The fund’s yield in euros has been on a downward trend for years. But the rise in bond rates should make it possible to reverse the trend, starting this year. By Gilles Belloir, CEO of Placement-Direct.fr.
Who has never heard of the famous fund in euros of a life insurance contract? Guaranteed in capital at all times, it alone concentrates the majority of payments. Over the first seven months of the year, it attracted exactly 59% of contributions for an amount of 52.3 billion euros, according to France Assureur. This figure, which has certainly been falling for several years, greatly exceeds that of regulated savings accounts (22.2 billion euros for the Livret A and the LDDS), competitors whether we like it or not of the euro fund.
If the fund in euros retains the interest of savers and can claim the title of preferred financial investment of the French, its performance has however suffered in recent years. For example, it was on average only 1.30% in 2020 and 2021, net of contract management costs but before social security contributions of 17.2%.
2.70% for the 10-year OAT at the end of September
The rise in interest rates that we have observed since the beginning of the year completely changes the situation. For example, the French government 10-year OAT rate went from just over 0% at the start of the year to 2.70% at the end of September. A fund in euros, composed on average of approximately 80% bonds, according to the analysis of Good Value for Money (GVFM), of which 40% issued by States and 60% by companies, is automatically very sensitive to their evolution.
The insurance company, which most often carries the bond securities until they are reimbursed, uses the coupons to supply the return of the fund in euros. It is then quite mechanical, an increase in interest rates is favorable to new investments by insurers and will improve the return on their assets.
The saver will however have to be patient before the rise in the fund’s return in euros is significant, the time needed for the company to reconstitute a significant stock of more profitable bond securities. The erosion of yields has been very slow, it is likely that their progression will be just as slow.
Reserves to boost yield
Unless the insurance companies decide to give it a boost. For this they have a return reserve, called a provision for profit sharing (PPB). In recent years, life insurers have been far-sighted by significantly endowing this reserve. According to France Assureurs, at the end of 2020 it represented the equivalent of a 5.4% return. In other words, by taking over this reserve, insurers could, on average, improve the return on their funds in euros by more than 1% per year over the next five years.
With the return of inflation and the rise in regulated passbooks, it is likely that some insurance companies will decide to take the plunge in order to maintain the strong appeal of their contracts. The traditional period of announcing returns at the beginning of the year will, without a shadow of a doubt, be very interesting to follow. It should also restore the appetite of savers to compare the best life insurance contracts on the market.