The increases of all kinds were bloated in 2020: contamination with the virus, job seekers, companies in difficulty … However, there is one area where the decline of 2020 is in line with previous years, it is the redistribution rate of life insurance funds in euros! What mechanics does this phenomenon respond to and what is its impact? Focus …
The redistribution rate of life insurance funds in euros – iStock-tadamichi
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What is the euro insurance fund and how is its redistribution rate determined?
The euro fund is considered the most secure savings vehicle in life insurance because the capital invested by the investor is guaranteed by the insurer. The holder of such a contract cannot suffer losses and can recover his capital at any time. In addition, the euro fund generates interest every year. This interest is added to the capital, and in turn becomes a source of remuneration. Moreover, unlike the Livret A or the LDDS (Livret de développement durable et solidaire), the fund’s rate of return in euros is not determined by the State; it is subject to the performance of the financial assets that make up the fund. For all these reasons, it is a highly successful investment popular with the French (around 80% of outstandings placed in life insurance are invested in the euro fund). But his net remuneration is subject to specific rules: insurers are in fact obliged to redistribute 85% of the fund’s profits in euros, but they can previously take a “provision for participation in surplus” (PPE), which allows them to guard against potential risks, and to smooth remuneration. However, this reserve is not their property … Insurers are required to redistribute it to their clients within eight years of its creation. The annual redistribution rate therefore corresponds to the difference between the rate of return of the contract, and the rate of return actually served to the customer, once the PPE has been established. However, for several years now, insurers have been constantly increasing their PPE, while the average performance of fund yields has also experienced a regular decline (between 1.10 and 1.20% in 2020, according to the French Insurance Federation, against 1.50% in 2019 and 1.84% in 2018 …) The consequence of a declining rate of return and an increasing PPE is a redistribution rate at half mast!
However, there are disparities depending on the type of fund …
The rates of return indicated above are well specified as “average rates”. In reality, the return on each fund is subject to the performance of the financial assets that make it up, and therefore to the choices made by the manager of the contract. Likewise, the provision for profit sharing fluctuates. These two parameters lead to great heterogeneity in the results of each fund. We note, for example, that for several years, banks and traditional insurers have underperformed compared to online banks or savings associations …
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