In 2012, the French life insurance industry reported for the first time negative aggregate net flows, reflecting a combination of structural and temporary trends. However, the reported net flows varied significantly by company. While the overall market reported net flows deterioration, the negative net flows were mainly concentrated to a limited number of players; and some companies improved their position.
These differences partly reflect different strategies, but also differences in business profiles (i.e., targeted clients, distribution mix and product mix) and imply different challenges various companies face in adapting to the evolving French life market. In particular, life insurers whose current business mix is skewed to the savings business may see their overall franchise continue to weaken.
The ratings we assign to French insurers currently reflect the trends we outline in this report.
Different levels of outflows partly reflect different strategies
We believe the differences in the levels of outflows partly result from different strategies. For example, the largest net outflows were reported by players willing to de-emphasise traditional savings products associated with a low return on capital. This would seem to be the case for the subsidiaries of the main international groups such as AXA France Vie 2 (Aa3 negative), Allianz Vie (Aa3 negative), Generali Vie (Baa1 negative) and Aviva Vie (not rated).
At the same time, some insurance companies with lower profitability targets, such as some mutuals, have reported positive net flows in 2012, despite lower market shares.
Different trends highlights different franchise strengths and business profiles
Amongst the companies willing to de-emphasise traditional savings business, three companies reported large net outflows relative to their market position: Generali Vie, Groupama Gan Vie and Aviva Vie.
These companies are also amongst those that reported deteriorating outflows between 2011-12, while companies such as AXA France and Allianz France reported improved net flows in 2012.
Although we continue to believe that outflows do not pose any liquidity risk and have little negative impact on French insurers’ profitability at this stage, these outflows may indicate potential franchise deterioration in the savings business for Generali Vie, Groupama Gan Vie and Aviva Vie.
Furthermore, in the case of Generali Vie and Aviva Vie, this also reflects their product and distribution strategy. Generali Vie, suffers from a high weight of large capitalisation policies sold through non-proprietary channels such as financial advisors and banks, which are more likely to propose alternative providers than traditional-tied distributors. Aviva Vie suffers from a high reliance on a specific product promoted by an independent association, which although tied to Aviva, acts to defend policyholders’ interests.
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