According to Fitch Ratings analysts, large Dutch insurance companies exhibited robust regulatory capitalisation in 2023.
The insurers in the Netherlands showed strong solvency, though the health sector had the weakest solvency levels.
This weakness is attributed to health insurers using excess capital buffers to benefit customers.
Solvency II (S2) ratios remained stable at 190%-200%, despite moderate volatility due to widening mortgage spreads and declining commercial real estate asset values.
Fitch analysts believe the negative impact of wider mortgage spreads is temporary, as mortgage repricing typically lags behind market movements.
Fitch reported that the Dutch insurer’s operating capital generation (OCG) remained robust, effectively counterbalancing adverse market movements.
Capital flows were net negative for the year due to capital distributions to shareholders, coupon payments, and debt retirement.
Dutch insurers exhibited limited solvency sensitivities, with key sensitivities stemming from wider mortgage spreads and shocks to real estate asset valuations. These factors had minimal impact on their ratios, thus bolstering the strength and stability of Dutch insurers’ capitalisation.
The S2 volatility adjuster mitigated the impact of changes in government and corporate credit spreads, rendering these sensitivities less significant.
A combined 50bp widening of mortgage spreads and a 10% fall in real estate asset values would reduce S2 ratios by between 10bp and 25bp, analysts stated.
Considering the very strong capital levels at end-2023, and recurring OCG of 15bp-20bp a year, such stress scenarios are unlikely to meaningfully weaken capital.
Dutch insurers’ earnings in 2023 were supported by the recovery of the financial markets, while underwriting results remained mostly stable.
The primary factors behind improved investment results were lower interest rates, which boosted bond prices, and stronger equity performance. However, investment properties underperformed.
In 2023, large Dutch insurers maintained stable non-life combined ratios, including property, casualty, and disability segments, by effectively managing inflationary pressures through repricing and indexations. Overall, the insurers’ profitability metrics improved both net and operationally.
Seeking final settlement on disputed unit-linked products had a one-off moderate impact on profitability and S2 ratios for large Dutch life insurers.
Fitch noted that insurers booked loss provision for expected settlement costs, but the settlement process may take several years.
