Swiss Life Holding AG

SIX:SLHN

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the Swiss Life presentation of the Q1 Results 2020 Conference Call and Live Webcast. I'm Andre, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] Kindly note that the webcast questions will be answered after the call. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.

[Matthias Aellig, Group CFO & Member of Executive Board]

Thank you. Good morning, ladies and gentlemen. Thank you for dialing in and your interest in Swiss Life. Today, we are reporting on selected figures for the first 3 months of 2020. Please note that all figures quoted in this call are in Swiss francs and are unaudited. Percentage changes are reported in local currency for our foreign business division. Let me start with today's key messages. Afterwards, I will provide more details on our segments. Fee and commission income was up by 11% in local currency to CHF 453 million. All sources contributed positively. Asset managers grew by 11% and our owned IFAs by 7%. Fee and commission income from own and third-party products and services increased by 8%. As the COVID-19-related lockdowns affecting Swiss Life started mostly towards the end of Q1, there are no noticeable impacts included in these Q1 figures. Gross written premiums, fees and deposits received decreased by 20% in local currency to CHF 7.8 billion. This decline was well anticipated and, as previously mentioned, is due to exceptional demand in 2019 in our Swiss Group Life business as our largest competitor pulled out of the full insurance business in 2018. The COVID-19 situation has no significant impact on Q1 premiums. Insurance reserves, excluding policyholder participation liabilities were flat in local currency and stood at CHF 165 billion. Swiss Life Asset Managers achieved net new assets of CHF 13 million in our third-party asset management that include COVID-19 related outflows in money market funds. Total assets under management in our TPAM business amounted to CHF 79.3 billion. Direct investment income decreased slightly by CHF 60 million to CHF 1.01 billion. The nonannualized direct yield was 0.6% compared to 0.7% in the prior year period. The net investment yield was 0.4%, down from 0.6% in Q1 2019, also on a nonannualized basis. This includes COVID-19-related impacts from the financial market turmoil. Our SST ratio on January 1, 2020, as published and filed with FINMA, was 204%. As of today, the SST ratio is at around 180%.I will now move on to our segment reporting. I will start with Switzerland. Premiums decreased by 28% to CHF 5.6 billion. The overall market was down by 25%. In individual life, premiums were down by 1%, while the market was flat. Periodic premiums grew by 2%. Single premiums decreased by 9%. Premiums in group life were down by 29% to CHF 5.3 billion, while the market decreased by 27%. Periodic premiums grew by 1%. Single premiums decreased by 45%. As mentioned on numerous occasions, we reported an exceptional increase in premiums in 2019, driven by additional demand as our largest competitor pulled out of the full insurance business. We said that a large part of our SST's increase in group life single premiums will revert in 2020. Overall, premiums in group life in the first 3 months of 2020, excluding the exceptional increase in single premiums in Q1 2019, are above the prior year level as we managed to acquire new accounts and achieved higher premiums with existing clients. The share of semiautonomous solutions in our group life new business production was 28% compared to 16% in the prior year period. Assets under management in our investment foundation grew by 2% to CHF 11.2 billion compared to CHF 11 billion at year-end 2019. Fee and commission income in Switzerland was up by 10% to CHF 74 million, primarily due to our mortgage business, Swiss Life Select and Investment Solutions for private clients. As mentioned at the beginning, those Q1 figures do not reflect any noticeable impacts from the COVID-19 situation. Business impacts began to materialize with a certain time lag. The number of client visits in our insurance business and at Swiss Life Select is significantly lower in April compared to prior year. We continued to support our clients, mostly existing ones, using digital tools and run the business without interruptions. However, new business, fee income and result will be affected in the second quarter. Turning now to France. Premiums increased by 18% in local currency to CHF 1.5 billion. This is a very pleasing development. The market was down by 7%. In our Life business, premiums were up by 25%, while the market was down by 14%. This is due to the successful launch of new individual pension products at the end of last year, complemented by the rollout of new group pension products in January 2020. We also reported a continuing high level of premiums in our savings products. The unit-linked share in our life premiums increased to 58% compared to 45% in Q1 2019, which was supported by our new pension products. The market average was 36%. Life net inflows were CHF 0.5 billion versus overall market net inflows of CHF 0.1 billion. In health and protection, premiums increased by 6%, in line with the market. P&C premiums were up by 5% in a market that was up by 3%. Fee and commission income was up by 7% in local currency to CHF 78 million. Unit-linked fee income increased primarily due to unit-linked reserves, which were, on average, higher in the first 3 months of the year and due to higher brokerage fees in the banking business. With respect to the COVID-19 situation, new business production in Life is at around the prior year level in April, compensating for decreases in health and protection and P&C. However, as with prior equity market downturns, there's always a certain time lag in client behavior that might impact new business and future premiums over the next couple of months. Fee income in Life is primarily based on the monthly average of unit-linked reserves. This means that the full effect of the market turmoil in March 2020 will be reflected in the Q2 fee income and result. I will continue with Germany. Premiums were up in local currency by 4% to CHF 364 million due to higher premiums in modern, modern traditional and disability products. The market increased by 12%, driven by single premiums. Fee and commission income grew by 8% in local currency to CHF 126 million due to a strong contribution from our owned IFAs. On a stand-alone basis, including the intercompany revenues, our owned IFAs grew their revenues by 12%. The number of financial advisers increased by 10% year-on-year to 4,287. Furthermore, in April, new business activity in both insurance and distribution has pleasingly been at around or above the prior year level, thanks to an attractive offering of modern, modern traditional and risk products in Insurance business and due to continued strong advisory activity in the IFA business. Our owned IFAs are supported and working completely digitally. Over the past couple of years, we have focused on digitalizing our platform by offering video-based advisory and self-service functions for clients, advisers and the back office. This is now clearly paying off. Moving on to our international unit. Premiums decreased by 27% in local currency to CHF 291 million, mainly due to low single premiums with private clients. The reduction in premiums with private clients is largely driven by low production in Singapore as a result of the measures relating to COVID-19 that began at the end of January. They led to postponement of face-to-face client meetings and medical underwriting. The lockdown is expected to last until June 2020. Lower premiums with private clients were partly offset by higher premiums with corporate clients following new contract acquisitions. The corporate client business largely offers B2B insurance solutions and is less affected by the current situation so far. Assets under control for high net worth individuals, one driver of fee income, decreased by 3% in local currency compared to year-end 2019, mainly as a result of financial market movements and surrenders that more than offset new deposits. Fee and commission income decreased slightly by 1% in local currency to CHF 75 million, primarily due to a slightly lower contribution from Fincentrum as a result of an earlier COVID-19 lockdown. This was partly compensated by higher contribution from our owned IFAs in Austria and the U.K. So far, we have seen business continuation in the IFA field in April, though at a low level compared to the prior year period, primarily with existing clients as new client contacts were limited. This will impact the Q2 fee results. Austria and the CEE countries are now easing some of the COVID-19 lockdown measures whereas the U.K. is lagging behind. Let's continue with Swiss Life asset managers. Commission income was up by 11% in local currency to CHF 190 million. This was largely due to higher recurring management fees on a growing average asset base in TPAM, while PAM reported flattish fee income development on a stable asset base. Please note that recurring fee income is primarily based on the monthly average of assets under management. This means that the effect of the market turmoil in March 2020 on the fee income and result is not yet fully reflected for PAM and TPAM. The nonrecurring business includes real estate transactions and real estate project development. So far, we have not seen material delays. However, this business is already more back-end loaded within the year in normal circumstances. Net new assets in our TPAM business amounted to CHF 13 million. We reported inflows, excluding money market funds of CHF 1.1 billion compared to CHF 2.8 billion in the prior year period. Thereof, around CHF 660 million in real estate, CHF 290 million in bonds and balanced mandates, CHF 140 million in infrastructure and CHF 10 million in equities. Those inflows were offset by outflows of about the same size for money market funds that occurred towards the end of the first quarter due to COVID-19-related liquidity needs of customers. April was showing a slow trend back to inflows, including money market funds supported by more favorable financial markets. Assets under management in our TPAM business decreased to CHF 79.3 billion at the end of March 2020 compared to CHF 83 billion at the year-end 2019. Roughly 2/3 of this decline are due to the negative asset performance, the remainder is due to FX translation. Turning now to our investment results. Our direct investment income decreased by around CHF 60 million to CHF 1.01 billion, also due to a negative FX translation effect. Higher dividends were offset by lower coupons. Nonannualized direct yield was 0.6% compared to 0.7% in the prior year period. Our net investment yield was 0.4%, also on a nonannualized basis, compared to 0.6% in the prior year period. The reduction is due to lower direct investment income, higher bond impairments and FX hedging losses resulting from the hedge of hedging costs as interest rate differentials narrowed. The mentioned bond impairments pertained to senior secured loan funds and amounted to around CHF 60 million, most of which are valuation losses rather than defaults. The net investment yield also includes impairments on equities in the context of the COVID-19 market turmoil. Valuations of our equity hedging derivatives increased and were of similar size as the equity impairments in Q1. Other unrealized gains and losses within the equity portfolio are recognized as other comprehensive income. The asset mix changed primarily with respect to our equity exposure. We have increased our hedging and reduced the net equity exposure to around 2% compared to 4.1% at year-end 2019. As we are currently getting many question on the real estate exposure of our PAM insurance book, I would like to reiterate the following: Real estate is a very attractive asset class from an AUM and SST perspective, providing stable rental incomes at an attractive risk premium compared to government bonds. Real estate valuations are holding up well. We also recognized revaluation gains of around 0.5% in our portfolio in nonannualized terms in Q1 2020. Around 80% of our real estate exposure on our PAM insurance book is held in Switzerland, the rest in France and Germany. 47% of the total real estate at year-end 2019 is commercial, thereof about 2/3 relates to offices, the vast majority being central business district locations. About 1/3, it is 15% in retail with a focus in Switzerland on core cities like Zurich, Geneva and Basel and High Street and other prime locations. 30% of our real estate exposure is residential. 23% is mixed use. More than half of this exposure is residential, and the remaining part pertains to health care, logistics, real estate and development and other. As a result of our high-quality portfolio, our vacancy rate continues to be very low at 3.6% compared to 3.7% at year-end 2019. Moving on to solvency capital. On January 1, 2020, our Swiss solvency test ratio was at 204% as filed with FINMA based on the standard model. This compares to 185% a year before. As of today, we expect the SST ratio to be at around 180%. Supported by our disciplined asset and liability management, our solvency remains strong even after the financial market turmoil in March 2020. This SST ratio includes the entire share buyback of CHF 400 million, which is temporarily suspended, in line with other major listed banks and insurance companies in Switzerland. On April 28, 2020, the AGM confirmed our dividend of CHF 20 per share for the 2019 financial year. We have already paid our ordinary dividend of CHF 15. We will pay, as planned, the remaining CHF 5 per share from the par value reduction on July 24, 2020. This timing difference is not related to COVID-19. There is a long legal process behind the par value reduction. Moreover, also on April 28, Standard & Poor's confirmed our A+ credit rating with a stable outlook. Overall, we had a good start into 2020. This was due to strong business development in the first 11 weeks of 2020. In most of our business divisions, premiums and fee income were largely unaffected by the COVID-19 situation in the first quarter, with the exception of our International division, where premiums suffered from the early lockdown in Singapore. However, the COVID-19 situation is having various impacts on our businesses going forward. Let me summarize the key elements from today's perspective. First, our business activities. We remain focused on supporting our customers and business partners by means of digital and virtual communication. However, we expect overall new business activity to be lower in Q2, as we see lower numbers of client meetings. Second, financial markets. As mentioned before, the main effect from the COVID-19 development for Swiss Life arise from the turmoil in financial markets, leading to lower asset valuations. This has an impact on our fee income and fee result from asset managers and from the unit-linked businesses in France and international. It has also led to lower direct investment income and lower net investment result in our insurance portfolio, which puts pressure on our savings result. However, the group's interest rate margin remains safeguarded for more than 3 decades, also in this volatile environment. Third, the insured risks. We have a balanced portfolio of mortality and longevity risks. In addition, there is policyholder sharing for many business lines. Fourth, solvency and capital. Our solvency remains strong at around 180% as of today and is, therefore, in the upper 1/3 of our ambition range of 140% to 190%. Fifth, Swiss Life 2021 targets. Clearly, there are some headwinds in 2020 from the COVID-19 situation, as mentioned throughout the speech. However, given the resilience of our business model and the measures we have taken, I can confirm that our Swiss Life 2021 targets remain valid. This includes those targets like the return on equity of 8% to 10% that are set for the entire strategic period. We will provide a progress update on our Swiss Life 2021 KPIs together with our half year results on August 13, 2020. This brings me to the end of my speech. I am now ready to take your questions.

[Operator]

[Operator Instructions] The first question comes from the line of Andrew Sinclair from Bank of America.

[Andrew Sinclair, Vice President]

Three from me, if that's okay. Firstly, on the real estate's exposure, I just really wondered if you could tell us a little bit about what you've seen in terms of rent deferrals, rent holidays, et cetera, so far with COVID and lockdowns, et cetera? Secondly, just staying on real estate. Just really wondering if you could remind us of your valuation approach for real estate in terms of volatility. How often do you reapproach the valuations for the real estate portfolio? And thirdly, on Swiss Life asset managers, you mentioned a little bit on the flows environment for Q2 so far. I just wondered if you could tell us a little bit more about how that's varied across asset classes and what you've seen in flows so far in Q2.

[Matthias Aellig, Group CFO & Member of Executive Board]

Okay. Thanks a lot for the questions. Let me start with the real estate exposure and deferrals. We have released a press release on that. The COVID situation puts pressure on some of our tenants, and we have granted the possibility to the very small-sized entrepreneurs and individuals, which make up a marginal amount of our rental income for a couple of months, 1 or 2 months in Switzerland. So this is something that is really marginal. We have a focus here on really maintaining long-term relationship with our clients. So to sum it up, we don't see a relative impact from that. On the second point, on the valuation approach, there is no change to the valuation approach. We follow, as usual, the external valuation by our partners. We see, as mentioned so far, still a very low vacancy rate. So we don't have any reason to change the valuation approach. As said, the application of that approach has led to a revaluation gain of 0.5 percentage point on a nonannualized basis in Q1, which is essentially at the same level as in prior year first quarter. We see also for the full year a positive revaluation, which may be at the -- lower than in prior year. I think what's also very important to keep in mind when we're talking about that real estate portfolio we have -- that around 8% of the real estate is in Switzerland, and the rest is in France and Germany. There is essentially no exposure to the U.K. market in our PAM portfolio. Now when it comes to the third point, in terms of real estate, the transaction market is still open. We see transactions taking place. Here and there, there are some operational difficulties getting to the notary and the like. But the key message is that the market is still open. Now in terms of other things happening in the asset management, on the PAM portfolio, I said that transaction market in real estate is open. We plan to add real estate. In terms of equities, we have mentioned we have reduced the net equity quota to 2% around. And there may be also some sale of bonds taking place -- to take some guidance on fixed income instruments.

[Andrew Sinclair, Vice President]

Sorry, I was actually meaning more for just like asset managers for the TPAM flows. Just how are you seeing that differing across asset classes in Q2 so far?

[Matthias Aellig, Group CFO & Member of Executive Board]

Q2, we still see some net inflows. There was -- in money market, we also had -- after the huge outflows in the first quarter, we had also inflows in money market. So we still see also there flows going on in the second quarter. So real estate, we see so far still positive inflows.

[Operator]

The next question comes from the line of Peter Eliot from Kepler Cheuvreux.

[Peter Eliot, Head of Insurance Sector Research]

The first question, I wanted to just ask on the fee result. I mean I was very pleasantly surprised that you maintained your targets. And obviously, that includes the fee results. I'm just wondering if you could just sort of explain what your assumptions are in getting there. And you've given us some very helpful information on the initial Q2 impacts, but I'm just wondering if you can sort of explain how you see those developing. I guess on the sort of Asset Management and Life side, it's quite clear, I hope, from central assets under management what your assumptions are about the advisory channels and any other sources would be very helpful.The second one was maybe coming back to the real estate interest, you expect a positive revaluation at the end of the year. And obviously, there's very helpful comments on the rent deferrals, et cetera. I was wondering just if you could set out, even if it isn't your assumption, if you did get a drop in valuations, rental income flows, et cetera. Just wondering if you could sort have outline how that would impact you and the tools you have to mitigate that. So just, yes, if you were faced with a bad scenario, how you would address that? And the final question maybe on the premiums. You've highlighted the number x the actions of your major competitor, predominantly last year, another smaller competitor shed some business this year. And I'm just wondering if you picked up any of that or whether we should think of that the current number is very much a purely ongoing number?

[Matthias Aellig, Group CFO & Member of Executive Board]

Thank you. Pete, first of all, let's say, in view of the assumption for the fee results, let me probably first start with the notion that our, let's say, base case in terms of economic outlook for 2020 and 2021 is a U-shaped economic development. So we assume that there will be a recovery to pre-crisis level no earlier than end of 2020. So that would be the earliest. So that may be some time in 2020/'21 when economic activity will be back at the level of the precrisis. So that's really important to understand that we have this U-shaped recovery. And that means now more on an operational level for the advisories that as lockdowns now ease, and we actually see that happening or it already has happened, that IFAs can go back more to physical meetings. We had already during the lockdowns still the interaction with clients, especially in Switzerland, in France, in international with the asset managers, more focused on existing ones. But now as the lockdowns ease, we can also go out and see physically new clients. In Germany, we had really also, during the lockdown period, acquisition of new clients. And we see now these activities to increase in the second quarter and beyond. So that's, I think, the underlying assumption in respect of the advisory channels. But it's really important to note is we were open for business also during the lockdown, and we prepared the sales force to be ready when they can go back and see clients. And depending on the level of, let's say, digital support tools they could, as mentioned, in the case of Germany, even attract new clients during the lockdown. So that was the question on the fee result development. Now I jump to the third one to the premiums. We have, as usual, acquired business from various sources, new business from various sources. This includes other insurance companies. This includes some semiautonomous solution. So I would almost look at this result as a clean one. What is important also to note is that in Q1, we had quite some high levels of premiums with existing clients. So that's new entrants into the scheme. So that was really what was happening. Now you said, we are of the opinion that the valuations of real estate are well supported for the reasons mentioned, the attractive risk premium and so forth. As said, we have 0.5% appreciation in the first Q1 on a nonannualized basis. Now as you mentioned, in case, against our expectation and against what we currently see in the market, we -- if we nevertheless would see a drop of real estate valuations, yes. This would, as we have on the IFRS, this fair value principle, we would see that as a reduction of net investment income. We have, first of all, against that still an attractive current income. We have, in many businesses, policyholder sharing. And I think what is most important to note is here on a statutory basis -- on a statutory basis within Swiss Life Ag, for example, we still have large amounts of unrealized gains and losses. So while it might affect the IFRS P&L, it would take enormous amount of depreciations before it hit the local statutory results of the operating company.

[Operator]

The next question comes from the line of Jonny Urwin from UBS.

[Jonathan Peter Phillip Urwin, Former Co]

Just 2 for me, please. So firstly, I mean, at this stage, based on what you know today, would you still expect fees to grow in 2020? So we've had a good start to the year. You flagged some headwinds to come. But net-net for the year, would you still expect growth? And secondly, on regulation, I mean, it's good to see how the Swiss insurers have come through the COVID crisis so far in terms of balance sheet strength and being able to pay dividends. I mean, I just wonder, is there any kind of expectation for the -- for FINMA to tighten the standards at all going forward, given the volatility? Or do you think they're pretty happy and the standard will maintain a stability? Any comments there would be great.

[Matthias Aellig, Group CFO & Member of Executive Board]

Thank you, Jonny. Now in terms of fee growth in 2020, as mentioned, we have said what the -- our scenario is a U-shaped recovery that may well as into 2020 -- get into '21, sorry. And that's, from today's perspective, the basis on which we confirm the goals for -- of Swiss Life 2021, which, in the case of a fee result, is a number that we have set for 2021. So I would, at this point in time, not give an indication for the fee growth in 2020. Now in terms of regulation, we said the standard model is such an important thing that we have developed together with FINMA because it provided clarity and it still provides clarity and stability and reliability, and that's only to be achieved if it is not changed. Now as we speak, it's our clear expectation that there is now no change to that standard model because it is established. It has proved how it works. So we do not expect any change. Now in terms of stability, let me still make the point that unlike Solvency II, there is no volatility adjustment in the SST. So we don't have, in the standard model, any form of, let's say, countercyclical measures such as the volatility adjuster in Solvency II.

[Operator]

The next question comes from the line of Ashik Musaddi from JPMorgan.

[Ashik Musaddi, Executive Director and Co]

Hello? Can you hear me? Hello?

[Matthias Aellig, Group CFO & Member of Executive Board]

We cannot hear you very clearly.

[Ashik Musaddi, Executive Director and Co]

Hello. Can you hear me?

[Matthias Aellig, Group CFO & Member of Executive Board]

Now it's better.

[Ashik Musaddi, Executive Director and Co]

Okay. Sorry, I was just trying to fix my phone. So a couple of questions I have, if I may. First of all, sorry, going back to the real estate. Now can you give us -- you mentioned that there is no material payment holidays or rental holidays that you have given at the moment. But can you give us any color as to, if you have given any, in which part of real estate exposure have you given some -- such holidays? And how will it be accounted for? Because most likely you're not getting cash, but will it be treated as a rental in the accounting income? So -- or is it like a holiday that you have given which you will not be collecting in the future? So that's the first question I have. The second question is, can you give us some clarity on the policyholder buffers you have in, say, Switzerland and in Germany? Just trying to understand if there is a default on the corporate bond portfolio, how much of that can be absorbed by the policyholder buffers?

[Matthias Aellig, Group CFO & Member of Executive Board]

Thank you. First, on the question on the effect of those actions we have taken in view of the rent reduction. So as mentioned here in Switzerland, we have granted that to the very, very small enterprises and also to self-employed people, like the hairdresser across the shop that were affected by the lockdowns. So that was important for us. It was not something that we have done across the board. We check every single case. It is really a marginal amount. And where we have granted for -- for example, 1 or 2 months, a reduction of the rent, this will simply not show up as income. If there is a deferral of the rent payment, this will be kind of recognized as a receivable and will not affect the P&L as the cash is coming in at a later stage. Now in terms of the policyholder buffers, I think it's important to know first that we have on our fixed income portfolio, unrealized gains of, I think, about CHF 13 billion. So we have already on the asset side, substantial amount of capacity to absorb losses that might occur going forward. So that's CHF 13.2 billion. Then we have a large part of that, that really forms the deferred policyholder participation under IFRS. And then we have, under the statutory accounting also, policyholder buffers that probably are CHF 1 billion or something like that -- of that order of magnitude. Now what is also important to note this year that we have -- and I have to reiterate that, that our interest rate margin, which is protected by 3 decades would not be strongly affected if there was an uptick in corporate defaults. I hope this answers your questions.

[Ashik Musaddi, Executive Director and Co]

Yes, that's very clear.

[Operator]

[Operator Instructions] Your next question comes from the line of Fulin Liang from Morgan Stanley.

[Fulin Liang, Equity Analyst]

I have 2 questions. So the first one is, given all the uncertainties and changes in macros and then yields of different asset classes changes, would you think about actually change your asset mix -- not change, but shift your asset mix slightly? So for example, maybe some -- you may find like actually credit is more attractive than real estate at the moment. So just an example. So that's the first question. And then second one is the -- can you give us some update on your investment type of the insurance contract to actually outflow, especially actually after Q1, say, in April? And -- so that's the second question. Then lastly is -- so I actually just wonder, you didn't mention about mortality impact from COVID-19. But is it right to think that if you have higher-than-expected mortality than you assumed, it's actually going to be positive impact to your IFRS earnings. Is that correct?

[Matthias Aellig, Group CFO & Member of Executive Board]

Okay. Let me start with your last question first, the mortality. I think if we read, let's say, all the paper in the press, yes, there is an excess mortality that can be observed. For example, in Switzerland, is this, however, quite a small number, first of all. The second point that one has to keep in mind is that there may be some difference between the mortality of what you read in the paper compared to what you experience in your books. And in terms of our books, we have a balanced portfolio where we have mortality risks and longevity risks that we cover. So there may be an offset that might occur. I think it's speculation now as to how this works out. I think at this point in time, we can confirm if something happens, those are small numbers. Anyway, we have this balancing effect. And then we have most -- in most cases also a policyholder sharing anyway. So to cut it short, I wouldn't expect to see much of an impact there.Now in terms of asset allocation, yes, we have reduced the equity exposure by 2 percentage points from about 4% to 2%. What still remains relevant for us is the capital efficiency consideration when investing new money. That means we still will favor real estate and mortgages. On a relative basis, credit has now become more attractive as spreads have widened. So there is, when it comes to new investments, still this capital efficiency in focus. So I do not -- to cut the long story short, I do not expect a major change because the fundamentals, capital efficiency, still remain in place. Now in terms of, let's say, movements on the product side. By and large, you can say we have not seen any material changes to lapses across the books. There may, here and there, being observed a little uptick in lapses, but that would not be material. Some high net worth individuals may have had to cover margin goals. So all in all, nothing special to mention at this point in time.

[Operator]

The next question comes from the line from Thomas Fossard from HSBC.

[Thomas Fossard, Co]

Two questions from my side, one on SST and one for the French market. First one on the SST. I think at the last time you reported sensitivities was at the 2018 Investor Day. So just wanted to know if you could provide some update regarding sensitivities, especially regarding spreads and interest rates movement or indicate if the one provided 2 years -- 2 years ago are still valid. Second question would be related to France, where you've got a significant portion of your new business coming from unit-linked. Could you tell us a bit how see -- how things have developed since the end of March, especially if you could shed some light on the trends -- on the business trends so far in April and May?

[Matthias Aellig, Group CFO & Member of Executive Board]

Yes. Maybe on the SST first. We disclosed the sensitivities at half year for the January 1 of the same year. So at half year 2019, we have disclosed the sensitivity for January 1, 2019. You'll find that in the booklet on Page 27. Now in terms of, let's say, relevance of those for today, I would say, by and large, they still apply with the exception of the equities' sensitivity. As mentioned, we have cut in half the net equity exposure compared to year-end. And so it's fair to assume that something may have -- something similar has happened to the sensitivity. Now in terms of the unit-linked business in France, I've mentioned, we still have a very good production in the new business in Life. We have really a very high unit-linked share overall in premiums. This was 58%. If we look into the new business production, it is even higher than that. It is here at 70%. The reason for this good development, both in terms of volume and unit-linked share is the launch of this new robust product in 2019. In October, we were there among the first to launch such a product in the individual space, and we have done so now also a group robust product in January and February. And that is really the basis of this production, which is still developing well after Q1. As mentioned in the call, there may be changes in client behavior in terms of unit-linked affinity happening with a certain time lag after the financial market turmoils, which happened in March. But still, we have seen a good April in terms of unit-linked production.

[Operator]

There are no more questions from the phone. Sorry, we have a last-minute registration from Rene Locher from MainFirst.

[Rene Locher, Director]

So just 3, 4 smaller questions. So first of all, can you confirm cash at holding level is still at CHF 0.9 billion? So that's the first one. And then I just saw a headline here in Switzerland that COVID-19 put some pressure on the second pillar business in Switzerland. So I was just wondering, you explained before already, but could it be that you get a little bit more, how I can say, demand from autonomous pension schemes, small, medium-sized enterprise? It's not that you -- that they want to -- yes, shift their pension scheme to Swiss Life. And then still wondering a little bit, I mean, your total rental income was CHF 1,023 million in 2019. Now you're guiding for just a smaller million amount given COVID-19. And then I'm looking at your CHF 35 billion real estate portfolio. If I look at the split, I'm wondering a little bit like why the impact is not large, like commercial is 47%. As far as I know, 2/3 is office, 1/3 is retail? And can you just explain a bit the retail or these like larger companies like the Mettler's or the Coop in Switzerland, or -- what is the reason that the impact is not larger on the rental income? And then pushbacks I got from investors is your corporate bond portfolio, I mean, you have like CHF 46 billion invested in corporate bonds, 37% is BBB. And then, yes, some of the investors are wondering what's going to happen when these BBB bonds become all of a sudden noninvestment grade? Are you going to sell it? Or are you going to keep it? Perhaps you can also explain a little bit what your strategy is here.

[Matthias Aellig, Group CFO & Member of Executive Board]

Thank you for the relevant questions. On the cash level, we can confirm the CHF 0.9 billion at the holding level, that is as you said. With respect to COVID-19 and the BVG question, customers or potential customers have realized in the turmoil that there is value in having a full insurance coverage. So there may be additional demand, as you mentioned, for that offer. What is important to note here, we have a broad range of offerings, full insurance, semiautonomous solutions. So we have everything that is really tailored to clients' needs. What is important, however, is also to say that we maintain the underwriting discipline that's key for us, that we have a good underwriting in terms of the age structure of the accounts and also in view of what kind of businesses we underwrite. There is nothing that we would want to lose. On the contrary, we have actually tightened the underwriting to make sure that we have -- that we continue to have a solid portfolio also in the Group Life business. Now in terms of on the corporate bond portfolio, I think what's important to note is -- first is that we have a well-diversified portfolio with a high quality. We have essentially 5% that are noninvestment grade. Out of that, around 80% is senior secured loans. That's not really normal "high-yield bonds," but it is senior secured. When it comes to the space below the maintenance, so in the fees, we just have a completely marginal amount, less than CHF 50 million. So I think that's the starting point where we have a really high-quality corporate bond portfolio. Now what it means if there were additional downgrades in terms of BBB bonds, I think we follow for all ratings, for all sectors, a buy and manage approach that we follow. We really look at those names well ahead of things happening. And there is no, let's say, automatism that would force us to dispose of names that would drop below investment grade. Now in terms of your question on the real estate, on the rental income, the things, the rent reductions that we have granted, they refer to the very small enterprises, like that the hairdresser around the corner, that may be a small restaurant. And that really would hit the P&L. If we grant rent reduction, that really hits the P&L. But as I said, those are marginal amounts. If there is a rent deferral, this will just be paid at a later point in time, and this does not hit the P&L. What maybe also important to understand is that we have, when it comes to restaurants and like that, just a very small portion of our rental income that refers to such restaurants.

[Operator]

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

[Peter Eliot, Head of Insurance Sector Research]

Just one last quick follow-up on Rene's question then on the cash. Because you confirmed the CHF 0.9 billion, which is what it was at the year-end. It just wasn't clear whether you were saying that -- it's also at that level today. So that would mean that the external dividend has basically been completely offset by internal dividends. And I was just wondering maybe as a sort of follow up, if you could also comment on whether you see any impact really to the cash flows as a result of the crisis or the CHF 400 million share buyback that's not ongoing. Is there any reason that might not be available at a later date? Obviously, there are earnings impacts. But yes, is there anything we might have missed there?

[Matthias Aellig, Group CFO & Member of Executive Board]

Maybe on the CHF 0.9 billion, yes, that's as you say. We can confirm that also as of today. In terms of the effect of the COVID situation on the cash transfers, I can say, we stick to the Swiss Life 2021 targets, which also includes a cash remittance target accumulated over the 3-year period. So we confirm that. There may be some discussions. You mainly referred to France, but I think the important point is we confirm the 2021 cash transfer targets.

[Operator]

That was the last question.

[Matthias Aellig, Group CFO & Member of Executive Board]

Okay. Thank you for your interest in Swiss Life and for your questions. I look forward to talking to you again on August 13 to discuss our half year results. I wish you a nice day. Stay safe and healthy. Goodbye.

[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.