Zurich’s Sale of $20B Life Insurance Book to PE-backed Group Collapses

Source: Financial Times | Published on January 30, 2024

Zurich life insurance deal collapses

Insurance group Zurich’s sale of a $20 billion life insurance book to Viridium has collapsed, with the private equity-backed German consolidator citing “considerations relating to [its] current ownership structure” as regulatory scrutiny of such deals intensifies.

Zurich, one of Europe’s biggest insurers, struck a deal to sell its German legacy life insurance back book — including annuity and endowment products — to Viridium in 2022. The sale was a key step in reducing the group’s exposure to interest rates, Zurich said at the time.

In a statement on Tuesday, Viridium said the transaction “will not proceed as planned due to considerations relating to Viridium’s current ownership structure”, adding: “We regret this as the transaction would offer clear benefits for customers.”

Viridium is majority owned by a fund operated by British private equity firm Cinven, alongside minority investors Hannover Re, the reinsurer, and Italy’s Generali.

Zurich said it was “committed to finding a solution for this portfolio and will explore options in due course”, adding that the deal collapse did not affect its financial targets or capital management plans.

Regulatory scrutiny of the special risks presented by private equity ownership of life insurance companies has climbed, after Italy’s Eurovita — another life insurer majority owned through Cinven funds — was taken into special administration last year following a capital shortfall.

Germany’s financial watchdog had been poised to shoot down the transaction due to concerns over the ownership of life insurance obligations through a private equity fund, according to people briefed on the matter.

According to the people, BaFin had been closely watching the events in Italy and noted that Cinven did not provide the level of financial backing to Eurovita requested by local regulators.

A person familiar with Cinven’s position said it did contribute significant capital to Eurovita and played a role in finding a solution for the business.

A person familiar with Viridium’s position said the business was cash generative, with a strong balance sheet. “If we would have [had] a different ownership structure, we would have completed the deal,” the person said.

Private capital firms have swept into the life insurance sector since the financial crisis, buying insurers and scooping up books of capital-intensive business that traditional insurance groups have been keen to offload in a period of low interest rates.

In a paper last year, the IMF warned of potential “contagion” to other parts of the financial system from the rise in PE-linked life insurers. It cited Eurovita as an example of the risks.

Insurance executives have also highlighted the risk of a misalignment of interests between the long-term nature of this insurance business and the shorter timeframe of ownership through a PE fund, rather than a balance-sheet investment by a private capital group.