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Canadian Insurance Debt Issuance: Strong in 2021 but Likely to Wane in 2022

Canadian insurance debt issuance in 2021 decreased 10% compared with 2020 levels but remained well above historical averages for the industry. Canadian insurance companies issued almost $12 billion in bonds and preferred shares in 2021, supporting our view that the industry continues to benefit from strong access to funding, particularly for large international acquisitions. However, insurance debt issuances are likely to temper in 2022.

Key highlights include:

-- Canadian insurance companies issued almost $12 billion in debentures and preferred shares in 2021, a 10% decline compared with 2020.

-- The weighted-average issuance coupon and maturity was 3.388% and 38 years, respectively, in 2021.

-- New debt issuances were driven by companies replacing higher-cost existing debt with cheaper debt and funding acquisitions.

-- DBRS Morningstar expects new debt issuances to temper in 2022 given the strong insurance debt activity in 2020 and 2021 and increasing cost of funding.

“In our view, additional Canadian insurance debt should moderate in 2022 given potential increases in interest rates and corporate bond spreads as well as the surge in new debt issued in the last two years, which pushed financial leverage above 30% for some insurance companies,” said Marcos Alvarez, Senior Vice President and Head of Insurance. “We expect insurance companies with financial leverage ratios above 30% to be cautious about issuing new debt in order to support their current rating levels.”