In the midst of the Covid-19 crisis, multi-support life insurance allows savers to rely on the stability of the guaranteed capital in the euro fund and to invest in the stock market, with a long-term horizon, on points low market thanks to units of account.
Often presented as the preferred financial investment of the French, life insurance, which weighs nearly 1.800 billion euros in total, is adapted not only to all stages of life, but also to the different circumstances of the conjuncture , including crisis phases.
It allows you to build up savings, supplement your retirement and pass on capital to your loved ones, in an advantageous tax framework. The investment also has assets to combine performance and risk management. And in particular the flexibility provided by its multi-support version, with its combination of a fund in euros with guaranteed capital and a portion in units of account (UC) hosting riskier but potentially more profitable mediums in the long term.
According to the French Insurance Federation (FFA), 80% of savings invested in life insurance are placed in the euro fund. For many years now, this has offered the best remuneration for a risk-free investment, with a ratchet effect which secures interest and a permanent availability of savings.
In the midst of the Covid-19 crisis, savers know that, apart from the hypothesis of a generalized systemic crisis, which is not currently the scenario envisaged, their capital, housed in the fund in euros, is thus not not started.
Admittedly, the downward trend and the weak return on funds in euros were confirmed last year. Average compensation stood at around 1.4% in 2019, even if that of the best contracts of savings associations, awarded among the Gold Revenue Trophies, came out at 1.85%.
The average real return, corrected for inflation, evaluated at 1.1% in 2019, is therefore close to zero, after taking into account the social security contributions of 17.2%, retained each year on the support in euros.
This weakness should continue with the probable maintenance of bond rates at historically low levels. On April 22, France could borrow at a rate of 0.08% over ten years.
But this secure pocket is very significant in times of stock market crisis, as at this time. It prevents invested savings from being exposed to the volatility of the stock market.
As of April 22, the CAC 40 had lost, for example, 26% since the start of the year. In our opinion, this weighting on the euro fund must remain equal to or greater than 60%, and preferably beyond 80% (and up to 100%) for the elderly, who must be able to count on availability of their savings at any time.
Respecting this reasonable proportion allows savers to sleep better at night by protecting their capital against inflation, or at least by limiting its erosion.
But in the longer term, the investor must also find additional solutions to improve the profitability of his savings.
Taxpayers subject to significant levy rates are even more aware of the issue. Those subject for example to the tax on property wealth (IFI), whose tax brackets evolve up to 1.5%, quickly perceive the confiscatory dimension of taxation compared to low interest rates or the net remuneration of a real estate investment, also close to 1.5 to 2%.
The unit-linked part of a multi-support contract allows you to take advantage of the flexibility and ease of use of sicavs and FCPs invested in the financial markets. Within a contract, it is possible to make arbitrations from the fund in euros to the units of account.
A particularly useful instrument when the equity markets have returned to low points that had not been reached in three or even five years. The upside potential is a priori stronger when the CAC 40 index evolves around 4,500 points than when it is worth 6,000 points, as was the case at the start of the year.
Go long term
Investors who went through the stock market crises of 2001-2003, 2008, 2011, January 2016 and the end of 2018 know that selling in a panic leads to missing the rebound after the crash, while delaying coming back, and that on the contrary you need to know enter the equity markets during these periods of strong decline.
The cause of the current decline is clearly identified with the health crisis caused by the coronavirus.
Entering the equity markets with a CAC 40 at 4,500 points, or even lower, is a long-term opportunity. The saver is sure not to buy at the highest. The last low point reached at the end of 2018 was 4,722 points. The index then climbed to 6,111 points on February 19, 2020.
As Warren Buffett, a leading investor, said: “You have to be afraid when everyone is greedy and be greedy when everyone is afraid.”
Boost part of your contract by leveraging funds selected by Income for their long-term performance therefore seems relevant in this context. The best of them post, despite the recent decline, gains of 85% to 145% over ten years.
Some assets of life insurance have however been somewhat eroded in recent times. The Solvency 2 calculation rule makes the solvency ratios of insurers very volatile and very sensitive to changes in rates.
To help them cope with this situation, a decree of December 28, 2019 now authorizes insurers to record their yield reserve, called provision for profit sharing (PPB), in their solvency ratios. For the 2019 financial year, life insurers were able to retain a flat rate of up to 70% of the accounting amount of the PPB.
The impact is important. This practice is already authorized in certain countries, in Germany for example. It is reassuring for the good health of French life insurers, but raises the question of knowing if the 60 billion euros of PPB accumulated on the whole of the national market will be effectively transferred one day to the insured.
As with any investment, also remember to control the fees that cut back on the performance of your investments.
With these reservations, multi-support life insurance appears to be an ideal tool for managing financial savings, even in the context of the current crisis.