With almost €5.0 billion in Restricted Tier 1 (RT1) instruments issued so far this year, analysts at Morningstar DBRS are anticipating for the market to surpass its previous record of approximately €5.4 billion in 2021, after two years of muted activity.
The firm explained that European insurers and reinsurers have had an additional option to manage their regulatory capital requirements since the introduction of RT1 capital instruments under the Solvency II directive.
In addition, the end of the “grandfathering period” of subordinated debt, issued before the adoption of Solvency II, in December 2025 is also said to be a major driver of insurance companies’ renewed interest in this type of instrument.
“The approaching end of the grandfathering period, together with an increasing investor appetite for these instruments, will likely push RT1 issuances into record levels this year,” said Morningstar DBRS.
Analysts noted, that in their view, the increasing appetite from investors looking for additional yields in a relatively stable sector will continue to support the level of new RT1 instruments issued during the balance of the year.
“We expect that RT1 issuances will total between EUR 6 billion and EUR 7 billion in 2024, with the current positive dynamics prevalent in the market continuing well into 2025,” they added.
