Investments in policies
How did Italian savers invest their savings in insurance policies during 2022? The analysis can only start from the trend of subscriptions by branch type of Italian and non-EU companies. The most immediate way to ascertain that class I (policies subject to revaluation with a guarantee of the invested capital) has not only consolidated its role in the sector, but compared to 2021 has increased its incidence on the total new business going from 59% to 66% with premium income of 50.3 billion and a decrease of 3.3% compared to 2021, but a marked improvement compared to the minus 7.4% of the first quarter.
Premium income from class III (unit-linked policies) was particularly negative, with a volume of premiums amounting to 23.6 billion, and a decrease in production of 30.5% compared to the previous year. Overall life premiums, it is estimated, which at the end of 2022 should amount to 93.6 billion, down 12% compared to 2021. Good news. In January 2023, new class I premiums amounted to 4.5 billion and represent 77% of all new business, with an increase of 20.2% on the corresponding month of the previous year.
The volume of new business
The bad news. The remainder of the volume of new business regarded almost exclusively class III (unit linked), with premium income of €1.2 billion, a decrease of 50.6% compared to 2021. With reference to the various types of products, it should be noted that the new premiums relating to composite products in January amounted to 2.2 billion, still a sharp decline compared to the corresponding period of the previous year -42.1%.
It should be noted that, extremely importantly, the premium collection of multi-class products consists of 69% of premiums pertaining to class I and 31% of unit-linked class IIIa sector mainly made up of classic-type Funds, without any form of financial protection or minimum return guarantee, as envisaged instead in class I policies subject to revaluation with invested capital guarantee. The world has changed and savers are looking for security, given the double-digit inflation and the geopolitical uncertainties we have written about many times.
Unit-linked policies
But what are unit linked policies? These are life policies whose benefits are linked to units of collective savings investment bodies (mutual funds) or to a stock index or other reference value and are therefore subject to the variability of financial market trends. The investment fund(s) can be internal or external. If external, the fund is managed by an asset management company.
In any case, both in the first and in the second case, the risk of losing one’s savings, as already mentioned, lies with the insured. Among other things, as can be seen from the Bank of Italy’s report on financial stability, Italian companies in the life sector are more exposed than the European average to the risk of liquidity strain due to early termination of contracts, also due to the scarcity of constraints and contractual disincentives in the event of redemption.
The growth of redemptions
Since February 2022, it has been observed that the ratio between redemptions and new business premiums has increased, reaching 55% in September. The increase derives from both the decline in premium income and the growth in surrenders. The IVASS survey on the potential vulnerabilities of the insurance sector revealed that the phenomenon is largely due to the greater liquidity needs of policyholders generated by the macroeconomic context, but also to reinvestment choices in new financial and insurance products.
The correlation between mutual funds, unit-linked policies and multi-branch ones
The data from the monthly map of managed savings in December 2022 attest that assets amounted to 2,215 billion euros. In January 2023, managed assets rise due to the market effect, funding is flat. Monthly map data for January 2023 show an increase of about 55 billion to 2267 billion overall. Here we begin to perceive, in part, the lack of contribution of the insurance products linked to the internal and external funds of the Unit Linked products, in fact, net deposits are instead equal to minus 972 million.
In particular, open-ended funds started the year with 642 million outflows. Among the sub-categories balanced products remained in negative territory, minus 625 million, and flexible products, minus 1.67 billion. In terms of portfolio management, with a negative 498 million in the month, institutional mandates recorded 756 million outflows, while 258 million flowed into retail mandates. Overall, closed-end funds were positive for 214 million , therefore collective management recorded a negative balance of 429 million .
Bond funds
Conversely, bond funds plus 609 million new subscriptions and equity funds plus 1.73 billion inflows show that investors are very sensitive to sudden changes in financial markets. As highlighted, also in this case by the Bank of Italy, the net flow of savings to open mutual funds was negative.
The information available for October and November 2022 speaks of a further reduction in net savings flows in the fourth quarter due to a decrease in total inflows from mutual funds (minus €1.8 billion), despite new net inflows to equity funds. All of this demonstrates that the greater selectivity of investment criteria on the part of savers is attributable to a greater perception of the risks to which, in these years of total uncertainty for the near future, all of us are unfortunately now accustomed.