Depressed rates a twin spur to insurance issuance

Some 16 insurance trades hit the market between the post-summer reopening and mid-October, providing for the sector’s busiest period of 2019, as the depressed rate environment enabled companies to raise subordinated debt at attractive levels and top up their solvency ratios.


Yields sunk to new lows over the summer — following outgoing ECB president Mario Draghi’s June Sintra speech and the subsequent governing council meeting — and upon returning from their holidays, Europe’s insurance companies were prompted to approach the market by the prevailing level of rates — but not all for the same reason, according to André Bonnal, FI syndicate at Crédit Agricole CIB.

“There is one reason why we have seen so much supply in insurance post-summer, which is clearly where rates are”, he said, “but then we have had two different motivations from insurers to come to the market with subordinated trades.

“One is for those who have been most impacted by the fall in rates to come to the capital market to increase solvency ratios, such as life insurance players. The other is insurers who are more diversified and less directly impacted by the rates environment who are coming to the market simply because they can’t pass on the opportunity to fund themselves at extremely low coupons.”

See article here for more on the development of solvency ratios.

Among the opportunists were issuers such as Allianz, Hannover Re and Swiss Re. Bonnal noted that Hannover Re, for example, approached the market on 1 October to sell a €750m 20 non-call 10 benchmark Tier 2 at a coupon of 1.125% ahead of a call on an outstanding bond next year.

“There was clearly an incentive for them to do it now, rather than potentially paying more later,” said Bonnal at CACIB, which was a joint bookrunner on the trade. “In that respect, it was a no-brainer.”

Hannover Re’s deal was meanwhile the first 20 non-call 10 subordinated insurance issue in euros since a change to S&P Global’s methodology allowed for the shorter final maturity date than the 30NC10s typical of the sector for those companies focusing on S&P. Bonnal noted that the structure helped Hannover Re’s new issue trade some 10bp inside a 30NC10 from Moody’s-targeting Allianz, although he said the scarcity value of the name in the subordinated space strongly contributed as well.

Allianz’s €1bn deal on 16 September was the first in a particularly busy period, with ASR tapping its RT1 for €200m the next day, Achmea issuing a dual-tranche €250m Tier 2 and €500m debut RT1 the same week, Mandatum Life and Generali raising €250m and €750m of Tier 2, respectively, the following week, and a Royal London £600m Tier 2 alongside Hannover Re the week after that.

“So you had a lot coming to the market,” said Bonnal, “but everything has been extremely well absorbed by investors, who are clearly still very keen to get their hands on subordinated insurance paper after a period when there was a lack of supply.”

He noted that almost all the post-summer euro issuance had followed the European Central Bank’s 12 September confirmation of a new round of QE as part of its wider stimulus package.

“Obviously the market has been extremely supportive as well for the credit market in general,” he said. “With the ECB having providing clarity, we had a window where rates were extremely low — the 10 year swap was at around minus 45bp, although it has backed up since.”

Outside the subordinated sphere, the new yield environment was most starkly demonstrated by a €500m three year funding agreement backed issue for MetLife that was priced with a yield of minus 0.021%, making it (excluding covered bonds) the first euro issue from a financial institution to be priced at a negative yield.