a guarantee fund is needed – Corriere.it

The great misunderstanding of savings is the idea that an insurance product can be simultaneously (and always) also an appreciable form of investment. In the era of low or even negative interest rates, it seemed absolutely normal to us. Then suddenly (but the signals were all there and The Economy he had detected them in time) the explosion of inflation and the consequent increase in the cost of money to try to curb it took place. Rates have risen at an unprecedented rate. And the race hasn’t stopped yet. Just think of a fact that concerns the service of our gigantic public debt.

The average cost of issuing government bonds was 0.1 per cent in 2021. In the first few months of this year it exceeded 3.5 per cent. Less than two years ago, a prime branch life policy guaranteed, in addition to the capital, a return of approximately 1 to 2 per cent. It was considered an excellent alternative to BTPs whose yields fluctuated around zero. And also a way to remunerate the liquidity that even had a cost for the saver. In a very short space of time everything changed.

The BTP is much cheaper today. A revolution in which many small savers, interested in replacing their policy with a government bond (the tax advantages in the event of inheritance are the same), have found themselves grappling with the quicksand of blocked redemptions and the dramatic uncertainty on solidity of its capital. The Eurovita affair, commissioned since 31 January due to the lack of capital requirements based on the rules of Solvency II and then under extraordinary administration since 29 March (Commissioner Alessandro Santoliquido), the certification of their solitude despite the solution found represents an unprecedented and positive systemic response from banks and insurance companies. Not predictable at a time when the company found itself, precisely due to the presence of more profitable alternatives for the use of capital, faced with a wave of redemptions that ended up decreeing its end.

Last-minute solution

A medium-sized company – we read in the Considerations of 19 June by the president of Ivass, the Insurance Supervisory Institute, as well as general manager of Bank of Italy, Luigi Federico Signorini – characterized by specific weaknesses (inadequate risk management, limited capital , shareholder disengagement) that emerged following the supervisory documentary and inspection action.

The solution found in extremis by the end of June – expiry of the freeze on redemptions decreed by IVASS – involves some major companies and credit institutions. Intesa Sanpaolo Vita, Generali, Poste Vita, Unipol and Allianz will divide the assets of Eurovita which will be placed in liquidation. These are assets for a total of 15 billion, 9 for separate management and 6 for unit linked. The newco that has been set up will have the difficult task of managing the transition and reassuring, in addition to creditors, investors and savers. However, the freeze on redemptions will continue until the autumn (31 October) and the issue of the real market value of unit-linked policies and separately managed products will in any case remain topical.

The resolution reduced liquidity to the system, especially to the small banks which received a credit line at market prices from the larger ones (Intesa Sanpaolo, Bper, Banco Bpm, Monte Paschi, Crdit Agricole and Mediobanca) to meet any exit requests estimated, in an article by Laura Serafini on The sun 24 hoursbetween 20 and 30%. And above all this was the delicate passage of the rescue of Eurovita – on which Matteo Del Fante and Carlo Cimbri worked above all, respectively managing directors of Poste and Unipol – or how to meet the capital needs of small banks (Ragusa and Sant’Angelo for example) that more than the big ones pushed for the placement of Eurovita insurance products, also attracted by placement commissions which in some cases reached 4%. And here emerges the first bug of the system.

The mechanism

The ownership of Eurovita, to increase turnover, has tempted the distribution network with off-market relegations. Already this was supposed to be a wake-up call. Underrated. Then there was the absolute anomaly – which also in this case questions the supervisory institutions – of allowing a private equity fund, such as the British Cinven, with the need to capitalize in a few years, to enter the ownership of a life insurance with obviously longer times. The sharp and rapid rise in interest rates upset an already precarious financial equilibrium. The offer of life products, with guaranteed capital (the policies no longer have guaranteed returns), is in fact balanced by investments in government bonds and, to a lesser extent, in corporate bonds capable of producing sufficient interest to generate an income in favor of of the saver. That is BTP at 20 or 30 years or even Methuselah.

The rise in interest rates, which has made policies obsolete, has triggered a massive exodus towards other forms of investment. Consequently, it is obvious that in the face of higher-than-normal redemption requests, the company would have to resort to the liquidation of securities listed in the meantime, precisely due to the rise in interest rates, at a loss. Hence the dramatic decision to block redemptions.

A hecatomb of value that would have weakened the assets by at least 15%. Savers who previously felt protected in the era of low interest rates and today, on the contrary, appear to be prisoners of their choices. Eurovita customers are 353,000 for 413,000 policies. Small savers but also investors who should be better equipped in their choices such as, for example, all EY partners. The new management – but big players are at stake who will assist the possible capital needs of small institutions – will have to reassure them and probably meet them with other offers.

But the basic problem remains: investing in those policies is no longer attractive. Even if it expires. Signorini wondered if it wasn’t essential to provide the insurance system with a resolution fund and a protection scheme for policyholders, as happens in the banking sector for deposits of up to 100 thousand euros. I think the time is ripe – Signorini continues – to equip our market with guarantee funds already present in France and Germany. More than ripe times.

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