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Eric Dubos: "We are committed to holding 8% responsible investments in the bond pocket, including at least 80% in green bonds"

According to Eric Dubos, CFO and member of the MACSF COMEX, with negative rates on a good part of the yield curve, the search for yield pushes investors to extend the duration of portfolios ...

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Could you tell us more about MASCF and the current amount of your assets?

Leading insurer for healthcare professionals, MACSF (Mutuelle d’Assurance du Corps Médical Français) insures the risks of the private and professional life of more than one million members, as well as their savings and retirement. Since its creation in 1897, the MACSF group has been administered by elected health professionals from different sensibilities of the medical profession. Without shareholders or capital to remunerate, MACSF has remained faithful to the mutualist values ​​of solidarity, proximity and responsibility which make all its strength and its difference.

The MACSF in a few figures:

  • More than one million members
  • More than 2 million contracts
  • More than 1 600 employees divided between the head office and 72 agencies across France
  • A turnover of approximately 2 billion euros in 2019, 195 million euros in consolidated net income in 2019, 3.75 billion euros in equity and more than 30 billion euros in assets under management.

What is your current asset allocation? Has it been changed since the stock market crisis in 2020?

Our asset allocation is made up mainly of bonds like all insurers. The allocation of these bonds represents more than 73% of assets including convertible bonds, listed and unlisted equities are around 14%, real estate (6%), diversification funds (5%) and money market (2%).

Our allocation has been significantly changed. We took advantage of corporate and financial credit spread widening to buy fixed-rate bonds. We are also back to Spanish and Italian government bonds mainly indexed to inflation.
Eric Dubos, CFO and member of the MACSF COMEX

Yes, our allocation has been significantly changed. We took advantage of corporate and financial credit spread widening to buy fixed-rate bonds. We are also back to Spanish and Italian government bonds mainly indexed to inflation. This is the same story for convertible bonds where we have had some investment opportunities in quite rare names. The allocation of listed equities has also increased, taking advantage of market lows. And we are continuing to strengthen the unlisted portion of the portfolios.

How has your solvency ratio evolved?

The fall in the equity markets but above all the impact of negative rates on the valuation of liabilities is costly in terms of equity and therefore in solvency. Our solvency margin remains very solid, however, as we estimate it at 240% at the end of December 2020, which allows us to maintain a diversified and dynamic asset allocation.

Many institutional investors are putting their portfolios on the defensive in anticipation of rising risks. Is this also your case? Are you using specific hedging strategies?

For 2021, geopolitical and financial risks remain numerous even if Brexit has passed as well as the American elections. However, the ECB’s interventions with government and corporate bond purchase plans sharply reduced rates and spreads. By maintaining its accommodative monetary policy over the next few years, the ECB will limit volatility in the bond market. However, this year, we have implemented a hedge on bond credit risk which allows us to slightly reduce the impact of Solvency II calculations. Of course, we always look at hedging our equity positions based on the cost of options.

Do you think that the current health crisis will strengthen the interest of investors in the ESG theme?

Investors will certainly be more and more sensitive to environmental, societal and governance criteria. Moreover, it is interesting to see the number of new financial products that are released based on these criteria to differentiate financial management. Likewise, now that we have a certain history of data, particularly with regard to benchmarks, many studies show that the performance of SRI management is superior to that of traditional management. Indeed, more and more, the extra-financial issues facing companies can impact their ability to produce value and degrade their market value. Beyond the health crisis, businesses like Wirecard will also promote better monitoring, on the part of investors, of governance in companies.

Does MASCF use ESG criteria in its management policy? Do you have any projects or developments in progress on this subject?

Yes, in recent years we have developed an ESG policy to better understand our investments. Our responsible investment approach is based on three pillars which are ESG integration, exclusion and shareholder engagement. Financial teams integrate ESG analysis as a complement to traditional financial analysis and as a risk mitigation tool. This approach is linked to the many actions of the FFA and the ACPR with commitments made on our investments according to asset classes. Our commitment refers to interacting on ESG topics with the companies we finance, in debt or in equity, with the objective of influencing their environmental, social and governance practices over time and improving their reporting practices on the matter.

Thus, for example, for the year 2021, we are committed to holding 8% of responsible investments in our bond allocation, which at least 80% invested in "green" bonds.

For more than 20 years, the MACSF group has chosen not to finance companies belonging to the tobacco sector. The MACSF group is also strengthening its policy to fight against the use of coal. In particular, companies developing new coal activities are excluded. We are also stopping to support companies that seriously and repeatedly violate the principles of the Global Compact.
Finally, the MACSF group has initiated a commitment process by systematically voting at general meetings of companies in which it holds a shareholding considered to be significant.

To best meet these challenges and to build an appropriate approach, the MACSF group participates in several working groups:

  • SRI working group of the French Association of Institutional Investors (AF2i),
  • Sustainable Finance working group of the Association des Assureurs Mutualistes (AAM),
  • FFA ESG-Climate working group.

Do you still delegate the entire management of your portfolio to asset management companies?

No, we don’t delegate a lot, around 5% of our total outstanding assets. We select asset classes that we cannot follow in real time, such as international and emerging equities or bonds, subordinated financials and High Yield. We have opted for internal management to be much more responsive in our management choices and also in our accounting and regulatory management.

We have opted for internal management to be much more responsive in our management choices and also in our accounting and regulatory management.
Eric Dubos, CFO and member of the MACSF COMEX

Do you have profitability objectives in your portfolio? What was its performance last year?

At the start of the year, we always set profitability targets by asset class. This budget is valid for both life and non-life companies. This allows with the department of ALM and Budget Control to set a target rate for the year based on risk and also, now with Solvency II, on capital requirements. Our significant equity has enabled us, for many years, to diversify into assets that are more profitable than government bonds.

This year, the net rate is 1.55%, placing our euro fund among the best funds on the market and above inflation. We have also allocated the provision for profit-sharing (PPB) which now represents 3.6% of the fund’s assets in euros.

What are your various constraints in terms of investments ?

There are many investment constraints. First, there is the constraint of return and risk. Currently with negative rates on a good part of the yield curve, the search for yield pushes investors to lengthen the duration of portfolios or to seek more yield and risk on less well-rated signatures like the HY. Then there is the constraint, increasingly strong in recent years, of capital. It is necessary to find investments offering a return, little risk and having a relatively low capital cost. This excludes a large part of IG bonds and government bonds today. Investors are turning more and more to the unlisted which offers the advantage of being less volatile and sometimes requires a more limited capital requirement than certain other asset classes. Another constraint is liquidity. In recent years, the liquidity of financial investments has tended to decline sharply. Unlisted investments still make insurer investments less and less liquid. ESG criteria also limit our panel of possible investable issuers.

Currently with negative rates on a good part of the yield curve, the search for yield pushes investors to lengthen the duration of portfolios or to seek more yield and risk on less well-rated signatures like the HY.
Eric Dubos, CFO and member of the MACSF COMEX

What will be your favorite subjects in the coming months? What asset classes do you plan to position yourself on?

We are less present in credit, corporate and financial, which offers returns that no longer sufficiently remunerate risk. In addition, we will have fairly significant downgrades in the ratings of many issuers over the coming months, in the difficult economic context we are experiencing, and this will weigh heavily on the calculation of insurers’ capital requirements. If rates were to rise, we will instead come back to government bonds and inflation-indexed bonds. We are still increasing our investments in real estate, unlisted stocks and infrastructure.

RF 26 January

Article also available in : English EN | français FR

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