- 2'15 min
Cyrille Chartier-Kasler sheds light on Life Insurance
Cyrille Chartier-Kastler, an expert in insurance and social protection, is the founder and coordinator of theGoodValueforMoney.eu website, specialising in life insurance. He is a regular contributor to Les Echos Patrimoine and Capital on these subjects.
Cyrille has also developed the Facts & Figures consultancy specialising in insurance and social protection. In this capacity, he publishes an annual Life Insurance Barometer that presents an insight into market prospects.
In recent years, low interest rates have adversely affected the returns on Eurofunds. What's the outlook for 2017?
Cyrille Chartier-Kastler : The current scenario points towards key interest rates staying steady, or even rising gradually. In this context, the average returns on Euro funds could continue to drop slightly or level out. For 2017, it would therefore seem reasonable to envision average returns on Euro funds of approximately 1.40% net of fees but exclusive of deductions, including guaranteed rates.
This is a modest return. That being the case, what's the best breakdown into Euro funds and unit-linked products for a life insurance policy?
There is no "best solution", as each saver's situation differs according to his or her objectives and investment horizon. What we must remember is that life insurance today is a diversified investment with a balance between Euro funds and unit-linked products that is adapted to each saver. Euro funds remain the cornerstone of the policy. Unit-linked products supplement them in a quest to improve long-term performance. And for short-term investments, regulated bank savings – the Livret A and Compte Epargne Logement savings accounts in particular – should not be overlooked.
And what should be done in a medium to long-term perspective?
In this situation, the Euro fund/unit-linked product breakdown primarily depends on the investment horizon. Generically speaking, it is reasonable to envisage an investment of approximately 25 to 30% on unit-linked products at an 8-year horizon, 30 to 40% at 12 years, 40 to 50% at 16 years and even up to 50% at 20 years and more. These values also depend on the saver's aims and risk profile. And this distribution needs to be adjusted according to the market developments and the saver's situation.
How should such a diversification strategy be implemented in practice?
The main rule is to favour the selection of no more than four to five unit-linked products in order to develop a proper understanding of how each of them works. For these unit-linked products, it is then important to invest in different categories of assets (e.g. shares, real estate and structured funds). ln this way, it will be possible to carry out a partial redemption at a given time “T” for a category of assets with a capital gain, while other assets may be making an unrealised loss at the same time. This could meet an occasional need for liquidity, to finance a child's studies or marriage, for example.
What is the benefit of financial management options?
They may help savers to diversify their investments with greater peace of mind, especially for options that act as buffers against changes on the financial markets. These options include "incremental investment" which allows for the smoothing of the acquisition cost of unit-linked products over time, "relative stop loss" which reduces the risk of capital loss, and the "safeguarding of capital gains" which automatically invests the capital gains by investing them in Euro funds when a certain threshold is reached.
What advice would you give to savers managing their own policies?
Use your common sense and never make hasty decisions. Using your common sense means only investing in funds that the saver understands perfectly and maintaining a consistent investment strategy while knowing how to make trade-offs. Here's an example: selling when a notable capital gain – of around 20% – has been made. Avoiding hasty decisions means not buying or selling massively without thinking it through properly.
Three key ideas according to Cyrille Chartier-Kastler:
There is no "best breakdown", as each saver's situation differs according to his or her objectives and investment horizon.
What we must bear in mind is that life insurance today is a diversified investment with a balance between Euro funds and unit-linked products that is adapted to each saver.
Financial management options can act as "buffers against changes on the financial markets".