Covéa has launched Novatio 2016, a Luxembourg-listed medium-term note (MTN), which has a maximum term of eight-years, is linked to the Euro iStoxx EWC 50 Index, a strategic benchmark that lowers the volatility of stocks and reinvests a synthetic dividend. "The [Euro iStoxx EWC 50] brings an innovation compared to much better known market indices, while at the same time, being equally weighted, the index offers a more qualitative approach to MMA's customers," said Michaël Jousseaume (pictured), head of financial expertise at Covéa, a mutualist group comprising GMF, MAAF and MMA Assurance.
By neutralizing the effect of market capitalisation of its constituent shares, the index provides a less 'stock-market-oriented' approach, according to Jousseaume. "Finally, and an advantage at the product structuring level, the 50 basis points which are withdrawn from the index value allow the offering of a very attractive payoff," said Jousseaume.
The autocallable note is issued by SG Issuer, while Societe Generale acts as the guarantor. If the index is at 85% of its initial level, from the fourth anniversary onwards, the product knocks out, paying a return equal to the index performance, subject to a minimum of 6% per year elapsed. At maturity, the nominal invested is protected as long as the index has not closed below 50% of its initial level. "Structured products are very important for our group, as they allow us to offer unit-linked structures that can benefit from euro-denominated funds that have proved so successful for life insurance products," said Jousseaume. "Thus, we are able to offer yields [albeit conditional] and a level of protection of invested capital, which, in some aspects, resembles the euro-denominated vehicles."
Mutual funds in euros are very popular in France, and account for an average of 80% of total new sales in the life insurance sector. With 80% invested in bonds, funds feel the effect of low interest rates, although less so than other bank investments.
The average yield of funds, which amounted to 2.30% in 2015 (net of management fees), according to the French Federation of Insurance Companies (FFSA), was expected to fall to 1.90% during 2016. "For us, structured products are, therefore, a necessary and required step to pass from single euro-denominated vehicles to more unit-linked multivehicles," said Jousseaume.
Recent regulatory developments enabling the Financial Stability Board to limit the distribution of yield, as well as the upcoming packaged retail investment and insurance-based products (Priips) regulation, present a challenge to the life insurance sector in France. "We have frequent, if not permanent changes in terms of regulation, and we can adapt, although this always brings additional constraints," said Jousseaume. "Nowadays, it is increasingly cumbersome to market structured products and the upcoming Priips standards will certainly not make our life easier."
There are 22 structured products from MMA Assurances dating back to July 2010 listed on the SRP France database. The majority of the products, which are issued via Societe Generale, BNP Paribas and Natixis are linked to equity indices. Of these, 14 products are linked to the Eurostoxx 50, two to the iStoxx Europe Centenary Select 30, and one each to the Ethical Europe Equity, iStoxx Europe Quality Income and the CAC Large 60 indices.
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