September 25, 2019 / 2:34 PM / a month ago

Generali France puts cap on euro guaranteed-return funds

PARIS (Reuters) - Generali France (GASI.MI) announced plans on Wednesday to cap the share of investments customers can put into euro-denominated funds, in a sign of how low or negative interest rates are impacting the life insurance industry.

Life insurers are looking for ways to protect their revenues against a backdrop of rock-bottom and negative interest rates which have hampered efforts to generate returns.

Generali France said in an interview with French business daily Les Echos it would cap the share of investments in new life insurance contracts assigned to so-called “euro contracts” to 40%.

As a result clients would be obliged to put 60% of the money into unit-linked funds.

“We don’t want to give an illusion that it’s possible to get a 1.5% return for a euro contract when zero-risk interest rates are negative,” Jean-Laurent Garnier told Les Echos.

Insurers generally earn higher fees on unit-linked funds, which are generally invested in equities, than on euro-denominated funds, which guarantee a capital return and invest almost exclusively in low-risk fixed-income assets with low yields.

Investors have already been putting more cash in higher-risk unit-linked funds over the past few years, but this is the first time a big insurance company has decided to officially impose limits.

Generali’s move might be well received by shareholders, but there is a risk of backlash from customers in France who are used to guaranteed returns offered by the euro funds.

A London-based insurance industry analyst said other life insurers may follow.

Some of France’s biggest life insurance players, including Credit Agricole (CAGR.PA), CNP Assurances (CNPP.PA), BNP Paribas (BNPP.PA) declined to provide an immediate comment. The French insurance industry association FFA was also had no immediate comment.

AXA France (AXAF.PA) said its strategy, for many years, had been to encourage customers to diversify their savings, adding that performance of “euro contracts” had remained solid.

Returns on euros contracts in France on average were at 1.8% in 2018, while interest rate on government debt was 0.8%, according to the FFA.

Funds invested in unit-linked products that include equity, saw a negative performance of 8.1% in 2018.

Life insurance contracts are popular with French savers because they offer tax relief on gains if investors keep their money in a contract for at least four years, with an even bigger tax break after eight years.

The number of life insurance contracts in France amounted to 54 million at end-2018, with 38 million beneficiaries, FFA data showed.

Reporting by Maya Nikolaeva. Editing by Jane Merriman

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