Baloise Holding AG

SIX:BALN

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, welcome to the Baloise Group Annual Results 2022 Analyst Conference Call and Live Webcast. I am Alice, 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 Markus Holtz, Head of Investor Relations. Please go ahead, sir.

[Markus Holtz, executive]

Good morning, and welcome to Baloise Q&A call on our annual results 2022. In our call today, we have: our CEO, Gert De Winter; our CFO, Carsten Stolz; and our CIO, Matthias Henny.We will first give you a quick overview of our results. For this, I would like to hand over to Gert.

[Gert De Winter, executive]

Thank you very much, Markus, and also from our side, a very good morning, and a very warm welcome. I'm glad and we are glad that you could join us. My colleagues have told me that this is my 15th analyst and investors call. But this year is a special one, and I'm not referring to the soccer coach Moreno, but to the fact that this will be my last one. As you know, I have thought through my priorities in life and decided to step down at the end of June. I'm very glad and full of confidence that Michael Muller will take over the role of Group CEO. Michael has been a member of the Executive Committee and a very successful CEO in Switzerland for the last 12 years. And also last year, during my illness, he has taken over a part of my responsibilities.I am very proud to hand over a Baloise that has become more customer-centric, more employee-focused and more innovative and in a very good shape, as again demonstrated in 2022 with a consistent approach and with reliability. Despite a very difficult environment with the war in Ukraine, geopolitical tensions, turbulent capital markets, rapidly rising interest rates and an exponential inflation, we are presenting again a good result in 2022.If you would ask me to summarize 2022, these would be the bullet points. We have grown again in our target segments in Non-Life. We achieved a good result. And at the same time, we have strengthened our reserves in Non-Life to anticipate on inflation. We have increased our margins in Non-Life and also in Life, hereby increasing the operational earnings power of our group. That has allowed us to generate more cash, and will allow us to present to the general assembly an increase of our dividend.2022 was also the first year of our new strategy, Simply Safe: Season 2. The philosophy behind Simply Safe: Season 2 and the strategy is actually very simple. It is based on our conviction that motivated, engaged employees generate satisfied customer and partners and that this leads to growth, and ultimately, financial success also for our investors.That is why we have defined 3 strategic targets for Simply Safe: Season 2. An employee target or an employer target where we want to be amongst the top employers in Europe across all industries; a customer target where we want to increase the net new customers with 1.5 million by the end of 2025; and a shareholders and investors target where we want to generate CHF 2 billion of cash into the holding in order to continue our attractive dividend policy.Now where do we stand after 1 year down the road in Simply Safe: Season 2? We are belonging to the top 36%, so the top third, you could say, of the best employers in Europe across all industries. We have gained almost 175,000 net new customers, and this has been generated by the core business and by our ecosystems in home and mobility across all units.And we have increased the cash remittance by 9% to CHF 471 million, very diversified and a good contribution of our Life business. This allows us to continue, as I said before, our attractive dividend policy.Based on these results and our strong operational performance, we will propose an increase of our dividend from CHF 7 to CHF 7.40. This means that Baloise over the last 20 years has increased its dividend 13x and never lowering it, which is, of course, our only policy. I think this is a track record, which is almost unique in the European insurance industry.With that, I'm very glad to hand over to Carsten, who will lead us to the most important results from a financial point of view.

[Carsten Stolz, executive]

Thank you very much, Gert. When I present the financial results, I will make reference to the analyst presentation that you have in front of you, and I will start referring to Page 5. 2022 financial results confirmed the consistency and reliability that we stand for. On Page 5, you see that our shareholder profit in 2022 was CHF 548 million, driven by an outstanding result in Life and a solid result in Non-Life. The result in Non-Life was affected by negative one-off effects of CHF 37 million. They mainly resulted from reserve strengthening due to the increased inflation.Let me highlight a couple of points in the presentation, starting with cash remittance on Page 10. You can see that cash remittance was strong in 2022, and it is and remains well diversified. It increased to CHF 471 million, thanks to an excellent contribution from Life insurance which more than offset a lower cash remittance from Non-Life insurance.We will propose, as Gert already mentioned, to increase the dividend to CHF 7.40. This corresponds to a cash payout ratio of 72%.Let me shift the perspective to our capital position, which you find summarized on Page 11 of your presentation. Our capitalization is and remains very strong, with an SST ratio of more than 230%. It increased compared to previous year, and even in economic stress events, we expect it very safely to remain in the green. After looking at our capital position, I would like to have a short look into our main business segments.And I start with Non-Life on Page 16. In the Non-Life business, EBIT increased to CHF 322 million. And you can see that growth in Non-Life was 2.4% in local currency. We achieved growth in all business units. We expect higher growth rates next year, as price increases will then be even more noticeable.On Page 18, you see that our combined ratio improved to 91.9%, despite one-off events that negatively impacted the combined ratio by 1.4 percentage points in 2022, mainly resulting from significant reserve strengthening due to inflation. Also, the underlying loss ratio improved. It was 59.9% in 2022 and would have been even better without the strengthening for inflation.Let me shift the perspective to the Life segment. On Page 24, you see that in the Life segment, we achieved an excellent EBIT of CHF 377 million. This is a result of a very strong savings result and reserve releases from rising interest rates. We achieved this despite an extraordinary low risk result, which suffered in 2022 from reserve strengthening due to changes in biometric assumptions.In addition -- and I move to Page 25 -- The interest rate margin improved from 108 basis points to 117 basis points, thanks to higher current income.Finally, let me briefly give an update on the new accounting standards, IFRS 79, that we will be applying for the first time in our 2023 half year financial statements. And here, I refer to Page 4 of the supplementary document on IFRS 79 that we have provided to you. In the document, we provide a first high-level overview on expected impacts and some additional information on our methodology, namely the classification of assets, the measurement approaches for insurance contracts.First of all, IFRS 79 are accounting regime changes. There is no change to the underlying business fundamentals, capital management, solvency, cash flows and our strategic targets. Secondly, there is a lot which will remain similar, in particular our Non-Life business, for which we will apply the premium allocation approach, i.e., the simplified approach for short-term contracts. The changes we expect will mainly relate to our Life business. Reporting and KPIs will change and there will be new items such as the insurance revenue and the contractual service margin.We expect that the valuation of assets and liabilities will become more consistent and earnings from our Life business will become more stable and more predictable. In addition, we expect lower equity for the Life business, but we also expect the sum of equity and contractual service margin under IFRS 17 to be greater than equity under IFRS 4. We will provide more detailed information on the transition at the end of June, so well in advance of our half year '23 closing.so far, for the outlook on IFRS 79. But now back to our 2022 results. Baloise 2022 financial performance proves the consistency and reliability that we stand for since long.With that, I hand back to Gert.

[Gert De Winter, executive]

Thank you very much, Carsten. Baloise is celebrating its 160 anniversary this year. And over the past 1.5 century, we have repeatedly, also in 2022, demonstrated our reliability, our resilience and our consistency. And a big thanks goes to all our employees who have contributed to these results. It is Baloise culture that most distinguishes us. And I told before, it is based on this philosophy that engaged, motivated employees generate satisfied customers and partners, and that this leads to growth and financial success. And I am convinced that moving forward, building on the successes of the past and on this unique culture, Baloise will continue to meet and exceed the expectations of all our stakeholders.Let's open up for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Peter Eliot with Kepler Cheuvreux.

[Peter Eliot, analyst]

And yes, first of all, I think you enjoy your very well-deserved retirement, Gert. And, I guess, Michael isn't on the call, and this may well be a question for him. But I mean, I'd be interested if you can say anything about whether we should expect any changes to the targets along with the change, or whether Baloise remains committed to the same targets that you outlined, or whether there's any chance that those might be reviewed? And the second question was on the reserve releases. I was just wondering if you can give us any guidance on what you expect for the future? I mean, I appreciate it all varies very much according to the prevailing conditions. But if we assume the interest rates stay at the current level and obviously stays as it is at the moment, are you able to give us any sense of whether you expect this year's reserve release to be repeated at the same magnitude in future years? Or, yes, how we should think about that?And then final question was on the reserve strengthening due to inflation. Are you able to just give us a little bit more information about where that was, which country's businesses? What drove that decision?

[Gert De Winter, executive]

Michael is indeed not on the call, so I'll try to answer in his place. What is extremely clear is that the whole management team and what a very broad audience has defined 2, 3 years ago, Simply Safe: Season 2. So we've defined the strategy going forward altogether. So that's why the group strategy board, in which, of course, Michael is also a member, will not change the strategy moving forward. We will stick to the strategy as defined, as well to the targets we have committed to towards 2025. So no change to be expected. Michael will build on the success of the past. And of course, he will, in due time, come up with a number of actions he will like to put, a number of new impulses. But overall, the targets and the strategy remain completely the same.And maybe, Carsten, you can take the second question on interest rates and reserve release in Life?

[Carsten Stolz, executive]

Sure. So first, to your question on reserve movements in Life. It's correct that this year we have seen reserve releases due to the changed and shifted interest rate environment. And the development over time -- if the interest rate environment persists in the way it has moved last year, will mean that over time, further reserves will get released, and the extent to which is not linear and is depending on the different jurisdictions. And as we've talked about it in the past, in some jurisdiction, it is -- the mechanisms are built on averages. And so, it averages down, but it also averages up. So there is a certain lagging effect in there.But certainly, the environment that we are operating in is positive for the Life business from a reserving perspective and also supportive for the interest rate margin, as we have shown. And that means that the ability of the Life segment to contribute EBIT and subsequently also free up cash and contribute to cash remittance, is changed and has shifted, if we compare it to the persisting low interest rate environment.So the long story short, the environment is supportive for the Life business. But we cannot give a predictive number on reserve releases other than, it will be positive effects moving forward if we stay in the environment in which we are.If you allow myself, me, then I move on to the reserve perspective on inflation. And if I got it right, in the inflationary environment last year, peaking in October has been by far the strongest inflationary environment ever experienced in the European Union space. And obviously, that means that in Non-Life, we have to look at reserving levels on the reserving side, And we did this in the different lines of businesses as well as in the different jurisdictions.So reserve strengthening happens in different lines of business and also across the jurisdictions. This means that we have now taken care of -- to the best we can, of the inflationary environment and we are well reserved in this context. Obviously, this has not only a bottom line effect that we spelled out with the CHF 37 million, but also a combined ratio effect, which amounted overall to 1.4 combined ratio points.So if you want, you could even adjust the underlying combined ratio for that, which would then bring us very close to 90% combined ratio level. I hope that shed light on the reserve situation, both in Life as well as in Non-Life.

[Peter Eliot, analyst]

And could I just quickly follow up on the inflation aspect. I mean, you mentioned all jurisdictions. Does that mean that you've also sort of seen a significant portion in Switzerland? Because I mean, the inflation seems to have been far more benign. So I'm just wondering if you can comment on that.

[Gert De Winter, executive]

Yes, absolutely. That's the case. Inflation has been very diverse. If you look across different jurisdictions in outside Switzerland, it has been markedly higher. And therefore, we took into consideration the different local contexts. But also in Switzerland, we have strengthened reserves.

[Operator]

The next question comes from the line of Thomas Bateman with Berenberg.

[Thomas Bateman, analyst]

Just coming back to the Life reserve releases. Can you give us a little bit more clarity on which product line that's come from? Is it BBG, is it Swiss individual, is it European individual? And on the cash conversion of reserve releases, I think you alluded to it helping EBIT and cash remittances. Do all of those reserve releases come through -- i.e., is there a 100% cash conversion of those releases? And if I come back to Switzerland again, it seems like H2 was relatively high for Switzerland and the combined ratio, maybe around 95% or so. Is that all reserve strengthening? Or are there any other elements that impacted the performance in the second half of the year?And finally, if I just think about capital allocation, we still seem to be spending towards the low end of your innovation target, but remittances are still pretty good. I don't really know if you think about it in terms of dividends and share buybacks. It just feels like you're spending a little bit less on innovation. So if there's anything else you can say on how we should think about that cash flow allocation going forward, that would be really helpful.

[Carsten Stolz, executive]

Yes. Life reserve releases have occurred in particularly in Switzerland, in individual Life. With regard to your second question on cash conversions from the Life business, obviously, we are looking here at IFRS numbers. Cash conversion and cash remittance is largely based on statutory accounts, which are relevant for the cash remittance. And therefore, there is no one-on-one link between the IFRS perspective and the corresponding cash conversion. But it should filter through and as this year has shown Life can contribute a significant amount to cash remittance also. With regard to the combined ratio in Switzerland and the reserving, if I heard your question correct, one of the aspects was did that occur, particularly in the second half, and that's yes. When the closing was made, a large amount of the additions in Switzerland were relating to nat-cat claims.And when we talk about cash remittance and the cash deployment perspective, it's correct that we intend to spend around CHF 50 million in 2023 moving forward and we spend an equal amount in 2022 on innovation. This is at the lower end of the indicated bracket of 10% to 30% that we indicated in the Investor Day. At the same time, we indicated that 60% to 80% of cash remittance is the bracket for payout to shareholders, embedded in the cash generation target of CHF 2 billion over the strategic cycle. And these cornerstones remain unchanged.We continue to pursue our dividend policy consistently and reliably with the up-only dividend policy that we have confirmed in the last 20 years where we increased dividend 13x, as Gert already said. So sustainability is very important there. And we are pursuing the targets, as indicated for the strategic horizon.

[Thomas Bateman, analyst]

If I could just come back quickly on the reserve releases, you said it's mostly individual Life in Switzerland at the moment. Is that likely to change? Would you expect any releases from the BBG business or from any of your European operations because of higher interest rates?

[Carsten Stolz, executive]

It might filter through to other lines of business as well. The BBG and also business and the Life business in other jurisdictions in Europe comes with quite a significant policyholder split. So there, the effects by definition would be expected to be smaller from a shareholders' share perspective. But the mechanics are such that also in countries outside Switzerland reserve releases can occur.

[Operator]

Your next question comes from the line of Bhavin Rathod with HSBC.

[Bhavin Rathod, analyst]

I have three. The first one would be on the Non-Life cash remittance. It's great to see Life cash remittance coming quite strongly. However, Non-Life cash remittance was somewhat down. And as a percentage of earnings, they were so relatively down versus FY '21. So sir, any color around here as in why remittance is still down whereas EBIT was relatively not that significantly lower?Then the second one would be on the Life risk result. I appreciate that some one-off impact had a negative impact on your risk result. But how should we think about it going forward? Would you say that your normalized guidance of CHF 200 million to CHF 250 million would still be relevant in the current scenario?And the last one would be on the IFRS 17. While you gave some colors around Non-Life profit, which is expected to remain similar… [Technical Difficulty]

[Operator]

Sorry, we lost connection with the questioner. If you allow, I'll proceed with the next questioner.

[Gert De Winter, executive]

Yes, that's fine. We'll wait for him to come back and then we take his 3 questions. Fine.

[Operator]

And the next question coming from the line of Rene Locher with KBW.

[Rene Locher, analyst]

Yes. So unfortunately, I have the same question as was asked before, perhaps going a little bit more into detail. On the risk result, I mean, it was CHF 67 million for the full year, was CHF 36 million in H1 and then just CHF 31 million in H2. And as I understood -- what I understand is H1 was impacted by adjustments mortality [ tables ]. So I would argue this is kind of a one-off. Perhaps you can just elaborate a little bit more on H2, where you highlighted some negative effects from disability on the Life risk result. So that's the first question. I'm referring to Slide #24. And then on the cash remittance, here, I was surprised to see that Life is so high with CHF 262 million. That's 83% of the reported IFRS net profit. Average so far was more like the 50%. So I do the modeling and I was wondering where is it [ through ], is it closer to 50%? Or is it closer to 80%?And then the last question is on Slide 44 that's here, [ parcels ] for years and years. So I'm talking about Germany. Germany business volume is slightly above CHF 800 million, combined ratio is at 93.5%. So that means an underwriting margin of 6.5%. And if I do just a very simple math, I end up somewhere at CHF 50 million -- CHF 45 million, CHF 50 million underwriting profit, excluding financial income. What you show on Slide 46 is a German Non-Life EBIT of just CHF 24 million. So I'm -- I was wondering where's the difference coming from?

[Carsten Stolz, executive]

And I will start with your first question relating to Slide 24 and the development of the risk result. The risk result that went down year-on-year by CHF 141 million was driven by the effects that you mentioned. And those were, in H1, the adjustment for the mortality tables in Switzerland and the adjusting of the reserves accordingly. In H2, it stems from a review of the invalidity assumptions and the reserves strengthening came from invalidity/disability that we did in H2. So those were the 2 sources, particularly sources for the lower risk results year-on-year.So one is an H1 effect and one is an H2 effect. These can occur. And this is part of normal actuarial craftsmanship. Mortality tables don't change that often. And disability and invalidity assumption review and experience reviews is more of a normal business.Now second question, if I may go to the Life cash remittance and the cash remittance perspective, overall, we are looking -- when we look at cash remittance to the entire business portfolio, be it lines of businesses as well as geographies, and as such, the sources of cash remittance are pretty well diversified.And we allow ourselves also for some flexibility as to which segment in that sense is contributing to the annual cash remittance. And based on the very strong results and the underlying numbers of the Life business in 2022, Life has contributed more. And accordingly, Non-Life has contributed less. We stay committed to the CHF 2 billion and have proven that we are well on track with regard to this.To your third question on Germany, with your back of the envelope calculation and the reference you made to Slide 46, the -- Germany is investing, as we shared before, in IT. And these investments weigh on the bottom line profitability, and therefore, because of the nature of being an investment outside of the combined ratio run rate.Moving forward, we expect higher earnings contribution from Germany as the investments come to an end and accordingly then also higher cash remittance contributions.

[Operator]

So we have once again Mr. Rathod back on the line to provide his questions.

[Bhavin Rathod, analyst]

I am sorry, should I repeat my questions. I'm not sure if I went through?

[Carsten Stolz, executive]

I have them. Maybe just as -- have you been listening to the answers in the conversation that we had just with Rene Locher?

[Bhavin Rathod, analyst]

Yes.

[Carsten Stolz, executive]

So then my question goes back to you, did I answer your first question on Non-Life cash remittance with regard to putting in perspective of the overall annual remittance?

[Bhavin Rathod, analyst]

Yes, it was partly answered. So, on the risk result, if you could just answer, I mean, how should we think about it going forward? So CHF 200 million to CHF 250 million would be the right metrics to look out for -- out the year?

[Carsten Stolz, executive]

Yes. So the underlying -- the risk result is basically driven by the underlying portfolios. And therefore, nothing has changed with regard to the quality of the underlying portfolios. And in the context of what I just explained, adjusting the reserves for the new mortality tables and disabilities, we are well reserved in the Life business from an actuarial and technical perspective. We will all have to learn a new perspective on the Life business moving forward when we look at the Life business from an IFRS 79 perspective. Whereas such, we will not have a risk result as we have in the IFRS 4 world anymore. That's the reason why, at the moment, we are not giving guidance on the Life result and its components because we will shift perspectives in half year.So more to come on June 29 in the context of providing you with transitional information ahead of the half year 2022, closing that we are going to report on September 20.And to your -- sorry, go ahead, please?

[Bhavin Rathod, analyst]

Yes. So the last one, again, this is also related to IFRS 17. Directionally, if you could provide any color, how does it look on IFRS 17, was your Life result? I was hearing from one of your [ six ] peers if we get a directional indication that it was down versus IFRS 4. So how do you view your Life result in IFRS 17 compared by IFRS 4? Any directional indication would be super helpful.

[Carsten Stolz, executive]

Yes. So what we provided you with today is information on classification choices and methodologies, transitional information you will get on June 29. So we are not providing numbers at this stage. But also, as I said, maybe one thing to this is, I think I mentioned it before, we expect, in particular, the Life business to be impacted. We expect lower equity. And we expect sum of equity and CSM to be bigger than IFRS 4 equity. It's in addition from a balance sheet perspective.

[Operator]

The next question comes from the line of Jimmy Fan with UBS.

[Yu Fan, analyst]

I have actually 4 questions, please. So first one on cash. So I mean there's a massive step-up in terms of cash remittance from the Life business. And could you give a bit of detail in terms of how much of this increase is sustainable? And how much we should consider it as one-off? And secondly, and for the premium growth, I can see a negative GWP growth in the second half. Could you give a bit of color on what's the level of premium growth we should expect in Non-Life in 2023? And also on a related topic, could you tell us the outcomes from the January renewals in different geographical locations?And also on the outward reinsurance program, what changes you have seen there? And lastly, perhaps on innovation. So there seems to be a bit of a gap between the CHF 82 million and the CHF 350 million revenue target for '25 and you still committing, only invest CHF 50 million this year. I just wonder how you can reach that CHF 350 million target by '25? Do you aim to spend a bit more in '24 and '25, or are you looking to invest in more ventures?

[Carsten Stolz, executive]

Yes. With regard to your first question on Life, the reference point for us is a CHF 2 billion cash remittance target over the strategic horizon until 2025, and the bracket of 60% to 80% deployment to the shareholders. And that's what we are managing towards -- and from the entire business portfolio, as I alluded before. So in that sense, there is no such thing as a run rate from the Life business as we speak. But again, I reiterate that the Life business is stronger in the current environment. And therefore, can contribute also in the future to cash remittance, as it's done in the past also. But the reference point is the CHF 2 billion target.With regard to premium growth --

[Gert De Winter, executive]

Yes. Thank you, Carsten. Let me try to answer the question on premium growth in Non-Life and how it looks in 2023. Given the inflation, we have looked at all the countries and all the branches in order to see what would be our reaction to the increased inflation. And as I said before, there are quite some regional differences. If you look at Europe on one side and Switzerland on the other side where inflation in Switzerland has been substantially lower, we have actually 3, I would say, levers to increase premiums in Non-Life, given the inflation.One lever is that there is an automatic indexation of some of the branches, especially in home, in Germany and Belgium, where actually the premiums are automatically increased given the level of inflation. So that's one lever. So that happens automatically.Second one is that in Non-Life, the vast majority of the contracts are 1-year contracts, which means that, at renewal, we can indeed increase prices accordingly. And the third one is after a claims event where we can also increase premiums.As said, we have looked at the different branches in the different countries and we see indeed substantial increase. We have increased substantially the premiums in some of the branches in the countries. Giving just an example, on average, the car business in Germany, an increase with 12% plus. On private liability in Germany, even higher than that, also on home contents and buildings, also in the double-digit. In Belgium, the same applies across, I would say, average across all branches, 6% to 8%.So we do expect clearly in the Non-Life premium in 2023 a growth. However, what is certainly the case is that we can only react with a certain delay. So that's why, on average, you could say there's a delay of 6 months if you have an average contract duration of 1 year. But we will see clearly higher premiums in Non-Life going forward in 2023.You take the reinsurance question, Carsten?

[Carsten Stolz, executive]

Yes, sure. So on outward reinsurance, the starting point of our reflections there is the underlying quality of the Non-Life book that I think we talked about before, and its performance, and that's why in -- we are seeding -- to the outwards reinsurers we are seeding tail risks, in particular, the accumulation risks and nat-cat risks. So we don't apply quota share reinsurance for the majority of the business, and that obviously has proven to be very effective, not the least and in particularly in the years 2020 and 2021. And the reinsurance market has shifted in last year. We saw substantial price increases. We saw capacity going out of the market, and therefore, market dynamics have shifted. And that means that we have higher reinsurance costs for 2023. And we make always the cost benefit analysis also with the attachment points that we cover from a reinsurance perspective.So 2023 is more expensive and has higher attachment points. Yet the quality of the underlying book allows us to be flexible there as well. And overall -- in respect to the size of the Non-Life book overall, it's still not very high, not to say marginal costs for the reinsurance program. Did I answer your question?

[Yu Fan, analyst]

Sorry, just a very quick follow-up on that hand. Could you tell us by how much that reinsurance attachment point has increased?

[Carsten Stolz, executive]

Well, attachment points, that varies by line of business. But we are running -- we are still running on mid-double-digit attachment points for the nat-cat levels.

[Gert De Winter, executive]

Let me then take the fourth question on innovation. So indeed, by the end of 2022, we had the revenue of CHF 82 million. The target by the end of 2025 is CHF 350 million. We still have 3 years to go. So that's -- we absolutely stick to the target we have expressed at our Investors Day. I think 2022 was, of course, for the start-up world not an easy year, given the economical circumstances, the supply chain problems and so forth. So we see -- we do see an effect on some of our portfolio companies. That is one. And we will -- we have, over the last couple of years, invested on average CHF 50 million in the innovation initiatives, the ecosystems, home and mobility and we'll probably expect the same amount for 2023.This is not a given amount. We only invest in cases that do make sense from a business and an economical point of view. So it's not an amount that we will spend by default. We are, of course, working with many early-stage startups and they are growing and maturing as we go along. Some do work very well. Some fail. That's also part of the portfolio approach we have taken.But we do expect, going forward in the next 3 days, the portfolio to mature and to reach indeed, the CHF 350 million of revenues. If you look at the CHF 82 million by the end of '22, this is an increase of 25% in local currency. So it is a substantial increase over a year. And it's also fair to say, I think, that the startup world and the [ insured ] tech world has, of course, changed quite substantially since the summer of 2021.What we have done is we sharpened our focus. We have become more selective and we are more geared towards profitability than sheer growth. So that's also, I would say, a move or a shift in the strategy on innovation that we have applied since the beginning of 2022.

[Operator]

Your next question comes from the line of Daniel Regli with Credit Suisse.

[Daniel Regli, analyst]

First, a follow-up also from my side. All the best for your future, Gert. And then I have a couple of questions. Two on the kind of reserve dynamics. Obviously, one is about this reserve buildup in -- on inflation in Non-Life. Can you give me some color a bit about -- I mean we have seen higher inflation now. But obviously, what are the dynamics to kind of trigger further reserve buildups in this regards? Or what would kind of lead to reserve releases in this regard?And then maybe a similar question also to understand a bit the magnitude of reserves in the Life business. Can you maybe talk a bit about your cumulative reserve buildup over the last 10 years when we had like negative interest rates or low negative interest rates, or what maybe would also be helpful to kind of see a little bit the difference between reserve buildups in Life in 2021 versus reserve releases in 2022?And then, one question on the slide 30 where you showed these investments into kind of -- into tech and innovation. And are these numbers I'm seeing here this yearly average investment, are they just build up costs related to this project? Or are these also include the run rate costs? Yes, this is it.And then, the last question is, again, on the cash remittance and obviously, cash remittance is up 9%, but the dividend only grew by 5%. Can you maybe just help me again try to get my mind around this kind of difference in growth numbers?

[Carsten Stolz, executive]

Yes. 2irst question on reserve dynamics on inflation in Non-life. Obviously, that's an assessment, particularly of claims costs and both for the book as well as the current year claims and the reserves that are being adjusted. That works in accordance with the underlying actuarial methods. And that's the source of the adjustment for the inflationary environment. We are well reserved in the current environment and, therefore, feel comfortable that we have adjusted well to this environment.Now the Life question, the second question, the reserve buildup over the past. That's -- your question was with regard to how much we have strengthened our reserves over the last 10 years. So I haven't done the exact mathematics right away. But it's -- if I do the calculations more or less correctly, then, we have strengthened in the order of magnitude of more than CHF 300 million in -- over the last years.But I would have to do the exact numbers. And some of the reserves we released at -- as I said, and some will get freed up over the time. So the CHF 300 million I mentioned, was one particular year and there were other years where the effect was smaller. But I would have to do the math and I think we can follow up with IR to add these 10 numbers on the reserving in Life.Then the [indiscernible] -- Sure, go ahead.

[Daniel Regli, analyst]

Yes. Just if you're talking about these numbers, can you give a bit of rough split about policyholders and shareholders sharing in these reserves?

[Carsten Stolz, executive]

So if you look at the profit of source analysis that we provide, and I'll make reference to Slide #24, the numbers that you see on the left-hand side in the profit by source analysis are [ all what is ] after policyholder and therefore, only represent the shareholder share.

[Gert De Winter, executive]

Maybe on the innovation question. So the CHF 50 million on average, we have invested over the last couple of years and the one we are planning also for 2023, includes both the investments we have done in portfolio companies as well as the run costs. So it's the complete picture.

[Carsten Stolz, executive]

And to your last question with regard to cash remittance and dividend dynamics, there is no one-on-one link between the 2. With regard to dividends, we have a dividend payout ratio in reference to the cash remittance of 72%. And with that, we are well in the middle between 60% to 80% of our indicated cash deployment bracket. But there is no one-on-one link between cash remittance dynamics and dividend.

[Operator]

[Operator Instructions] We have a follow-up coming from Mr. Peter Eliot with Kepler Cheuvreux.

[Peter Eliot, analyst]

I'm just going to change talking a little bit. Just ask about the bank and asset management. I mean, I guess, over a sort of for a long period of time, you haven't really sort of seen any profit growth from that. And I mean, I appreciate the last year, there were some investments in things that have caused it to fall. But I'm just wondering at what point we should start to see a contribution from that part of the business and whether you can give any sort of guidance on the outlook there?The second one was on the expense ratio. I mean it looked like in H2 the improvement was sort of 0.8 percentage points after deterioration in the first half. Again, I'm just wondering if --that's a very good trend. I'm just wondering if that can continue or if it's sustainable?And then, maybe finally, just a comment or a question on the IFRS 17 disclosure. You said we'd get more of that at the end of June. I understood you haven't decided exactly what you'll show yet. But I guess, a clear request, it would be very helpful for us to have the sort of the comparative '22 P&L numbers.So we're not going into the half year reporting line. But I appreciate you'll do what you can, but that's a request on my side.

[Carsten Stolz, executive]

Okay then. I'll start with the banking and asset management question. So last year, we had a decrease in EBIT. This was caused by 3 effects. The first one was lower fee income primarily, or particularly on insurance assets and this is given by the interest rate increase that we had, and which obviously lowered the market value of bonds, which, on the opposite, lowered the investment expenses in the Non-Life and Life business. On the other hand, premium or the fee income on the third-party business has increased given the ongoing increase in assets over the years. And we expect in the -- over the season to contribute to the EBIT as we go along.The second effect of the decrease was investment in personnel and in systems to automate processes. And the third effect was a one-off, which is based on the change in the pension system plan of the bank.

[Gert De Winter, executive]

Peter, on the expense ratio where you highlighted the good evolution in the second semester of the year or the second half of the year. It is clear that cost and efficiency is always high on the agenda. That's always been the case and will be the case going forward. That is absolutely clear I would say in the current environment, even more so than in the past. If you look at the number of initiatives that we have taken, you see that they're coming -- they're bearing fruits now. We have automated the straight-through processing ratios in our new business and in our renewal of the business. It goes direction 90% and above, so without human intervention. So that's efficiency.We have also -- we are also dramatically simplifying our product offering. So 1/3 of the products we have, which is slightly above -- now, totally, we have 500 different product lines, if you look at the different countries. We will reduce them by 1/3, which, of course, decreases the complexity in processes in IT, in claims handling and so forth going forward. So that's also a very important element of managing cost and expense ratios.And what you also see is that the synergies that are coming from Belgium in terms of the integration of the 3 companies are starting to kick in. And that's why we also see that on the CHF 200 million of synergies we have projected for, by 2025, if you look at it by the end of 2022, we are at CHF 50 million. So it's a relative expense or cost target where we see clearly a stronger increase in premiums and a much lower increase in the costs, which is synergies based.So we do expect to continue to focus on expense ratio going forward and what you have seen in the second half year to be sustainable.

[Carsten Stolz, executive]

Peter, to your third question on IFRS 79, I'm very happy that you state your needs. Indeed, the moving of -- in this year to the IFRS 79 world for both you and us is a very mixed 2023 a very particular year. And we are trying everything that we can to make this transition as smooth as possible also from your perspective. June 29 will primarily focus on transition numbers. And I hear you. Please allow us a little bit of time for designing the scope of June 29 in more detail. But hearing you is very helpful because it also helps us to design June 29 to your needs. So I cannot say more at this stage. But I can understand where you come from. Transitional information to follow on June 29.

[Peter Eliot, analyst]

Could I maybe be very cheeky and just follow up with one more question, Carsten? Just to clarify the answer you gave to Daniel earlier on the cumulative reserves. You mentioned CHF 300 million in 1 year, which sounded like the largest year. And I appreciate -- may be able to follow up and it would be very helpful to get more detail from IR. But just to clarify what you were saying, the CHF 300 million sounds like it was from one of the -- or maybe the largest or one of the largest years. And is that an individual Life? Or is that sort of in total? Just to check that I've understood correctly, the sort of magnitude we're talking about.

[Carsten Stolz, executive]

Yes. So that particular year was in total. Let me suggest that we get back to you with the time line and the accumulated reserve strengthening over the last 10 years as Daniel was -- requested. So that we are clear on the numbers. But that was -- the CHF 300 million that I was alluding to was in total for a particular year.

[Operator]

The next question is another follow-up from Mr. Regli, Credit Suisse.

[Daniel Regli, analyst]

I have another question on the premium increases. You were talking about low double-digit numbers in premium increase. Do you have any kind of indication what is your expected impact on the volume through these increases? Or what is your expected gross premium increased, net price increase versus volume decline? Or normally, if you increase prices, you lose a bit of volume? Or did you just increase prices in line with anybody else in the market?

[Gert De Winter, executive]

Let me pick that one up, Daniel. As I said, I've given some examples of the price increases in Belgium and in Germany. So I would say Belgium across all the different branches, it would be 6% to 8% on average. In Germany, you see double-digit numbers in car, in private liability and also in house insurance or home insurance and in buildings. Our increases have been in line with the market overall. And we have not seen any strong lapse given the fact that we have increased the prices. So the market is pretty, I would say, calm. And consumers and customers were expecting prices increases as they are used to the double-digit inflation also, at least in some parts of Europe.So we expect our premiums in Non-Life in 2023 to go up. As I said, there are certainly regional differences. Belgium, Luxembourg, Germany, strong price increases in line with the competition. Switzerland has lower inflation. We do expect there are also some movement, but have not seen any market reaction yet. So that's, I would say, a bit the status on our premium and [ gears ] lapses and volume.

[Operator]

Gentlemen, there are no more questions at this time. Back to you for closing remarks.

[Gert De Winter, executive]

Well, let me make one closing remark then. As I said in the beginning that it was my 15th and last analyst and investors call. It has -- over the last 7.5 years, it has been a pleasure and an honor working with all you together. It has really -- it was really a pleasure and an honor, and I mean that. So many thanks for the good collaboration. I'm sure we will meet again, maybe in a bit more informal setting, and I'm looking absolutely forward to that. So many thanks and have a great day.

[Operator]

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.