French life insurance funds are showing signs of recovery, with average returns estimated at 2.65% as of . This marks a positive shift after a period of lower returns and comes as French savers increasingly favor life insurance over regulated savings accounts, according to recent data.
The total assets held in life insurance – encompassing both traditional ‘fonds euros’ and unit-linked investments – reached €2,107 billion at the end of , representing a 6.1% increase. Notably, net inflows into life insurance products exceeded €50 billion in , the highest level in fifteen years, signaling renewed confidence in the sector.
Guaranteed Returns and the Appeal of ‘Fonds Euros’
The ‘fonds euros’ – a type of life insurance fund offering guaranteed returns – remain particularly popular with French savers. These funds operate with a ‘cliquet’ mechanism, meaning that the annual return achieved is permanently locked in and cannot be lost. This guarantee is a key driver of their appeal, as approximately 80% of the fund’s portfolio is invested in bonds. The insurance company bears the financial risk, guaranteeing the principal amount to the policyholder.
While the average return is 2.65%, there is significant variation among insurers. Some mutual insurance companies are offering rates exceeding 3.50% or even 4% for .
Several factors contributed to the improved performance. The increase in yields on French government bonds (OATs) allowed insurers to generate higher returns. Some insurers successfully diversified their assets, investing in equities and real estate to boost overall performance.
“The results of life insurance inflows confirm the attractiveness and solidity of this long-term investment, which is open to all French people. This savings contributes every day to the financing of the French economy: it supports industry and the economic fabric as a whole and also participates in the financing of infrastructure and public health.” – Paul Esmein, Director General of France Assureurs.
Bonus Returns Tied to Unit-Linked Investments
However, the higher returns offered by some insurers often come with a condition: policyholders must diversify their life insurance contracts by allocating a portion of their savings to ‘unités de compte’ – investment funds or real estate holdings that do not offer capital guarantees.
For example, an insurer might offer a 0.20 to 0.50 percentage point increase in the ‘fonds euros’ return if the policyholder allocates at least 20% or 30% of their investment to units of account. This allows savers to benefit from potentially higher returns while still maintaining a portion of their investment in the guaranteed ‘fonds euros’.
While diversification can be beneficial over the long term, it also introduces risk. Policyholders could lose a portion of their capital invested in units of account. The guaranteed return only applies to the ‘fonds euros’ portion of the contract. However, the potential for higher long-term gains through investments in equities can offset this risk.
Growth in Retirement Savings Plans
Alongside life insurance, the French retirement savings plan (PER) is also experiencing growth. As of , 12.4 million people held a PER, with total assets of €136.1 billion. This reflects growing concerns among French citizens about preparing for retirement and the potential for reduced income during their later years.
The growth in both life insurance and PER plans underscores a broader trend of increased savings among French households. These savings contribute significantly to the financing of the French economy, supporting industry, infrastructure, and public services.
Global leveraged loan and high-yield bond issuance for amounted to $1.3 trillion, more than double the lows of two years prior in , and one of the highest years on record. (This data point, while not directly related to the French life insurance market, provides broader context on global financial activity.)
