The returns on life insurance and more precisely on their flagship support, the euro fund, are crumbling a little more each year. After serving a net fee rate of 1.3% in 2020, on average, the star support for life insurance should approach 1% according to the analysis published this Wednesday by the firm Optimind.
The average net rate served on funds in euros stood at 1.30% at the end of 2020 against 1.46% a year earlier. This decline is expected to continue in 2021 and the average net rate approaching 1%, reducing the difference with the remuneration offered on the Livret A (0.5%). Here is, text, the anticipation delivered by Optimind, the occasion of the third edition of its Pillar 1 Solvency 2 study on individual savings in insurance.
The consulting firm, which specializes in particular in risk management, is developing its analysis: The fear of a rise in inflation [de 1,5% en juin 2021 selon l’Insee, NDLR] is increasingly present (…) In an inflationary environment, the real return on euro funds would weaken further, the image, again, of the Livret A, the rate of which is unlikely to exceed 0.5% in the short term despite the return of the rise in prices.
Could the Livret A rate rebound in August 2021 … or in February 2022?
With regard to the returns of life insurance funds in euros, Optimind does not anticipate no real short-term rebound: As for the rise in interest rates [des marchs financiers], this will depend on its size and speed: moderate, it would allow insurers to gradually improve the performance of their portfolios with more remunerating assets; brutal, it would perhaps be harmful if new market entrants or new funds appeared, to the detriment of older ones.
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In other words, in the event of a sharp rise in financial market rates (bond rates in particular), incumbent insurers would find it difficult to face competition from young players, if the latter launch new funds in euros by taking advantage of rising rates. Because the historical insurers will have to balance the mass of assets bought at very low rates in the portfolio of their funds in euros. Such a scenario would allow younger insurers to serve their policyholders much better returns … and would weaken the life insurance market according to Optimind.
UC funds at the party
Optimind, on the other hand, points to good news, from the point of view of insurers: savers are more and more willing to abandon the fund in euros in favor of units of account (UC), which are more risky but potentially more remunerative. Net inflows at the end of 2020 have shifted massively to UCs to the detriment of the euro fund, even though stock market values suffered during the second quarter from the correction linked to the health crisis. This phenomenon is new: in fact, historically, the share of funds invested in unit-linked funds tended to increase when financial markets rose, and conversely decline when market values fell.
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