After months of negotiations to broker an agreement that also involves 25 banks, the top four insurers in Italy and Allianz of Germany have reached a multi-billion euro rescue arrangement for Eurovita, industry regulator IVASS announced on Friday.
After experiencing difficulties due to increasing interest rates, Eurovita became the first insurance company in Italy to be placed under special administration earlier this year.
A new firm that will accept Eurovita life insurance policies will be established by the insurers Generali, Intesa Sanpaolo Vita, Poste Vita, UnipolSAI, and Allianz.
Two-thirds of Eurovita’s assets at the end of last year, or roughly 10 billion euros in policies, will be moved to the new business, according to a person familiar with the situation.
The struggles of Eurovita serve as a reminder of the danger that life insurers face from rising interest rates, which depreciate the value of the government bonds these businesses purchased with their customers’ money.
Insurers were forced to sell the underlying bonds at a loss since higher rates had caused many small depositors to cancel their policies and reinvest their money in quest of higher yields.
According to IVASS, Eurovita’s issues were made worse by poor risk management and the owner’s reluctance to increase capital. Cinven is a British private equity firm.
IVASS halted early redemptions at Eurovita earlier this year after appointing a special commissioner to oversee it.
While the technical aspects of the rescue are being finalized, it was decided to prolong the freeze on Friday until October 31.
Banks that marketed Eurovita the products are taking part in the rescue to keep the five insurers from being affected by redemptions if the prohibition is removed.
The lenders will keep the underlying bonds until maturity and offset any losses while providing funding to reimburse Eurovita clients who redeem their policies.
The source estimated that this financing is worth 6 billion euros.
These financial institutions are Credit Agricole, Banco BPM, BPER, FinecoBank, Intesa Sanpaolo, Mediobanca, and Monte dei Paschi.
Vitale & Co. and the legal team at Gatti Pavesi Bianchi Ludovici advised the lenders.
