Insurance in the Netherlands

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On the other hand, the Dutch insurance market is one of the most open markets in the world, mainly due to its liberal regulatory environment and its considerably open distribution structure. As a result, the absolute and relative number of market participants is overwhelming. With “only” 16 million inhabitants in the Netherlands, no less than 786 non-life-insurers and 247 life insurers have licenses to operate in the Dutch market. The fact that the Dutch rank sixth globally in terms of per capita insurance premiums paid is another explanation for the overwhelming number of participants. However, coming from an era of “unlimited exuberance,” relatively flexible regulation, and strong fiscal incentives for life insurance business, insurers now have to adjust to a business environment that has changed significantly.

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The turnaround in 2002 was mainly due to adverse changes in the tax system. Because these changes have an adverse effect on the demand for life insurance policies, it seems likely that the years of booming life insurance markets are definitely over, as can be seen from the figures for 2003. Although market growth recovered in 2003, the growth rate recovered to only a meager 3 percent, being far less than the historical growth rates of 5 percent to 12 percent. In addition, the growth figure for 2003 has been boosted by substantially more than two percentage points by a very large one-time single premium paid in the case of a transfer of the assets of a pension fund to an insurance company.

With a growth rate for non-life insurance of almost 6 percent in 2003, the relative share of life business shrank slightly from 55 percent in 2002 to 54 percent in 2003. If this new trend continues for the future, non-life premium income will exceed life premium income within a few years.

With life business in general being far more profitable than non-life business, in the future total profitability for composite insurance groups will no longer be as high as it was in the recent past. Nevertheless, for cost-efficient and administratively well performing insurance companies, the open and still extensive Dutch insurance market still can be a very attractive one.

  1. The Market for Life Business

Until the turn of the century, selling individual life insurance policies was a booming business. Growing prosperity, generous tax facilities, and very high investment returns drove the volume of new business to continuously higher records. At the same time, total premium income earned from group contracts rose at a steady, although less spectacular rate, with relatively high growth rates in periods of accelerating inflation rates and relatively low growth rates in periods with less inflationary pressures. As a result, in 2000, approximately 70 percent of life insurance premium income came from individual contracts and approximately 30 percent from group contracts.

However, in the meantime the fiscal attractiveness of individual life insurance policies decreased, the unshakable belief in sky-high stock market returns faded away, economic growth ceased, and inflation rates accelerated. As a consequence, premium income growth in the individual life market ceased and, in 2001, inflationary pressures on wages and pensions rose.6 As a result, the market segment for group contracts could regain some part of the market share lost in the former years. Nevertheless, within a very short time inflation rates slowed down again to turn dangerously close to deflationary pressures. Along with suddenly staggering unemployment rates, the growth rate of premium income from group contracts dropped from approximately plus 20 percent in 2001 to minus 10 percent in 2002.

Meanwhile a general sense of urgency to economize the generous pension plans arose. While the stock markets crashed and capital market interest rates dropped, the supervisory authority, politicians, employers, and employees at last realized that the existing generous system would no longer be sustainable without very substantial premium rate increases. The adverse effects of the “old-age time bomb” became clearly noticeable. Although premium rate increases will also force up premium income from group contracts in the very short run, for the near future widespread retrenchments of pension plans will put the potential growth rates for group life insurance contracts under substantial pressure.

So, all in all, group life business has gone through an era of mutually opposite changes. On the one hand, inflationary pressures have ceased, unemployment rates rose substantially, and pension arrangements retrenched. On the other hand, premium rates are increasing as a result of the transition to a lower discount rate and to updated mortality tables, while at the same time more and more pension funds are liquidated or “outsourced,” with the settlement of their pension arrangements being transferred to life insurance companies, other pension funds, or specialized service organizations.7 So, while group life business is under pressure, higher premium rates automatically increase premium volumes, and the shrinking number of “self serving” pension funds creates new opportunities for life insurance companies offering group contracts or offering service arrangements for pension funds.

At the moment it is still not clear at which level the group life market will find its new equilibrium, and buoyant times are over for the market for individual life insurance policies due to the changed fiscal, economic, and investment environment. As a consequence, the spectacular growth rates for total life insurance business will be over for the years ahead.

Table 9.1 gives the historical figures of the premiums earned each year from 1990 to 2003. The figures are given in total and divided into periodic premiums and single premiums earned.

The Aggregated Balance Sheet of the Life Insurance Industry

The most important items on the balance sheet of an insurer are the investments, the technical provisions, and the guarantee funds (also called net worth or policyholders surplus). Premiums paid by the policyholders create liabilities for the insurer. Because those liabilities are in general longer-term ones, the premiums paid are invested in shares, loans, and fixed-income securities and other assets. The guarantee funds are needed to secure the solvency of the insurer. Table 9.2 shows the aggregated balance sheet of the Dutch life insurance industry as of December 31, 2003.

Table 9.1. Life Insurance Premiums Earned, 1990-2003 (€ Millions)


Periodic Premiums

Single Premiums

Total Premiums

























































Source: PVK and Central Bureau of Statistics.


To evaluate the level of the guarantee funds, the actual level must be related to the required level, giving the solvency ratio. Developments since 2000 in the average solvency margin for the life insurance industry in the Netherlands were discussed above with reference to Figure 9.1.

The investments of a life insurer can be divided into investments held for the benefit of the insurer itself and investments held for the benefit of the policyholder where the policyholder bears the investment risk. At the end of 2003 over 30 percent of total investments (€238.2 billion) was directly held for the account and the benefit of policyholders (see Table 9.2). Five years ago it was still some 25 percent.

On average 70 percent of the investments for the benefit of the insurer itself are fixed-income investments and approximately 14 percent is in shares (see Table 9.2). The remaining investments consist mostly of investments in land and buildings and in affiliated companies.

Directly related to the division of the investments held is the separation of the technical provisions into provisions held for traditional policies and unit-linked policies. With unit-linked policies, the sum assured is expressed in numbers of units of some specific investment object (Oosenbrug 1999). When the sum assured has to be paid out, the insured number of units is multiplied by the unit value at that moment to obtain the amount to be paid out.

To cover the volatility risk of its liabilities, the insurer invests the money related to the provisions for unit-linked policies in matched assets. By matching assets and liabilities the insurer eliminates its investment and liability risks. Because the total return on assets directly affects the unit value, the investments held for unit-linked policies are actually held for the account of policyholders.8

Table 9.2. Aggregated Balance Sheet of the Dutch Life Insurance Industry, 12/31/2003 (€ Millions)





Investments for the Benefit of the Life Insurer


Guarantee Funds




Technical Provisions


Loans and Fixed Income


Traditional Policies


Other Investments


Unit-Linked Policies


Investments for the Benefit and the Account of Policyholders


Non-Technical Provisions


Other Assets


Other Liabilities


Total Assets


Total Liabilities


Source: PVK and Central Bureau of Statistics.


At the end of 2003, over 35 percent of total technical provisions was related to unit-linked policies (see Table 9.2). Logically this is a little more than the share of the related investments in total investments because some part of the investments for the benefit of the life insurers themselves are held to cover the guarantee funds, the non-technical provisions, and the other liabilities.

On the other side, the 35 percent mentioned is far less than the 45 percent share of premium income from unit-linked policies in total premium income from life insurance policies (see Figure 9.4). The reason for this discrepancy is that unit-linked policies are a relatively new phenomenon in the Dutch market. Because it takes some time to build up technical provisions from premium and investment income received over the course of time, the provision/premium-ratio for the relatively new unit- linked portfolio is lower than for the relatively old traditional portfolio.

The Aggregated Income Statement of the Life Insurance Industry

Since the EU-directive on the accounts and the consolidated accounts of insurance companies was implemented in Dutch civil law, the income statement of insurers consists of a technical account and a non-technical account.9 Given the technical character of the business, the technical account is by far the most important part of the income statement of an insurer. The non-technical account mainly consists of the investment income allocated to the non-technical account, other non-technical revenues and charges, and tax charges. Table 9.3 shows the aggregated income statement of the Dutch life insurance industry for financial year 2003.

Table 9.3. Aggregated Income Statement of the Dutch Life Insurance Industry, 2003 (€ Millions)

Income Statement Item


Gross Premiums Written



Reinsurance Premiums Ceded



Earned Premiums, Net of Reinsurance



Investment Income Technical Account



Other Technical Income



Total Technical Income



Claims Incurred, Net of Reinsurance



Changes in Technical Provisions, Net of Reinsurance



Bonuses and Rebates



Total Deductions



Technical Income minus Deductions



Operating Expenses and Interest Charges



Other Charges Technical Account



Balance on Technical Account



Investment Income Non-Technical Account



Other Income and Charges and Minority Interests



Profit or Loss for the Financial Year, Before Tax



Tax Charges



Profit or Loss for the Financial Year, After Tax



Source: PVK and Central Bureau of Statistics.


The first part of the technical account shows total revenues accrued from premium income and investment income. As Table 9.3 shows, reinsurance premiums ceded are on average only a small fraction of gross premiums written: that is, approximately 3 percent.

In financial year 2003, investment income accounted for 36 percent of total technical income, but investment income can fluctuate very much from one year to another. For example, investment revenues net of investment income allocated to the non-technical account in 2002 were less than 15 (!) percent of the amount accounted for in 2003, while in 1999 it was just 20 percent more than the 2003 figure.

Due to the enormous difference in total investment income in 2003 and 2002, the aggregate net result for 2003 was substantially more than ten times the aggregate net result for 2002. However, a large part of the difference in investment income is the result of the reversal in 2003 of the write-off in 2002 of large amounts of negative investment revaluation reserves. So although net results for 2003 and the development of net results in 2003 look very good at first sight, in reality net results for 2003 were both in absolute terms, and relative to the non-distorted 2002 figures, much worse. As a consequence the 2003 level of net results and the strong recovery of reported results in this year could not be seen as real and of a structural character.

The second part of the technical account specifies the charges directly related to the insurance liabilities of the insurer to its policyholders. Total technical income is primarily intended to cover the claims to be paid out to policyholders, the building up of technical provisions needed, and the allowance of bonuses and rebates to policyholders.

Claims incurred and changes in technical provisions are normally relatively stable items in the income statement of a life insurer. Nevertheless, in 2002 claims incurred were extraordinarily high and changes in technical provisions were extremely low, even negative. Claims incurred were temporarily boosted because many policies were surrendered as a consequence of the bad performances on the stock exchanges. Also as a result of this bad performance, huge investment losses had to be written off on unit-linked policies. The related write-off on the liabilities to the holders of unit-linked policies combined with the effect of the extremely high surrender frequency made the total change of technical provisions in 2002 negative.

Since the start of the twenty-first century the bonuses and rebates allowed to policyholders are low due to low interest rates on the capital markets and negative or low returns on the stock exchanges.

In the third and last part of the income statement, the operating expenses and other technical charges are specified. In 2003 operating expenses alone amounted to €3,230 million for the whole life insurance industry. So on average 13 percent of gross premium income written was spent on operating expenses. Commissions paid to intermediaries account for a substantial part of these operating expenses.

Changes in the Relative Attractiveness of the Market for Life Insurance Policies

Adverse changes in the business environment for life insurers will show up most directly and clearly in the development of the premium amounts written from single premium policies. Figure 9.3 shows the development of total life insurance premiums earned divided into premiums earned from policies with periodic premium payments and premiums earned from single premium policies.

As can be seen clearly in Figure 9.3, the setback in 2002 was completely due to a substantial decrease of premiums earned from single premium contracts. Although the increase of premiums earned from contracts with periodic premium payment clearly flattened, the premiums earned from these contracts still increased. The same was the case in 1993 when—also caused by adverse (“introductory”) changes in the tax system—total premiums earned also showed a minor dip. Nevertheless in 1993 it was a one-time dip with periodic and single premiums recovering growth immediately in the year after. Periodic premium growth remained marginal in 2003 for the third year and single premiums mainly rallied thanks to a very large one-time transfer from a pension fund to an insurer (see “Overview of the total market” in this chapter).

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003


I Periodic Premiums : Single Premiums


Source: PVK and Central Bureau of Statistics.

Figure 9.3. Gross Life Insurance Premiums Earned, 1985-2003 (€ Billions)

In 2001, premiums earned from single premium contracts accounted for more than 50 percent of total premiums earned. In 1985 it still was not more than some 37 percent. From 1950 to 1973 it was less than 25 percent each year (Nijenhuis, Potjes and Schilder 1994).10 With an increasing share of single premium contracts, the vulnerability of an insurance company also increases for more or less serious setbacks in the development of total premium income earned.

Due to a setback of almost 15 percent in premium income from single premium policies, total premium income decreased in 2002 by almost 7 percent. The positive point here is that for the first time in years the share of single premium policies decreased. Because single premium contracts do not give any guarantee on the continuity of premium income written, contracts with periodic premium payments 
are in principle more attractive for the insurer. In general, profit margins on single premium contracts are also lower than on contracts with periodic premium payments, so the relative attractiveness (and stability) of the market increases twofold now that the relative share of single premium policies is declining.11 In 2003 this decline reversed, but only due to the payment of the special one-time single premium mentioned before.

Rise and “Fall'' of Unit-Linked Business

It was only recently that the Dutch market became familiar with unit-linked policies. At the beginning of the 1990s unit-linked policies were still considered exotic. With the explosive growth of the general public’s interest in stock market investments during the 1990s, the demand for individual and group life insurance policies shifted from traditional policies to unit-linked policies.



Figure 9.4. Composition of Gross Life Insurance Premiums


H Traditional Periodic Premium

  • Traditional Single Premium
  • Unit Linked Periodic Premium

Source: PVK and Central Bureau of Statistics.

Unit Linked Single Premium






At the beginning of the twenty-first century unit-linked policies accounted for nearly half of the total life insurance premium income earned. With life insurance contracts generally having durations of decades, it is remarkable that within one decade after the popularization of unit-linked business, the amount of periodic premiums earned from unit-linked policies in 2001 already exceeded the amount of periodic premiums earned from traditional policies. In 2003 it far exceeded the amount of periodic premiums earned from traditional policies (see Figure 9.4).

However, with the end of the euphoric mood at stock exchanges at the beginning of the new millennium, the overwhelming switch to unit-linked policies also came to an end. Currently, reappraisal of traditional life insurance is taking place.

That total premium income from unit-linked policies still does not exceed total premium income from traditional policies is only because the share of single premium unit-linked policies collapsed more than 5.5 percentage points from 21 percent in 2000 to substantially less than 16 percent in 2003. At the same time, the rate at which periodic premium income shifted from traditional policies to unit- linked business slowed down. However, for policies with periodic premium 
payments, the share of total premium income written from unit-linked policies can still increase further for years, even if the share of unit-linked policies in new business acquired decreases substantially.

In the segment of individual life insurance policies one can see clearly the effect of the end of the extremely strong and long-lasting rally on the stock markets at the beginning of the new millennium. After the market share of unit-linked policies with premium payment reached its peak of almost 80 percent in this segment in December

  1. the market share fell back to levels common five to six years before. Figure
  2. shows the recent rise and “fall” of the share of unit-linked business in total new business acquired in the segment of individual life policies with premium payment.

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