Is rate hike for Livret A/LDDS/LEP book a big risk for euro funds in life insurance? – Savings guide

In France we like to scare ourselves, often not much. There is no real competition between regulated deposits and euro funds. Booklet A allows you to collect LDDS and other LEP spares. While life insurance, essentially a long-term investment, allows you to withdraw your capital at any time, it also allows you to not only grow your capital but also move it out of your estate. It is this last point that motivates the majority of depositors to invest in euro funds. However, a significant number of informed savers use euro funds as a savings account. Partial payments are controlled and annual tax relief on products is fully optimized. Thus, the euro fund then competes with livret A. In any case, insurers envisage a black scenario and, if necessary, they can block partial redemptions on euro funds for 6 months if there are too many redemption requests, just to protect themselves financially from the lack of liquidity in their portfolios.

Increases in the LEP rate and booklet A

The passbook rate A has risen to 2% since August 1st, and the continuation of its increase is not over yet, as the passbook rate A will be revised upwards again to be implemented on 1st January 2023. Good question. Currently, applying the calculation formula only gives a rate of 2.20%. Nothing to be proud of. Only for the moment, but for the horizon of 2023, no one knows: 2.5%, 3%? there is In any case, livret A will serve a higher rate of return than euro funds. Let’s not talk about the LEP, savings account, which is undoubtedly the most profitable on the market, but access is limited to the most modest savers.

Why do euro funds have nothing to fear?

Insurers hope that the rate hike will not be too strong. A passbook rate of 5% may adversely affect savings. Worse still, some savers may demand a refund to make a cheaper investment. that ” It can lead to an increased risk of default by investors on their Life Insurance investments “The Banque de France said at the end of June, seeking reassurance. However, this situation remains very difficult for 4 reasons:

• In 2023, book A will not rise enough to be extremely attractive, and a real increase in the yield of book A will be required to encourage depositors to change their savings strategy. Moreover, real income (minus inflation) will always be negative in any case.
• A third of Livret A savings accounts are already at the payout ceiling of €22,950 (these are the Livret A savings accounts of the wealthiest depositors and pay the most life insurance),
• Euro fund returns will gradually increase again in the coming years and insurers may significantly increase the provision recovery portion (PPB),
• insurers may intentionally delay the processing of refunds, anti-mass surrender protection activated for 6 months may be reinstated.

Indeed, in the debate surrounding this beginning of the debate about the risk of A livret versus euro funds, it is forgotten that a third of A livret is in their ceiling. These are the A books of the wealthiest depositors. For the latter, no arbitrage is possible from the euro fund to the Livret A account.

Increase in interest rates for funds denominated in euros

Slowly but surely. Euro funds’ returns will increase over the years, benefiting from new bond issues that offer higher yields.

2022 returns of Euro funds: is a sharp increase expected? Has the sweet dream associated with provisions (ppb) finally returned to protectors?

Blocking life insurance withdrawals

” Insurers have all the tools they need to effectively manage these rate increases Frank Vallois, managing director of France Assurances, said. These include a reserve of around €65 billion at the end of 2021, called the Profit Sharing Clause (PPB), which insurers can gradually redistribute, thereby increasing the profitability of contracts. And in the case of refugees, the Supreme Committee for Financial Stability has been given the power to defer payments on life insurance for six months since the Sapin 2 law.

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