EU watchdog investigates Eurovita’s failure. Three sources told Reuters that EU regulators are looking at an Italian insurer’s inability to determine the sector’s vulnerability to rising interest rates and whether private equity-owned companies are at risk.

Due to the fastest inflation in decades, the European Central Bank hiked its main rate to a 22-year high on Thursday.

Financial institutions have benefited from higher returns on investments and income but have also suffered. Silicon Valley Bank in the US was caught off guard and collapsed, eroding trust in the European sector.

The European Insurance and Occupational Pensions Authority (EIOPA), an industry regulatory body similar to the European Banking Authority (EBA), is now assessing whether Eurovita’s financial troubles may indicate future stress at other regional insurers, the people said anonymously.

In 2017, Cinven bought Eurovita, a life insurance and savings company, from JC Flowers & Co. Eurovita expanded swiftly, selling through several dozen banks.
However, rising interest rates lowered the value of its government bond assets. They caused clients to redeem their savings contracts early to invest in higher-yielding products, driving the insurer into temporary administration.

After Cinven’s 100 million euro ($109.43 million) injection failed, Italian authorities plan to split Eurovita among the country’s biggest insurers.

Eurovita’s situation stands out since it struggled for years, according to EIOPA’s early research.

The people said that Europe’s first high-profile private equity-backed insurance failure had heightened the agency’s longtime surveillance of buyout firms.
The people said EIOPA believes Italian life insurers are particularly vulnerable to early customer redemptions due to conventional savings products’ ease of withdrawal.

They said the agency hasn’t chosen how to use the analysis’s findings, but they might increase awareness among national supervisors across the 27-country bloc.

Eurovita, EIOPA, and IVASS did not comment. Cinven declined to comment on the regulators’ approach.

Private equity businesses seek long-term finance from life insurers. The people said European regulators were concerned about private equity’s shorter timescales than life insurance’s decades-long policyholder responsibilities.

Private equity funds typically sell investments to other investors at a profit after a decade.

“Since their investment horizon is usually shorter than more traditional shareholders, there is a risk that capital is pulled out of the target undertaking with potential negative impact on policyholders’ protection,” EIOPA said last year about private equity’s growing interest in old life insurance books.