Morningstar | Swiss Life Impresses With 1Q Fee Income; Stock Undervalued
Swiss Life reported a decent set of first-quarter 2019 results. The key takeaways from these earnings are that the business reported 10% higher fee income of CHF 430 million and premium income was up 45% to CHF 10 billion, as a competitor, we think AXA, exited the Swiss group, most likely specifically the SME group, life market. After we rolled our model and incorporated higher estimates for higher fee growth, with a 400 basis point rise in policyholder reserves, we are raising our fair value estimate to CHF 520 per share, equivalent to 1.1 times 2019 book value. This accounts for the fact some of these increases in financial results are non-recurring. We maintain our no-moat rating.The asset management business grew third-party assets by CHF 4.5 billion, with TPAM AuM subsequently rising to CHF 77.0 billion. For the traditional business, the direct investment yield is stable at 70 basis points.
A lot of the fee income comes from the Swiss Life Group owned IFAs, which gives a slight new meaning to independence. But it is good for business as roup owned IFA contributions to fee income increased by 20%. Fee income from the asset management business, which has one of the best real estate management businesses in the industry, increased by 15%.
Switzerland is the driver for all this and it is primarily in the full insurance solutions segment where Swiss Life provides group services for asset management, financial and biometric risk. Premium in the Swiss Life market seems to be up about 10% and we think this is likely because of flight to quality and safety. We expect this to continue for the first half of the year given current market conditions, but this is likely to flow into traditional business. We are aware Swiss Life is focusing more on unit-linked, but we think most of the sales of traditional products will now either be hybrids or converted at a later date, particularly given that the direct yield for the business is 70 basis points.
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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