U.S. markets open in 5 hours 20 minutes
  • S&P Futures

    3,338.50
    -7.50 (-0.22%)
     
  • Dow Futures

    27,401.00
    -81.00 (-0.29%)
     
  • Nasdaq Futures

    11,369.25
    -25.50 (-0.22%)
     
  • Russell 2000 Futures

    1,499.30
    -7.20 (-0.48%)
     
  • Crude Oil

    40.29
    -0.31 (-0.76%)
     
  • Gold

    1,887.70
    +5.40 (+0.29%)
     
  • Silver

    23.75
    +0.15 (+0.64%)
     
  • EUR/USD

    1.1670
    +0.0001 (+0.01%)
     
  • 10-Yr Bond

    0.6630
    0.0000 (0.00%)
     
  • Vix

    26.77
    +0.39 (+1.48%)
     
  • GBP/USD

    1.2865
    +0.0024 (+0.18%)
     
  • USD/JPY

    105.6200
    +0.1010 (+0.10%)
     
  • BTC-USD

    10,735.76
    +33.26 (+0.31%)
     
  • CMC Crypto 200

    230.29
    +6.37 (+2.85%)
     
  • FTSE 100

    5,886.24
    -41.69 (-0.70%)
     
  • Nikkei 225

    23,539.10
    +27.48 (+0.12%)
     

Edited Transcript of HELN.S earnings conference call or presentation 15-Sep-20 9:00am GMT

Half Year 2020 Helvetia Holding AG Earnings Call

St. Gallen Sep 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Helvetia Holding AG earnings conference call or presentation Tuesday, September 15, 2020 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* André Keller

Helvetia Holding AG - CIO

* Paul Norton

Helvetia Holding AG - CFO

* Philipp Gmür

Helvetia Holding AG - CEO

================================================================================

Conference Call Participants

================================================================================

* Peter Eliot

Kepler Cheuvreux, Research Division - Head of Insurance Sector Research

* Rene Locher

MainFirst Bank AG, Research Division - Director

* Simon Fössmeier

Bank Vontobel AG, Research Division - Former Head of Insurance

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to the Half Year Results 2020 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. (Operator Instructions) The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mr. Philipp Gmür, Group CEO. Please go ahead, sir.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [2]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, welcome to our analyst conference call on the results of the first half of the 2020 financial year. Within the next 30 minutes, we would like to give you detailed information on our business development and the key financials of the reporting period. Following my introduction, our CFO, Paul Norton, will go through the financial figures. Then I would like to give you an update on the implementation of our Strategy helvetia 20.20. After my presentation, Paul Norton and I as well as our Chief Investment Officer, Andre Keller, will be pleased to answer your questions as always.

On Slide 3, I would like to share with you a brief overview of the main performance indicators. Paul will give you detailed information on the developments of these figures later on.

The first half of 2020 was marked by the COVID-19 pandemic. Once again, we were able to demonstrate the stability of the business model and the solid capitalization of Helvetia in a difficult environment. Despite the pandemic, the business volume in the non-life business showed a significant increase of 9% in original currency. This is a pleasingly strong premium growth, driven mainly by Specialty Markets and property insurance in Switzerland and Europe.

In the life business, investment-linked products in Europe developed very positively with a currency-adjusted increase of almost 27%. Nevertheless, as expected, the total volume in the life segment declined by 14.5% in original currency due to the planned introduction of a new tariff in Swiss group life as already communicated. This led to a 3.2% in original currency decline in total business volume to roughly CHF 5.6 billion.

On the earnings side, as already communicated on August 25, Helvetia has experienced 3 key effects that are extraordinary in this form. The pandemic left a clear mark on the IFRS result after tax, which amounted to a minus of CHF 17 million in the first half of 2020. First, COVID-19 resulted in a major distortion on the capital markets, which considerably weakened investment results in both the life and non-life business. On the other hand, the pandemic had an impact on the underwriting result in non-life business. In addition, a special effect, a one-off write-down due to the realignment of a project to renew the system landscape in Swiss non-life was booked.

Compared to the previous year, there was also no one-off positive tax effect in Switzerland. The net combined ratio in the non-life business was 19 -- 95.9%, excuse me, which is a very good level considering COVID-19. The losses due to the pandemic affected the combined ratio by 4.4 percentage points. Without these burdens, the ratio clearly made the strategic target, which shows the good quality of the portfolio. Paul will give you some more details later on.

The life business also proved to be robust. The new business margin of 2.8% was well above the strategic target. In addition to lower discount rates, an improved business mix as well as product and tariff adjustments contributed to this development. Helvetia continues to have a strong capital position. The SST ratio was 235% as of January 1, 2020. According to estimates, the SST ratio at the end of June and thus after the acquisition of Caser and its financing continues to meet the strategic target of 180% to 240%.

The implementation of the helvetia 20.20 strategy is proceeding successfully, and Helvetia is well underway to achieving its strategic goals. At the end of June 2020, Helvetia successfully completed the transaction to acquire the Spanish insurance company, Caser, and its financing. The acquisition only affects the balance sheet and not the income statement of the half year financial statement. Caser developed positively in the first half of the year in a difficult environment in the insurance business. Above all, we are also on the homestretch on reaching our financial targets 2020. I will come back to this later in the second part of my presentation.

With that, I would like to hand over to our CFO, Paul Norton, who will now provide you with the most important information about the financial figures.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [3]

--------------------------------------------------------------------------------

Thank you, Philipp. Good morning, ladies and gentlemen. I'd also like to welcome you to our conference call today. Within the next approximately 25 minutes, I'll give you more detailed information on our financial performance in the first half of the 2020 financial year.

For this conference, we have simplified the slide deck. The full presentation in the form we normally use and with additional information is on our website available for download.

I'd like to start with Slide 5, where we have summarized the main impacts of the COVID-19 crisis on the first half of 2020. As Philipp has already mentioned, the pandemic led clear prices on the IFRS earnings after taxes. On the one hand, the pandemic has an impact on the underwriting result in the non-life business. The net claims burden from COVID-19 due to regular claims and policyholders and from settlement solutions offered by Helvetia, especially on the Swiss epidemic insurance, amounted to CHF 89.4 million before taxes and mainly affected the Swiss business. Most of the claims payment Helvetia has incurred due to COVID-19 have been in connection with business interruption cover and triangle on assistance insurance in Switzerland. The claims figure also include the settlement solution for Swiss [strong] companies with a pandemic extension in epidemic insurance announced by Helvetia in May. This settlement solution was very well received with over 95% of the affected companies doing it today. The successful implementation of the settlement solution provides security to customers and Helvetia. In Germany, there was a similar solution, which has also been well received.

On the life side, we have not seen any significant effects of COVID-19 the margin after costs.

On the other hand, the coronavirus left a major distortion on the capital markets. It specifically weakened the investment results in both the life and non-life business. And there were 2 main reasons for this. Firstly, Helvetia classifieds as a Helvetia (inaudible) equity portfolio as held for trading and consequently, gains and losses going directly into the income statement, not as with many other companies through OCI in equity. Economically, the volatility is the same. Accounting choice just magnified the P&L impact.

On the right side of the slide, you can see how the investment losses on the volatility between the P&L and OCI. Of the minus 365 million losses booked through P&L, some 2/3 related to equity-related instruments.

As part of Helvetia's group risk management, a lot of concepts has been used for many years to limit extraordinary losses within balance sheet year. The implementation of the most (inaudible) concept includes a dynamic adjustment of the hedging instruments to limit losses and protect the balance sheet against further downturns. This adjustment of the hedging instruments meant that Helvetia only participated in a subsequent recovery in the stock market. Our prime end was to protect the balance sheet and solvency, not the profit whilst they can.

I would also like to emphasize that we have not significantly realized investment gains, i.e., sell them in order to compensate the book losses. The vast majority of our unrealized gains in our bond portfolio keeps the higher frequency from COVID-19 yields. We did not believe it essential to some high-yielding bonds, which result in having to reinvest to the future lower yields just to make gains to compensate restructure and valuation fluctuations, which affected the vast majority of the market.

Turning to rental income. It's also impacted by COVID-19 with lower dividends from equities and funds. Various companies weren't part of dividend payments in response to principal regulators and politicians. Additionally, interest income was lower because the ongoing low interest rate environment.

On the volume side, the measures to contain COVID-19 led to a temporary cohort in new business during the lockdown period as well as a reduction in outflows. Nevertheless, we managed to achieve very pleasing growth in Europe in Specialty Markets and non-life business. The value distribution chain in Italy and Spain were less affected by the reduction in new business and proved to be stable, particularly in the life business with excellent growth in investment-linked products. However, the impact of the pandemic on economic development will most probably lead to lower business volumes in certain lines of business in the future, inching the transport business.

Let's turn to results for business areas on Slide 6. Slide 6 gives you an overview of the IFRS results after taxes of individual business units. In terms of business areas, the COVID-19 pandemic affected both the life and non-life businesses. Both businesses experienced significantly weaker investment results due to the collapse of the equity markets and limited participation in the subsequent recovery as the hedging instruments were adjusted, consistent with aims -- the aim of protecting the balance sheet. The non-life underwriting result was impacted by COVID-19 claims and higher costs due to projects and shifts in the business mix. Nevertheless, the combined ratio remains on a good level, which underpins the sound quality of our portfolio.

The non-technical result was burdened by a special effect, a one-off write-down due to the realignment of a project to renew the system landscape in the Swiss non-life sector. In the life business, the decline in the investment result was partially offset by a slightly higher margin after costs driven by improved risk result and lower expenses for policyholder participation and for interest rate-related reserve strengthening.

The new business also proved to be robust. The new business margin stands at 2.8%, and thus remains well above the 2020 strategic target. The interest margin remained solid as well and only slightly decreased by 5 basis points compared to the previous year. The reason for this was a stronger decline for direct yields compared to average technical rates. Decline in yields was due to the low interest environment and lower dividend income in the course of the pandemic.

The successful implementation of the settlement solution in the non-life business offered to customers with a pandemic exclusion in Swiss epidemic insurance creates security for customers and for Helvetia. In life insurance, Helvetia has also improved its risk position, strengthened future profitability, introducing a new tariff in the Swiss group life business. The result of other activities also fell compared with the previous year, mainly due to COVID-19 claims in group reinsurance and costs in connection with the acquisition of the Spanish insurance company, Caser, as well as higher project costs.

With regard to reporting segments, the effects of the pandemic was strongest in Switzerland. Here, Helvetia posted a low result than in the previous year, both the non-life and the life business. This is mainly due to weak investment results in both business segments and in non-life to COVID-19 claims as well as the special effect due to one-off write-down. The losses in the stock markets also significantly reduced investment results in the non-life and life areas of the Europe segment. This was partly offset by a much stronger underwriting result in non-life business. Helvetia benefited from the good portfolio quality with low exposure to COVID-19 claims and the lower claims frequency during the lockdown period. Specialty Markets segment also posted lower investment income and a slightly lower technical result due to COVID-19 losses in active insurance.

I will continue with our growth in business volume on Slide 7. In the first half of 2020, Helvetia Group achieved a business volume of roughly CHF 5.7 billion. This equates to a currency-adjusted decrease of 3.2% over the previous year. Despite the COVID-19 crisis, we achieved a pleasing increase in premium volume in the non-life business of 9% in original currency. The growth was mainly driven by Europe and Specialty Markets, where premiums increased by 1.8% and 33%, respectively. The significant increase in the Specialty Markets segment can be attributed to a strong growth in all 3 market units, driven by both positive volume and price effects. In particular, I'd like to emphasize that Specialty Markets business has seen substantial rate increases as markets have hardened.

Skewed by line of business, growth was particularly supported by the property business, engineering, transport and active reinsurance. Motor business by contrast is under pressure in most European countries due to the lockdown restrictions.

In our Swiss home market, we're able to increase premiums by 1.3%. Property business is benefited from the expansion of partner business, the so-called B2B2C business with 4.7% higher premiums. This growth was partially offset by lower volume in liability business.

In the life business, business volume on group level declined by 14.5% in original currency. The increase is due to a strategic decision in the Swiss group life business. The introduction of a new tariff on 1st of January 2020, Helvetia strengthened the future profitability of the group life business. As expected, this led to a significant premium decline of 20.5% in this line of business in the first half of 2020. A strong development to the business volume with capital-light, investment-linked products in individual life in all country markets of the Europe segment, plus 26.8% in original currency had a partially compensating effect. The Helvetia model of an agile and service-oriented organization, providing strong support for different sales channels and private customers, were key in this development.

I'd now like to move to the net combined ratio on Slide 8. The net combined ratio amounted to 95.9%, and thus increased compared to the previous year. Thanks to the quality of the portfolio, the ratio proved to be very robust despite high COVID-19 losses. The net claims burden from COVID-19 due to regular claims and policyholders are from settlement solutions offered by Helvetia, particularly in Swiss epidemic insurance amounted to CHF 89.4 million before taxes and affected the combined ratio by 4.4 percentage points.

One point I'd like to make here is there's still uncertainty in the market regarding the treatment of reinsurance recoveries, and this may take time to resolve and could lead to different results. We are nevertheless very confident that our insurance recoveries estimate at the present is robust.

The relatively low impact is proving the resilience of the portfolio. Additionally, Helvetia benefited from a lower [birth] for major losses from natural events and lower loss frequency in individual lines of business as a result of the lockdown to combat the pandemic. Cost ratio increased 30.6%. The reasons were a higher administrative cost ratio, mainly driven by higher project costs as well as a slightly higher acquisition cost ratio due to shifts in the business mix. The one-off write-down of the IT project in Switzerland is not included in the combined ratio.

On a segment level in Switzerland, the net combined ratio was higher than in the previous year, mainly resulting from a higher loss ratio due to COVID-19 related losses. With 91.2%, Europe recorded a better net combined ratio compared to the first half of 2020. While the claims ratio improved, thanks to a good portfolio quality, with a low exposure to COVID-19 losses and a lower claims frequency during the lockdown period, the cost ratio remained more or less at the previous year's level. All European market units achieved combined ratios below 100%.

In the Specialty Markets segment, the net combined ratio increased slightly to 98.1%. The claims ratio slightly increased predominantly due to COVID-19 losses. In active reinsurance, cost ratio was also slightly higher, mainly resulting in shifts in the business mix in active reinsurance.

Slide 9 shows the development of our investment result. With CHF 457 million, current income was below the prior year level. The reasons for this are the ongoing low interest environment and lower dividends from equities and funds during the COVID-19 pandemic.

Realized and book gains and losses amounted to 365 million minus, a substantial decrease compared to the first half of 2019, which resulted from the equity market crash triggered by the COVID-19 pandemic. Helvetia only partially participated in a subsequent recovering stock markets as our priority was to protect the balance sheet, and we adjusted our hedges accordingly. Remaining book losses were mainly due to FX movements on fixed income instruments, which are always booked through the P&L since currencies deteriorated against the Swiss franc.

Unrealized gains and losses recorded in equity remained almost unchanged with a slight increase of CHF 24 million. As a result of development for the capital markets investments with market risk for the policyholder decreased by CHF 121 million.

On Slide 10, I'll provide you with some details with regard to the impact of Caser on the half year results. The end of June 2020, Helvetia successfully completed the transaction to acquire the Spanish insurance company, Caser, and its financing. The acquisition only affects the balance sheet and not the income statement of the half year financial statements. As you can see in the left part of the slide, the purchase price plus minority interest corresponds almost exactly to the net assets of the company. The transaction, therefore, resulted virtually no goodwill, only CHF 2 million, which means that the purchase price was reasonable and reflects the book value of the company. Financing the transaction was completed at the end of June 2020.

Helvetia successfully placed 3.3 million new shares at a price of CHF 91 per share in a private placement by way of an accelerated book bidding process, or ABB, generating gross proceeds of CHF 300 million. The ABB was very successful with strong demand leading to an oversubscription and a very low discount of 2.3% at the last closing price. We also issued a hybrid bond of EUR 600 million, which is eligible as equity for SST and S&P at a very favorable coupon of 2.75% per annum, which was also heavily oversubscribed. We believe that this shows the strength of support in both equity and credit markets for the Helvetia story.

After financing of Caser, the leverage ratio now stands at 28%, in line with our targets. I'd also like to repeat the information that we gave at the time of announcing the Caser acquisition that we believe that the transaction is accretive to EPS in the first year.

If you move to Slide 11, you first look on Caser's half year results on a Spanish GAAP basis. So there, Caser has developed positively in the first 6 months of the year in a difficult environment in the insurance business. Risk premiums on the non-life and life business increased year-on-year. The growth rate is above the market. Underwriting also developed favorably in the life and non-life segments. Net income in the first half of 2020 financial year amounted to EUR 62 million. I would like to emphasize that due to the fact that Caser only reports on local GAAP, and the results also include certain one-off gains. Its figures are only comparable to Helvetia numbers to a very limited extent. They can give a broad indication of the results on the Helvetia IFRS accounting policies, however.

However, IFRS acquisition accounting will reduce profits in the following years. It was a bit similar to what we had under National Suisse. Therefore, these figures should not be taken as guidance for future performance.

Caser's half year 2020 results have no impact on the Helvetia Group results because of the date of initial consolidation, and the acquisition only affects the balance sheet.

And on that note, I'll now hand over to Philipp Gmür again.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [4]

--------------------------------------------------------------------------------

Thank you, Paul, for the details of our financial performance in the first 6 months of 2020. It is, by the way, the last time you present the Helvetia results. I come back to this later on.

In the last part of the presentation, I would like to briefly show you an update on strategy implementation. The implementation of our strategy helvetia 20.20 is proceeding successfully. Slide 13 gives you the usual complete overview where we stand in terms of implementation. I would like to go into more detail on 2 items, so let's move to Slide 14.

One milestone we achieved in the first 6 months this year is the acquisition of a majority stake in the Spanish insurer, Caser, announced in January. Helvetia is thus strengthening its core business, a key objective of our strategy. The takeover was successfully completed at the end of the first half of the year after refinancing with equity and hybrid capital in a challenging environment. It should be particularly emphasized that the new shares created by way of the capital increase could be placed on the market only at a small discount, thanks to the high demand. Helvetia's anchor shareholder, Patria Genossenschaft, supported the acquisition and has purchased new shares at the issue price in proportion to its current shareholding of 34.09% in Helvetia.

The acquisition represents a strategic milestone in the development of Helvetia. Caser will further expand the European business as the second pillar of the group and increase the importance of the attractive non-life business. Helvetia is also opening up valuable new sales channels in the area of bank distribution. As Paul has already mentioned, Caser developed positively in the first half of the year in a difficult environment.

Another important thrust of the current strategy period is the development of new business models. Helvetia has taken an important step in this direction with the launch of its own asset management product. Helvetia Asset Management launched its first real estate fund in June. The initial issue met with widespread interest and generated proceeds of CHF 450 million. With the launch of the real estate fund, Helvetia is broadening its product range and opening up new sources of income in the form of stable fee income.

Finally, Slide 15 shows that we are well on track to reach our financial targets. We are pleased with the development of the individual financial figures so far. The acquisition of Caser supports Helvetia's growth ambition without compromising its financial targets. It is very important for me to emphasize that together with Caser, Helvetia will reach its volume ambition of CHF 10 billion by 2020, but without jeopardizing profitability. To the contrary, the transaction supports our strategy of profitable growth.

Helvetia's operating business has proved to be robust and resilient despite the consequences of COVID-19. In this respect, our geographical and business diversification was a major contributory factor. Of course, one-off special efforts -- effects burdened our half year result. However, if there are no more adverse developments in the second half of the year, we are confident to finally achieve the goals set forth in the framework of Helvetia 2020.

This brings us to the end of the presentation. My colleagues and I would now be pleased to answer your questions. Thank you for your attention.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Peter Eliot from Kepler Cheuvreux.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [2]

--------------------------------------------------------------------------------

My first question was on the non-life walk actually on Slide 29 from your extended slide pack. I'm just wondering if you can provide us with a little bit of help in understanding the moving parts. I mean in particular, you show a 6.2 percentage points decline in the current year claims ratio. I mean, I think that comes from 3 things: a shift in the accounting, which shifts things into PYD; probably some good claims from people driving less and things like that in the COVID environment; and maybe also an underlying improvement. So I'm just wondering if you can help us understand, maybe quantify what those 3 things are and in particular, if you're able to just put out the PYD, that would be very helpful.

The second area I wanted to focus on was on the investment portfolio. I guess the credit ratings have seen a decline just naturally from the -- from bringing Caser's assets in. And obviously, Caser's assets obviously rated BBB and below. I'm just wondering if you can say what your plans are going forward with that, whether there have been any sort of ratings migration that you've experienced to date and how you see that portfolio, what your appetite is for re-risking going forward. And maybe on that side, I mean, you mentioned your net equity exposure at the end of June. I was wondering if you could give us an update and also say what your view on real estate is in the current environment.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [3]

--------------------------------------------------------------------------------

Thank you, Peter. I would ask Paul to answer your first question regarding the non-life walk. And then André to answer the question with regard to the investment portfolio. Paul, go ahead.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [4]

--------------------------------------------------------------------------------

Peter, we don't give a great deal of detail out at the half year. I mean, a large part of the current year claims ratio improvement has been due to the fact that people simply are not driving and that we've had lower claims in the -- in those areas, which have been affected by lockdowns. That's the major element of that. That's the most important thing I've been seeing. You can see that the COVID losses are pretty clear. And NatCat ratio has barely moved.

And prior year claims development, there have been 1 or 2 larger claims. That's also due to the accounting element as well from the Specialty Markets business, which is growing. And that's based on an underwriting year basis, not on an accounting year basis. So that's why. But it was not a shift, except for the growth in the prior year development. But the reduction is mainly due to, a, underlying, as you said and above all, due to the impact of less activity due to COVID.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [5]

--------------------------------------------------------------------------------

Great, thank you very much, Paul, and enjoy your retirement. You very well deserve it.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [6]

--------------------------------------------------------------------------------

André?

--------------------------------------------------------------------------------

André Keller, Helvetia Holding AG - CIO [7]

--------------------------------------------------------------------------------

Okay. Peter, this is André speaking. So the first part is about the credit portfolio, as you saw on the extended slide deck, which I would guide you to on the pages in like 49 and so on. You see that the acquisition of the Caser business brought government bonds, especially in Spain and Italy with it, which mostly explains the credit rating. So there was no general credit migration or negative credit migration in the overall book, so to say.

Then as regards to the outlook of that. As normal course of business and portfolio construction, we will also review this portfolio. And given all the insurance-specific constraints like capital efficiency and others, we will also assess how to evolve the portfolio. But there is no like immediate change. It will be part of the strategic asset allocation process, which we adhere on an annual basis. So that's for the bond portfolio.

Then the equity is the second. We included a slide in the extended slide pack, which is Slide 45. And there, you see the evolution of the equity exposure on the one hand, total equity exposure and then including the hedges on a delta adjusted basis. And as part of executing on the loss limit concept, we are now gradually restoring our equity exposure back to the strategic asset allocation. So that's -- and you'll see the exact numbers on that slide on a quarterly increment.

Third, real estate. I want to say the real estate market outlook is dominated by the interest rate environment as this is a cash flow producing asset. It's definitely, I would say, well positioned in comparison to other notional assets because it's a real asset. I would then differentiate whether it's residential and commercial and then refer to our own portfolio, which differs from the general market in 2 ways. First, it's a predominantly residential portfolio in Switzerland. So it has very little commercial exposure, and this is also in COVID times, I would say, a good feature. And the second piece is that we do not actually acquire a lot of real estate in general because we have actually a quite huge pipeline of own development, which we can do above market rates from our real estate portfolio. That's something to consider, and this also explains a bit the strategy with the real estate fund, which enables us to kind of nurture that ecosystem within the company.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [8]

--------------------------------------------------------------------------------

Okay. Are there more questions?

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

The next question comes from Simon Fössmeier from Vontobel.

--------------------------------------------------------------------------------

Simon Fössmeier, Bank Vontobel AG, Research Division - Former Head of Insurance [10]

--------------------------------------------------------------------------------

First question is on the acquisition of Caser. I'm still positive a little bit on the accretion. From what I see is you paid a little bit more than you initially planned, and obviously, you have to issue more shares than initially planned, but it's still EPS and ROE accretive. And I just -- I'm wondering if you could shed a little bit more light if anything else changes -- changed.

Also, in the appendix, I see that you acquired 71% versus 70%. Is this just a rounding error? And finally, in the annual report, on Page -- on Page 34, you're saying that the Caser would have accounted for roughly 50 million in profits, and that includes some special effects. If you could give us some idea of a potential run rate in the future, that would be great.

And then just some minor questions. I saw that you have a change in the actuarial reserve in life pretty high, 2.2 billion. Is this because of the reduction of the BVG business?

And finally, on solvency. I know you don't give an exact number, but 180% to 240% is a pretty wide range. If you could maybe narrow that range a little bit for us where it stands at half year.

And finally, then, Paul, I just wanted to point out that Bank Vontobel has great retirement products. So maybe we should talk. Best of luck to you.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [11]

--------------------------------------------------------------------------------

Okay, thanks for those 3 questions. First, the acquisition of Caser, then the actuarial reserves and the solvency topic. I think I hand over to Paul.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [12]

--------------------------------------------------------------------------------

Okay, I can do them almost in reverse order actually. But the -- you're right, the reduction in the reserves is due to the [Caser] 2020 today, but the new tariff has led to a large outflow of life reserves there. The solvency is at the lower end of the range. We don't want to give any more details at the moment. As you know, SST is quite volatile, it shifts up and down all over the place.

Yes, the acquisition of 70%, 71% is roughly rounding differences. There were some light adjustments at the very end. And the price we paid was only slightly above what we had originally said. The original calculations, we gave the original estimate, it was -- it is price accretive or EPS accretive. And from year 1 -- from the full year 1, the changes that have been made since the slight adjustment in acquisition price and so on make no difference whatsoever really to that estimate.

--------------------------------------------------------------------------------

Simon Fössmeier, Bank Vontobel AG, Research Division - Former Head of Insurance [13]

--------------------------------------------------------------------------------

And then guidance on the CHF 50 million profit contribution, is that what we should expect going forward? That would be relatively high if I just take the CHF 49 million multiplied by 2, that would be substantial.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [14]

--------------------------------------------------------------------------------

Yes. I'd rather not because it's all based on a local GAAP basis, and there was also net of acquisition costs we had. Obviously, as you all know, investment banks don't come cheap, plus we have the integration costs for the IFRS. And the gap is quite different. There's some one-off effects in there, both positive and negative. So I don't want to give any guidance. But to give you a kind of rough indication, we're not talking about going down to CHF 20 million or anything like that, so -- but it's not going to be CHF 100 million either. So it gives you some kind of rough indication. But unfortunately, we can't give more, and I think it'd be dangerous to do so.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [16]

--------------------------------------------------------------------------------

Three further questions, if I may. The first one, on the COVID-19 claims, the net claims of 4.4 points I think translates to 90 million of claims. I mean, you mentioned that sort of reinsurance discussions were ongoing. Are you able to tell us what the gross claims are related to those 90 million? That would be the first one.

The second one, the non-life administration ratio. I mean, you mentioned the project costs there that deflated it. Should we expect that level going forward? Or is that an elevated, a sort of temporary one-off as it were?

And then third one, on Caser, I mean, I appreciate -- it's difficult to give a forecast earnings or underlying earnings. At the end of the day, it's different accounting frameworks. But I mean, probably what the most important thing is that today is what the sort of cash flows or cash implications might be. I'm just wondering if you can say anything on that. And I appreciate the short term, there's going to be some volatility. But do you have any feel for what it might be able to contribute on a long-term basis?

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [17]

--------------------------------------------------------------------------------

Again, Paul, may I ask you?

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [18]

--------------------------------------------------------------------------------

We have not -- we don't want to give out the net and the gross because it also shows what the net is in position vis-à-vis reinsurers and so on. So we're leaving it at the moment deliberately at the net level. I think you understand the situation we are with discussing reinsurers, we just want to keep it really close to the chest.

The non-life admin cost, I mean, we say predominantly, I mean, there were several factors impacting the admin cost. Probably the largest single one was project cost, but it doesn't mean it's overall there are other impacts. I mean the lower interest rates meant that the pension costs under IAS 19 increased. We also had a change in the commission cost ratio due to more B2B2C business and broker business in Germany. And there were -- the projects are also not just IT-type costs, but they're also growth projects, particularly in the Specialty Markets business in France and Specialty Markets Switzerland International with new business lines being introduced. So it's a mix of things of which happens to be -- the one single element was project cost.

At the moment, short term, yes. Mid-term, we have started a project to improve the efficiency of our organization, starting in Switzerland and in the group functions, which will be one of the platforms for the 2025 strategy, which aims to improve efficiency and thus reduce costs overall.

In terms of the cash implications, the Caser. As you say, it's difficult to estimate. But what I can say is that the banks, the previous banks of Caser wanted a dividend out of the company and they got a dividend out of the company. And so it was a regular dividend. Furthermore, they placed a hybrid in the market, which has forced you for repayment next year in the spring. And we will renew that probably, very probably, and we will probably renew that internally. I think some of it is held by existing banks and some of it was placed with external investors. And at the moment, our thought is it's not getting concrete, but we can renew that internally and that would be another cash thing to us.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Next question comes from Rene Locher from MainFirst.

--------------------------------------------------------------------------------

Rene Locher, MainFirst Bank AG, Research Division - Director [20]

--------------------------------------------------------------------------------

So I just start with this CHF 40 million one-off in the non-life business. I mean, perhaps a little bit insight, what exactly happened and what your plans are going forward in an IT normalized. So that's the first one.

And then on -- in this context on Slide 20, you show the investments of your Helvetia venture fund. I'm just curious, I'm wondering, how do you kind of control your investments? What the returns are? Because I can see they're quite an impressive list.

And the second one is on Slide 21. Just for my understanding, on decent -- and the Swiss real estate fund proceeds of around CHF 450 million. And I'm just wondering that the real estate is coming from. Is that kind of carving or carved out of your balance sheet and then you pack it into fund? Just that I get a better understanding here.

And on Slide 40, I guess you have explained to me several times, but still struggling a bit to understand. Why do we have this CHF 4.2 billion classified as available for sale -- as trading? And so would it be easier just to reclassify it to available for sale? I mean, then it's just accounting game, but it would lower a bit volatility in your results.

And last but not least, as a follow-up question on what Peter asked this for on Page 46, these bond credit ratings. So for example, what is the reason for this increase in lower BBB and not rated. I guess, this is always something related to Caser, if you could shed a little bit more light here.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [21]

--------------------------------------------------------------------------------

Thank you, Rene, 5 questions. Let me answer question 1 and 2 and then ask André to answer questions #3 and 5 regarding the Swiss real estate fund and bond credit ratings. And Paul will finally answer question #4 regarding the investment portfolio classification.

Okay, question #1. Our CHF 40 million one-off writing down due to an IT project in Switzerland, what are our plans? What we want to pursue is like a consolidation of our different back-end IT systems in Switzerland. We have, of course, quite a lot of IT projects going on, be it with regard to front-end applications to back-end applications to enterprise content management topics.

And then why did we now write-off this EUR 40 million? We have a periodic review of our different projects, and we came to the conclusion that the risks to fulfill the targets we were setting forth for this project are too high. And we came to the conclusion to better stop now than to try to work hard and to maybe, to come to a better solution within 1 or 2 years' time. And it was for risk reasons that we came to the conclusion to stop this project. However, it's not a stop of the digitalization initiatives we have in Helvetia, but we just want to choose another way to get there.

Question #2, our investments in our venture fund. As you probably know, we have like CHF 55 million for this investment portfolio. We are, of course, regularly tracking the funds and its investments and, of course, the valuation of different investments. And as we said, when we were launching this fund, we have different goals with this fund. The first goal is to find investment opportunities, which help us to -- like to bridge a modern world with the old traditional insurance world. A second goal might be to make an investment and, after a couple of years, to divest it again. We want to -- finally, we want to earn money also. It's not that -- that's only money to play with, if you will. And the third goal is to -- by investing in new ventures to get access to new business ideas as well. And so far, we are pretty happy with the development of the fund and the development of our investments.

Now, André?

--------------------------------------------------------------------------------

André Keller, Helvetia Holding AG - CIO [22]

--------------------------------------------------------------------------------

Yes, on the real estate fund. So let me give you a couple of details there. So there was, as you said, a carve-out from the life insurance portfolios in the amount of a bit more than CHF 530 million. This is what's then appraised by an independent appraiser, both actually seem like a collective investment scheme act and the insurance authority very involved. So they had to independently assess that this appraisal and the portfolio, which was carved out, is representative of general insurance, real estate portfolio that we have in these 2 legal entities. So these are kind of mandatory criteria, which we -- you need to -- or we need to fulfill others as well. And then it was kind of sold to the investment fund, and the investment fund then took CHF 450 million from unitholders and took CHF 80 million of leverage or mortgage financing. So this explains the CHF 450 million, which was the unitholders. So CHF 400 million -- CHF 530 million broadly held portfolios were carved out from the insurance, life insurance, legal entity in Switzerland appraised by independent appraiser and sold to the real estate fund. So that's representative in terms of residential, commercial use in terms of geographic footprint. So broadly representative of our portfolio.

--------------------------------------------------------------------------------

Rene Locher, MainFirst Bank AG, Research Division - Director [23]

--------------------------------------------------------------------------------

That's okay. If I quickly make -- I mean, I see the bit of the companies. My question is, if I would be a life policyholder of Helvetia, I'm not sure if I would like the company to sell real estate to kind of an investment fund. So this is just my general remark. So this is a little bit -- but then I think it's -- this is how it's done in Switzerland.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [24]

--------------------------------------------------------------------------------

One of the reasons why we carved it out was because we had an overhang in the real estate. As I'm sure you're aware, the maximum you're allowed of real estate, real estate-related investments is 35% (inaudible) rules because of the outflow of assets for the (inaudible), we had to reduce that anyway.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [25]

--------------------------------------------------------------------------------

And finally, it remains in the Helvetia universe, if you will, because the fund is managed and then we'll pay back the fee.

Okay. The other question is the credit rating, which was...

--------------------------------------------------------------------------------

André Keller, Helvetia Holding AG - CIO [26]

--------------------------------------------------------------------------------

Yes. So you were referring to Slide 46 in the extended slide deck, I would also add then Slide 49. And as I alluded to before to Peter, this is really related to the Caser acquisition. With acquiring a Spanish insurance legal entity. You always have a lot of local bonds. In this case, it's portfolio of Spanish, but also other sovereign bonds like Italy or France, Belgium and other securities in these areas. So the BBB and not rated -- or below BBB and not rated, these are not BBB or below BBB like high yield. These are not rated. So what Caser has in their portfolio was like structured vehicles that include also sovereign bonds. For example, the predominant part there are Spanish sovereign bonds, Italy, France, which they have packaged in structured securities, but they are not rated. But it's not like high yield that we kind of increase the investment risk in the high-yield part. It's structured vehicles, which contain actually sovereign bonds, Spanish, Italy and France and others.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [27]

--------------------------------------------------------------------------------

Now, Paul?

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [28]

--------------------------------------------------------------------------------

Yes. We organize a lot of our investment, particularly equities and funds of funds within our own funds, so mix funds. And these funds, we set up for various operational reasons. It was most easy to handle. And at the time, also for tax benefits. So these funds are held centrally, and then the market units participate in them. And the easiest way to do that from an accounting and operational basis was to have them as fair value profit and loss. It is extremely difficult to start consolidating internally AFS funds. We realized a couple of years ago, we looked at the company as advantage and disadvantage. One disadvantage was the volatility. But then you see, I mean, IFRS 9 is coming in with IFRS 17. And it would have caused an awful lot of disruption just to set them up in a different way for a short time and then to reset them up again to IFRS 9. So we said, look, we look at the whole thing again when IFRS 9 comes in, and we can set them up differently, if necessary then.

--------------------------------------------------------------------------------

Rene Locher, MainFirst Bank AG, Research Division - Director [29]

--------------------------------------------------------------------------------

Okay. So all the best, Paul.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [30]

--------------------------------------------------------------------------------

Thank you very much, Rene.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [31]

--------------------------------------------------------------------------------

More questions?

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

(Operator Instructions) We have a follow-up question from Rene Locher from MainFirst.

--------------------------------------------------------------------------------

Rene Locher, MainFirst Bank AG, Research Division - Director [33]

--------------------------------------------------------------------------------

Yes, just a final one. I mean, what about new financial targets and the Investor Day? (inaudible)

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [34]

--------------------------------------------------------------------------------

Sorry? You were...

--------------------------------------------------------------------------------

Rene Locher, MainFirst Bank AG, Research Division - Director [35]

--------------------------------------------------------------------------------

Yes. I mean, 2020 is comment on my end. So I was wondering whether we get the new financial target metrics. When we...

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [36]

--------------------------------------------------------------------------------

Yes. We are planning to hold an Investors Day in the first half of the new year.

If there are no more questions, let me say a word to our CFO, Paul Norton, as long as hopefully everybody is on the phone. He was now presenting the results for the last time since he's stepping down as the CFO of Helvetia by the end of the month. Back in 2007, he was first presenting at an analyst conference, our, at that time, half year numbers. And since then, he has been acting as CFO for more than 13 years.

Holding a BA in History, Paul is more than an ordinary accountant. He has a broad view on the developments in the world and in our industry specifically. He was modernizing our balance sheet management and strengthening the relationships with the financial analysts and the investors. At any time, Paul proved to be a reliable colleague and CFO. And I would like to thank Paul for all what he's done during the last 13 years for Helvetia, for me and I hope also for the analysts and the investors to explain our results. And I wish you all the best for the future, Paul.

--------------------------------------------------------------------------------

Paul Norton, Helvetia Holding AG - CFO [37]

--------------------------------------------------------------------------------

Thank you, Philipp. I'd also like to -- yes, I started off -- my first half year was also a crisis. But as you remember, we had Hurricane (inaudible), and I had to present the results with a combined ratio for the first time and only time over 100%. So I started the crisis, I finished with probably not the best results that one would expect to go out on, but I could probably joke that I'm the only CFO who actually cleans the decks for his or her successor rather than the other way around. So I've had a great time for 13 years. I very much enjoyed the interaction with you. You've always been very good by understanding. We've had some good debates and good interactions. And I also wish you all the best of luck, and I hope you'll be as supportive in that way, obviously critical, but supportive with my successor as well. Thank you.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [38]

--------------------------------------------------------------------------------

Thank you, Paul. Is there any other question?

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

We have a follow-up question from Peter Eliot from Kepler Cheuvreux.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [40]

--------------------------------------------------------------------------------

I didn't mean to prolong the call, I pressed *1 before your conclusions. But if I've got the mic, then very quickly, I was just going to ask if you had any view on the life risk result, which is obviously very good this period, and just whether there's anything special there, I mean, whether it's just normal volatility, whether -- is there anything that should sort of change our view on that going forward? So apologies for having another one.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [41]

--------------------------------------------------------------------------------

Yes, you're right. It's had a recovery. We've had over the last few years, if you follow -- you obviously Peter. We've had a deterioration in the risk results, and we've been monitoring it and trying to manage it, particularly in the BVG business. And as a result of that monitoring and managing and the tariff changes and so on, the results have come back again. I think to be fair, actuaries in the past few years were also a little probably conservative in their estimates, and they're reserving for that because they weren't sure how it developed. I hope it's sustainable. Obviously, you don't know in a -- mainly, it's in validity business that's caused the problem. And one of the features of a recession is that you tend to get more in validity claims. So obviously, it may deteriorate, given what's happening with COVID. But it seems to be as if it's coming back to where it should be because of actions that we've taken.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [42]

--------------------------------------------------------------------------------

That's great. Thank you very much, Paul. Again, enjoy your time off. Thanks.

--------------------------------------------------------------------------------

Philipp Gmür, Helvetia Holding AG - CEO [43]

--------------------------------------------------------------------------------

Okay. So if there are no more questions, I would like to thank you very much for your attention, for your interest in Helvetia. And I hope to see or hear you again in due time. Have a good time.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

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