France’s decision to increase
the legal minimum retirement age to 62 years (from 60) and the age
for receiving the full state pension to 67 (from 65) sparked off
riots. Nadine Abaza, Rating agency Moody’s Investor Services
associate analyst, warned that it also created a negative situation
in the short term for insurers.
The negative potential, said
Abaza, springs from insurers’ provision of incapacity and
disability insurance on which guarantees are paid until retirement
date.
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The insurance covers a
beneficiary’s loss of earnings resulting from interruption of work
as a consequence of critical illness or disablement.
Group cover is compulsory for
companies with more than 500 employees with premiums usually split
between employer and employees.
According to Abaza, when the
new retirement age comes into effect in July 2011, insurers will
have to book additional reserves. He added that the additional
charge could be of the order of €4bn ($5.3bn), though regulations
will allow insurers to smooth the charge over six years.
Insurers most impacted are
specialists in incapacity and disability insurance and, more
significantly, provident insurance provided to provident
associations, Abaza noted. He added that some provident
associations provide disability insurance to all businesses
belonging to a specific economic sector.
In 2009, Abaza said,
provident insurance premiums totalled €16.7bn and claims €11bn.
Excluding bancassurance players, the major players in provident
insurance are CNP, Axa and Allianz France, with a combined market
share of 45%.
In the longer-term, Abaza
noted that the retirement age change could be a positive for
insurers by enabling them to promote private retirement
products.
“French households appear
increasingly aware of the need to dedicate more financial resources
to their private pension provision,” he said.
He continued that retirement
products sold by insurers represented only 2.1% of the total
retirement annuities paid in 2009, the rest being provided by the
state retirement scheme.
In 2009, only 5% of
households’ long-term savings were invested into insurance
retirement contracts compared with 51% in life insurance
contracts.
The 44% balance was invested into securities.
