European insurers are strengthening their safety mattresses. Many of them, including French people, have raised hybrid debt in recent weeks. Facilitated by good market conditions, these operations allow them to consolidate their equity and prepare for the future at a time when the covid-19 blurs the outlook.
“We were ahead of our refinancing program by taking advantage of a very attractive shooting window”, explains Jean-Philippe Médecin, director of own account and financing at CNP Assurances. The tricolor group raised a few days ago for 750 million euros of subordinated debt securities (Tier 2), at a rate qualified as“Optimum” (2.50%).
Economic and geopolitical uncertainties
The heavyweight of life insurance thus followed in the footsteps of the French La Mondiale (AG2R La Mondiale group) but also to European players such as Zurich Insurance, Swiss Re or Aviva, who contacted investors between the end of May and the end of June. These insurers took advantage of a risk premium requested by investors (spreads) much lower than at the start of the year, when the coronavirus pandemic had caused severe financial turbulence.
If the issues of insurers carried out to date are mostly “opportunistic”, according to Standard and Poor’s, they can also reflect a need for anticipation. “There are uncertainties in the second half, both on the economic and geopolitical side”, thus justifies Jean-Philippe Médecin, at CNP Assurances. The markets could react to Sino-American tensions, the presidential election in the United States, the price of oil, etc. Above all, they are likely to tighten again as the impact of the covid-19 pandemic on businesses becomes clearer.
Room for maneuver for the future
So many threats for insurers, whose investment portfolios are sensitive to market developments, but also to downgrades in company ratings. Already, the financial shocks at the start of the year put them under pressure and degraded, at the end of the first quarter, their solvency ratio, an indicator that is widely followed by professionals although reputed to be volatile. The French insurance gendarme judges that the sector is well capitalized but he noted a drop in the solvency ratio of 20 to 30 points of local players at the end of March 2020.
“ We did not do this to return to our solvency level at the end of last year but to free ourselves up for maneuver for the future, knowing that the crisis is not over ”, however insists David Simon, deputy managing director of AG2R La Mondiale, about his recent issue of 500 million euros in Tier 2 debt. The transaction was carried out ” at the lowest rate ever For La Mondiale (2.12%).
” For most European insurers, the solvency ratios, even after the drop caused by the crisis at the start of the year, remained in the zone which they considered to be their comfort zone ”, confirms Benjamin Serra, analyst at Moody’s.The shock was all the better absorbed in France since insurers were able to increase their solvency ratio at the end of last year by including certain reserves (PPB) in its calculation.