Insurers tap into demand ahead of Solvency II

Insurance companies played a leading role in the autumn hybrid market, with issuers keen to take advantage of low yields and the approach of the forthcoming implementation of Solvency II acting as a catalyst.

Companies including BNP Paribas Cardif, CNP Assurances and Crédit Agricole Assurances were among those to access the market in October and November, with further issuance expected going into year-end of both perpetual and Tier 2 issuance. Insurers including Axa and Generali meanwhile embarked upon liability management exercises (see separate article).

According to Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, the forthcoming changes to the regulatory environment for insurers are a factor in the brisk supply.

“Issuers want to anticipate the adoption of future Solvency II rules in 2016,” he said. “The recent deals should benefit from grandfathering treatment as Tier 1 capital during the transitional period and are expected to be eligible as Tier 2 under Solvency II after the first call date.”

Crédit Agricole Assurances (CAA) on 7 October launched a debut bond issue, a Eu750m perpetual non-call 11 subordinated deal. According to Gregory Erphelin, CFO of CAA, the inaugural transaction was driven by changes under Solvency II and to Standard & Poor’s methodology that make it economically more efficient for the unit to see external subordinated funding rather than meet its needs internally from Crédit Agricole SA (see Q&A for full details).

Lead Crédit Agricole CIB priced the deal at the tight end of guidance, at 335bp over mid-swaps, after having gone out with initial price thoughts of the mid-swaps plus 340bp area and then built a book of Eu2bn comprising 124 accounts.

CNP Assurances returned to the market after a Eu500m 31NC11 issue in May to sell a Eu500m PerpNC10 on 12 November. Leads Crédit Agricole CIB, Deutsche Bank, Natixis, Nomura, RBS and Société Générale went out with IPTs of mid-swaps plus 330bp for the Eu500m no-grow deal, and ultimately priced the issue at 310bp over on the back of a Eu6.5bn order book including over 400 investors.

“The level of demand for insurance sector paper is extremely high as net supply has been limited,” said Chambers, noting that some of the other recent issuance had been part of liability management exercises. “When we announced guidance, the order book doubled in just 10 minutes as investors rushed to upsize their orders ahead of the books closing.

“Some of the high quality real money accounts did reduce or remove their orders as we approached fair value, but the overall level of interest ensured the bonds traded well in the secondary market.”

The issue was priced with a coupon of 4% and Vincent Damas, director for ALM and funding at CNP Assurances, noted that the prevailing level of interest rates was very favourable for issuers.

“We also see that credit spreads are at their lowest levels of the last five years – although they are still wider than before the 2008 banking crisis,” he added.

(See CNP Assurances Q&A for full details.)