Italy’s top four insurers and Germany’s Allianz have agreed on a multi-billion euro rescue deal for Eurovita, industry supervisor IVASS said on Friday, as reported by Reuters.
This comes after months of work to broker an accord which also involves 25 banks. Earlier this year, Eurovita became the first Italian insurance company to be placed under special administration when it ran into trouble due to higher interest rates.
Insurers Generali, Intesa Sanpaolo Vita, Poste Vita, UnipolSAI and Allianz will establish a new company that will take on Eurovita life insurance policies. Approximately €10 billion in policies will be transferred to the new company, or two-thirds of Eurovita’s total assets at the end of last year, a person close to the matter confided to Reuters.
Eurovita’s issues have highlighted the threat life insurers have been facing from rising interest rates. This degrades the value of government bonds the companies bought with their client’s money. Higher rates have also increased the number of small savers choosing to end their policies and reinvest the cash in search of better returns, forcing insurers to sell the underlying bonds at a loss.
IVASS has said that Eurovita’s issues were aggravated by poor risk management and the unwillingness of the owner, British private equity firm Cinven, to provide more capital. Earlier this year, IVASS froze early redemptions at Eurovita after appointing a special commissioner to run it. On Friday, this freeze was extended until October 31 while the technical details of the rescue are finalised.
To prevent the five insurers from being hit by redemptions once the ban is lifted, banks that sold Eurovita the products are participating in the rescue. The lenders will provide financing to repay Eurovita customers who redeem their policies while holding the underlying bonds to maturity and neutralising any losses. This financing amounts to €6 billion, the person said to Reuters.
The banks participating are Banco BPM, BPER, Credit Agricole, FinecoBank, Intesa Sanpaolo, Mediobanca and Monte dei Paschi. The lenders were advised by Vitale & Co and law firm Gatti Pavesi Bianchi Ludovici.
