CNP Eu1bn opens Tier 3, while insurers get USD fix

CNP Assurances launched the first euro benchmark Tier 3 transaction under Solvency II on 12 October, a Eu1bn six year that provided a highlight as most insurance companies turned to the dollar market for subordinated debt.


The French company’s deal was the first Tier 3 from the insurance industry under Solvency II with the exception of a C$450m 4.5% May 2021 issue sold by the UK’s Aviva in spring.

Jean-Philippe Médecin, director for ALM and funding, said that the issuer fulfilled its several goals of adopting the new instrument: “Taking advantage of the new Solvency II regulation that allows Tier 3 subordinated debt as the cheapest form of regulatory capital; reducing the average cost of outstanding subordinated debt; partially fulfilling the Tier 3 regulatory bucket, which, unlike other insurance companies, is empty because of the absence of net deferred tax asset (DTA); and diversifying the investor base by issuing a more investor-friendly structure than the usual 30NC10 Tier 2 bond.”

The BBB+ deal was priced at 190bp over mid-swaps, following initial price thoughts (IPTs) of the mid-swaps plus 225bp area and guidance of 190bp-200bp, on the back of an order book of over Eu5.5bn. This compared to outstanding CNP subordinated debt, 2045 non-call 2025s and 2047 non-call 2027s, trading at plus 360bp and 370bp, respectively.

“Today’s transaction confirms that Tier 3 instruments can provide substantial cost-savings in comparison to traditional 30NC10 Tier 2s,” said a syndicate official at Crédit Agricole, citing as key factors: no optional coupon deferral; mandatory deferral based on an MCR rather than SCR trigger; the shorter duration; and the absence of call option/extension risk.

“We expect the investor base to be receptive to follow-on transactions from the majority of insurers in Europe,” he added.

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

Elsewhere, insurers targeted the US dollar market, where the “fixed-for-life” structure had enjoyed a renaissance for the first time since 2013 after Prudential reopened the sector in May with a $1bn 5.25% perpetual non-call five deal. According to a banker involved in the supply, the segment was opened after earlier financial institutions trades in Reg S format, notably bank AT1s, had elicited strong demand from Asia.

“So there were signs that there was money to put to work there,” he said, “and then Prudential was the first one to go with the fixed for life format, which is a more aggressive structure without the normal step-up. As it’s still recognised as Tier 2 capital, they get the benefit of this fixed for life structure and it’s anyway cost efficient versus euros, which is all beneficial from an issuer standpoint.”

Zurich, Allianz, then Prudential, and finally Axa all issued in the format from July though to September, with demand fluctuating alongside the development of yields, falling from the $11bn-plus initially enjoyed by Prudential as coupons fell as low as 3.875% when Allianz sold a $1.5bn perpetual non-call March 2022 at the end of August.

“That was a bit of a reality check and traded down quite heavily,” said the syndicate official. “It’s very rates driven and hence became a bit more challenging with the US election and FOMC coming up.

“However, Prudential and Axa were still able to take advantage of the very attractive pricing. From an issuer’s perspective, they managed to raise very efficient capital at very competitive levels.”

A Eu1bn 32 non-call 12 Tier 2 issue for Crédit Agricole Assurances on 20 September reopened the euro market post-summer break for the format. The deal was priced at mid-swaps plus 435bp, following IPTs of the 450bp area, on the back of Eu2.5bn of demand from 170 accounts.

“It could have been Eu750m and we decided to go to Eu1bn thanks to the success of the deal,” said Grégory Erphelin, CFO, Crédit Agricole Assurances (CAA). “It’s a very good transaction for CAA.”

(See CAA case study for more details.)

Norway’s Gjensidige Forsikring meanwhile on 29 August launched the first Restricted Tier 1 (RT1) instrument, although the Nkr1bn transaction, coming from the periphery of Solvency II’s sphere of influence, was deemed something of an idiosyncrasy.