Three lessons to be learned from the Eurovita case

It hasn’t been a walk in the park, they say in circles close to Eurovita, but the rescue of the “system” has arrived. The future of the insurance company and the approximately 400,000 life policies will be jointly covered by five big names in the sector: Poste Vita, Unipol, Intesa Sanpaolo Vita, Generali and Allianz. Thus ends an unprecedented crisis in Italy which has raised many concerns also in the government. There are at least three lessons that can be drawn from it. The first is the very origin of the problem and that is whether it is appropriate for a private equity operator such as the British Cinven to hold control of an activity that deals with public savings. There isn’t a law that forbids it, but if then, as happened, a liquidity crisis breaks out how can you impose a recapitalization on the shareholder? Cinven, when things went badly, put 100 million on the table, when at least triple that was needed (the need then increased to around 500 million), and then threw in the towel, leaving the Italian company on the edge of the crack. The second lesson is that a serious deficiency in the insurance sector needs to be filled, which is the lack of a fund that is able to protect savers as happens for banks. If this issue is being discussed in Europe, it is thanks to the Eurovita case because it was understood that the crisis of confidence that could trigger the bankruptcy of a life company would be a problem for financial stability. The third and final lesson that can be drawn is that the impact of rising interest rates on the insurance sector has so far been underestimated. For the first time in ten years, in 2022 the management of the life sector closed at a loss and this was reflected in the average solvency index of the companies. There would be a fourth lesson and that is that when savings products, such as BTPs, compete ruthlessly with life insurance policies, the race for early redemptions is inevitable. But this has always been the market.