Insurance Debt Still an Attraction S&P

Insurers have been told there are few concerns over the ability for the renewals of the $140 billion of debt due for call or maturity at the end of the year.

Standard & Poor’s has issued new analysis in insurers’ debt which concluded there remains a strong appetite despite higher credit spreads during 2020.

The study found the flight to quality has meant that insurers across the globe have retained good market access at favourable coupon rates and should be able to redeem or refinance the $140 billion (20% of total outstanding debt) coming up for call or maturity by Dec. 31, 2021.

Many insurers that are active in the debt market accessed the capital markets in the first half of this year, and the research expects this will continue. With about $73 billion of new debt globally, the sector issued slightly more than in the same period of 2019.

This issuance volume has been particularly noticeable given the slowdown in market appetite in early 2020 and despite the doubling of insurance credit spreads during March 2020, which have since declined.

“Insurance bonds remain attractive to investors, providing diversification, relatively favourable yields, and high security–with an average issuer credit rating in the ‘A’ category,” said S&P Global Ratings’ analyst, Ali Karakuyu. “We believe much of the issuance to date has been opportunistic, with some insurers taking advantage of favourable market conditions instead of repairing weakened balance sheets.”

“Investors are particularly sensitive to credit quality when the economic environment is uncertain, which should advantage insurers’ issuances,” said the firm. “This is due to the relatively strong credit quality of insurers, which shines when compared with non-financial corporate sectors.”

The report added investors are particularly sensitive to credit quality when the economic environment is uncertain, which should advantage insurers’ issuances. This is due to the relatively strong credit quality of insurers, which shines when compared with nonfinancial corporate sectors.

“S&P Global Ratings expects the sector to tap the debt market and refinance, as needed, its upcoming redemptions in line with investor expectations. In the hybrid space, we see the risk of non-call as very remote, particularly given that the potential financial savings from a non-call (even on a pre-tax basis) are relatively modest. Despite higher credit spreads triggered by the pandemic-induced recession and market jitters, insurers are still accessing the debt capital markets at favourable coupon rates.”

S&P added it recognises that some investors are cautious of potential losses to lockdown-related claims on the property/casualty (P/C) side and the capital market volatility hitting both life and P/C companies.

“In general we expect pandemic-related claims or investment losses to be more of an earnings event than a capital event,” it added. “This is the reason that rating actions across the insurance sector have been limited this year. Some insurers could increase their use of debt at attractive rates to boost solvency ratios or for growth opportunities, particularly on the P/C side where insurance pricing looks attractive.”

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