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Aegon and Axa demonstrate tier one uncertainty

Deals by insurers Aegon and Axa have highlighted the divergence among European regulatory approaches to tier one capital, even as an EU Directive on the issue is planned. On Friday October 8 Dutch life insurance company Aegon priced a tap of the tier one deal it structured in June. Although tier one does not yet strictly exist for Dutch insurers, the structure of the deal anticipates the EU Directive Solvency II, which will harmonize capital tiering for insurance companies. The Directive is in the consultation process with a framework expected to be published next year.

Simultaneously, French insurance company Axa is marketing a deal that ignores any trend towards EU harmonization, by using structures that would be illegal in most of the rest of Europe and probably in the upcoming Directive. The ?200 million ($248 million) issue uses a French law passed in August 2003 to enable it to directly issue subordinated capital that counts as tier one, a change to the commercial code passed earlier this year that enables it to issue cheaply from its EMTN programme and legislation that allows it to use a dividend pusher clause to encourage investors.

A pusher clause forces payment of a bond coupon after a dividend to shareholders, something not permitted by most European regulators and explicitly frowned upon by the UK's FSA, which recently said it thought the clause diminished the quality of the capital.

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