Life insurance: unit-linked, a truly winning strategy?

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Published it 10 November 2022

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Written by Tommy Pierre Pollet

Thematic: Life insurance

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While the life insurance support that is the Eurofund has slipped for a few years, more and more savers are betting on unit-linked investments, investments that nevertheless pose a greater risk. A rather relevant investment strategy if we consider that the average annual return on units of account over 10 years has only fallen below 2.1% on two occasions.

Unit-linked units, life insurance’s eldorado?

In a report published at the end of October, the national association France Assureurs reveals that units of account (UC) were able to attract the attention of savers in 2022. Since January 39% of payments made on life insurance was made on these investment subsidiest.

Traditionally more profitable than euro fundscould the accounting units certify returns often above 5% and more rarely above 10% depending on the year. Here is the performance they have recorded during the last 10 annual exercises.

Year CPU performance
2012 10.2%
2013 7.4%
2014 5.1%
2015 3.3%
2016 2.1%
2017 5%
2018 -8.9%
2019 13.1%
2020 1.1%
2021 9.1%
Unit-linked performance from 2012 to 2021

Thus, it can be seen that if unit-linked entities could stand out as the true El Dorado of life insurance, their profitability is nonetheless messy. Sometimes it culminates, stagnates or drops off. As a reference, we can mention the years 2016 (+2.1%), 2018 (-8.9%) and 2020 (+1.1%), where their returns were very mixed. A decline that must be closely related to a specific French stock market index: CAC 40.

Billing units correlated strongly with the health of the CAC 40

Not surprisingly, it is not surprising to discover that Unit-linked performance is particularly associated with movements in the CAC 40. In fact, units of account represent a diversification of funds that integrate actionsof government bondsof AND F (exchange-traded fund) also called “trackers“, of securities like SCPI (civilian real estate investment companies) or investment associations such as FCP (mutual funds), UCITS (companies for collective investment in securities) and SICAV (investment companies with variable capital). Many of these funds are invested in 40 largest French market values : Renault, Michelin, Alstom, Danone, Vinci, LVMH, …

In 2012, when the CAC 40 rose to +15.2%, it thus led in its rise to the yield of units of account (+10.2%). Same assumption in 2019 and 2021, when the three-color stock market index rose to +26.4% (+13.1% for UC) and +28.9% (9.1%) respectively.

Conversely, when CAC 40 decreases, CPUs also decrease more moderately. This was the case in 2018, when the index fell to -11%, taking unit-linked remuneration in its wake (-8.9%). Or in 2020, when the index of the Parisian financial center fell to -7.7% against +1.1% for UC.

After a year 2021 with a very good vintage, The 2022 profitability of billing units does not reveal good omens. Due to galloping inflation in Europe and the ongoing war in Ukraine, the CAC 40 has already fallen -12% since the start of the year.

Should we bet everything on unit-linked supports?

Given their enticing but nevertheless erratic performance, as well as their correlation with the fluctuations of the CAC 40, is it recommended to bet mainly on units of account for your life insurance contract? It all depends on your risk appetite and your psychological ability to absorb market down cycles to get through them. If you pursue a very aggressive investment strategy and want strong results (by which we mean high returns), an all-unit-linked may be for you.

However, it is still advisable not to put all your eggs in one basket. For example, by supplying your life insurance witha certain percentage of the euro funds. As a reminder, this support rests on a bond base capital guaranteeI. This means that with euro funds you will not be able to lose money. Whereas unit-linked shares, which are not subject to investor protection rules and are subject to the vagaries of the stock market, could potentially cause you to lose the amounts you have invested in them in the event of a bad economic situation.

Thereby, Carefully mix the composition of your life insurance between units of account and Euro funds achieves a certain balance between risk-taking, safety and return.

In summary

  • Since the start of 2022, 39% of life insurance payouts have been made in units of account.
  • The average annual unit-linked return is not linear, but often exceeds 5%.
  • The good health of the accounting units is associated with CAC 40.
  • It is advisable to adopt an investment strategy that combines unit-linked and Euro funds in life insurance.

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Tommy Pierre Pollet

Finance manager

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