April 27, 2017
While the second round of French presidential elections is approaching, it is interesting to look at the reform proposals relating to life insurance of the two candidates still in the running: Emmanuel Macron (“En Marche!”) and his challenger Marine Le Pen (Front National).
It is worth noting the premiums collected in life insurance amounted to EUR1.632 billion at the end of 2016 (source FFSA). France has become the main market for Luxembourg insurers (EUR 6.9 billion collected in 2015). It is a priority core market for OneLife.
In view of their respective programmes, it seems that the life insurance product may lose in 2018 some of its attractiveness due to its favourable tax regime (rate of levy passing from 23% to 30%) but retains its advantage as an estate-planning tool.
The other thing to note is the willingness displayed by the two candidates to promote the underwriting of life insurance towards the private equity and venture capital: this is very true for Macron who promoted as Minister of Finance in 2016 a life insurance contract coupled with private equity based on the model of contracts Luxembourg (Macron law – July 2016).
Such candidates’ advocacy for private equity in life insurance is clearly a positive element for Luxembourg and more specifically for OneLife. As a precursor, our Company has invested in that niche for which we offer not only innovative and bespoke solutions based on flexibility offered by Luxembourg regulation but also dedicated teams in estate planning as well as in integration and management of these specific underlying assets within our Wealth Solutions.
- Marine Le Pen (Front National): Limited reform of the Sapin II law and orientation towards venture capital
- a) Limited Reform of the Sapin II Law
Qualified for the second round with 21.53% of the votes, Le Pen is an outsider and presents a proposal for limited reform in life insurance: she proposes to neutralise the effects of the Sapin II Law, which allows for a maximum period of six consecutive months to suspend, delay or limit, for all or part of the portfolio, the payment of redemption values, the option of arbitration or the payment of advances on contract in case of threats on the insurers’ financial situation. These provisions mainly relate to so-called euro fund contracts (unlike unit-linked contracts that are marketed by Luxembourg companies such as OneLife). These provisions of the Sapin II Law are not applicable to OneLife (although it should be noted that the Commissariat aux Assurances has similar powers in well-defined circumstances in the Grand Duchy of Luxembourg).
- b) Orientation to venture capital
Le Pen also wants to manage 2% of life insurance “towards venture capital and start-ups” without further details. This last point could appear favourable to insurance companies like OneLife except that Mrs Le Pen also advocates the exit of France from the Eurozone and more widely from the European Union (a referendum would be envisaged in this respect).
- Emmanuel Macron (“En Marche!”): Flat tax, Solvency II reform and promotion of private equity
The proposals of candidate Macron (En Marche!) have the effect of reducing the attractiveness of life insurance as investment savings product on the one hand, but on the other hand favouring the Luxembourg model of life insurance and more specifically the “unlisted investment” segment, on which OneLife has an offer of innovative solutions and highly specialised dedicated teams.
- a) “Flat Tax”
Macron who took the lead in the first round with 23.75% of the votes and the favoured candidate, proposes to move from a 23% tax (7.5% tax after 8 years of detention and 15.5% social contributions) to a global flat-rate levy (tax plus social security contributions) of 30%. This levy would concern only new contracts and new payments made on contracts with outstanding amounts exceeding a ceiling (probably EUR 150,000 (per person)) which is the current ceiling of the equity savings plans (PEA). As is the case at present, the flat-rate taxation is at taxpayer’s option. He/she will always be able to choose the progressive scale if this option is more favourable, whether it is life insurance or other financial investments.
It is worth noting that only 3% of life insurance contracts would have assets exceeding EUR 150,000. However, the effect would not be negligible because 10% of households hold 50% of the outstanding life insurance (source: Cercle de l’Epargne).
This rate would be generalised to all investment income without distinction, i.e. income from land, (income from the leasing of unfurnished leased real estate), capital gains paid on the sale of shares or dividends, bank investment interests (since 2013 the tightening of the taxation of capital gains on shares had a very positive effect on the collection in life insurance). This reform would take place within the framework of a taxation law passed in 2017 for the entire 5-year presidency time.
- b) Continued inheritance advantage
On the other hand, Macron (as Le Pen) does not seem to question the advantage of life insurance in matters of succession i.e. the freedom of choice of the beneficiary and the lower taxation inheritance tax. Thus, in France you can use life insurance to transfer up to EUR 852,500 with a tax levy relatively limited to 20% (31.25% beyond) for each beneficiary who benefits from a tax base reduction up to EUR 152,500 (if premium payments were made on the contract before the age of 70 of the life assured). As a reminder, inheritance tax can reach 45% or 60% (excluding life insurance) according to the degree of relationship.
- c) Revision of the provisions of Solvency II and promotion of private equity in life insurance (according to the Luxembourg model)
If this is not included in his programmme, Macron has already declared himself in favour of a more interventionist governance in terms of investment orientation for insurers and banks: in his opinion, the regulation currently applied to insurance has the effect of no longer financing “the economy”, but financing “the bond”. This therefore requires political action to influence the revision of Solvency 2, which should in particular examine ways to improve the prudential treatment (capital charge) of certain asset classes in order to facilitate the role of long-term financing of insurers within the “real economy”.
Additionally and more concretely, during his stay at the Ministry of Economy and Finance, Macron promoted life insurance contracts to invest in equity funds, (Macron July 2016) through a unit-linked product. The novelty of this provision of the Macron law at the time was that for the first time in France for this type of life insurance contract (private equity), in case of death claim or surrender, contract proceeds could be paid by the life insurer in securities and not necessarily in cash (the liquidity risk being transferred to the client).
When introducing this provision, Macron referred expressly to Luxembourg life insurance contracts as a model, like those of OneLife, which develops solutions for the French market for its clients wishing to have as underlying assets in their policy, stakes in investment funds or unlisted securities (equities, OPCI, etc.).
Time will tell which of the candidates will win the election and whether the elected president implements the flat tax to the detriment of the life insurance’s attractiveness.
But as of now, it is worth noting that the candidates for the presidency and more particularly Macron undoubtedly understood the need to promote, develop and ease the supply of life insurance for High Net Worth and Ultra High Net Worth Individuals (who are holders of major assets) in order to finance the private company capital needs.
OneLife with its bespoke solutions and its expert team in wealth planning and private equity for the French market is ready since 2016 for this great challenge.
Article by 
Antonio Corpas, General Counsel at OneLife