Distributing additionnal professional pension funds
With numerous advantages for both insurers and policyholders, the additionnal professional pension funds (Fonds de Retraite Professionnelle Supplémentaire — FRPS) is attracting more and more insurers with as a way to ring-fence their retirement commitments.
Accelerated since application of the Pacte Act came in 2017, the creation of FRPSs offers many advantages for insurers and policyholders.
Opportunities for insurers
- Make management rules more flexible
- Reduce the cost of capital
- Support in improving the solvency ratio and therefore the solidity of insurers
Opportunities for their customers
- Facilitate long-term asset allocation
- Allow greater diversity of assets
- Ensure greater transparency in management by separating pension assets from general assets
Until now, the FRPS has not been very popular with insurers, but more and more insurers are opting to ring-fence their pension commitments from 1 January 2023.
To ensure the best possible implementation of FRPS, insurers must anticipate the following elements:
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Costs
The creation of FRPS represents a significant investment for insurers: “the project is mobilizing a lot of internal energy, and will cost several millions of euros over several years”, said David Simon, Director of Investments, Finance and Risks at AG2R La Mondiale. “We need to double the annual income from the situation,” he gave as an example.
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Duration
It takes a minimum of ten to fourteen months to set up an FRPS. For Abeille Assurances (ex-Aviva), the procedure took even longer, with a total of 18 months.
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Mobilisation
“The bulk of the work is technical, financial and prudential. The nature of the commitments, reinsurance principles, administrative and commercial organisation, governance, projected accounts and balance sheets, resistance tests… This engages teams in a very cross-disciplinary way” Laëtitia Lafaille, deputy director of Life and Health Risk at the actuarial consultancy Addactis.
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IT
The creation of an FRPS requires a new configuration of the IT management systems (portfolios segmentation, referencing of assets, etc.).
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Balance
“The FRPS demutualizes the Group’s general assets” (…) “62% of our liabilities are dedicated to insurance and are at risk faced to a rise in rates. The remaining 38% are retirement savings liabilities, which are at risk if interest rates fall. Pooling provides a single package that limits both risks,” said David Simon, Director of Investments, Finance and Risks at AG2R La Mondiale.
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