding money market funds, net new assets amounted to CHF 6.3 billion compared to CHF 3.7 billion in the prior year period. Overall, assets under management in our TPAM business were at CHF 112 million compared to CHF 105 billion at year-end 2022. Let's move back to the group. Operating expenses increased by 4% in local currency to CHF 945 million. Those are unadjusted figures and include effects from acquisitions and disposals as well as from business growth. Coming to the investment income slide that we disclosed, as we did in prior year reporting. Direct investment income on Slide 16 increased to CHF 2.1 billion on alternatives and real estate contributed more. This was partly offset by lower distributions from investment funds within our insurance portfolio at a swing in repo contribution and a negative FX translation effects. Non-annualized direct investment yield was 1.4% compared to 1.2% in the prior year period. The net investment income was down to CHF 1.7 billion due to the negative net capital gains and losses. Non-annualized net investment yield was 1.2% compared to 1.7%. As initially mentioned, this is not a like-for-like comparison, given that the prior year is shown under IFRS 17 and IAS 39. The largest accounting difference stems from the equity instruments that are largely accounted as fair value through P&L under the new IFRS 9 standard. Net capital gains and losses amounted to minus CHF 96 million. This is primarily due to negative fair value changes on real estate. Hedging costs more than doubled to CHF 490 million. We also had a low contribution from the hedge of the FX hedging costs and lower fair value changes from infrastructure investments. On the positive side, P&L contributions from bonds and equities developed positively year-on-year. Slide 17 shows the structure of our investment portfolio which remained essentially stable compared to year-end 2022. With respect to real estate, fair value changes were negative at CHF 426 million or minus 1.0% largely due to French real estate. In the prior year period, we had positive fair value changes of CHF 528 million or 1.2%, also on a non-annualized basis. Real estate continues to be an attractive and important asset players backing our long-dated liabilities in the context of our disciplined ALM. As mentioned many times before, we hold real estate because of the regular rental income it provides and not because of appreciation. Vacancy rates decreased to 3.1% and from 4.0% at year-end 2022. For the full year 2023, we expect vacancy rates to remain at around half-year level. Moving on to insurance reserves on Slide 18. Insurance reserves increased by 2% in local currency to CHF 177 million, mainly driven by France and international. We continue to report the average technical interest rate in the appendix of the book wood. We released about CHF 0.2 billion of statutory reserves in half year 2023 in the Swiss Group and the Individual Life businesses. Pretax CSM as of 30th of June 2023, amounted to CHF 15.9 billion. It indicates the level of future unearned pretax profit and relates primarily to our BFA business. During the first half of 2023, the sum of expected business contribution and new business resulted in an increase of the CSM of CHF 0.8 billion. The expected business contribution refers to the unwind of the discount rate plus the expected real-world excess return of the discount rate. Experience adjustments reflect the impact on the CSM from the actual current period experience compared to expectations, such as pertaining to claims, profit sharing or expenses. Additionally, changes in actuarial protection parameters such as future surrender or biometric assumptions are also included. Altogether, impact was minus CHF 0.2 billion, driven by updated persistency assumptions on the Swiss group life business. Economic variances include changes in economic conditions, such as interest rates, credit spreads and FX as well as real estate and equity market movements. Impact was minus CHF 0.4 billion, mainly due to the interest rate development, real estate fair value changes and FX translation effects, which were partly offset by a positive equity market performance and narrowed credit spreads. CSM release of CHF 0.7 billion reflects the pretax profit that is recognized in the P&L for the period in which insurance services are provided. The annualized pretax CSM release rate for Swiss Life was 8%. For the full year 2023, we expect a somewhat lower release ratio. As mentioned, the CSM release only reflects the P&L contribution from VFA and [indiscernible] businesses and not from PAA and fee businesses. I will come to this later on. The new business margin increased to 4.0%, driven by higher volumes, favorable interest rate development and business mix effects. Value of new business increased by 9% to CHF 277 million. Compared to the CSM new business, this is aftertax and includes non-allocated expenses. It also reflects a more comprehensive scope of insurance businesses. A bridge from VNB to the new business CSM is closed in the appendix. Shareholders' equity decreased by 8% to CHF 7.8 billion compared to year-end 2022, largely driven by the dividend payment and the completed share buyback. Our total outstanding financing instruments amounted to CHF 5.7 billion, of which CHF 250 million pertained to senior bonds that will be redeemed this October. As mentioned in June in terms of capital structure, we consider a post tax CSM along shareholders' equity. The share of senior and hybrid bonds amounted to 22% at the end of June 2023 with a reference level of 20% to 30%. Our Swiss solvency test ratio was estimated to be around 215% at the end of June 2023. It is well above the ambition range of 140% to 190%. The updated half year sensitivities are mentioned on the right-hand side of the slide. That brings me to our Swiss Life 2024 program and the progress reporting. Let me start fee income development on Slide 25. Fee and commission income increased by 6% in local currency to CHF 1.2 billion. The decline in commission income at Swiss Life Asset Managers was more than compensated for a high local currency income from owned IFAs and from own and third-party products and services. The result decreased by 2% to CHF 343 million. Main driver was the lower of the net income from real estate project developments. We disclosed the fee result by source on the right side of this slide. Fee result accounted for about 40% of the profit from operations of CHF 836 million at half year 2023, remain the stems from the operating result from insurance business. This increased by 10% year-on-year. The main driver was the higher CSM release. It includes the contribution of the unit-linked business in scope of IFRS 17. This is, however, deducted from the operating results of the insurance business as it is mapped to the fee result. Portion of the release pertaining to the intragroup margin from insurance asset management services is essentially eliminated within the insurance service results and thus the operating result. Non-allocated insurance operating expenses are directly charged in the outside of the CSM release, thereby offsetting the corresponding portion of the release. The remaining other profit contribution stems from the PAA insurance service results and from the net investment result, including assets not covering liabilities. We incurred negative fair value changes on equities in the prior year period. In 2023, this position has only marginal contributions from the equity market development given we use the fair value to OCI option more widely. However, we had an impact from negative fair value changes on real estate. The remainder of other also includes the risk adjustment release and the VFA net investment result, which comprises net insurance financing expenses and VFA experience adjustments. The return on equity, which is one of our Swiss Life 2024 group financial targets, increased to 15.8% on an annualized basis compared to 13.6% in the prior year period. Turning to capital, cash and payout. Cash remittance to the holding company increased by 9% to CHF 1.1 billion. I've mentioned the drivers when discussing each business division. We are very well on track in terms of cash remittance, and we expect to structurally exceed the group's cumulative cash remittance target under the Swiss Life 2024 program. Liquidity at holding amounted to CHF 0.85 billion at the end of June 2023. Today, we announced a new CHF 300 million share buyback. As in the past, this buyback will be executed by a partner bank through a second trading line over the course of 6 months. We will start repurchasing shares on October 2, 2023, and plan to complete the share buyback by the end of March 2024. The shares repurchased under this program will be proposed for cancellation to the coming AGMs. The impact from the SST ratio is around 2 percentage points. Now to the financing. About half of the share buyback will be financed from existing cash at holding. The remaining part is financed by cash remittance to holding in the second half of the year and by additional repatriations. Let me sum up. We are pleased with the half year 2023 results. We managed to grow the cash remittance and like-for-like, our profitability and to return on equity despite headwinds from the real estate markets that affected both the fee result and the operating result from the insurance business. We are very well on track with 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 hand back to you, Patrick. Thank you.

So thank you as well to you, Matthias. We're now ready for our Q&A session, and we'd like to start.

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

Three for me as usual, please. First was just on the holding company cash and the buyback. So I mean, I think it says CHF 0.85 billion of liquidity in June, CHF 300 million buyback pro forma could puts you below the CHF 0.7 billion to CHF 0.9 billion target range. So just really kind of first fly now for the buyback? And can you give us any color on those additional repatriations you mentioned. And just given the size of the buyback, should we now think about that as being something perhaps more annual rather than the larger one-offs we've had in the last few years? Second question was on debt, debt leverage. Just looking at the 20% to 30% target under IFRS 17, you've talked about 22% today. It looks to me like you've got a bit more headroom under IFRS 17 than you had under IFRS 4. Is that something you'd be interested in using to access more liquidity? And then third was just on the CSM. About CHF 0.1 billion, I think, organic growth I guess that's about 1% annualized rate. I think previously, you said you'd expect the CSM to be about stable. Is that still the message? Or do you think there can be some growth in the CSM?

Okay. And first the question on the share buyback. You're right, we have a CHF 0.85 billion of cash at the holding as of June. And as we said, the CHF 300 million buyback have various sources of financing for the first stores, half of it, as we said, comes from cash at the holding. So that's CHF 150 million that everything else being equal, would bring us CHF 0.7 billion, then we said, look, we have also cash remittance in the second half of the year. That will be also part of the financing. And that the last element are smaller repatriations that we undertake. And as said, small repatriation or a normal course of business of a holding company, as we said many times before, that serves as a intergroup financing instrument, if you wish. On the -- sorry, and you asked about whether this smaller buyback indicates a move away from what we have done in the past and the answer is no. We have this set of criteria, the 2 points that Patrick mentioned. If you wish, I can repeat them, but I think they are well known. With the SST and it's the cash at holding, which are relevant criteria, which we consider. There's no ultimate is and so everything is in this respect as we have done and said in the past, since many years. In terms of the question on debt leverage, you're right. If you translate the debt leverage that the 20% to 30% in additional, let's say, capacity. You would notice that in the past under IFRS 4, we said, look, the range that we had then with CHF 1 billion, if you now translate the 20% -- the 30% into current IFRS 17 / 9 situation, it would be theoretically CHF 3 billion odd, but that's for us something theoretical. It was important for us to maintain the 10 percentage point range in the transition from the old accounting standards to the new one. Now in terms of the question on the CSN. When we said that it may be stable. Now it was a bit on the positive side. We said many, many years ago, the clear, let's say, growth ambitions we have are in the fee business, in the [indiscernible] Life business. But clearly, we are also, let's say, now trying to take advantage of, let's say, the opportunities that we have in the, let's say, in the insurance space and also in the modern traditional space, you have seen we have increased VNB as well. And clearly, if there are opportunities to grow also the insurance business, the new business we clearly go after them.

Helpful. Very detailed as always.

The next question comes from Nasib Ahmed from UBS.

First question on reserve releases. You mentioned you've done CHF 0.2 billion in the first half. You did CHF 300 million in 2022. Given where interest rates are, do you expect more reserve releases over the coming years, if interest rates stay elevated for longer? And if you can split out the CHF 200 million reserve release in 1H would be in Individual Life and Group Life. And then final sub question on that. What is the profit sharing on Individual Life for policyholders? Second question on full insurance full insurance solutions for clients. Do you expect with the higher rate environment for those to be -- for clients to offer more full insurance and also given the market uncertainty for clients to get more full insurance products as opposed to semi-autonomous. And then final question on the senior debt redemption in October. Do you expect to refinance that or keep the debt stack lower and just redeem it?

Okay. Thanks for the questions. In terms of the reserve release, let me try to elaborate here a bit in detail the CHF 0.3 billion. From last year, we were essentially bought outside of the BVG business, so in the area with lower profit sharing, and it related to this type of reserves, additional reserves that is very tightly linked to the capital market conditions, namely to the interest rate levels prevailing at valuation date. And we said back then that in 2022 in the full year, that we didn't have any releases from what we call, I think tier 2 reserves, the more traditional book where we expected and still expect a release over time. And what is driving this release over time. Release is driven the fact that over time, we expect higher reinvestment income and rental income on real estate increase is to feed through on a local stat basis. And also, first, have a higher investment income, less pressure on the reserving, meaning releases that will flow through over time into the statutory P&L and what I said implicitly, but now also stated explicitly. So the CHF 0.2 billion are split into Group and the Individual Life, let's say, essentially in line with total amount of strengthening, which means about 30% in Individual Life and the rest. In Group Life, the profit sharing, there is some in Individual Life, so it's not the full amount that flows through the statutory result, but it's much smaller than one in Group Life. I think that should cover the first question. Now in terms of the second question -- sorry, and the outlook, maybe I've got to do that. We clearly reassess the situation for the reserving, for the statutory reserving also at all the closings. And as you can infer from what I said effects that I've mentioned will come through over time. And as we said, we clearly expect here further reserve releases over time. This will, as mentioned already at the full year disclosure, a gradual process, as you recall, it was also a gradual process in the buildup, and we now expect that also to happen in, let's say, extended period of time. Now to the full insurance, you may recall that we said in the very low interest rate environment that we have had let's say, underwriting criteria tightened. As a result, let's say, of the lower interest rates, as we have had this drag from the conversion rate losses, clearly, this has been relaxed, given, first of all, that rates are higher, and we have changed the conversion rate for old annuity. So there is clearly, let's say, more, let's say, accommodating underwriting that we have. But clearly, those are client demands and we still see clear demand, let's say, for semi-autonomous solutions. If there are corrections at the stock exchange, people may favor a bit more the security of full insurance. But in principle, we're here to accept higher volumes in full insurance. Now in terms of the senior debt refinancing, we already refinanced this [indiscernible] 2023 redemption in January this year. And by the way, this CHF 250 million that we will, let's say, use for the redemption. They are already subtracted, let's say, from the CHF 850 million cash that we've mentioned.

Next question comes from Peter Eliot from Kepler Cheuvreux.

Sorry for one more on the share buyback, first of all. But I mean, just to follow up on the earlier question, with half coming from the second half of the year and a normal sort of H2 remittance of being, I don't know, sort of CHF 40 million. It sounds like you're expecting just over CHF 100 million in terms of repatriations. I mean are you saying that that's a sort of normal amount that you expect each year? Or is there sort of any sort of particular -- anything that's driving that? And on your comfort zone, I guess sitting at CHF 0.85 billion, you're within the CHF 0.7 billion to CHF 0.9 billion range. So I mean, one interpretation would be that there isn't any excess. It sounds that you're sort of very much taking anything above the CHF 0.7 billion as excess. So I guess the question is, we should really just think about the CHF 0.7 billion as being the important level going forward. And then a different subject. On real estate flows, the CHF 1.3 billion that you've got in H1 was still a good level. I know you don't have a crystal ball, but I'm just wondering if you can give us sort of any insights into the sort of the pipeline and whether that CHF 1.3 billion is all fully new money or whether it's the result of decisions that have been taken in the past? And what clients are thinking at the moment? Because I guess -- I mean, I guess the difference between real estate yield and government bond yield in your various regions that you operate is not as attractive as it was. So yes, any insights on that would be very helpful.

Okay. Thank you, Peter. Maybe first, on the question of the buyback. It's -- as I said, it's a very usual thing to have an repatriations here and there. And let me reassure you, I mean, we're working hard to optimize, let's say, cash remittance, the repatriation to the holding. And we're working hard that the cash that we need to the holding or the cash that is not needed at a divisional and the opco level to bring that to the holding company. And at the end of the day, it doesn't really matter to whether it is cash. It's cash remittance or repatriation, whether that is need way to the holding, I think key is that we were coordinate to bring it up there. Now in terms of -- and by the way, repatriations do not count towards cash remittance. Cash remittance is what this kind of P&L relevant at the holdco and cash remittance is 1 element, but repatriations also can provide cash, obviously, and that's the second lever we will pool for the financing. Now in terms of the question around the comfort level. The comfort level is 700 to 900, and that continues to be in place. Yes, and we are now, let's say -- in the current situation, let's say, willing to go a bit to the lower end, but -- it is now changed to the CHF 700 to CHF 900 million that we indicated also some years ago.

Okay. And then on the real estate question, at some of the inflows we had in the first half of the year was based on decisions which were taken last year already. I mean there are these type of lags. We also expect that this year, I mean, yes, we do expect further inflows this year from real estate. But we also have some outflows in some of our public mutual funds. So net-net, we do expect some further inflows not as much as in the first half of the year and some of that might also flow into 2024. Matthias just told me I should say something about the yield differentials and the way we look at it. We see especially in the euro zone, now attractive opportunities, given that commercial real estate now is printing yields that yields above 4%, which are real yields would need to be compared to owned some German government bond real yields of below 0.5%. So the pickup is, of course, quite substantial. Granted, there are also some's risks here, of course, but we do see real estate at a real yield basis to be attractive. Also remind you on the Swiss situation here, we expect now finally have residential rent increases, which will come through now in Q4 -- will start to come through in Q4 of this year, and we'll also continue to come next year. In addition to that, we have new buildings coming on, which will pay now additional rental income. So we really expect a very good support of the Swiss real estate market are now increasing rental income in addition to the fact that rates have not risen as much in Switzerland as they have in our neighboring countries.

The next question comes from Thomas Bateman from Berenberg.

And I was just interested in your comments that you made on both the Swiss cash remittances and the asset management and cash remittances. I think you were saying that on Switzerland, you didn't remit all of it last year. I guess I was wondering if that implied there was more to come this year, especially given some of the reserve releases. And can you also clarify the comments you gave on the asset management. I appreciate there was a large special dividend last year. But I think you were saying that there's also a time lag this year. If you could just clarify that, that would be helpful. And then just moving back into real estate. Can you give us a bit of color of where the negative revaluations came from, for example, was that Switzerland? Other parts of the EU? And also residential versus kind of commercial?

Let me start with the real estate question. Well, as Matthias said, we've primarily seen that in French real estate, mainly the commercial side, so offices and retail space. But we've also seen it in Switzerland, Same thing here. Also on the commercial side, mainly on retail space but also some offices, despite continuing to see a good demand on take-up of office space, but we've seen some smaller corrections also here in Switzerland. But we also had positive fair value changes in the residential space in Switzerland. So again, mainly in France, but also some in Switzerland.

And let me comment, let's say, on the cash remittance. And again, please keep in mind that the cash remittance is driven consider as statutory accounting, essentially of Swiss Life AG. You see here on the business division side, kind of the Swiss portion of it. And what we meant was to say, look, we have had this CHF 300 million reserve release in 2022. That was driven essentially by the interest rate level as at the year-end 2022. And they were by time the interest rates at year-end 2022. Then they came back a bit in the course of the first month of 2023. And that was the reason why we said, look, this position, this reserving that gave a P&L contribution statutory-wise, would reverse given that rate came down a bit. And the reason why we said, look at the time we decided to upstream the dividend that we didn't want to remit full amount of, let's say, statutory profit. If you wish that was kind of an element of caution. It didn't happen to that extent we concluded at the point in time. So there is something from, let's say, if you wish that 2022 stat results that may come through over time. And in addition, as we said back in full year disclosure and now confirm today even the reserving situations, we will expect to see a structurally enhanced cash remittance. So there's no change to what we said as back then. Now in terms of the Asset Managers cash remit. As you said, the prior year had this around CHF 25 million special effect. I mean now you can deduct that kind of if you look at the run rate. Now what has happened in 2022, on a couple of project developments that they are all very individual, high specialized and what have you. So it's not a one-size-fits-all thing. But in a couple of instances, we had to make a mark up on projects on really large projects. Even before there was a completion of the project. So we had kind of a gain in the year 2022, segment result of asset managers without having completed or sold off the project at this point in time. So that's when we had a gain without cash coming in, and we now expect that cash to come in, let's say, over the coming quarters in some cases, it also may take a couple of years as this is kind of stretched over time, but this is this kind of, let's say, very large projects that have such, let's say, specific features I would call that.

The next question comes from Bhavin Rathod from HSBC.

I have 2 questions from my side. The first one would be on the CSM release. You pointed out that the full year release ratio should be slightly lower than the rate we have seen at the first half. So could you comment if there is some seasonality between the first half and the second half? Or do you see some structural impact in the second half, which would bring down the overall leverage ratio in 2H? The second one would be, again, sorry to come back on the risk topic. But how comfortable do you feel with respect to your 28% exposure within your asset mix given what we are seeing across the different geographies that you have in terms of the exposure. And within that, are you willing to reallocate capital between the different countries like Switzerland, France and Germany since -- you've already mentioned that we are seeing some pressure in France. So are you willing to reassess that situation and you look at capital to other geographies like Germany or Switzerland? Or you feel comfortable with that exposure?

Okay. Let me take the first question first on the CSM. I'm sorry to get a bit technical, I mean, on that top. The CSM is a new element of the IFRS 17 / 9. And I think when talking about the additions to the CSM, the new business, so unwind. This is, I believe, pretty straightforward, but the release and the mechanics of the release are substantially more complicated. And even the implementation of the IFRS 17 standard and sorry again for getting a bit technical. The actuarial modeling of that release depends on one side, on the total amount of future services provided to the client that's an accounting term. And also to the amount of services provided to the client in the current period. So it's kind of this ratio that is relevant. And these quantities depend via proxies to a number of operational and economic variables. One of -- one example are the surrender rates and an increase of surrender rates, they reduced the amount of future services while leaving the current period amount of service is unaffected, which increases [indiscernible] the release. And as mentioned, we had such higher interest rates in Swiss Group Life business. which increased from a very low level to, let's say, more normal levels. And this kind of mechanics that are at work. And while we do not provide, let's say, earnings guidance in general we mentioned explicitly that we expect for the full year for reasons such as the one just explained that we expect a somewhat lower lease ratio and the 8% mentioned for the half year. I think it's also important to remain at this point in time. The CSM release is only one profit contribution to operating profit. We have also the non-life insurance businesses. Yes, it's not covering liabilities. And clearly, the fee results that are also relevant drivers of the profitability. Now in terms of the question around real estate. I mean, we feel comfortable with those exposures we have. As we mentioned, we have -- Patrick, I think wants to mention that. Sorry.

I totally agree. I mean we feel very comfortable with the allocation we have, as mentioned before, but I'd just like to remind you, again, the reason why we have this whole real estate allocation, but also the real estate business is that we expected it to do well in a low interest rate environment. When the life, especially traditional life business would be under a bit of pressure. Now of course, last year was a bit special because we saw both outstanding life results, but also continued an upticks in real estate valuations. And now this year, it's for the first time that we get the first proof point that the Life business is now doing very well in terms of statutory results and less so on the CSM. And the real estate business is under a bit of pressure as we -- as you saw in the Asset Managers result but also lower fair values on the insurance balance sheet. Now most of what we have on the balance sheet, either goes, is absorbed policyholders? Or is absorbed by the CSM? But there are some effects, which then also go through the P&L. And we've experienced, as we said this in the first half of the year, but we also expect some further pressure in second half of the year, we even expect a little bit more of net negative fair value changes in the second half of the year than the first one. And it's too early to tell now, but possibly this also leaks a little bit into an early next year. But that's too early to tell, but I'm just saying -- as you know, we have an external valuation agent, and we take their numbers into account, on our -- into our accounting systems and they, in turn, are based on the real transactions in the markets where we are. And we feel comfortable with, again, the allocation in France, Germany and Switzerland. And as I mentioned before, we now expect higher rental income from all of our portfolios because in the commercial side, we have the inflation link. And on the residential side, we have this special Swiss situation, which you're well aware of, which now with the lag of 2 years almost, will now feed through into higher rental income, which of course shows that a model where you have nominal liabilities, but real assets, of course, a very attractive one in an inflationary environment that we have now.

[Operator Instructions] The next question comes from René Locher from KBW.

I just had an interesting discussion with the German investment. And I was wondering given the distressed real estate market in Germany, wouldn't it be not better to invest some of the cash in real estate companies like you did with [indiscernible] or called Creo, then returning CHF 300 million via buyback to shareholders. As this would make them also easier for Swiss Life to achieve the fee result of CHF 850 million to CHF 900 million by the end of next year.

I mean so those were not really real estate companies, right? Those were primarily real estate Asset Managers, which we bought in 2014 and '18, I believe. And you're right. I mean, well, if you have a great idea out there with a very successful Asset Managers like the 2 we bought, and we can buy them at attractive prices. We always have an open year, but we feel we're very well covered with the people we have on the ground in Germany already. And so at the moment, it really wouldn't help so much that the fee result, let's say, over the next year or 2 because there is always -- if you do an acquisition, it takes some time to onboard the people to make sure they are very productive in their theoretical new home and Swiss Life Asset Managers. There is always some lag effects. And what we see now is that we did a very good integration of the people we onboarded, let's say, in the last -- over the last 10 years. And now we're reaping those rewards. And again, as we said, right, we're always open to -- for acquisitions which fit culturally well to us and where we -- which we can acquire at attractive prices. But as you may have guessed, we haven't found them. And so we prefer to give back the cash to shareholders. But you're right. I mean if we were to find something as successful as in the past, as that might be the case. But I remind you, right, I mean, these are bolt-on acquisitions I think the largest acquisition we did over the last decade, price-wise, was well below the share buyback that we now just announced.

We have a follow-up question from Andrew Sinclair from Bank of America.

Two quick ones for me. First was just on the tax rate. I saw the CHF 32 million one-off. Just wonder if you can give us any color if there's anything else out there we should be expecting or back to kind of a more normalized tax rate? And second was just on the owned IFAs in Germany. It sounds like a really big profit jump there for only 3% increase in headcount. Just really wondered if you can dig into that a little bit more. Is that something we should see as a new base from which we can see growth or anything one-off in there?

Maybe on the tax rate, I mean, the CHF 32 million related to the final tax assessment. Now what does that mean? There was a question of, let's say, tax allocations between 2 jurisdictions. And as you can imagine, this is quite and was quite a long question to get answer. We now have enough clarity or the clarity required, and that was the reason why we had this I would say, a significant one-off that we reported, just to give you some flavor of what happened there. What happened as well in the context of the tax rate, we had kind of a change, a slight change on which geographies kind of at which tax rate profit emerge, and that was also something that helped to lower the tax rate compared to the prior year period. Now in terms of the owned IFAs, we have had, as you say, a very strong, let's say, half year I call it extraordinarily strong. So I wouldn't double that number for the full year. I think that's important. First of all, we have typically more cost load in the second half of the year. We have had also special campaigns where the IFS took advantage of, let's say, the German government offering some let's say inflation relief to the population that they have the nice words for that. And that was an opportunity for our financial advisers to get additional business. So to give you some flavor on, let's say, the increase of the numbers fee result in top line.

The last question for today's call comes from Peter Eliot from Kepler Cheuvreux.

I just wanted a quick couple of follow-ups on the fee result, actually. Just looking at France, I mean you mentioned that the fee result was -- that the increase was primarily due to the banking business. I mean I'm guessing this is still the structured products and I mean last year was already strong. So I'm just wondering how much longer that momentum can be maintained, how much more scope do you see? And then just overall on the fee result, I guess, H1 '23 was down slightly on last year. And for last year, you were still a CHF 100 million below the target, but you seem very confident of reaching the target. So I'm just wondering, is there anything in particular that you'd highlight as a reason for that confidence? Or is it just widespread across the whole business?

Okay. First of all, on the fee result France, as said, the structured products in the bank really continues to perform well. It's also the unit-linked business that contributed positively. Now I'm aware that we keep reporting that the bank is performing well for half year after half year quarter after quarter. And yes, despite, of course, we thought it continues to perform well. We thought that with the equity -- the extraordinary performance of the structured products may come back a bit, but it didn't happen. So we continue to see good momentum there, continued opportunities, but there may be, let's say, a point at which these extraordinary high levels of structure products, revenues may come back. It's difficult to say by when this will happen. But in principle, we still have let's say, a client base, which do not use yet structured products as part of their investments. Now in terms of, let's say, the fee result 2024, I think we clearly confirmed those results for 2024. And I think Patrick also mentioned in his speech, what is kind of relevant for that. I mean the expectation that Asset Managers will see high contribution to the fee result than what we have seen this year. And this is clearly also to be seen as expectation in what we said in terms of real estate markets for 2024. Okay.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for closing remarks.

So thank you very much. This brings us to the end of our conference call. Thank you for your time again and for your questions, and I hope to see many of you soon. 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.