It was an eventful first quarter, with the Iran conflict co-mingling with market concerns over the private credit exposures held by both European banks and insur
ers. Unsurprisingly, debt issuance has been affected, with March and much of April seeing a drought after a reasonably lively start to the year, although the on-off-again nature of peace talks has seen activity pick up.
Insurers don’t appear to have been particularly affected so far both in their underwriting and investment portfolios, and it will be interesting to see what is said in their fir
st half 2026 results. However, based on FY25 results, they have generally delivered healthy profits and maintained solid solvency levels, thereby ticking most analyst boxes.
There’s been some softening in prices witnessed in this year’s renewals (both the January and April renewals), given the benign natural catastrophe experience in 2
025 and, so far this year — especially for reinsurers. The softer pricing environment also reflects non-traditional capital flowing into the reinsurance space attracted by u
ncorrelated returns as seen by the strong demand for products such as catastrophe bonds, whilst priv
ate equity has been tapping into the traditional insurance world via M&A, setting up reinsurance sidecars and providing funded and unfunded reinsurance solutions.
This means that traditional insurers and reinsurers are waking up to the need to embrace this new capital but also to protect their turf from new and non-traditional invaders. One way to help manage this risk of profit erosion is with better
capital management by substituting expensive equity capital with lower cost solvency eligible debt.
Insurers and reinsurers have historically taken a fairly relaxed approach to managing capital, hoarding equity (known as “unrestricted Tier 1” in solvency parlance, which was around 79% of their eligible solvency capital
based on FY24 numbers). Insurers are now becoming more aware of the need to keep shareholders happy by delivering strong returns on equity by growing the numerator and managing the denominator.
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Therefore, they either use or lose their excess equity capital via M&A, new business growth (where they can find it) as well as capital returns. As such, solvency is being ma
ssaged down closer towards their target levels. Whilst this has led to rising dividend payouts and share buybacks, FitchSolutions’ CreditSights is observing an inc
reasing propensity by insurers to make their capital stacks more efficient, and to more proactivel
y manage their cost of capital, whilst balancing the expectations of the various stakeholders – be they shareholders, creditors, rating agencies or regulators.
Increasing Use of Debt
As such, CreditSights has seen increasing use of debt, and in particular, the issuance of a hybrid debt product known as Restricted Tier 1 (known in the trade as R
T1), which combines certain features of debt and equity. RT1s are perpetual in nature, paying coupons and absorbing losses in the event of actual or anticipated regulatory solvency breaches.
Last year saw issuance of around €10.5 billion (US$12.1 billion) equivalent, equating to around 38% of total debt issuance from European insurers that
we track. This is just under double that seen in 2024, which equated to around a fifth of total debt issuance. As such the RT1 market is growing and
currently stands at around €34 billion ($39.3 billion) equivalent (16% of total debt outstanding for European insurers that we track), with around €3.2 billion ($3.7 billion) issued year to date.
