The cancellation of Viridium Gruppe’s planned partial purchase of Zurich Germany’s life book has renewed concerns that regulators are scrutinising private equity (PE) backed consolidators in the life sector more closely, which may reduce the pace of back-book consolidation, Moody’s analysts have highlighted.
In 2022 Zurich and Viridium started talks over the sale of a €20 billion (USD 21bn) portfolio of German life insurance policies, some time later the German insurers agreed to the sale.
On January 30, 2024, both companies separately announced that Viridium’s purchase of Zurich Germany’s life book would not go ahead.
Neither provided a detailed explanation, but Viridium, majority owned by UK PE firm Cinven, said: “[The acquisition] cannot be carried out as planned given our current ownership structure. We regret this because, in our view, the planned acquisition would offer clear advantages for customers.”
While Zurich stated: “Zurich Insurance Group (Zurich) has been informed that Viridium Group will not complete the purchase of Zurich Life Legacy in Germany as planned.
“Zurich is committed to finding a solution for this portfolio and will explore options in due course.”
According to Moody’s, the deal’s cancellation will renew concerns that regulators are scrutinising PE backed consolidators in the life sector more meticulously.
Even though it is not known if the deal failed because of regulatory objections, the perception of higher regulatory barriers for PE-backed consolidators may reduce the pace of back-book consolidation, analysts highlighted.
Viridium has been the largest back-book consolidator operating in Germany since its acquisition of Generali Leben from Assicurazioni Generali S.p.A in 2019.
Other players active in the market include Athora Deutschland, which intends to purchase parts of Axa S.A.’s German life book – regulatory approval pending – and Frankfurter-Leben Gruppe, which has acquired a number of small to medium-sized books.
“We do not know at this stage whether the Viridium transaction failed because of objections from the German regulator, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), and
if so, whether BaFin’s objections were general or company-specific,” Moody’s explained.
Adding: “Over recent months, the regulator has explicitly expressed scepticism regarding private-equity backed back book consolidators due to its perception that they are more aggressively focused on shareholder value.”
Cinven, Viridium’s majority shareholder, is also the majority owner of Eurovita S.p.A., a failed Italian life insurer which was put into administration in 2023. Eurovita’s entire book of business was later taken over by a group of leading Italian insurers to protect its policyholders.
Christian Badorff, an analyst at Moody’s Investors Service in Frankfurt, said: “We believe the case for back-book consolidation in the German life market remains intact, although the increase in interest rates over the past two years has alleviated some immediate concerns around the capital efficiency of traditional guaranteed savings back-books. In the saturated and highly competitive German life market, cost efficient inforce management should continue to drive consolidation.
“However, PE backed consolidators will likely face heightened levels of scrutiny going forward. The perception that BaFin may not approve PE-backed deals might reduce activity, which is negative for insurers looking to restructure and focus on different market segments.”
