Dutch insurer Vivat has issued €300m ($345m) of subordinated debt designed to qualify as restricted tier 1 (RT1) capital under Solvency II rules.
The perpetual notes are first callable after seven years and each interest payment date thereafter, and give investors a coupon of 7% per year until the first call date.
The subordinated notes are expected to be rated BB- by Fitch and will be listed on the Irish Stock Exchange. The notes will be written down under specific trigger events, including a full write-down if Vivat's solvency coverage ratio falls below 75%.
The net proceeds will be used to improve its financing structure including the repayment of €150m of the €400m subordinated notes issued by SRLEV NV – one of Vivat's subsidiaries. Any remaining proceeds will be applied for general corporate purposes.
Under Solvency II, capital is called eligible own funds and is divided into three tiers, reflecting the ability to absorb losses, with tier 1 being the highest capital quality and tier 3 the lowest. Insurers must cover at least half of their solvency capital requirement with tier 1 debt, and up to one-fifth can be in RT1 instruments.
At the 2017 year-end, Vivat's Solvency II coverage ratio was 162%, down from 175% in 2016, under the standard formula. Despite having reported a decrease in life underwriting risk and counterparty default risk, a drop in the benefit gained from the volatility adjustment and the increase to currency risk had a negative impact on the firm's solvency.
The chart below shows the breakdown of Vivat's capital. The firm, owned by troubled Chinese group Anbang, creates more flexibility in its capital structure by adding to the RT1 category.
This is the second issue of euro-denominated RT1 debt, following ASR's last year.
Other firms issuing RT1 notes include Phoenix, Tryg, Scor, RSA, Direct Line and Gjensidge.
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