Directorate General Statistics
Directorate Monetary & Financial Statistics
OECD
Working Party on Financial Statistics
29 November - 1 December 2010
Households’ investments:
Financing of economy and risk analysis perspectives
Paris,
November 30th 2010
Adeline Bachellerie
Omar Birouk
Outline
1
Financing of the economy perspective
1.1 Primary allocation of households’ financial investments
1.2 Secondary allocation of households’ financial investments
1.3 Sectors ultimately financed by households
2
Risk analysis perspective
2.1 Households’ investments by asset riskiness
2.2 Geographical diversification through financial intermediaries
2.3 Investment horizon and financial intermediaries role
2
1.1 Primary allocation of households’ financial investment s
 In light of who-to-whom data from financial accounts, households’ financial
investment is mostly channeled through financial intermediaries, especially through:
 Insurance Corporations
 Monetary and Financial Institutions
Primary allocation of HHs’ financial investment by sector
100%
(in % of total assets)
100%
Insurance Corporations
80%
80%
Insurance Corporations
Other Financial Instituions
60%
60%
Money Market Funds
Monetary and Financial Institutions
Monetary and Financial Institutions
40%
40%
Rest of the World
Households
General Government
20%
20%
Non Financial Corporations
Non Financial Corporations
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0%
1995
0%
3
Source: Banque de France
1.1 Primary allocation of households’ financial investments
 According to who-to-whom data, the primary allocation of households’ financial
assets among non-financial sectors shows that:
 French households mainly invest directly in non financial corporations through non-quoted
shares and other equity
 The share of assets directly held on the rest of the world and general government has
regularly decreased over the last 15 years
Primary allocation of HHs’ financial investment among non financial sectors
(in % of total portfolio)
100%
100%
Rest of the World
80%
80%
Rest of the World
60%
60%
General Government
Non Financial Corporations
40%
40%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0%
1998
0%
1997
20%
1996
20%
1995
Households
Non Financial Corporations
4
Source: Banque de France
1.2 Secondary allocation of households’ financial investments
 This part of the study covers 3 years (2007 – 2009) and relies on a security by-security look-through approach of households’ investments made through
life insurance companies and UCITS
 Use of detailed statements of life insurance companies’ investments
 Cross-referenced with Banque de France securities’ and issuers’ databases
and with the CSDB, in order to identify the characteristics of securities
 Iterative process to break down UCITS’ portfolio held by other UCITS
 But some securities are left for lack of ISIN code => they are allocated to the
category entitled “other investments”
 Residual UCITS remaining after the look-through algorithm are assumed to
be mainly foreign UCITS
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1.2.1 Financial assets held by HHs through life insurance
companies (1/2)
 In France, in 2009, life insurance contracts account for almost 36% of the
households’ financial assets (1400 billions Euros). The security-by-security
look-through analysis of these contracts highlights that:
 HHs’ financial investment structure remains stable over the period under
review with one third of their total investment devoted to domestic sectors
 Life insurance contracts finance mainly foreign economies
 Non-financial corporations and
approximately the same proportion
financial
institutions
account
for
 Financing of domestic central government represents the largest share with a
peak corresponding to the 2008 financial crisis.
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1.2.1 Financial assets held by HHs through life insurance
companies (2/2)
Source : Banque de France
7
1.2.2 Financial assets held by HHs through UCITS (1/2)
 In 2009, UCITS shares account for 5 % of French households’ financial
assets (160 billions Euros). The security-by-security look-through analysis of
these UCITS shares highlights that:
 Households primarily
investments in UCITS
finance
domestic
economy
through
their
 The central government sector represents a tiny fraction of the households'
investments
 The share of financial investment devoted to corporations remains
relatively stable around 25 % of the overall investments
 Increasing diversification with a peak in 2009 for investments in
geographical areas other than France.
8
1.2.2 Financial assets held by HHs through UCITS (2/2)
Source : Banque de France
9
1.3 Sectors ultimately financed by households
 Sectors ultimately financed by households are derived from the analysis of the
counterparts sectors in the financial accounts as a whole system:
 Higher share of the rest of the world, at the expense of non financial corporations
 Higher importance of households, lower share of general government debt
Sectors ultimately financed by households (in % of total portfolio)
100%
100%
Rest of the World
80%
80%
60%
60%
Rest of the World
Households
General Government
40%
40%
Non Financial Corporations
20%
Non Financial Corporations
20%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0%
1995
0%
10
Source: Banque de France
2.1 Households’ investment by asset riskiness (1)
 French households invest mainly in low-risk financial assets:
 Deposits (including sight deposits, savings accounts and time deposits)
 Money Market Fund shares
 Life insurance contracts (excluding unit-linked contracts)
 They also invest in riskier (marketable/non marketable) assets:
 Quoted shares, debt securities, other investment fund shares
 Non-quoted shares and other equity
Households’ financial investment by asset riskiness (in % of total assets)
100%
100%
80%
80%
Risk assets
60% Other
60%
Non-quoted shares and other equities
risky marketable assets
40%
40%
Low-risk assets
Low-riskyassets
Low-risk
assets
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0%
1998
0%
1997
20%
1996
20%
1995
Unit-linked life insurance contracts
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Sources: Banque de France
2.1 Households’ investment by asset riskiness (3)
 Focusing on the households’ low-risk portfolio, we observe that it does not
show a flat pattern over the last 15 years :
 Trend of substitution of life insurance for deposits
Households' financial investment in low-risk assets (% of total assets)
Life Insurance Reserves
Deposits and loans
2010
2009
2008
2007
2006
0%
2005
0%
2004
10%
2003
10%
2002
20%
2001
20%
2000
30%
1999
30%
1998
40%
1997
40%
1996
50%
1995
50%
Money Market Fund Shares
12
Source: Banque de France
2.2 Geographical diversification through financial intermediaries
 Diversification is mainly achieved through financial intermediaries. From the securityby-security look through approach we observe:
 A growing diversification towards the euro area, for both investments in life insurance
contracts and in UCITS
 A geographical diversification more pronounced for life insurance contracts than for
investments in UCITS.
Source : Banque de France
13
Source : Banque de France
2.2 Geographical diversification through financial intermediaries (2)
Life insurance contracts are split between euro-denominated contracts (85 % of life
insurance contracts outstanding) and unit-linked contracts (15%)
 Euros contracts => payments are guaranteed by the insurer / unit-linked contracts =>
households bear risks since the value of the contracts depends on market indexes
 Geographical diversification of unit-linked contracts bear resemblance to that of
investments in UCITS => geographical allocation of assets shows a bias in favor of
domestic investments when the market risk is supported by households.
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Source : Banque de France
Source : Banque de France
2.3 Investments horizon and financial intermediaries role (1)
 French households invest more in long term assets
 Long term assets are considered to be riskier than short term assets
 Explains changes in investment horizon over the period
Breakdown of households’ financial assets (in %)
100%
100%
Short-term assets
80%
80%
60%
60%
Long-term versus short-term assets
26%
78%
24%
76%
22%
40%
74%
40%
20%
Long-term assets (Right)
Short-term assets (Left)
Other
2009
2007
2005
70%
2003
16%
2001
0%
72%
1999
18%
2009
2007
2005
2003
2001
1999
1997
1995
0%
20%
1997
Long-term assets
1995
20%
Short-term assets (Lef t)
Long-term assets (Right)
Source: Banque de France
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2.3 Investments horizon and financial intermediaries role (2)
Analysis of weighted average residual maturity for bonds held through life insurance
contracts highlights some key aspects to understand what drives the trend
 The weighted average residual maturity (excluding perpetual securities) increased for
life insurance investments : 7.4 years in 2007, 7.8 years in 2008 to finally reach 8.3
years in 2009
 Changes in the term structure of interest rates could explain the lengthening of life
insurers’ bonds portfolios, linked to the objective to maintain the level of return
Source : Banque de France
16
2.4 Investment horizon and financial intermediaries role
 Reallocation process from financial intermediaries to non financial
sectors
 Reallocation speed depends on economic and financial environment
 Most financial intermediaries directly invest in non-financial sectors (more than 70%
of assets are redirected to non financial sectors after one iteration)
Reallocation process trend curve
0
Before €
1
2
3
Financial turmoil
4
5
6
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
7
Source: Banque de France
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Directorate General Statistics
Directorate Monetary & Financial Statistics
Households’ investments:
Financing of economy and risk analysis perspectives
Thank you for your attention
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