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Italy has had its justifiable share of financial institution collapses. The slow-motion implosion of Eurovita is the primary time an Italian insurer has crashed into particular administration. Larger rates of interest derailed the group, a state of affairs that was resolved final week. Insurers together with Generali and Allianz will put money into a brand new firm to safe Eurovita’s €10bn of belongings.
European insurance coverage regulators are investigating whether or not Eurovita’s failure posed any wider dangers to monetary stability. They’re anticipated to deal with its possession by personal fairness group Cinven. It’s simply one of many personal capital companies which have poured cash into the life insurance coverage sector in recent times searching for larger returns.
The failure of Eurovita started final 12 months as savers redeemed insurance policies to benefit from larger charges elsewhere. Eurovita’s weakening capital place pressured it to promote authorities bonds that had fallen in value.
Regulators demanded extra capital from UK-based Cinven to prop up Eurovita’s solvency ratio. Cinven ultimately stumped up €100mn However that was effectively in need of the €400mn thought essential to recapitalise the insurer.
Eurovita will now be damaged up and its belongings redistributed.
Personal capital teams have lengthy seen insurance as providing good-quality money flows at larger ranges than typical lower-risk investments. Within the US, about 12 per cent of life and annuity belongings are actually underneath personal fairness possession, in line with McKinsey. In Europe, buyout teams have carried out $25bn value of offers within the life sector over the previous decade.
Rising charges imply lapse dangers are rising on the similar time that the standard of belongings corresponding to company bonds is falling.
This exacerbates issues about medium-term buyers corresponding to personal fairness funds taking duty for long-term liabilities. They could be unwilling to take losses throughout the trade cycle. Monetary engineering involving insurance coverage performed an element within the UK gilts mini-crisis final 12 months.
Regulators are proper to pay nearer consideration.