HCSF power to freeze surrenders (Sapin 2 law)
A macroprudential power granted in 2016 to France's High Council for Financial Stability to temporarily limit or suspend life insurance surrenders, switches and policy loans to prevent a run.
Law no. 2016-1691 of 9 December 2016, known as Sapin 2, amended article L. 631-2-1 of the French Monetary and Financial Code to give the High Council for Financial Stability a tool previously reserved for investment funds. On a proposal from the Governor of the Banque de France, the Council may, for all or some insurers, temporarily limit or suspend surrenders, switches and policy loans, delay or limit payment of sums due, or adjust profit sharing, when such measures are necessary to preserve the stability of the financial system or to prevent risks seriously threatening the financial position of a group of insurers. The measure lasts three months and may be renewed. The scenario in view is a run: a sharp rise in rates makes new investments more attractive than old euro funds, policyholders surrender en masse, insurers must sell their bonds at a loss, which deepens losses and fuels further surrenders. The announcement of this power sparked controversy about the liquidity of life insurance. It has never been used; its mere existence is meant to discourage panic, as deposit insurance discourages bank withdrawals.
Textbook case: ten-year rates jump three points in a few months and surrenders at a group of insurers triple. The Council, using the power granted by the Sapin 2 law of December 9, 2016, decides to cap surrenders for three months at 70 percent of each contract's value, giving insurers time to sell assets without dumping their portfolios.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.