The subordinated insurance debt market is anticipated to outperform again in 2026, after a landmark year of Restricted Tier 1 (RT1) issuance in 2025. Plenum Investments has affirmed its optimistic outlook, believing that subordinated insurance debt will persist in providing enhanced risk-adjusted returns compared to the wider credit markets.
Adding: “Despite last year’s rally, subordinated insurance paper – and rT1 in particular – still offers meaningfully higher yields than other credit sectors. With insurers remaining overcapitalised, refinancing needs limited, and monetary easing expected across the Eurozone, UK and US, the asset class benefits from both attractive spreads and a supportive rates backdrop. Together, these dynamics create a compelling investment opportunity relative to broader credit markets.”
Issuance of subordinated insurance debt reached a staggering €34 billion in 2025, marking the second-highest year on record, while RT1 capital issuance reached its highest level ever and accounted for €11 billion, with 32% of total issuance in this format.
According to Plenum, the issuance was bolstered by a blend of attractive market conditions and tight spread differentials between RT1 and Tier 2 paper, while mergers and acquisitions activity contributed additional supply.
As well as this, a number of first-time issuers entered the RT1 market for the first time 2025, including Chesnara, Sampo, and Generali. Global life insurance group, Resolution Life also made an impact across the market by opening a new segment with the first Bermuda T1 issue.
Plenum Investments also noted that green issuance remained negligible in 2025, at just 2.6% of total supply, compared to 2024’s 2.4%, which remains far below levels observed between 2020 to 2023.
“Reporting requirements, limited spread advantages, and shifting sentiment have reduced issuer appetite. We see little prospect of recovery in the near term,” the investment manager explained.
The firm continued: “Reset spreads of new issues continued to tighten, reinforcing our view that almost all rT1 bonds will be called at first opportunity, though the relatively small sample size warrants caution.”
Looking ahead, Plenum anticipates that supply will fall sharply throughout 2026, in contrast to broader credit markets where issuance is expected to rise.
As per the firm, a number of insures have already pre-financed upcoming call dates, and most potential RT1 issuers have now tapped the market.
Overall, Plenum projects that total new issues in 2026 will fall from €34 billion to between €20 billion – €24 billion, which includes roughly €3.5 billion – €4.5 billion of RT1 and around €14 billion of T2 issuance.
“The remainder comprises mostly bonds issued under the SST and Bermuda regimes. Our estimate includes primarily refinancing of outstanding bonds which are likely to be called or redeemed in 2026 and early 2027 as well as an allowance for funding of organic growth a relatively limited large scale M&A activity. With refinancing activity likely to remain sluggish until the end of the decade, subordinated insurance debt stands out as a niche where demand exceeds supply. This applies in particular to the rT1 segment where supply is likely to decline by 60%,” Plenum added.
In spite of the strong performance of subordinated insurance debt in 2025, Plenum noted that valuations remain compelling, as the firm highlighted how RT1 instruments continue to offer higher yields than comparable subordinated or hybrid instruments in banking, corporate hybrids, or high yield markets.
A combination of lower reset spreads, conservative capital structures, and disciplined call behavior supports a yield premium that has not been fully arbitraged away, Plenum further explained.
“Lower policy rates reduce refinancing costs for issuers and enhance the relative attractiveness of fixed income carry strategies. For subordinated insurance debt – where supply is shrinking and investor demand remains strong – this macro backdrop amplifies the potential for further spread compression and total return outperformance,” Plenum said
Nevertheless, as supply dries up, demand continues to be robust, and insurers remain well capitalised, subordinated insurance debt is set to surpass the performance of other sectors in 2026, with Plenum emphasising that the sector continues to offer a rare combination of declining issuance, attractive carry, and disciplined call behaviour.
“Crucially, even after last year’s rally, rT1 and broader subordinated insurance paper still provide materially higher yields than most competing credit segments. As central banks in the Eurozone, UK, and US move toward monetary easing, the resulting decline in risk free rates should add further momentum to valuations,” Plenum added.
Concluding: “We maintain a bullish view on the asset class and expect subordinated insurance debt – especially rT1 – to continue delivering superior risk adjusted returns relative to broader credit markets.”
