Exclusive-Italian prosecutors investigate Cinven-owned Eurovita

By Emilio Parodi and Pablo Mayo Cerqueiro

MILAN (Reuters) -Prosecutors in Milan have opened an investigation into Eurovita, a small life insurer that has been placed under special administration by Italian authorities, two people with direct knowledge of the matter said.

Italy is striving to finalise an industry rescue for Eurovita, which is owned by British private equity fund Cinven.

The sources said no crime had been identified so far, although the investigation by the department of Milan prosecutors' office in charge of financial crime could later lead to allegations being assessed and individuals charged.

Both Italy's insurance regulator IVASS and Cinven declined to comment. Eurovita had no immediate comment.

The sources could not be named because they were not authorised to speak publicly on the issue.

A third person with knowledge of the matter said that the investigation had been opened following input from IVASS.

Eurovita at the end of January became the first Italian insurer to be placed under temporary administration by supervisors who appointed special commissioner Alessandro Santoliquido to oversee the company.

In common with other life insurers who invested people's money into government bonds, Eurovita's capital buffers have been eroded by the falling value of those bonds as interest rates rose.

Adding to the problem, the higher rates prompted savers to redeem their policies to reinvest the cash.

News of IVASS' temporary administration decision hastened redemptions, obligating IVASS to freeze any further requests.

The halt remains in place as Santoliquido works on a solution to shield policyholders from potential losses.

SCHEME BEING FINALISED

Under the scheme being finalised, Italy's top five insurers are set to take on 9 billion euros in life insurance policies sold by Eurovita, a person with knowledge of the matter told Reuters.

The rest of Eurovita's assets - which totalled 15 billion euros at the end of 2022 - will be left with Cinven, at least initially, to run off over time, the person said.

Once the early redemption ban is lifted, savers are expected to rush to redeem their policies, which would cause the underlying government bonds to be sold at a loss.

To stop rescue insurers Generali, UnipolSAI, Intesa Sanpaolo Vita, Allianz and Poste Italiane getting hit by the redemptions, dozens of banks that distributed Eurovita's products are being called upon to provide financing to repay the policyholders.

The banks would get the bonds and hold them to maturity, neutralising losses.

UnipolSAI Chief Carlo Cimbri said this month the banks should provide the financing for free, but the person said the interest rate was still being negotiated.

In its latest report on financial stability, the Bank of Italy said that Eurovita's crisis had been compounded by "specific structural weaknesses of that insurance company".

The Bank of Italy listed "inadequate risk management, limited capital and shareholder disengagement".

After trying in vain for months to get Cinven to recapitalise Eurovita, IVASS convinced it in February to inject 100 million euros, which a source told Reuters was less than a quarter of the insurer's actual capital needs.

(Additional reporting and writing by Valentina Za; editing by Alvise Armellini, Barbara Lewis and Conor Humphries)