On December 19, 2024, during the S.M.A.R.T. France Assureurs event held in Paris, François Villeroy de Galhau, the Governor of the Bank of France and President of the Prudential Control and Resolution Authority, delivered insightful remarks illuminating the pivotal role of insurers in the French economy. His address not only commended the insurance community but also provided clarity on the systemic importance of this sector and the hurdles it faces as it navigates through economic transformation.
Villeroy de Galhau began his speech with heartfelt appreciation for the insurance sector's contributions to financial stability. "Les assureurs jouent un rôle essentiel pour le financement de notre économie et la stabilité financière," he stated, emphasizing the indispensable function insurers serve not just as protectors against risk but as key players supporting economic growth through substantial investments.
With around €2400 billion allocated across various domains, the insurance industry is recognized as one of the most important funding sources for the French government bonds and corporate investments. Roughly €800 billion, comprising 33% of these investments, is funneled directly or indirectly toward non-financial enterprises, signifying the insurers’ substantial role as financial intermediaries.
Villeroy also pointed to recent regulatory changes, such as the revision of the Solvency II directive, emphasizing how these developments are set to bolster the long-term investments within the real economy. An encouraging aspect of this evolution is the Long Term Equity Investment scheme, which incentivizes insurers to hold equity investments for longer durations with preferential prudential treatment.
Despite this positive backdrop, the speech outlined considerable challenges on the horizon. Villeroy pointed to the rapid technological transformations accelerated by the pandemic, flagging the complexity associated with cybersecurity risks inherent within advancing digital infrastructures. “Il est donc essentiel que le secteur de l’assurance soit vigilant face à ces risques,” he cautioned, underlining the necessity for heightened awareness and preparedness for possible cyber threats.
Villeroy also discussed how climate change is contributing to the financial burdens faced by insurance companies, referencing findings from Swiss Re which indicated insured losses exceeding €295 billion due to natural disasters in 2024, reflecting rising costs and more frequent catastrophic events. These statistics are alarming and call for prudent adjustments within the insurance business models to mitigate such risks.
Alongside these challenges, the demographic changes shaping society present insurers with additional pressures. According to projections from INSEE, the share of the population aged 65 and over is set to increase from 21% in 2021 to 29% by 2070. This increase prompts significant questions about retirement income sustainability and how insurance firms will manage the financial needs of aging populations.
Later, addressing the financial resilience of the country's monetary policy, policymakers from the Ministry of Economy and the Bank of France convened within the High Council for Financial Stability (HCSF), reporting on the measures employed for maintaining stability amid significant economic shifts.
The HCSF praised, "Une tendance de reprise" observed within the French housing credit market, asserting the soundness of liquidity and solvency among banks, insurance, and reinsurance entities. The council opted to keep the credit buffer reserve rate at 1%, allowing supplementary capital reserves among banks to safeguard against economic downturns.
The discussions underscored the need for continued vigilance, particularly watching the adjustments within the commercial real estate market. The regulations governing mortgage issuance intend to protect borrowers by limiting debt ratios; even amid fluctuation, banks have been conservative about exploiting exceptions allowing higher debt levels.
The HCSF’s meeting, marking its first physical gathering since early 2024, reflects the concerted effort to closely manage the interplay between economic shifts and financial stability. The council also navigated recent proposals to reform its oversight structure, aimed at enhancing efficiency within the regulatory environment post-2008 financial crisis.
The dimensions of effective supervision are echoed through Villeroy’s remarks as he advocated for enhanced dialogue between insurers and regulators, emphasizing collaboration toward addressing applicable risks and regulatory adjustments. "Nous devons progresser ensemble," he urged, signifying the imperative for coherent communication between the insurance sector and supervision to maintain operational stability.
Summing up, the emphasis throughout these discussions points toward the necessity of balancing regulatory frameworks with financial realities faced by the insurance sector. With increasing pressures stemming from technological advancements, climate change, and demographic shifts, both insurers and regulators must adapt to fulfill their duties efficiently and supportively.
France's insurance sector stands at the forefront of addressing fundamental shifts, not only as stakeholders within financial markets but also as pivotal forces driving France and Europe toward increased innovation and stability. Villeroy and the HCSF’s statements reflect optimism paired with strategic foresight, indicating the pathways available to secure the future of the industry and, by extension, the economy.
