Peak Re (BVI) Holding Limited, a wholly-owned subsidiary of Hong Kong domiciled global reinsurance company, Peak Reinsurance Company Limited, has become the first reinsurer based in Hong Kong to issue Public Hybrid Securities.
The Peak Re subsidiary has successfully completed the issuance of USD 250 million of perpetual subordinated guaranteed capital securities at 5.35%.
The reinsurer notes that the securities are rated Baa2 (hyb) by Moody’s, and unconditionally and irrevocably guaranteed by Peak Re which is currently rated A3 (stable) by the ratings agency.
The company states that its inaugural capital securities issuance will serve to both strengthen its capital base and increase its underwriting capacity, as the reinsurer looks to capitalise on the hardening reinsurance market environment.
Franz Josef Hahn, Peak Re’s Chief Executive Officer (CEO), commented: “The Transaction marks a significant milestone for Peak Re. The Securities will enable the Company to diversify its capital structure, and bring additional capacity to the reinsurance market from international investors. Our business has shown resilience to the current pandemic, and with the hardening of the reinsurance market, the new capital will enable Peak Re to capture the growth opportunity ahead.”
The transaction resulted in a final order-book of USD 1.1 billion, notes Peak Re, and represents 4.4 times over-subscription. According to the firm, this is the first public capital instrument in perpetual hybrid format issued by a reinsurer based in Hong Kong.
Furthermore, the demand for the transaction also highlights the strong interest that high quality global investors have for investment grade hybrid capital structures, as well as their confidence in Peak Re’s business outlook, says the company.
Cathy Chen, Chief Financial Officer (CFO) of Peak Re, added: “The success of this Transaction reflects the confidence of investors in our vision and strategies, and their recognition of the Company’s achievements. This is a key step for the Company to ensure sustained growth and deliver our founding promise: to support the needs of communities and emerging middle-class societies in Asia and beyond. I would like to thank the team for their contribution and hard work to make this achievement possible.”
Peak Re is the latest global reinsurer to raise capital ahead of the January 1st, 2021 reinsurance renewals season.
In light of the low interest rate landscape and subsequent pressure on investment returns, elevated losses and the influence of the ongoing COVID-19 pandemic, as well as other factors, conditions are expected to be favourable for reinsurers at the upcoming renewals.
While it remains to be seen just how rates trend at 1/1, Hahn said recently that he expects there to be a tsunami of price and condition strengthening in the marketplace.