Posted on Dec 25 2020 at 12:07
Crédit Mutuel kicked off the announcements of returns for the highly prized traditional life insurance contracts. A few weeks ahead of its competitors, the mutual banking group announced in mid-December that it was leaving the rates of pay on its life insurance contracts “in euros” unchanged because of the crisis.
“ This decision supports savers and their purchasing power in the face of the Covid-19 crisis and its economic and social consequences ”, say Assurances du Crédit Mutuel (ACM). Their clients who have invested in these funds offering security, liquidity and tax advantages will therefore be able to count on a return of between 1% and 1.65% (including the potential compensation bonus).
Unprecedented dropout a year ago
This announcement does not however prejudge the announcements of competitors. Quite the contrary. In recent months, many market participants and observers have predicted a further decline in the yield of traditional life insurance – already at its lowest – given market conditions.
“The drop in return on euro funds should be of the same magnitude as that observed in 2019 ”, already underlined Cyrille Chartier-Kastler, head of the firm Facts & Figures in October, expecting returns between 1% and 1.10%. In 2019, the dropout had already been “ unprecedented “, According to the French insurance policeman, with an average rate of euro funds at 1.46%.
Yields have been eroding for years. But the crisis has worsened the situation. The support of central banks and states for the economy has pulled interest rates further down, into negative territory, and postponed any prospect of an upturn. This further complicates the financial equation for insurers, who are struggling to generate returns and see the cost in equity of the capital guarantee of the euro fund increase.
In view of the evolution of long-term interest rates, “ it will be difficult not to lower the performance of euro funds ”, notes Emmanuel Rodriguez, head of France for Raisin, a company offering to invest in term accounts. This expects yields to drop by 30% to 50% over one year, suggesting euro funds up to 0.75% net of fees. “There may be a psychological threshold at 1% that insurance companies will try to preserve”, he concedes.
Faced with low rates, insurers have sought in recent years to limit payments on life insurance contracts in euros, working on an adaptation of these investments and especially encouraged unit-linked contracts. Not offering any capital guarantee, and largely invested in equities, these contracts are more profitable for insurers and can also offer more returns to savers even if they are also more risky.
These trade policies are not unrelated to the sluggishness of the life insurance market, which has experienced strong net outflows since the start of the year.