(Bloomberg) -- An esoteric insurance bond market with similarities to banks’ Additional Tier 1s is heating up, with investors rushing to buy the debt just as...
-- An esoteric insurance bond market with similarities to banks’ Additional Tier 1s is heating up, with investors rushing to buy the debt just as a regulatory deadline makes a surge in supply likely this year.US Weighs Sanctioning Huawei’s Secretive Chinese Chip Network
The urgency to sell new RT1s comes from the end of a grace period given to European insurers after rules known as Solvency II came into effect. The regulations, designed to make insurers more robust, made old types of junior bonds ineligible as capital, with a deadline of end-2025. It also spurred the creation of RT1 notes in 2017 as a capital buffer that works in a similar way to AT1s for banks.
To be sure, insurers can mix and match different types of junior debt within regulatory limits so it’s unlikely that they will replace every old-school note with an RT1. Last year, during an early round of grandfathered bond replacements, insurers sold Tier 2 bonds instead. Tier 2s are senior to RT1s.Still, the pieces are coming together for a stellar year of RT1 supply.
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