Profit sharing in life insurance
The insurer's duty to hand back to policyholders a minimum share of the book's technical and financial results, with a smoothing reserve that must be paid out within eight years.
French Insurance Code, Articles A. 331-3 et seq.: a life insurer must return to policyholders at least 90% of its technical result and 85% of its financial result, computed across the whole portfolio rather than policy by policy. In savings business, the floor that bites is the financial one, on investment income. The technical floor, covering mortality and expenses, matters mostly in protection business. The insurer does not have to pay everything out in the same year. It can set money aside in a policyholder profit-sharing reserve, the PPB, provided it pays it back within eight years. That reserve has become the main steering tool for euro funds. Insurers build it up when rates are high and release it when credited rates would otherwise fall behind the competition. It offsets an information gap, since the policyholder sees neither the gains the insurer realizes on the pooled assets nor the margin it takes. The rule sets an overall floor. How much each contract gets remains the insurer's call, within its general terms.
The French Insurance Code requires at least 90% of the technical result and 85% of the investment result to be returned. At the end of 2022, according to the regulator, the French market's profit-sharing reserve stood at about 5% of euro fund assets, several tens of billions of euros set aside. Because it has to be paid out within eight years, it propped up the returns credited in 2023 and 2024. A French order of December 24, 2019 allowed part of it to count toward Solvency II own funds, at a time when low rates were weighing on solvency ratios.
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