ACPR research seminars "Intercohort Risk Sharing in Euro Contracts"

Abstract

Using 25 years of supervisory data (1999–2023), this project studies how France’s euro-denominated participating life policies share market risk across saver cohorts and what this implies for regulation. Insurers smooth market shocks over time: the standard deviation of credited rates is about one fifth of the volatility of returns on underlying assets (about 1 pp versus 5 pp). This smoothing is financed almost entirely by collective reserves, which largely shield insurer margins from market swings. On average, reserve movements reallocate 1.6 percent of technical provisions each year (around 22 billion euros, or 0.8 percent of GDP) across generations. The mechanism improves risk sharing and yields welfare gains of about 70 basis points per year before fees. We find only limited evidence that flows respond to reserve levels (reserve arbitrage), which helps preserve inter-cohort risk sharing. These results suggest that collective reserves act as a buffer that protects households from market volatility, and that their effectiveness depends on the absence of strong reserve-chasing behavior.