How to manage your life insurance contract via artificial intelligence? Information provided by the circle of independent analysts • 21/10/2021 at 16:30

François d'Hautefeuille

Evariste as for Research

Cofondateur & président

Artificial intelligence is particularly efficient in such a environment of deep mutations.In fact, it is based on a mathematization of finance to read the hidden language of the markets as it reflects fundamental information but often still hidden.(Photo credits: Adobe Stock -)

The Covid crisis creates a change in economic and financial paradigm.Investment strategies of the last20 years (euro funds and passive allowance 60/40) are no longer optimal to maintain the purchasing power of a life insurance contract in the face of the rise in inflation.Artificial intelligence is a robust alternative compared to other asset allocation processes.

The increase in current inflation poses a major challenge to maintain the purchasing power of life insurance contracts

Inflation went upwards following the resumption of economic activity due to the success of the vaccination campaigns.Production channels were reduced during the COVID crisis.Prices have dropped sharply due to the collapse of demand related to confinements.We are therefore currently witnessing a reflation which only reflects a return to the pre -covid levels.

Central banks have succeeded in avoiding catastrophic economic depression by creating enough money to maintain the nominal PNB and therefore avoid the collapse of the real PNB.Wages were paid through public deficits, thus saving the world from terrible depression.

We can already say that the world is giving birth in the pains of the COVID crisis of a new economic paradigm.No one can already anticipate the structure of the world according to it since it is built via the collective intelligence of Western democracies in the face of the growth threat of a marxo capitalism orwellized as it seems to be emerging in China.

What scenarios for the world after?

We can already count a certain number of possible scenarios:

1.Inflation or reflation? For some, central banks have already created liquidity too much.We are on the brink of an inflation period that will undermine the purchasing power of retirees.You have to take refuge in gold and other real assets to protect your savings.2.Growth or decrease? For others, the world is on the verge of a great collapse linked to the over-exploitation of resources.We must get out of the growth models dating from the Enlightenment and return to a post industrial economy more responsible for the environment even if it means seeing the purchasing power of the middle classes continue to stagnate or even lower.3. Roaring20s (années folles) ?Certains voient le PNB réel des pays occidentaux récupérer20 ans de stagnation économique et remonter vers son PNB potentiel long terme (soit un rattrapage de 15/20% de PNB !).New technologies will be able to take off following a rebalancing between Chinese "sur-growth" and Western "under-command" via a better allocation of Western savings.No one can decide between these different scenarios.It is history in the making via the sum of individual and collective decisions that will bring out this new world that awaits us.

What are the advantages of an asset allocation via artificial intelligence?

In such a deep mutation environment of society, the economy and therefore of finance, traditional fundamental analysis techniques are sometimes exceeded.

Artificial intelligence then offers a robust alternative because it can capture the collective intelligence of the market

1.Greater capacity to adapt to market paradigm changes

Human intelligence tends to reproduce paradigms that seem to become immutable.The points of rupture and inflection as we cross them are very difficult to rationalize and therefore anticipate insofar as they are based on the emergence of new structures.

In contrast, artificial intelligence is particularly efficient in such a environment of deep mutations.In fact, it is based on a mathematization of finance to read the hidden language of the markets as it reflects fundamental information but often still hidden.

Ainsi, les modèles d'allocation d'actifs Evariste ont vendu toutes les positions actions fin février2020 alors que le consensus des médias et des politiques étaient que la crise Covid n'était pas inquiétante. Ceci a permis d'éviter l'effondrement de 40% des actions qui a suivi et la baisse autour de20% des fonds d'allocation d'actifs.

Asset allocation of a portfolio managed in artificial intelligence (Evariste 07).The risks was reduced before the COVVI crisis.This made it possible to limit losses.The portfolio is currently quite defensive.

Source : Evariste as for Research, Bloomberg.Past performance does not guarantee future performance.Bloomberg is not responsible for this analysis.

2.Greater capacity to manage a global allocation, necessarily more complex.

A second major advantage of artificial intelligence applied to asset allocation is that it makes it possible to expand the investment universe at a global level.Many classic asset allocation managers have above all a Bottom Up (based on the selection of titles and not asset classes).They base their performance on their capacity to select securities on actions or even credit or change. Ces stratégies peuvent être très performantes dans certains environnements de marché mais restent soumis à des imprévus de marché qui peuvent entraîner des conséquences catastrophiques comme l'a montré les problèmes de certains fonds H2O lors de la crise Covid de mars2020.

In contrast, an asset allocation fund managed in artificial intelligence makes it possible to invest through the entire global investable universe, both in stocks and as well as obligations.This can be done either via ETFs on securities account platforms, or via funds via life insurance platforms.France is fortunate to have particularly efficient life insurance platforms.It is thus possible to invest in all global asset classes via pre -selected funds via insurers.These funds often offer surformance compared to the indices to which ETFs are linked.

What are the limits of an allowance of life insurance via artificial intelligence?

1.The allowances are based on algorithms and not a human decision.Some investors are put off to see defined an asset allocation.However, it must be admitted that the markets often react before a new fundamental is really known.Thus, the massive sale of assets before the COVIVS crisis did not correspond at all to the overall consensus on the crisis.Likewise, we sometimes have changes of trend that do not be explained by non -public decisions of central banks (acceleration or decrease in their purchases of bonds for example).

2.You must always have tested the algorithms used to ensure that their efficiency is not only theoretical but also practical.This is why the existence of auditable real tracks showing real performance is very important.

3.Transaction costs can be significant.Active asset allocation management can generate numerous orders, especially in times of market instability.These transaction costs can strongly impact the gross performance of the model portfolio.This is especially true for titles accounts. Les frais de transaction combinent l'écart entre le prix acheteur (souvent autour de 10 bps) et vendeur, les coûts du courtier (autour de 10 bps), et enfin les frais de gestion de l'ETF (souvent entre20 et 40 bps).On life insurance, there is often no fees because they are integrated into the operating costs of the contract (around 50/60 BPS).There are only funds for managing funds but often the active funds selected by insurers show a real capacity to beat the indices after costs.

What results in relation to other alternatives of life insurance investment?

We can distinguish three major alternatives from investment in life insurance: 1.Euro funds.These funds have long been the flagship investment in life insurance.They remain essential to replace the monetary funds and invest liquidity in an unpleasant period of the market.They are exposed to a certain systemic risk rightly highlighted by the Banque de France and insurers.

In addition, the expected performance decreases each year (around 1.2% pour2020, sans doute encore moins en2021) , alors que l'inflation augmente (objectif réaffirmé par la BCE d'avoir2% d'inflation sur le moyen terme).2.Passive asset allowances type 60/40.Many wealth management advisers do not wish to expose themselves to the commercial risk of an active asset allocation.They therefore offer a stable allowance of the 60% type in bonds and 40% in stock.3.Active asset allocation funds.There are a number of asset allocation funds in the place.Each type of fund offers advantages and disadvantages.

Compared performance of a portfolio managed in artificial intelligence (Evariste 07) and a passive asset allocation 60% in European bonds and 40% in European shares.We observe that performance is much more stable. Ceci permet en particulier de limiter les pertes lors des crises comme la crise COVID de mars2020.

Source : Evariste as for Research, Bloomberg.Past performance does not guarantee future performance.Bloomberg is not responsible for this analysis.

Conclusion

Artificial intelligence is still little used in France for an active asset allocation.However, it offers many advantages compared to passive asset allowances (allowance 60/40) and classic active management (flexible funds).

The Covid crisis is strongly complex in investment work due to major questions about the nature of the world according to the COVID crisis.An allocation of assets via artificial intelligence makes it possible to complete traditional management by adding a robust dimension and often decorged compared to conventional managers.

This article is addressed as information only and does not constitute neither an offer of products or services, nor an offer, a recommendation or a request for the supply of advice or investment service to buy/sell instrumentsfinancier.

François d'HAUTEFEUILLE - Evariste as for Research – Membre du Cercle des Analystes Indépendants