|Net investment income|
|in EUR million||2017||2016|
|Ordinary investment income1||319.1||316.0||+5.5 %||635.1||+11.8 %||299.6||568.0|
|Result from participations in associated companies||4.4||1.3||+28.3 %||5.7||+242.2 %||1.0||1.7|
|Realised gains / losses||24.1||59.3||+64.9 %||83.4||+4.8 %||35.9||79.5|
|Appreciation2||10.9||12.2||-64.5 %||23.1||-52.0 %||34.3||48.1|
|Change in fair value of financial instruments3||10.9||-0.4||-103.6 %||10.6||-48.5 %||10.1||20.5|
|Investment expenses||27.6||28.0||+8.6 %||55.6||+6.0 %||25.8||52.5|
|Net investment income from assets under own management||320.0||336.0||+17.3 %||656.0||+15.3 %||286.5||569.2|
|Net investment income from funds
|72.9||50.5||-45.2 %||123.4||-29.7 %||92.1||175.6|
|Total investment income||392.9||386.5||+2.1 %||779.4||+4.6 %||378.5||744.8|
|1 Excluding expenses on funds withheld and contract deposits
2 Including depreciation / impairments on real estate
3 Portfolio at fair value through profit or loss and trading
The investment climate was relatively stable in the period under review despite the disquiet on numerous geopolitical and domestic policy fronts, although it was shaped by the continued low level of interest rates and further declines in risk premiums for corporate bonds. Comments made by ECB President Draghi at the end of the reporting period, which were widely perceived in the market as heralding a possible ending of the ECB’s support programme, prompted interest rate rises in our main currency areas. Overall, then, increases in yields for German government bonds were observed across all maturities, although the general level of interest rates remained very low. German government bonds are still being sold at negative returns well into the medium maturities. In the case of US Treasuries, a modest inversion of the yield curve could be observed overall against a backdrop of yield declines in the medium and longer-maturity segments.
Credit spreads on European and US corporate bonds were broadly stable across most rating classes. Changes mainly took the form of further declines in a few specific rating classes. Risk premiums thus remained stubbornly on a low level overall. All in all, the various opposing effects virtually cancelled each other out, as a consequence of which the unrealised gains on our fixed-income securities were largely unchanged as at 30 June 2017 in an amount of EUR 1,079.7 million (EUR 1,098.1 million). Our portfolio of assets under own management contracted to EUR 40.4 billion (31 December 2016: EUR 41.8 billion), driven primarily by exchange rate effects – with the strengthening of the euro against the US dollar particularly evident here – and the dividend distribution.
We adjusted the allocation of our assets to the individual classes of securities in the first half-year merely in the context of regular portfolio maintenance. In addition, we acted on market opportunities for our US real estate portfolio, purchasing and selling office premises. The modified duration of our portfolio of fixed-income securities changed only negligibly relative to the previous year to stand at 4.9 (5.0).
Ordinary investment income excluding interest on funds withheld and contract deposits totalled EUR 635.1 million as at 30 June 2017, a figure significantly higher than in the previous year’s period (EUR 568.0 million). Particularly bearing in mind the continued low interest rate level, it is very pleasing that we have been able to more than offset the diminished return on our fixed-income securities with income – in part non-recurring – from private equity and real estate. Interest on funds withheld and contract deposits declined to EUR 123.4 million (EUR 175.6 million).
Impairments of altogether just EUR 23.1 million (EUR 48.1 million) were taken. Of this, EUR 2.2 million (EUR 8.6 million) was attributable to alternative investments; an impairment loss of EUR 3.7 million had to be recognised on equities (EUR 24.8 million). No impairments (EUR 0.7 million) were taken on fixed-income securities. Scheduled depreciation on directly held real estate increased slightly to EUR 15.0 million (EUR 14.0 million), a reflection of our sustained growing involvement in this area. The write-downs were not opposed by any write-ups (EUR 0.0 million).
The net balance of gains realised on disposals stood at EUR 83.4 million (EUR 79.5 million) and can be attributed principally to regrouping activities as part of regular portfolio maintenance.
We recognise a derivative for the credit risk associated with special life reinsurance treaties (ModCo) under which securities deposits are held by cedants for our account; the performance of this derivative in the period under review gave rise to unrealised gains of EUR 3.3 million (-EUR 1.6 million) recognised in investment income. In economic terms we assume a neutral development for this item over time, and hence the volatility that can occur in specific quarters has no implications for the actual business development. Altogether, the unrealised gains in our assets recognised at fair value through profit or loss amounted to EUR 10.6 million. This contrasted with unrealised gains of EUR 20.5 million in the corresponding period of the previous year.
Despite the diminished return on our fixed-income securities and lower realised gains, stronger ordinary income from real estate and private equity enabled us to generate gratifying investment income of EUR 779.4 million that surpassed the level of the previous year’s period (EUR 744.8 million). Income from assets under own management accounted for EUR 656.0 million (EUR 569.2 million), producing an annualised average return of 3.2%. This is significantly higher than our anticipated return of more than 2.7%.