Eurovita, frozen policies for over 350,000 Italians: here’s how to protect investments and savings

MILAN. The Eurovita affair continues to arouse concern among the more than 350 thousand subscribers of the policies of this company (distributed by many banks and networks of consultants in recent years) but fears reach the entire sector. Investor confidence is at risk in a case that could turn into a new episode of betrayed savings.

The story
What happened? The Eurovita insurance company specializing in the life branch has recently blocked the redemptions of ”insurance and capitalization contracts” sold to thousands of customers by order of IVASS (Institute for Insurance Supervision). Confconsumatori recalls that «the suspension does not apply to redemptions and advances referred to in supplementary pension schemes and contractual deadlines or claims. The provision expires on 31 March and the Commissioner will have the delicate task of identifying a solution that will allow Eurovita to strengthen its assets, to protect its customers”.

The experts
In any case, SoldiExpert SCF, an independent financial consultancy firm and one of the pioneers of the sector in Italy, has dedicated a special to Eurovita and life insurance policies in recent days. Already in August 2022 he had explained the pros and cons of investing in life insurance policies (both separate and unit-linked management). Using an ad hoc cost/benefit analysis, addressed to the subscribers of these products, he had highlighted that the potential disadvantages (considering what happened last year on the bond market), in most of these policies, clearly outweighed the advantages. In fact, there are now 350,000 Italians involved in the freezing of Eurovita policies (at least) until March. A situation that has never occurred before in our country (that of the freezing of life insurance policies), which even risks derailing an entire sector. But what exactly happened? We try to reconstruct the story.

The blocking of the redemptions of Eurovita policies
It has been exactly since February 6 that we have been witnessing the blocking of the redemptions of Eurovita policies (of any branch). In detail, these are 353,000 customers, for a total of 15.3 billion euros invested in 413,000 policies. The Italian insurance company in the hands of the English fund Cinven was for three months under the effect of the commissioner, with the appointment of Alessandro Santoliquido, with the aim of resolving a situation that is becoming increasingly intricate. The decision, in fact, had been taken to avoid the so-called ”race to the counter” and further reduce the already compromised corporate assets. All, of course, to avoid liquidation. In the meantime, IVASS had asked Eurovita, as well as its majority shareholder Cinven, to put their hands on the company’s portfolio, so as to strengthen its assets. In July 2022 there was talk of a capital increase of at least 150 million euros. A figure which, in the following months, almost doubled to 200/300 million euros.

The relationship with Cinven and the recovery plan for Eurovita
As already mentioned, the Eurovita insurance company is controlled by the important British private equity fund Cinven. Already in 2016, it had acquired important companies throughout Europe, from Ergo Previdenza to Old Mutual Wealth Italy and Pramerica Life. In Italy, on the other hand, it holds the portfolio of Arcaplanet (pet accessories and feed store) and Synlab (diagnostic test laboratories). Evidently, however, in the case of Eurovita something went wrong. The Cinven fund, in fact, not only has no intention of recapitalizing the Italian company. Rather, it aims to find a buyer, collect money and get out of the circle of tricolor policies. So far, however, the Eurovita buyer has not yet arrived. Furthermore, at the end of November 2022, Camillo Candia was appointed as the new president of the company. For the occasion, a “recovery plan to meet the need to strengthen capital ratios” was presented to IVASS. A fact that hadn’t prevented the company from being commissioned and ordinary activity blocked. So what will happen if Santoliquido fails to find a buyer for Eurovita by the end of March who is willing to recapitalize the company? It would lead to extraordinary administration. Situation that provides for the dissolution of the corporate bodies and which would cause great reputational damage to the entire insurance sector, given that this is the first case in Italy.

What you risk in the event that Eurovita becomes insolvent
As already mentioned, finding a buyer willing to take charge of the rescue of Eurovita is a rather complicated operation but evidently necessary by the system and possible. Were it to go into liquidation, it would have major repercussions on underwriters’ confidence in insurance companies. But what are the risks for savers who have chosen a Eurovita policy? Opinions, as many subscribers have recently discovered, are not unique. In fact, it has never happened that a life insurance company was in this alert condition. The only significant case in Europe occurred in Germany in 2003 (it was Mannheimer Versicherung which ran into financial difficulties in 2002 due to stock speculation) and fortunately resulted in a bailout without any consequences for the underwriters. Customers of branch I policies, i.e. separate management, on the one hand are those who find themselves in the apparently easiest situation to unravel. In this type of management, in fact, the assets are separated from all the other financial assets of the Company. Consequently, in the ”worst scenario” hypothesis, it should be faster to make the calculations and liquidate the policyholders. But you also have to deal with any losses on the securities in the portfolio (if not covered by the Company) in the event of a massive sale of the portfolio. In this situation, capital losses on securities could emerge (as explained on the SoldiExpert.com website in the dedicated report on how returns are calculated in this type of policy) which are no longer theoretical at that point. In addition to various particular situations affecting many policies that contained guaranteed minimum returns. Instead, in the case of financial policies (branch III or unit linked), on the one hand there are those who argue that there are no major problems for the subscribers, since the value of the underlying is already the market value and the assets, even in this case, it is as if it were separate from that of the Company. However, there is no agreement among the lawyers of the sector on this point. In the Eurovita documents (in the case, for example, of the ”Ad Personan Unit Linked Plan” product) it is stated in this regard in the KID (key information document) that ”in the event of insolvency, the assets covering the commitments held by the company they will be used to satisfy – with priority over all other creditors – the credit deriving from your contract, net of the costs necessary for the liquidation procedure. If these assets are not sufficient, the company’s assets may be used in competition with the other creditors of the same”. A process that would not seem exactly immediate in the case of the ”worst scenario” (which naturally nobody hopes).

The dangers for the insurance sector in general
According to the lawyer Antonio Pinto, who is also responsible for the banking, insurance and financial products area of ​​Confconsumatori, it is not desirable for the insurance company system to experience a worsening of the situation. This would result in a strong compromise of the confidence of all those savers who invest in insurance policies. Furthermore, in the event of damages to be suffered by savers, they would have all the necessary legal tools to act and protect their reasons. Even against banks and intermediaries who sold them the policies. As emerges from the 2018 European IDD Directive on the distribution of insurance investment products, there are stringent obligations that the intermediaries offering these financial products are required to comply with, both in terms of information and in terms of adequacy with respect to the subscriber’s risk profile. In fact, if even just one obligation is violated, the purchase contract would be immediately terminated due to default by the seller, with the obligation to return the invested capital. And in the case of Eurovita, finally, it will be the task of Commissioner Santoliquido, with the indispensable support, in this phase, of Cinven (and by the end of March) to be able to quickly get out of the current impasse. And, with the involvement of IVASS and the National Insurance System, settle this issue in a convincing way, also to remove any cloud from this sector which, in recent decades, had evidently grown too ”push”.