Monetary Policy and Life Insurance Profitability: Bancassurance's Edge in a Low-Yield World

This paper examines the effects of monetary policy on the profitability of life insurers during the prolonged low-interest-rate period, leveraging a novel dataset of 31 leading French insurers from 2009 to 2018. We classify insurers into three business models—bancassurers, traditional S.A insurers, and mutual insurers—and provide new evidence on the mechanisms driving performance differences. Bancassurers demonstrate consistently higher profitability levels and expanding market shares over the period. This advantage is driven by their ability to mitigate the "income channel" effect of low rates by rapidly reducing guaranteed yields offered to policyholders more effectively than their peers, thereby sustaining profitability and gaining market share throughout the low-yield environment. We also examine how insurers’ portfolio strategies shape profitability in this context. Specifically, we explore the "hunt-for-yield" effect by analyzing the impact of higher equity allocations compared to bonds, the shift toward greater reliance on unit-linked policies, and the role of capital adequacy structures. Our findings reveal substantial heterogeneity in how different types of insurers adapt to monetary policy, illustrating the diverse effects of prolonged monetary easing on non-bank financial intermediaries.