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US private capital groups such as Apollo and KKR should expect challenges as they seek to expand in the European insurance sector, the chief executive of Zurich has warned.
“I’m not sure that the same asset-gathering philosophy that they’ve had in the US can work in Europe”, Mario Greco told the Financial Times.
“They’ve been growing in markets where regulatory controls were lighter than in Europe”, he said, but “so far in Europe, they have not grown as they did in the US.”
Apollo-backed insurer Athora in July announced a £5.7bn deal for a UK retirement savings group. People familiar with the deal said the move reflected a change in strategy after Athora struggled to expand in Europe.
Weeks later, Canadian alternative investments giant Brookfield said it had struck a £2.4bn agreement to acquire London-listed life insurer Just Group.
Zurich is one of Europe’s largest insurers and earlier this month reported forecast-beating half-year profits in both its property-casualty and life businesses.
The Swiss insurer has been seeking to sell a $20bn life insurance book since a planned sale to Viridium, then backed by British buyout group Cinven, fell through last year amid heightened regulatory scrutiny of private equity ownership of insurers.
US private capital groups’ foray into insurance “was fundamentally driven by an opportunity to follow different capital rules”, Greco said. “Now, when they come to Europe, they’re forced to be under strict European rules, and they’re buying assets and piling up the assets, trying to make profits out of the size of the assets.”
He added that life insurance is a “medium to long-term business, and private equity is a short to medium-term business. There must be alignment, because customers buy life solutions often for the long term, and they don’t like to hear that there is a change in ownership of their liabilities.”
Apollo chief executive Marc Rowan said on an investor call in October that regulators had hampered its growth ambitions in the European market.
“Regulators have two choices as to where . . . capital comes from, the banking system or the investor marketplace. Everywhere, they’ve told the banks to do less. It’s just in Europe they forgot to tell investors to do more,” Rowan said.
However, he added, conversations with European regulators on “liberalisation of securitisation, liberalisation of other private assets” were “just starting.”
In June the European Commission proposed an overhaul to EU debt securitisation rules imposed after the 2008 global financial crisis.
And in July, the European Commission launched a consultation on capital rules for insurers, one of the final steps in a multiyear review that the body has said aims to provide up to €90bn in capital relief for Europe’s insurance industry.
Trade group Insurance Europe welcomed the consultation as a chance to tackle “excessive conservatism” in the capital buffers that insurers are required to hold.
