Morningstar | Swiss Life First Half: Good Half; Shares Undervalued
Swiss Life reported net income of CHF 560 million for the first half of 2018. This is slightly ahead of our expectations and a 7% increase on the comparable period. We are maintaining our CHF 385 fair value estimate and no-moat rating.The better result from Swiss Life comes in a typically higher first half compared with the latter part of the year. And while premiums increased just 4% to CHF 10.7 billion, one of the main drivers of the better results was the 10% increase in fee income to CHF 797 million, primarily because of Swiss Life’s owned IFA network.
Swiss Life also marginally reduced its average technical interest rate across the business to 1.33%, a reduction of 4 basis points. This same rate stands at 99 basis points in Switzerland. The reduction comes primarily because of reserve strengthening, and partially from foreign currency effects. There is also some improved product mix in here, leading to a 20% rise in the value of new business. New business margin remained stable at 2.6%.
Direct investment income came in a little below our forecasts, primarily because we forecast a higher investment yield. Swiss Life’s first-half direct investment income came in at CHF 2.24 billion, a net investment yield of 1.7%.
Third-party asset management, or TPAM, posted good net new assets of CHF 3.655 billion, compared with CHF 3.290 billion in the comparable period. This takes TPAM assets to CHF 64.5 billion, with proprietary asset management assets of CHF 160.5 billion. Total assets under management stand at 225.1 billion. The increase in TPAM assets was driven by balanced mandates, bonds, and real estate continuing to offset outflows in money market funds.
While below our estimates, this is a significant improvement in direct investment yield and net investment yield, with both improving somewhere in the region of 70 basis points on the first quarter of the year, a considerable uplift. The business is allocating a higher portion of investments to equities to benefit from dividend yields. The net new assets figure for third-party assets is a little light in the second quarter, but still demonstrates solid growth in the half for the business.
Swiss Life is well on track to meet targets for the full year.
Swiss Life is a holding company, engaged in providing life insurance and pension solutions and services. Co.'s segments include: Switzerland, France, Germany, International, Asset Managers, and Other. Co.'s Switzerland, France, Germany and International segments primarily consist of life insurance operations and distribution units. The life insurance operations provides a range of life, pension, health, annuity and investment-type policies to both groups and individuals, including disability coverage. Co. focuses primarily on life and pensions in Switzerland, France and Germany and on cross-border business from Liechtenstein, Luxembourg and Singapore.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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