Life insurance: why savers will get some of their returns back in 2022

The equation is not easy to solve for insurance companies. Long faced with the erosion of the euro life insurance fund’s returns linked to the low bond yields, they have for several months had to deal with an even more punishing phenomenon. Namely the increase – brutal – of these same courses. Good news at first glance for the performance of the guaranteed capital support of traditional life insurance (excluding pension savings, real estate and dynamic funds), limited to 1.08%* gross on average in 2021. But only at first glance. Because the weight of the previously subscribed bonds, especially last year when their rates reached a bottom (0.01% on average for the OAT, the 10-year bond of the French state), the Eurofunds will not see their remuneration increase very little. In fact, only one-eighth of the bonds in the portfolio are renewed on average each year.

High withdrawals from the Eurofund

Under these conditions, insurance companies can therefore only “run after” the rate increase without ever being able to achieve it. And so you say? Subscribers have now fully internalized the low returns of the Euro fund and are increasingly turning to units of account (UC), the riskier supports of life insurance, which are much more profitable. At the end of July 2022, the net contributions (payments – withdrawals and deaths) of unit-linked entities thus reached 23.4 billion euros, a record, as those of the Eurofund fell very deeply into the red with – 10.5 billion euros.

But these withdrawals could still increase in the coming months with increased competition from Livret A, and its net return of 2% since August 1, just over 1% for “classic” life insurance contracts, before social security contributions of 17.2%. “And the saver may well choose to immediately capture the new bond yields by taking out funds with bonds at maturity, which grow more and more,” adds Cyrille Chartier-Kastler, founder of independent insurance underwriter Good Value. for Money. The 10-year OAT rate, above 2.15% in early September, could thus have savers dangling far more attractive returns than their insurer’s Euro fund, especially as the corporate bonds that make up its divisions offer even higher coupons. Therefore, the risk of seeing redemptions on life insurance contracts is multiplied, forcing insurers to sell their least profitable bonds and record capital losses to reimburse the insured.

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“Insurance companies have no choice”

With this increased competition, insurance companies have no choice. They must deliver a course that is acceptable and understandable by the French in order to avoid a large outflow from the Eurofund”, writes Cyrille Chartier-Kastler.

But how ? For the expert, in addition to the quality of the insurance company’s management and the realization of any latent capital gains, whether in shares or real estate, there is a main solution. “The insurance companies will dig into the provision on profit sharing (PPB, editor’s note) issued”, he says. As a reminder, this PPB is nothing less than a portion of the return of the Eurofund, which is set aside each year by insurance companies to help them cope with lean times. A reserve which must be returned to savers no later than eight years after the provision… even if an insurance company has every opportunity to repay this “old” PPB and at the same time increase it by taking more from the returns of the Eurofund that it does not return to savers .

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A real war chest

And the least we can say is that these reserves have grown significantly over the past few years. Thus, on 31 December 2021 they reached a total of €70.6 billion, representing 5.05% of the total outstanding amount of euro funds. That’s almost five years of achievement.

A providential windfall that insurers should mobilize strongly in 2022, according to Cyrille Chartier-Kastler. The founder of Good Value for Money foresees a scenario where, unlike in 2021, when insurers had increased their PPB by 0.5 points of return on average, they would pay nothing. Quite the contrary, in fact, as they would deduct up to 0.4 performance points from it. In total, the expert estimates the boost to the Eurofund’s performance at 0.70%. Enough to increase the remuneration of the Eurofund towards 2%.

But who exactly will benefit from the repayment of the profit sharing provision? “Insurers will send a fairly significant signal on the contracts that they collect the most”, predicts Cyrille Chartier-Kastler, their aim is to collect as much as possible to take advantage of the interest rate rises by underwriting profitable bonds in the coming months. The holders of these “flagship contracts” will therefore fully benefit from this paradigm shift with rates that can exceed 2%. It is much more than at the moment.

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*Gross return of any taxes and social contributions of 17.2%.

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