The rise in interest rates is a subject of attention but not a reason for concern for the fund in euros of life insurance. This is the reassuring message now hammered home by professionals and supervisory authorities.
“The gradual increase in rates corresponds to the normalization of a situation that was problematic, that of a continuous reduction in rates for years to even reach negative levels. Today, the rise in interest rates will allow a relution of portfolios, i.e. an improvement in yield, which is in itself good news for policyholders, even if we remain very attentive to the pace of the rise. rates “recalled Franck Le Vallois, managing director of France Assureurs, when publishing life insurance figures for the month of May, which confirms “the continuation of the positive dynamic” for the favorite savings medium of the French.
Regime change
The life insurance fund in euros, whose capital is guaranteed, is mainly invested in bonds. Its yield, the rate served, has naturally melted with the fall in rates, to reach, on average, 1.3% in 2021. This has enabled life insurers to redirect collection towards units of account (UC), invested in more diversified assets (equities) but whose capital is not guaranteed. CUs now represent 40% of gross inflows in life insurance.
The portfolio of the fund in euros, however, turns quite quickly: each year, insurers reinvest around 20% of their bonds that come due, even if the situations can be very different from one insurer to another, depending on their management. financial. A gradual rise in interest rates therefore enables them to rebuild their general assets with a higher yield than in previous years. However, too rapid a rise in rates makes this transition period more delicate, with the risk of having to outsource unrealized capital losses in the event of massive surrenders by policyholders.
This extreme scenario has been ruled out for the moment: not only do long-term rates now seem to be capping (they have fallen significantly in recent days) in the face of recession expectations, but insurers are not seeing any acceleration in outflows from the euro fund, on the contrary . At the end of May, net outflow from the fund in euros reached 4.6 billion euros, compared to 6 billion over the first five months of 2021. Even a Livret A at 2% would not be such as to call into question the dynamics of life insurance, according to France Assureurs. Perhaps just an effort on the rate served on the fund in euros for 2022.
Capable of absorbing rate shocks
In our columns, Cyrille Chartier-Kastler, founder of the Good Value for Money site, and recognized insurance expert, is however worried. “The level of the 10-year OAT brings life insurance and more specifically funds in euros into the vigilance zone. To date, the lights are not (yet) red; they are blinking orange”, he writes, even proposing a ring-fencing solution for the fund in euros to avoid too large a gap between the return on the fund in euros and the return on the market. Faced with the continuation of a rapid rise in rates, “the crime would be to do nothing”, adds the expert.
This vision is shared neither by insurers nor by regulators.. “These proposals seem counterproductive to me because they generate concern where savers can be reassured”, reacts Franck Le Vallois. The latter recalls in passing the solidity of the sector.
“The solvency margin of life insurers is two and a half times greater than the regulatory minimum required and insurers have several levers to absorb rate shocks, such as the capitalization reserve and the provision for profit sharing (PPB, i.e. in average 5% of outstandings in 2021) which smoothes the rates paid”, explains the leader of the professional association. But, once again, the situations can vary greatly from one insurer to another, some in particular have favored the PPB more than others in recent years.
Regulators reassure
Last Monday, following a meeting of the High Council for Financial Stability (HCSF), whose mission is to prevent systematic risk, one of its members explained that “At this stage, the rise in rates, taking into account the level of solvency of insurers and the movements in asset allocation that we are observing, does not cause concern on the scale of the market”. A point of view also officially confirmed on Thursday by the Banque de France during the publication of its annual report on risk assessment.
But, recognizes the Banque de France in its report, if rates should continue to rise sharply, «insurers would find it difficult to keep up with this increase and offer customers upward-oriented returns in the same proportion due to the inertia of their portfolio”. No miracle therefore to be expected on euro funds in 2022, or even in 2023.
The danger then would be to see competition set in on savings with new players, as was the case in the 2000s with the “super savings accounts” which, at the time, incontestably reduced the collection of life insurance. Without causing massive takeovers. Life insurance remains a difficult liner to maneuver, but also to destabilize. It is even its main strength.