After the banking crisis, life insurance on hold?

Bankruptcy of the Silicon Valley Bank in the United States, rout of Credit Suisse in Europe… could the crisis in the banking sector endanger the life insurance contracts held by the French? The European system, a fortiori French, is different from the American system. We have more serious regulation and a series of other ramparts. The real issue is the dependence of this savings product on changes in interest rates. Most of the French people’s money placed in life insurance is in what are called euro funds. Funds invested mainly in debt bonds issued by the State. If we schematize, it is a bit like the shares issued by companies on the Stock Exchange. On the stock market, shares are private securities issued to invest; bonds are in particular public securities issued by the State to repay its debt.

Over the past few decades, these funds have benefited from very low interest rates, but this is no longer the case today. Even if the rise in interest rates is limited for the moment, it starts again according to the monetary policies implemented by the central banks to fight against inflation. Life insurers who have borrowed so far at low cost now find themselves with, in their coffers, old depreciated bonds, in accounting this is called a capital loss. Problem, when the customer wants to withdraw his investments, the life insurer is obliged to pay the difference so that this customer does not lose there with the exchange. In order not to show a deficit, the insurer pumps into its reserves… which weakens its accounts. A simple and honorable merchant calls this selling at a loss.

No major risk in France

The sector and the authorities are reassuring in the face of risks and fears of bankruptcy. There are no massive withdrawals to the point of endangering the system – the total of the money thus placed reaches 1,400 billion euros. Today, 18 million French people have life insurance with an average capital of 100,000 euros per customer. In the event of default, each insured could claim a maximum compensation of 70,000 euros, regardless of the number of contracts taken out with the life insurer.