Tata AIG General Insurance and HDFC Ergo are in the market raising subordinated debts. HDFC Ergo recently raised ₹320 crore through a 10-year bond offering at an interest rate of 8.15%.
Similarly, Tata AIG is currently in the process of raising ₹545 crore offering the same interest rate. It has a base size of ₹200 crore and a ₹345 crore green shoe option.
HDFC Ergo retired ₹74 crore and raised ₹320 crore thus the net increase is ₹246 crore for further strengthening our solvency ratio.
Both bonds have a tenor of 10 years, with an option for an early call after five years.
Insurance firms have the flexibility to raise up to 50% of their capital through subordinated debt. In November, IRDAI allowed raising of subordinated debt without requiring the regulator’s prior nod.Tata AIG maintained a solvency ratio of 1.94 times as of March 31, 2023, above the regulatory requirement of 1.50 times. The ₹545-crore additional subordinated debt is expected to increase the reported solvency by nearly 27 basis points on a proforma basis as of March 31, 2023. This additional sub-debt, combined with the company’s strong profitability, is poised to support growth in the medium term, an ICRA report said, assigning an AAA stable rating.As of June 30, 2023, HDFC Ergo reported a solvency ratio of 1.85 times. The debt is assigned an AAA/Stable by Crisil as it continues to get strong support from its majority owner, HDFC Bank both on an ongoing basis and in the event of distress, the rating firm said.