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Insurance credit and equities: Credit investors to benefit from regulatory intervention on dividends

Executive summary:

  • Current elevated dividend yields reflect understandable uncertainty around sector fundamentals, plus regulatory intervention (especially in Europe) that unhelpfully has been inconsistently applied.
  • Twelve believes robust insurance industry fundamentals and risk management mean that many insurers are currently able and willing to pay dividends, absent regulatory intervention, currently estimating an average Solvency II capital ratio for the sector in excess of 190%.
  • Where regulatory intervention has taken place, Twelve believes this most likely rep
    resents a postponement rather than cancellation of shareholder payments.
  • Twelve sees credit investors as the obvious beneficiaries of regulatory intervention on dividends.
  • Hybrid debt coupons are sustainable and generally believed will continue to be paid though Twelve notes risks to Restricted Tier 1 (RT1) coupons are not uniform across the sector.

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