4% in 2008, 2.50% in 2014 and only 1.30% last year, according to France Assureurs! The fund’s average return in euros on a life insurance policy has continued to fall in recent years. However, this trend was soon to reverse. The rise in interest rates, which took off during the year 2022, breathes new life into the French’s favorite safe investment.
3% for the 10-year OAT from the French government
For example, the French government’s 10-year OAT (Obligation assimilable du Trésor) went from a barely positive rate at the start of 2022 to 3% a year later. Even Germany, which is still considered the best signature in Europe, has seen its prices rise sharply around 2.50% at the moment. These levels are certainly not unprecedented, but they hadn’t been touched in a decade.
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A fund in euros, consisting on average of around 80% bonds, of which 40% issued by governments and 60% by companies, according to the analysis of Good Value for Money (GVFM), logically sees its return as very sensitive to this . development.
In fact, the insurance company, which normally carries the bond securities it holds directly until they are repaid, uses the coupons to deliver the fund’s returns in euros. Mechanically, an increase in interest rates is therefore favorable to insurance companies’ new investments and will improve the return on their assets.
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However, the saver must be patient before the increase in the fund’s return in euros is significant, the time it takes for the company to reconstruct a significant stock of more profitable bond securities. The erosion of yields has been very slow, it is likely that their rise will be equally slow.
Reserves to increase yield
Unless the insurance companies decide to give it a boost, starting this year. For this, they have a return reserve, called provision for profit sharing (PPB). In recent years, life insurance companies have been particularly far-sighted in adding significantly to this reserve at a time when bond yields were falling. According to the estimate of Good Value for Money, the companies had 71.4 billion euros in reserves at the end of 2021, which corresponds to a return of 4.87% compared to 1.43% in 2012.
In other words, by taking over this reserve, insurers can improve the return on their euro-denominated funds by almost 1% per year on average over the next five years.
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