Your opinion on how safe the French Assurance Vie contract is

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Lauretta
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Your opinion on how safe the French Assurance Vie contract is

Post by Lauretta » Mon Jul 10, 2017 4:54 am

Hello,
This is a question related to my previous one on the low (or negative) yield of EU bonds. As an Italian who has been until recently a French resident, I have opened Assurance Vie contracts, which I am allowed to keep when living and retiring in Italy. The 'Fonds en Euro' of that contract holds mainly French bonds (but also other assets - a kind reader of a previous post of mine pointed out by PM that in some cases they actually hold a lot of real estate too.)
The main feature of that contract is that it officially garantees your capital no matter what (at least in theory). It also pays some interest at the end of the year depending on how it fares (last year it was 2-3% depending on the contract. 10 years ago it was more like 4 or 5%). The following year, it's that new amount that is offcially garanteed, so that each year you 'lock' your gains as it were.
Since the capital is garanteed, and since I understand from the answers to my previous post that having EU bonds is not a good idea now, I thought that Assurance Vie is perhaps a good solution for the 'safe' part of one's portfolio.
At the same time I have no idea how safe it is in practice, since after all they have bonds of all durations inside the fund, so if the rates go up the value of the bonds inside the fund will go down, and even if they have reserves I'm not sure how they'll be able to garantee one's capital in practice.
The other question (though this is a danger more far away in the future) is this: if a political party comes to power in France which wants to exit the Euro, is it true that they will pay back for the bonds in francs? If so, as an Italian I would loose out, if the franc is devalued (this is of course unless it's Italy that exits the Euro, in which case I would win :D :D )
Lots of different scenarios to consider I guess, but any suggestions/advice would be very welcome as always! :happy

PS The companies where I had opened assurance vie are (in case you have experience with them):
Assicurazioni Generali (in France)
Spirica (from Credit Agricole)
Suravenir (from Credi Mutuel)
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BeBH65
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Re: Your opinion on how safe the French Assurance Vie contract is

Post by BeBH65 » Mon Jul 17, 2017 6:13 am

Hello Lauretta,

As I understand the guarantee of the French "Assurance Vie" "life insurance" is firstly given by the assets that it holds, and it is firstly these that guarantee the principal of this type of investment.

If you look at the factsheets of the specific Assurance Vie you will see lots of bonds, supplemented by equity, real-estate (insurance companies in France are owner of a lot of buildings, vineyards, etc). Typically these funds will also build a "reserve" from which they can still make a distribution in the bad years. Assurance Vie are an important part of the French financial world.

Additional guarantee is provided by the company, if the assets are not sufficient.
Some/Many? also have a government guaratee, which is, i think, max 70k$ per person in France.

The return of these investments is determined by the fund, they are not obliged to pay all return each year.

In short it seems that the managers of these funds have a lot of freedom, and one is assumed to have a lot of trust in them, both for the return as for the protection.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Lauretta
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Re: Your opinion on how safe the French Assurance Vie contract is

Post by Lauretta » Mon Jul 17, 2017 10:28 am

BeBH65 wrote: Typically these funds will also build a "reserve" from which they can still make a distribution in the bad years.
Hi BeBH65 thanks for your post! :happy Yes, I thought that the reserve is a good thing now that one can lose money when investing in bonds because of negative rates in EU. At least in the Assurance vie your capital is garanteed. So perhaps when bond yields are higher it is a good thing to invest in bonds directly; now the Assurance Vie might be a good alternative for the safe part of one's savings, as long as it can be trusted..
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BeBH65
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Re: Your opinion on how safe the French Assurance Vie contract is

Post by BeBH65 » Tue Jul 18, 2017 7:41 am

Lauretta wrote:
BeBH65 wrote: Typically these funds will also build a "reserve" from which they can still make a distribution in the bad years.
Hi BeBH65 thanks for your post! :happy Yes, I thought that the reserve is a good thing now that one can lose money when investing in bonds because of negative rates in EU. At least in the Assurance vie your capital is garanteed. So perhaps when bond yields are higher it is a good thing to invest in bonds directly; now the Assurance Vie might be a good alternative for the safe part of one's savings, as long as it can be trusted..
Hello Lauretta,

Typically higher return requires higher risk. Not sure how it works for the Assurance Vie that you have.
There is no Free Lunch.

- Maybe some of the assets that they hold are very risky?
- I do not know what amount of reserve these funds will hold. Maybe only 1 euro, or maybe they are also allowed to hold a negative reserve; borrowing against their assets might be useful for them in bad years; allowing them to continue to pay a nice dividend.
-...


In Belgium we have something similar. Sometimes I compare them with "structured products" or "whole life" that you sometimes see on this forum.
During the crisis 10 years ago some of these life insurance products got into serious problems.

On insurance company has entered into contract with investors for a return of up to 6%+bonus until the end of the contract, which is by default is the death of the contract-holder. Needless to say this company got into difficulties during the crisis. New contracts got less and less beneficial benefits: lower interests, with limited duration of first 8 years and then even shorter.

Even this was not enough the company had to ask protection of the government.

It was decided that there would be a government guarantee until 100k Euro for such products, under conditions. For this particular company they had to agree to stop the commercialization of this product and to divest themselves completely. This is still going on now. The last offer that they made was a one time premium of 25% to end the contract and parallel with the statements that the remaining contracts will be sold to a foreign company (that might or might not have the same guarantees).

The investors still got a good deal, but it seems it is ending now.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Lauretta
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Re: Your opinion on how safe the French Assurance Vie contract is

Post by Lauretta » Tue Jul 18, 2017 8:29 am

BeBH65 wrote:

In Belgium we have something similar. Sometimes I compare them with "structured products" or "whole life" that you sometimes see on this forum.
During the crisis 10 years ago some of these life insurance products got into serious problems.
Hi BeBH65 I didn't know you were from Belgium! Perhaps you have the same problem as me because of negative rates in the eurozone. I was thinking of Assurance Vie as a temporary solution for the low risk part of my assets (the 'sleep well' part that you mentioned in a previous post), because with negative short term rates in EU I understand that I would lose money in bonds.

Even a hedged global bond fund wouldn't work at present, because the currency hedging will eliminate extra returns from countries that have higher rates.

I even looked at inflation linked bonds, as far as I understand they have a rate that is regularly revised by taking inflation into account - but it's a negative rate(!!) unless you the time till maturity is very long...

I was wondering: do you see any other solutions other than a savings account at present for the 'sleep well' part of our savings? :confused
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BeBH65
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Re: Your opinion on how safe the French Assurance Vie contract is

Post by BeBH65 » Tue Jul 18, 2017 3:14 pm

Hi Lauretta,

There is no magic solution.
I combine savings accounts with Euro Gov Bond funds and have some older CD with higher interest rate.

Maybe something you can look at your debt. If you have a mortgage it might make sense to pay this off if the interest rate (after tax deductions) is sufficiently larger then the guaranteed % you get now. Keep in mind that real instate is not liquid and bonds/savings accounts are.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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