Banque de France Bulletin no. 238: Article 8 French insurers’ investments: adapting to the crisis and the latest challenges

By Ahado Frédéric, Arias Liliana, Capitaine Gaëlle, Ferrand-Tenot Élodie, Megdiche Ikram, Roero Côme

Thematic: Credit and financing

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Despite a context moulded by the health crisis, at the end of 2020, insurers’ investments in France had risen by EUR 39 billion year-on-year to EUR 2,852 billion. French insurers continued to favour high quality securities. The low interest rate environment further encouraged insurers to move into diversification assets with real estate and structured securities, for example, accounting for almost 15% of their investments. Lastly, green, socially responsible and solidarity-labelled instruments amounted to almost 5% of investments.

The trend seen during the final three quarters of 2020 continued during the first half of 2021, with both net investments and valuations on the rise.

1 French insurers stood firm in the face of the crisis

At the end of 2020, the value of French insurers’ investments had risen year-on-year by EUR 39 billion to EUR 2,852 billion, with the vast majority (91%) held by life and composite insurance undertakings. This accounts for a third (34%) of insurers’ total investments in the euro area, making France the leading market within the monetary union.

The insurance sector stood firm in the face of the crisis. The increase in investment holdings – although less than that observed in 2019 – is due to both positive investment flows and positive valuation effects. Furthermore, the crisis does not appear to have affected the quality or the availability of assets in the insurance portfolio.

A decline in investments due to transfers to supplementary occupational pension institutions

In 2020, French insurers purchased EUR 15 billion of securities (net of sales and redemptions) compared with EUR 62 billion in 2019 (see Chart 1).

Two phenomena contributed to this decline. First, 2020 saw an increase in the creation of supplementary occupational pension institutions (ORPS – organismes de retraite professionnelle supplémentaire), as discussed in Box 1 below. Since the Sapin 2 Law of 2016, ORPSs have secured part of the retirement savings previously managed by the insurance sector, either through transfers of securities or through net sales carried out by insurance undertakings. In 2020, net sales following the creation of ORPSs amounted to EUR 19 billion, up from EUR 1 billion in 2019.

Second, even though the savings of French citizens increased substantially in 2020, insurance product inflows declined from EUR 20 billion in 2019 to a net outflow of EUR 7 billion in 2020. Nevertheless, unitlinked contracts recorded inflows of EUR 23 billion, while euro-denominated policies contracted by EUR 31 billion. Given the portfolio breakdown associated with these types of contracts, this resulted in net acquisitions of shares/units in collective investment undertakings (CIU – organismes de placement collectif) of EUR 24 billion and net sales of debt securities of EUR 14 billion.

Valuation effects that reflect market uncertainties

The increase in investment outstandings is also due to changes in securities portfolio valuations, which are influenced by developments in the stock markets and bond markets (see Chart A in Appendix 3) that were hit by the deep uncertainties created by the health crisis
from the first quarter of 2020 onwards. …