* Insurance pipeline fills as investor demand soars
* Banks to take market reins from Q2
* Tier 1 and 2 issuance to hit EUR350bn in coming years
By Aimee Donnellan
LONDON, March 22 (IFR) - Insurance companies are racing to
make the most of firm conditions in the subordinated debt
market, ahead of an imminent wave of bank capital deals that
will raise competition for investor cash and leave them
vulnerable to market volatility.
Prudential, MACIF, Zurich, Swiss Re, AG Insurance and AXA
Insurance have sold a mixture of Tier 2 debt and CoCos to
ravenous investors in search of yield.
This week Norway's biggest insurance company Storebrand
became the latest, selling just EUR300m worth of subordinated
debt but attracting a whopping EUR2.5bn order book.
Dutch insurer Achmea is finishing up a roadshow this week
and Caplin Insurance is also tipped to make an appearance.
"Insurance hybrids are really the hotspot of the FIG market
these days," said Harman Dhami, head of FIG syndicate at RBS.
The only euro supply in the deserted bank capital market
this year has been a EUR1.25bn Tier 2 from Nationwide Building
Society which came last week on a hefty EUR5.5bn book.
But oversubscribed order books could soon be a thing of the
past as banks need to raise as much as EUR200bn of Tier 2 debt
and EUR150bn of Additional Tier 1 in the coming years, according
to figures from Citi.
For graphic on estimated net issuance of bank capital
"Once there is an agreement on the final details of CRR then
banks can go ahead and issue capital. All of this seems quite
plausible for the second quarter of 2013," said Simon McGeary,
head of new products group at Citigroup.
Banks will be required to hold extra capital to ensure
taxpayers aren't saddled with the bill in any future bank
Insurers are keen to get ahead of this rush given the threat
of oversupply and volatility.
"If markets are constructive they can absorb quite a lot
before suffering indigestion, but the worry is that the macro
picture will remain volatile causing windows to open and shut,"
It's easy to understand why insurance companies are in such
demand. As investors desperately attempt to weigh up the risks
of the SNS nationalisation and the potential bail-in of
depositors in Cyprus, insurance companies look a relatively safe
Insurance companies' minimal reliance on capital markets has
been one of the factors behind their resilience to the financial
crisis, analysts say.
That stands in sharp contrast to banks that rely on funding
through the senior, covered and subordinated debt markets.
Insurance companies are also enjoying a clear field, with
banks sidelined from Tier 1 markets due to unclear regulatory
and tax treatment of the capital instruments.
This is set to change in mid April when a European
Parliament plenary is planned to discuss the proposed Capital
Requirements Regulation (CRR) and Capital Requirements Directive
Once they receive regulatory clarity, bankers say they will
start structuring and selling Tier 1.
TAX CLARITY PUSHES ISSUERS TO FRONT OF QUEUE
Investors have proved willing buyers of riskier instruments,
including total loss, high-trigger contingent capital issued by
Barclays and KBC as well as a remarketed contingent capital
instrument from Bank of Ireland.
But this demand has so far been unfulfilled as issuers
remain reluctant to issue Tier 1 capital without regulatory
Tax-deductibility is one of the most important
considerations that borrowers take into account in their funding
decisions, as it makes debt a more attractive financing option.
Nordic issuers are tipped to be the first out as the
region's regulators have already specified that Tier 1 will be
tax deductible, as is also the case in Italy.
A number of banks could be early movers, but the first need
to be credits that investors are willing to buy easily, bankers
Certain countries are waiting for their tax frameworks to be
finalised, so while it's unlikely that issuers will pile in on
top of each other, issuance is likely to increase over time.
(Reporting by Aimee Donnellan; editing by Alex Chambers and