Earlier this year, Eurovita became the first Italian insurance company to be placed under special administration, after running into trouble due to higher interest rates.

Insurers Generali, Intesa Sanpaolo Vita, Poste Vita, UnipolSAI and Allianz will set up a new company that will take on Eurovita life insurance policies.

Some 10 billion euros in policies will be transferred to the new company, or two thirds of Eurovita's total assets at the end of last year, a person close to the matter said.

Eurovita's troubles highlight the threat life insurers face from rising interest rates, which cut the value of government bonds these companies bought with their clients' money.

Higher rates have prompted many small savers to end their policies and reinvest the cash in search of better returns, forcing insurers to sell the underlying bonds at a loss.

IVASS has said that Eurovita's problems were aggravated by poor risk management and the unwillingness of the owner, British private equity firm Cinven, to provide more capital.

Earlier this year, IVASS froze early redemptions at Eurovita after appointing a special commissioner to run it.

On Friday it extended the freeze until Oct. 31 while the technical details of the rescue are finalised.

To prevent the five insurers from being hit by redemptions once the ban is lifted, banks that sold Eurovita the products are participating in the rescue.

The lenders will provide financing to repay Eurovita customers who redeem their policies, while holding the underlying bonds to maturity and neutralising any losses.

This financing amounts to 6 billion euros, the person said.

The banks include Banco BPM, BPER, Credit Agricole, FinecoBank, Intesa Sanpaolo, Mediobanca and Monte dei Paschi.

The lenders were advised by Vitale & Co and law firm Gatti Pavesi Bianchi Ludovici.

(Reporting by Valentina Za; Editing by Alvise Armellini and Alexander Smith)

By Valentina Za