Main Determinants of Profit-Sharing Policy in the French Life Insurance Industry

The current low interest rate environment and the coming into force of Solvency II raise questions about the stability of the life insurance industry in Europe and the sustainability of traditional insurance products. We use a data set built from French supervisory reports to investigate the drivers of the participation rates (equivalent to annual yields) served on euro-denominated life insurance contracts over the period from 1999 to 2013. Our analysis confirms practitioners’ intuition on the alignment with the 10-year French government bond; we later analyse the deviation of the participation rates from this reference. Our data indicate that financial margins are more strictly targeted than participation. We find evidence that surrenders are fairly uncorrelated with participation, suggesting that other levers are used to monitor them. While higher asset returns can imply better yield for policyholders, riskier portfolios do not necessarily translate into better participation.