In France, “EU General Fund” instruments issued by Life insurance companies display very specific features which make them not comparable to “insurance wrappers” as covered in EBA Q&A 3307 but more akin to a saving and investment means for retail customers.

More precisely, pursuant to the provisions of the French Code of Insurance, EU General Fund instruments are in essence a savings/investment vehicle which benefit from a tax alleviation and whose beneficiaries can be freely designated and exempted from succession fees.

During the life of the contract, the holder regularly deposes funds on its EU General Fund. Its redemption value is equal to the total amount invested by the policyholder plus a contractual and/or discretionary performance. This performance depends on the return stemming from the assets managed by the insurance undertaking. So as to benefit from the tax alleviation & exemption from succession aforementioned, an actuarial component (i.e. the death of the policyholder) is added to the contract. This component is also accompanied by a survival counter-guarantee offered by the insurer so that the amounts accumulated on the EU General Fund are redeemed to the holder in case this latter survives after the contractual maturity of the contract.

More precisely, the funds stemming from all the policyholders are invested by the insurance company into a commingled fund (hence justifying the denomination “EU General Fund”) in which each policyholder has not a full transparency on the assets; besides, the Insurance company manages those investments to ensure that the redemption value is at least equal to the total amount invested by each policyholder. In France, for the EU General fund, the underlying investments mainly consist of Euro Government Bonds which benefit from the exemption according to Art. 400 1.a CRR. The remaining part of the “EU General Fund” is invested into a sufficiently diversified portfolio made mostly of liquid Corporate Bonds and to a lesser extent on Equities listed on main exchanges to ensure the liquidity of the EU General Fund.

Furthermore, Life Insurers communicate on a regular basis both the redemption value of the EU General Fund and its composition on certain aspects (e.g. percentage invested in EU Govies, percentage of Corporate Bonds by sector and ratings, percentage of listed stocks). In case the holder of the EU General Fund instrument is willing to liquidate its position, the gating period ranges generally up to 10 days.

EU General Fund instruments constitute one of the core saving sources used by households and are therefore accepted by institutions as collateral and in some instances lie at the heart of institutions business models in France, with a relatively small number of Life insurance providers.

Due to the specific status of the EU General Fund instruments in the savings business, additional layers of protection frame the Life insurance undertakings issuing these instruments which thereby do not display the same behavior as other funded credit protection as defined in the CRR – Chapter 4 on credit risk mitigation.

Those additional protections aim at ensuring a low default risk and a high recovery. Similar to cash on deposit which is subject to a DGS, there is a French guarantee fund for EU General Fund instruments which adds an additional layer of protection for each policy holder up to € 90,000. The Guarantee fund is governed by the ACPR.

In the same vein, in Luxemburg, the assets held by any Life insurance undertaking (including EU General Fund similar as those in the French Market) are segregated on the Insurers’ balance sheet to ensure a maximal recovery on the contract in case of default and reinforce the fact that EU General Fund is a savings vehicle as opposed to an Insurance “wrapper”.