Idea of the week: Attractive 5+% to 7+% GBP & USD bonds offered by Rothesay (GIC owned)

Key Points

Data as of 31 December 2025
Source: Company Data, iFAST Compilations. 

Chart 2: New business premiums vs adjusted operating profit

Data as of 31 December 2025
Source: Company Data, iFAST Compilations. 

A high-quality investment portfolio anchors Rothesay’s asset base

These derivatives are hedges rather than speculative positions. Rothesay uses interest-rate, inflation and currency swaps to make its assets behave more like its long-dated pension liabilities. As a result, movements in asset values are largely offset by corresponding changes in liabilities. The positions appear large because accounting rules require them to be reported on a gross basis rather than netted. The one real consequence of running such a book is liquidity — when rates move sharply, Rothesay must post cash collateral quickly, which is why it deliberately holds around £37b of government bonds and cash that can be turned into cash at short notice.

The £73.5b that remains is high quality and well secured (look at chart 3 below for a full breakdown). By external agency ratings measure, roughly 85.7% is investment grade, with a 14% unrated portion and negligible sub-investment-grade holdings of £78m (~0.1% of the book). The unrated portion is not risky credit — it is Rothesay's mortgage and property lending, written at conservative loan-to-values (new lifetime LTV ~29%), which agencies simply do not rate. Applying Rothesay's internal ratings to these positions lifts the investment-grade share to ~97%, with more than half rated AAA or AA, consisting mainly of UK government bonds and high-grade corporate bonds.

We flag a portfolio risk for completeness. Beyond government bonds and plain corporate credit, Rothesay holds infrastructure debt, mortgage lending, and property-backed assets — less liquid instruments whose valuations rely on internal assumptions and cashflow modelling rather than observable market prices. These are predominantly Level 3 assets on the balance sheet, and their share grew year-on-year, which modestly increases valuation and assumption risk.

Overall, we take comfort in the conservatism of the portfolio: high credit quality, secured low-LTV lending, assets matched to liabilities, and a deep buffer of cash and government bonds. We note that a 1% move in benchmark interest rates shifts equity by under £0.9b, and a 1% widening in credit spreads by around £0.8b. Both are well covered by the group’s £5.4b of surplus capital, leaving a comfortable cushion even before accounting for the fact that, with assets and liabilities matched, Rothesay would not be forced to sell into a falling market. Looking forward, we expect the portfolio to remain defensively positioned and see neither a market shock nor a sudden collateral call as likely to threaten solvency.

Table 1: £39.4b in derivatives largely self-cancelled by £39.5b of derivative liabilities

Data as of 31 December 2025
Source: Company Data, iFAST Compilations. 

Solid credit profile with decent coverage and strong capitalisation

Leverage is moderate: total borrowings £2.7b represent roughly 30% of its own eligible funds. Liquidity is ample with cash of £277m as of 31 December 2025, backed by a £750m undrawn committed revolving credit facility, giving Rothesay a total available liquidity of £1.0b. The business is also self-funding: positive operating cash flow of £477m in FY25 provides another form of support for the group’s liquidity profile.

As seen in chart 4 below, Rothesay’s debt maturity profile is well staggered with no refinancing wall and only one near-term bond maturity–the £500m of Tier 2 notes due in July 2026. Refinancing risk appears limited given the modest maturity size, available liquidity, and Rothesay’s strong capital position.

Finally, Rothesay’s interest coverage (adjusted operating profit / annual gross interest on borrowings) ratio is healthy at 6.3x, although we note this represents a step down compared to FY24’s 11x. This reflects the normalisation of operating profit from an exceptionally strong 2024 rather than any rise in borrowing cost or leverage.

Chart 4:  Well-staggered debt maturity profile 

Data as of 31 December 2025
Source: Company Data, iFAST Compilations. 

Table 2: Relevant credit metrics

Table 3: Bond recommendations

Overall, we think Rothesay has a solid investment-grade credit profile, being rated A2 (Moody’s) and A+ (Fitch). The group’s earnings combine a stable, contracted core that is the relatively predictable CSM release, with a more volatile investment return that moves with rates and spreads and anchors the group's debt servicing capacity. We also point to Rothesay’s modest leverage (~30%) and healthy interest coverage ratios (6.3x), alongside a well-spread-out debt maturity profile, that support its credit profile. Looking ahead, we expect Rothesay’s credit profile to remain stable.

Crucially, all of Rothesay's debt is subordinated and ranks behind policyholders, absorbing losses ahead of them. Investors should note two key structural risks. First, Tier 2 coupons will be deferred (on a cumulative basis) and principal repayment may be suspended if Rothesay breaches its SCR or if making payment would cause it to do so. We view this as remote given 246% SCR coverage and a ~£5.4b surplus. Second, Restricted Tier 1 (RT1) securities carry fully discretionary, non-cumulative coupons and can be written down if SCR coverage falls below a predefined trigger (~75% of SCR). While remote at current capitalisation, this is the key risk RT1 investors are compensated for.

Investors should also be mindful of extension risk. Unlike bank Tier 2, insurer Tier 2 receives no regulatory capital amortisation ahead of maturity under Solvency II, meaning Rothesay has no capital-driven incentive to call early. Any call decision is therefore economic rather than regulatory, subject to PRA approval, and bonds should be assessed on their reset economics rather than assumed to be called at the first opportunity.

In Table 3 above, we highlight a couple of Rothesay’s outstanding bonds for consideration: the bullet bonds offer yields-to-worst ranging from 5.56% (USD) to 6.21% (GBP), with 3.0 years and 8.0 years to call. Against comparable US/UK treasuries, we find an attractive yield spread of 130+bps. As seen in the Bloomberg chart below, against comparable public financial peers, these issues (turquoise and pink dots) provide a decent yield pickup. We also highlight one outstanding perpetual: this issue provides a yield-to-worst of 7.06%, with 8.98 years to call.  We think this yield premium partly reflects Rothesay’s status as a private company, which results in less frequent public disclosure compared to its public peers.

Investors who are comfortable with lower reporting frequency over the year can consider these outstanding bonds for their attractive yield, backed by Rothesay’s solid credit profile. 

Data as of 11 June 2026 
Source: Bloomberg, iFAST Compilations. 

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds NIL positions. The analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.