Euro-Denominated Life Insurance Funds: Trends for 2025

Faced with rising interest rates and increased competition from regulated savings accounts, euro-denominated funds—the cornerstone of life insurance in France—are under pressure to offer attractive returns. In 2023, they posted an average return of 2.6 percent, an encouraging figure but still slightly below the 3 percent offered by the Livret A. Forecasts for 2024 point to stability, with an expected average return of around 2.5%.

Reserves Tapped to Support Returns
To cope with this competition, insurers have actively used their smoothing tools, particularly provisions for profit sharing (PPB). In 2023, these reserves—built up during prosperous years—helped maintain competitive returns by absorbing some of the financial shocks. On average, 38 cents in PPB were used for every euro collected, helping to stabilize rates.
 

According to the Prudential Supervision and Resolution Authority (ACPR), this policy is expected to continue through 2024 and 2025. However, insurers’ ability to continue drawing on these reserves depends on their size, which analysts such as GoodValueforMoney still consider comfortable. These provisions represented 4.45% of outstanding balances at the end of 2023, down from 4.83% a year earlier.

2024: Moderate but Reassuring Outlook
While the Livret A interest rate is expected to drop to 2.5% in February 2025, euro-denominated funds could align with this yield, with forecasts indicating an average rate slightly lower than that of 2023. This moderate decline, combined with an estimated inflation rate of 2%, would mark a return to positive real returns, unlike in 2023, when inflation of 4.9% eroded savers’ real gains.
 

However, some insurers will stand out with more competitive returns. This is the case for MIF, which already expects its rate to improve in 2024, according to its CEO, Olivier Sentis. Furthermore, promotional offers—though less generous than in 2023—are expected to continue attracting new customers, as noted by Philippe Crevel, CEO of the Cercle de l’Épargne.

Robust tools to protect returns and stability
Euro funds rely on proven mechanisms to maintain attractive returns and manage financial risks. These tools include:
• The Profit-Sharing Reserve (PPB): composed of surpluses generated during good years, it helps smooth out returns over time and stabilize the rates offered to savers.
• The Capitalization Reserve: used to absorb fluctuations in the bond markets, it ensures stable management in the face of losses related to sales of low-yield bonds.
• The Provision for Permanent Impairment (PDD): protects insurers’ reserves in the event of prolonged asset impairment.
• The Provision for Liquidity Risk (PRE): ensures the necessary liquidity in the event of massive redemptions by investors, thereby preventing strain on the underlying assets.
 

These instruments, combined with rigorous portfolio management, enable insurers to meet the challenges of an ever-changing market while offering savers maximum security.

Investment strategies tailored to the markets
To remain competitive, insurers have adjusted their portfolios. By selling older, low-yield bonds—often at a loss—they have been able to reinvest in higher-yielding securities. For example, Predica, a subsidiary of Crédit Agricole, sold €11.5 billion in bonds in 2023 to acquire assets with an average yield of 4.21%.
 

This proactive strategy, combined with the stabilization tools mentioned, has made it possible to absorb recent bond market shocks without compromising insurers’ financial strength.

A Promising Future Despite Persistent Challenges
Despite fierce competition and constantly evolving financial markets, euro funds remain a pillar of French savings. In 2024, their performance may decline slightly, but positive real returns and rigorous management of reserves should reassure savers.
 

For investors seeking stability, euro funds will continue to offer a secure alternative, while life insurers, thanks to tailored strategies and proven protection mechanisms, will be able to maintain their appeal in an increasingly competitive market.