Euro-denominated funds are experiencing a real surge in demand, acclaimed for their security despite historically low interest rates. However, in the current climate, insurers are having to rebalance their portfolios in favor of unit-linked policies. What is the market outlook to 2021? Zoom in on the 3 major challenges facing life insurance this year.
1. Coping with persistently low interest rates
At the start of 2021, insurers are not rushing to announce the 2020 rates of return for their secure euro funds. It has to be said that this performance is eroding every year. After an average rate net of management fees and before social security contributions of 1.8% in 2018, then 1.5% in 2019, we can expect a performance of 1.3% in 2020, according to the Fédération française de l'assurance (FFA).
For the time being, the lowest remunerations have been paid by :
- Crédit Agricole (0.65% on Predissime 9 série 2),
- Caisse d'Épargne (0.80% on Millevie Essentielle and Nuances 3D),
- Société Générale (0.75%),
- Groupama Gan Vie (0.90%), CNP with its CNP One contract (0.85%),
- Allianz (0.80%).
Today's market players are finding it increasingly difficult to earn a return on their customers' savings while guaranteeing their capital. As a result, savers are forced to take greater risks in order to obtain attractive returns.
2. Transforming traditional life insurance
Many insurers are looking to change the parameters of their euro-denominated life insurance contracts. In 2019, these contracts totaled 1,788 billion euros, up 6% year-on-year.
While euro funds are a big hit with the French, they are also costly for insurers, who are obliged to build up reserves to be able to return the full capital to policyholders. To reduce the amount of funds required, some insurers now reserve the right to deduct fees from the guaranteed capital. As the CLCV association recently pointed out, operators are gradually shifting from guaranteeing capital net of charges to guaranteeing capital gross of charges, a provision that must be clearly indicated to policyholders.
3. Promote new media
For the reasons outlined above, many insurers have decided to abandon euro funds in favor of unit-linked policies, which offer policyholders higher returns. These contracts are also more profitable for insurance companies, but do not come with a capital guarantee.
Some insurers, such as Swiss Life and Allianz, do not hesitate to offer yield bonuses or limit commissions to encourage investors to switch to unit-linked products. They also promote funds invested in real estate or with socially responsible investment labels.