Italy is no stranger to financial crises. During the mid-2000s when its economy ground to a halt, some of the country’s most prestigious banks were quickly overwhelmed by bad loans.
Tens of billions of euros that had been lent to struggling businesses had to be written off, forcing a string of venerable names to raise emergency capital.
Banca Monte dei Paschi di Siena, the world’s oldest bank and an institution set up to provide charitable loans to the “poor or miserable”, eventually had to be nationalised.
Yet it is private equity-backed life insurer Eurovita that occupies a particularly unique place among the wreckage.
In 2023, the company, at the time under the control of UK-based private equity house Cinven, became the first ever Italian insurer to crash into administration
The authorities quickly assembled an industry-led rescue deal involving five rival insurers and 25 banks that protected the payouts of thousands of policyholders and around €10bn (£8.7bn) of assets. Cinven declined to comment.
Two years later and the shadow of that dark day still looms large over a sector that has become rich pickings for private equity bosses on the hunt for untapped pools of capital to fund their empire building.
Concerns are mounting over whether aggressive, profit-hungry private equity financiers are suitable custodians of organisations that typically invest over many decades.
Life insurers sell annuities – a type of insurance policy that provides a guaranteed income stream, typically for retirees – and invest the premiums collected from customers in order to make a return beyond what they pay out to policyholders.
Regulators meanwhile have warned that this gigantic bet could trigger a credit crunch with potentially grave consequences for the financial system.
The industry rejects such concerns. “Private equity firms are long-term investors, with a view to creating value for all stakeholders involved. These firms are highly regulated in the UK by the FCA and subject to various frameworks,” a spokesman for the British Venture Capital Association says.
However, economist Eileen Appelbaum, of the Centre for Economic and Policy Research in Washington, claims that the private equity industry’s track record as owners of businesses, as well as their poor fund performance raises serious questions about whether they can be trusted to protect the retirement savings of millions.
She points to a study conducted by the California Polytechnic State University in 2019. Researchers found that one in five private equity-owned companies bought with debt financing go bust within 10 years of being bought – a rate 10 times higher than that of publicly owned companies.
Nevertheless, the buyout industry “has been trying to get its hands on retirement savings for years”, Appelbaum, a longstanding critic of private equity, says.
The Bank of England points out that this has happened at the same time as private equity’s control of life insurance assets has jumped by more than $1 trillion from very low levels since the end of the global banking meltdown in 2009.
