Life Insurance, PER: The Winners and Losers of 2023
In November, net inflows of +400 million euros were recorded, adding to those in October (+1.3 billion euros). Over the first eleven months of the year, net inflows totaled 3.4 billion euros, driven primarily by net inflows into unit-linked funds, which totaled 28.8 billion euros. However, euro-denominated funds have seen net outflows of 25.4 billion euros since the beginning of the year.
Households have been pragmatic and opportunistic, moving away from euro-denominated funds—which offered unattractive returns—while investing in unit-linked funds when the markets were rising, particularly as the CAC 40 gained more than 15% over the year. Unit-linked funds have accounted for 40% of new inflows since the beginning of the year and 43% in November.
For investments with a capital guarantee, savers favored regulated savings accounts (37 billion euros in inflows for Livret A and LDDS accounts) and time deposits, which recorded inflows of more than 35 billion euros during the first ten months of the year.
Despite modest net inflows, life insurance remains attractive to savers, with premiums remaining at a high level, totaling 12.9 billion euros in November. Year-to-date, premiums have increased by 6%, reaching 140.9 billion euros.
However, net inflows were limited due to high payouts, which totaled 12.4 billion euros in November, up 11% compared with the same period last year. Over the first eleven months, payouts reached 137.5 billion euros, up 15% year-over-year.
The increase in benefits is due to a rising number of deaths in France, which rose from 559,000 to 667,000 between 2014 and 2022. Savers are being encouraged to use their life insurance policies due to tighter credit conditions and rising borrowing costs, which are forcing them to dip into their savings to purchase real estate.
The Retirement Savings Plan (PER) has been a notable success, with net inflows over the first eleven months of the year reaching 6.2 billion euros—double that of life insurance. This result is all the more remarkable given the 71 billion euros in assets under management for 5.4 million account holders. The PER has grown in popularity, with a 42% increase in the number of account holders over the past year and a 59% rise in assets under management.
The PER's success is attributed to the French people's ongoing concern about their standard of living in retirement and the tax benefits available upon enrollment.
Life insurance faced challenges in 2023 due to a lack of competitiveness compared to regulated savings accounts and time deposits. However, the expected returns on euro-denominated funds by the end of January 2024 should revitalize the life insurance sector. The anticipated decline in central bank policy rates during the first half of the year and the decrease in inflation in 2024 should also benefit euro funds. Their returns are expected to continue rising due to momentum and better adherence to the interest rate hierarchy. Although the Livret A rate is frozen until February 1, 2025, rates on time deposits are expected to decline over the course of the year. The decline in inflation should also allow for the return of a positive real return on life insurance. In 2024, unit-linked funds are expected to generate slightly lower returns than in 2023.
