It almost became one of the largest transactions in the billion-dollar market for the sale of entire portfolios of insurance contracts, or run-off in industry jargon. Zurich Germany wanted to hand over 720,000 life insurance policies to the processing specialist Viridium, but the process dragged on for months. But at the end of January it was clear: the financial regulator Bafin would not allow the deal.
Viridium is majority owned by the British private equity investor Cinven – which the supervisory authorities in Europe are currently not taking kindly to. Cinven had refused capital injections to its Italian subsidiary Eurovita after liquidity problems. Eurovita is now being wound up by the Italian supervisory authority.
The fact that the deal between Zurich and Viridium fell through is a severe setback for the run-off market. But the market is not dead, experts are sure. There will be a number of further transactions in the next two years, and not just small deals, expects lawyer Wessel Heukamp from Freshfields Bruckhaus Deringer. “It is rather larger portfolios that are being discussed,” he reported at the run-off conference South German newspaper in Hamburg.
Christian Kern from the consulting firm KPMG also believes that the deals will not stop – but they will change: “We will find ways to secure financial stability, be it through reinsurance or consortiums.”
The sale of life insurance to specialized liquidators had become almost routine since Viridium took over Generali’s portfolio in 2019. The idea behind it: With better technology and specialization, the processor can reduce costs to the benefit of the customer. As the previous owner of the portfolio, the insurer releases capital and can concentrate on new business.
In addition, insurers have to invest large amounts of money in modernizing their outdated IT systems in order to meet the requirements of the authorities and today’s customer wishes. This is too much for many smaller companies. The buyer of the inventory then does this.
Consumer advocates have always viewed the run-off critically: Customers who chose a particular life insurer years ago may suddenly find themselves with a British investor, a major investor in Bermuda or a Chinese financial group as their contractual partner, according to critics.
But general reservations about run-off are becoming increasingly rare. Sandra Klug from the Hamburg Consumer Center admitted that ending up as a customer with a liquidator is not fundamentally worse than staying with the insurer with whom the contract was once concluded. “If I’m no longer wanted by my insurer, I won’t necessarily be treated better by him.” She has no fundamental aversion to run-offs, but she does have something against customers being ripped off, she emphasized. The liquidator Viridium hit the headlines after taking over the Generali contracts two years ago. A number of customers had not received pension payments for months or the amount of the payments was incorrect. The anger was great. The problems have now been resolved. But something like this must under no circumstances be allowed to happen again, demands the consumer advocate.
In any case, Bafin will look very closely at future run-off deals and strictly examine the forecasts that the liquidators present before acquiring a portfolio, emphasized Andreas Zapp, who is responsible for the supervision of life insurers at the authority. “The same rules apply to run-off platforms as to other insurers.”