Savings: alert on life insurance?

The amount of life insurance amounts to €2,070 billion according to the Banque de France (1,599 + 471.8). This is the preferred placement of the French. Will the sudden return of inflation and the rise in interest rates initiated by the central banks risk changing the situation and giving rise to risks? Yes, obviously.

These two trillion euros are in fact made up of 80% of bonds in euros, mainly from the French State, which yield almost nothing since we have just spent several years at zero interest rates, even negative at times . In 2021, euro funds offered an average return of 1.1%, which is really not great, especially when inflation starts to take off like it is now.

This period of low rates seems to be over, and this is good news for insurers who will be able to offer their subscribers products that bring in a little more. But things are not that simple: insurers cannot get rid of all their zero-rate bonds because they are heavily discounted in the markets. The losses would be gigantic. To simplify to the extreme: when interest rates go from 1 to 2%, a bond bought for €100 which pays a coupon – always fixed – of €1 per year or 1% per year, must sell for €50 on the market so that it then brings in 2% per year, that is to say €1 for 50, so its value collapses by half. There is a considerable delay effect, insurers must wait to “purge the past”.

Problem: savers may become impatient. Especially since the Livret A now pays 2%, or double! If interest rates continue to rise and if inflation persists, anger and misunderstanding will spread among life insurance holders. And we must take into account another phenomenon: the fall in purchasing power with the explosion of prices and wages or pensions that follow very imperfectly. As a result, life insurance risks facing massive outflows, to go to other investments, or to finance current expenses. And insurers cannot sell their bonds at zero rates because of massive losses that would jeopardize their financial situation… Such is the risk looming on the horizon.

But this threat of massive outflows that would jeopardize insurers has already been taken into account by those who govern us with the Sapin2 law, which quite simply allows withdrawals to be blocked (we were already talking about this in 2016). In the event of a severe crisis affecting insurers, premiums would no longer be paid and withdrawals would become impossible. If French savers engaged in a major withdrawal of their funds currently in the form of life insurance, this mechanism would be triggered and they would be unable to recover their money. “It’s for your good” would immediately add the government, of course. There is nothing imaginary about such a scenario. On the contrary, the violence of the energy crisis into which we are entering will inevitably have enormous impacts on banks and insurance companies. A financial crisis is not improbable in the agonizing agenda that opens before us.

Having your money when you want it is not automatic in our financial system. To have this freedom, you must not depend too much on it and know how to invest your savings elsewhere (physical gold, cryptos and various real assets, provided you know yourself well). An element to take into account in your savings choices…

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