Dutch life insurers, including ING Groep NV and Delta Lloyd NV, face tests of their financial strength that could allow regulators to block dividend payments starting next year under new proposals.
Large and medium-sized life insurers will have their ability to withstand shocks relating to stock markets, real estate or interest rates and other risks tested beginning Jan. 1, according to draft regulations published today by Dutch Finance Minister Jeroen Dijsselbloem.
The Netherlands is pushing ahead with the plans before the Europe-wide introduction of Solvency II rules on capital buffers, scheduled to come into force in 2016 at the earliest. Revenue and profitability of Dutch life insurers, which had 384 billion euros ($522 billion) in invested assets in 2012, is under pressure as a housing market slump and competition from bank products cut demand for life insurance products, Dijsselbloem said in August.
“The Dutch insurance industry, and life insurers in particular, have to deal with a number of coinciding challenges and problems,” Dijsselbloem said today. “I see no reason to wait with the introduction of risk-based supervision on solvency until Solvency II is implemented.”
Under the Dutch plans, the central bank would have the power to prohibit a financially weaker insurer from paying dividends and instead use the funds to strengthen equity.
Consumers’ faith in the industry has also been hurt by unit-linked products sold in the past, Dijsselbloem said in August, while profitability has been eroded by low interest rates, depressing investment returns. Gross written premiums for individual life insurance products dropped to 11 billion euros in 2012 from 17.6 billion euros in 2007, according to data from the Dutch Association of Insurers, which represents 95 percent of the market.
“The Dutch Association of Insurers doubts the purpose, necessity and timing of the regulation,” it said in a statement today. “By opting for a national regime now, Dutch insurers may be placed in an adverse competitive position compared to foreign competitors in attracting capital.”
Solvency II, intended to harmonize the way insurers in Europe allocate capital against their risks, was originally scheduled for 2012. It has been delayed several times over issues such as the treatment of long-term guarantees and may now be implemented on Jan. 1, 2016 with a transitional period.
Interested parties have until Nov. 21 to comment on the proposed Dutch regulation.