The European Insurance RT1 Capital Instruments Market Is Back to Life After Negligible Activity in 2022 and 2023

Morningstar DBRS published a commentary discussing the resurgence of the European Restricted Tier 1 (RT1) capital instruments market in 2024 driven by the upcoming end of the grandfathering period of Tier 1 bonds for regulatory capital purposes issued before the adoption of Solvency II in 2016.

Key highlights include the following:

-- With almost EUR 5 billion issued in RT1 instruments so far this year, we expect record activity in this market in 2024 following two years of muted activity.

-- The upcoming end of the grandfathering period of Tier 1 bonds issued before the introduction of Solvency II in 2016 is a major driver of insurers' interest in RT1 instruments to meet their regulatory capital requirements.

-- We expect RT1 issuances to exceed EUR 6 billion in 2024, with sustained interest in these instruments continuing well into 2025.

"In our 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," said Marcos Alvarez, Managing Director. "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."