For several years, the guarantee of 100% of the capital of funds in euros has been called into question. Insurers are changing their terms and conditions to post negative net returns. Explanations.
The return on euro funds within life insurance contracts has only been declining over the years, averaging 2.80% in 2013 1.28% in 2021. A decline in performance that prompted insurers to review the system. Instead of a capital guarantee net of management fees, many are now switching gross of fees. Concretely, your capital remains 100% guaranteed… less management fees. This new trend is spreading to new funds in euros.
A return of 0%: what the investor risks
What changes for the saver? Let’s take a contract with 0.75% management fees. In the event of a catastrophic year financially for the insurer, it could provide a negative return of -0.75%, ie a return of 0% gross of fees but -0.75% net of management fees. Whereas with the previous system, even in the worst case, a fund in euros serves at least 0%. In other words, a negative remuneration means that you suffer a capital loss corresponding to the amount of the management fees.
Example: Suravenir Rendement 2 euro fund
A concrete and recent example. Guaranteed gross of management fees, the Suravenir Rendement 2 fund in euros has replaced the Suravenir Rendement fund since April 1. Unlike its predecessor, this new fund offers a net guarantee height of 99.4% (100 – 0.60% management fee) and not more than 100%. By placing 1000euros on this fund with zero returnthe saver will only be sure to recover 994 euros after one yearas the insurer explains in black and white… but discreetly on page 8 of its most recent contracts.
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A plausible scenario?
In the worst-case scenario, a black year would result with the old system in zero return, with no loss… and with this gross guarantee in a negative rate synonymous with deadweight loss. A significant difference but which will only materialize in the event of a disaster scenario. Because like any fund in euros, in the event of a positive return, the insurer is obliged to return the profits to the policyholders.
As long as the return on the fund is higher than the management fees, the saver benefits from a total capital guarantee
If the low rates of recent years could suggest that the scenario of a negative return is possible, it is increasingly remote, according to experts. Despite these somewhat complicated years, the euro fund has always paid more than the costs. It has never been negative, recalls Yves Conan, CEO of Linxea. Since the end of 2021 and with the sharp rise in rates in 2022, this scenario has become increasingly remote. Each euro that goes into the euro funds will allow the insurer not to use this partial guarantee. It is a preventive measure. As long as the return on the fund is higher than the management fees, the saver benefits from a total capital guarantee.
Life insurance: towards the end of guaranteed euro funds
Which insurers have transformed their funds in euros into a gross guaranteed version? We have already discussed the fund Yield 2 of Suravenir accessible in particular via the Linxea Avenir 2, Pouvoir Avenir, Yomoni Vie and Fortuneo Vie policies. We can also mention the fund in euros Eurossima by Generali (rmunr 0.75% in 2021) distributed by Linxea Vie, Boursorama Vie, ING Vie, Monabanq Vie Premium, Altaprofits Vie and Mes-Placements Vie.
For euro funds still guaranteed net of fees, no change should take place, according to Yves Conan: Euro funds that have not yet changed to gross of fees should not have to change policy [suite au rebond actuel des taux].
While each insurer is required to clearly indicate that the fund in euros is guaranteed gross of fees, this information is not particularly highlighted. To find out what this entails, the saver must himself go to the general conditions of the contract. In a table, the distributor indicates the redemption values in the event of a return equal to 0: the guaranteed capital is reduced year after year by management fees.
To whom does this gross cost guarantee apply?
This guarantee gross of costs only concerns new customers, those who have signed the contract with the general conditions updated by the insurer. It is the notices in force at the time of signing that apply. If the fund in euros of your contract was guaranteed net of fees, it remains so.
Why this change?
The capital guarantee for an insurer is a high risk which is very expensive, explains Stellane Cohen, president of Altaprofits.
The risk was not being able to pay what had been promised to the savers
An opinion shared by Yves Conan. According to him, even if the insurers still have solid reserves, via the provision for profit sharing, the situation of low rates has pushed them to consider the worst: An insurance company which should have mobilized millions and millions of euros of own funds and who would not have had the means to do so, would have put all the insurers in the wrong position. The risk was not being able to pay what had been promised to savers.
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What about partial guarantee funds?
Insurers go further and now offer partial guarantee funds. The invested capital is no longer 100% guaranteed but 97 or even 94%. This means that for a payment of 1000 euros, the saver is guaranteed to recover at least 970 or 940 euros.
Example: Suravenir’s Opportunities 2 fund
The Suravenir opportunities 2 fund, guaranteed 97%, since April 1, has replaced the Opportunit fund. For 1000euros paid, the saver is certain to recover after one year, 970euros, if the return is 0%. The Opportunities fund recorded a performance of 1.80% in 2021therefore higher than the average for funds in euros for the same year, which was 1.28%.
Contrary to what one might think, this 3% difference does not only correspond to the management fees. The latter are charged 0.60%. The remaining 2.40% allow more investment in the financial markets. This fund involves a share of risk: you can therefore lose 3% one year, to regain 4% the following year as the markets evolve.
Of this 3%, there are 0.60% management fees and 2.40% which are invested in the financial markets, explains the general manager of Linxea. It’s financial diversification that allows them to have fewer government bonds and more equities and real estate. At the end of the year, if the management of this pocket is profitable, this 2.40% is returned, in addition to the performance generated. And the performance will probably be better than on the 100% guaranteed historical euro funds.
These partial guarantee funds are secondary and dynamic funds. They are not not presented by insurers as traditional or mainstream euro fundsaccessible to as many people as possible.
What you must remember:
- Many euro funds are change from a guarantee net of costs to gross of costs. In short, your capital remains guaranteed… but no longer 100%: each year, the insurer can (if necessary) reduce your capital to deduct its management fees.
- Please note: this change only affects the saver in the event of a 0% performance of the fund in euros. As long as the fund’s performance exceeds the management fees, the saver retains all of his capital.to which is added each year the annual interest;
- Some insurers have gone further with partial guarantee fund. A way for insurers to invest more in equities and real estate assets in order to generate more returns.
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