June 1, 2020 / 1:56 PM / 2 months ago

UPDATE 1-Italian insurer Cattolica told to boost capital after solvency hit

* Crisis hits value of insurers’ financial assets

* Italian insurers exposed to domestic government bonds

* Cattolica to sell Tier 1 bond, new shares to raise cash (Add details)

By Andrea Mandala

MILAN, June 1 (Reuters) - Cattolica Assicurazioni said on Monday that Italy’s insurance regulator had told it to raise 500 million euros ($557 million) after the coronavirus crisis knocked its solvency ratio, a measure of financial strength.

The Bank of Italy warned last month about the significant hit to the solvency ratios of Italian insurers from falls in market prices and rising risk premia on Italian government bonds, which although down from 73% in 2016 still account for 55% of Cattolica’s overall financial assets.

Rising Italian debt yields, driven by the prospect of a deep recession and a surge in Rome’s public borrowing, have an impact on insurers because they must book sovereign bonds at market value to calculate capital and solvency ratios.

Warren Buffett’s Berkshire Hathaway is the top investor in Cattolica, which said its solvency ratio was 122% as of May 22, versus 147% at the end of March and at least 160% at the end of 2019. Cattolica normally targets a ratio of 160% to 180%.

Cattolica said IVASS had written to its board at the end of May and told it to complete a planned capital increase by early autumn and draw up a plan by the end of July to monitor its solvency and liquidity.

It also asked Cattolica to suspend bonuses for executives.

Cattolica had planned to seek approval at a June 27 shareholder meeting to issue shares worth up to 500 million euros over the next five years to prepare it for potential ‘bancassurance’ deals.

The insurer said it was now considering selling a Tier 1 bond ahead of this new share issue to boost capital.

A governance tussle after the ousting of CEO Alberto Minali had already put Cattolica on IVASS’s radar. Cattolica said Minali was seeking 9.6 million euros for being dismissed without just cause. ($1 = 0.8975 euros) (Additional reporting by Giulio Piovaccari; Editing by Valentina Za and Alexander Smith)

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