Generali $22 billion portfolio sale to private equity complicated by rate surge

Assicurazioni Generali (BIT:GASI)’s plans to shed up to 20 billion euros ($21.87 billion) of insurance liabilities are being hampered as a surge in interest rates has complicated talks with buyers, three people familiar with the matter said.

The Italian insurer embarked on a process late last year to sell a large batch of domestic life insurance contracts to free up capital.

It has been working with Goldman Sachs (NYSE:GS) to sound out buyers for the portfolio, including Portugal-based GamaLife, backed by Apax Partners, and Bermuda-based Athora, backed by Apollo Global Management, said the people, who spoke on condition of anonymity.

Spain-based MedVida, owned by U.S. billionaire Paul Singer’s hedge fund Elliott Management, has also shown interest in the portfolio, which is made up of different clusters of policies, one of the people said.

But interest rate rises have added to the deal’s complexity, raising questions over the value of the portfolio and the regulatory appetite to authorise such a large transfer of risk to buyout groups.

Generali may seek to revive discussions after agreeing to acquire Liberty Mutual’s European operations earlier this month for 2.3 billion euros, which had taken much of the group’s attention, one person said.

However, the insurer is open to alternative structures for outsourcing the risk, for example, through a reinsurance arrangement, another one added.

Generali, Goldman Sachs, Apax Partners, Athora and Elliott declined to comment. Spokespeople for Apollo, GamaLife and MedVida did not respond to a request for comment.

Back, closed or run-off insurance books consist of policies that are no longer sold to new customers but remain in force, requiring insurers to hold capital against future obligations.

Traditional insurance groups have been carving out these legacy portfolios to release the trapped capital and use it elsewhere.

Meanwhile, private equity funds have built consolidation platforms to acquire these unwanted policies and try to manage them better, for example, by using their asset management expertise to generate higher investment returns.

The escalation of interest rises across the Western world means maintaining old insurance savings contracts can become cheaper for insurers, as the relative yields they pay customers are reduced compared to other investments.

However, the change in the rate cycle has also prompted some policyholders, particularly in Italy, to withdraw their money early to invest in higher-yielding products, putting pressure on the sector and notably leading to the failure of Eurovita, a midsize insurer owned by buyout house Cinven.

While rating agencies consider Eurovita to be an outlier, the case has heightened regulatory scrutiny of the sector, leading to a slowdown in deal-making, the people said.

($1 = 0.9144 euros)

Generali $22 billion portfolio sale to private equity complicated by rate surge