The Case for Subordinated Debt

Under European Solvency II insurance regulations which came into efect in 2016, subordinated debt is included as own funds and is eligible as regulatory capital. Insurers in all lines of business and with a variety of ownership structures are eligible to issue subordinate debt, and a formal rating is not required.

All categories of insurer are eligible, including: non-life (e.g. motor, home, liability, pet), health, life and any ownership structure, i.e. listed, state owned, privately owned and mutuals. Subordinated debt can benefit a wide range of issuers with different levels of capital requirements.

Issuing sub debt is a quick and easy process with a simple loan note. Repayable after 10 years with no restrictions on its use.

Sub debt can be used to:

  • Fulfil regulatory capital requirements under Solvency II
  • Grow the business by improving an insurer’s regulatory capital position enabling the writing of additional business
  • Facilitate financial planning by providing certainty on the cost of long term capital
  • Free up capital for future business improvements such as introducing new IT infrastructure