Catherine Thomas, A.M. Best's Senior Director of Analytics, gave a presentation focusing on Europe's debt trends and capital structure. The presentation originally debuted during A.M. Best's recent London briefing.

1. 2015 Insurance Market Briefing -
Europe
etc.venues St.Paul’s, London
04 November 2015

2. Disclaimer
2015 Insurance Market Briefing - Europe 4 November 2015 5
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2015 Insurance Market Briefing - Europe 4 November 2015 6
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4. 2015 Insurance Market Briefing -
Europe
2015 Insurance Market Briefing - Europe 4 November 2015 41
Catherine Thomas
Senior Director, Analytics, A.M. Best
Debt Trends in the Capital
Structure of European Insurers

5. Insurance debt in Europe
2015 Insurance Market Briefing - Europe 4 November 2015 42
• Analysis of over EUR 90 billion of debt issued by European
insurers between 2005 and 2014
• Rated debt issued by A.M. Best clients
– representative of European insurance debt market
• Key trends:
– Drivers
– Debt characteristics
– Issuer characteristics

6. Total debt issued 2005-2014
2015 Insurance Market Briefing - Europe 4 November 2015 43
EUR 4.7bn
EUR 10.7bn
EUR 10.6bn
EUR 2.9bn
EUR 6.5bn
EUR 4.4bn
EUR 8.5bn
EUR 17.4bn
EUR 10.8bn
EUR 16.3bn
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Issues mainly
in stronger,
stable
economies
Interest rates
at historical
lows
Global financial
crisis: liquidity
scarce
Source: Best’s Statement File – Global, A.M. Best data and research
ECB actions
restore calm
Sovereign debt crisis: higher
yields

7. Drivers of activity
2015 Insurance Market Briefing - Europe 4 November 2015 44
• Tax efficient alternative to
equity, no dilution
• Take advantage of favourable
pricing
• Refinance to lower debt
service costs
• Extend maturities amid
economic uncertainty
• Qualify for grandfathering
ahead of Solvency II

8. 0
2
4
6
8
10
12
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
InterestRate(%)
Issue Date
Senior Unsecured Subordinated Junior Subordinated Preferred Stock and Securities
Low number of
issues – mostly
senior debt
Higher returns
required from
issuers in peripheral
countries
More favourable pricing
2015 Insurance Market Briefing - Europe 4 November 2015 45
Coupon rate: little
differentiation by
issuer credit quality
Pricing more
favourable in
2014/15
Source: Best’s Statement File – Global, A.M. Best data and research

9. Solvency II
2015 Insurance Market Briefing - Europe 4 November 2015 46
• Grandfathering period of up to 10 years for tier 1 and tier 2
basic own funds
• Will only apply to:
– Instruments issued before 1 January 2016
– Instruments eligible under current regulatory regime
• Prudential Regulation Authority (PRA) discouraging issuance of
non-conforming sub-debt

10. Class of debt 2005-2014
2015 Insurance Market Briefing - Europe 4 November 2015 47
EUR 1.3 bn EUR 1.1 bn
EUR 4.4 bn
EUR 0.5 bn
EUR 6.2 bn
EUR 5.6 bn
EUR 8.6 bn
EUR 3.2 bn
EUR 6.9 bn
Subordinated
EUR 0.3 bn
EUR 8.5 bn
EUR 3.5 bn
EUR 1.3 bn
aa- a+ a a- bbb+ bbb bbb- bb+
A.M. Best Debt Rating
Senior Unsecured
Subordinated
Junior Subordinated
Preferred Stock
Source: Best’s Statement File – Global, A.M. Best data and research
• Subordinated
debt most
popular
• Attractive cost
of capital/
return
characteristics
• Debt below
investment
grade minimal

11. Size of debt issue 2005-2014
2015 Insurance Market Briefing - Europe 4 November 2015 48
EUR 0.1bn
EUR 3.9bn
EUR 14.9bn
EUR 38.9bn
EUR 35.0bn
Up to
EUR 100 million
EUR 101 -
250 million
EUR 251 -
EUR 500 million
EUR 501 -
EUR 1 billion
Greater Than
EUR 1 billion
Source: Best’s Statement File – Global, A.M. Best data and research
• Fewer, larger
issues reduce
cost and
management
distraction

12. Domicile of issuer 2005-2014
2015 Insurance Market Briefing - Europe 4 November 2015 49
Netherlands
EUR 16.4bn
Germany
EUR 10.4bnUnited
Kingdom
EUR 9.5bn
Italy
EUR 7.9bn
Switzerland
EUR 6.1bn
Luxembourg
EUR 2.4bn
France
EUR 1.9bn
Sweden
EUR 0.6bn
• Companies in largest
economies are the
most active issuers
• National champions
often predominant
participants
Source: Best’s Statement File –Global, A.M. Best data and research

13. Type of issuer 2005-2014
2015 Insurance Market Briefing - Europe 4 November 2015 50
Composite
EUR 78.8bn
Non-Life
EUR 7.9bn
Life
EUR 6.2bn
• Most highly rated, with
stable, diversified
businesses
• 85% of debt issued by
composite insurers
• Most maintain
extensive geographic
diversification
• Most writing both
primary and
reinsurance businessSource: Best’s Statement File –Global, A.M. Best data and research

14. Demand remains high
2015 Insurance Market Briefing - Europe 4 November 2015 51
• Insurance debt attractive:
– Strong free cash flows to
service interest payments
– Lack of other investment
opportunities
– Long-tail nature of life
and casualty insurance
– In spite of modest growth
and pressure on returns
• Issues commonly several
times over subscribed
• Strong order books

15. Looking forward….
2015 Insurance Market Briefing - Europe 4 November 2015 52
• Insurance debt market likely
to remain active
• Changes to central bank
interest rate policies will
be key influence
• Insurers focussing on
managing operating and
financing costs in a highly
competitive, low growth
environment
• Efforts aligned with group
level ERM and strategic
business initiatives

16. Q & A
2015 Insurance Market Briefing - Europe 4 November 2015 53
Catherine Thomas
Senior Director, Analytics, A.M. Best
Debt Trends in the Capital
Structure of European Insurers