The five companies that shared the burden of saving the policies of Eurovitanow pass through new company CronosVita, they hope that there will not be the feared wave of redemptions. L’Ivass, the supervisory body is reassuring: for the moment there is no rush to terminate contracts early. Thanks to the creation of Chronos by the five big names in the sector – Intesa Vita, Poste Vita, Generali, Allianz and Unipol – which eliminated the risk of Eurovita going bankrupt, which would also have caused losses for customers. In fact, in the insurance sector there is no protection mechanism such as the Guarantee Fund for banks, which allows customers to recover up to 100 thousand euros in the event of bankruptcy. Now the word is up to the insured, and it is not certain that, even if the first signs are encouraging, the subsequent ones will also be encouraging.
The great fear that the company could fail it was taken between the end of 2022 and the beginning of 2023, when the redemptions must have been significant, if last February Ivass placed it in extraordinary administration Eurovita, by appointing an administrator in the person of Alessandro Santoliquido, and blocking early extinctions. How many these ransoms were out of a total value of 16 billion is unknown: Ivass, in fact, specifies that as it is a supervisory activity it cannot disclose the numbers. The freeze on redemptions, subsequently reiterated until October 31st, further alarmed customers. You can be sure that for many of them the possibility of redeeming the policies early again was seen as one liberation.
The redemption dilemma
Now, however, Cronos customers are faced with a dilemma: really Is it worth cashing in on these policies? Or isn’t it better, now that the fear has passed, to keep them until they expire? The answer, according to experts, is not unique for all insured people. In fact, everyone has a different situation, to be evaluated in light of what is actually written in each individual contract but also in relation to each customer’s investment plans.
In the meantime, one thing is certain, and it applies to everyone. Cronos is controlled by the five big insurance companies in Italy, and therefore there is no longer what is technically defined as “counterparty risk”, no failure is reasonably possible with this share structure. Which should give each client time to evaluate their case calmly. Cronos policyholders are now just like the customers of every solid company on the market.
by Federico Formica
The tidal wave of redemptions
On a general level, however, this year there has been atidal wave of redemptions which has rarely been seen, so much so that the net collection of life insurance policies has been negative until today – as recalled by the president of Ania Maria Bianca Farina – for about 15 billion. Which means that many Italians, faced with the high interest rates that BTPs now offer, well over 4%, have decided to sell life insurance policies that give a low return, 1, 2 or 3% in the best of cases for older policies. But the choice of whether to surrender a policy or not depends on many factors. «Given the same counterparty risk, the first thing to see is, in the case of Class I revaluable policies (which were worth 10 billion in Eurovita, ed) what is this guaranteed minimum”, explains Giuseppe Corvino, professor of Economics of financial intermediaries at Bocconi. “If it is relatively high, it is better to keep the policy, the value of which is not as volatile as that of bonds of the same maturity.”
Then it remains to be seen, in each individual case, if the contract provides for exit penalties. In general, Eurovita policies had little or no penalties; but this is not certain, because the company had grown with various acquisitions and therefore there were different contracts within it. However, the lack of exit penalties seems to be a characteristic feature of Italy, more than other European countries, as demonstrated by an Eiopa study from a few years ago. And this is bad for companies, which prepare long-term investment programs that can be ruined by early redemptions. «But it can also be a detriment for clients with long-term investment horizons, who may not benefit from the illiquidity rewards that a “patient” investment strategy could offer», observes Corvino.
As regards Class III policies, being made up of investment funds, the only element to evaluate is whether it is worth redeeming them in the event of a loss, as their return is linked to the performance of the financial markets.
Another factor that makes the choice more complicated is whether a customer has “mixed” policiesthat is, with a little Branch I and a little Branch III (IVASS does not give this breakdown for Eurovita). Finally, Eurovita policies were almost all single premium, which means that they incorporated “loading commissions” (entry fees) already paid for the 10-15-20 years of duration. By redeeming after 3-4 years, the impact on the total return is higher.