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Morningstar | CNP Assurances and French life insurers are geared to French government funding

CNP Assurances is a partnership business that distributes its life insurance products through third-party distribution agreements. These partners are in turn economically interested in the success of these relationships via large shareholdings in CNP Assurances. One of these partners is the French government, through Caisse des Depots, which owns around 40% of the business. We believe this makes CNP, and French life insurance in general, a largely government-incentivised entity.Life insurance savings and investment products carry good tax benefits in France, and the strong state pension system has meant that a private pension sector has not materialised. Life insurance savings and investment products are treated as liquid, long-term savings vehicles that have thus far been used as a pseudo-pension product, providing private savings for retirement, or just in order to avoid taxes that are incurred on other investments.While these tax benefits have decreased in recent years, they are still largely in place. We think the French government uses them to draw policyholders into life insurance contracts, in turn financing fiscal needs. Around one half of the EUR 1.6 trillion in assets under management in French life insurance is invested in French government debt. Agence France Tresor negotiable debt securities outstanding stood at EUR 1.6 trillion as at year-end 2016, making life insurers a significant stakeholder in financing the French economy.The national debt of France is fairly high by several metrics. It stands at just under EUR 2.5 trillion as at 2016, one of the highest national debt levels in the eurozone, at 97% of GDP. One of Emmanuel Macron’s key targets will be to lower the French budget deficit below the Maastricht 3% limit and lower government debt levels, and to keep it there. This is a matter of maintaining political credibility and has implications for life insurance demand and investment rates. We believe the French government is highly unlikely to change life insurance tax incentives to draw in more deficit funding.