Rates for regulated savings products such as Livret A will increase sharply from August 1. But what about life insurance?
The average return on money in euros reached 1.30% in 2021. For 10 years, their wages have been decreasing year by year. However, the money that savers put into these capital-secured funds is overwhelmingly invested in bonds, simply to borrow from states or corporations. The yield on bonds, particularly sovereign bonds (state debt), closely follows the development of Equivalent Treasury Bonds (OAT)Securities issued specifically for French debt.
In mid-May the 10-year OAT was 1.5% and on June 30 it was close 2%. The effect of OAT on the return of funds in EUR is certainly not immediate. However: With inflation rising, can we expect an increase in euro money yields? Yes, but it won’t be right away.
We can expect a higher yield within two years
The insurers didn’t expect such a rapid rate hike and instead imagined rates at 1% at the end of the year. There, it will be more than 3%. In an ideal model, we can hope to increase returns on euro funds within two years, explains economist Philippe Crevel, director of Cercle de l’pargne.
Livret A, PEL, life insurance… What investments have been boosted by higher interest rates?
A real risk of a life insurance market crash?
Beware of excessive optimism regarding the reward of life insurance … If rates rise, the value of the bonds in the portfolio falls sharply, and this upsets Philippe Crevel.
The risks posed by price increases will largely depend on their frequency. If rates rise sharply, insurers will find it difficult to follow that rally and offer clients upward returns in the same proportion due to stagnation in their portfolio, the Banque de France explains in its French Financial Risk Assessment System published in June.
On the other hand, a slow rise in prices would allow insurers to control risk, reinvest in more profitable assets when their old investments hit luck, and thus continue to fund reserves to share profits, the Banque de France continues. Providing Profit Sharing (PPB) makes it possible Smooth returns Euro funds: shock absorbers if interest rates are low or there are enough reserves to keep rising.
A PPB document that some insurance companies may be tempted to use to increase their rewards in euros for 2022. In fact, it will be in direct competition with risk-free but much more attractive regulated savings products. In fact, as of August 1, the Livret A rate should rise 1 to 2% net tax, and the people’s savings book rate can rise to 4.6%.
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The shadow of a huge acquisition
Philip Krevel explains that what could be dangerous is for insurance companies to leave their existing contracts to move toward more profitable contracts. Such as Life Insurance Transfer WindowThe economist adds, if it were large, it would plunge insurance companies into an area of financial difficulty.
But this scenario seems unlikely at the moment. The Cercle de l’Epargne director says the market is stable. In fact, net life insurance inflows (payments – withdrawals) were positive in May and amounted to 1.9 billion euros (+0.2 billion euros compared to May 2021). According to the latest figures from France Assureurs, contracts on hold were €1,847 billion at the end of May (+0.6% over one year).
In any case, if there is a threat to the equilibrium of the life insurance market, the Sabine Law 2 will make it possible to suspend contract redemptions for a period of three months, renewable for a period of three months.
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New money for better returns?
So that wage levels can keep track of current OAT drug rates, the new euro funds could see the light of day. In this case, the insurance companies will have to reconcile the portfolios with the new offers.
Life Insurance: The New Game-Changing Euro Funds
In the meantime, savers always have the option to switch to European Poll Funds, which only offer capital guarantees after a predetermined period (generally 8 years) but are supposed to offer better rewards. The Eurocroissance market is a niche market. Do we need to suggest eurocroissance funds more firmly, as we have suggested more firmly units of account? The question arises, thinks Philip Krevel. The economist insists on the advantages that these funds represent for insurance companies. Since Euro Growth Funds require an investment over ten years, it will enable them to manage their assets in the long term.
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