On the side of European insurers

On the side of European insurers

 

 

Ethias, Fortis, … The financial crisis of 2008/2009 did not spare major European banking groups whose insurance subsidiaries sell personal insurance contracts on French territory. The most publicized example was that of Belgian insurance companies. However, these companies were not bankrupted and their policyholders did not lose their guarantees. Firstly, because the assets of European insurance companies are normally protected by the prudential and supervisory rules which have been harmonizedfor the Member States . Secondly, because these insurance companies were saved at the last minute .Thus, the Belgian state bailed out the mutual insurance company Ethias, a subsidiary of Dexia, which was itself dismantled in October 2011 between the Belgian and French states . The BNP Paribas group, which had planned to buy out all of the Belgian bancassurer Fortis, acquired 25 % of Fortis Holding Assurances and 75 % of Fortis Bank. In 2010, Fortis Holding was renamed Ageas to differentiate itself from Fortis Bank, now BNP Paribas Fortis.   

ING. It should also be noted that the Dutch State injected, in 2008, 10 billion euros in the capital of the bank-insurer ING and that it guaranteed, in 2009, 80 % of its securitized portfolio of risky loans. In 2010/2011, the ING group had returned to profit, thanks to its banking sector, and it was planning to separate from its insurance activities and reimburse the Dutch State before the end of 2012.   

 

As for insurers f ran lish

The provisions of insurance companies. Have the technical provisions of French insurance companies to cover policyholder risks been affected by the fall in the stock markets and the collapse in the value of hypercomplex financial securities ?  

1 329 billion euros. We call technical provisions (or mathematical provisions in life insurance ), all of the financial commitments of the insurance company to policyholders or beneficiaries of contracts. Indeed, the amount of premiums paid to the insurer is far from belonging entirely to it. The greater part constitutes the guarantee of the insured and the beneficiaries of the contracts to be compensated by the insurer. Thus, depending on the branch of insurance concerned, technical provisions represent a percentage of 60 to 95 % of the amount of premiums, after deduction of management fees and taxes levied on behalf of the State . In 2010, the e ncours of insurance contracts life and endowment (liabilities + provisions for profit sharing) amounted to 1 329 700 000 000 (Sources :. FFSA The results of the year 2010).     

Prudential rules. A priori , the exposure of insurance companies' provisions to the financial crisis depends on the investment methods made. To protect policyholders from a possible failure of insurers, the public authorities determine prudential rules with regard in particular to their technical provisions (R.331-1 et seq .) And their investments (R. 332-1 et seq .) . In addition, to prevent insurers from favoring a single investment method likely to be subject to the vagaries of the markets (example : stock market crash, real estate slump), the regulations set ceilings not to be exceeded : 65 % for equities, risky mutual funds, or SICAV shares ; 40 % for real estate ; 10 % for loans, etc. (R. 332-3).              

Hedge funds in French . In addition, a decree n ° 2011-141 of October 31, 2011 added a new category of investments (R. 332-3. 4 °). From now on, these investments may include, up to 5%, bonds, units and commercial paper securities issued by a securitization vehicle and composed of securities issued or guaranteed by an OECD Member State or a public institution of a such state. This could be, for example, bonds issued or guaranteed by European countries in difficulty, such as Greece, Spain or Italy, grouped together in lots (securitization). These lots can then be sold to speculative companies, then acquired by insurers on the financial markets.

Is this really reasonable ? Such an investment seems to us to be risky insofar as, like the hedge fundsof the 2008/2009 financial crisis, such “ commercial papers ” are liable to lose all value in the event of default by issuing States. or guarantors. In addition, the publication of such a decree to honor the securitization in the midst of the financial crisis of European bonds is inappropriate . This text is all the more paradoxical since, following the financial crisis of 2008/2009, the French executive committed to legislate in order to severely regulate the securitization technique developed by the banks. This commitment was not kept, and the law entitled “ Banking and Financial Regulation ” of 23 October 2010 regulated at least securitization in France, giving full satisfaction to the bank lobby.       

The zinzins of the Stock Exchange . Insurance companies are among the largest institutional investors in the market, colloquially called “ goofs ” (depending on the year, they can hold up to 20 % of all stocks and 40 % of all bonds in companies and state-owned companies, traded on the regulated market Eurolist managed by Euronext Paris.In 2010, outstandings of insurance companies' investments amounted to € 1,626.7 billion in balance sheet value compared to € 1,516 billion in 2009), including 1,501 billion ( 8.9.2%), for life, capitalization and mixed insurance , and 182.4 billion (10.8%) for non-life insurance. While prudential rules allow insurance companies to place their provisions in shares within the limit of 65 %, these companies prefer to listed or unlisted shares and to real estate more secure investments in corporate bonds, in bonds issued. or guaranteed by the State, and in fixed income UCITS (more than 60%). Thus, in 2010, the structure of their investments was as follows : company shares : 17.3% ; corporate bonds : 36.8% ; bonds issued or guaranteed by the State : 33.1% ; real estate assets : 3.7% ; monetary assets : 6.4% ; other: 2.7% (Source : FFSA-GEMA, Banque de France. " The essentials of the FFSA. 2010. Insurance dashboards and organization of the FFSA " , p. 22).                       

“ The first impression is always the right one, especially when it is bad ” (Henri Jeanson). We will add that the financial crisis of 2008/2009 necessarily affected our insurers through the general fall in share prices, the risk of non-payment of bonds from bankrupt companies, the fall in real estate, and thedownturn in the market. unit-linked life insurance very profitable in terms of commissions. The crisis must therefore have resulted, at best, in a decrease in the net profit of insurance companies and bank insurers* , significant capital losses on their asset portfolio, as well as a reduction in their solvency margins ( C. Le Bis-Lavignasse, J.-H Lorenzi, J. Pelletan, C. Segretain, Risk Transition Chair Risk Foundation : “ Life insurance, a tool for promoting long-term savings .” Online on the FFSA website) . However, in December 2008, insurance companies obtained from the public authorities the option of spreading their provision for default risk (PRE) over eight years, which they are required to set up when the value of realization of the portfolio of assets (equities, real estate, UCITS) is overall less than the balance sheet value. In other words, the effects of the financial crisis can be smoothed out over several years.       

* Bancassurance. In recent years, we have witnessed the rise in the distribution of insurance contracts through thecounters of banking and financial institutions , also called bancassurance . However, these counters do not necessarily constitute an autonomous legal category of insurance distribution. In fact, they can use one or the other of the categories authorized to distribute insurance : authorization of the bank as an insurance broker, constitution by the banking group of a brokerage company ; secondment to banks of staff from insurance companies, brokers or agents, etc.   

Moreover, banking groups do not hesitate to set up insurance companies ab initio or to take control of existing insurance companies, which allows them to collect premiums from customers to whom they offer to take out insurance contracts. insurance, including in return for the loans they seek. For example, Pacifica, a damage insurance company, and Prédica , a personal insurance company, are subsidiaries of the Crédit Agricole SA group ; Cardif (Cardif Assurance-vie, Cardif Garantie Emprunteur, etc.) is a subsidiary of the BNP Paribas group, the fourth-largest life insurer in France, and world leader in creditor insurance ; ACM subsidiary of Crédit Mutuel, 1 ^st French bancassurance P & C, etc. The result is spectacular since, in 2010, 61% of life insurance , and more than 10 % of non-life insurancewere distributed by the bancassurance networks.