European Insurance Industry: Dutch life insurance companies under stress

The Dutch life industry has sustained a number of serious setbacks in recent years. Among them was a severe financial beating at the hands of the global financial crisis which in late-2008 left three of its major players – ING Group, Aegon and SNS REAAL – scrambling for assistance from the Dutch government.

Among the major players the notable exception was Delta Lloyd, the country’s sixth-largest life insurer by gross premium income. ING, the largest life insurer, received €10bn in state assistance, Aegon (third-largest) €3bn and SNS REAAL (second-largest) €750m plus a €500m capital injection from its majority owner, Stichting Beheer.

Among other companies, Eureko, the industry’s fourth-largest life insurer, was forced to raise €1bn from its two biggest shareholders, Rabobank and Achmea Association. In addition, following the rescue and dismantling of former Belgo-Dutch bancassurance group Fortis, its Dutch insurance operations became 100% state owned. The operations were consolidated into a single company renamed ASR Nederland which ranks fifth in the Dutch life market.

But the financial crisis was not the only major setback that hit Dutch insurers in 2008. Far more serious, and certainly a setback with longer-term structural ramifications, was the government’s granting in late-2008 of permission to banks to offer banksparen (bank savings) products which have the same tax advantages for consumers that insurance products have.

The result has been a sharp decline in premium income and in the number of life policies being sold. According to DNB, new life business fell from €1.25bn in 2007 to €690m in 2010. The Dutch Centre for Insurance Statistics (DCIS) reported that the number policies sold in 2009 fell by 23% compared with 2008 to about 825,000 and by a further 19% in 2010 to about 750,000.

Under the weight of increased competition from banks, the sales of new savings products have been particularly hard-hit. According to rating agency Fitch, sales of savings products fell by more than 70% between 2007 and 2010, including a fall of nearly 40% from 2008 to 2009.

Given the problems facing Dutch life insurers it is hardly surprising that new life business product margins have come under significant pressure.

Indeed, according to a Moody’s study of average new business margins of seven major life insurers (Allianz, Axa, Generali, Aviva, Prudential, Aegon and SNS REAAL) new business margins in the Dutch market, 11% in 2010, were the lowest in Western Europe. New business margins in Germany were the highest at 25% followed by the UK at 20%.

Moody’s noted that despite the significant decline in interest rates, the highly competitive environment prevailing in the Dutch life market has forced insurers to maintain high minimum guaranteed rates on life products. These are at 3% for new business and between 3.5% and 4.5% on average for in-force business.

The rating agency stresses: "The Dutch market is the only major European market in which guarantees of traditional life products did not decrease during the financial crisis, despite their high level and the sharp decline in interest rates, effectively making these products unprofitable.

The complexity of the Dutch life insurance industry’s problems was highlighted in a study by the Dutch unit of French consultancy Atos Consulting, Creative Destruction in the Dutch Life Insurance Industry. The consultancy’s conclusions make for depressing reading.

EU-Digest