by Simon Bourgeau
eurolife It continues to jump into the headlines, after IVASS decided to freeze policy refunds in an effort to stop customer runaways until March 31, 2023 due to a potential DC landslide. Yesterday’s news that the insurance company received its first significant contribution from shareholder Flavia HoldCo Limited (a private equity fund entity). Seventhe majority shareholder of the company). 100 million euros.
Meanwhile, Commissioner Santulequido continues activities aimed at searching for other solutions aimed at strengthening the capital of Eurovita, which currently owns Solvency ratio is less than 150%Tolerance threshold for supervisory authorities. So IFAS asked for a recapitalization 200 million eurosSo with the contribution announced yesterday of 100 million we can say we’re halfway there.
But what puts savers on alert isn’t Eurovita’s financial situation, but rather What could be the fate of written insurance policiesHowever, they are not all the same.
Separate department (GS) is a certain financial department, specially created by the insurance company, in which the capital of the clients involved in Conventional life insurance policy. This type of product is generally defined as “First branch”.
In practice, it is a file assets separate from the company: Therefore, no matter what, no one will be able to touch the capitals of the GS. In other words, the money that makes them It can only be cashed out by customers who have invested in it.
Separately managed assets are invested in securities that, as long as they remain within the policy and are not sold, are valued at the price at which they were initially purchased (the so-called “historical value” accounting standard). Let’s take an example: If a branch one policy buys a €1,000 security, that security will be valued at €1,000 until it’s sold, even if the real “market value” of the security fluctuates.
Watch out for that though It doesn’t always stay the same value, as it may seem. The value changes thanks to the returns (eg, bundled coupons) generated by the securities in the portfolio that increase the value. Even at the time of sale there may be a fluctuation in the value of the security: the difference between the purchase price and the sale price will be converted into the GS value, resulting in a profit or loss.
And so, going back to the Eurovita case, in the event of bankruptcy, what could happen to our branch one policies? GS assets will not be included in the bankruptcy, but will be liquidated at market prices for the securities in the portfolio and the guarantee of repayment of 100% of the paid up capital will expire.
Domestic insurance funds
The scenario is different if the savers have subscribed to the FIA funds that make up it Multi-class insurance policies (generally defined as “Section III“).
The third branch policies consist of a separate department and internal insurance funds. For Component One, everything will be considered the same as for the Branch One policies we just discussed. for the second component instead There will be absolutely no guarantee If not the market assessment as in the case of a normal investment fund.
The FIA is already real investment funds, while sometimes it can be SICAVs, that is, companies with variable capital. Unlike other types, unit linked policies invest in insurance funds, but other than that, their operation is not much different.
It is a very popular financial product because it is offered to clients of many banks and thus is not limited to a small circle of investors. Capital is raised by insurance funds thanks to the signing of new life policies linked to units and not separate management. FIA can fall into the category of managed savings, in fact, the purchase and sale of shares in its portfolio is managed by the asset management company, an abbreviation that stands for “asset management company”.
Returning to the case of Eurovita, in the case of bankruptcy on the sums to be paid whether it be the first branch or the third branch hangs the sword of Damocles from Raising interest rates by central banks. These increases can lead to a decrease in the prices of the securities in proportion to the term of the securities themselves. The FIA and GS can have very different portfolios, with values and assets that will be valued at the time of any liquidation.
In short, a situation that must be determined and that can in no way be considered a priori without knowing the situation and the choices made by the managers. In case Compulsory administrative liquidationconcerned savers will be supported by Policy liquidators To estimate the amounts to be refunded.
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Borsa Italiana, commentary of the March 21, 2023 hearing