Cristiano Borean, chief financial officer at Generali Group, has expressed concerns about conflicting interests when life insurance companies are owned by private equity funds, as reported in an article by Financial Times.
“My view is, for sure, on the private equity fund owning [a life insurer], there is not a perfect alignment of interests,” said Borean.
The Generali executive explained that there is a difference between private capital groups who buy insurance companies as a long-term investment for their balance sheet and private equity funds who own an insurer for a short time horizon.
Borean said that insurance companies need to have a long-term alignment but also noted that each situation may vary and needed to be viewed on a case-to-case basis.
Many policymakers and regulators had been concerned about the risks that come with the increase of private equity investment in life insurance.
The International Monetary Fund (IMF) has highlighted risks that come with such investments, such as a higher proportion of illiquid assets. The IMF reported that nearly 10% of the US life insurance industry’s assets were either owned or managed by private equity firms by the end of 2021.
The IMF highlighted the case of Eurovita which was a small life insurer in Italy that was taken into special administration this year. Eurovita’s higher interest rates on other savings products encouraged its customers to cash in or lapse their insurance policies as the value of the assets that backed them declined.
After Eurovita’s controlling shareholder, a fund that was operated by Cinven, a private equity firm, was reportedly not set to provide the level of capital injection that was requested by the IMF, the regulator stepped in. The Bank of Italy said that the life insurer’s problems further encouraged its customers to withdraw.
This issue with Eurovita has worsened concerns that customers of other groups may be tempted to withdraw their insurance policies which may potentially cause a “mass lapse” event.
While Generali has experienced an increased number of lapses in Italy and France, Borean said that lapses in Italy had declined after the insurer announced that it struck a rescue deal, along with other insurance companies, to create a company that will house Eurovita’s life insurance policies.
Generali’s outlook statement warned that with mixed data about labour markets and a softening in demand, there are signs that the global economy may slow down which could further affect the insurance industry.
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