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

Ladies and gentlemen, welcome to the Swiss Life Presentation of the Full 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] At this time, it's my pleasure to hand over to Patrick Frost, Group CEO of Swiss Life. Please go ahead, sir.

Good morning, and thank you for joining this call. Today, we publish our financial results for 2023. It's the first full year reporting under the new IFRS 17 and 9 accounting standards. And it's my last presentation of results to you before I hand over to Matthias Aellig after the AGM in May. Let me start with a quick overview of the 2023 results on Slide 3. Swiss Life achieved 8% growth in net profit and increased the return on equity to 13.7%. This is on a comparable basis, which means both years under the IFRS 17 and 9 standards. I'm very proud of our teams across the group, as this growth was achieved despite a lower fee result, which fell by 13% to CHF 664 million due to subdued real estate markets and the resulting drag on project development gains and transaction fee income. Cash remittance increased by 14% to CHF 1.15 billion. Cash remittance is the key driver of dividends, and we propose to increase the dividend by 10% to CHF 33 per share, leading to a payout ratio of 86%. To wrap it up, we're well on track with our Swiss Life 2024 program to achieve or exceed all our group financial targets. We expect to exceed the return on equity, cash remittance, and dividend payout ratio targets. In addition to that, we've already exceeded our share buyback target. We completed the CHF 1 billion program announced in November 2021 and are close to completing the more recent additional CHF 300 million program. Achieving the fee result target will be more challenging. We expect to reach the lower end of our ambitious target range of CHF 850 million to CHF 900 million. This is reliant on the expected normalization of the real estate markets in Germany and France. Let's take a few minutes to look back over the last decade. Firstly, the fee result has grown substantially. When I was announced the CEO in 2013, the fee results amounted to less than CHF 200 million. Since then, we've established ourselves as a leading European asset manager that is well positioned in terms of real assets. And we complemented our strong life insurance companies with steadily growing financial advisory organizations. Today, more than 17,000 advisors work for Swiss Life who help our customers to lead a financially self-determined life. Shift to more fee business has improved the resilience of our business model and has supported the drive for higher cash remittances to our holding company. Furthermore, we have achieved this, while substantially increasing the solvency ratio. Striving for and achieving higher cash returns to shareholders has always been important when delivering on our strategic plans. Over the past decade, we have continuously increased dividends and returned close to CHF 9 billion to shareholders, about CHF 6 billion of which is dividends and close to CHF 3 billion through the implementation of 4 share buyback programs. This is quite remarkable in light of our market cap at the end of 2013, which was around CHF 6 billion back then. I expect that U.S. investors have put that cash to work for new investments and endeavors with benefits for the real economy. Looking at the right hand chart on Slide 4. In terms of shareholder return, Swiss Life has substantially outperformed both the relevant SMI and European insurance indices. The development of our share price is, obviously, up to our investors. In my view, we got there, thanks to the skills and hard work of our people, our strongly improved solvency position, the aforementioned massive increase in our fee result and the growth of our profits and cash contributions from our life insurance operations, all of which being the basis of higher cash returns for shareholders. Of course, with our unique and strong position towards our customers in providing life, pensions, financial solutions, and advice for the long run, none of this would have been possible. I'm very proud of Swiss Life's development and want to thank our customers, employees, and advisors for their continued support and trust. With that, I hand over to Matthias.

Thank you, Patrick. Good morning, ladies and gentlemen. I will start with some introductory comments on Slide 6, which we already mentioned at our half year call. We have applied the IFRS 17 accounting standard retrospectively from the 1st January, 2022. The IFRS 9 accounting standard for financial assets has been applied from the 1st January, 2023 without restating the comparative period in the financial report. This was disclosed under IAS 39, which was replaced by IFRS 9 starting in 2023. Within this presentation, we will also show the comparable full year 2022 profit from operations, segment results, and net profit under IFRS 17 and 9 to allow for a like-for-like comparison. Let me now deep dive into selected P&L and other figures. Insurance revenue increased by 10% to CHF 8.8 billion. More than half of the increase is due to the acquisition of elipsLife. The remainder stems mainly from additional PAA revenues and from a higher CSM release. Insurance service expenses increased in line with insurance revenue to CHF 7.4 billion. The net investment result was CHF 103 million. Please note that this is not comparable to the net investment result definition of prior years, as it includes IFRS 17 related insurance finance expenses and VFA experience adjustments. Moreover, the CHF 103 million pertained to the result under IFRS 17 and 9, but the prior year its reported under IFRS 17 and IAS 39. Profit from operations amounted to CHF 1.5 billion. In the prior year, it was at CHF 1.7 billion under IAS 39 or on a like-for-like basis at CHF 1.5 billion. Borrowing costs increased to CHF 132 million, mainly driven by higher interest rates and overlap effects due to the early refinancing of maturing bonds in 2023. Income tax expense fell to CHF 254 million. The reduction is driven by lower profits compared to IAS 39 and extraordinary tax provision release of CHF 33 million in the context of final tax assessment and by a change in geographic profit emergence. Net profit amounted to CHF 1.1 billion. This compares to prior year number of CHF 1.2 billion under IAS 39 or on a like-for-like basis to CHF 1.0 billion. We continue to disclose premiums, fee and commission income, net investment income, and operating expenses as we did in prior reporting. Gross written premiums, fees and deposits received increased by 3% in local currency to CHF 19.8 billion. The increase was driven by international, in particular, by elipsLife. Fee and commission income was up by 3% in local currency to CHF 2.4 billion primarily due to high contributions from France and Germany that outweighed lower income from Asset Managers. The net investment income of the insurance portfolio for own risk was CHF 2.6 billion. Operating expenses, excluding variable costs, were stable in local currency at CHF 1.96 billion. On Slide 8, we show the adjusted profit from operations, taking into consideration the negative FX translation effect and the adjustment of net gain on the sale of the subsidiary of Asset Managers in 2022. Moving to the segments starting with Switzerland. Premiums were stable at CHF 9.9 billion. Life insurance market was down by 1%. Premiums in individual life were up by 19% as the market increased by 6%. Periodic premiums grew at 2%. Single premiums were up at 72%, driven by a new modern traditional product. Premiums in group life decreased by 3%, while the market was down by 4%. Single premiums decreased by 5%, primarily due to fewer employees entering existing full insurance schemes. Periodic premiums fell by 1%. Assets under management in our semi-autonomous foundations increased to CHF 7.1 billion compared to CHF 6.4 billion at year-end 2022. Fee and commission income was up by 1% to CHF 326 million. Higher income from unit-linked business was partly offset by lower revenues from Swiss Life Select. On a standalone basis, before intercompany eliminations, Swiss Life Select increased their revenues by 3%. The segment result grew by 8% to CHF 839 million, driven by higher operating results from the insurance business. Fee result increased by 5% to CHF 55 million, driven by high contribution from unit-linked and investment solutions for private clients. Value of new business increased by 15% to CHF 234 million, mainly due to higher volumes in individual life. Cash remittance was up by 25% to CHF 565 million. This was due to the high 2022 net profit in the context of increasing interest rates. As mentioned at the half year call, in 2023, we remitted vast majority, but not the entire 2022 statutory profit to holding. Turning now to France. Please note that all figures quoted are in euros for our French, German and international segments. In France, premiums increased by 1% to EUR 7.0 billion, but the market was up by 6%. In our life business premiums were down by 1% following strong growth in prior years. The market was up by 5%. The unit-linked share in our life premiums was 63% compared to the market average 41%. We generated life net inflows of EUR 2.0 billion. Total market net inflows were EUR 2.4 billion. Health and protection premiums increased by 9%, but the market was up by 7%. Fee and commission income rose by 15% to EUR 485 million. We had a strong contribution from the banking business given continued high revenues from structured products. Unit-linked fee income also increased due to higher average unit-linked reserves compared to the prior year. Segment result grew by 2% to EUR 205 million driven by a higher fee result. The overall non-life operating result from health and protection as well as P&C was negative as shown on Slide 27. This was driven by considerably lower technical result in the health and protection business. Financial result slightly increased as negative impact from real estate fair value changes was outweighed by positive fair value changes on equities. For 2024, we expect the operating result contribution from our French non-life businesses to improve significantly, and clearly turn into positive territory. Fee result was up by 19% to EUR 161 million driven by both the banking and unit-linked businesses. The prior year included a positive gain on sale of a small broker. The value of new business increased by 2% to EUR 185 million. The positive contribution from the improved business mix in life and high volumes in health and protection was partly offset by the negative lapse in client experience. Cash remittance increased by 19% to EUR 161 million dollars due to the prior year fee results development. Premiums were up by 3% to EUR 1.5 billion. The market was down by 5%, driven by lower single premiums. Fee and commission income grew by 10% to EUR 733 million, primarily due to our owned IFAs. Number of financial advisors slightly increased by 1% to 5,985. The segment result was up by 4% to EUR 192 million due to a higher fee result. The value of new business decreased by 17% to EUR 61 million. Focus on capital light business continued with an increased volume of modern traditional products. This was offset by a lower contribution from unit-linked business. Cash remittance doubled to EUR 148 million. 2/3 of the increase came from a special dividend from owned IFAs. The remainder stems from the German insurance business for which ZZR 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 1.8 billion due to higher premiums with corporate clients, mostly from elipsLife. This was partly offset by lower premiums with private clients. Fee and commission income was up by 4% to EUR 386 million. Higher income from corporate clients, in particular due to elipsLife, was partly offset by lower income from owned IFAs and private clients. The segment result was down to EUR 100 million with a higher operating result from insurance, driven by the corporate business. Fee result decreased by 14% to EUR 72 million mainly due to a lower contribution from the business with private clients. Owned IFAs also reported a decrease in fee result. This was partly offset by a high contribution from the corporate business. Value of new business increased to EUR 57 million, driven by higher volumes in the group risk business supported by elipsLife. This was partly offset by lower volumes from business with private clients. Cash remittance was stable at EUR 64 million, despite a 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 Managers' total income was down by 17% to CHF 948 million. About half of the reduction is explained by the sale of Livit Facility Management Services in Q4 2022 and the write down of a proptech investment in Germany in 2023. Both effects impact PAM and CPAM. Slightly more than 10% of the decline is due to negative FX translation effects, especially at TPAM. In our PAM business, total income was down by 14% to CHF 327 million About 90% is due to the mentioned sale and the write down. The remainder is due to the lower average assets under management and lower real estate transaction income. In our TPAM business, total income declined by 19% to CHF 621 million, excluding the mentioned sale, recurring income was slightly higher. This is more than offset at a net gain on sale and write down, as well as negative FX translation effects. Other net income from real estate project development and income from real estate transactions were also substantially lower. As a result, the share of total non-recurring income for TPAM dropped from 31% to 16% in 2023. This is below the 2023 indication of around 20% even at the last Q3 disclosure. Drivers for this deviation were lower revenues from real estate project developments and fewer transactions than expected at the time, as well as a further strengthening of the Swiss franc compared to the euro. For 2024, we expect the share of total non-recurring income to be around 30% and, therefore, above the indication of around 25% we gave at the Investor Day in 2021. This is in view of our project development pipeline and is reliant on the expected normalization of real estate markets in Germany and France. Segment result decreased by 37% to CHF 272 million. The contribution of PAM was down by 17% to CHF 166 million, driven by the top line development. The TPAM segment result contribution fell by 55% to CHF 106 million, mainly due to the significantly lower contribution from the non-recurring income and the negative FX translation effects. The TPAM cost income ratio was 83%, largely due to lower non-recurring net commission income. Cash remittance declined to CHF 229 million. 2022 cash remittance included a special dividend of about CHF 25 million and was thus exceptionally high. In 2023, cash remittance was strongly impacted by a time lag between the recognition of net income from project development and the distributable cash. As a result of different lags from several projects over time, there is some averaging in their contributions to the overall cash remittance. In this context, we expect Asset Managers' cash remittance to increase by about CHF 15 million to CHF 20 million in 2024. Net new assets in our TPAM business amounted to CHF 9.8 billion and were stable. We achieved inflows in real assets of CHF 3.4 billion. Next to real assets, we also had very strong inflows in bonds. Excluding money market funds, net new assets amounted to CHF 9.4 billion compared to CHF 8.8 billion in the prior year. Overall, assets under management in our TPAM business were at CHF 112 billion compared to CHF 105 billion at year-end 2022. Let's move back to the group. Operating expenses were stable in local currency at CHF 1.96 billion. 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 increased to CHF 4.0 billion. Bonds and alternatives contributed more. This was partly offset by lower distributions from investment funds within our insurance portfolio, by the swing in repo contribution and by negative FX translation effects. Real estate was stable as high rental income and reduced maintenance costs were offset by effects from net property disposals. Direct investment yield was 2.8% compared to 2.5% in the prior year. The net investment income was down to CHF 2.6 billion due to the negative net capital gains and losses. The net investment yield was 1.8% compared to 2.7%. As initially mentioned, this is not a like-for-like comparison as the prior year is shown under IFRS 17 and IAS 39. The largest accounting difference stems from equity instruments that are largely accounted for as fair value through P&L under the new IFRS 9 standard. Net capital gains and losses amounted to minus CHF 938 million. This is primarily due to negative fair value changes on real estate of minus CHF 1 billion. Hedging costs more than doubled to CHF 1.1 billion. Equities and fixed income contributed positively. Slide 17 shows the structure of our investment portfolio. Our gross equity exposure slightly declined due to some divestments. With respect to real estate, fair value changes were negative at CHF 991 million or minus 2.5%, with almost half of the amount due to French real estate. In the prior year, we had positive fair value changes of CHF 824 million or plus 2%. Real estate continues to be an attractive and important asset class for backing our long dated liabilities. We hold real estate, because the regular rental income it provides and not because of its appreciation. Vacancy rates decreased by 1 percentage point to 3.0% in 2023. Regarding 2024, we expect real estate markets to normalize. However, some weakness of 2023 will leak into 2024. We expect negative real estate fair value changes to be in the range of minus 0.5 and minus 1 percentage point for the entire year 2024. In the VFA business, this will be absorbed by the BEL via policyholder sharing and also by the CSM, and therefore affect the P&L over time as part of the CSM release. Outside the VFA business, there is no policyholder sharings and the negative fair value changes directly impact the P&L. Moving on to insurance reserves on Slide 18. Insurance reserves increased by 5% in local currency to CHF 178 billion, mainly driven by Switzerland and France. We continue to report the average technical interest rate in the appendix. We released about CHF 0.3 billion of statutory reserves in full year 2023 in the Swiss group and individual life businesses. Pretax CSM at year-end amounted to CHF 15.4 billion and relates primarily to our VFA business. During 2023, the sum of the expected business contribution and new business resulted in an increase of CHF 1.4 million. Expected business contribution mainly refers to the unwinding of the discount rate plus effects from expected real world excess returns of assets on top of discount rates. Impact from economic variances was minus CHF 1.2 billion. 2/3 are due to the interest rate development, which includes a noticeable effect from the change in interest rate differentials. 1/3 is due to the negative real estate fair value changes and negative FX translation effects were essentially offset by the positive equity market developments. The CSM release of CHF 1.3 billion reflects the pretax profit that is recognized in the P&L. The group CSM release rate was slightly above 7.5%. The value of new business increased to CHF 515 million driven by business mix effects and the favorable interest rate development that outweigh negative persistency and actuarial effects. The new business margin increased to 4.0%. Compared to the new business CSM, this is after tax and includes non-allocated expenses. The value of new business also reflects a more comprehensive scope of insurance business. The bridge from VNB to new business CSM is shown in the appendix. Shareholders' equity decreased by 11% to CHF 7.5 billion largely driven by the dividend payment and the share buybacks as well as by negative FX translation effects. Our total outstanding financing instruments amounted to CHF 4.9 billion. In terms of capital structure, we consider the post-tax CSM along shareholders' equity. Share of senior and hybrid bonds within the capital structure was 20% at year-end 2023. Our Swiss Solvency Test ratio was estimated to be around 210% as of 1st January, 2024. It is well above the ambition range of 140% to 190%. That brings me to our Swiss Life 2024 program and the progress reporting. I will start with the fee income development on Slide 25. Fee and commission income increased by 3% in local currency to CHF 2.4 billion. The decline in commission income at Swiss Life Asset Managers and owned IFAs was more than compensated for a higher income from owned and third party products and services. Operating profit was up by 1% to CHF 1.5 billion. Fee result decreased by 13% to CHF 664 million. The main driver was the lower of net income from real estate project developments. As mentioned, we also had a positive one off in 2022 due to a gain on sale of small French broker, which impacted the fee result from owned IFAs as seen on the right hand side of this slide. The segment Other also contributed positively to profit from operations. It was exceptionally low in 2022, given a low investments income and it was rather high in 2023, mainly due to lower project related expenses and higher investments income. Operating results from insurance business increased by 4% to CHF 929 million. The main driver was the higher CSM release from which we deduct, as usual, a portion of the release pertaining to the intragroup margin, non-allocated insurance operating expenses and the contribution from the unit-linked business within the scope of IFRS 17 as this is mapped to the fee result. The additional contribution as part of the operating result from insurance business stems from a positive risk adjustment release of CHF 20 million which was stable compared to the prior year. It also includes the operating result of the French non-life businesses of minus CHF 34 million. As said, we expect a clear improvement of the operating result in our French non-life businesses in 2024. The remainder stems from contributions from other PAA profits and assets not backing life insurance liabilities. This total contribution was about stable compared to the prior year. Return on equity, which is one of our Swiss Life 2024 group financial targets, increased 13.7%, up from 12.1% in the prior year on a comparable basis. Turning to capital, cash and payout. Cash remittance to the holding company increased by 14% to CHF 1.2 billion. In 2023, we remitted the vast majority, but not the entire 2022 statutory profit from Swiss Life AG to the holding. The remainder will be remitted in 2024, together with the AG's 2023 statutory profit as shown on Slide 44. Higher Swiss Life AG profit in 2023 compared to 2022 was supported by the release of the tax provision mentioned earlier. As a result, Swiss Life AG will be paying a dividend in 2024 for the financial year 2023. That is about CHF 190 million off the prior year dividend. We are very well on track in terms of cash remittance and we confirm our expectation to structurally exceed the group's cumulative cash remittance target of the Swiss Life 2024 program. Liquidity at holding amounted to CHF 0.85 billion at the end of 2023. Our CHF 3 million share buyback is on track with around 90% completed as of today. As said in previous calls, we have the ambition to increase the dividend per share and for 2023 financial year, the Board of Directors will propose a dividend of CHF 33 to the AGM, up from CHF 30 in the previous year. The dividend will be paid upon approval from the AGM on the 22nd May, 2024. The payout ratio is 86%. Let me sum up. In 2023, we managed to substantially grow the cash remittance, the return on equity and the dividend per share. Plus, we are close to completing the additional CHF 300 million share buyback. Our net profit increased on a like-for-like basis despite the subdued real estate market, which put a drag on the fee result. Let's look forward to 2024. Achieving the fee result target will be more challenging than the other group financial targets of the Swiss Life 2024 program. We expect to reach the lower end of our ambitious target range of CHF 850 million to CHF 900 billion. This is reliant on the expected normalization of the real estate markets in Germany and France. Regarding the other financial targets, we are confident that we will exceed the return on equity, cash remittance and dividend payout ratio targets. In addition to that, we have already exceeded our share buyback target. Overall, we are well on track with our Swiss Life 2024 program to achieve or exceed all group financial targets. Dear investors and analysts, before I hand back to Patrick, let me say a couple of words in view of my transition. I very much look forward to continue to shape the future of Swiss Life from mid-May on as the new CEO. I want Swiss Life to continue to be reliable and attractive for investors, customers and employees. Together with my entire management team and everyone at Swiss Life, we will do the utmost to continue on this successful path. We are currently working on our next corporate program, which we will present to you on our Investor Day on December 3. I look forward to the ongoing discussions with you. With this, I hand back to you, Patrick. Thank you.

Okay. Thanks, Matthias. So, it's time for our Q&A session.

The first question comes from Peter Eliot from Kepler Cheuvreux.

And first of all, sorry to see you go, Patrick, after such a successful time at Swiss Life, but I guess we have a couple of more months left before then. I have 3 questions, please. The first one was, would you be able to give us any detail on the reserve releases? I'm thinking sort of how much in Type 1 and Type 2, how much in individual? And maybe just some comments around what you're thinking at kind of current interest rate levels is there any reason we shouldn't expect the sort of Type 2 reserve release to continue at the current level? So any detail and thoughts on that would be very helpful. The second one was just around your comments on the real estate market and the targets dependence on that. Just wondering if you could give us any help in how much you're reliant on that and what needs to happen by when? Because I think, your guidance for a 30% non-recurring based on the pipeline seems very strong. And that leaves me wondering how much is sort of already known, if you like. And yes, I just wonder if the real estate market is in the same position in a couple of months' time, does that make the target much more difficult to achieve? And then the third one, I'd be interested in any comments you can give us on how you decide on the dividend. Just wondering if you could run through your thoughts on how you got to the CHF 33. Just wondering if the -- should we read into the same payout ratio as last year? Should we -- how much should we read into that, was that a factor?

Okay. Thanks, Peter, for the questions. Let me start with the one on the reserve releases. As said, we had CHF 0.3 billion and they relate to the Type 2. So a large part, it's about the usual 1/3 split in individual life and about 2/3 in the group life business now. We also had some movements on the Type 1 reserve. So, the one which is also linked to the current interest rate there, we had a small strengthening. And if we include that, we still have a net release, if you wish, of CHF 0.3 billion to be reported for 2023. Now as to what the outlook is, if we now move back only to the Type 1 release of the CHF 0.3 billion, that's about the run rate, I think, that we expect in the current interest rate environment given the reinvestment rate, and as I said, that relates to the Type 2 reserves. And we expect those releases to come for several years. Maybe that's the color on the reserve releases. On the real estate market, as said, we clearly have this reliance on the normalization of the French and especially also the German real estate market that we expect to happen this year. And we clearly need that to get to the around 30% for the non-recurring income for TPAM. I mean, that's what we can say. And if there is, let's say, no improvement to the market that will be certainly much more difficult to reach. Now, how do we think about let's say this normalization of real estate markets and that -- what is relevant, let's say, for us in considering these effects? I mean, we have a certain number of factors that are more relevant, let's say, on the macro level. We have the interest rate cycle that is expected to come to an end and even to revert with, let's say, cuts to be expected. We clearly observe, probably as most of us, that there is continued strong demand for real estate. I mean -- and there is not, let's say, enough supply. There are construction shortages. We see other things -- like, in the real estate funds that there is -- the [indiscernible] that have been picking up and trending upwards already during 2023. So there are many clear indications, let's say, on the macro level that this normalization is really expected to reoccur in the year 2023. And clearly, there are also, let's say, anecdotal pieces of evidence from those that are very close to the transaction markets. I think, we include stuff like units in Germany that we are now selling off in 2023. There was essentially no demand. And even though we didn't cut prices for those condominium types of objects that we sell, we now see here and there demand picking up for that. So the interest is coming back. There is some effect from the lower rates. We also see that we can relet objects at attractive prices. And the economy is doing well in our core market. I think that's a good sign as well. And we have here and there also again interest from institutional clients to invest in real estate funds. Those are things that were missing, let's say, in 2023. And when talking investors, our real estate guys tell us there are still plays in the market that are underinvested in real estate. There we see, again, many signs that this expected normalization is underway. So it was now a very lengthy answer, but I think it helps to get some color on our thinking in relation to that.

Maybe on the dividends, I wouldn't read too much into the payout ratio, simply because under IFRS 17 and 9, in contrast to the old standards, there are not a lot of links to the statutory results which then drive the cash remittance to the holding company. So it's much more important what happens on the statutory accounts. We gave you -- or Matthias just gave you some color about that a few minutes ago. And in addition to that, we have the ambition to continue to increase.

The next question comes from David Barma from Bank of America.

The first one is just to make sure I understood correctly your answers just now, Matthias, on the fee guidance. So basically, to get in your CHF 850 million to CHF 900 million fee target, this was based on pretty much the 25% of non-recurring income. So now you're saying 30% and -- but downgrading slightly your guidance to the lower end of the range. Do I understand correctly from your answer that the 30% you're seeing clear evidence today already that these are going to come through? And so why the link to a potential recovery of the market? Are you just being prudent here and saying that if the market deteriorates from here, this will be challenging and that under the current market conditions, you are pretty much there? That's my first question. And then secondly, on flows into TPAM. So can you give us a bit of color on how these are behaving so far this year? And if you're expecting as much into your real estate funds as in 2023? And then thirdly, on solvency, could you just help us bridge the SST ratio in the fourth quarter from the 205% you had disclosed then?

Okay. Let me start with the fee guidance. And as I said there, we expect this year for Asset Managers to achieve share of non-recurring income in TPAM of around 30%. And this is a doubling compared to what we have achieved in 2023. It is essentially in line what we have achieved in, let's say, 2022 and in earlier years. I think the first point to make -- the second one is, for the 2024, we gave once the guidance -- so 3 years ago at Investor Day or 2.5 years ago at Investor Day, that we expect something of around 25%. That is, as I said, what we said 2.5 years ago. But now, as we speak for 2024, we expect this 30% share to happen. And this is, as I said, made a statement in view of our pipeline that we have in terms of project developments. But, clearly, the materialization of this pipeline in 2024 depends on the mentioned, let's say, normalization of the real estate markets in Germany and France. So, I think that's, let's say, how to think about, let's say, this guidance for 2024. So, it is challenging, and as I said, reliant on this recovery or the normalization of the markets in Germany and France. Now, in terms of TPAM flows, you have seen what we have reported in 2023. There was still strong inflow in real assets, I mentioned, the CHF 3.5 billion. We had also strong contribution on fixed income. And now, if we look at how the year has started, we really see inflows in the real estate space. And I think we expect for the full year 2024 real estate inflows, let's say, on a comparable level than in 2023. So the momentum is good and we have also looking forward, clearly, new offers that we include in our offering. We have plans to launch passive investments in fixed income space and this will also clearly help the inflows going forward. Now in terms of the bridge from the SST that we reported in Q3, that was, I believe, around 205% to the current level of around 210%, we clearly had significant contribution from the positive equity market developments and the further narrowing of the credit spreads in the fourth quarter, which in aggregate led to this improvement of about 5 percentage points.

The next question comes from Thomas Bateman from Berenberg.

Thanks again, Patrick, for your help, and you and Matthias. It's been a great partnership, one of the best management teams in the sector. I know you're leaving the company in a very safe hand, so thank you to you both. And in terms of questions, could you just give us an outlook for, I guess, premiums in the insurance business, but also fee income to the IFA business given the macro outlook. So here I'm thinking in the International business, we had a bit of some headwinds last year because of lower mortgage sales, but now kind of looking a little bit better, it's probably slightly less cash alternatives as well. So maybe just an outlook on the IFA and premiums would be good. On interest rates, I think some people were talking about potential cuts to SMB rate. What impact do you think that has on Swiss Life? And I guess, more broadly, what level does kind of the Swiss 10 year need to fall to, to stop the Type 2 interest rate reserve releases? And then finally, just on the cash outlook. I think you talked about a reserve release from Germany coming through from ZZR. Can you just give us a little bit more color on that and if that's likely to repeat?

Okay. Let me start with the cash topic from Germany. As said, about half of the cash remittance was kind of coming -- was due to special effects. There was the CHF 150 million that we mentioned that came from the IFA. That is to be considered a one off. And the second one you mentioned, that comes from the insurance, so, that's about 1/3 of those additional of CHF 75 million. And that's something that has to do with the ZZR, the Zinszusatzreserve. There we had in the low interest rate environment, a regime from BaFin that led to the situation that we could not dividend out profits from our German insurance business. And now with the higher interest rates, this so called [Foreign Language] expense dividend has been lifted and that's, therefore, a contribution we expect to report to depart from the insurance business. So I think that's the point to be made there on the term situation. Now, on the interest rate outlook, I mean, as we said, the market, clearly, expects rates to come down. And when this will happen to what degree, we have to see. I think there is a lot of that already included in the loan rate, so in 10 year rate. So I think that has been to a large degree, or if not, fully been reflected in the long term rates. And it's the long term rates that are relevant for the reinvestment rates and what have you. And those are indeed relevant for the reserve release. Now there would be a much, much lower rate level that would need to occur before we had, let's say, questions about the reserve releases. So if there is a small change of the long term rates, 10 year [ gov yield ] there is nothing that changes from our guidance we gave. And the last question on the outlook. For the IFAs, you referred to the pressure that we have experienced in terms of, let's say, interest rate sensitive products, specifically in CEE. There was some pressure, clearly, we tried to reorient the product offering there. So we, clearly, see there clearly also a rebound from the current levels. And I think if we look to especially Germany and Switzerland, we expect further growth to happen. We had really the ambition there to further grow the advisory base and clearly also, as a result, the fee result. And to give some, let's say, indications, we really had a good start in the IAFs and CCE. So we will see how this will continue. But I said the start has been good, and that probably gives you some color on the fee and commission income from IFAs. Now, going to the premium outlook. You know, for us, premium per se is not a goal. I mean, if we write profitable new business, that is clearly the goal, then premium growth is okay. But it's not the KPI per se. And maybe just to illustrate that we have had, in 2023, significant increase in the health and protection space. This was mostly price increases and not just additional business. It was price increases. We expect further price increases in that health and protection business to occur in 2024, because I said we want to bring that business back into the profitable space. Switzerland, I would say we expect probably a stable development. Germany is probably continuing at the rate we have seen now in 2023, maybe a bit less. And in International, there is, let's say, potential that there's a further, let's say, reduction with an opposite effect from the private wealth business, which we expect to come back a bit -- to come back, and the employee benefit business, which we expect to grow.

The next question comes from Nasib Ahmed from UBS.

So, first question on the cash remittances, Slide 44. You've got CHF 1 billion from -- coming from Swiss Life. And I think historically you get about CHF 300 million from the other entities. Are there any pluses and minuses in the CHF 300 million? I think you mentioned asset management would be CHF 15 million to CHF 20 million higher than '23? And related to that, in Swiss Life AG, you've got about CHF 2 billion of retained earnings as of full year '22. How much of that is distributable. I know you've done CHF 929 million of profits and you're paying out about CHF 1 billion, so that probably CHF 2 billion doesn't change much. But how much of that CHF 2 billion base case is distributable? Can you remit up? And then on the ROE, I think previously you gave some ROE guidance. I know ROE is a little bit better because the denominator is lower. But what do you expect the ROE to land at for '24, if you can give some guidance on that. And then finally, on the non-recurring income, the projects that you mentioned in Germany and France, can you give some color on how much is residential, how much is commercial? And within commercial, how much is offices, how much is other real estate?

Okay. Thanks for the questions. Let me start first with the cash remittance. As said, we have this AG CHF 1 billion that we will stream up as a dividend from the AG in 2024 for financial year 2023. As mentioned, this includes, let's say, the catch up from the 2022 statutory profit that was not fully upstreamed. If you do the math on that slide, you'd see that it's about CHF 80 million or something like that. And I think what you also should keep in mind is that the AG profit, as set in 2023, included a contribution from this release of the tax provision that I mentioned at the start of the call. Now, in terms of, let's say, what comes outside Swiss Life AG, I mean, there are clearly pluses and minuses. I mean, we highlighted CHF 50 million special dividend from the German segment, which didn't come through the AG. That was outside the AG. And we also indicated for the Asset Managers segment an additional CHF 15 million to CHF 20 million of cash remittance in the year 2024. So I think that -- so what's to be said on the cash remittance. Now to the free reserves, they are called free reserves, and that's maybe an accounting term, but we need that statutory capital as risk capital under statutory accounting. I mean, we have a different accounting framework under statutory. Then under an SST or IFRS, and we need a certain statutory risk capacity there. And to that end, they are not free. Now, in terms of the ROE guidance, we were very explicit in 2023 and Q3 because of the very special circumstances of that year. We had, first of all, a new accounting standard that was certainly a challenge. And we had this effect of the very strong negative real estate fair value changes that probably made it also a bit difficult to see what's going on. And therefore, we gave this detailed guidance on the ROE. I think for 2024, I would refer to the fact that we say we expect to clearly exceed the target of 10% to 12%. Now, in terms of the projects that we have in mind when we talk about 2024. We have predominantly projects in Germany, and they cover, let's say, residential logistics and also what we call the light industrial space. In the more longer term, and I think we have talked about some of those developments. We have district developments or city developments, but those are typically taking much longer than, and will not, let's say, accrue in 2024.

If I could come back on the stat risk capital, are you able to give us a number of what the minimum you need to hold in AG?

Look, I think we're fine with the current level. So, meaning, a situation where we upstream the entire profit, I think that's what we see as the relevant level.

And maybe to add, I mean, this is the guidance we've been giving over the last decade or so to that question.

The next question comes from Farquhar Murray from Autonomous Research.

And firstly, Patrick, sincere congratulations on what you've done with Swiss Life over the decade. It is a major turnaround. And from those genuinely meant compliments, perhaps some slightly more challenging questions on the half year. Firstly, apologies to come back to the fee results. But should I see the 30% non-recurring versus the prior indication of 25%, as suggesting a stronger than normal year this year? And is that kind of justified by the pipeline you're seeing? And when we then think about the market conditionality around that, is that just more a matter of conversion? Is that the right way to think about what you're saying there? And then, just on the tax rate? I recall there was a tax one off in the first half of '23, but the tax rate still looks quite low in the second half. Could I just get a bit of understanding around what might have driven that?

Thank you, Farquhar. Now, in view of the fee result, yes. The 30% that we give for 2024 as the guidance, that's clearly in view of the pipeline that we have. And as said, the materialization of this pipeline in 2024 is reliant on the expected normalization on the German and French real estate market. Now, the guidance that we gave at Investor day, that was something that we gave as an indication then for the midterm view. And if we now look back what we actually achieved in the past 3 years, I mean, we had, for example, in 2022, this share was 31%; in '21 it was 27%; in the year 2020 it was 30%. So looking back, we clearly have a track record of having more than, let's say, the 25% that we indicated. So I think there is a track record on that. And again, having said that already in view of the pipeline we have, we say, look, we expect this CHF 850 million to CHF 900 million to be reached at the lower end of the range. Now on the tax rate, as you said, we have had this provision, this extraordinary release. I mean that is essentially now for the full year, still the same amount as we had in the first half of the year. We have now 18.6%. We have clearly some, let's say, changes here and there in the tax rate from period to period. Another important driver to consider is the geographic emergence of the profit. So depending on where the profit is earned is really driving the tax right now. For 2024, we expect this reflects a bit this uncertainty, depending on the business development, we expect for 2024. The tax rate in the range of 20% to 25%.

The next question comes from Bhavin Rathod from HSBC.

I have three on my side. The first one would be on your real estate fair value guidance for 2024 of minus 0.5% to minus 1%. Would you be able to provide some color as on what level of fair value changes you are expecting out of your Swiss real estate portfolio? Are you expecting any material improvement in 2024 versus 2023? Or do you expect fair value changes to be broadly stable. The second one would be on your non-recurring income. Would you be able to provide more color as in what proportion of this non-recurring income is generated out of France versus Germany versus Switzerland? And the last one would be on the fee result in France. So obviously, you have seen some strong fee results because of this strong outlook for -- strong demand for the structured product. Would you be able to provide any color as in what the level of demand you are seeing going into 2024 for this banking structure product?

As I said, the 0.5% negative to 0.10%, negative for the entire year 2024 relates to the entire group. Now in terms of geographic allocation, we have about 3/4 of real estate in Switzerland. And for the Swiss real estate, we essentially expect a flat development, so stable valuations in aggregate, and that may be, let's say, composed of a positive valuation development for residential, maybe flattish for office. And maybe retail, there may be some negative contributions. But overall, as I said, Swiss real estate is expected to have stable valuations in 2024. Now, in terms of the non-recurring income, I think we clearly made a statement that we are reliant on the German and the French markets. Now, in terms of the structured products in France, I think, we have had really very strong developments over the past years. We have been doing very well over the past years. And I'm aware we always said, look, this will come back at one point in time, and it didn't come back. I would say, I would not want to give here detailed guidance. But what we clearly can say, we have a good offer here. We meet client demands and it is really an important offer in the bank. It's about 1/3 of the clients that currently have such structured products. So I think we have really good offer there.

The next question Singh Samant from Citi.

Thanks for taking my questions. And thanks, Patrick, for all the contribution over the years. And also thanks for providing the CSM sensitivity. That is quite helpful. My question is on France P&C and health and protection business. You suggested that probably we'll see in 2024 a clear turnaround versus what we saw in last year. So can you just provide more color on that? So what are the drivers and how to think about the business? And then SST movement, you suggested that the equities and corporate bond tightening that favorably impacted the movement from 9 months. So what was the impact from interest rates and equity -- the real estate fair value sort of losses? So if you can just break out those 2 things.

Let me first start with the French non-life businesses, which had a negative CHF 34 million operating result contribution in 2023. And that really encompasses health and protection, but also P&C businesses. And we have had, and that's what we highlighted specifically also in the health and protection space, issues with the technical profitability. As we understand, this is not a specific topic we have as a company, but it's a market wide phenomenon. At least that's what our understanding is. And we already have undertaken significant tariff increases in health and protection for the financial year 2023. But the development has shown that this has not been enough. And for 2024, we clearly have put measures in place, including further price increases to turn around this profitability from the negative CHF 34 million, clearly, into the positive territory. And positive territory meaning something like mid to high double digit millions of result in 2024 for the French non-life businesses. So I think there is something we are very closely watching. Now in terms of the fair value contributions of real estate to the SST movements. Now, looking back more on the 12 months view, we essentially have 0 percentage contribution year-on-year. Why is that? We have had a, let's say, negative fair value return on real estate of minus 2.5%. On the other hand, we had a plus 2.5 percentage point yield -- running yield from real estate. So net-total performance was 0. And as a result, for the 12 month it was about 0. For the last 6 months it was clearly a negative. Why is that? Because we had a higher share of the negative CHF 1 billion in the second half of the year than in the first half of the year. I hope that gives some color on the contribution of real estate there.

Yes, that's quite helpful. And just on the interest rates, the movement, did it affect the SST movement anyways?

I think in Q4 that was essentially flattish because we had various contributions from the rate movements, the differentials and the swap/bond risk spread. So that all netted out to about 0.

And if I can ask just one more question, on FX hedging cost, looking into 2024, do you expect same level of hedging cost or I mean, should it increase slightly or decrease given the interest rate are expected to go down? So should we expect slight decrease in the FX hedging cost, anything around that?

If you had asked that question, let's say 6 months ago or 12 months ago, we clearly would have expected hedging costs to come down in 2024. But as we now expect, and look into what the forwards, tell us from the current rates for interest rate levels, the forwards, clearly, indicate that hedging costs remain at the same level as what we have seen in 2023. And clearly, as usual, but let me still make it the case beyond that, we expect it to come down as we expect that, let's say narrowing of the differentials between the yield curves to materialize. So in 2025, we expect them to come down. And also the usual comment we make, there is clearly a policyholder sharing on that substantial cost. I think as a reminder.

The next question is a follow up from Peter Eliot from Kepler Cheuvreux.

I just had a question or 2 on the CSM. I haven't done the math yet, so apologies if this is wrong. But the sensitivities look quite resilient. And yet, obviously, you had a sort of fairly large economic minus CHF 1.2 billion. And I'm sort of guessing if I do the math, I wouldn't come out with such a number as high as that. So I was just wondering, have the sensitivity has been reduced over the year? Or is there sort of something else going on there? And I'm also wondering if you can give us any guidance as to what we should expect for the CSM release going forward? Given that CSM has come down, should we still be thinking of a stable release or a stable release ratio? Or how we should think about that would be very helpful.

Okay. Maybe first, in view of the CSM sensitivities. I think what is important to keep in mind, first of all, we had quite a significant drop in the Swiss franc interest rates and what is probably equally important is the sensitivity that we indicate in the appendix is one for a parallel shift of all interest rate curves in all currencies. And as mentioned, we have had in 2023, let's say, special movement on the interest rate differentials and that contributed as well to this negative economic variance. I indicated that about 2/3 of the CHF 1.2 billion was related to interest rate and a bit more than half only related to the parallel movement and the rest is essentially driven, let's say, related to the rate differentials and their movement. That may be the missing piece that you were looking for. Now in terms of the release ratio, we talked about the special effects we had in 2023. The surrenders as we talked about in half year, now we have something about the 7.5% for the full year. I think we guided a bit that we would come down from the half year release ratio. And now versus 2024 release ratio, I think it's fair to expect that we move towards the midpoint of the 6% to 8% range.

The next question comes from Rene Locher from KBW.

Yes. Just a very simple question. I am on Slide 26 and Slide 27. So very simple math. But I'm looking on Slide 26. The operating result, insurance business is CHF 929 million. This is very well bridged on Slide 27. So the delta from the CSM release pretax to the operating result is what, CHF 322 million and CHF 354 million in 2023. So if I assume that the operating result will remain broadly unchanged, and I add up CHF 850 million to the fee result. And then deduct the unallocated corporate cost plus others. Let's take the midpoint, CHF 137 million, then I end up at somewhere between CHF 1.6 billion and CHF 1.7 billion profit from operation. So is my math totally wrong or can you just give some feedback, please?

Look, maybe a couple of points that we raised in our discussion. What we said in terms of the release, just mentioned that we expect the release ratio of the group to come back a bit from the 2023 level that it moved towards the midrange. That's what we just discussed with Peter. And there is also another point, I think, that we have to highlight here, in those additional contributions, we have this French element, the French non-life businesses. There, we clearly, expect a significant improvement, '24 on '23 for the reasons we set the repricing and what have you. And what is also to be expected and I think that relates to the guidance we gave on the real estate. We have had this negative CHF 1 billion of negative real estate fair value changes in 2023. This will come down. We gave the numbers there as well. And part of that is not absorbed by the VFA business, but a more part of that feeds through, first of all, in the non-life operating result in France. But also in what you see on the third bullet on Page 27. In those assets, not backing life insurance liabilities. So everywhere where the fair value returns of real estate do not go through VFA, we have an improvement from less negative fair value changes on real estate. Just to add a couple of thoughts on the calculations you've just done.

The next question is the follow-up from Nasib Ahmed from UBS.

Sorry. So a quick one on the non-mandatory guaranteed rate. That's gone up 25 basis points, in line with the mandatory one. I don't think there's any impact for shareholders on that. But if you can just clarify that and just the thinking behind increasing the non-mandatory rate as well.

Yes. The answer is there is no impact on shareholders. We have in the group life business, only an impact on shareholders if we could not -- if the, let's say, the income would be smaller than the guarantees, which is, obviously, not the case. So no impact from that increase. I think it is a measure that we undertake to make the full insurance business more attractive to attract the assets under management. Why is that? With the higher interest rate and the measures that we have undertaken, especially in view of the commercial rate losses, this business is now, let's say, less under, let's say, underwriting restrictions than it was when rates were at minus 1% on the capital market.

The last question for today's call comes from Henry Heathfield from Morningstar.

Congratulations, Patrick. Really great decade. Just a couple of clarifiers please. You mentioned the real estate fair value moving to around negative minus 50 basis points to minus 1%. I was wondering if you might be able to give some guidance of what kind of fair value appreciation we should expect in normal markets? And then the second question around real estate. The non-recurring fees, what kind of sources of non-recurring fees are you talking about? We're talking about kind of more on the portfolio construction side, more on actually built in transaction side, building and selling. I was wondering if you can just give some color around that, please.

Okay. Maybe let's say, the long term, let's say, fair value change in real estate, it's always a difficult question. If we now look back the past probably 10 years, and if we exclude the year 2023, it was probably an average 1 percentage point per annum, probably more than 2 percentage points. But going forward, who knows. And I think the important point here is we hold real estate not because of that creation, but because of the stable rental income real estate provides to us. It is inflation linked, and I think that's something that people have come to realize and appreciate after a decade of absolute inflation. I think that's probably the best we can say. In terms of, let's say, the elements of that non-recurring, let's say, income, there are various sources. There are, let's say, more fee contributions from buying and selling real estate, from refurbishments. So more transaction and services oriented, but there is clearly also a contribution from project development. So the project development gains are included there as well. And then there's really also other elements, performance fees to some extent and construction fees and the like. So that gives a kind of a flavor of what is included there?

Is that spread across both residential and commercial kind of all elements of real estate? Or is it focused on a specific area?

No, I think it's pretty spread across all types of real estate.

I think something that might help is that we have a higher exposure than others to logistics, which is clearly the better asset class to be in than, let's say, normal office buildings.

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 ladies and gentlemen, I'd like to close this. On a personal note. I want to express my gratitude to our employees for their tremendous contribution. You all make me proud and I know some are listening in to our achievements at Swiss Life. And furthermore, I would also like to thank analysts and investors for insightful and at times, also challenging discussions. I really enjoyed interacting with you, and I really believe that this feedback loop from all of you is very important for us as management. And by focusing our efforts now on our goals for 2024 and beyond. Matthias, our new CEO as of mid-May, and the whole executive team will continue to make sure that Swiss Life will treat you as investors well, while delivering on our promise to customers and playing our role in our society. With that, I'd like to thank you again for joining and wish you a nice day and goodbye. Thank you.

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