Eurovita, ok to rescue from big insurance companies. Redemptions blocked until 31 October – Corriere.it

The five major Italian insurance companies give way to the rescue of Eurovita.
Their boards of directors have approved the scheme which provides for the transfer of the assets and employees of the company in crisis into a new vehicle, participated by Generali, Allianz, Intesa Vita, Poste Vita and UnipolSai, which will later divide the customers in proportion to the presence on the market of the policies sold by Eurovita. These insurance companies will become the new reference companies for the 353,000 customers who had taken out 400,000 policies with Eurovita for a total value of 15 billion. The distributing banks will inform customers which insurance company will become the new counterparty.

The role of the authorities

In any case, the agreement puts an end to an almost four-month long uncertainty that began with Ivass’s decision to place Eurovita in extraordinary administration due to the lack of recapitalization by the controlling shareholder, the British fund Cinven. Since then, a long negotiation has begun between the insurance companies and the banks that distribute Eurovita policies. The negotiations, orchestrated by the consultant Vitale, were conducted under the supervision of Ivass, Bank of Italy and the government. The authorities have in fact pushed for a systemic and private solution capable of safeguarding customer trust and avoiding the need for public intervention.

The liquidity shield

The solidity of the insurances involved should avoid the risk of massive redemptions which, however, will not be allowed immediately but only once the rescue operation has been completed, starting from 31 October. In the event, however, a multi-level liquidity bank has been built. The first lies in the residual availability of Eurovita. Secondly, the financing of the 25 distribution banks would intervene. Lastly, beyond a certain redemption threshold, a group of six institutions, made up of Intesa Sanpaolo, Bpm, Bper, Mps, Crdit Agricole and Mediobanca, would act as lender of last resort.

The redemption issue

The hope that the announcement of the bank-insurance shield could work as a self-fulfilling prophecy: that the tranquility of being able to redeem will convince customers not to do so. In any case, the liquidity would allow the companies to bring to maturity the policies that have as underlying bonds with a high credit rating and therefore with excellent repayment probabilities. On the contrary, their immediate liquidation would lead to the crystallization of the depreciation suffered by the securities on the market due to the rise in interest rates and the consequent increase in the yields of the newly issued bonds.

Policy insurance

Beyond its happy conclusion, the Eurovita affair is giving rise to some reflections among insiders. The first concerns the opportunity to create a system of protection for the capital of life policies similar to the one existing for bank deposits of up to 100 thousand euros. The provision of the mechanism would make it possible to institutionalize the system rescue, avoiding any danger of a domino effect and a ransom race. The second consideration pertains to the role of private equity funds in regulated and delicate sectors such as insurance. moreover, it was precisely the failure to recapitalize by Cinven that triggered the Eurovita crisis.