Zurich’s planned sale of a $20 billion life insurance book to Viridium has fallen through, with the private equity-backed German consolidator citing “considerations relating to [its] current ownership structure” as regulatory scrutiny of such transactions grows.
Zurich, one of Europe’s largest insurers, agreed to sell its German legacy life insurance back book, which includes annuity and endowment products, to Viridium in 2022. Zurich described the sale as a key step in decreasing the group’s vulnerability to interest rates.
In a statement issued on Tuesday, Viridium stated that the acquisition “will not proceed as planned due to considerations relating to Viridium’s current ownership structure,” adding, “We regret this as the transaction would provide clear benefits for customers.”
Viridium is majority held by a fund managed by British private equity firm Cinven, with minority investments from Hannover Re, the reinsurer, and Generali of Italy.
Zurich stated that it was “committed to finding a solution for this portfolio and will explore options in due course”, and that the sale collapse had no impact on its financial aims or capital management strategies.
After Italy’s Eurovita, a life insurer majority-owned by Cinven funds, went into special administration last year due to a capital deficiency, regulatory scrutiny of the risks associated with private equity ownership of life insurance businesses increased.
According to sources, Germany’s financial authority was considering blocking the purchase due to worries over the holding of life insurance obligations by a private equity group.
According to the sources, BaFin had been closely monitoring the developments in Italy and noticed that Cinven did not offer the level of financial support to Eurovita that local regulators demanded.
According to someone acquainted with Cinven’s perspective, it did contribute considerable funds to Eurovita and helped identify a solution for the firm.
According to a person familiar with Viridium’s status, the company generates cash and has a good balance sheet. “If we would have [had] a different ownership structure, we would have completed the deal,” the individual was quoted as saying.
Since the financial crisis, private capital firms have flooded into the life insurance industry, buying insurers and picking up books of capital-intensive business that traditional insurance groups have been eager to dump during a period of low interest rates.
Last year, the IMF warned of potential “contagion” to other sections of the financial system due to the rise in PE-linked life insurers. It used Eurovita as an example of the risks.
Insurance executives have raised concerns about a potential conflict of interest between the long-term nature of the insurance company and the shorter timescale of ownership through a PE fund, as opposed to a balance-sheet investment by a private capital organization.