Canadian-based insurers raised $11.7 billion (B$) through public offerings in the stock markets in 2020.
According to the rating firm DBRS, the Canadian insurance industry has reached record levels, for all segments combined. Of the total amount, $7.4 billion was raised in Canada, and the remaining $4.3 billion in the United States.
Insurers will stay the course vein in 2021, DBRS analysts predict. They announced these projections in a report entitled Canadian Insurance Companies Tapped Debt Markets at Record Levels During 2020.
Manulife has just completed a $2 billion issue, the net proceeds of which will be used for general operations. Manulife thus achieved in one fell swoop what all Canadian insurers were doing in 2019: Tapping bond markets.
Empire Life also raised $200 million on the debt markets in early February.
There are several reasons why insurers will continue to turn to debt capital markets, DBRS analysts say. First, the current continued low interest rate environment favours this approach.
Second, the Office of the Superintendent of Financial Institutions (OSFI) has recently allowed insurers to issue limited recourse capital notes (LRCNs) to institutional investors. They were not authorized to do so before summer 2020.
"Recent issues of these 60-year instruments, at yields well below 400 basis points, have been well received in the market. We expect other Canadian insurance companies to consider issuing these ultra-long tenor instruments in 2021 given their capital treatment and tax deductibility of coupon payments," the DBRS report states.
As a result, analysts believe that Canadian insurers will continue to refinance upcoming maturities and repayable debt with lower-cost issues to reduce financing costs.
