It’s about 720,000 customers and their life insurance contracts, behind which there are assets of 21 billion euros. The insurer Zurich would like to get rid of this portfolio, the processing specialist Viridium in Neu-Isenburg wants to take it over and process it. This means that he does not take on any new business, but maintains the portfolio until the last customer has left.
A year ago, the two companies agreed on the takeover – but the approval of the financial regulator Bafin is still pending.
The difficulties of a life insurer in Italy could now ensure that the deal still fails or that it becomes significantly more expensive for the buyer of the portfolio. Because the majority owner of Viridium is the London private equity investor Cinven. Cinven also owns the Milan-based life insurer Eurovita, which is now about to be broken up. The Bafin must ask itself the question: is a private equity company at all suitable for holding a majority stake in a life insurer?
With assets of EUR 18 billion, Eurovita is a medium-sized life insurer. More than 20 banks sell the policies. But when interest rates rose in 2022, many customers decided to cancel their policies and invest the money more lucratively. In one case or another, the bank, which had previously sold the contracts, also promoted the decision. She could then earn twice.
So far there have not been such waves of layoffs in Germany as in Italy. Here the customers have to accept high losses if they terminate their contracts prematurely. In addition, German customers are much more passive when it comes to investment decisions. However, increased layoffs cannot be ruled out. It is not without reason that the Bafin is closely monitoring the termination situation and the liquidity of life insurers.
The outflow of funds alerted the Italian insurance regulator Istituto per la Vigilanza sulle Assicurazioni (IVASS) in 2022. She demanded fresh money from the owner in Great Britain – he should invest 400 million euros. When the money didn’t come, supervisors pulled the emergency brake in February 2023 and froze all credit. So far, customers have not been able to get their money.
The 100 million euros that Cinven finally reluctantly transferred did not change that. That was not enough. Now Eurovita is to be dissolved according to the will of IVASS. The five largest Italian life insurers, including Generali and Allianz, are to divide the customers among themselves. The banks that have earned well from sales are obliged to ensure liquidity. The negotiations about this solution are dragging on and are notoriously difficult, after all the parties involved have very different interests.
The fact that Cinven refused to inject the required fresh funds of 400 million euros does not necessarily have to be malicious. A private equity investor always works with someone else’s money, and his funds are usually fed by large investors. He cannot simply take hundreds of millions and use them to save a society whose future is in doubt.
This raises an important question for the German financial supervisory authority: Is a private equity investor a suitable majority shareholder for a life insurer?
Cinven’s subsidiary Viridium, in which Hannover Re and Generali hold smaller shares, is currently processing 3.6 million contracts that it took over from other insurers. When Viridium took over the Generali Leben portfolio in 2019, it made headlines. Such deals with run-off specialists, as the industry calls them, are now routine.
Now the Zurich inventory is to be added. But can the Bafin simply wave the Zurich deal through? What happens if Viridium needs fresh money at some point, but the main shareholder – as he demonstrated in Italy – is unwilling to pay? That would have an extremely negative impact on supervision.
It is still unlikely that the authority will ban the deal. She has explained often enough that the external run-off can be an important tool in possible market turbulence. But it could impose conditions, such as very high cash-backed guarantees. Whether the business is still attractive for Cinven and the daughter Viridium remains to be seen.