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Edited Transcript of HELN.S earnings conference call or presentation 4-Mar-20 10:00am GMT

Full Year 2019 Helvetia Holding AG Earnings Call

St. Gallen Mar 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Helvetia Holding AG earnings conference call or presentation Wednesday, March 4, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André Keller

Helvetia Holding AG - CIO

* Paul Norton

Helvetia Holding AG - CFO

* Philipp Gmür

Helvetia Holding AG - CEO

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Conference Call Participants

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* Dieter Hein

AlphaValue - Analyst

* Jonathan Peter Phillip Urwin

UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst

* Peter Eliot

Kepler Cheuvreux, Research Division - Head of Insurance Sector Research

* Rene Locher

MainFirst Bank AG, Research Division - Director

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the full year 2019 results conference call and live webcast. I am Sandra, the Chorus Call operator. (Operator Instructions) and the conference is being recorded. (Operator Instructions) The conference cannot 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.

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Philipp Gmür, Helvetia Holding AG - CEO [2]

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Thank you. Ladies and gentlemen, welcome to our analyst conference call on the results of the 2019 financial year. Within the next 45 minutes or so, we would like to give you detailed information on our business development and the key financials of the reporting period. Please turn to Slide 2.

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, André 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.

In 2019, we achieved the business volume at group level of approximately CHF 9.5 billion. On a currency-adjusted basis, this represents an increase of 5.6%. The main growth driver was non-life business, which achieved 8.3% higher premiums in original currency year-on-year. The European units, as well as Specialty Markets, significantly contributed to this pleasing growth.

By line of business, the most important growth drivers were property business on the one hand, which also benefited from the expansion of B2B2C channel in Switzerland, and engineering and active reinsurance, on the other hand.

In life business, business volume increased by 3% in original currency. This was mainly driven by higher volumes in investment-linked products in Switzerland, Germany and Italy, in spite the Swiss group life business. Here, particularly noteworthy is the strong development of new business with capital-efficient insurance solutions, such as Swisscanto and BVG Invest.

Helvetia generated an IFRS profit after tax of CHF 538 million in 2019, which was significantly higher than the net profit of CHF 431 million in 2018. In addition to solid underwriting results in both life and non-life business, strong investment results due to the favorable development of the stock markets were the drivers of the good result.

Finally, Helvetia benefited from a one-off positive tax effect. This was mainly due to the revaluation of deferred tax provisions in the course of the federal tax reform and related cantonal tax deductions in Switzerland.

The net combined ratio at group level was 92.3%, somewhat higher than in the previous year. However, the ratio remains at a very good level within the strategic target of below 93%. Paul will give you more details on the development of claims and the cost ratio in a few minutes.

I am also pleased with the development of new business in life. The new business margin rose to 2.9% and is thus above the strategic target of helvetia 20.20. The improvement was driven by the Swiss group life business. The new business margin was positively affected by a model adjustment, which resulted in lower capital requirements on the one hand and a more favorable business mix on the other hand.

Our strong positioning, in combination with our profitable growth strategy, creates added value for our shareholders. Helvetia again generated a strong operating cash production of CHF 279 million. Thus, the Board of Directors will propose to this year's shareholders' meeting to increase the dividend by CHF 0.20 to CHF 5, which gives an attractive dividend yield of 3.7%. Aside from Switzerland, the European entities as well as Specialty Markets also contribute to the group dividend.

Above all, ladies and gentlemen, we are on the home stretch on implementing our strategy. 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.

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Paul Norton, Helvetia Holding AG - CFO [3]

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Thank you, Philipp. 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 2019 financial year. I'd like to start with Slide 5.

Net income increased by 2.9% (sic) [24.9%], thanks to strong capital markets and tax effects, with a solid technical result. We achieved a solid IFRS result of CHF 538 million against CHF 431 million in 2018. Based on continuing solid technical results in life and non-life, a significantly stronger performance from investments was the main driver of the increased results.

Finally, Helvetia benefited from a one-off positive tax effect of CHF 93 million. This resulted mainly from the revaluation of deferred tax provisions as a result of the federal tax reform and the associated cantonal tax deductions in Switzerland.

In terms of business areas, we increased earnings in the life and non-life business compared to 2018. Both the life and non-life business benefited from gains on investments and the positive tax effect I mentioned.

In the life business, the margin after costs increased, important drivers of the improvement of positive valuation effects on investment-linked products and a better development of the cost result. These effects were largely offset as we strengthened reserves, mainly relating to continuing low interest rate environment and as a result of an increase in expenses for policyholder participation.

The non-life technical result, on the other hand, declined because of an improved claims ratio from the current year business was unable to fully compensate for higher acquisition and project costs, and lower runoff profits from reserves -- from reserves -- for losses from previous years. However, the good development of the current year claims ratio underpins the sound quality of our portfolio.

The result in other activities was lower than in the previous year, due to the usual effects from the consolidation of our own internal funds, the session of weather-related claims in Europe and large losses in the Specialty Lines Swiss/International to group reinsurance as well as higher project costs. We'll have a more detailed look on the profit sources of the non-life, the life business and other activities in a moment.

If we turn to Slide 6 on the earnings improvement in all the main segments. Helvetia improved its results in all segments with the exception of corporate. In Switzerland, Helvetia recorded significantly higher profits in life and non-life business compared to 2018. Based on ongoing solid technical results, the increase is mainly due to better investment results and the positive tax effect on the national and various cantonal tax reforms.

In non-life, technical results were below the previous year as the lower current year claims burden could not compensate for higher costs and runoff effects from reserves for losses from previous years. In the life business, a better margin after costs and higher gains on investments were partly offset by significantly higher interest-related reserve strengthening and an increase in expenses for policyholder participation.

In Europe, Helvetia generated a better result in the non-life business, which resulted, on the one hand, from the growth related to higher technical result, on the other hand from capital gains. The life result in Europe remained at the level of the previous year. Higher capital gains were outweighed by increased expenses to reserve strengthening, notably in Germany, the so-called ZZR, and higher expenses for policyholder participation.

The Specialty Markets segment increased its result, thanks to higher investment income and a higher technical income, driven by increased volumes. The result of the corporate segment declined year-on-year. The reasons were the usual consolidation effects of the group's own funds and losses from weather-related claims in Europe and large losses in Specialty Lines Switzerland & International that was ceded to group reinsurance. Additionally, Helvetia had higher project costs.

And I'd like to now continue with our growth in business volume on Slide 7. In 2019, Helvetia Group achieved a business volume of roughly CHF 9.5 billion. This equates to a currently adjusted increase of 5.6% over the previous year. In the non-life business, we achieved an increase in premium volume of 8.3% in original currency. The growth was mainly driven by Europe and Specialty Markets. Revenue was increased by 5.8% and 23.7%, respectively. Revenue by line of business growth was particularly supported by the property business, engineering and active reinsurance.

In our Swiss home market, we were able to increase premiums by just under 1%. The property business, which benefited from the expansion of the partner business B2B2C, showed 3.4% higher premiums. However, this growth was partly offset by a decline in the motor business.

In the life business, volume on a group level rose by 3% in original currency. I'd like to emphasize the very good development of investment-linked products in individual life in Switzerland, Germany, Italy and of the group life business in Switzerland. Here, particularly noteworthy was the good development of our modern capital-efficient insurance solutions, Swisscanto and BVG Invest.

Now I'd like to look at the profit by sources of the non-life business on Slide 8. In 2019, IFRS earnings in the non-life segment increased by 20% to CHF 398 million. The main drivers of the investment result was thanks to the favorable performance of the capital market, particularly the equity market.

The non-life technical result, on the other hand, declined because of favorable claims experienced in the current year, unable to fully compensate for higher acquisition and project costs, and lower runoff profits from reserves for losses from the previous year. I'll provide you with more details on the next slide.

Finally, the non-life business benefited from the already mentioned onetime positive effect from the revaluation of deferred tax provisions.

I'd now like to move to the net combined ratio on Slide 9. Group net combined ratio was 92.3% against 91% a year ago, which is still at a very good level and once again underpins good quality of our portfolio. The claims ratio increased by 0.6 percentage points to 61.7%. We had a very pleasing decrease in the current year claims ratio, which emphasize the quality of our current business. However, this was not able to compensate an expected decline in runoff profits as old portfolios run off.

I would like to emphasize particularly the prior year development was additionally impacted by the strong growth in active reinsurance and also in the French market due to its underwriting year accounting logic, which leads to a gradual shift of claims from current year ratio to prior year development. In the Annex on Slide 31, the mechanism of the underwriting year accounting logic is explained in detail.

Looking at the cost ratio, the administration cost ratio was almost stable year-on-year as the growth rate improvements in Europe was offset by an increase of project costs in Switzerland. The acquisition cost ratio increased. The reasons were a shift in the distribution channel and product mix in Switzerland and Europe.

On a segment level, in Switzerland, the net combined ratio was higher than in the previous year. The claims ratio increased due to a decrease in runoff gains from reserves for claims from prior years as a result to the expected gradual runoff of whiplash loss reserves and of reserves the portfolios acquired from Alba and Phenix in 2010.

With 94.8%, Europe recorded a better net combined ratio compared to 2018. While the cost ratio remained more or less at the previous year's level, cost ratio slightly improved mainly as a consequence of lower volumes. All the European market mix achieved combined ratios below 100%.

In the Specialty Markets segment, the net combined ratio increased slightly to 96.4%. The cost ratio improved due to growth-related economies of scale. However, Specialty Markets recorded a higher claims ratio, mainly resulting from a less favorable development of a few major claims from previous years in France and Specialty Lines International and Switzerland, and a one-off effect from the commutation of a retrocession agreement in active reinsurance.

On Slide 10, we'll have a close look at the life business. In 2019, net income for the life business was 52% above the prior year's figure. If we look at the profit by sources, the margin after costs increased significantly, thanks to positive fluctuations in the valuation of options for investment-linked products and a better development to the cost of sale.

The savings result have a decline mainly due to declining investment returns, while interest expenses for retirement assets in Swiss group life remained unchanged. The low risk result also mainly resulted from a weaker disability result in Swiss group life business. Gains and losses in investments significantly increased due to good equity market performance.

Extraordinary result was lower compared to previous year as higher interest-related reserve strengthening in Switzerland and Europe and the absence of a positive one-off effect from the previous year in Switzerland, the release of the so-called cost of living adjustment fund, were partially offset by lower future conversion rate losses due to the new tariff in the Swiss group Life business as a one-off effect.

The better margin after costs, higher capital gains and the contribution to earnings from tax reductions in Switzerland led to material increase in expenses for policyholder participation. Finally, as I already mentioned, we benefited from a onetime positive tax effect.

I'd now like to switch to the new business, which has developed very positively as you can see from Slide 11. The new business also developed positively in 2019. The margin rose by 1.2 percentage points year-on-year to 2.9%, 1.7% in 2018. This improvement was driven by the Swiss group life business.

On the one hand, model changes that led to lower capital requirements had a positive effect. On the other hand, the new business margin also benefited from a more advantageous business mix in Swiss group life due to higher new business growth with more profitable capital-efficient insurance solutions.

I'd now like to continue the development of the interest margin on Slide 12. The direct yield declined in both Switzerland and Europe segment compared to last year. In Switzerland, the interest margin went up when comparing 2019 against the previous year. This was attributable to the following reasons.

The direct yield decreased during the ongoing low interest rate environment. The average technical rate, i.e., the rate that we meet, also declined, albeit more sharply than the direct yield. The main drivers here were the successful [addition] of our traditional product portfolio and the focused sales of modern capital-light products replacing maturing insurance contracts with high guaranteed rates and additional reserve strengthening.

In Europe, the interest margin remained stable compared to 2018. Here, we see a drop in the average interest rate Helvetia has to generate in order to meet its obligations due to additional reserves strengthening and new contracts with lower guarantees replacing old ones with higher guarantees. However, yields were also declining due to the low interest rate environment and therefore, the margin remained at the previous year's level. In total, the interest margin of the group as a whole increased.

On the following slide, I want to provide you with details on the profit for other activities. Looking at the profit by source, the net technical result in group reinsurance declined resulting from weather-related claims in Europe and large losses from Specialty Lines Switzerland & International, which, to a large extent, ceded to group reinsurance.

The investment CapEx result was lower year-on-year due to the usual consolidation effect from our own investment funds. Here, the positive impact of capital market development, shown in the individual market units, is balanced out in the other activities business area. Costs/other result decreased. This can be attributed to higher project costs. And financing costs remained within the prior year level.

The next slide, Slide 14, shows the development of our investment result. The current investment income of CHF 947 million has been almost maintained on the previous year's level despite the continuing low interest rate environment. Direct yield is at 1.9% compared to 2% in 2018.

Thanks to the positive performance, the equity markets have actually generated capital gains on investments of CHF 456 million. The investment result recognized in profit and loss amounted to CHF 1.4 billion, giving Helvetia a return of 2.9%. The level of unrealized gains and losses in equity increased by CHF 1.4 billion, both from the AFS classified shares due to low interest rates performance, resulting in an overall performance of 5.9%.

Investments with market risk for the policyholder increased by CHF 469 million, driven by the growth of unit index-linked insurance solutions and rising share prices.

On Slide 15, you can see the investment result broken down by asset class. The first table shows the performance of the total investment portfolio. About 60% of the current income of CHF 947 million came from bonds and mortgages, which contributed CHF 498 million and CHF 82 million, respectively, in absolute terms. Dividends accounted for over to [60 --] CHF 75 million and investment property for CHF 252 million. Realized gains and investments amounted to CHF 456 million, reflecting the strong equity market. As we mentioned, unrealized gains and losses increased to CHF 1.4 billion.

The lower half of the slide shows return on new and reinvestment. In 2019, the total new or reinvestments amounted CHF 2.7 billion. 77% of the funds are allocated in euro and Swiss franc bonds, the remainder in mortgages, equities and real estate. Due to the interest rate-induced rise in hedging costs of the U.S. dollar, the portfolio was partially restructured in order to reduce the weight of the American currency. The new investments achieved an average return of 1.5% overall return.

On Slide 16, we'll go and look at the dividend. With regards to dividend, our strategy is to increase dividend year-on-year. The Board of Directors will therefore propose at the shareholders' meeting to raise the dividend to CHF 5 per share. This corresponds to a dividend payout ratio of 58% based on IFRS results adjusted for the one-off tax effect, and this is above our target range of 40% to 50%. The dividend yield is what we believe is an attractive achievement (inaudible).

On the next slide, you'll see the dividend is fully covered by our strong cash production which means this is [piloted] out of the operating business.

I'll now turn to Slide 17. Helvetia passes virtually all operating cash production the subsidiaries generate right through to its shareholders. We have the advantage that many of our current operations have branches of Helvetia insurance companies in St. Gallen, which makes the capital very fungible. All operating companies' subsidiary of Helvetia insurance company receives cash remitted by their entities and passes to partners who make their dividends for external shareholders that shareholders pays dividends out.

You can see that on an IFRS basis, individual market units, remit a substantial proportion of their IFRS to the group. Compared to the previous year, Specialty Markets' operating cash production was lower. The reason for this is group reinsurance, which is included here in the remittance figures of Specialty Markets.

Group reinsurance provided a lower dividend contribution because it's impacted by claims from the NatCat events in Europe and the large losses from Specialty Lines. And I'd like to emphasize that group reinsurance mandated to provide group-wide internal interest coverage and is, as such, subject to profit volatility.

And on that, I will now hand back over to Philipp Gmür.

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Philipp Gmür, Helvetia Holding AG - CEO [4]

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Thank you, Paul, for all the details of our financial development in 2019 financial year. In the last part of the presentation, I would now like to briefly show you an update on strategy implementation. Please turn to Slide 21.

The implementation of our strategy, helvetia 20.20, is proceeding successfully. If you have followed us through the last period, you might know that our strategy is built on 3 pillars: we aim, first, to strengthen our core business; second, to explore new business models; and third, to promote targeted innovation.

The relevant projects and measures are on track. In addition, we are well on our way to exceeding the financial targets set toward the end of 2020, thereby laying a solid foundation for further successful development.

With helvetia 20.20, we are creating added value for our key stakeholder groups: customers, employees and shareholders. A milestone to strengthen the core business was reached at the beginning of 2020 with the acquisition of the Spanish insurer, Caser. I will go into details on the next slide.

The acquisition of Caser is an important but not the only step Helvetia has taken. In order to meet the changing needs of customers even better, Helvetia has launched new products, such as cyber coverage or its own fund insurance policies; opened up new business lines, such as aviation and revised existing offers, for example, the property insurance in Switzerland. The new products are very well received by customers. Helvetia has also introduced a new tariff in the Swiss group life business. I will provide you with more details in a minute.

With regard to distribution channels, Helvetia significantly expanded its bank distribution in Italy and Spain as well as its brokerage business in Spain. Via the B2B2C channel, Helvetia also enables its customers to purchase insurance covers directly at the point of sale, thus taking into account the need of insure-specific items individually.

Another focus in strengthening the core business was increasing the level of automation, especially in claims processing. In Spain, for example, Helvetia customers can report household insurance claims directly in the new customer portal or via smartphone. In Switzerland, Austria and Italy, in particular, claims processing for motor vehicle claims has been simplified and automated, this with the aim of offering the customers more comfort.

We have always known that strengthening the core will not be sufficient to meet the challenges that the future brings. Thus, Helvetia is opening up new business models, among other things, by setting up ecosystems in Switzerland, in particular, with the ecosystem "home" with MoneyPark as a strong anchor.

The new app from Smile, the leading Swiss online insurer, gives Helvetia access to the mobile world. In 2019, Smile received the Swiss insurance industry's Innovation Award for its customer experience revolution project by introducing numerous innovations, such as a flexible monthly subscription with a monthly cancellation period, a monthly payment option by credit card, the changeover to a so-called "You" culture and its own app. The jury was impressed by the holistic approach, which consistently puts the customer at the center.

Helvetia is also taking another important step with the launch of offers in the asset management segment. Helvetia Asset Management incorporated company was founded for this purpose. In future, this company will make Helvetia's investment expertise in the real estate sector available to third parties. The first property fund will be launched in April 2020. Helvetia is thus broadening its product range and diversifying its sources of income in the form of fee business.

Finally, Helvetia is making targeted use of innovations in customer interaction. We are increasingly using chatbots to handle customer concerns. For example, 20% of all bicycle theft in German-speaking Switzerland are processed via chatbots. But also in other areas, such as the extension of contract, for us, chatbots are becoming more popular.

Furthermore, Helvetia has important access to innovation with its own venture fund, which is in contact with between 600 to 700 start-ups every year. In 2019, the venture fund invested, among others, in 2 companies with a strong focus on the B2B2C business.

Let's move on to Slide 21. As I have already mentioned, we have also made a major step to strengthen our core business by the acquisition of Caser. Helvetia's European businesses have developed very well in recent years. We have been increasing profitability, and the net combined ratio in the non-life business improved significantly, reflecting our efforts to increase portfolio quality.

The acquisition of Baloise Austria helped us to substantially improve our market position in the non-life business in Austria. In the life business, we continuously improved our business mix by increasing the share of modern products and new businesses to over 80% of products with regular premiums. Also in life business, new business margin developed nicely.

We repeatedly emphasized that further acquisition in Germany or

Spain would be very interesting, and now we have been seizing the opportunity offered to us. The acquisition of Caser in Spain considerably reinforces the European business as the second pillar of the group. We will be gaining substantial market share in Spain. And together with Caser, we will improve our positioning to a meaningful #7 in non-life.

Moreover, we will also improve the business mix for the group through a higher share of non-life and a more balanced geographical mix. Helvetia is also significantly improving its distribution channel mix by increasing its presence in the area of bank distribution.

Caser operates very successfully in Spain. For our shareholders, the good news is that Caser will also immediately make a significant profit contribution and the acquisition is EPS accretive. Furthermore, Helvetia will be preserving its strong capital position.

The Annual General Meeting will decide on the creation of new shares by way of an authorized capital of 10% of the outstanding share capital. Around half of this authorized capital is to be used to partially refinance the acquisition of Caser. It is planned that 1/3 of the financing will be equity and 2/3 debt.

The newly created authorized share capital is intended to keep the Board of Directors the greatest possible flexibility to implement this equity financing in the best interest of the company, taking into account the relevant market conditions. Patria Genossenschaft, as anchor shareholder, supports the acquisition and the proposed creation of authorized capital.

Let's move to Slide 22. Another measure to strengthen the core business was the introduction of a new tariff in Swiss Group life business as from January 1, 2020. In addition to selective premium increases, a key element of the new tariffs is the gradual reduction of the conversion rate for the mandatory pension up to 2023 of 6%, while the conversion rate for nonmandatory pensions will be cut on a step-by-step basis to 4.4%.

Helvetia is introducing the so-called crediting principle for the pension conversion rate, and is thus following a path that many pension funds have already successfully embarked upon. Helvetia is now the first insurance company that has decided to take this step in order to enable it to still offer its customers the full range of products.

At the same time, the new tariffs will improve the profitability on the life business -- of the life business as it has a positive impact on future conversion rate losses. We also expect a balance sheet shortening and a positive effect on the Swiss solvency test ratio in the single-digit percentage points range. Due to the premium adjustments, customers, however, had an extraordinary right of contract termination, which is why there will be a premium decline in full insurance solutions in 2020.

With the modern capitalization products of Swisscanto and BVG Invest, Helvetia offers attractive alternatives for customers, and a large number of customers has already made use of these alternatives. We have thus succeeded in mitigating the decline in premiums and significantly strengthening the modern capital-efficient insurance solutions of Swisscanto and BVG Invest.

Finally, Slide 23 shows that we are well on track to reach our financial targets. We are pleased with the development of 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.

Overall, we are happy with what we have achieved so far, and we are confident that we are well prepared to remain fit for the future. 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.

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Questions and Answers

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Operator [1]

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The first question comes from Peter Eliot from Kepler Cheuvreux.

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

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I have 3 questions, please. The first one comes from the reinsurance effect that you explained on Slide 31 about that claims cost basically got transferred from current year to prior year development. Just wondering if you could quantify the size of that impact, i.e., what might the current year and PYD have been without that, just so we can get a feel for that, sort of the year-on-year development. Yes, that would be great.

Second question was on the SST. I see that it fell by 7 percentage points across H1. I just wondered if you could explain what drove that and also what the timing would be of the benefit from this new product, the new tariffs that you were describing. And then the third question was, I guess, just coming back to Caser. I'm just wondering if you've got any more sort of information in terms of the likely contribution to earnings, cash flows, [solvent], et cetera. Yes, that would be great.

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Philipp Gmür, Helvetia Holding AG - CEO [3]

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Thank you, Peter. Okay. I'd like to hand over to Paul in order to answer those 3 questions.

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Paul Norton, Helvetia Holding AG - CFO [4]

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The impact of the group reinsurance is quite significant. And also, France, to some extent because France is growing. And France is a transport business, that's typical in a transport business to use the underwriting year logic. If you exclude France and group reinsurance, we're talking about a runoff result that would be this year around about 4.5%. You obviously have to compare that with the prior year, which would be also been higher because we -- they were netted then. So it was still a healthy runoff result without the group reinsurance.

So there's definitely a reduction in the runoff results, there's no doubt about that, in absolute terms. And as we said, we mentioned that in the past. The old whiplash claims, we reserve them pretty strongly. A lot of companies released them in one large lump sum when the first court cases in favor of the insurers came out. We said, no, we're going to run those off slowly, and that's what's happening. And the same with the Alba and Phenix book we booked in 2010. So you're seeing a runoff -- those runoff results will decline. But the runoff result would have been around about 4.5% and which is about just over 7% last year without the group -- without the reinsurance in there.

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

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So can I very quickly, Paul, just ask do you have any sort of feel for what we should expect in the future? I mean for -- I know you don't give official guidance, but just the (inaudible) change.

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Paul Norton, Helvetia Holding AG - CFO [6]

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The runoff results, if you take out reinsurance upfront, the runoff results will tend to decline, as said, because of -- and we mentioned this before, because of the runoff in the old book, and the pricing is much sharper in the Swiss market because most reserves are there. But we still expect a reasonably healthy runoff profit. We tend to reserve more carefully, but the extremely good runoff in the past is probably less likely in the future.

Then you had a question on SST. SST is provisional at the moment. Very provisional. One of the biggest drivers seems to be -- in the early results seem to be the impact of currencies weakening. And also, you've got a kind of paradox effect, that although the nominal equity base has increased because of unrealized gains from, particularly, equities that increases your risk exposure as we have seen in the last couple of weeks, and therefore, the risk charge is increased. But to be honest with you, there's nothing that worries me or concerns me. There's all those, should we say, complex interactions in there, but I don't see anything fundamental in the SST that's a problem.

In terms of Caser, no, we haven't got anything new. We just started our kickoff with them, and we cannot really give you any figures on that.

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [7]

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Okay. That's great. So for -- just to follow-up quickly on the sort of second half of my SST question, the new tariff. You said a single-digit percentage point increase. I'm just wondering on the timing of that coming through.

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Paul Norton, Helvetia Holding AG - CFO [8]

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No, that should start to come through by the middle of this year.

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Operator [9]

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The next question comes from Jonny Urwin from UBS.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [10]

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Just 2 from me, please. Actually, 3, why not? So firstly, on -- going back to that current year loss ratio. I mean with that reinsurance impact, well, it looks like the current year got a little bit better year-on-year on a pure kind of underlying view. Is that right?

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Paul Norton, Helvetia Holding AG - CFO [11]

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That's right.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [12]

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That's right. Okay. That's quick. And then secondly, just thinking about sort of motor. So I think, for a while, companies have been talking about pricing getting a bit tougher, claims inflation rising a little bit. I think last year, the message from everyone was kind of the scope to cut costs to offset that. But I guess, is that still the case? Or should we expect the motor combined ratios to creep up a little bit, especially as whiplash release is slow? And then, finally, just on the acquisition costs in non-life. So that was a bit higher. It sounds like kind of mix and channel shift. Does that sound sustainable? Is that right?

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Philipp Gmür, Helvetia Holding AG - CEO [13]

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Let me -- okay, your first question, is there -- or actually 3 questions, have been answered by Paul. I would like to say some words on the costs and then ask Paul maybe to add some thoughts. I mean the margins, of course they are under pressure. There are new players coming in, and that's not given by whoever that the margins remain stable as they used to be during the last decade. However, we are still prudent in our pricing and underwriting policy. Pricing is one thing, underwriting risks is the other one. And at the same time, of course, costs are an issue, used to be and will be an issue in the future.

Talking about the acquisition costs especially. The B2B2C business, as the bancassurance business, has specifically higher costs, but usually lower claims ratios. So as you probably saw in Italy, for instance, we might have higher cost with the bank distribution network, but lower claims ratios. So the combined ratio is even better than the agent network.

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Paul Norton, Helvetia Holding AG - CFO [14]

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Okay. I think that covers a fair point. As Philipp said, we see and we're expecting further competition in the motor business, and that will have an impact on the -- particularly the non-liability side of it. Obviously, the combined ratios definitely creeping up. And in terms of the cost base, now clearly motor has a lower commission basis than the other. So it's sort of the opposite to what Philipp is saying, those businesses we have -- and particularly in the new business we're developing where the combined ratio and mix is different, you have relatively high commission ratios but very good claims ratios. And here, in motor, you have volatility, it would be probably less in the commission ratio.

There's always a scope to cut costs, and that will be part of the strategy period 2025. We will start looking at our processes in much greater detail. One of the issues we have here is that we have started already with that in non-life. We are undergoing, and we mentioned that last year, a major renewal of our non-life IT systems. We just went live actually last week with one module, and that's clearly an expensive exercise, but it's necessary to improve the non-life processes for the future to make it digital and Internet capable. And those costs we book directly through the cost ratio. I'm not sure that every one of our peers actually books those IT development costs through their cost ratios.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [15]

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And then just on the underlying points, it got a bit better. Can you tell us how much on your view?

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Paul Norton, Helvetia Holding AG - CFO [16]

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On the underlying. At the moment, I'd probably rather not say how much we're talking about. Not substantial, but a slight improvement on the underlying.

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Operator [17]

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(Operator Instructions) The next question comes from Rene Locher from MainFirst.

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Rene Locher, MainFirst Bank AG, Research Division - Director [18]

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So perhaps a quick comment from your side on your new real estate fund. So is this -- are you going to be an active buyer in the Swiss real estate market? This is the first question. And then just as an add-on, when I look on Page 15 or Slide 15, I can see that the direct yields in investment property on the new reinvestment of maturing funds decreased from 4.8% to 3.7%. So I was just wondering what is the key driver here.

And then another question on that operating cash production on Slide 17, yes. What's the reason why Specialty Markets, why cash generation decreased from CHF 32 million to CHF 17 million? And yes, I mean, I don't want to challenge you too much. But just to make sure, I guess, Philipp mentioned before that Caser will be EPS accretive from year 1, right?

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Philipp Gmür, Helvetia Holding AG - CEO [19]

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Okay. Rene, I suggest that your 3 questions are answered as follows: Paul will answer question #3 regarding the cash production and André then will turn to the answers of real estate and direct yields on the 2 slides you just mentioned. Paul, would you please go ahead?

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Paul Norton, Helvetia Holding AG - CFO [20]

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Okay. I think I mentioned in my speech that within the Specialty Markets, for this purpose of cash remittance, we've included group reinsurance. And we know we'll make a profit out of group reinsurance. And that has -- obviously it's not there, so they didn't pay a dividend. To be open, I mean, group insurance is not a legal entity. It's an internal subdivision, if you like. So it's just a left pocket, right pocket.

At the end of the day, we have sufficient dividends within what we call the (inaudible) Helvetia insurance company in Switzerland, whether we take it out of [GA] group reinsurance, whether we they take it out of the so-called Swiss market unit is almost a [good point]. That's why you see that the underlying Specialty Market themselves are producing almost as much dividend as they did last year and have met their dividend targets. We set dividend targets for each of these units and they met them.

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Philipp Gmür, Helvetia Holding AG - CEO [21]

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Okay. André?

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André Keller, Helvetia Holding AG - CIO [22]

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Yes, Rene, this is André Keller speaking. So on the first question about being an active buyer, and the answer is no. As we know, we are a large investor on our balance sheet with more than CHF 7 billion of real estate, Swiss real estate on our balance sheet. And now with launching this Swiss property fund, we are capitalizing on our capabilities in that area. And also by doing so, we actually will transfer and sell out of our life insurance book into this new fund. And this transaction will be at market conditions and so we are not an active buyer. It's -- obviously, we are an active investor. And by kind of managing our investment portfolio in real estate, we are also there active. But we are not kind of sourcing that fund by buying real estate on the market. So this is to the first one.

The second question on the yield on Page 15. So this is always an instant snapshot of a collection of real estate, which we either acquire or develop ourselves. So the 3.7% that you see there is broadly reflective of our investment portfolio, which you see -- on the top line, you see the current income of our investment property overall portfolio is around 3.4%. So the 3.7% is largely in line. I cannot exactly tell you kind of attribution to what has been the differences between the 4.9% and the 3.7%, but the 3.7% is largely in line and representative of our portfolio.

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Operator [23]

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

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [24]

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Just a couple of numbers questions, please. The first one was, I guess, we've had a few more cantonal decisions in the second half of the year and obviously the tax one-off went up. Just wanted to check whether the -- I assume the answer is no, but whether there's any change to your guidance on the tax rate going forward? And then second question was, I guess, just returning to Slide 13 on your life profit by sources. We had a, I guess, a few deviations just from the sort of the normal level. I was just wondering if you could just very quickly remind us of what you expect or what your sort of guidance is for the various sources on an ongoing basis.

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Philipp Gmür, Helvetia Holding AG - CEO [25]

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I ask Paul, please, to answer those questions.

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Paul Norton, Helvetia Holding AG - CFO [26]

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At the moment, I don't think there are any adjustment to our tax guidance. We sort of expect just between 18% and 19%, as opposed previously we had 20% ongoing tax rate. There may be some adjustments coming through, but I wouldn't say substantial. Most of the major cantons have already decided. In terms of the underlying activities in the life business. Yes, we've had a couple of blips on the risk result. I mean, the [same] result is likely to decline slightly. We have to stabilize it, but it should -- because of the low interest rates.

One thing which we we're looking at is definitely the risk result because most of those blips came out of 2 areas. One is the invalidity in the Swiss BVG business. And we've discussed at length with our actuaries, but they think it's definitely a blip and should come back. Obviously, we don't know what's going to happen with the corona and so on, but that should be okay. I've been very conservative in their reserving for the cases.

The other is just in Spain. There have been just really a blip in the number of mortality cases, again which is not ordinary, not expected to continue. Certainly, what you should see clearly is with the reduction and a shortening of our balance sheet as a result of the changes in the tariffs. And for the business -- the BVG business in Switzerland, we should hope to see an improvement, particularly in extraordinary result, which is the reserving, because we're going to be reserving, hopefully, much less for the losses that come out of the retirements out of the BVG. And so that should be, obviously, a positive benefit longer term.

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Operator [27]

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The next question is also a follow-up question from Jonny Urwin from UBS.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [28]

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Just one more, please. So just thinking about some of the growth coming through in Specialty Lines, so property engineering and also the active reinsurance. I mean how would you think about the potential extra volatility that could bring to the book? And how are you controlling for that?

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Philipp Gmür, Helvetia Holding AG - CEO [29]

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Of course, the Specialty Line business has a little bit more volatility in its books than, for instance, Swiss household insurance. However, we are still prudent in underwriting. We are very prudent in reserving. And also, as Paul mentioned before, prudent with our group-wide own reinsurance strategy and conception within our group in order to mitigate the risks and the volatility. So we are -- we do not have any concerns that there is a volatility who would be higher than we expect, of course.

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Paul Norton, Helvetia Holding AG - CFO [30]

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If you remember, Peter, when the -- this question when the hurricanes HIM hit in 2017, you've been growing rapidly in this business. So when you -- it's going to be a big problem for you. And then when you remember our combined ratio, and I think group insurance is around about 103, something like that, and when you compare that with the sort of the Swiss res and the Munichs and the lease people, I'd like to think you can see that our growth has been handled pretty conservatively.

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Philipp Gmür, Helvetia Holding AG - CEO [31]

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Even if you have a look at the last decade or so, if you have a look at our combined ratios in the Specialty Lines business and compare it to [core] business, for instance, of other companies, it's a pretty solid book.

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Operator [32]

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The next question comes from Dieter Hein from AlphaValue.

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Dieter Hein, AlphaValue - Analyst [33]

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It's Dieter Hein. I have a question on what your Chief Investment Officer said regarding your strategy that third party can participate on your investment expertise in the real estate sector in Switzerland. So did I understand you right, that you don't want to buy real estate for the third-party fund over the market, but you want to buy it up on market prices from your life real estate portfolio? So I do not really, if that is right, understand the business logic behind such steps. So are you not [weakness] in your life real estate portfolio? So why not buying over the market?

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Philipp Gmür, Helvetia Holding AG - CEO [34]

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I would like to hand over what you asked to André Keller.

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André Keller, Helvetia Holding AG - CIO [35]

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Yes. Thank you for this question. So I think it's important to understand that you've seen our growth figures that we are actually in a strategy to not substantially grow or not grow our life, traditional life business at all. Our strategy is actually to grow also capital-light products. And as you can imagine at our traditional life portfolio, as the balance sheet declines or stable over time, and while we on the other hand have a substantial pipeline of owned real estate because we have like a multi-decade portfolio, this is actually putting us at the benefit to actually capitalize on this real estate by generating a fee over time by managing these real estate in the real estate funds.

And as we have to kind of transition the portfolio, and obviously this transaction need to be at market prices, so they will be valued by independent parties' appraisal values, this will kind of benefit us by catering to the situation that our balance sheet on the life side is actually declining or not growing. And on the other hand, we can generate the fee by managing these real estate going forward.

And as you can imagine, as we continue to manage a substantial book of real estate, the kind of marginal cost to manage these assets for third party is really very low. So they generate very quickly a contribution to earnings because we, anyway, do these activities for ourselves, so it's not a stand-alone kind of organization that need to set up everything from scratch. So I think that's important to understand what's the overall strategic rationale, how to capitalize on fee generation, which is also consistent with our strategy, and the marginal cost that we incur which is very low because we do it anyway.

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Dieter Hein, AlphaValue - Analyst [36]

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Okay. I have understood that. So -- but this mean in the future, if there are bigger demand versus third-party fund, you would as well buy over the market? Is that right?

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André Keller, Helvetia Holding AG - CIO [37]

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Yes, we -- exactly. So we will do that. And we assess, obviously, investment opportunities. As we do for our own portfolio, we will have the same expertise and do that also for third party. So it's a sweet spot of kind of catering additional customers and just our balance sheet as well.

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Operator [38]

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

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Philipp Gmür, Helvetia Holding AG - CEO [39]

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Thank you. I would like to thank you all for the participation in this conference, for your interest in Helvetia. And if you have any questions, please do not hesitate to contact us be it our Media Relations people or our Investor Relations personnel, represented by the Head of IR, Susanne Tengler.

Thank you, and goodbye.

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Operator [40]

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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.