Swiss Life Holding AG

SIX:SLHN

Earnings Call Analysis

Swiss Life Q3 2023 Shows Steady Growth

In the first nine months of 2023, Swiss Life reported a healthy increase in fee and commission income by 5% to CHF 1.79 billion, supported by its own and third-party product and services, with gross written premiums rising 5% to CHF 15.5 billion. Direct investment income experienced a slight uptick from CHF 2.9 billion to CHF 3.0 billion. In real estate, despite a current downtrend with expectations of approximately CHF 1 billion in negative fair value changes for the full year, Swiss Life maintains a strong solvency position with an SST ratio of around 205%. Additionally, the company has started a CHF 300 million share buyback program, which further indicates its robust financial health.

Swiss Life Reports Growth Amid Changing Dynamics

Swiss Life has disclosed its financial figures for the first nine months of 2023, revealing consistent growth in fee and commission income as well as gross written premiums, fees, and deposits. Fee and commission income increased by 5% to CHF 1.79 billion, propelled by products and services that offset a decline in income from asset managers. Gross written premiums, fees, and deposits also rose by 5% to CHF 15.5 billion. Direct investment income saw a modest rise from CHF 2.9 billion to CHF 3.0 billion. A highlight was the Swiss Life Asset Managers division, which saw net new assets of CHF 8.4 billion, a significant leap from CHF 6 million in the previous year. The company's solvency, measured by the Swiss Solvency Test (SST) ratio, remained robust at about 205%.

Performance Breakdown by Region

Segment-wise, the Swiss market showed a mixed picture with a 2% rise in premiums primarily due to the individual lines, which outpaced market growth. Group life premiums declined by 2%. France experienced a slight premium dip by 1%, although the unit-linked share remained high at 63%, contrasting with the market average of 40%. The German market was positive with a 3% rise in premiums due to strong product performance. The international segment reflected gains, particularly from corporate client premiums. Overall, while fee and commission income dipped by 1% in Switzerland, it rose by 15% in France and Germany, signifying a stronger fee business outside the domestic market.

Asset Managers Navigate Rough Waters

For Swiss Life Asset Managers, commission income experienced a 9% decline to CHF 664 million, attributed largely to a sale in the previous year and currency effects. The Swiss Life Asset Managers are poised for an upward swing in performance, as they are set to encounter a more favorable nonrecurring income scenario for the full year. Net new assets in the TPAM business engaged a hearty position with CHF 8.4 billion, up from CHF 6.0 billion, denoting investor confidence and a desirable asset management direction.

Spectre of Real Estate Value Adjustments

On the real estate front, there has been a notable increase in direct investment income contributing to a better yield than the year before. However, Swiss Life is set for a CHF 1 billion negative in fair value changes, which will factually affect the 2023 profit and loss but is expected to stabilize into 2024. Real estate markets are anticipated to normalize, with negative fair value changes projected to be between -0.5% and -1% for the entire year of 2024.

Strong Solvency and Liquidity Indicators

The solvency landscape for Swiss Life presents a solid picture with the SST ratio hovering around 205%, comfortably above the target range of 140% to 190%. This level reflects a slight dip from the half-year mark due to the share buyback program and market movements. Liquidity at the holding company level remains healthy at approximately CHF 0.85 billion. To add, the company has embarked on a CHF 300 million share buyback program, extending to the end of March 2024.

Outlook: Real Estate Recovery and Financial Targets

Swiss Life heads into the final quarter with optimism, expecting real estate markets to normalize next year and a clear improvement in the asset management fee result. This optimism underpins the projection to meet the Swiss Life 2024 fee result target of CHF 850 million to CHF 900 million, although they anticipate being at the lower end of this forecast. Moreover, they are on track to achieve or surpass the Swiss Life 2024 group financial targets due to favorable return on equity and cash remittance figures.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, welcome to the Swiss Life Q3 2023 Trading Update Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants in listen-only mode and the conference is being recorded. [Operator Instructions]. Conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Matthias Aellig, Group CFO of Swiss Life. Please go ahead, sir.

[Matthias Aellig, executive]

Good morning, ladies and gentlemen. Thank you for dialing in and for your interest in Swiss Life. Today, we are reporting on selected top line figures for the first 9 months of 2023, and we will focus as in Q1 in fee income, premiums and direct investment income. Both are essentially unaffected by IFRS 17/9.

Please note that all group figures quoted are in Swiss francs and that figures for each business division are in local currency. Also note that all figures are unaudited and growth rates are mentioned in local currency.

Let me start with today's key messages. Fee and commission income was up by 5% to CHF 1.79 billion, driven by own and third-party products and services that outweighed a lower fee income from asset managers. Owned IFAs were essentially stable.

Gross written premiums, fees and deposits received increased by 5% to CHF 15.5 billion. Direct investment income grew from CHF 2.9 billion to CHF 3.0 billion. Swiss Life Asset Managers recorded net new assets of CHF 8.4 billion in third-party asset management compared to CHF 6 million in the prior year period. The SST ratio at the end of September was around 205%.

Let me now move on to our segments, starting with Switzerland. Premiums increased by 2% to CHF 8.0 billion. Life insurance market increased at 1%. Premiums in individual lines were up by 25% to CHF 1.3 billion while the market increased by 9%. Periodic premiums grew by 3%. Single premiums more than doubled driven by a new modern traditional product. Premiums in group life declined by 2% to CHF 6.7 billion, while the market decreased by 3%. Periodic premiums fell by 1%. Single premiums decreased by 2% due to less employees entering existing full insurance schemes. This was partly compensated by higher new business. Assets under management in our semiautonomous foundations, were at CHF 6.9 billion compared to CHF 6.2 billion at year-end 2022. Fee and commission income was down by 1% to CHF 239 million primarily due to Swiss Life Select.

Turning to our French, German and International business divisions at all report in euro. I will start with France. Premiums decreased by 1% to EUR 5.1 billion. Now life business, premiums were down by 3% following strong growth in prior years. Market was up by 4%. The unit-linked share in our life premiums was 63% compared to the market average of 40%. We generated net inflows of EUR 1.3 billion. Total market net inflows were of the same amount.

Health and Protection premiums grew by 8% and both the individual and group business contributed positively. The market was up by 7%. We continue to experience headwinds from the negative claims development and expect the technical result from the health business to increase next year. P&C premiums were stable.

Fee and commission income rose by 15% to EUR 359 million. We had a strong contribution from the banking business, driven by continued high revenues from structured products. Unit-linked fee income also increased based on higher average unit-linked reserves compared to the prior year period.

I continue with Germany. Premiums were up by 3% to EUR 1.0 billion due to modern, modern traditional and disability products. The market decreased by 6%, driven by lower single premiums. Fee and commission income rose by 15% to EUR 548 million due to our owned IFAs. Also, the insurance business contributed to this increase. Number of financial advisors increased year-on-year at 3% to 6,042.

Turning to International, which includes effects from elipsLife consolidated at the beginning of July 2022. Premiums increased to EUR 1.6 billion due to higher premiums with corporate clients, mainly from elipsLife. Fee and commission income was up by 9% to EUR 293 million. The increase was due to the corporate business. Income from private clients declined due to lower average assets under control. Owned IFAs also reported a decline in fee income, partly related to negative FX translation effects.

Moving to asset managers, which reports in Swiss francs. As usual, the update in Q1 and Q3 focuses on commission income and does not include other net income from real estate project development. Asset Managers commission income declined by 9% to CHF 664 million, about 20% of the decline is due to negative FX translation effects and about 60% is due to the sale of Livit Facility Management Services in Q4 2022, which affects both and PAM and TPAM.

In our PAM business, commission income decreased by 13% to CHF 237 million. More than half of the decline is due to the aforementioned sale. The remainder is due to lower average assets under management and lower real estate transaction fee income. Now TPAM business commission income was down by 7% to CHF 427 million driven by the aforementioned sales as well as lower real estate transaction income and negative FX translation effects. This is partly compensated for a higher income on higher average assets under management.

To make figures comparable to full and half-year disclosures, the share of total nonrecurring income for TPAM, meaning commission income as well as other net income from real estate project development was 14% of total TPAM income compared to 16% in the prior year period. For the full financial year 2023, we expect the share of nonrecurring income to be at around 20%. This update is below the prior year indication of almost 25% given at the half year disclosure. Drivers include an expected write-down of a proptech investment in Germany and a further strengthening of the Swiss franc compared to the euro as nonrecurring income relates primarily to the German market.

Net new assets in our TPAM business amounted to CHF 8.4 billion compared to CHF 6.0 billion for the first 9 months of 2022. We achieved inflows in real estate of CHF 1.5 billion and CHF 1.2 billion in infrastructure. Inflows in bonds and balanced mandates were CHF 5.3 billion and CHF 0.5 billion in money market funds. Excluding money market funds, net new assets amounted to CHF 8.0 billion compared to CHF 6.1 billion in the prior year period. Overall, assets under management in our TPAM business were at CHF 112 billion compared to CHF 105 billion at the year-end 2022.

Turning to our direct investment income. Direct investment income increased to CHF 2.99 billion compared to CHF 2.88 billion in the prior year period. [indiscernible] alternatives and real estate contributed more. This was partly offset by the swing in repo contribution, low distribution from investment funds as well as by negative FX translation effects. This corresponds to a non-annualized direct investment yield of 2.1% compared to 1.8% in the prior year period.

Regarding real estate. Real estate continues to be an attractive and important asset class for backing our long-dated liabilities. Vacancy rates decreased to 3.1% from 4.0% at year-end 2022. For the year-end 2023, we expect vacancy rates to remain at this level. Fair value changes were negative at around CHF 0.75 billion compared to CHF 426 million at half year. For the full year 2023, we expect negative fair value changes of around CHF 1 billion.

In the VFA business, this will be absorbed by the bell by policyholder sharing and also by the CSM and therefore, affect the P&L over time as part of the CSM release. Outside the VFA business, there is no policyholder sharing and the negative fair value changes directly impacted P&L. Regarding 2024, we expect real estate markets to normalize. However, some weakness of this year will leak into 2024. We expect negative real estate fair value changes to be between minus 0.5 and minus 1 percentage point for the entire year 2024.

Moving to solvency and cash. At the end of September 2023, our SST ratio was around 205% and therefore, above our ambition range of 140% to 190%. This compares to a level of around 215% at half year. 2 percentage points of the reduction are due to the share buyback announced on September 6. The remainder relates to real estate and equity market movements and to the widening of the interest rate differential that we have a large foreign denominated fixed income portfolio acting Swiss franc denominated liabilities. Liquidity at Holding at the end of September amounted to around CHF 0.85 billion. Please also note 2nd of October 2023, we started a CHF 300 million share buyback program that will run until end of March 2024.

Let me sum up. In the first 9 months of 2023, Swiss Life delivered continued growth in the insurance business and in the fee business. In 2024, we expect a normalization of real estate markets and a clear improvement in the asset manager's fee result contribution compared to 2023.

Based on this, we expect to achieve the Swiss Life 2024 fee result target of CHF 850 million to CHF 900 million, albeit at the lower end of the range. I'm very pleased to confirm that we are well on track with all Swiss Life 2024 group financial targets and expect to either achieve or exceed them as we are ahead in terms of return on equity, and cash remittance.

For once, and on an exceptional basis, we provide more color on the return on equity for the current year. This is a special year with significant accounting changes and business effects. So let me first start with 2022.

Under IFRS 17/9, the full year 2022 return on equity amounts to 12.1%. For 2023, we expect it to be about 1 percentage point above this level despite the mentioned headwinds. For 2024, we expect a clear improvement compared to 2023 based on the normalization of real estate markets and improved technical profitability in the French health and protection business.

Back to the cash remittance, we expect to structurally exceed the group's cumulative cash remittance target. High level of interest rates is clearly beneficial for Swiss Life. We continue to see reserve releases on the local statutory accounting which is the basis for cash remittance to the holding company.

Thank you for listening. I am now ready to take your questions.

[Operator]

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

[Andrew Sinclair, analyst]

Three for me as usual, please. First was just could you go into a bit of detail on those SST moving parts. Just if you could break down those market sensitivities between the different components and just confirm what was the operating capital generation in the quarter as well? That's my first question. Second was on asset management flows. Just are you seeing any change in demand for real estate solutions and the higher yield backdrop, just some color in terms of what you're seeing on flows, both in terms of in Q3, in the pipeline. Just what you're seeing there. And then third was just on expectations for the annual review of mandatory rates for 2024. Yields clearly have claimed a bit. What are you expecting from that review?

[Matthias Aellig, executive]

Thank you, Andy. Let me start with the SST development. I said we are about 10 percentage points below the half year figure of 215 percentage points that we communicated on September 6. Now we are at around 205%. But now what are drivers of it? The first part is the deduction of the buyback that we announced between half year between the 30th of June and the end of September. So as the entire CHF 300 million buyback that we deducted from the RBC, so that corresponds to the 2 percentage points.

Then we have had kind of the movement in the real assets, if you wish, real estate and equity market movements. And clearly, here, the biggest part was relating to equity. So about, let's say, 3 percentage points, as I would say, was driven by real assets, and as I said, mostly equity movements.

Then the last part is the interest rate differential. And here, we're talking not about interest rate differential at the short end of the curve, but at the long end of the curve. And what does it mean? We have in Switzerland, clearly, Swiss franc denominated liabilities part of which are backed by foreign denominated fixed income instruments. And here, the higher increase of the foreign rates actually meant that we lost the SST as well. And clearly, we had also operating things that went against that, here I would say there's nothing particular to mention compared to, let's say, prior year operating earnings, I would say, maybe we can expect a bit more than last year. That was kind of what was going on in terms of the SST.

Now coming to the review of the BVG rate that has been now set that 1.25 percentage points. That's up from 1%. As you know, from our booklet from technical reserves in the BVG, it's only a relatively small portion that is subject to the minimum rate set by the Federal Council. It's about maybe CHF 20 billion -- CHF 20 billion, CHF 25 billion. Then we have another CHF 20 billion, CHF 25 billion where we said the rate that's the extra mandatory part and then we've an additional huge part of, let's say, annuities where kind of the decision of the Federal Council does not matter.

So all in all, economically, it doesn't affect us. We believe it would have made sense not to increase the rate because we could take more risk to the benefit of, let's say, the policyholders. And by the way, why does it not affect us economically as long as -- in the context of the gross legal quote we can burn the 10% that are -- that we are eligible for, then, per se, the level of guarantees do not matter in terms of profit at the cruise to the shareholder. So I think that a bit the point on the BVG rate.

Now to the second question in terms of the NNA in the third-party space, we clearly have seen additional real estate inflows in the third quarter stand-alone. Now for Q4 we expect kind of a flattish development for real estate and infrastructure. So that's a bit a short-term view on the pipeline. But clearly, we see that for the full year 2024, as kind of the rate environment is expected to stabilize. We see now kind of the end of the increase of the interest rate. We assume clearly this normalization to occur that demand will pick up that potential investors will have more clarity, more visibility on the rate environment, that demand will pick up again for 2024.

And in addition to that, and I think we talked about that in prior calls, there are pretty attractive yields in the real estate space. They are inflation adjusted. Especially in Europe this is relevant where the inflation is even higher than in Switzerland. So we clearly see here this demand to continue. There is clearly also a differentiation by, let's say, segment. I think logistics is a very attractive segment where despite the economic environment, demand, this is quite substantial. So I think that's -- to give you a bit of flavor and context on the real estate pipeline asset managers.

[Andrew Sinclair, analyst]

Very, very helpful. Just apologies if I missed this. I don't think you gave your breakdown of the flows that you often give on the quarterly calls within asset management between the asset classes. Could you possibly give that breakdown?

[Matthias Aellig, executive]

May I come back to you on that question later or...

[Andrew Sinclair, analyst]

Yes. No worries. That's good.

[Operator]

The next question comes from Peter Eliot from Kepler Chevreux.

[Peter Eliot, analyst]

Can I just -- first of all, just quickly follow up on the solvency and the interest rate differential. I guess, I mean, if I look -- whether I look at sort of the 10-year roll or the 30 year, I'm not seeing a big difference or a big sort of increase in Euro versus Swiss in Q3 versus earlier in the year. So I'm just -- could you just clarify what we should be looking at there? And yes, maybe the effect that it has had in Q3. That would be the first one.

Second one, on the outlook, I mean, I guess, at H1, it sounded like the target or the fee target was dependent on a recovery in real estate markets. Now it sounds like very confident in achieving it because you think the real estate market will recover. I'm just wondering if something has changed to make you more confident despite the numbers we're seeing would be great. And then the third one, are you able to give us the net investment income.

[Matthias Aellig, executive]

Thank you, Peter. Let's say, in terms of the SST question, what is probably even more relevant is to look at the rate differential between dollar and Swiss franc, I mean that's where we have in the Swiss book, I would say, a bit more exposure than to the euro. I mean there is kind of a more, let's say, deep corporate market there. So I think it's not just to look at Swiss franc and euro but also dollar and Swiss francs.

In terms of the net investment income, we do not give a disclosure on Q3 and Q1. There will be a disclosure on the full year again. What I think I can say is we give guidance on the real estate fair value changes. That's what I meant. Before when I said, for the full year, we expect about CHF 1 billion negative fair value changes, this compares to the CHF 420-odd million that we had in half year. You may recall, we said that it will double for the full year or even more so. Now we expect that we see about CHF 1 billion negative fair value changes.

And probably the other element of the net investment income is clearly the hedging costs. We talked about that on many occasions there, I would say, for 2023, we also expect about hedging cost of CHF 1 million -- billion, sorry. Maybe that's on the net investment income and maybe a word as to why we do not provide that break. And as we talked about half year, the prior year is not on a comparable basis. The prior year was based on IFRS 17 and IFRS -- IAS 39. So the investment income in 2022 was based on different reporting standards than what we will disclose this year.

Now the outlook on the real estate market. I mean I said there is this dependence on the normalization of the market. And I would say, yes, we clearly have some visibility but it remains an assumption. But we are, as I said, confident to reach the fee result of CHF 850 million to CHF 900 million, albeit, as I said, at the lower end of the range. And as I said in the previous yields are attractive from -- on real estate. I mean those are inflation adjusted yields that you can achieve with real estate. And compared to, let's say, in Germany bond yields that are on an inflation-adjusted basis, somewhere between, let's say, 0 and 1 percentage points, real estate offers inflation-adjusted yields.

And I think that's something that is known in the market and once, and I think that's important. There is visibility on the interest rate development. And we believe that the increase by the Central Bank has come to an end. Once investors have this kind of certainty in quotes and visibility on the further interest rate development, demand's will pick up. So I think that gives hopefully a bit of color for those assumptions.

[Operator]

The next question comes from the Thomas Bateman from Berenberg.

[Thomas Bateman, analyst]

Could you outline your expectations in a little bit more detail for both the German and Swiss real estate market. And maybe just highlight what you think matters in both of those markets. So I'm thinking about residential and commercial pricing, rental income and also the number of transactions.

And the second question is just on the International segment. I guess premiums would [indiscernible] year-on-year in the quarter, and I think that we had already consolidated elipsLife last year. So I was just wondering what was driving that. And could you give a little bit of color on potentially the slowdown you're seeing in -- for the IFAs you have in your International segment? That would be really helpful.

[Matthias Aellig, executive]

Let me start with the question about International. As you say, we have seen kind of a reduction within International and premiums in the private wealth sector. There, we typically have some big ticks as we had in 2022, we didn't have them in the third quarter of 2023. So that's kind of explaining a bit the premium development in the International segment.

I think what is important to stress when it comes to premiums in International is that overall, we had a significant increase as reported -- and not all of that, but the largest part relates to the elipsLife acquisition, but also if we kind of forget about, if we adjust for elipsLife, the acquisition, we also had a growth in the premium specifically in the employee benefits area. There was a kind of growth outside the private wealth business.

Now in terms of fee development, let me give some color in the different kind of lines, as I said, in the employee benefit we had this growth. In the private wealth business, we had lower assets under control, which also translates into a lower fee income. And in the IFAs, we have a franchise in the U.K. where we specifically were hit by the lower FX report. They earn in pound sterling, they report in Euro. That was a negative and some of the income drivers in the U.K. are clearly AUM driven, where we were affected clearly by the AUM development and in the CE businesses we had, for a long time strong mortgage business, which is now, let's say, suffering from the higher rates. So the activity there has come down clearly for the points mentioned.

Now in terms of the question on kind of the real estate outlook, Switzerland and Germany. Starting with Switzerland, I think what is key to say is we have a very solid residential sector. We clearly have increase in rental income. You know that's the reference rate that we talked about before. The first one -- the first increase of that reference rate took place this year, there will be a second one expected for December. And every time we can apply a rental increase to a certain portion of our residential book.

The first increase was about half, a bit more than half of our residential buildings. Next increase will already lead to a rental increase of 3/4 essential of our book. And that's really helping us on the income side. And demand, that's the thing. Despite those rental increase demand is still strong and still strong. Why is that? We have a huge net immigration into Switzerland. We have a rather low supply of new, let's say, residential building.

So I think that's really what is driving the residential market in terms of commercial and I'm talking about here office, we clearly see solid development of rents. We have one huge building now being in 2024 for the entire year in the portfolio. You know that this -- we call that [ Bromhof ]. That's a huge building in Bromhofstrasse. We have, as I said, good development of vacancies.

Overall, we have come down from 4% at the year-end '22 to down 3% as we expect for the full year '23 -- or for year-end '23. And continued high demand for offices and at what we see people want to work in the office that they sense that they are more productive.

So that's to give some color on the Swiss real estate now in terms of the German situation, we clearly see a good development there. And there for us, it's more commercial on the rent side. As I said, there is this pickup versus the inflation adjusted bond yield. And what we also see is that construction activity has come down. So this will really be an additional benefit going forward for the office market.

[Operator]

The next question comes from Nasib Ahmed from UBS.

[Nasib Ahmed, analyst]

First two on real estate. On the TPAM nonrecurring income, you've provided a 20% guidance for the full year. We've only got 2 months left until '23. So I guess the question is, given that you probably see the pipeline for projects, are you -- how certain are you in the 20%. Of course, it has come down from 25%, but that was set a little bit earlier in the year.

And then second question on the real estate revaluation of 1 billion for this year. How much of that is in the non-BFA/BBA business according to your expectations for full year? And then final question is nonreal estate related. It's a little bit technical. On the BVG question, at the minimum rate, the 1.25%, I think you take the 10% for shareholders from the growth number. So that is, I think, the reason why you're saying it's not -- it doesn't impact economically. But on the reserves, do you need to increase the reserves because the mandatory rate has gone up? And does that mean that you've got less reserve releases to come through in the future? Or is that not the case?

[Matthias Aellig, executive]

Thank you for the question. Let me start with the last one on the BVG. The 10%, that's the maximum share we can take on the [ gross legal quote ] on a turnover number. That's what it is. On your question on the reserves, the 1.25%, they relate to what we call the mandatory old-age savings part. And the savings part is more like a bank account where you have an account value and you either credit 1% or 1.25%. That's a minimum. So there's no prospective thing, there's no reserve calculation. No, it doesn't affect the reserve releases at all.

Let me nevertheless remind you that would drive the additional cash remittance, the structural enhanced cash remittance or the reserve releases in the Swiss individual business. In the BVG business, the reserve releases take place within the policyholder's fear. So it doesn't affect the reserves, but it wouldn't have affected the shareholder anyway.

Now to the second question, the real estate fair value change. As you know, we said it's about a negative CHF 1 billion for the full year, as we expect. That's roughly speaking, on a real estate portfolio of around about CHF 40 billion. And out of this CHF 40 billion, CHF 5 billion are outside VFA business. Now what is relevant in the context is, in these CHF 5 billion, is maybe half of that, a bit more than half is Swiss real estate. And the remaining part is non-Swiss real estate. So that's a bit more geared on the non-VFA business towards non-Swiss real estate will give you that color as well.

Now the first question, you asked the 20% nonrecurring income. As you said, we have 2 months to go. We are quite confident that we -- it's the nature of nonrecurring business that is locked in once everything is signed, sealed and delivered, but we're quite confident. Let me remind you what is the driver of the update on this guidance. It's an expected write-down on a proptech investment that Swiss Life Asset Management has undertaken and also bit to the lower FX that we expect.

[Nasib Ahmed, analyst]

Perfect. Can I just ask one more follow-up on the CHF 1 billion. How much of that do you expect to be non-Swiss? I guess, majority of the CHF 1 billion negative is non-Swiss revaluations.

[Matthias Aellig, executive]

Look, we can go back to what we said in half year. If we look at the market, so Swiss real estate certainly is least affected there. Then it comes to Germany, and on a relative basis, France certainly most affected from those relative fair value changes.

[Operator]

The next question comes from Bhavin Rathod from HSBC.

[Bhavin Rathod, analyst]

Thank you for taking my question, so I have three. The first one would be on the fee income coming from France, we have seen some strong momentum again in the fee income generated in France, driven by the structured product. So could you just comment how should we think about this momentum going ahead into the fourth quarter and into 2024?

The second one would be, again, on the real estate. The share of nonrecurring income has obviously been revised down to 20%. Matthias, you could just comment how should we again think about that going into next year? Obviously, the guidance was 25, 75 pit. Are you comfortable with the guidance going into 2024? And the last one would be on your real estate exposure or real estate portfolio. Given what we have seen in the market, are you are you confident with your real estate exposure? Or are you trying to revisit your asset mix in the real estate part. That would be my question.

[Matthias Aellig, executive]

Thank you for your questions. I also start with the last question. On the real estate portfolio, we are absolutely comfortable with our real estate portfolio. We have a high quality of both location, building and also tenants. So I think we have a very good portfolio here. I think what's also important to recall is that we hold the real estate portfolio because of the rental income, the stable rental income it provides. We don't hold it for fair value changes. So from the characteristic, we really think it's an attractive asset class. So we are absolutely comfortable to hold that real estate portfolio because it's part of the matching, the ALM matching that we undertake.

And just -- to give you an example, I mean, we have sometime situations where we dispose of real estate objects for various reasons because it doesn't fit the strategy anymore. And it happens this year or in this quarter that we sell something above the carry value. So I think you see there is demand here, and we also optimized the portfolio. But as said, we feel very comfortable with the portfolio we have.

And besides kind of optimizations, we do not intend to change the asset allocation. When we had relative changes, this was driven because, let's say, the rates have gone up and the relative share of fixed income has changed. And there, clearly, we will see, depending on the rate development changes of the relative asset allocation here going forward.

Now the second question guidance of nonrecurring income for 2024. At the last Investor Day, we said kind of the guidance of around 25%. We gave back in December or November 2021, this guidance assuming normal real estate markets and as we -- as I said, expected normalization for the real estate market in 2024 is around 25%, I think, are a good indication for next year.

Now in terms of the first question on the structured product in the French business unit. I think we are on a very good track. There is clearly a situation where we have these structured products as part of our unit-linked proposition. I think we are well positioned there within our client base, not all of our clients have this kind of structure products, maybe 1/3. So we clearly expect for this year a continuation of the trend, but on 2024, it may be that these extraordinary high levels of activity that they may come down.

[Operator]

[Operator Instructions]

The next question comes from René Locher from KBW.

[René Locher, analyst]

Yes. So just a clarification. I want to make sure that I understand correctly. You also gave guidance for real estate revaluation losses in 2024 is 0.5% to 1%. Is that right?

[Matthias Aellig, executive]

Yes, that's right. We said that some of this weakness that we experienced this year, will leak into 2024, and we said the negative 0.5 percentage point to maybe negative 4 percentage point, that's for the full year 2024.

[René Locher, analyst]

Okay, fine. A little bit surprise to me because when I'm listening to listed real estate companies, I mean when this -- when rates are peaking, so the discount rate should not increase in the valuation model. I mean you have like projects like Bromhof. Do believe rates will go up substantially when you move the project, to the real estate portfolio, you will achieve revaluation gains. So from that, a little bit surprised to see this spillover effect. And the second question is on the return on equity, here again, just if I get it right, you mentioned that 2023 will be 1 percentage point above that 12.1% achieved in 2022.

[Matthias Aellig, executive]

Thank you, René. Maybe on the first point, first of all, the valuations are undertaken by an external valuation agent. And they do not look at the interest rates. They look at what happens in the transaction market and that there may be in the transaction market a lag effect, I mean, and that's the reason why this may happen next year -- that the spillover may happen into next year because for that very reason.

Now in terms of the ROE, yes, we said the 12.1% for full year 2022. They are based on IFRS 17/9. So on a comparable basis, that was full year 2022. We expect 1 percentage point uplift for full year 2023. And for 2024, we expect a clear improvement versus 2023.

[René Locher, analyst]

Okay. And again, if I got it right, in H1 '23, the ROE was at 15.8%, right?

[Matthias Aellig, executive]

Yes. Let me briefly check it in the booklet, but if you read off that the booklet, yes, that could also be this.

[Operator]

We have a follow-up question from Thomas Bateman from Berenberg.

[Thomas Bateman, analyst]

I was just asking -- I wanted to ask a little bit more on the details of the write-down. I couldn't work out if you're kind of implying a bit of a one-off in terms that there are broader pressures on the real estate market rather than the negative revelations. But how big was that specific write-down you were talking about? And also, was that in Q3, i.e., is it included in the SST ratio? Or would you expect that to be a headwind in Q4?

[Matthias Aellig, executive]

First of all, yes. That's a one-off. It's a one-off of about CHF 20 million that we expect for the fourth quarter. So it's not included in the SEC, but CHF 20 million compared to the risk-bearing capital of CHF 30-plus billion is obviously small point. Now what is important to say this CHF 20 million, they are both inter-occurring in PAM and TPAM in and it is -- I think that's an important thing. It's a complete write-down of that investment.

[Thomas Bateman, analyst]

Understood. So one full write-down, but relatively small in the context of the kind of total CHF 1 billion.

[Operator]

Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Mr. Aellig for closing remarks.

[Matthias Aellig, executive]

This brings us to the end of the call with a Save-the-Date for 2024, Swiss Life will host an Investor Day next year to disclose a new strategic and financial program. Investor Day is planned to be held on 3rd of December 2024. Thank you for listening and for your interest in Swiss Life and your questions. Have a nice day, and 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.