Earlier this year, characterized by the war in Ukraine, the resumption of growth was accompanied by a remarkable recovery to inflation. This term we have somewhat forgotten for several years and forced or, in some views, allowed major central banks around the world to implement a significant reduction in their rates.
These unprecedented monetary policies, including the introduction of permanent low or negative interest rates, did not cause the expected return to rising prices and constituted one of the central bank’s objectives to support economic growth. .. .. Instead, this strategy encouraged an unprecedented and continuous rise in the prices of financial and real estate assets, but failed to meet its key goals.
The emergence of the 2020 coronavirus, which we are still experiencing today, has begun an almost complete shutdown of the global economy for several months, followed by a restart that has not been seen since the post-war boom. This is currently accompanied by sharp inflation, boosted by rising prices for electronic components that are essential to most of the energy, grocery, and modern tools. The central bank is reacting. The Fed has announced three major rate hikes in 2022, and the Bank of England has already raised rates in 2021. Long-term interest rates are actually rising, but they are still historically low.
Therefore, this recovery in large inflation raises questions not only about how to effectively curb it, but especially about the future of economic agents’ savings. Household savings funds have grown significantly through continuous confinement, with classic savings such as unpaid current accounts, the French savings banks Libre A and Euro, which are the cornerstones of life insurance and popular for products. Supplied to the bank. As of the end of November 2021, € 1,861 million.
Euro fund no longer protects from inflation
Therefore, the yields on these supports are questionable. If Livret A provides 1%, the Euro Fund has an average net profit of 1.28% in 2020 (ACPR survey) and the 2021 forecast is about 1.10%, savings protection will be invalidated. Inflation of 2.8%.
In this context, it is necessary for savers to consider asset allocation, especially in the Queen’s envelope, which is life insurance. Insurers have had the greatest difficulty managing these euro funds for several years, especially as monetary policy is easing and yields on government bonds continue to decline.
Revenge of accounting unit
Within the scope of life insurance, the second major link, Account Units (UC), remains. These represent the stocks of investment funds and can offer a very wide range of possibilities. Whether it’s fixed income, equities, real estate assets, SRI-themed integration, or even sectoral or geographic assets, the options are huge. Expectations of returns associated with these asset classes are much more attractive and accurately reflect risk.
At the same time, insurers have been striving for months to discourage customers from continuing to fund these euro funds in favor of unit-linked units. In fact, each payment often comes with investment terms in account units that French people have been hesitant to invest in in the past.
Revenge of accounting units is now a reality. Eurofunds accounted for 76.65% of life insurance balances at the end of 2020, but unit-linked contributions accounted for 39% of premiums in November and about 38% in 2021 (). 35% in 2020, 28% in 2019). ..
Battle between life insurance companies and management companies
This unguaranteed move to invest in vehicles is unprecedented, paving the way for French savers to switch to real investor behavior for the purpose of managing risk.
This is a must-see turning point for both life insurers and asset managers. It needs to be accompanied by the evolution of customer relationships, the offers offered, and more broadly the entire value chain, while continuing efforts to make products more demanding in terms of sustainable development.
Many of these transformations require specific support in the development and implementation of strategies and the transformation of customers’ cultures into more dynamic investments. This support from a team of truly specialized knowledge enables asset managers to realize this development opportunity.