CNP, Scor in uplifting insurance coda

CNP Assurances and Scor SE provided some year-end cheer for the insurance sector at the beginning of December with Eu750m and Eu500m subordinated bond issues, respectively, that represented the first such benchmark euro issuance in six weeks.

The last previous euro benchmark in insurance sub debt had been a Eu1.25bn 32 year non-call 12 Tier 2 issue for Generali on 20 October, and since then issuance had been confined to smaller trades or sterling.

However, the two French insurance companies were able to benefit from improved market sentiment to successfully reopen the sector.

CNP Assurances returned just over a year after its last issue, a Eu500m PerpNC10 issue in November 2014, to sell a 31.5NC11.5 Tier 2 issue on 1 December via Barclays, JP Morgan, Natixis and UBS. They went out with initial price thoughts of the mid-swaps plus 370bp area and then guidance of 360bp-365bp before pricing the Eu750m BBB+ (S&P) issue at 360bp over, with a coupon of 4.5%.

Scor went out with its Eu500m 30NC10 Tier 2 issue the next day, launching its deal ahead of the August 2016 call date of a Sfr600m (Eu554m) subordinated issue, which the new transaction was intended at refinancing. Its last deal had been a Eu250m 32NC12 Tier 2 at the beginning of June.

Leads Barclays, BNP Paribas, Citi, Crédit Agricole CIB, Deutsche Bank and Natixis priced the A/A- (S&P/Fitch) deal at 225bp over mid-swaps on the back of more than Eu2.3bn of demand following IPTs of the 240bp area and guidance of 225bp-230bp. Robert Chambers, FIG syndicate at Crédit Agricole CIB, said the new issue premium paid by Scor was comparable to CNP Assurances’s, compared to their dated curves, noting that Scor’s 3.25% 2047NC27 was trading at around swaps plus 195bp. However, he noted that Scor came much further inside its outstanding perpetual than did CNP Assurances, and, given that Scor’s dated comparable was squeezed, its new issue premium was arguably lower.

France and the UK were the largest takers of Scor’s issue, which Chambers put down to the Eu500m size.

“They did Eu500m for the first time in the last three deals,” he said, “and it actually opened up a new buyer base, particularly in the UK, with investors who need that minimum Eu500m size.”

The structure of the CNP Assurances and Scor trades included new tweaks to their gross-up language to reflect the recent opinion of French regulator ACPR of gross-up being an incentive to redeem. Under CNP’s structure, optional early redemption following a gross-up or withholding tax event is only possible after 10 years, as is the payment of additional amounts, while mandatory redemption for tax (gross-up) reasons has been removed.

Michael Benyaya, DCM solutions at Crédit Agricole CIB, noted that Scor’s trade also absorbed the ACPR’s position, although it includes an automatic alignment event in case the regulator changes its view on gross-up.

Post-summer blues

The insurance sector had not reopened with Eu500m-plus deals in the autumn until Danica Pension and ASR Nederland launched Eu500m 30NC10 issues on 21 and 22 September, respectively. They did so after roadshows, but not before concerns about the Chinese economy and volatility caused by anticipation of a Fed rate hike complicated their plans. The Danish and Dutch insurers ended up paying new issue premiums that market participants put at as much as 60bp.

“Danica Pension and ASR Nederland both got caught up a bit in that volatility in mid-September and ended up paying larger premiums because of the unfortunate timing,” said Chambers, “and so the insurance hybrid market in euros was kind of the visible point for that volatility.”

Generali’s deal a month later impressed with a book of almost Eu5bn (see separate article for further details), and Chambers noted that the premiums paid by CNP Assurances and Scor represented a further recovery in the levels required of the sector, but said that they remain slightly above those demanded in the bank capital space.

“We have seen bank capital trades with new issue premiums as tight as 5bp, and with the standard about 15bp-20bp,” he said. “The insurance structures are a little bit riskier, with their deferrable coupons, but it is more a question of the insurance sector having got caught in the crossfire and not having had much of a chance to show its strength since then.”

The sector’s challenges did not stop activity picking up in the UK, where Legal & General on 19 October sold the largest post-summer sterling issue, a £600m (Eu833m) 30NC10 deal, and was followed by smaller issues including a £275m 30NC10 debut for Hiscox on 17 November that attracted over £2bn of demand.

2015 is set to conclude without the arrival of much-anticipated Solvency II Tier 1 structures from the insurance industry, with market participants now expecting such instruments to arrive later in 2016.

“We have seen a lot of issuers focusing on the 30NC10 structure whilst we wait for further clarity on potential Tier 1 issuance under Solvency II,” said Chambers.