Rising interest rates reshuffle life insurance cards

As announced since the end of 2021, market rates have started to rise again this year. While this situation offers many opportunities for savers and investors, it puts insurers and managers in a difficult position. In any case, this reversal gives new impetus to life contracts.

Banks and insurers have been asking themselves the same question for several months: should the remuneration of their life contract, especially the fund in euros, be increased to secure capital and retain savers? Institutions react differently to this dilemma. Some opt for caution and prefer to sell low-paying securities as they mature. Others are tempted to dip into their profit-sharing reserves to boost the return on their euro fund. In both cases, a strengthening of the performance of euro funds is almost inevitable in the coming months.

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Using Reserves to Boost Yields

For more than ten years, the managers oflife insurance set aside part of the profits on euro funds as profit-sharing provisions. These reserves are set up to deal with regulatory constraints and financial uncertainties. A rapid rise in interest rates is one of the reasons that may justify the use of this safety buffer.

These provisions are used precisely to guarantee a satisfactory return on life insurance on the investment of savers for a long period. However, not all insurers are in the same boat.

ImportantThe companies that have amassed the most reserves have more room for maneuver, according to the general manager of Société Générale Assurances.

These establishments could raise the yield of their euro funds to a level close to 2% of the Livret A.

For the other companies, the mission promises to be complicated. In fact, approximately 10% of the money invested in a euro fund is invested in the financial markets. However, European and global finance has experienced a difficult period since the beginning of the year. The Parisian index has thus lost 19% of its value since the beginning of the year. With such a result, it will be difficult to obtain a satisfactory performance to improve the return of the fund in euros.

Reinvest in more profitable bonds

On the other hand, experts expect insurers to give a positive signal regarding their euro funds. It must be recognized that for the past two years, managers have been tightening the conditions of access to these assets and prefer to steer their clients towards unit-linked units. The situation has not changed, even since the rise in rates. These restrictions become problematic, since they deprive insurers of a large amount of new money that they can invest elsewhere. Because of these blockages, establishments record more withdrawals than investments from their euro funds.

Without going so far as to remove this barrier, some insurers are beginning to sell low-yield bonds – even if they have not yet reached maturity – in order to replace them with better performing securities. However, most companies prefer to renew their portfolio at a normal pace: one-sixth and one-tenth of the bonds are reinvested each year in the market. The impact of these renewals will be gradual. In any case, analysts believe that we must wait until February-March 2023 to better understand the strategies implemented by each insurer.

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