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RTNominal down17.040 -0.280 (-1.617%)

23/06/2020 17:10

Insurers debt remains attractive during COVID-19 uncertainty

[ET Net News Agency, 23 June 2020] Despite higher credit spreads during 2020, the
flight to quality has meant that insurers across the globe have retained good market
access at favorable coupon rates and should be able to redeem or refinance the US$140
billion (20% of total outstanding debt) coming up for call or maturity by 31 December
"Insurance bonds remain attractive to investors, providing diversification, relatively
favorable yields, and high security--with an average issuer credit rating in the 'A'
category," said S&P's analyst, Ali Karakuyu. "We believe much of the issuance to date has
been opportunistic, with some insurers taking advantage of favorable 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. This is due to the relatively
strong credit quality of insurers, which shines when compared with non-financial corporate
S&P expects the sector to tap the debt market and refinance, as needed, its upcoming
redemptions in line with investor expectations. In the hybrid space, the agency sees the
risk of non-call as very remote, particularly given that the potential financial savings
from a non-call (even on a pretax 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 favorable coupon rates.
S&P recognizes 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, it expects pandemic-related claims or investment losses to be more of an
earnings event than a capital event. 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. (KL)

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