Insurance undertakings in France: investment developments in 2016

With a total of EUR 2,543 billion in investments held by insurance firms that are subject to the Solvency II regime (see the glossary in the appendix) at the end of 2016, France has the euro area's leading insurance market. Insurers are faced with two major challenges that influence their investment behaviour. First, the historically low interest rates are gradually diluting the financial return on their investments due to the reinvestment of liquidities in extremely low-yield bonds. This environment can encourage life and composite insurance undertakings to seek additional returns from alternative sources in order to guarantee satisfactory revaluation rates for their clients. Second, determining Solvency II capital requirements involves calculating economic losses based mainly on the market risk associated with the investments held. This encourages more active investment management. As this study points out, insurers are gradually adjusting the structure of their portfolios, as their investments are essentially made up of held-to-maturity redeemable securities. 2016 witnessed a lengthening of residual maturities of fixed-rate debt securities and increased efforts to diversify assets.