Will the return on euro funds increase with rising interest rates?

Life insurance shows its strength over the first four months of 2022, with a net collection (deposits, minus withdrawals) of € 10.5 billion – “Highest level since 2011”, according to France insurers. Another reason for satisfaction for the profession: the part paid on the units of account, the supports for which the capital is not guaranteed, is maintained at a high level, 40%.

Can this trend continue when financial markets have been falling since the beginning of the year? Historically, investors’ appetite for units of account, partly invested in the stock markets, is closely linked to the performance of the CAC 40.

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But insurers have set up safeguards. First, by diversifying the media offered in their contracts. “Unit of account does not necessarily mean equity fundsEric Rosenthal, Apicil Group’s Deputy General Manager of Savings and Finance, points out. The latter represent us, for example, in our network Gresham banque privée, which 12% of the units of account. »

Real estate support is strongly developed in recent years in life insurance: civil real estate investment companies (SCPI), collective real estate investment agencies (OPCI) or civil real estate companies (SCI).

Better paid bonds

Insurers are also increasingly relying on delegated management, entrusted to a professional, to retain policyholders and prevent panic movements in the event of a stock market crash.

Another phenomenon has so far been in favor of units of account: the very low remuneration of euro funds in recent years. In 2021, the latter amounted to an average of 1.30%, according to France Assureurs (net of fees but gross of social security contributions and income tax). If the level was stable compared to 2020, it was not allowed to open inflation.

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Can the woman change for the remuneration of euro funds? What is certain is that the context in bond markets, where insurers make the bulk of their investments, has changed dramatically in recent months. The interest rates at which the bonds issued by states and companies are remunerated have increased more, the ten-year debt of the French state has thus gone from a remuneration close to zero by the end of 2021 to 1.50% May, according to the Banque de France.

This sharp rise in interest rates affects life insurance funds in euros, as almost 80% of their outstanding loans are made up of bonds. Companies can now buy securities better paid, which helps increase the overall return on their portfolio. “Since the beginning of 2022, we have been reinvesting in corporate bonds at a higher level than the average yield of our current portfolio in the segment.”says Guillaume Rosenwald, General Manager of MACSF Epargne Retraite.

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