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

Dear analysts and investors, good morning. Thank you for joining us and welcome to our conference call. Today, we report our results for the year 2024, which also marks the end of our Swiss Life 2024 program. I will provide you with a brief overview before handing over to our CFO, Marco Gerussi, for more details. I'm very pleased with Swiss Life in 2024, and I am proud of what we have achieved. First, we delivered a strong set of full year results. Second, we successfully completed our 3-year program, Swiss Life 2024. And third, we prepared an ambitious new program, which we presented last December, Swiss Life 2027. Let me start with the highlights of our 2024 financial results. The fee result was up by 33% to CHF 875 million, which is right in the middle of our CHF 850 million to CHF 900 million target range for 2024. The increase was largely driven by a strong contribution from asset managers. They delivered more TPAM non-recurring income than what we indicated to you throughout the year. The operating result insurance business increased by 12%, driven by the rebound in Health & Protection in France. The strong operating performance of both the fee and insurance businesses resulted in a 20% growth of profit from operations to CHF 1.78 billion. Net profit grew to CHF 1.26 billion, which is an increase of 13%. Return on equity was at 16.6%, up 3 percentage points and well above our target range of 10% to 12%. Cash remittance in 2024 grew by 14% to CHF 1.3 billion based on local statutory accounts. As flagged throughout the year, it included one-offs of about CHF 0.12 billion as well as positive timing effects at asset managers, which together add up to CHF 0.14 billion. With respect to payout, we propose to increase the dividend to shareholders by 6% to CHF 35 per share. This corresponds to a payout ratio of 81%, well above the target. This brings me to the Swiss Life 2024 program. I'm proud of what Swiss Life has achieved and would like to thank our employees and advisers for their strong commitment and support, which is key to our success. We delivered a fee result in the middle of the Swiss Life 2024 target range, thanks to the strong development at asset managers, especially related to real estate project developments. We exceeded all other group financial targets. It is the return on equity, cash remittance, dividend payout ratio and share buyback. Regarding the cash remittance, we delivered cumulatively CHF 3.5 billion over the course of the past 3 years. As mentioned at the Investor Day, this included one-off effects of CHF 0.2 billion, which we do not expect to repeat. The successful completion of one program marks the start of another one. Last December, we announced our new Swiss Life 2027 program. Three strategic actions will drive business growth. Simply speaking, more customers, more advisers and more efficiency. Those are the cornerstones of Swiss Life 2027. They underpin our financial ambitions. We will continue to drive earnings quality and earnings growth, and we will aim to deliver attractive cash returns to shareholders. Swiss Life 2027 takes us a step higher on our success path as we strive to reach new heights for earnings and cash returns to shareholders. Our new financial targets are well known and also shown on the slide. I look forward to embarking on this journey with my team. We are highly committed to execute the program with discipline and to deliver on our promises. With that, I hand over to Marco, who will take you through the full year 2024 financial results in more detail.

Thank you, Matthias. Good morning, ladies and gentlemen. I'm pleased to walk you through our 2024 results. Let me start with selected P&L figures on Page 7. Insurance revenues decreased by 1% to CHF 8.7 billion. Higher PAA revenues from France and International were fully offset by a lower CSM release and FX effects. Insurance service expenses increased to CHF 7.6 billion, in line with higher PAA revenues and non-variable expenses. The net investment result amounted to CHF 1 billion. This is an IFRS 17 accounting figure as it includes VFA experience adjustments and insurance finance expenses. In view of our investment performance, we continue to focus on the net investment income, which we will discuss later. Profit from operations strongly increased to CHF 1.8 billion. This strong operating performance is mainly driven by asset managers and by the French insurance business. Borrowing costs increased to CHF 146 million, including refinancing effects. Income tax expense increased to CHF 376 million. And as a reminder, we had an extraordinary tax provision release in 2023. Net profit increased by 13% to CHF 1.3 billion. Adjusted for the mentioned prior year tax impact of CHF 33 million and for negative FX translation effects, the net profit increased by 18%. Turning now to further selected figures. Gross written premiums, fees and deposits received increased by 3% in local currency to CHF 20.3 billion. This increase was driven by France and Germany. Fee and commission income was up by 5% in local currency to CHF 2.5 billion, mainly due to higher contributions from Germany, asset managers and France. The net investment income of the insurance portfolio for own risk increased significantly from CHF 2.6 billion to CHF 3.7 billion, largely due to a positive swing of real estate fair value changes. Operating expenses, excluding variable costs, increased to CHF 2.1 billion. The FX adjusted profit from operations strongly increased by 20%. I will now move on to our segment reporting, starting with Switzerland. Premiums were stable at CHF 9.9 billion. Premiums in group life decreased by 2%. Periodic premiums declined by 2%. Single premiums decreased by 2%, primarily due to fewer new employees entering existing full insurance schemes. Assets under management in our semi-autonomous foundations increased to CHF 7.8 billion compared to CHF 7.1 billion at year-end 2023. Premiums in individual life were up by 6%. Periodic premiums grew by 1%. Single premiums were up by 15%, driven by a modern traditional product. Fee and commission income was up by 4% to CHF 339 million, mainly due to higher income from the unit-linked and mortgage businesses. The segment results grew by 2% to CHF 854 million, driven by a higher operating result in insurance business. Net investment income from real estate assets not backing insurance liabilities increased. This was partly offset by a lower CSM release. The fee result was stable at CHF 55 million. Higher income from unit-linked business was fully offset by investments in growth initiatives. The value of new business decreased by 19% to CHF 189 million, mainly due to lower volumes and business mix effects. Cash remittance was up by 31% to CHF 741 million, driven by a higher 2023 statutory profit and by the non-remitted part of the 2022 statutory profit. 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 11% to EUR 7.8 billion, in line with the overall market. In our Life business, premiums were up by 14%, in line with the market. The unit-linked share in our life premiums was 67% compared to the market average of 38%. We generated net inflows of EUR 2.4 billion. Total market net inflows were EUR 29.4 billion. Health & Protection premiums grew by 3%, mainly driven by price increases to restore profitability. The market was up by 9%. P&C premiums were up by 5%, mainly due to motor products. Fee and commission income rose by 12% to EUR 541 million, mainly due to higher unit-linked fee income based on higher average unit-linked reserves. Also, the bank contributed positively. The segment result strongly grew by 64% to EUR 335 million. The operating result insurance business increased substantially, mainly due to measures taken in Health & Protection. P&C also contributed positively. The fee result was up by 13% to EUR 182 million, essentially driven by the top line development. In addition, in the second half of 2024, there was a shift of brokerage fees from structured products to the distributing entity, which is our insurance business and therefore, its operating result. This will also apply going forward. The value of new business increased by 6% to EUR 196 million. Higher volumes in the Life business with higher unit-linked share were partly offset by lower volumes in Health & Protection. Cash remittance increased by 16% to CHF 186 million due to a higher 2023 statutory contribution. Moving on to Germany. Premiums were up by 3%, in line with the market to EUR 1.5 billion, driven by modern, modern-traditional and disability products. Fee and commission income grew by 12% to EUR 821 million, mainly due to our owned IFAs. The income is net of intercompany effects, and it can vary with the volumes of Swiss Life products sold through our owned IFAs. On a stand-alone basis, owned IFAs grew their commission income by 7% with the number of financial advisers being stable at 5,984 year-on-year. Fee income from the insurance business also increased. The segment result was essentially stable at EUR 193 million. The fee result increased by 5% to EUR 120 million, driven by owned IFAs, despite investments in the harmonization and digitalization of back-office systems. As announced at the Investor Day, those investments will continue throughout 2027. The value of new business decreased by 24% to EUR 46 million as a result of lower unit-linked volumes in the context of managing acquisition cost efficiency. Cash remittance was EUR 104 million. As a reminder, we benefited from a special dividend of EUR 50 million from owned IFAs in the second half of 2023. Turning now to the International segment. Premiums decreased by 4% to EUR 1.7 billion. Higher premiums from business with corporate clients were more than offset by lower premiums with private clients. Fee and commission income was down by 1% to EUR 381 million. Higher income from owned IFAs and private clients was more than offset by corporate clients, in particular, from Eris Life. The segment result was up by 18% to EUR 118 million. This is due to the fee result, which increased by 26% to EUR 90 million, driven by a higher contribution from private clients and owned IFAs. The value of new business decreased by 19% to EUR 46 million, mainly due to business mix effects. Cash remittance was up by 5% to EUR 67 million, driven by the business with corporate clients. Let's move now to our Asset Managers, which reports in Swiss francs. Asset Managers total income was up by 22% to CHF 1.2 billion. In our PAM business, total income increased by 9% to CHF 356 million, driven by higher recurring fee and real estate transaction income. In our TPAM business, total income was up by 29% to CHF 802 million, mainly driven by substantially higher other net income from real estate project development. Recurring income increased in line with a higher average asset base. The share of total non-recurring income for TPAM, meaning commission income as well as other net income increased from 16% to 32% of total TPAM income. This was due to a pleasing development in the second half of the year, contributing to a strong 2024 fee result. About 3/4 of the total non-recurring income for TPAM relates to valuation gains, which are non-cash. As mentioned at our Investor Day in December 2024, we expect the share of non-recurring income to be on average around 25% over the period from '25 to '27. Segment result increased by 64% to CHF 446 million. The contribution from PAM was up by 16% to CHF 192 million, driven by the top line development. TPAM contribution increased by 140% to CHF 254 million, driven by substantially higher other net income. The TPAM cost/income ratio was 85%. Higher commission income was more than offset by investments in growth initiatives such as the new index business and the Energy-as-a-Service offering. Cash remittance increased by 6% to CHF 242 million as a result of time lags between the income recognition and cash generation from real estate project developments. This supported cash remittance with CHF 20 million in 2024, as we mentioned at our half year 2024 call. Net new assets in our TPAM business amounted to CHF 9.5 billion compared to CHF 9.8 billion at year-end 2023. Inflows in real assets were at CHF 2.6 billion. Moreover, we had strong inflows in equities driven by our new index business, having a good momentum and gaining a lot of traction in the fourth quarter of 2024. Overall, assets under management in our TPAM business increased from CHF 112 billion at year-end 2023 to CHF 125 billion, driven by net inflows and positive performance. Let's move back to the group. Operating expenses increased by 6% in local currency to CHF 2.1 billion due to business growth and investments in growth initiatives such as wealth solutions for affluent in Switzerland for the index business at Asset Managers. Coming to the investment income. Direct investment income increased to CHF 4.1 billion. The higher contribution from bonds, equities and real estate was partly offset by lower income from alternative investments. The direct investment yield increased from 2.8% to 2.9%. The net investment income significantly increased to CHF 3.7 billion, driven by the positive development of direct net investment income and net capital gains. Net capital gains increased to CHF 71 million. This is mainly due to a positive swing of real estate fair value changes. The net investment yield was up to 2.6% compared to 1.8%. Let's have a look at the structure of our investment portfolio on Slide 17. The share of equities increased due to higher valuations and further investments, while the share of bonds came down. With respect to real estate, fair value changes were positive at CHF 73 million or plus 0.2%. In the prior year, we had negative fair value changes of minus CHF 991 million or minus 2.5%, mainly due to Germany and France. Real estate continues to be an attractive and important asset class for backing our long-dated liabilities. Vacancy rates were essentially stable at 3.1% by year-end 2024. Moving on to insurance reserves on Slide 18. Insurance reserves increased by 1% in local currency to CHF 181 billion, mainly driven by France. On a statutory basis, we released a total of around CHF 0.3 billion of statutory reserves in the Swiss Group and Individual Life businesses as we did in 2023. The pre-tax CSM amounted to CHF 14.4 billion at year-end 2024. The expected business contribution and the new business increased the CSM by CHF 1.3 billion. Given that experience adjustments and actuarial assumptions was at minus CHF 0.2 billion. The impact from economic and non-operating variances was at minus CHF 1.0 billion. Around half is due to the widening of the interest rate differentials. The remainder is due to lower Swiss interest rates and the minor non-operating variances, offsetting the positive equity market developments and FX effects. The CSM release was at CHF 1.1 billion with a release ratio of 7.3%, which is below the 2023 level. The value of new business decreased to CHF 460 million, mainly driven by volume and business mix effects. The new business margin decreased to 3.6%, which is well above our ambition level of 1.5%. Going forward, we replaced the VNB, and we will report on the new business CSM on a half year basis. Shareholders' equity decreased by 3% to CHF 7.3 billion, largely due to the dividend payment, the change in other OCI and the share buybacks. Our total outstanding financing instruments at year-end 2024 amounted to CHF 5.5 billion with a balanced share of senior and hybrid debt. The SST ratio was estimated to be around 200% as of 31st December 2024. Compared to the prior year, the decrease is mainly due to the widening of interest rate differentials and the full deduction of the CHF 750 million share buyback that we started in December 2024. The SST ratio remains well above the ambition range of 140% to 190%. That brings me to our Swiss Life 2024 program. Fee and commission income increased by 5% in local currency to CHF 2.5 billion. Income from own and third-party products and services was up by 7%. Income from asset managers and own IFAs were both up by 5%. Profit from operations strongly increased FX adjusted by 20% to CHF 1.78 billion, driven by a very pleasing operating performance in both the fee and the insurance businesses. The fee result increased by 33% to CHF 875 million. This is very pleasing and primarily driven by a strong development in the second half of the year at asset managers and by the unit-linked business. The operating result insurance business increased double digit by 12% to CHF 1 billion. This was driven by additional contributions. We will show the details on the next slide. For the operating result, insurance business, let's start with the CSM release. We deduct, as usual, the release pertaining to the Intragroup margin, non-allocated insurance operating expenses and the unit-linked fee result in scope of IFRS 17. We add, as usual, additional contributions coming from insurance business, which is outside the CSM. These contributions came in strongly at CHF 357 million. About 2/3 relate to assets not backing life insurance liabilities driven by real estate fair value changes. The remainder came from the significant improvement in the French non-life business, which we expected for 2024. The return on equity increased to 16.6%, up from 13.7% in the prior year. Turning to capital, cash and payout. Cash remittance to the holding company increased by 14% to CHF 1.3 billion based on local statutory accounts. Let me comment on the following effects we have flagged throughout 2024. First, cash remittance included positive one-off effects of about CHF 0.12 billion pertaining to the tax provision release in 2023 and to the upstreaming of the non-remitted part of the 2022 local statutory profit from Swiss Life AG. Second, the cash remittance of Asset Managers included extraordinary CHF 20 million from the outlined positive time lags. Combined, these effects contribute to a CHF 0.14 billion higher cash remittance in 2024 and are not expected to repeat it in 2025. Liquidity at holding amounted to CHF 1 billion at the end of 2024. Our CHF 750 million share buyback is on track. We repurchased shares worth CHF 133 million as of 7th March 2025. The program will run until May 2026. Coming to the dividend. For the financial year 2024, the Board of Directors will propose a dividend of CHF 35 to the AGM, up from CHF 33 in the previous year. The payout ratio is 81%. The dividend will be paid up an approval from the AGM on the 20th of May 2025. Let me sum up. I'm very pleased with the strong performance in 2024, and I am also very pleased with the successful completion of our Swiss Life 2024 program. We delivered a fee result in the target range of CHF 850 million to CHF 900 million. We exceeded our ROE target range of 10% to 12%. We clearly exceeded the cumulative cash remittance target of CHF 2.8 billion to CHF 3.0 billion, and we also exceeded our payout target ratio of over 60%. Moreover, with a total of CHF 1.3 billion, the share buybacks also clearly exceeded the CHF 1 billion communicated at the start of the program. After the successful completion of the 2024 program, we are looking forward to executing on our new strategic program. With Swiss Life 2027, we strive to continue on our successful path by further driving our earnings quality and our earnings growth and increase cash returns to our shareholders. With this, I hand back to you, Matthias.

Thank you, Marco. We will now open the Q&A session. Who would like to start?

[Operator Instructions] Our first question comes from David Barma from Bank of America.

The first one is on TPAM, please. The headline expense level at TPAM was very low during 2024. It's not reflected in your internally adjusted cost/income ratio. Can you help me understand what's driving this big difference between the reported cost/income ratio of 85% and the one that I can recalculate based on your P&L disclosure? And then I have two questions on the CSM, please. Firstly, you had a drag from experience in economic variance. Can you come back on what these were and how much of that you think is already offset this year with higher interest rates? And secondly, the CSM release was quite a bit lower than last year, especially in the second half. Do you expect the CSM release to be closer to 7% going forward rather than the closer to 8% that we had before?

Thank you, David. I'll probably start with the third question on CSM and I hand over to Marco for the first on TPAM and the one on the variances. Now with the release ratio, as we talked through over the past, let's say, 2 years with IFRS 17/9, we clearly said there are certain effects from models influencing both release ratios. And if you ask us where we would see that release ratio in 2025, I would say that we see this release ratio essentially on the full year 2024 level, maybe a bit higher. And -- having said that, again, there are many things that clearly influence the ratio and then at the end of the day, also via the CSM level itself, release in millions. I think to your question on the CSM variance, as said, I hand over to Marco.

In view of the CSM, I think the variances, as I said in the presentation, is mainly driven around half of by lower interest rates in Switzerland. There has been some positive equity performance effects, to some extent, offset by some smaller non-operating variances. And then, the other part is due to the interest rate differential, so the Swiss francs and the U.S. dollar that widened in 2024. Now as you, let's say, intended year-to-date, Swiss rates went up, U.S. rates went down. So to some extent, those gaps, those deltas come closer together or in other words, it returned in the other direction and made up quite a bit of what we have seen on the negative side back in 2024. And in view of your question on the cost/income ratio, I think it's important to keep in mind that the ratio we communicate based on the Investor Day scope we've presented or communicated for Swiss Life 2024. So that does not include Livit and real estate project development and the other net income that we see, so that is after variable commission expense. So these are two key differences you don't see on the business review slide and that might be the reason for a different number you come up when you calculate your ratio.

The next question comes from Farooq Hanif from JPMorgan.

Firstly, starting with the insurance results. Can you talk a little bit about the sustainability of the return on surplus assets, which was real estate driven and the French non-life result. Can you go back to the asset management -- as my second question, the asset management profit and talk about the non-recurring element, obviously, the non-recurring commission element on this other net income. Just if you could just give a little bit more detail on what was going on there and the numbers. And then lastly, just on your net new assets in Asset Management. I mean, I noticed that there's been a gigantic positive leap in equities. I'm wondering if that's related to the new index business and whether you think that's kind of sustainable because obviously, the net new assets, I think, is a lot better than you guided for.

Okay. I think, Marco goes for the Asset Managers question first, and I will then talk you through your first question on the insurance.

In view of the non-recurring portion of the AM result we have seen, but this mainly relates to project developments. And we guided through the year expected a range or a number of 30% of non-recurring income in that area and that increased strongly, in particular because of the second half of the year up to 32%. So that share is a bit higher. As I mentioned during the presentation, there is a large part of it is revaluation gains, so fair value changes on these projects, which is the way it is accounted under IFRS 17. And this was one of the main drivers for the increase of the overall fee result. I think that's the one part to the non-recurring. In view of the NNAs, there, we have clearly seen a very strong second half year and particularly kicking in momentum and traction, a lot of gain in the fourth quarter, driving that up to CHF 9.5 billion. So this was CHF 2.6 billion out of that because of real assets. And the other part is mainly driven by equities and a very large extent of that is, as you said, coming from the new index business, which has started in '24. It quite successfully started and as I said, had a really, really good momentum. And I may add to that also, if we see as of today, we already see around CHF 5 billion. So keeping that momentum into 2025 and are convinced to reach a double-digit number by the end of 2025. So it's a really good start.

And moving to your question on the insurance result and this sustainability. As you rightly pointed out, we had this significant improvement on this, as we call it, additional contributions. Simply speaking, two elements. One was, let's say, the technical effects from the French non-life businesses. There, we restored profitability to a level during 2024 that we now view as satisfactory. So I think that's the first driver. So to that end, we see this level of profitability and the stress level as sustainable. There's also the second element that contributed to improvement of those additional contributions, namely the improvement of the fair value changes of real estate. Marco mentioned those numbers for the entire portfolio. And if we now look into 2025, we are positive that the fair value changes on the real estate will be a bit higher than what we have seen in 2024.

The next question comes from Michael Huttner from Berenberg.

Fantastic. I love your results. I love your optimism for 2025. And I'd like a bit more. So here goes. The first one actually is negative is, if I look half year, so H2 on H1, the fee result in France dropped 22%. So that's one question. The second is, what would -- given all these positive developments on real estate and things, what would solvency be today if you were to recompute it also the interest rate shifts and stuff? The third would be on the real estate. And maybe can you give a little bit more granularity where your confidence comes from? Is it across the portfolio or just one segment to it? And then the final is on the fees. I'd like to dream a bit. I know you have this target of fee result of EUR 1 billion for 2027. Given the momentum we see in the net new assets and the revaluations on your projects. Can we dream a bit? Can you already think we might beat this or anyway, there we are.

Thank you, Michael. I would suggest that Marco takes the first question, and I take then the following one. So Marco goes with the French fee results.

So talking about the French fee results, I think there is some maybe things to mention there. First, our French unit had a very strong first half year. I think we talked about that throughout the year, driven also by high contribution from structured products, also benefiting from the market environment. So the strong first half -- this is one of the reasons. And the second one is, the one I mentioned during my presentation of the numbers we had in the second half year of 2024, a shift of brokerage fees from the bank, which is the broker of those structured products closer to the distribution, which is our insurance business, our insurance entity. And so this part of the result is shown in the operating result, insurance business and not anymore in the fee result. That explains split in the fee and the insurance results, some of the reasons. But overall, there isn't any impact on the overall number.

And I may talk a bit about the real estate market going into 2025. I mean, first of all, we see kind of tailwinds from the rate environment, more on the short end, we expect that central banks will cut rates a bit. We see that the transaction markets have recovered in 2024. We expect that to continue into 2025. And also in terms of the fair value changes, as I said in the previous question, we expect a somewhat higher overall fair value change than what we have seen in 2024. Now in terms of granularity, what you asked, I'm now talking about the fair value changes in 2024. The number that we have reported is a positive from the Swiss market and the negative from the non-Swiss real estate we carry on the balance sheet. Now looking forward, we expect that also the non-Swiss markets really will show stable valuations contrary to what we have seen in 2024. And on the Swiss market, let me also point out that we have really seen the residential market as an important part of the Swiss fair value changes. Now in terms of your last question about the outlook. I think, what we have achieved in 2024 with the successful completion of the program, Swiss Life 2024, I think we have now a very good starting point to pursue those ambitious goals that we have put forward in for 2027. And I think we keep rather than dreaming just our focus on delivering on what we have announced for Swiss Life 2027. In terms of the specific question on NNA, the index business that you mentioned, yes, we have built that up with a clear ambition to be successful there. And I think that's supporting our ambition in Asset Managers.

The next question comes from Iain Pearce from BNP Paribas.

The first one was just on the project fair value gains. Firstly, just for my understanding, on the mechanics, why does fair value gains on the projects contribute to the fee result? I wouldn't necessarily expect fair value gains to directly contribute to the fee result. And then, just looking forward related to that, if you expect further fair value gains in 2025 on real estate, should we expect this portion of the fee result to be stronger than what you've seen in 2024? And then the second one was just on some new business items. So it sounds like you're not reporting VNB going forward. So just tying that, I guess, to the new business CSM, when we look at the geographical split, the -- is the new business CSM relatively similar to what we see on VNB? And just we've seen some negative trends on VNB in Switzerland and some other challenges in some other markets. So just if we could get a sort of outlook for the new business CSM by geography, that would be really useful.

I think, Marco will start with the question on CSM, and I will go for the first question afterwards.

Yes. As I said and as you also mentioned, we will replace the VNB reporting by the new business CSM. I think, that's something going in line with, basically, this is all the new accounting standard. I mean, there is some differences in both of the standards, how tax is treated, how cost is treated. And moreover, I think it's one of the important points, scope is different. So business not having a CSM and this is in our case, in particular, the French non-life business is not part of this CSM. But overall, that's the way we will report on a half year basis going forward. In view of the VNB changes that we commented also during the segment presentation. So the main drivers there were business mix and volume effects. But keep in mind that the business -- the new business margin is still way above our ambition level of 1.5%.

Then coming to your other question on the project development. In terms of let's say, the outlook on further fair value gains on project development. And also in terms of other non-recurring income, we have given guidance at Investors Day, not for a given year, but what this will look like on average over the period of '25 to '27. And taken together, it's 25%, both components of non-recurring income, meaning the fair value changes plus the non-recurring commission income. And I think within the 25%, the split is 10% and 15%. That's really what we have disclosed at the Investor Day. But let me reiterate, that's not for a given year, but as an average over the period '25 to '27. What is important also to keep in mind, I mean, when we talk about the fair value changes, this relates to projects that often span over several years, sometimes even decades, there are intermediate points where there may be exits, there is progress along the way. As we also talked about at the Investor Day, it may be at one point in time, economically more interesting to keep a project rather than exited, because we want to optimize the project per se. So that's the reason why there is, I would say, an uneven pattern relating to this project development. And now to your first question, this project development business is one that is closely relating to the Asset Managers business, I mean, we have quite some people working on that important part of the organization. And that's why as we have been laying out clearly for many, many years now, why we report that as part of the fee result.

The next question comes from Farquhar Murray from Autonomous.

Just two questions from me, if I may. Coming back to the CSM development, please, can you just elaborate on the experience adjustments there, namely the minus CHF 0.2 billion, which had been a bit positive earlier in the year. What's behind that? What's driving it? And maybe if it's products, where is that occurring? And then secondly, you've given a helpful sense of how markets have impacted the CSM. I just wondered if you could give us a similar indication on the SST development given the volatility this year so far.

I think Marco take the first question. I may give a go at the second one.

Okay. The experience adjustment, so the minus CHF 0.2 report in the CSM walk that mainly refers to surrenders, surrenders in the Swiss group life business. So there is, let's say, some contracts coming in, some contracts going out. There are one or two maybe the larger contracts that we have seen coming to going out, and that finally then resulted in this minus position in the CSM walk.

And to your second question on the SST, yes, this partial reversal of what we have been observing as a negative in 2024 coming from the interest rate differential which has been affecting both CSM and SST now also applies positively in the current year. And if we look -- taking all the effects together in 2025 year-to-date, we expect the SST to be around 205% as of today.

If I may add to the CSM, to your CSM question, maybe I stopped a bit fast, while answering. I mean what is important for us, and that's also something we said at the Investor Day for the new program that we want to grow the CSM also on an operating level and the experience adjustment is something that is related to our in-force management and that we're really keeping up discipline in view of not only surrenders, but also cost management to grow that and also further contributing to a growing operational result in insurance business.

Just as a follow-up on that CSM then, should I think of those as essentially contractual renegotiation points? It's not really policyholder behavior from the sound of it. Is that right?

Yes, you may think it's not individual policyholders. It's really clients. And I think in this case, it was relatively large clients, yes.

The next question comes from Ahmed Nasib from UBS.

I've got -- maybe I'll start with a follow-up on kind of Matthias, the point you made on fair value changes. Are you expecting fair value changes to be higher than '24 on the PAM property portfolio on project developments in the assets not backing liabilities and also in asset management. So all of those three components. Is that the kind of the outlook for '25 being better than '24? And then coming to my question on the 15% non-recurring income that's on project development. Can you give us some indication of how much of that is Germany and France and how much of that is in Switzerland? What's the implication of higher European rates on that? And on asset management flows, do you see any shift towards real assets given rates in Switzerland have come down? And then finally, on debt leverage, are you happy with the leverage that you're at, at the moment? Or could you take advantage of the low rates in the market to actually issue some senior debt at an attractive coupon rate?

Let me start with the fair value changes on real estate. So the comment I've made for 2024 applies to the real estate we hold on our balance sheet. And this means part of it will affect the technical reserves in the VFA business, so the CSM and one element of that or one part of the fair value changes that I said will be higher than in 2024 will show up likely in this other contribution. So in the businesses, in the insurance businesses that do not have a policyholder sharing or in the assets not backing liabilities. So that was the comment I've made there. What I also said was that in terms of transaction volumes, in terms of transaction volumes, we expect them to be higher in 2025 than in 2024. And in terms of, let's say, this non-recurring income, I just referred to what we said at the Investors Day there, we do not give guidance on an individual year. What we said is how we, on average, expect the non-recurring TFAM income to look like. I think that was the first question. The second one on the project development, we do not provide a breakdown on, let's say, where we get this, let's say, in which countries we see the individuals. There's no particular thing. One large project, you may have seen that is in Frankfurt, but it's not the only one.

In view of the flows in real assets, I mean, we have reported CHF 2.6 billion net new assets in TPAM, meaning real estate and infrastructure. And we continue to see those assets flowing in and are positive on that also for 2025. Your leverage question, the one you asked, I mean, for obvious reasons, we do not comment on upcoming financings. But what I can say, what we have done, we shifted somehow a bit during our refinancings in 2024 from hybrid to debt, a more balanced level. And why is that? On one side, for regulatory reasons, we don't need more hybrid capital given our strong solvency. And on the other side, I mean, you also mentioned that financing is in terms of cost or yield more attractive being financed in bonds. So there was a shift in 2024, but do not comment on anything we plan for '25.

The next question comes from Michele Ballatore from KBW.

One question from me. It's about the -- basically the competitive environment, especially if we look at the asset management and the current level of interest rate that will probably be structurally higher than 3, 4 years ago, of course. What kind of competitive forces are emerging, not just Switzerland, but also in France and Germany? And how much of a threat you see to both the -- of course, the net inflows and to, in general, the fee targets that you -- the fee result targets that you have?

Look, I would say all the spaces we are operating in, we experienced competitive pressure. I think, what we put forward at the Investors Day is a clear plan on how we want to seize the opportunities that we see in the market, why we have a good starting point. I mean, with our focus, for example, on real assets, be it real estate, be it infrastructure equity, we see ourselves well positioned to go after the opportunities we have in the market. And this is, as we have shown, I would say, in the past 3 to 4 years that we could also really navigate the changes in the interest rate environment, as a real estate asset manager where we really have a leading position in Europe. And I think that is really something that we want to take advantage of.

We have a follow-up question from David Barma from Bank of America.

I just had two quick follow-ups, please. One on the interest rate differential. So it indeed came down versus USD. Compared with the euro area, it's still pretty high. Is this something we need to account for in terms of CSM developments in '25 or hedging costs or anything else? And then secondly, on remittances, focusing on asset management. So the '24 result is quite a bit better. But as you're saying, there's several non-cash items in there. Are you able to give us some color on how we should see the remittances from Asset Management in 2025?

Let me start with the second question. I think, on the remittances, not only of asset managers, but of all divisions, business divisions, Swiss Life, we just refer to what we said at Investors Day. So what we have put forward as the plan back then. So that means there are targets for 2027, the cumulative targets. And I think that's probably the best way to think about that. Now in terms of the interest rate differentials and hedging costs, I think there's two important points to make first. I mean, on the hedging costs, it's the differential at the short end on the CSM and the SST, by the way, it's more the differential at the long end of the curve that is relevant. And indeed, both, let's say, U.S. dollar and euro are relevant. But if I'm not mistaken, the U.S. dollar exposure is more relevant. You even see that somewhere, I think, in the appendix. So to cut the long story short, euro is also relevant, but less so than the U.S. dollar.

The next question comes from Bhavin Rathod from HSBC.

I have three. The first one would be on the French non-life operating result. Can you provide some outlook? How should we expect this business to grow in 2025? And what are the kind of rate increases that you're continuing to see in this line of business? Obviously, we have seen a big turnaround in 2024. Should we see a continuation of that in 2025 as well? The second one would be on your investment portfolio mix, given the fact that you are expecting positive fair value gains in 2025. Are you open to revisit your asset mix to be more weighted towards real estate given the interest rate is expected to go down and fair value gains in real estate are expected to go up? And the third one would be on the Swiss Residential rental income. Given we have seen a decline in the Swiss reference rate very recently, how should we think about your residential rental income to evolve going forward with this decline?

I think Marco goes for the first and I go for the second and the third question.

So the non-life business we have in France, so that's mainly Health & Protection and also to a lower portion, P&C business, where we had, let's say, rather unpleasing year 2023 and the clear ambition and the plan to recover those profitability back into positive levels. And this rebound we have seen from '23 to '24 was pretty positive, maybe even a bit higher as we expected. And going forward, being now on that level, I think it's now more a normalized level where we would see, let's say, a normal growth -- a normalized growth over the next years to come. So that was a significant onetime improvement from '23 to '24.

Then on the portfolio mix, the increase of the real estate share, you see somewhere in the appendix that on a net basis, we have been adding, I think, CHF 0.2 billion this year. Last year, it was a minor negative. I mean, what is important here, we keep optimizing our portfolio, that means selling and purchasing. But as you have seen, as I said, the net impact in the past 2 years was not that big, and it's probably also fair to assume that this will not change materially going forward. In terms of the residential effect that you mentioned, first of all, I think it's important to keep in mind that we had, let's say, two increases of that reference rate over the past, I would say, probably 18 or 24 months. You have also, by the way, seen that the rental income that we show somewhere in the appendix 35 actually has increased year-on-year, that in parts also due to effects like both. Now in terms of the potential effect of the lowering of the reference rate, I mean, that's up to the individual tenant to request such a lowering. And for those qualifying, this may be on an individual basis, maybe less than 2%. Having said that, first of all, it's only maybe 40% of our total real estate portfolio that relates to residential. And out of this part, only a part is in Switzerland. And from this part that is in Switzerland, only a fraction is eligible for that request. So we're not overly concerned about that to cut the long story short.

We have a follow-up question from Henry Heathfield from Morningstar.

Just on -- within Asset Management, the fee and commission income on this real estate project development, it's obviously looking at a really good and healthy level, highest it's been for over a decade from what I can tell. I was just wondering, you talked a lot about kind of fair value changes last year and coming into this year. Are there any headwinds that look like that is not sustainable beyond 2025? Is there anything we should be thinking about there in terms of headwinds? And then the second question is, as you mentioned that the main fair value changes that have happened on that project development have occurred, I think you said within residential in Switzerland. And I was wondering if it's going to be residential again in kind of non-Switzerland this year.

I think, it's important to differentiate a couple of points. I mean, what we -- when we report about the fair value changes, this CHF 72 million or whatever it was, that relates to the insurance portfolio. I mean, that's what is in there. And here, I think, we said that the fair value changes of the residential real estate that we hold in Switzerland that positively contributed to that change in 2024. And I said, overall, for the fair value changes of the assets of the real estate assets in the insurance portfolio, we are for 2025 really positive. Then in terms of the project development, that's something that we report as part of the Asset Managers results. Here, as I said, we have had a very strong contribution in 2024. We see really that the market for project development, by and large, that's really a positive thing. We see many things that are going into the right direction. I'm talking about the market, as I said. And when it comes to Swiss Life, I think, I referred several times now to how we expect this earnings composition to develop going forward. So I think, it's really important to differentiate between the real estate that we hold on the insurance portfolio, we hold that for the direct investment backing the liabilities. And in asset management, we do this real estate project development.

The last question comes from Farooq Hanif from JPMorgan.

Going back to the comment you just made about the return on surplus assets and the fair value gains. With your crystal ball, can you give us an idea about what we should be factoring in for multiple years? Because clearly, 2025 is you're saying also being positively affected, but we want to be sort of cautious about what we're assuming, also costs going forward. And so what would you say will be a more kind of normalized level that we could think about?

Not sure whether I understood everything. You were talking about the fair value gains on real estate.

So the return on surplus assets sounds like it will be positive in '25 as well. What should we assume for '26 and '27? I mean, it feels like it's above normalized levels because of the market.

No. As I said, we have seen a significant improvement of those fair value changes in 2024. I said we are positive that this will increase in 2025. And then, what 2026 and 2027 brings, let's see. But I think it's important that on those fair value changes of assets backing or not backing liabilities, we are positive for 2025. I think, that's what we said on several occasions. And as I said, also, we specifically see now going forward also a situation where the non-Swiss real estate will have at least stable valuations, and that helps us on both returns on assets, not backing liabilities.

We have a last-minute registration from Michael Huttner from Berenberg.

It's, well, lucky days. And it's a really simple question. Just on the -- I think in 2 years, maybe 3 years ago, you were mentioning the releases from the Swiss group -- sorry, the Swiss Life domestic reserves due to the movement in interest rates, interest rates being above 0 basically. Interest rates are still above 0. They may be recovering a little bit. I don't know. What -- is there anything to add there that these reserve releases are flat or going up or disappearing, I don't know.

No, I think, as we said at the Investors Day, we clearly expect this on CHF 0.3 billion that we have seen per annum in '23 and '24, we expect that to be the run rate. Nothing new to report. And when you talk about the interest rate in Switzerland, yes, they have been low. They have been going up now. And if we look at, let's say, the reinvestment rate on our portfolio, that's for 2025 at around 3.5%. So it is above the portfolio yield, and I think we see that clearly as a positive.

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the conference back over to Matthias Aellig for any closing remarks.

Ladies and gentlemen, thank you for your questions and for joining us. Have a nice day.