Zurich rides out deteriorating market to score €750m success

Zurich Insurance launched a 30.25 year non-call 10.25 subordinated transaction into the toppish market on Tuesday, but was able to come away with an upsized €750m trade priced flat to fair value that held its own in the aftermarket.

The Swiss insurer entered the market on Tuesday morning alongside several other financial institutions, just as the strong rally that peaked amid Monday’s AT1 frenzy (see article here) was fading, with ABN Amro’s and Commerzbank’s new issues soon trading below par.

“Essentially we had the first day of softness, with all the primary transactions taking that little bit more time to get done,” said André Bonnal, FIG syndicate at Crédit Agricole CIB, joint bookrunner on Zurich’s deal.

Initial price thoughts for the euro benchmark-sized 30.25 year non-call 10.25 year subordinated transaction were set at the mid-swaps plus 215bp area. Orders surpassed €1bn within around two hours, and after around three and a half hours guidance was revised to the 200bp area for an expected size of €500m on the back of over €1.5bn of demand. The books were closed less than half an hour later, with the spread set at 195bp for a €750m size, with around €1.2bn of orders good at re-offer.

The closest comparable for Zurich’s new issue was a €500m February 2049 non-call February 2029 subordinated deal the insurer launched in February 2019, which was trading at 184bp over. That deal was launched by Zurich Insurance Company Ltd via a repackaging vehicle (Argentum Netherlands BV), whereas thanks to a change to Swiss tax law last year, it is now more efficient for Zurich to issue via Zurich Finance (Ireland) DAC, guaranteed by Zurich Insurance Company Ltd.

Based on Zurich’s curve and also Allianz’s — with the German having refreshed its curve with a €1bn 30 non-call 10 on 15 May — he said fair value was in the context of 195bp over.

“The 215bp IPTs were probably deemed aggressive,” he added, “but — without having to tighten as much as some recent sub deals — they helped us achieve a successful outcome, particularly given the market backdrop.

“And the fact that we are still around re-offer when everything is wider today (Wednesday) is testament to the quality of the order book.”

Asset managers were allocated 70% of the issue, insurance companies and pension funds 15%, central banks 9%, and banks 6%. France took 39%, the UK and Ireland 14%, Germany and Austria 11%, southern Europe 11%, the Nordics 9%, Switzerland 7%, the Netherlands 5%, and others 4%.

Bonnal said Zurich’s new issue is in line with insurers pro-actively managing their solvency ratios in light of Covid-19 and taking advantage of the attractive levels available to them in the market. He noted that coupon and spread on the new €750m issue, at 1.875% and 195bp, were each lower than on Zurich’s February 2019 €500m issue, which was priced at 2.75% and 220bp, respectively.

“Clearly a lot happened in the course of 2019 in terms of spread tightening,” he said, “but this goes to show how much better levels are than at the beginning of 2019. This sub-2% coupon for the 30 non-call 10 structure is a very good level, all things considered.”