will the return on your euro fund finally go up with the rise in interest rates?

The rates for regulated savings products such as the Livret A will increase sharply from 1 August. But what about life insurance?

The average return on funds in euros reached 1.30% in 2021. For 10 years, their remuneration has been decreasing year after year. However, the money placed by savers in these capital-guaranteed funds is overwhelmingly invested in bonds, simply to borrow from States or companies. The yield on bonds, and in particular that of sovereign bonds (State debts), closely follows the evolution of equivalent Treasury bonds (OAT)securities issued specifically for France’s debt.

In mid-May, the 10-year OAT rate was 1.5% and on June 30 it was around 2%. The impact of OATs on the return of funds in euros is certainly not immediate. Nevertheless: with the rise in these inflation-indexed rates, can we expect an increase in returns from funds in euros? Yes, but it won’t be right away.

We can expect a rise in yields within 2 years

Insurance companies had not expected such a rapid rise in rates and had instead imagined rates at 1% at the end of the year. There, it would be more like 3%. In an ideal model, we can hope for an increase in the yields of funds in euros within 2 years, explains the economist Philippe Crevel, director of the Cercle de l’pargne.

Livret A, PEL, life insurance… What are the investments boosted by the rise in rates?

A real risk of collapse of the life insurance market?

Beware of excessive optimism for the remuneration of life insurance… If rates soar, the value of the bonds in the portfolio drops sharply, tempers Philippe Crevel.

The risk represented by the rise in rates will largely depend on its pace. If rates were to rise sharply, insurers would find it difficult to follow this rise and offer customers upward yields in the same proportion due to the inertia of their portfolio, explains the Banque de France in its report on the evaluation of risks of the french financial system published in june.

A slower rise in rates would, on the other hand, allow insurers to control risk, to reinvest in more profitable assets when their old investments arrive lucky and thus to continue to fund the reserve for profit-sharing, continues the Banque de France. . The provision for profit-sharing (PPB) makes it possible to smooth yields funds in euros: absorb the shocks in the event of a fall in interest rates or have enough reserves to follow their rise.

A PPB that some insurers could be tempted to use to further remunerate their euro funds for the year 2022. Indeed, they will be in direct competition with risk-free but much more attractive regulated savings products. Indeed, from August 1, the rate of the Livret A should increase from 1 to 2% net of tax, and that of the People’s Savings Book could increase to 4.6%.

Life insurance: is your euro fund healthy?

save on fees and earn up to €500 thanks our comparison of life insurance

The shadow of a massive takeover

What would be dangerous is for the insurers to leave their current contracts to move towards more profitable contracts, explains Philippe Crevel. Such life insurance transfer windowif it were large, would plunge insurers into a zone of financial difficulty, adds the economist.

But this scenario seems unlikely for the moment. The market is stable, argues the director of Cercle de l’Epargne. Indeed, 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, outstanding contracts reached 1,847 billion euros 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 Sapin II law would make it possible to suspend redemptions of contracts for a period of three months, renewable for three months.

Life insurance: what guarantee in the event of bankruptcy of your insurer?

New funds to get better returns?

So that the levels of remuneration can follow the current rates of OATs, new funds in euros could see the light of day. In this case, insurers would have to juggle new portfolios and performances.

Life insurance: these new euro funds that change the game

In the meantime, savers always have the option of turning to eurocroissance funds, which only offer capital guarantees after a pre-determined period (generally 8 years) but which are supposed to offer better remuneration. The Eurocroissance market is a niche market. Do we need to propose eurocroissance funds a little more firmly, as we proposed more firmly the units of account? The question arises, believes Philippe Crevel. The economist insists on the advantages that these funds represent for insurers. Since euro growth funds require an investment over ten years, they would enable them to manage their assets over the longer term.

Compare the best life insurance offers

Leave a Comment