CAA under the wire, Solvency II Tier 1 awaited

Crédit Agricole Assurances in early January squeezed in the last grandfathered Tier 1 trade before Solvency II took full effect later in the month, with the sector now awaiting the first fully-fledged trades under the new insurance industry regulatory framework but otherwise quiet in the interim apart from limited Tier 2 supply of which Allianz provided a highlight (see separate article).

The publication of Solvency II Delegated Acts in the Official Journal of the EU on 18 January closed the door on such grandfathered trades from the following day. Indeed the anticipated yet uncertain end date had already almost closed down issuance.

“CAA was a highlight at the beginning of the year as nobody could believe that anyone would run the risk of tapping the primary market with the cut-off date potentially being announced during the trades execution and hence disqualifying it as Tier 1,” said a market participant.

The French insurer launched its transaction on 8 January, a Eu1bn perpetual non-call 10 issue. The structure is treated as grandfathered Tier 1 during the Solvency II transitional period and fully-eligible Tier 2 thereafter, and matched that of a Eu750m perpetual non-call 11 issued by Crédit Agricole Assurances (CAA) in October.

The new Eu1bn issue was priced at mid-swaps plus 350bp on the back of a Eu2.5bn book comprising some 200 accounts, and following IPTs of the mid-swaps plus 360bp area. The paper tightened 6bp on the day of launch.

The supply situation and wider technicals offered the insurance sector support through the opening months of the year, according to Robert Chambers, FIG syndicate manager at Crédit Agricole CIB.

“Having now passed the cut-off date for grandfathered Tier 1 transactions, such structures continue to outperform other FI paper as investor demand heavily outweighs realised/potential supply,” he said. “Whilst the global macroeconomic headlines have caused volatility in most sectors, any selling pressure in insurance hybrids has been easily recycled to other asset managers in Europe.

“Tier 2 bonds are also extremely well supported due to the lack of supply so far this year.

Achmea launched one of the few such transactions, a Eu750m perpetual non-call 10 Tier 2 transaction at mid-swaps plus 355bp on 28 January. On the back of a Eu3bn order book, the pricing was tightened from IPTs of 370bp to the 355bp re-offer, which was seen as offering a new issue premium of some 20bp – and the paper quickly tightened 20bp.

Vienna Insurance Group on 18 February issued Eu400m of 31 non-call 11 subordinated notes as part of a liability management exercise in which it was repurchasing December 2022 notes and a perpetual non-call 2018 subordinated issue. The paper was priced at 3.75% following IPTs of the 4% area and guidance of the 3.875% area, with the order book having reached Eu700m.

A market participant said that the new notes priced flat to outstanding 2043 non-call 2023 paper of the issuer, noting that this was in line with recent tender and new issue processes where the issuer has opted to pay the premium on the tender leg rather than the new issue. The exercise closed on 26 February, with Eu33.363m and Eu49.983m tendered out of Eu180m of the 2022s and Eu250m (outstanding, against an original Eu500m) of the perpetual non-call 2018s.