📌 Securities in Insurance: Definition, Advantages, and Risks

Summary

📌 Section	📖 Description
📜 History and Evolution	Securities have existed for centuries and have evolved with life insurance, incorporating stocks, bonds, and investment funds.
📊 Types of Unit of Account	UCs include stocks, bonds, SCPI, OPCI, and ETFs. They allow diversification but their value fluctuates with the markets.
📉 Impact of Economic Cycles	Growth favors stocks, while economic crises and rising interest rates impact bonds and funds.
💡 Advantages and Risks	Securities offer high returns and diversification but carry risks of volatility and lack of guarantees.
🎯 Choosing an Appropriate Contract	One must define their investor profile, analyze fees, compare support performances, and verify contract flexibility.
⚖️ Regulation	The AMF and ACPR regulate securities in insurance. The Solvency II directive imposes strict management rules.
🚀 Investment Strategies	Good diversification, regular monitoring, and appropriate arbitrages help optimize securities returns.
✅ Conclusion	Securities energize life insurance but require active management and proper strategy to minimize risks.

Securities in insurance play an essential role in the investment of life insurance contracts. They allow policyholders to access diversified financial placements, while optimizing returns. However, they also carry risks that are important to understand before investing.

In this article, we will detail what securities are, their advantages and risks, as well as criteria to consider for choosing them well.

Best Life Insurance Contracts

Past performance does not predict future results. The yields mentioned are those of 2024.

🔎 What Is a Security in Insurance?

Securities are financial instruments that can be purchased, traded, or negotiated on financial markets. They allow investors and insurers to diversify their placements, seeking a higher return than traditional placements. Unlike guaranteed products, they do not offer any guarantee on invested capital, which means that the value of the investment can fluctuate according to market conditions.

In the context of life insurance, these securities are generally integrated into unit of account (UC), which allow policyholders to invest in various financial assets. These units of account are directly linked to market performance, which can generate an attractive return, but also involve an increased risk of capital loss.

📌 Main Characteristics of Securities in Insurance

📌 History and Evolution of Securities in Insurance

Securities have been used for centuries as investment tools, and their integration into life insurance contracts has evolved significantly over time. Initially reserved for major financial institutions, they are now accessible to individuals through unit of account facilities.

1. Origins of Securities

The earliest forms of securities appeared in the 17th century with government bonds, used to finance wars and major infrastructure projects. At that time, states borrowed from private investors by issuing debt securities.

Meanwhile, stocks emerged to enable companies to raise funds. One of the first examples is the Dutch East India Company, which issued shares as early as 1602 to finance its trade.

2. Rise of Unit of Account and Investment Funds

In the 20th century, insurance companies began diversifying their investments to improve savings contract returns. Guaranteed euro funds remained dominant, but the introduction of unit of accounts (UC) allowed policyholders to invest in stocks, bonds, and other financial products.

The rise of collective investment funds, such as UCITS and SCPI, marked a revolution. These vehicles allow individuals to access financial markets more easily without managing their investments themselves.

3. Regulatory Changes and Impact on Investment

Since the 2000s, securities regulation in insurance has been strengthened to better protect investors. Key measures include:

• Solvency II Directive (2016) requires insurers to hold sufficient capital to guarantee investment safety.
• The Autorité des Marchés Financiers (AMF) oversees products offered within life insurance policies.
• ESG criteria (responsible investing) are increasingly integrated, promoting sustainable and ethical placements.

Today, securities are a key leverage to optimize contract returns while diversifying risks.

🏦 How Do Securities Work in a Life Insurance Contract?

Securities in insurance are mainly used within multi-support life contracts. Unlike euro funds, which offer capital guarantees, units of account based on securities fluctuate according to financial markets.

📌 Unit of Account (UC): a Variable Yield Investment

Units of account allow policyholders to invest in a wide range of financial assets. Their value fluctuates based on market performance, which means invested capital is not guaranteed.

💡 Why Incorporate Securities into Your Life Insurance?

Opting for securities within life insurance can provide better potential profitability than euro funds, but this strategy must be tailored to the investor profile.

📌 Advantages

✅ High-yield potential: securities allow expecting higher gains over the long term.
✅ Asset diversification: investing in different asset classes reduces concentration risk.
✅ Access to various markets: units of account can include stocks, bonds, UCITS, SCPI, etc.

⚠️ Disadvantages

❌ No guarantee: unlike euro funds, securities do not guarantee the invested capital.
❌ High volatility: their value fluctuates according to market evolution.
❌ Requires regular monitoring: it is necessary to frequently analyze the performance of investment supports.

🎯 Who Are Securities in Insurance For?

Securities in insurance are mainly suitable for investors with a long-term investment horizon and a risk appetite.

📌 Advice: If you are a prudent investor, it might be interesting to combine euro funds and units of account for a better balance between security and return.

📜 Different Types of Securities in Insurance

The securities used in insurance are divided into several main categories, each offering a different level of risk and return. They are integrated into multi-support life contracts, allowing investors to diversify their savings according to their financial goals.

📌 Shares: Property Titles with High Potential

Shares represent a ownership stake in a company. They are listed on the stock exchange and allow the investor to become a shareholder of the company. In insurance, they are often offered as units of account, meaning their value fluctuates based on the market.

📌 Characteristics of Shares in Insurance

✅ Advantages of Shares in Insurance

• High return potential 📈 : Shares can generate significant capital gains if the company performs well.
• Access to dividends 💰 : Some companies distribute a part of their profits to shareholders.

⚠️ Risks of Shares in Insurance

• High volatility ⚖️ : Shares are sensitive to fluctuations in financial markets and can see their value drop suddenly.
• Dependence on the economy 📉 : A poor economic situation or a financial crisis can negatively impact performance.

📌 Example: A life insurance contract with units of account might include stocks from companies like LVMH, Apple, or TotalEnergies, offering growth potential but with a risk of fluctuation.

📌 Bonds: A More Stable Investment

Bonds are debt securities issued by companies or governments. They allow investors to lend money in exchange for a regular interest called coupon. Unlike stocks, they are generally less risky, but their yield is lower.

📌 Characteristics of Bonds in Insurance

✅ Advantages of Bonds in Insurance

• Stable income 💵 : Bonds offer a regular coupon, ensuring a predictable income.
• Less volatility ⚖️ : They are less sensitive to market variations.

⚠️ Risks of Bonds in Insurance

• Rising interest rates 📉 : An increase in interest rates causes a fall in bond values in the secondary market.
• Default risk ⚠️ : If the issuer (company or government) cannot repay its debt, the investor may lose their capital.

📌 Example: An investor wishing to secure part of their life insurance contract might choose French government bonds (OAT) or corporate bonds like those of Airbus or BNP Paribas.

📌 Investment Funds: Optimized Diversification

Investment funds bring together several financial assets and are managed by professionals. They provide access to diversified management, reducing the risks associated with a single security.

📌 Types of Investment Funds in Insurance

✅ Advantages of Investment Funds

• Portfolio diversification 🔄 : Spreading investments across multiple assets to limit risks.
• Professional management 📈 : Investments are managed by experts, optimizing returns.

⚠️ Risks of Investment Funds

• High management fees 💸 : Costs may reduce profitability of the investment.
• No guarantee ❌ : Unlike euro funds, there is no protection of capital.

📌 Example: A SICAV fund can include a mix of European and American stocks, while a real estate FCP can include SCPI and bonds.

🏆 Which Security to Choose?

The choice between stocks, bonds, and investment funds depends on the investor profile, investment horizon, and risk tolerance.

📌 Advice: To reduce risks, it is recommended to diversify investments and monitor market developments.

📈 Advantages and Risks of Securities in Insurance

Integrating securities into a life insurance contract offers a dynamic investment opportunity, but also involves risks that it is essential to understand well.

✅ Benefits of Securities in Insurance

📊 1. Potentially High Return

Securities, especially stocks and some investment funds, offer returns higher than guaranteed placements such as euro funds.

✔️ Stocks allow benefiting from company growth and dividends.
✔️ Bonds provide fixed income with a moderate risk level.
✔️ Investment funds give access to diverse markets to optimize performance.

⚠️ Attention: High yields always come with proportional risk.

🔄 2. Diversification to Reduce Risks

One of the main advantages of securities is diversification.

✔️ Multi-support contracts allow investing in different assets (stocks, bonds, SCPI, etc.).
✔️ Risk distribution limits the impact of poor performance of a single security.
✔️ You can adjust your portfolio based on economic conditions.

📌 Example: A contract could include 50% stocks, 30% bonds, and 20% real estate funds to balance risk.

🎯 3. Managed by Experts

Securities are often managed by professionals, allowing investors to benefit from in-depth expertise.

✔️ Fund managers analyze market opportunities to optimize investments.
✔️ UCITS funds provide access to advanced financial strategies.
✔️ Some contracts offer managed management, allowing investors to delegate their decisions to experts.

📌 Good to know: Even if management is professional, it is important to monitor your contract’s evolution and adjust your allocation based on your objectives.

⚠️ Risks of Securities in Insurance

📉 1. Market Volatility

Securities are subject to market fluctuations, which can lead to significant variability in returns.

❌ The value of stocks can drop sharply during an economic crisis.
❌ Bonds can lose value if interest rates increase.
❌ Some investment funds can be very sensitive to global economic events.

📌 Example: A stock bought at €100 can drop to €70 during a recession, negatively affecting savings.

⚖️ 2. No Capital Guarantee

Unlike euro funds, securities do not guarantee the invested capital or a minimum return.

❌ In case of market decline, invested savings can lose value.
❌ Capital is not protected, unless the contract includes a security option.
❌ An incorrect asset allocation can lead to significant losses.

📌 Advice: To limit this risk, it is recommended to spread investments and avoid putting all savings into a single asset.

⏳ 3. Risk Related to Investment Duration

Securities require a long-term investment horizon to smooth out volatility and maximize returns.

❌ Stocks can take several years to recover their value after a drop.
❌ Long-term bonds may be less profitable in case of interest rate changes.
❌ Real estate funds require a multi-year commitment to be effective.

📌 Example: An investor who wishes to withdraw their savings after 2 years could face a loss, whereas a 10-year investment could provide better profitability.

📢 How to Reduce Risks?

✅ 1. Diversify Your Portfolio

A good balance between stocks, bonds, and real estate funds helps limit losses.

✔️ Gradually invest to smooth fluctuations.
✔️ Avoid concentrating all investments in a single asset class.

🔄 2. Monitor Your Contract Regularly

Regular monitoring allows adjustments to be made based on market changes.

✔️ Change allocation if markets are unstable.
✔️ Reduce exposure to risky assets during crises.

📆 3. Adjust Your Investment Horizon

Investing in securities requires a long-term perspective.

✔️ Avoid panicking during short-term market dips.
✔️ Plan investments for 5 to 10 years to maximize returns.

💡 How to Choose a Contract with Securities?

Incorporating securities into a life insurance contract helps optimize savings, but it is essential to carefully select the contract based on objectives and investor profile. Several criteria must be considered to ensure that the investment meets one’s expectations.

📌 1. Define Your Investor Profile

Before choosing securities, it is crucial to assess your risk appetite and your investment capacity.

✔️ A prudent investor will choose bonds and diversified funds, offering stability and moderate returns.
✔️ A dynamic investor will favor stocks, which are riskier but have higher growth potential.
✔️ An balanced investor will opt for a mixed allocation, combining security and performance.

📌 Example: If you have a short-term investment horizon, it is better to favor secure placements like bonds or guaranteed funds.

📌 2. Analyze Investment Goals

Securities help meet different financial needs. It is therefore important to clearly define your objectives before subscribing to a contract.

✔️ If the goal is security, it is better to favor bonds and euro funds.
✔️ If the goal is growth, investing in stocks and diversified funds is recommended.
✔️ If the goal is to maximize profitability, an balanced allocation between stocks and bonds is a good option.

📌 Example: A young investor can favor stocks for long-term growth, while an investor nearing retirement will choose more stable placements.

📌 3. Compare Fees and Performance

Management fees have a direct impact on the profitability of a securities-based life insurance contract. It is therefore crucial to compare the different offers.

✔️ A contract with high fees can negatively impact overall return.
✔️ It is important to check arbitration fees, especially if regularly adjusting investments.
✔️ Past performances are also a key indicator, even though they do not guarantee future performance.

📌 Example: A contract with management fees of 2% per year can significantly reduce long-term profitability.

📌 4. Check Contract Flexibility

A good life insurance contract with securities must offer enough flexibility to adapt to market developments and investor needs.

✔️ The best contracts allow for portfolio rebalancing according to economic conditions.
✔️ Some contracts offer managed management, which can be a good option for less experienced investors.
✔️ A flexible contract should allow partial redemptions, without excessive penalties.

📌 Example: An investor wishing to rebalance their portfolio during a crisis should be able to change allocation without excessive fees.

📌 5. Choose a Reliable and Reputable Insurer

It is important to select a solid insurer, capable of efficiently managing funds and guaranteeing a good management of securities.

📌 Example: A recognized insurer, with well-rated funds, offers better security for investment.

⚖️ Regulation of Securities in Insurance

Securities in insurance are subject to strict regulation to ensure transparency of investments and protection of policyholders. Several regulatory bodies and European regulations oversee these financial products to guarantee prudent management and market stability.

📌 1. Regulatory Bodies

Several authorities oversee the proper functioning of the securities market and ensure that insurers comply with rules.

✔️ The AMF ensures that securities are offered transparently and that investors have access to all necessary information before investing.
✔️ The ACPR makes sure that insurance companies comply with prudential rules and have enough solvency to meet their commitments.

📌 Example: Before an insurer can offer a unit of account fund, it must be approved by the AMF, which checks its composition and risk level.

📌 2. The Solvency II Directive: A Strict European Regulation

The Solvency II Directive is a European regulation aimed at ensuring the financial robustness of insurance companies and protecting policyholders.

✔️ Capital requirements (Solvency Capital Requirement – SCR) ensure that insurers can cope with potential losses on their securities.
✔️ Regular risk control is mandatory to prevent companies from taking excessively risky positions on financial markets.
✔️ Obligations of transparency allow investors to have a clear view of investments and performance.

📌 Example: An insurer offering units of account invested in stocks must hold adequate financial reserves to offset losses in the event of a stock market downturn.

📌 3. Insurers’ Obligations

Insurance companies must comply with several rules to ensure prudent management of securities.

✔️ Investors must be transparently informed about risks related to securities.
✔️ Companies must follow strict diversification rules, to avoid concentrating investments in a single sector or asset class.
✔️ Insured must have the possibility to adjust investments according to economic conditions.

📌 Example: A life insurance contract with units of account must clearly specify whether the capital is guaranteed or not, and indicate the risks involved.

📌 4. Penalties for Non-Compliance with Regulations

Insurers and fund managers who fail to comply with financial rules risk facing penalties.

📌 Example: In 2022, some insurance companies were sanctioned for misinforming their clients about unit of account risks.

📌 Different Types of Units of Account and Their Functioning

Units of account (UC) are investment supports integrated into multi-support life contracts. Unlike guaranteed euro funds, their value fluctuates with financial markets, which can generate attractive returns but also entails a risk of capital loss.

1. Available Types of Units of Account

UCs enable investment in several asset categories:

• Stocks 📈 : They offer high return potential but also significant volatility.
• Bonds 💵 : More stable, they produce fixed income in the form of interest.
• SCPI (Sociétés Civiles de Placement Immobilier) 🏢 : They allow indirect investment in rental real estate.
• OPCI (Organismes de Placement Collectif Immobilier) 🏠 : More flexible than SCPI, combining real estate and financial assets.
• ETFs (Exchange Traded Funds) 🌍 : These index funds replicate market performance (e.g., CAC 40).

2. How Do Units of Account Function?

UCs do not guarantee the invested capital. Their value evolves according to the performance of the underlying assets. Thus:

• A stock fund rises if stock markets grow 📈.
• A bond can lose value if interest rates increase 📉.
• An SCPI generates rental income but can be impacted by a decline in the real estate market.

Investors can adjust their allocation by making arbitrages, i.e., redirecting their savings among different supports.

3. What Criteria to Consider When Choosing UC?

To select the best UCs, consider several factors:

• Risk level: some UC are more volatile than others.
• Management fees: they can significantly reduce returns.
• Historical performance: even if it doesn’t guarantee future results, it provides an indication of management quality.

UCs are therefore an excellent way to energize life insurance, but they require a well-defined strategy based on investor profile.

📌 Impact of Economic Cycles on Securities in Insurance

The economy plays a vital role in the performance of securities in insurance. Financial markets are influenced by several factors such as economic growth, inflation, and central bank decisions.

1. Influence of the Economic Situation

Economic cycles directly affect the profitability of insurance investments:

• During growth periods, stocks are dynamic and offer attractive yields 🚀.
• During recession, investors favor safe assets like government bonds 🏦.

2. Impact of Interest Rates

Central banks (e.g., the ECB) adjust interest rates to control the economy.

• Interest rate hikes → bonds lose value, but new investments are more remunerative.
• Interest rate decreases → stocks are favored as borrowing costs decline.

3. Financial Crises and Their Effect on UC

It is therefore essential to adapt investments based on the economic context to limit risks.

📌 Best Strategies for Investing in Securities within Life Insurance

Investing in securities requires a strategy tailored to one’s profile and investment horizon.

1. Define Your Investor Profile

• Prudent 🛡: prioritize bonds and guaranteed funds.
• Balanced ⚖️: split between stocks, bonds, and diversified funds.
• Dynamic 🚀: mainly invested in stocks and ETFs.

2. Adopt Effective Diversification

Good diversification reduces risks:

• Geographical distribution: invest in Europe, the US, Asia.
• Different sectors: technology, energy, healthcare, finance.

3. Monitor and Adjust Your Portfolio

It is important to regularly reassess investments and perform arbitrages based on market developments.

✅ Conclusion

Securities in insurance offer an interesting investment opportunity for savers looking to optimize their returns. However, they also involve risks and require rigorous management.

📌 Before investing, it is essential to clearly define your profile, analyze fees, and choose a contract that aligns with your goals. 🚀