What is a Coupon Deferral?
The ability (or requirement) for an issuer to skip coupon payments on hybrid instruments without triggering default.
Coupon Deferral
The ability (or requirement) for an issuer to skip coupon payments on hybrid instruments without triggering default.
How it works in practice
An insurer issues a subordinated hybrid bond with a coupon deferral feature. When the insurer's solvency ratio falls below 120%, it exercises the option to skip the next two semi-annual coupon payments. Bondholders receive no interest during that period, but the insurer avoids a cash outflow that would further weaken its capital position. The deferred coupons may or may not be cumulative depending on the bond terms.
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