The Potential Threat of the Sapin 2 Law on Your Life Insurance and the Economy

You have been hearing about the Sapin 2 law and its impact on your life insurance for seven years now.

Counterpoints thus warned as soon as the law was voted in 2016, under the pen of the economist Jean-Pierre Chevalier and many other authors. After several years of a theoretical threat, it is now becoming a real threat, possibly in the short term.

The Sapin 2 Law

But what does this Sapin 2 law already say?

Lawyer Gildas Robert sums it up like this :

“If the High Council for Financial Stability considers that we are in an exceptional situation, that we must protect the economy and the balance sheet of insurers, it can activate a mechanism to block withdrawals from 3 to 6 months. This would prevent everyone from getting their money back right away. »

The Sapin 2 law therefore makes it possible to prevent you from having access to your money for a period of several months. Nothing positive for a saver, especially in these moments of crisis when it can be applied, where you only want one thing, to recover your money as quickly as possible.

Like most laws (let’s be optimistic), it starts with a good intention, to manage a real risk, that of the bank run. Or more exactly here,insurance run : in the event of disruption on the financial markets, massive withdrawals by savers of the funds they have deposited in banks or insurers can create a devastating self-fulfilling effect for banks and insurers. This is, in essence, what accelerated the bankruptcy of Silicon Valley Bank in March 2023.

Applied to life insurance, too rapid withdrawals could force the sale of assets in a panic, by selling them off. Temporarily preventing savers from taking their money back is a way of giving banks and insurance companies the time they need to stabilize things, sell assets, etc.

Why would we be against measures which then make it possible to secure everyone and to fight against this supposed market failure ? We explain it to you at the end, but be careful, the danger of blocking is for him right away.

2023 or 2024, years of activation of Sapin 2?

Exactly one year ago now, the ECB started raising its interest rates significantly, and it has raised them seven times since then!

It’s unprecedented. For what ?

To fight against the inflation it has caused by years of low, even negative rates, and which economic activity and the war in Ukraine have reinforced. Livret A holders have appreciated the increase in yield, but the very strong and very rapid increase is also undermining large parts of finance, including bonds, the first component of your euro funds. While the livret A yields 3% or bonds can go up to more than 6% in return, no one wants these old government bonds held by insurers, which sometimes yield negative rates! Their value on the markets has therefore collapsed, and insurers are in a race against time to seek new funds, allowing them to buy new, more profitable bonds.

To make matters worse, insurers had tried to protect themselves by replacing part of their obligations with real estate funds. Badly took them, because with the rise in rates, the value of many of these funds (SCPI) collapses, sometimes more than bonds. So that the very serious AMF has officially warned of the serious dangers threatening the sector. Amundi, the market leader last week fell by up to 17% in the value of its shares, BNP did the same a little later, and further falls are expected. The very serious Agefi talk straight about “end of denial” on the collapse, which we should have suspected, of the value of these SCPIs.

So when euro 2023 fund rates come out (early 2024), we risk seeing who is naked among insurers… And seeing an increase in the flight of savers from euro funds to other investments, even secure ones, which are profitable more right now.

In 2022, more than 20 billion came out of euro funds, net.

And if it continues?

The catastrophic scenario, which insurers absolutely want to avoid, is finding themselves forced to sell their bonds or their real estate assets on the market and realize their losses, which are only latent at this stage. This catastrophic scenario is nothing other than what happened to Silicon Valley Bank, with the impacts that we know: impossibility of reimbursing everyone, and bankruptcy. The discount on these bonds can sometimes be counted in ten percent, imagine the impact if they had to be sold, with a snowball effect and panic among savers…

In an attempt to mitigate this real risk, insurers are doing their best to attract payments to their fund euros. But after years of pushing for migration to units of account, the speech became inaudible to savers. Brokers are therefore forced to offer more and more very attractive bonuses: promises of one-point increases in the euro fund rate for any new payment have become the norm. Some private banks offer a bonus of two performance points (and sometimes more) for any deposit of more than 500,000 euros on the bank’s euro funds, if you have these sums!

But not everyone will be able to pass on the mistigri, and some risk being stuck with their old obligations that don’t pay anything, or their SCPI discounted.

And on that day, you shouldn’t have the wrong euro fund when you’re saving, because it could be expensive to be the last…

An activation of the Sapin 2 law on this occasion would be possible, perhaps making it possible to limit the breakage a little, but above all by preventing you from accessing your money, with all the related stress! It’s up to you to see if you are gamblers, or on the contrary want to secure on other investments (for example on term accounts, which can yield more than 3.5%). The worst is not certain, but the moment of truth is very close.

Sapin 2, an unfair and unnecessary measure

Sapin 2 therefore risks depriving you of your savings in the short term. But why is this law useless or even bad?

Again, as it were Frederic Bastiat, there is “what we see and what we do not see”. This huge restriction on everyone’s right to dispose of their money is not lacking in perverse effects. By taking the place of savers in making informed choices, the State is already creating a dangerous moral hazard, and unnecessarily encourages risk-taking by insurers. While they know they have a high chance of being protected, they are encouraged to take more risk, and to mismanage your money.

A highly toxic, disempowering incentive, whereas a healthy approach would be to let insurers develop blocked, illiquid and more profitable pockets. SCPIs, for example, manage this by regulating liquidity in a contractual manner, and free to savers who can afford this blocking constraint to invest in the product.

Finally, these measures are only stopgap measures, which cannot protect bad actors from bankruptcy for long. To return to the same example, Sapin 2 could not have prevented the bankruptcy of a Silicon Valley Bank, which anyway had too much money stuck in assets that had lost a large part of their value. Sapin 2 would only have postponed the problem to three months later. The same is true for these bonds: if the loss of confidence is such that insurers have to sell their assets, it is already too late, Sapin 2 or not.

In the end, if we sum up, the State has created an inflation problem by artificially lowering rates, then tries to react by raising them massively. In doing so, he causes problems for insurers that he seriously endangers, and tries to finally correct all this with one more badly done Sapin 2 law. Did you say arsonist firefighter? It’s time to free the economy and return to a healthy pattern, with less state intervention…

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