Delta Lloyd Says Insurer Is Well-Positioned for EU Capital Rules

Delta Lloyd NV, the second-biggest provider of group pensions in the Netherlands, said it’s well-prepared for future European Union capital demands and plans to pay a stable dividend starting next year.

Its economic capital ratio, a measure of available funds compared with required capital, was in the mid-range of a 140 percent to 180 percent target at the end of the third quarter, the Amsterdam-based company said in a statement today. The dividend, which had been linked to earnings, will be unchanged at 1.03 euros a share in 2015, it said.

Starting in 2016, the EU plans to introduce risk-based Solvency II capital requirements, specifying how much insurers must hold to meet future obligations to safeguard customers’ money. The Dutch firm has sought to protect its financial buffers by reducing equity investments, which trigger high capital charges under the rules. It has also bought a swap to protect against risks of policyholders living longer.

Delta Lloyd’s solvency “is in line with what we expected and what is satisfactory, showing that the de-risking efforts had its benefits,” Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank Groep, said in a note today. He recommends clients buy the shares.

The stock rose as much as 1.7 percent in Amsterdam trading today and was up 0.3 percent to 19.04 euros at 12:26 p.m. today. That compared with a 1.1 percent increase in the Bloomberg Europe 500 Insurance Index.

Internal Model

Delta Lloyd plans to report future regulatory solvency based on an internal model that’s already used to calculate economic capital. The model has been submitted for regulatory approval, it said. Based on a standard framework, the solvency ratio would be lower, yet exceed 100 percent, Chief Executive Officer Niek Hoek told analysts today.

Hoek, who is stepping down in January, said the dividend is subject to internal solvency targets. The company plans to reduce a premium for shareholders who agree to receive dividends in stock instead of cash to 2 percent from 4 percent for the 2014 final payout.

Delta Lloyd eventually plans to move to a full cash dividend and buy back shares to eliminate dilution from stock payouts. Hoek said his successor, Hans van der Noordaa, might be able to provide more details on the timing of such a move in the third quarter of 2015, when there’s more clarity on regulations.

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