Helvetia Baloise Holding AG (HBAN) Earnings Call Transcript

Ladies and gentlemen, welcome to the full year results 2021 conference call and live webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Philipp Gmür, Group CEO. Please go ahead, sir.

Thank you. Ladies and gentlemen, welcome to our analyst conference call on the full year results of 2021. Within the next 30 minutes, we would like to give you detailed information on our business development and the key financials of the reporting period. Who is we? I welcome in this conference call, next to me, our CFO, Annelis Lüscher. She will go through the financial figures after my short introduction and overview. After Annelis' update on the financial figures, I then would like to give you an update on the implementation of our strategy, helvetia 20.25, and then, of course, open for a Q&A session. Let me now turn to Slide #4. The highlights at a glance. Helvetia can look back on a very successful year 2021. I would like to point out 3 highlights of the past year in particular. First, we are very pleased with Helvetia's strong profitable growth, the increase in profit and Caser's contribution to the result. Second, the second highlight is the proposed dividend increase of 10%. This gives our shareholders a dividend yield of 5.1% with a dividend of CHF 5.50 per share. Third, we have made a dynamic start to the new strategy period and are approaching our strategic ambitions. The unchanged positive development of Smile stands out here. Building on this development, we will scale Smile on a European level. I would also like to mention our sustainability strategy and a very good start of the strategy implementation in all different business segments. More on all that follows at the end of the presentation. Now I would like to hand over to our CFO, Annelis Lüscher, who will present you the key financial figures of 2021.

Ladies and gentlemen, I would also like to welcome you from my side. One year ago, when I presented the results for the first time, I just had the impression that Helvetia is a good company. Now 1 year later, I know it. Therefore, I am especially pleased to present you this year's -- or last year's figures as they are very good. Let's turn to the first page of the key figures. Helvetia Group looks back on a very successful business development in the past year. Our core business is in good shape, and we are well on track to reach our financial targets. The return on equity increased to 10.3% and lies well within our target range. This is based on a strong net income of CHF 520 million. These figures underline the strong and profitable growth Helvetia achieved in its core insurance business as well as with the generated fee income. Business volume increased by 15% in original currency to more than CHF 11 billion while fee and commission income grew by more than 50% to CHF 354 million. At the same time, technical profitability of both our non-life and life business developed very solidly. Despite an exceptionally high claims burden from natural catastrophes, the net combined ratio in non-life remained on a good level at 94.8%, demonstrating the portfolio of strong resilience. In life business, the new business margin was nearly stable at 2.5%, well within our target range. On the second page of the key figures we are now. Helvetia has not only strong results, but they are also built on a strong foundation. Helvetia made significant progress on operational efficiency, capitalization and dividends. With regard to operational efficiency, the aim is to realize cost efficiencies of CHF 100 million by 2025. Helvetia has already achieved efficiencies of CHF 39 million in '21. This is equivalent to more than 1/3 of the 5-year target. Our capitalization remains at a strong level. This provides a valuable safety net in uncertain times. On the one hand, this is demonstrated by the financial strength rating of single A+, which has been upgraded by Standard & Poor's in September 2021. Our target rating of A has thus been exceeded. On the other hand, Helvetia's regulatory solvency stays at a very healthy level. We estimate our Swiss solvency test ratio to be above 240% as of 1st of January 2022. Based on our solid capitalization and the strong results, the Board of Directors proposes a substantial increase of the dividend per share of 10% to CHF 5.50. This reflects our successful business development as well as the strengthening of our earnings and dividend capacities through the Caser acquisition in 2020. By growing profitably, both organically and inorganically, Helvetia has built a strong basis to deliver future dividend growth. With this increase in dividends, Helvetia is on a reliable path to reach its target of cumulatively distributing dividends of more than CHF 1.5 billion by 2025. The next slide provides you with an overview of the net income after tax of the individual segments and business areas as well as its main drivers. Net income increased to CHF 520 million in 2021. This strong result is based on a solid technical development and excellent profit contribution of Caser in the amount of CHF 72 million. Both the net technical result in non-life and the margin after costs in life benefited from the quality of the portfolios and the contribution of Caser. They improved despite an exceptionally high impact from natural catastrophes in non-life and the nonrecurring positive one-off effect in the prior year in life. The large storms and floods in June and July caused net claims of CHF 126 million before taxes for the group. This has mainly impacted Switzerland and Germany. Favorable investment results supported the net income. In light of the recent market turbulence resulting from the war in Ukraine, please let me emphasize that our direct asset exposure to Russia and Ukraine is zero. Let's now look at the individual segments. Switzerland clearly increased its results. Compared to the previous year, Switzerland recorded a significantly higher result of CHF 419 million after 2020 had been affected by the pandemic. In Swiss non-life, the technical results proved very solid in view of elevated claims from natural catastrophes. Non-recurrence of COVID-19 losses in the prior year and the positive one-off effect attributable to an adjustment of reserves in the first half year had a partly compensating effect. On the cost side, realized efficiency gains had a positive impact. At the same time, strong growth of the B2B2C business led to an increase in acquisition costs. In the Swiss life business, the margin after costs remained on a very robust level despite the nonrecurring positive one-off effect in the risk result of the prior year. This is mainly attributable to a strong savings result due to further decreasing technical rates. The strong performance of the financial markets in 2021 mainly from equities and real estate supported the positive development of the life results in Switzerland. Also, Europe clearly increased its results. In the Europe segment, net income after tax increased to CHF 196 million. The development was positively influenced in both the life and non-life business areas by solid technical development, the first full year inclusion of Caser and stronger investment results. Caser contributed an excellent profit of CHF 72 million to the segment result. In non-life, the net technical results remained close to the previous year's level. Our profitable organic growth and the contribution of Caser compensated for a normalization of claims frequency. These have been reduced in individual lines of business in the prior year because of the lockdowns. The life business in Europe showed an increase in the margin after costs. The savings, risk and fee results all improved. This is attributable to strong growth of investment-linked products and the positive impact of Caser. Also, Specialty Markets clearly increased their results. The net income of the Specialty Markets segment amounted to CHF 62 million, a significant increase compared to 2020. The increase was driven by an improved technical development based on profitable growth and related economies of scale and the higher investment results due to well-performing equity markets. In the corporate segment, the net result of minus CHF 157 million was somewhat below the prior year. The decrease is primarily attributable to a negative currency impact from the liquidation of a known investment fund. And for the financing of Caser, we have issued a hybrid bond in June 2020. The financing cost increased as this bond is now recognized for a full year and not only for half year. Let me continue with our growth in business volume on the next slide. Helvetia was growing profitably in 2021 and achieved a total business volume of CHF 11.2 billion. This equates to a currency-adjusted increase of 15% over the previous year. The growth was driven by a remarkable organic increase in non-life and investment-linked life business as well as the first full year inclusion of Caser, which contributed around 60% to total growth. Almost 3/4 of Caser's business volume relates to non-life business. In Switzerland, Helvetia grew its business volume by 2.6% in original currency. Being a strong growth driver, the non-life business increased by 15.5% in original currency. This was attributable to the following 3 components: the traditional non-life business, the B2B2C business and Smile. With a broad-based growth rate of over 4% in the traditional non-life business, we significantly strengthened our market position in our profitable Swiss core business. With the growth in the B2B2C business, we have set a solid anchor in the new business area of embedded insurance. And remarkably, online insurer, Smile, increased its premium volume by 11.8% to CHF 111 million. In the life business in Switzerland, we recorded a very successful development of the investment-linked products in individual life. The growth in this line of business was over 17% in 2021. Business volume of group life decreased due to the market-wide trend of a shift from full insurance to semi-autonomous solutions. Business volume of the Europe segment grew by 31.5% in original currency driven by both organic growth and the first full year inclusion of Caser. In the non-life business of the Europe segment, Helvetia was able to grow by 4.4% organically. Growth was above market level in all countries and broad-based across lines of business. In life insurance in Europe, organic growth amounted to almost 12%. This increase was driven by remarkable growth rates with investment-linked business in all country markets. The business volume of the Specialty Markets segment also developed very positively. It grew by 12.6%. Besides the development of new lines of business in line with the strategy, Helvetia also benefited from favorable price effects, which accounted for around 1/3 of the growth in this segment. Helvetia is not only strengthening its core business through profitable growth in the insurance line of business, Helvetia also significantly increases its fee income. The group fee and commission income rose by 56% in original currency to CHF 354 million. A strong organic development of plus 13.2% in original currency was mainly driven by asset management fee income due to higher volume. Both new assets and the rise in market values contributed to this. In addition, Caser and its noninsurance businesses were a strong growth driver. Caser generated a fee volume of CHF 212 million in 2021. With this, we are moving to the next slide and the net combined ratio. The year 2021 was facing an elevated claims burden from natural catastrophes because of an exceptional number of large storms and floods in June and July 2021. Taking this into consideration, our net combined ratio proved to remain strong and very robust at 94.8%. The claims ratio only increased by 0.9 percentage points compared to the prior year, underlying the resilience of the portfolio. The development benefited from nonrecurrence of COVID-19 losses, which have impacted the prior year and the positive one-off effect in Switzerland in the first half year related to a periodic review of the level of reserves. In addition to this, Helvetia recognized the normalization of claims frequencies in individual lines of business after a reduction in the prior year during the lockdown period. The cost ratio, on the other hand, slightly improved by 0.1 percentage points. The administration cost ratio improved significantly. Our efficiency program and our profitable growth make their marks. This shows that we are well on track regarding our financial target and on cost efficiencies. The positive impact on the administration cost ratio more than offset an increase in the acquisition cost ratio. On the next slide, we will have a close look on the new business margin in life. The new business in the life business area developed well in 2021. Helvetia has increased the new business volume measured by the present value of new business premiums by a strong rate of 16.5%. Growth was driven by the Europe segment where each county market reported an increase. The main contributor was investment-linked business. Additionally, the inclusion of Caser had a positive effect on the volume of the new business as Caser has not yet been included in the 2020 figures. Growth of new business was profitable with the value of new business increasing by 10.6%. Accordingly, the new business margin remained close to the level of the prior year by 2.5% and thus, well within our target range of 2% to 3%. This slight decrease resulted from a minor negative effect of including Caser. It was partly compensated by improved cost assumptions, model changes and higher interest rate assumptions. On the next slide, I would like to give you an update in terms of our financial target on cost efficiencies. With our new strategy, helvetia 20.25, we have introduced a financial target of realizing cost efficiencies amounting to CHF 100 million by 2025. In the first year of working towards this target, we have already made good progress. Helvetia has realized efficiencies of CHF 39 million in 2021. All 3 segments, Switzerland, Europe and Specialty Markets, contributed to this success. About half of the efficiencies were realized in Switzerland. Europe and Specialty Markets each contributed about 1/4 to the total number. The realization of cost efficiencies in '21 was based on 2 main drivers: first, the efficiency program we have started as part of the strategy showed its effect; second, efficiency gains incurred as a result of the strong and profitable growth in non-life. Let's now have a look at the operating cash production we have generated in 2021. The operating cash production of CHF 322 million is another indicator of our successful business development in 2021. It was strong across all segments and business areas. Compared to the prior year, it slightly increased. Therefore, we were able to compensate for a one-off benefit in the prior year due to proceeds related to the launch of a third-party Swiss property fund. Life business, on the other hand, showed an increase which is mainly attributable to a positive development in Switzerland. Total operating cash production also includes a contribution from Caser in the amount of CHF 24 million, the same level as in the prior year. Our operating cash production is a strong basis for our dividend policy. It comfortably covers the recommended dividend distribution of CHF 292 million and, therefore, ensures a sustainable payout to shareholders in line with our dividend policy. Helvetia pursues a dividend policy of paying out sustainable dividends to its shareholders. That means that we aim for a yearly increase of the dividend per share or in exceptional years, such as 2020, to at least keep it stable on the level of the prior year. For 2021, Helvetia's Board of Directors will therefore propose a substantial increase of the dividend to CHF 5.50 per share. This 10% increase reflects a regular increase based on the successful business development in 2021, and it is based on the additional profit and dividend potential that we have acquired with Caser. Shareholders are now benefiting from this acquisition through an additional onetime raise of the dividend per share. This leads to an attractive dividend yield of 5.1%. Now let me conclude. 2021 was a very good year for Helvetia. Why? First, we have been able to grow our business profitably both through broad-based organic growth as well as through the successful contribution from Caser. Based on this, Helvetia generated a strong net income of CHF 520 million. Second point. At the same time, we kept our capitalization on an excellent level. This is underlined by the upgrade of our S&P rating to single A+ in September '21 and our strong regulatory solvency measured by the SST ratio, which is estimated to be above 240%. Third, the profitable growth and ongoing strong capitalization enabled us to increase the dividend per share by an attractive 10%. Shareholders does benefit from Helvetia's successful development in '21 and, in particular, the acquisition of Caser the year before. These 3 points made 2021 a success for Helvetia. On that note, I will now hand over to Philipp Gmür again.

Thank you, Annelis, for presenting the financial figures of the past financial year. A year ago, we presented the helvetia 20.25 strategy. In June 2021, we gave a more detailed insight into the new strategy at our Capital Markets Day. And this was followed by a first strategy update on the occasion of the half year results in September 2021. On the next slide, I will give you an overview of the current implementation status. Let us start on Slide #18. With the new strategy, we are pursuing the ambition to be best partner for financial security and setting standards in customer convenience and accessibility. In order to achieve this ambition, we have defined 4 different strategic priorities: we embrace customer convenience, we have the right offering, we grow profitably in our core business and we make use of new opportunities. This slide provides an overview of the most important achievements for each strategic priority. The first one, customer convenience. We are, for example, investing in automation and improved claims processes in all markets. In Austria, for instance, we acquired faircheck last year, which is the leader in the Austrian market for independent claims assessment. The right offering. Among other things, we are focusing strongly on SME business in all segments. Here, for example, we are building in Switzerland an ecosystem around Atlanto, a service platform which relieves SMEs of administrative tasks, such as financial accounting and the preparation of offers, order confirmations, delivery notes and invoices. Living customer convenience and providing the customers with the right offering leads to profitable growth. The last financial year's results have shown that we are very successful in this regard. Once again, I would like to emphasize the organic growth in all segments. The basis for this is, among other things, further cooperations and the use of sales capacities across all our sales channels. And fourth, we use new opportunities. The development of the partner business was very successful. With this so-called B2B2C business, we are taking a big step in customer access, which is part of our strategic ambition. We are present whenever insurance needs might arise. And with that, I would like to turn to Slide 19. For several years now, we have been able to report on the very pleasing development of Smile, the leading Swiss online insurer. This development continued. Last autumn, Smile launched a freemium offer. This allows noncustomers to experience Smile services as well. Smile established itself as a digital lifestyle brand and is, so to speak, the Netflix of insurance, significant growth of around 12% last year with unchanged good profitability. Smile has now over 165,000 customers in Switzerland. And that's why in line with our strategy, we want to make Smile a European unit. This is another step towards achieving our vision of being the best partner for financial security and setting standards in customer convenience and accessibility. We are also responding to the increasing importance of digital channels and business models. We will start in Austria this year. Now let us turn to Slide #20. How do we do that? With the European scaling of Smile, we are exploiting digital growth potential. The chosen approach builds on the very successful Swiss model, a profitable unit in Switzerland with a combined ratio of around 90%, a solid basis. A consistent customer experience is insured with a uniform front end across all markets. At the same time, however, Smile's European operations will be embedded in our local units. Among other things, this allows us to build on existing IT infrastructure which allows for cost-efficient scaling. There is no need to build our own expensive IT platform. Thus, we rely on the interaction of a service unit which takes care of the customer presence and the existing market units whose infrastructure can be used. As already mentioned, the start will be in Austria and Spain will follow next year. With this step, we are strengthening our equitable core business with a complementary business model. We are pursuing ambitious goals and working towards a #1 position in the Austrian online insurance market. And let me turn to Slide #21 and talking about sustainability. A year ago, we presented our purpose to you: life is full of risks and opportunities, and we are there when it matters. We also want to live up to this purpose in terms of sustainability. As a European financial services provider, Helvetia wants to contribute to the sustainable development of the economy and society. In doing so, Helvetia applies the concept of double materiality and focuses on priority areas that are relevant to its stakeholders and its industry. The Sustainability Strategy 20.25, therefore, focuses on 4 areas: the environment, the products, the investments and last, but not least, culture and governance. We have also set ourselves a clear goal in the area of sustainability. We want to improve our MSCI rating to at least A by the end of 2025. On Slide #22, you see that the implementation of the sustainability strategy is carried out along 6 broad topics that can be assigned to the 4 areas mentioned above. In the area of environment, we focus on limiting climate change and its consequences. In the area of products, the focus is on sustainable products and the integration of sustainability aspects into underwriting. In the area of investments, the focus is on the topic of responsible investing. Helvetia has the objective of achieving an attractive risk-adjusted return while, at the same time, benefiting society and the environment. Three topics are assigned to the culture and governance area. It is sustainability, culture and governance, sustainability risk management and responsible workplace. This implementation framework forms the basis for achieving our sustainability goal, namely improving our MSCI rating to at least A by 2025. This ambition is based on a solid foundation. The insurance business is long-term oriented. Therefore, acting sustainably is part of our DNA. That is why our sustainability strategy does not start with zero. As you can see in this overview, we have already achieved a lot over the past years. I would like to highlight the significant reduction of the CO2 footprint in the business activity. Since 2017, we have completely offset our CO2 emissions. First, sustainable products have already been launched, for instance, fund products in life insurance that invest sustainably. Signing the UN principles for responsible investments in 2020 and adopting a responsible investment strategy in 2021. And in Switzerland, that We Pay Fair certification confirms equal pay at Helvetia. We now want to continue consistently along the path we have chosen. Ladies and gentlemen, let me wrap up and give a short outlook. In summary, Helvetia achieved a strong performance last year both in terms of profitable growth as well as in the dividend and progress on our strategic ambitions. Based on the successful last year, the outlook remains ambitious. We want to continue our profitable growth. We are well on track to continue our current very attractive dividend policy. And we are very well positioned in our segments, Switzerland, Europe and Specialty Markets. With the scaling of Smile in our European units, we are further strengthening our core business. Helvetia is, therefore, making good progress towards achieving its financial targets and creating added value for all stakeholders. This brings us to the end of the presentation. Annelis and I would now be pleased to answer your questions. Thank you for your attention.

[Operator Instructions] The first question comes from the line of Simon Fössmeier with Vontobel.

Two questions, if I may. First is on life insurance. Life net profit is the highest in a number of years. And if you could help us maybe in kind of calculating what you think is the future run rate for net profit in life. And also, I was wondering how much of that profit increase comes from the new tariffs that you implemented in the BVG business? The second question relates to non-life. On the occasion of your Investor Day in summer last year, you pointed to a number of growth initiatives, two of which were reinsurance in Eastern Europe and one was aviation. And obviously, those areas look maybe a little bit less attractive than they did when you thought about your strategy plan. I was wondering if you see a delay or a change in your growth ambitions there. And if I may squeeze in a third question on Smile, if you see any substantial investment needs for the expansion there. That's it.

Thank you. So if I understood it correctly, there are three different questions. The first one deals with the future run rate of the life profit, the life business, how much of increase we see from new tariffs and so on. Then the second goes with the non-life change in growth ambitions, specifically in the active reinsurance business. And the third question deals with Smile. Let me start with the third question and then hand over to Annelis. Of course, Smile comes up with some investments. However, as we are calculating them, we think that they're very, very moderate. Why that? Unlike other competitors, we are not establishing a proprietary IT system in all different country markets. To the contrary, what we are exploiting across our country markets is the front-end system, which is the same for each and every country market, more or less, and then we are like combining the front-end system of Smile with the back-end systems in the different country markets. That helps us to be very fast so we have an advantage in terms of time to market. And it's very cost efficient because we have a still existing -- already existing basis of the different back-end systems in the various country markets. So we are calculating with quite moderate investments in Smile. Now for the question dealing with the active reinsurance, I hand over to Annelis.

Yes. Thank you. So when introducing the new strategy, we also confirm that we want to grow in the area of active reinsurance and also to grow this unit or this business unit. Why is this interesting? This is very interesting because we can profit from a diversification in the required risk capital by adding this active reinsurance business. That is, as you know, not possible for the direct investor or the shareholder to achieve this diversification benefit. I'm not sure if I did understand this right. You said something of Eastern Europe. It was never our strategy to grow active reinsurance in Eastern Europe, just to make that clear.

Okay. Understood. Yes.

We follow a strategy in different lines of business which we have gradually built up over the recent years and which we are continuing to building up in the area of liability, property, motor and engineering and also in biometric risks in active reinsurance. And we do that globally, that's correct. So in the U.S. and also in Europe and, to a smaller part, in Asia. And to come to the first question you had on life insurance, life -- the life result in 2021 benefited from different effects. The first one is a very good savings result. This was driven by the -- by various effects by the small -- lower technical rates, for example, and also some benefits from the interest rate site versus -- yes. And the fee result benefited from strong growth in investment-linked products, whereas the risk result is a bit smaller than in 2020. Maybe you remember in 2020, we had a special effect in the risk results due to a favorable effect on this result due to the change in tariffs in 2020. And the cost result remained more or less stable. When looking ahead to the next years, we are very comfortable with the new tariffs as they ensure profitable growth. The development of the life result will, of course, also depend on the interest rate levels. What do I mean by that? If we have -- if we continue to have low interest rate levels, then the classic life insurance product will not be very attractive as we can only give very low guarantees. However, if interest rates go up in the near future, then the traditional life products may become attractive again and will, of course, also influence our results.

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

If I could start on Slide 14, please, the non-life combined ratio components. And thank you very much for the underlying PYD disclosure, which was just helpful there. If I look at the current year claims ratio, last year, you said it was 55.3% ex COVID. So it's gone up by 1.6 percentage points. And I guess I was a little bit surprised on the increase because if I look at the half year, you showed a 3.5 percentage point improvement year-on-year. So it seems to suggest sort of quite a big deterioration in those two. Is that all due to the sort of post-COVID recovery and frequency that you mentioned? And if that is the case, then should we expect that sort of H2 run rate to continue? That was the first question. The second question is, if I look at the admin cost ratio there, it's come down 9.2% to 8.2%. If I apply those percentages to your premiums, it suggests that admin expenses only rose by CHF 20 million. But if I look in your annual report, they seem to be increasing by CHF 17 million. So I'm just trying to understand what's happening there. I was wondering if you could help on that front. And then maybe my third question. You mentioned the direct exposure to Russia, Ukraine being zero, essentially. Could you just sort of mention what risks do you see in terms of indirect exposure? And possibly one aspect there is the aviation that Simon just touched on and the aviation leasing. I'd be interested to hear what risks do you see there.

Okay, Peter. There are three questions. The first one deals with the run rate of the combined ratio, the second with the admin costs and the third one, Russia, Ukraine. I go ahead with the first question and then hand over to Annelis. There is no such guidance as to a run rate of the combined ratio, except the corridor of 92% to 94%, which is, of course, our hard target. As you mentioned, we have special effects in 2020 with COVID. And at the same time, of course, now in 2021, we had the biggest NatCats events ever in our book. However, the book is pretty resilient, which is reflected in a combined of 94.8%. So we could pretty much offset this NatCat events by a good portfolio, which is -- which comes up with a pleasing run rate. So our combined ratio targets remains unchanged between 92% and 94%. Now the other questions, Annelis, admin costs and Russia, Ukraine.

Yes. So I will first start with Russia and Ukraine. As concerns to direct exposure, we have said we have zero exposure towards Russia and Ukraine and also zero exposure to Belarus. On the passive side, we have some direct exposure in the low double-digit million of premium. What nature do these exposures have? Imagine, for example, a Swiss watch company who has stores all over the world, and which is insured by us, so which insures the stores by us and logically, such a company also has a store in Moscow, for example. So we have some smaller -- some small exposure -- nonrelevant exposure to Russia on the passive side. Now what concerns the indirect effects? One indirect effect would, of course, be the effect on the whole economy and the possible recession and therefore, a pressure on the financial markets. The other thing that we discussed and are looking at closely is inflation due to supply chain issues, due to shortages in certain materials coming -- and commodities coming out of Ukraine and Russia. Concerning the general market impact of this crisis, we have already, in January, adapted the hedging position on our equity portfolio. And on the inflation side, since last autumn, we have started to adapt the prices to increasing inflation in non-life in our various country markets. So we are, together with the very strong solvency position, well equipped for whatever turbulences may come. That was on Russia and Ukraine. And now regarding the admin cost ratio, there, it's important that we plan that the admin costs will reduce each year in the future. So we have a strong eye on the admin cost ratio, and I'm sure that we have -- can increase the profitability of the portfolio.

Okay. I mean my -- I guess my one specific area of interest was this -- the Russia, Ukraine or the general crisis of the aviation exposure. So...

Yes. Sorry. Yes. So sorry, I forgot that part of the question. We have no aviation leasing exposure and we have also no political risk exposure.

Great. That's very helpful. And on the admin cost ratio -- I mean, I guess my specific question was just trying to reconcile the slide with the annual report, but I can take that up with IRR, too, if that's easier.

Okay.

Yes. Yes. That might be helpful.

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

I have three, please. And first, if I look at Slide 56 on the SST ratio, I mean now you indicated that the rate grew down 240%. And if I you look at on next charts, it's saying it's in the -- possibly it's in the range of value would need to take a management actions or capital actions. Could you give some color on what's actions you have considered and any developments there? So my -- and my second question is on non-life growth and perhaps this is related to the first one, I guess. The growth was very strong in Switzerland than -- and also Specialty Markets in 2021. What's the level of growth you planned for '22? And maybe could you give a bit color on your -- I mean I don't know if this was already touched on about inflation and reserving. I guess my -- how much more have you -- in terms of your inflation, you have factored in your reserving actions versus maybe the level it was in 2020. And my third question is on expense ratio. So basically, you achieved a quite substantial amount of that efficiency program you set yourself for 2025. Would you consider to revise that target given now you have -- you're essentially ahead of plan?

Okay. Thanks. As I understood it, there are not only three but four questions, SST growth, inflation and expense ratio. Let me start with answering the question number two, growth, and then hand over to Annelis. We do not provide you with any growth guidance. However, you mentioned 2 larger, let's say, segments or business lines. The first one, Switzerland. In Switzerland, we are specifically growing in the bread-and-butter business. And this growth, of course, is on a rather reliable basis. Year-on-year, we are getting again and again a higher market share in Switzerland. And that remains, of course, our ambition. Talking about Specialty Markets, however, as you mentioned before, in Specialty Markets, we have to manage the cycles. And unlike the bread-and-butter business, we might come down with the volume or go up with the volume on a rather, let's say, more dynamic manner than in the bread-and-butter business. And given the uncertainties, for instance, around the Ukraine crisis and the war, we might have to manage the cycle proactively. There are no signals as of today, but we are ready to manage those cycles. And we are proving again and again that we are able to manage the cycle. For instance, have a look at the development in our France franchise. We came up with reducing our portfolio in France within the last 2 to 3 years. And in the meantime, we see a rather attractive rebound there. So it's really -- it's 2 different business areas we have to manage so far to the growth. Now Annelis, please, the SST question and then inflation and the expense ratio.

Yes. Sure. So the SST ratio as of the 1st of January '22 is higher than 240%. And given this high capitalization, one could ask the question, why are we not increasing or rerisking a little bit? However, we are convinced that in these uncertain times, it's wise to have a buffer which is large enough to just to be able to take up any market turbulence there is. So we are currently not derisking based on the high SST ratio, but we are revising and discussing that in a regular manner. Regarding inflation, we are active in different countries in Europe and Switzerland, and these different countries all have different inflation readings. Therefore, the answer to inflation is specific to each country. Also in the year of 2021, even though inflation increased towards the end of '21, the -- in the numbers, there is almost no effect of inflation in 2021. This may be different in the year 2022. Now all the countries took measures to adapt to the increasing of inflation in non-life. Meaning that prices were adapted either automatically as, for example, in Austria or very proactively as, for example, in Germany and Spain and also in Italy. Now on the asset side, we don't see inflation and interest rate increase as such a big topic, rather, we welcome it as our reinvestment rates will be higher with higher inflation. And just to recall, our duration gap is zero in the regulatory model and very small economically. Therefore, a change in interest rates is not affecting us at all regarding the solvency. And very importantly, it does also not impact cash generation as independent of the value of a bond, it still pays the same amount of coupons. Regarding the expense ratio, we are on very good track regarding our efficiency program where we have reached already over 1/3 of our target. We will not revise the target at each balance sheet date. But in 2023, we will report for the first time under IFRS 17 and 9. And there, we will anyway have to revise part of the targets and we will look at all targets for the summer of 2023.

Okay. Are there more questions?

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

Just coming back to the cost target a little bit. Obviously, you made such good progress. I'm just thinking about how we get to the CHF 100 million. Do we expect a similar level each year? Or is it kind of -- there's been a big jump in the first year. Yes, that's the first question. The second question, just on the SST ratio, it's clearly very, very strong, and I appreciate your comments on the additional. But could you give us some of the moving parts? So I'm thinking maybe benefit from interest rates and the benefit from the new credit risk module and also organic capital generation and the dividend, that would be really helpful. And again, just coming back to claims inflation. Could you maybe put your non-life market into three different buckets? So maybe one where you see no claims inflation at all; two, where you see pricing reacting to claims inflation; and maybe a third bucket, ones that you're concerned about. And fourth -- the fourth question, if I may? On life reserving, the extraordinary result was quite high in 2022, I think, driven by reserve strengthening there. Should we be worried about that CHF 450 million or so? I guess it was quite high. I wasn't expecting that as being such a large number given interest rates have gone up a little bit. Yes, any comments on that would be very helpful.

Thank you. So there's a whole bunch of questions which go to the CFO. It's about the efficiency target, how to get to the CHF 100 million, it's about the SST ratio benefiting in 2021, about the inflation and where do we see claims inflation and where -- or whether we should be worried because of the life reserve strengthening. Now Annelis, can you start, please?

Yes. I can. Sure. Sure. So on -- let me start with the SST ratio. There are similar -- no, there are different influence factors. As always, there is the market, there is model change and there is, of course, also our business development. One effect we had is, as you mentioned, it's the new credit risk model and others are the quite low credit spreads as of year-end and other effects. There is not really one dominating effect. It's really a collection of smaller effects. And as always, you will have the details on that in the BüFL, the name in English, I don't know, the stability report which will be published by the end of April. Then on the cost target, will you see similar level of cost efficiencies each year until 2025? Not quite each year, 4, 5 years. What the aim is to have a large part of these efficiencies realized in the first part of the strategy period in order then to be able to fully start already in the next strategy period. So we aim to have a lot of cost efficiencies, let's say, in the first 3 years of the strategy period and then to gain efficiencies also through profitable growth for the remaining 2 years until 2025. We have different efficiency initiatives in place, especially in Switzerland, and some of them do take longer to take effect and some are already taking or showing their effects now. Now regarding inflation and claims inflation, we mitigate claims inflation by adapting the prices of the premium prices of insurance in non-life in all our country markets. And it's a bit like a financial -- like if you would have a financial crisis. With everything happened very fast, we have a problem. But if things change slowly, then we are well adapted with our mitigating measures. What do I mean by that? If from one day to another, markets drop by 30% and stay at that level, then, of course, our asset side is impacted. At the same time, if from one day to another, inflation increase to 10% or 20% to be extreme, then of course, we have a problem on the claims inflation because then our policies are too cheap regarding the claims that then come in. However, if changes happen gradually, then we are well prepared for any claims inflation. Now your last question was on life, right?

Yes. On the reserve strengthening. I think it was CHF 450 million in the extraordinary result. Is that a number we should be worried about? Is that going to be borne by the shareholder? Or are there some other mechanisms at play here?