Photo credit: 123RF
Net inflow of life insurance funds in euros was sharply negative in January 2023, at -€2.4 billion, the result of a “purchasing power” effect and a “Livret A” effect. Should we worry about the health of euro funds?
A “purchasing power” effect and a “passbook A” effect
In January 2023, life insurance premiums were up 1% compared to January 2022 (to 14.1 billion euros) according to the latest figures published by France Assureurs, a level they had not reached since. January 2006. While net inflows (contributions less withdrawals and death benefits) are positive overall (+€1.2 billion over the month), funds in euros and unit-linked vehicles are not housed in the same taught. Indeed, net inflows in units of account remain largely positive at +€3.6 billion, a level close to its record reached in January 2022. On the other hand, net inflows into the euro fund are largely negative at – 2.4 billion euros. Overall, net inflows in January 2023 are almost three times lower than in January 2022.
The outflow from the euro fund is partly explained by a “purchasing power” effect which leads some French people to dip into their savings to finance their needs and projects. But it can also be explained by a “Livret A” effect. The Livret A rate was raised to 3% on 1 February 2023, a level that life insurance euro funds are struggling to compete with: the average euro fund rate for 2022 is expected to reach around 2% (before taxation). Moreover, the net collection of the Livret A in January 2023 reached 9.27 billion euros, according to Caisse des Dépôts, a record for a month of January.
Should I be worried about funds in euros?
Funds in euros are made up of 80% bonds. With the fall in interest rates over the past ten years, insurers have bought bonds whose yields have continued to fall. With the sharp rise in interest rates in recent months, yields on newly issued bonds have also risen.
Outflows from the fund in euros may force insurers to sell the bonds in the portfolio. However, these have lost value since they are less profitable than recently issued bonds. Insurers who sell these bonds therefore suffer a capital loss.
At this stage and although the situation may change, there does not seem to be any reason to worry.
Insurers have set up “capitalization reserves”, the purpose of which is precisely to be able to amortize bond capital losses. In addition, insurers have regularly built up provisions: in 2021, insurers had on average the equivalent of 5.4% of return in reserve, according to the ACPR.
