Life insurance remains the undisputed favorite investment of the French. Savers hold 1,400 billion euros in their policies, compared with an average of 440 billion euros for Livret A and LDD passbook savings accounts. Every year, insurers are eagerly awaited to announce their rates of return.
Bad news for savers. Life insurance is continuing its historic plunge, and yields are set to fall this year to between 1% and 1.10%. Facts & Figures expects yields to stabilize at a low level within 2 to 3 years.
Between 1 and 1.10% net of management fees
This year, according to Facts & Figures forecasts, the average rate should be between 1 and 1.10% net of management fees, compared with 1.33% in 2019. Last year, several insurance companies, including Swiss Life and Generali, surprised investors by announcing a yield of just 1% on their euro funds. Today, interest rates on French public debt are negative, which is not conducive to an upturn in yields.
Yields expected to stabilize within 2 to 3 years
Facts & Figures predicts that yields will continue to fall over the next few years, but only to a limited extent. " We're heading for a landing of the rate served on a floor of 0.5% to 0.7% in the next two to three years ", estimates Cyrille Chartier-Kastler, founder of the firm, in the newspaper Les Echos. According to the expert, the system allowing insurers to benefit from less stringent calculation rules to determine their solvency ratio could cushion this trend.
As a reminder, on December 24, 2019, Bercy signed an order authorizing insurance companies to take into account the surplus sharing provision (PPE) in calculating their solvency ratio in the event of technical losses over the last accounting period and failure to cover the required solvency capital. This measure is designed to breathe new life into these players.
Protecting euro funds
Faced with negative interest rates, insurers are trying to preserve their euro funds by encouraging their customers to invest a minimum proportion of their savings in unit-linked products. These investment vehicles offer a higher potential return over the medium term than the euro funds, but the capital is not guaranteed.
What's more, most insurers are switching their contracts from a "net of fees" capital guarantee to a "gross of fees" guarantee. In other words, capital is no longer fully guaranteed if management fees exceed the gross yield of the euro fund. Some go even further, guaranteeing only 96% of capital.