London, 24 January 2012 -- The new regulatory regimes for insurers in Europe and Switzerland may enable issuance of hybrid securities with greater equity credit, concluded Moody's Investors Service in its Assessment of Coupon Skip Triggers in Insurance Hybrids Under Solvency II and Swiss Solvency Frameworks, published today. This special comment details Moody's approach to analysing the new generation of hybrids and the likely impact on Moody's ratings and the assignment of equity credit.

Since 2010, European insurers have been issuing a new class of hybrids which incorporate language referencing the next generation of insurance regulation, specifically the European Solvency II directive (SII) and the Swiss Solvency Test (SST). A key feature among several of these new hybrids is a requirement to skip coupons if the insurer is in breach of capital requirements under the new regulations. Features that allow coupon skips have a direct impact on the ratings Moody's assigns to hybrids and the equity credit Moody's may award hybrids.

Moody's believes regulatory regimes that require regulatory intervention when insurers breach predefined capital thresholds are robust enough to allow for hybrid triggers that force a coupon skip to be classified as "meaningful" or "strong". However, for a given instrument to be regarded as having such a trigger, the threshold for skipping the coupon would need to be set at a level that was well above any minimum regulatory capital trigger thresholds and would be activated prior to the issuer showing signs of material financial distress.

Moody's recognises the incremental value to more senior creditors of having such securities in the capital structure and Moody's financial ratios are adjusted to reflect additional "equity credit" attributable to such securities. However, such a determination also has consequences for the hybrid securities themselves, as they provide protection to more senior creditors by absorbing more loss, more quickly. This will lead Moody's to rate certain hybrids that merit additional equity credit lower than would otherwise be appropriate.

Moody's report, entitled " Moody's Assessment of Coupon Skip Triggers in Insurance Hybrids Under Solvency II and Swiss Solvency Frameworks ", is available on www.moodys.com