Hannover Re T2 shows issuers’ market for insurers

Hannover Re issued a Eu500m perpetual non-call 10.75 Tier 2 issue on 8 September that highlighted the strong market conditions for insurance companies bringing hybrid bonds.

Leads Barclays, Citi, Commerzbank and Crédit Agricole CIB went out with initial price thoughts of the 240bp over mid-swaps area for a no-grow Eu500m deal. With orders approaching Eu2bn, guidance of the 230bp over mid-swaps area (plus or minus 5bp) was set, and then the level fixed at 225bp over with a final order book of Eu2.2bn comprising 212 accounts.

According to Robert Chambers, FIG syndicate manager, at Crédit Agricole CIB, this put the pricing some 10bp through where the leads had seen fair value.

“Pricing power in the insurance sector is very much in the hands of the issuer, as opposed to the recent AT1 deals where investors have had the upper hand and are able to sit trades out,” he said.

“As well as the issuer-specific scarcity, this is partly due to the recent lack of supply in the sector and also anticipation that the pipeline is not as large as in AT1. That provides for a positive backdrop for insurance names.”

Chambers added that the deal traded up on the break as real money accounts looked to add to their allocations.

Germany and Austria took 36%, Switzerland 15%, the UK 12%, Italy 11%, France 10%, Benelux 8%, Iberia 2%, Nordics 3%, and others 3%. Asset managers were allocated 70%, insurance companies and pension funds 16%, banks 7%, and others 7%.

“The new bond enables Hannover Re to take advantage of the low level of interest rates and to optimise the maturity profile of the outstanding hybrid capital,” said Hannover Re chief executive officer Ulrich Wallin.

The transaction was priced with a coupon of 3.375% to the first call, after which it pays three month Euribor plus 325bp.

The insurance company noted that it traditionally uses hybrid bonds to optimise its cost of capital, with Hannover Re now having four hybrids outstanding in the capital markets.

Hannover Re’s last issue was a 30 year non-call 10 structure in November 2012. According to Chambers, that was structured in anticipation of future Solvency II Tier 2 rules and the new instrument is very similar, with identical S&P treatment, except for the perpetual maturity and its ranking in liquidation (subordinated to senior and dated subordinated debt).