A mandatory risk capital share in certain life insurance and PER contracts under management

The Green Industry Act establishes a mandatory part of private equity in PERs and life insurance contracts under managed management. This part depends on the risk profile chosen by the saver. The measure concerns all contracts entered into from 24 October 2024.

Overview:

• More unlisted assets in French savings: PER and life insurance
  

• The PERs in question are those in so-called “horizon” pilot control
  

• The mandatory minimum share of unlisted in life insurance contracts
  

• Professionals are wondering about the scope of this new measure
  

More unlisted assets in French savings: PER and life insurance

The Green Industry Law was promulgated on 23 October 2023. It aims to accelerate the re-industrialisation of France and its decarbonisation. To finance these investments, the text plans to direct part of household savings to finance SMEs and medium-sized enterprises (ETI). To do this, it introduces a mandatory minimum share of unlisted assets in PERs and life insurance contracts under managed management.

This obligation applies to all new individual PERs and life insurance contracts taken out from 24 October 2024. It also applies to renewed contracts. Collective PERs (PERCOs) subscribed to in business have a period to adapt. The minimum mandatory unlisted share must be reached by 30 June 2026 at the latest.

The PERs in question are those in so-called “horizon” pilot control

For PERs, the integration of unlisted assets concerns so-called horizon-driven management, i.e. the management method proposed by default when you subscribe. As with traditional mandate management, horizon-driven management includes several risk profiles. Its special feature is to ensure that the exposure to risk is reduced. As the saver’s retirement date approaches, risk appetite is reduced.

The law provides for holding a minimum share of unlisted assets. It adapts to the risk profile of the chosen mandate and evolves over time:

• For prudent profiles: the share of unlisted investments varies between 2% and 6% (6% up to 20 years before settlement of the plan, 4% up to 15 years and a maximum of 2% at 10 years from maturity).

• For balanced profiles: the minimum proportion of unlisted payments varies from 8% up to 20 years before the termination of the plan to 3% 5 years from retirement,

• For dynamic profiles, this rate is between 5% and 12%.

The mandatory minimum share of unlisted in life insurance contracts

When a saver takes out a life insurance contract, he can choose:

• Free management. In this case, he alone decides where to invest his money.

• Pilot management, also called management under mandate. He then chooses between three risk profiles: cautious, balanced or dynamic.

The new legislation only applies to savers in managed management and does not concern prudent profiles. This concerns the other two profiles:

• “Balanced” profiles with 30 to 50% risk-free assets. They must invest at least 4% in unlisted units of account (UA),

• “Dynamic” profiles with less than 20% of Euro funds. They must invest at least 8% in unlisted units of account (UA).

Professionals are wondering about the scope of this new measure

The Green Industry Act expands the list of beneficiaries for private equity. The unlisted part is integrated via shares in professional funds, especially Eltif approved funds. Eltif funds are alternative investment funds (AIF) that invest in targeted assets: the latter are to promote the financing of long-term investments in the real economy.

Some professionals fear that performance goals will not be met. According to a study published in May 2024 by France Invest, funds invested in unlisted funds open to individuals, launched between 2013 and 2023, returned an average of 6.2%, excluding envelope costs. In comparison, equity funds eligible for life insurance show a return of between 4.5% and 11% between 2018 and 2023, according to figures from France Assureurs. In addition, unlisted products are complex and risky, while listed equity funds have the advantage of being more liquid.

Doubts particularly concern the space given to so-called “evergreen” funds in insurance envelopes. These funds without a limited lifetime include a portion of liquid assets, generally up to 10 to 15%. This should facilitate the management of allocations over time. However, liquidity is synonymous with lower performance because this pocket is not invested.