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Fitch: French Tax Plan a Small Credit Negative for Life Insurers
September 14, 2017 / 12:25 PM / 7 days ago

Fitch: French Tax Plan a Small Credit Negative for Life Insurers

(The following statement was released by the rating agency) LONDON, September 14 (Fitch) French government proposals to move to a flat tax rate on withdrawals from life assurance contracts over EUR150,000 are a marginal negative for the French life sector, Fitch Ratings says. The favourable tax treatment of withdrawals after eight years is set to end for contracts over EUR150,000, which may deter some customers from starting large life assurance contracts. They may look to use financial advisers or investment platforms to direct their savings elsewhere. But we expect the resulting loss of new business volume in the life savings sector to be no more than a few percentage points. Relatively few existing contracts exceed EUR150,000 (reports suggest 3%-4%). We estimate these may represent up to 15% of volume but the fall in business should be much less than this, given the lack of readily accessible alternatives with favourable tax treatment outside the life sector. This is in contrast to the situation in the Netherlands around 10 years ago when the life savings market declined sharply as a consequence of tax changes allowing banks to compete on equal terms with insurers. In France, withdrawals after eight years from a life assurance contract are usually taxed at 23% on their investment return component. For contracts exceeding EUR150,000, this rate is set to be increased to 30%, starting in 2018, under tax reform proposals being presented in the finance bill on 27 September. At the same time, the tax rates of 50.5% for withdrawals from these contracts in years 1-4 and 30.5% in years 4-8 will be cut to a flat rate of 30%. We think customers will be more likely to make withdrawals earlier in the contract, as they will no longer have a tax advantage by waiting until after year 4. Earlier withdrawals would be another negative for insurers as the business would be on their books for a shorter time on average, meaning less profit. The tax treatment of life assurance contracts below EUR150,000 (the vast majority of the market) will not be affected by the proposals; the tax rates of 50.5%, 30.5% and 23% for withdrawals after eight years will stay in place. Life assurance will also retain its tax advantages for estate planning. However, customers' confidence in the stability of the favourable tax framework for life assurance may be damaged by the proposals, even though they only affect contracts over EUR150,000. Our sector outlook for the French life insurance market is negative, reflecting difficult operating conditions with low interest rates and high competition putting pressure on margins. Contact: Federico Faccio Senior Director, Insurance +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN David Prowse Senior Analyst, Fitch Wire +44 20 3530 1250 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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