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V. Capital Markets
V. Capital Markets
A. Equity Offerings
There were two small initial public offerings in 2015, Conifer Holdings, Inc. and Patriot National, Inc., but 2015 generally was a quiet year for IPOs in the insurance industry.
AmTrust Financial Services, Inc. had a busy 2015 in the capital markets and conducted two follow-on equity offerings, along with a preferred stock issuance through depositary shares, and two debt offerings to finance its acquisition strategy.
In June 2015, MetLife, Inc. issued 1,500,000 shares of its 5.250% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, for total proceeds of $1.5 billion. The Series C Preferred Stock was structured to qualify for additional Tier 1 capital treatment under the capital guidelines of the Federal Reserve Board from and after January 1, 2019, when certain features of the security, including a mandatory deferral trigger, fall away. MetLife used the proceeds from the offering and available cash to fund the repurchase of all 60,000,000 shares of its 6.500% Non-Cumulative Preferred Stock, Series B, through a tender offer followed by a redemption.
B. Surplus Notes
Surplus notes, which are issued by insurance operating companies under Rule 144A and Regulation S, are subordinate in right of payment to the insurance company’s indebtedness and to policyholder claims. Similar to a standard debt security, surplus notes include a stated maturity and have periodic interest payments; however, principal, interest and redemptions of the surplus notes are subject to the prior approval of the insurance regulator of the issuer’s state of domicile. If the regulator decides that the insurance company has insufficient funds to make a payment on the surplus notes without putting the insurance company or policyholders at risk, the regulator can cause the company to defer the scheduled payment.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
Following a peak issuance of $5.7 billion in 2014 when a number of the large mutual companies came to the market, particularly TIAA-CREF in connection with the financing of its acquisition of asset manager Nuveen Investments, substantially fewer surplus notes were issued in 2015. In April, MassMutual issued $350 million in fixed rate surplus notes due 2065, the proceeds of which were for general corporate purposes. On a smaller scale, in February Palomar Specialty Insurance Company raised $17.5 million in new surplus capital through a private placement of surplus notes to RenaissanceRe Ventures Ltd. and certain managed asset funds, and in November National Guardian Life Insurance Company issued $47 million of 6.45% surplus notes. Also in February, Farmers Insurance Exchange renewed its $500 million contingent surplus loan note facility. The facility is structured to provide Farmers the option to quickly access capital while preserving the long-term capital strength of Farmers by obtaining regulatory capital relief. The facility gives Farmers the ability to issue five-year surplus notes at pre-agreed interest levels during a two-year commitment period (followed by three annual extensions), in the event that loss claims from predefined catastrophe events reach a specific level.
C. Debt
With interest rates only beginning to rise gradually at year- end from the very low levels of the past six years, 2015 saw a healthy number of investment-grade debt deals from the insurance industry. In particular, companies took the opportunity presented by low spreads and investor interest to repurchase or redeem outstanding debt with high coupons and replace it with debt with lower coupons.
In connection with its acquisition of Chubb, ACE issued four series of senior notes totaling $5.3 billion in November. The notes are guaranteed by ACE Limited. The same structure had been used by ACE in March in connection with an issuance of $800 million in senior notes.
AIG established a registered medium-term note program with $1.0 billion in capacity in August 2015, along with standalone issuances of five series of senior notes of $4.5 billion in the
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