French life insurers face lapse risk hedging problems

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French life insurers have a unique exposure to rising interest rates. The country’s Code d’assurance requires life policies to be redeemable in full at any time, in contrast to other countries that allow insurers to reduce their liability through adjustments and penalties. Often, policyholders walk away – or lapse, in industry parlance – when interest rates rise and better investment opportunities appear. The danger is that the value of the bonds held by the policy will have fallen too far to

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