Germany’s Bafin Says Private-Equity Should Invest Longer

Private-equity firms that focus on buying closed life insurance funds should invest for the long term to bolster the industry if they are to be tolerated, Germany’s financial regulator said.

Bafin would accept buyout firms that “don’t act in too rough a way and don’t try to push through overly short investment horizons to run away after three or four years,” Felix Hufeld, Bafin’s head of insurance supervision, said at a conference organized by Handelsblatt newspaper in Munich today. “Should that happen, we would stop talking about run-off as an option for Germany for the next 25 years.”

Heidelberger Lebensversicherung, an investment company controlled by private-equity firm Cinven Ltd. and German reinsurer Hannover Re, agreed last week to buy Old Mutual Plc’s Skandia units in Germany and Austria for 220 million euros ($303 million) in its first deal since its creation. The company is seeking to buy life insurance providers that are closed to new customers in a similar way to how Clive Cowdery built up Resolution Ltd., the U.K. insurance buyout firm.

Cowdery, who said on March 18 he will step down from the company’s board, has since turned his attention to the North American life-insurance market and said he may set up a similar venture focused on the euro area in the second half of the year.

“If we are probably entering a time where we will have more life insurers in trouble than less, then a regulator has to welcome every additional option,” Hufeld said. “There is no reason to condemn run-off models.”

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, sold Heidelberger Leben to Cinven and Hannover Re last year. Cinven owns 80 percent and Hannover Re, the world’s third-biggest reinsurer, 20 percent.

“It’s very important for us that every run-off firm has the necessary knowledge of the German insurance industry,” Hufeld said. “A pure private-equity vehicle without that would be problematic.”

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