The rise in interest rates has made negotiations with potential buyers more difficult, which is impeding Assicurazioni Generali’s ambitions to sell up to 20 billion euros ($21.87 billion) in insurance liabilities, according to three people with knowledge of the situation.

In order to raise capital, the Italian insurer started a procedure late last year to sell a significant number of domestic life insurance contracts.

According to the persons who spoke on the condition of anonymity, it has been working with Goldman Sachs to identify potential purchasers for the portfolio, including Bermuda-based Athora and Portugal’s GamaLife, both of which are financed by Apollo Global Management.

One of the persons stated that US billionaire Paul Singer’s hedge firm Elliott Management, which owns the Spanish-based MedVida, has also expressed interest in the portfolio, which consists of various clusters of insurance contracts.

However, an increase in interest rates has complicated the transaction and cast doubt on the portfolio’s worth and the willingness of regulators to approve such a substantial risk transfer to buyout groups.

One person speculated that Generali would try to restart talks after the group’s focus was mostly diverted by the company’s earlier this month agreement to pay 2.3 billion euros for Liberty Mutual’s European businesses.

Another said that the insurer was open to different arrangements for outsourcing the risk, such a reinsurance contract.

Goldman Sachs, Elliott, Athora, Apax Partners, and Generali all declined to comment. Apollo, GamaLife, and MedVida spokespeople did not reply to a request for comment.

Back, closed, or run-off insurance books are made up of policies that are no longer being sold to new clients but are still in effect. These contracts require insurers to keep capital as a buffer against potential liabilities.

In order to free up the wealth that has been imprisoned and put it to other uses, traditional insurance organisations have begun carving apart these legacy portfolios.

Private equity funds have developed consolidation platforms in the interim to acquire these undesired insurance policies and attempt to manage them better, for instance by utilising their asset management experience to increase investment returns.

As interest rates climb throughout the Western world, insurers may find it more cost-effective to preserve old insurance savings contracts because the relative yields they offer consumers are lower than those of other assets.

Although this has put strain on the industry and specifically contributed to the demise of Eurovita, a midsize insurer controlled by buyout firm Cinven, some policyholders, particularly in Italy, have been motivated by the change in the rate cycle to withdraw their money early in order to invest in higher-yielding products.

Although rating agencies view Eurovita as an anomaly, the case has increased regulatory scrutiny of the industry, slowing deal-making, the sources added.

(Adapted from FlipBoard.com)