The number of Dutch insurers will continue falling in 2018 as companies either merge or close amid tough market conditions, S&P Global Ratings said in a report on the country's insurance market.
S&P also said the lack of organic growth opportunities and persistent competition in all insurance segments — life, nonlife and health — in the Netherlands "will continue to suppress profitability in 2018 and may eventually weaken the competitive positions of the historically strong insurers."
Continued M&A
The rating agency said that in general, merger and acquisition transactions "often do not deliver significant benefits from a credit perspective" and that more than two-thirds of deals globally had "failed to improve the financial strength of the buyer enough to warrant an upgrade." But it added: "Nevertheless, we expect that this trend will continue and the number of companies in the Netherlands will continue to fall in 2018, either because larger players acquire smaller ones, or because some may go into run-off due to the challenging competitive environment."
There were 161 life and nonlife insurers in the Netherlands as of the third quarter of 2017, down from 169 in 2016, 314 in 2009 and 426 in 1999, according to figures from Dutch central bank De Nederlandsche Bank cited by S&P Global Ratings.
The report said a move toward commoditized products in all insurance segments in the Netherlands, as well as the search for synergies and economies of scale, were pushing Dutch insurers to merge, in an environment with limited opportunities for economic growth, low interest rates, lower returns and legislative changes.
Tough conditions
Dutch insurers' full-year 2017 results were in line with S&P Global Ratings' expectations, which it said suggested that the stabilization in operating performance it saw during 2017 had continued through to the year-end. But it added that it was not yet clear whether the performance improvements would last.
"The improved results could be down to better underwriting discipline, 'market hardening' [price increases], cost reductions, or greater economies of scale. They could also just indicate a lull before the next wave of aggressive competition or further consolidation," it said.
On a more positive note, the report said the merger of NN Group NV and Delta Lloyd NV, which was completed Dec. 31, 2017, "may ease the competitive pressure on other Dutch insurers that compete for the same share of the market, either in life or nonlife lines of business" in 2018, which may temporarily improve profitability across the whole Dutch insurance sector.
In addition to NN Group, S&P Global Ratings also rated Aegon NV, ASR Nederland NV and Achmea BV. Aegon has a AA- financial strength rating, with a negative outlook, while NN Group, ASR and Achmea all have A financial strength ratings, the latter with a negative outlook and the others with a stable outlook.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.
