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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.
Based on total market shares in the total Dutch life and non-life markets the top five insurers in decreasing order are ING, Fortis, Achmea, Delta Lloyd, and Aegon. With ING and Achmea winning market share and the others losing market share, the 2003 ranking was still the same as the 2002 ranking.
As can be seen in Table 9.7, mutuality is still an important phenomenon in the Dutch financial services sector. Among the top 10 groups, several still operate more or less on a co-operative basis (for example, Achmea, Rabobank, and Unive).
In April 2005, the merger of Achmea and the insurance subsidiary of Rabobank (Interpolis) was announced. The announced merger of the numbers five and six in the life market will result in a new group ranking second in the life market. However, the number one position is still far out of sight with the number one, ING, having a market share almost half as large as the life market share of the newly created Interpolis/Achmea-group.
On the contrary, with Achmea already being the unchallenged number one in the non-life market, the newly created group will by far be the absolute number one in the non-life market. Its non-life market share will be as large as twice the non-life market share of the number two in the market (Fortis).
The openness of the Dutch market typically resulted in many foreign insurance groups playing an important role in the market by having substantial subsidiaries in the Netherlands. Four of the top 10 insurance groups in the life insurance market, as well as three in the non-life market, are full subsidiaries of foreign insurance groups. Delta Lloyd, a full subsidiary of Aviva, ranks fourth for life, as well as fourth for non-life business. Also Allianz, Swiss Life, and AXA are full subsidiaries of insurance groups from abroad.
However, real cross-border trade in insurance policies is until now only a marginal business. The existing major differences in legal rules, tax systems, and languages are still barriers too high for cross-border selling of insurance policies to become common. According to estimates made by the OECD, foreign companies realized only 5 percent of life business and not more than 2 percent of non-life business in the Netherlands. Indeed, it even seems likely that the largest part of the business done by foreign companies was realized through representatives who are still physically present in the local market.
The Dutch-rooted companies in the top 10 are more or less international companies in the real sense, too. The first in non-life and sixth for life business (Achmea) is the leading participant in the European Eureko-group. In addition, the third in life and second in non-life business (Fortis) is really a multinational group based in the Netherlands and in Belgium. Although with pure Dutch roots, ING and Aegon are really international financial groups; ING is a well-known worldwide banking and insurance group with its subsidiaries established in countries from Central Europe to North America and from South America to Asia.
Figure 9.13 shows the geographic spread of total premium income written by ING. Indeed, due to the strong euro, premium income from outside Europe decreased in 2003 from 79 percent to 75 percent. In 2004 ING ranked twelfth on the Forbes 2000 Leadings Companies list. In the category of “Diversified Financials” it ranked third after Fannie Mae and UBS.
As the result of regular and
important acquisitions in the past, ING, Aegon and Fortis now belong
to a group of key foreign players in the U.S. insurance market. In many
other countries around the world the presence of the leading Dutch insurance
groups is far from negligible, due to acquisitions and/or greenfields
operations started in the past. For example, the Dutch insurer ING was
the first foreign insurance group to get a license to operate in China!
Figure 9.13. Geographic Decomposition of Total Premium Income Written by ING, 2003
■ The Netherlands Cl Rest of Europe
However, to become a big player abroad a weII-developed home market is a prerequisite. In fact with a population of only 16 million, the country ranks tenth globally in terms of premium income earned. Logically, the ranking in terms of per capita premium income is even higher. With per capita premium income in 2002 amounting to €2,626 the Dutch rank sixth in premium income per capita.18 A long tradition of international business and a well-developed home market explain the existence of various leading Dutch insurance groups.
Holland is the cradle of modem total all-finance (or bancassurance), the origin of combined banking and insurance groups. In 1990, as soon as it became legally possible, insurer Amev acquired VSB-bank which, after the merger with AG from Belgium, resulted in the first multinational all-finance group (Fortis) in the world. Later on NN merged with NMB Postbank to form ING and Rabobank acquired Interpolis.
At the moment, the top five ranking for life as well as for non-life
business, as presented in Table 9.7, is dominated by all-finance groups,
with ING and Fortis primarily from the insurance sector and Rabobank
primarily from the banking sector. The other insurance groups with a position in the top five ranking
for life or non-life business (Achmea, Aegon and Delta Lloyd) include
more or less substantial banking subsidiaries. As a consequence, the
number six life insurance company (Achmea) and the number nine non-life insurance company (Aegon) are companies with
more than marginal banking subsidiaries. In addition, the number eight
group is a true financial conglomerate originating from banking groups that merged and took over the Reaal insurance group.
Except for ABN Amro, all the leading financial groups in the Dutch banking sector (ABN Amro, ING, Rabobank and Fortis) are legitimate all-finance groups. ABN Amro only a few years ago split off its insurance activities by selling its insurance subsidiaries to Delta Lloyd. Nevertheless, ABN Amro ranks third in the top 10 of the largest insurance intermediaries. As noted, no fewer than five of the top 10 insurance intermediaries are banking groups or part of a financial conglomerate.
Currently, the supervisory system is going through a period of regulatory change. The supervisory authority for insurers and pension funds, Pensioen- & Verzekeringskamer (PVK) (Pensions and Insurance Chamber), was in 2004 integrated in the Dutch central bank, De Nederlandsche Bank DNB (The Dutch Bank). As part of the regulatory changes over the past few years, the supervisory responsibility for the insurance, pensions, banking, and investments sector was separated into the responsibility for prudential supervision and the responsibility for supervising integrity and market conduct. The PVK was, and today the DNB is, responsible for prudential supervision; the supervisory authority for the financial markets, the Authoriteit Financiele Markten AFM (Authority for Financial Markets), will be responsible for supervising integrity and market conduct. In addition, the AFM will also be responsible for supervising the sector of the financial intermediaries. Finally, the AFM will sometime in the future also be in charge of supervision of the adherence of companies to the accounting rules.
At the moment, a process of re-orientation concerning the rules on solvency for insurance companies and pension funds is going on. Until now, only consultation documents about the way solvency should be monitored were published, the latest being Pensioen- & Verzekeringskamer 2004b.
The most interesting points are the strong focus on “value at risk” measures and the intention to approve the internal model approach for monitoring solvency. In the process of re-orientation, the supervisory rules for insurance companies and pension funds will also be brought more into line with one another.
Of course, all changes in the supervisory system are taking place within the context of the rules set by the European supervisory directives and are partly driven by the (intended) changes in those European rules.
In the Netherlands there are no government guarantees for policyholders of defaulted insurance companies.19 Instead, but only in life business, the market participants have the duty by law to spread a “safety net” to catch the “falling angel” in case one of them becomes insolvent (Oosenbrug 2001). However, since this duty was introduced a few years ago, no insolvencies have occurred so the safety net has not been activated until now.
Systemic risk is not a large issue for the insurance sector. Nevertheless, the supervisory authorities watch the sector for the risk of systemic problems. Very recently, in 2004, a delegation of the International Monetary Fund made an assessment of the soundness of the Dutch financial system in the context of its Financial Sector Assessment Program. The results were, in general, positive (De Nederlandsche Bank 2004a and 2004b).20
The insurance industry in the Netherlands has a long and rich history. Today, several Dutch insurance groups belong to the top global players in the worldwide insurance market. The Dutch insurance market is traditionally one of the most open markets in the world; as a result, the number of market participants is overwhelming, especially since the European single market was formed in 1993, when the number of insurers exploded. At the same time, market conditions were very healthy, especially for life business.
However, with the turn of the century, a new business climate set in. Generous special tax facilities were changed drastically, life markets were depressed by the crashes on stock exchanges and low interest rates on capital markets, the economy cooled down, regulatory and accounting rules were tightened, competition became stronger, and pressures for market transparency increased. Solvency ratios were hit, many intermediaries already faced serious problems, new business and especially unit-linked business came under pressure, and reported results dropped. Although reported results recovered in 2003, it seems likely that especially in life business future results will be no longer as impressive as they used to be. With the still more profitable life business losing market share with regard to the non-life business, total profitability of composite insurance groups is under pressure.
Nevertheless, for cost-efficient and administratively well performing insurers who do not focus on simply selling “tax driven” life insurance products, the open and still extensive Dutch life and non-life market should not lose its attractiveness. For the whole life insurance industry, on average 13 percent of gross premium income written was spent on operating expenses. For non-life business, total operating expenses amounted to 24 percent of net premium income earned. Although commissions paid to intermediaries account for a substantial part of the operating expenses, it is the very well diversified distribution system that guarantees that each serious potential participant who wants to enter the still-attractive Dutch market can have the channels he needs at his disposal.
In the life market, the share of single premium contracts seems to be on the return for the first time in years. At the same time, unit-linked policies are on their return after the tempestuous rise of unit-linked business at the end of the twentieth century. On the other hand, during the last years the share of mortgage related life business grew substantially.
Group life business went through an era of mutually opposite changes. On the one hand inflationary pressures ceased, unemployment rates rose substantially, and pension arrangements were retrenched. On the other hand, premium rates increased 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 were liquidated or “outsourced,” with the settlement of their pension arrangements transferred to life insurance companies, other pension funds, or specialized service organizations. So, group life business is under pressure while 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 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.
Premium income from non-life business has grown steadily for decades with premium income from accident, private health, and disability insurance policies accounting for nearly half of the total premium income and still rising. Automobile and fire insurance account for 21 percent and 16 percent of total premium income. Transport has in the course of time decreased to less than 3 percent and the rest— mainly liability insurance—accounts for a relatively stable 12 percent. Technical results are fluctuating, with the results for 2003 looking very nice but partially distorted by the reversal of write-offs on investments accounted for in 2002.
In 2003, the top 10 insurance groups in the relevant market segments wrote almost 90 percent of life business and 67 percent of non-life business, with subsidiaries of foreign insurance groups playing an important role. However, real cross-border trade in insurance policies is so far only a marginal business.
Except for ABN Amro, all the leading financial groups in the Dutch banking sector belong to the leading groups in the insurance sector, too. Also, in a more general sense, all-finance is not an insignificant phenomenon in the Dutch market. Indeed, ABN Amro sold its insurance activities to Delta Lloyd only a couple of years ago.
The distribution channel of independent agents is still in search of a new equilibrium since the business environment has changed drastically and the regulatory system will also be changed drastically. A shake-out in the segment of “hit-and-run” intermediaries was already the result of the changes. E-commerce is still not common practice in the Dutch insurance market, but as products and services become more transparent, the potential for it will surely increase enormously.
Currently, the supervisory system is going through a period of regulatory change. Very recently, in 2004, the PVK was integrated in the Dutch central bank, DNB, with the DNB becoming responsible for the prudential supervision of the total financial sector. Next the AFM will be responsible for supervising integrity and market conduct.
At the same time, re-orientation concerning the rules on solvency for insurance companies and pension funds is still going on. The most interesting points are the strong focus on “value at risk” measures and the intention to approve the internal model approach for monitoring solvency.
In the Netherlands there are no government guarantees for policyholders of defaulted insurance companies. However, since a few years ago, the Dutch life insurers have the duty by law to spread a “safety net” to catch “falling angels.”
Because of the still relatively sound financial position of the Dutch life insurers, the safety net has never been activated until now. More generally, the results of a very recent assessment in 2004 of the soundness of the Dutch financial system by a delegation of the International Monetary Fund were predominantly positive. So the Dutch financial sector in general and the insurance sector specifically are still financially sound.
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