The year 2022 will not be that of the life insurance euro fund! While the Livret A rate will be 2% on August 1, few guaranteed capital funds will be able to follow this rise in rates. Will savers shun funds in euros to the point of putting insurers in difficulty? In this case, a blocking of withdrawals can be activated thanks to the Sapin 2 law. A credible scenario? Points of view of experts, in 3 questions.
1. How is this Sapin 2 block activated?
The Sapin 2 law, adopted in 2016, and very specifically its article 21 bis aims limit, suspend or delay redemptions (i.e. withdrawals) and installments on life insurance contracts for 3 months, a period renewable for an additional 3 months. This blocking or this temporary limitation cannot in any case exceed 6 months consecutive in total.
However, if investment in life insurance funds in euros is so appreciated by the French, it is in particular because it offers three commitments:
- the capital is guaranteed;
- each gain made over a year is definitively acquired by the saver;
- the saver can withdraw his savings, in whole or in part, at any time.
The threat of recourse to the Sapin 2 law calls into question the third major advantage of life insurance, its liquidity. This is why the best-known savings association Afer considered that this provision is economically unfounded, socially irresponsible and legally questionable. Faced with the current uncertainties, there is a renewed fear among some savers of seeing their withdrawals blocked for a fixed period.
But the law clearly indicates that only exceptional circumstances could justify such blocking. It would take a serious financial accident for the withdrawals to be blocked by the High Council for Financial Stability (HCSF), a body chaired by the Minister of the Economy.
Of course, zero risk does not exist
Of course, zero risk does not exist, says Stellane Cohen, president of Altaprofits. In the event of an exceptional situation, the HCSF will have the possibility of imposing certain measures. But we are not currently in a serious situation for the stability of the financial system which would explain why the HCSF triggered the Sapin 2 law.
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2. The unfounded fear of a massive takeover?
Savers diversify their investment vehicles within their life insurance policy and this diversification is the best response to a temptation to buy back their life insurance policies on a massive scale, continues Stellane Cohen. A vision shared by Philippe Crevel, director of the Cercle de l’pargne: For the moment there is no risk beginning. We don’t see no mass outings. We are collecting [pour l’ensemble de l’assurance vie, surtout grce aux units de compte, sans garantie en capital, mais dont le rendement est potentiellement meilleur NDLR]. There are no clues that would suggest that there is a problem in the life insurance market.
No clues that would suggest there is a problem
Based on the latest figures from France Assureurs concerning life insurance, we cannot say that there are warning signs. Net life insurance inflows (payments – withdrawals) were positive in May and amounted to 1.9 billion euros, up 200 million euros over one year. At the same time, outstanding contracts reached 1847billion eurosan increase of 0.6% in 12 months.
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The share of contributions on unit-linked amounts 40% since the beginning of the year and payments on funds in euros are still the majority. The French, pushed by insurers, are diversifying their savings more and more but are not really abandoning guaranteed funds, the yields of which are falling year after year to reach 1.28% on average in 2021.
These investment vehicles consist for the most part of government and corporate bonds. And paradoxically, the rapid rise in their interest rates does not help. In this context, returns on guaranteed funds could reach 0.6 or even 0.5%, according to Stellane Cohen. But policyholders have been warned and the drop in yield is therefore not a surprise.
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3. Insurers more solvent than ever?
This is where their provisions take over. The insurance companies are reinforced for meet the capital guarantee and are stronger than before the financial crisis of 2008, adds Stellane Cohen. Regulators are pushing insurers to work on disaster scenarios to measure their financial strength.
Insurers are stronger than before the 2008 financial crisis
When interest rates rise, the value of bonds purchased during low interest rates falls. And this inevitably impacts the returns of funds in euros. However, to compensate for these fluctuations, insurers have made substantial contributions to their PPB, ie the provision for profit-sharing, in recent years. This is a share of the fund’s financial profits in euros that the insurer does not pay directly to the savers. Placed in reserve, it must be returned to the savers within 8 years. This system allows smooth yields.
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According to the ACPR, the provision for profit sharing (PPB) achieved on average 5.4% of life insurance reserves (against 5.1% in 2020). This means that insurers would be able to deliver 2 years of earnings on euro funds at a rate of around 2%, just by tapping into these reserves of wealth.
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