The foundation of French life insurance requires a complete overhaul

In France, 85% of outstanding life insurance contracts are invested in “euro funds”, 76% of which is invested in bonds. France’s life insurance euro funds were an extremely high-performing financial investment during the period of disinflation and declining long-term interest rates that began in 1982. During this period, returns on bond portfolios were on average significantly higher than the long-term interest rate. But if a period of negative long-term interest rates is now going to be followed by a period of gradually rising long-term interest rates, returns on bond portfolios are going to be consistently negative, which will eliminate the appeal of euro funds. There is therefore a need in France for: A new attractive savings product with a view to rising long-term interest rates in the future (with less exposure to bonds but with limited risk); Within a few years, the transfer of euro funds into this new savings product. It is important to understand that euro funds in their current form will not survive in an environment of gradually rising long-term interest rates.