Fintechs favor ETFs in life insurance

What do life insurance and anti-aging remedies have in common? There is no miracle solution. The rise in interest rates and inflation will have been a shock for the entire economy. Although some do better than others.

Traditional life insurers were prepared for this: I have lived and operated in a continuous low interest rate environment for most of my career. It’s interesting to be able to experience a rise in rates,” laughed Stéphane Dedeyan, CEO of CNP Assurances, during an exchange with the National Association of Insurance Journalists in early September. Between the qualitative and quantitative requirements imposed by Solvency 2 and the repeated stress tests, nothing or almost nothing has been left to chance. But what about young life insurance distributors who have entered the market along the way?

Far from the traditional approach, fintechs quickly invaded the virtual world. And online, the only battle is on fees. Born in a context of low interest rates, many start-ups then turned to index funds and more particularly exchange-traded funds (AND F). During the summer of 2022, investors allocated 90.7 billion euros to ETFs, according to the latest figures published by Amundi AM. Inflows amounted to 44.1 billion euros in July and 46.6 billion in August. The majority of subscriptions came from the United States, ie 85.3 billion euros, while the trend was mixed in Europe with a net subscription of 2.2 billion in July and an outflow of 743 million in August.

“It’s an American model that has proven itself thanks in particular to a cost in terms of underlying seven to ten times cheaper than other products on the market”, explains Charlotte Thameur, consulting director at Yomoni. A significant asset in the world of digital savings. At Yomoni, the level of costs (all inclusive) of a life insurance contract – composed solely of ETFs – amounts to a maximum of 1.6%, including the costs of the underlyings. For Ramify, which also offers a 100% ETF contract, the pricing does not exceed 1%. In return, traditional contracts apply on average rates of between 2% and 4%.

The flip side

But in the current context, the solidity of young companies has been put to the test. The dependence of index funds on market fluctuations has affected their performance. For example, when the CAC40 announces a drop of 15.63% and the S&P500 stands at -18.52% (as of September 6, 2022), the most “dynamic” profiles display, on the same day, results at -11.80% for Yomoni, -10.50% at Nalo and -7.60% at Ramify.

“In passive management, we follow the market. Our goal is not to beat the market but to replicate it,” commented Yomoni’s consulting director. With 80% of its passive allocation, the fintech nevertheless has a tactical pocket that can vary from 0 to 20% in order to better adapt to market variations. By way of example and in the current context, its approach turned to banks when inflation resumed in January 2021. In response to the rise in rates, Yomoni also reallocated its bond supports.

For his part, Nalo juggles between trackers and euro funds. Passively managed, the ETFs offered are divided between stocks and bonds. “We chose this positioning because we see that active management struggles to do better than its level of fees”, says Franklin Morin, director of investments at Nalo.

active defense

For Ramify, it’s a completely different story. The company opts for management “hyperactive” of his wallets. Clients have the choice between a 100% ETF contract or a diversified option via real estate investment companies (SCPI). “We analyze the ideal allocation for each client profile every day. If the difference is too big, we reallocate. ETFs allow for this flexibility,” explains Olivier Herbout, co-founder of Ramify. In the context of inflation and rising rates, the former employee of Goldman Sachs has therefore chosen to move his portfolio towards an overexposure to the American markets. ” In times of crisis and with the increase in rates in the United States, we anticipated a greater flow of institutional investors to this market, he confides. This decision allowed us to position ourselves on the dollar which appreciated unlike the euro. »

In passive or active management, the fintechs tricolors are facing the reversal of the markets. In Europe, investors have withdrawn 5.3 billion euros from equity markets over the past two months, according to figures from Amundi AM. Their similar choice focused on the distribution of ETFs is not, however, their only point in common. In the current context, pedagogy with their customers has played a key role in the relationship of trust. Which is not always innate in digitalized distribution. “ Young people are looking for information on the internet, they want to understand what type of medium they are investing their money in. It is important that we are their source of information and trust,” explains an intermediary.

“In the market context in which we find ourselves today, our business is useful. The role of the investment adviser is gaining in value and making the job more demanding”concludes Olivier Herbout.


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