Multiple insurance companies and banks have agreed on a multi-billion deal to rescue Italian life insurer Eurovita, reported Reuters.
Brokered by Italian insurance regulator IVASS, the deal will see Generali, Intesa Sanpaolo Vita, Poste Vita, UnipolSAI and Allianz establish a new company.
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The newly formed entity will assume Eurovita’s life insurance policies.
The Italian company was placed under administration by IVASS earlier this year.
According to a source familiar with the situation, approximately €10bn ($10.89bn) in policies—or roughly two-thirds of Eurovita’s total assets at the end of 2022—will be moved to the new entity.
The company’s woes serve as a reminder of the danger that life insurers face from rising interest rates, which depreciate the value of the government bonds these businesses purchased with their customers’ money.
Rising interest rates have forced many small savers to cancel their plans and reinvest their money to get returns, forcing insurance companies to sell the bonds at a loss.
Eurovita’s issues were made worse by poor risk management and Cinven’s reluctance to increase capital, according to IVASS.
After appointing a special commissioner to oversee Eurovita earlier this year, IVASS put a freeze on early redemptions.
While the specifics of the rescue deal are being finalised, the freeze has been extended until 31 October 2023.
When Eurovita clients redeem their policies, the 25 lenders taking part in the rescue will finance the payment while keeping the underlying bonds until maturity and offsetting any losses.
The source estimated that this financing is worth €6bn ($6.54bn).
Participating banks include Credit Agricole, Banco BPM, BPER, FinecoBank, Intesa Sanpaolo, Mediobanca, and Monte dei Paschi.
