Exclusive-Prosecutors probe false accounting charges in Eurovita case - source

By Emilio Parodi

MILAN (Reuters) - Prosecutors in Milan are probing allegations of false accounting in relation to the crisis at Italian life insurer Eurovita, a person with knowledge of the matter said on Friday.

Owned by Cinven, Eurovita this year became the first Italian insurer to be placed under special administration by the country's authorities after the British investment firm failed to inject enough cash to replenish Eurovita's capital buffers.

To shield policyholders, Italy has orchestrated a rescue which is expected to be announced later on Friday and that involves the country's top insurers and the dozens of lenders that distributed Eurovita's products.

Speaking on condition of anonymity because they are not authorised to talk to the press, the person said prosecutors were also looking into allegations of a crime which entails "unlawful transactions involving the shares of a company or holding company".

No individuals are currently under investigation, the person said.

Eurovita, Cinven and lawyers for Cinven declined to comment.

Under Italian law, false accounting can carry a prison sentence of between three and eight years. The other crime can be punished with a sentence of up to one year.

Reuters last week was first to report Milan prosecutors had opened an investigation into the Eurovita crisis following input from the country's insurance supervisor IVASS.

EU regulators are examining the Eurovita example to help assess the sector's vulnerability to rising interest rates and whether companies owned by private equity funds face extra risks.

CRITICISMS

IVASS said this month that an audit of Eurovita had unveiled that the company had overestimated its capital reserves and inaccurately calculated its solvency ratio, a key measure of an insurer's ability to withstand risks.

In its yearly report on the sector, IVASS criticised Eurovita's inadequate risk management as well as the lack of proper support from its shareholder.

After requesting a capital injection in July 2022, IVASS finally got Cinven to pump 100 million euros into Eurovita in February this year. But the company's needs were at least four times that, a source previously told Reuters.

Faced with the capital request, Cinven tried to sell Eurovita to rival private equity firm JCFlowers but the deal ultimately collapsed because it failed to involve a reinsurer.

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.

In Eurovita's case, news of IVASS' decision to appoint a special commissioner to run it hastened redemptions, prompting IVASS to impose a freeze which is still in place.

Civen first entered the Italian insurance industry in 2015 buying a local unit of Germany's ERGO, with a view to bringing together smaller players in a fast-growing market.

IVASS authorised it in 2017 to buy Eurovita Assicurazioni and combine it with Ergo Previdenza and Old Mutual Wealth Italy to create a group managing around 680,000 life policies, with more than 2 billion euros in premiums.

Distributing its products through 1,000 bank branches and around 6,500 financial advisers, Eurovita grew rapidly under Civen during the era of negative interest rates.

(Reporting by Emilio Parodi; Additional reporting and writing by Valentina Za; Editing by Keith Weir)