INTERVIEW – Rising to 2.60% in 2023, the average return on euro funds from life insurance contracts is expected to fall this year. Cyrille Chartier-Kastler, founder of the Facts & Figures firm, explains why.
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– What will the life insurance interest rate be in 2024?
Has life insurance already finished recovering? After a historic low of 1.10% in 2021, the average return paid on euro funds from life insurance contracts rose to 1.92% in 2022, then to 2.60% in 2023, according to the Prudential Supervision and Resolution Authority (ACPR). However, this increase should end this year. The rates paid in January 2025 for the year 2024 are in fact expected to average 2.50% by the Facts & Figures firm. This is bad news for savers who are keen on several reasons, which its founder Cyrille Chartier-Kastler explains to us in detail.
Why do you think that the average return paid by euro funds will be lower in 2024 than in 2023?
Cyrille Chartier-Kastler: First, it should be remembered that this rate has been set by insurers for several years with the aim of limiting the outflow from euro funds (when withdrawals are higher than payments into life insurance policies, Editor’s note). The aim is therefore above all to distribute a rate that will discourage savers from “exiting” (withdrawing or even closing their contract, Editor’s note) from their life insurance.
In 2023, the sector raised its rates by drawing massively on the profit-sharing provision (PPB), a reserve set up by insurers to smooth out the rates paid from one year to the next, and by also offering bonuses. This is to get closer to the 3% yield of the Livret A, and to prevent savers from transferring their savings from their life insurance to the latter. For 2024, the average yield of euro funds will therefore depend greatly on the new Livret A rate announced in mid-January for entry into force on February 1. This rate is very likely to fall to 2.50%. In this context, the sector will probably settle on a average rate of around 2.40% to 2.60%.
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Will this rate reflect the real return on euro funds?
In order to offer a return that slows down outflows, insurers have not served the return on their general assets (i.e. their financial portfolio) in recent years, because it was not high enough. For example, in 2023, we had estimated an average return on general assets of 2.25% on “classic” euro funds, while the average rate served was ultimately 2.60%. For 2024, it is also difficult to hope for more than 2.50% on the insurers’ portfolio side, in a gloomy European context, with the cycle of rate cuts initiated by the ECB (which reduces the yield on new bonds issued, which mainly comprise classic euro funds, Editor’s note), stock markets which remain mediocre with a CAC 40 which has returned to its January level, and real estate which continues to lose value, in particular offices in Paris and the Ile-de-France region, in which real estate funds such as SCI and SCPI, which are also found in euro funds, are heavily invested.
Life insurance: the 2023 ranking of returns from more than 1,000 contracts
In 2024, what are the best returns to expect? Can they match those of 2023?
The maximum rates served were close to 5% in 2023, but we will not reach these levels this year in my opinion. These rates were distributed last year by new euro funds, invested massively in high-yield bonds (“high yield”), whose yield will fall further with the new ECB rate cut. The best yields of the year should therefore not exceed 4%. More generally, I think that the gap between the best and worst yields will narrow this year, with a range between between 1.20% and 4%.
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