Kingdom of the Netherlands-Netherlands
Publication of Financial Sector Assessment Program Documentation: Detailed Assessment of Observance on Insurance Core Principles

Significant legislative changes and regulatory developments have taken place in the Netherland’s insurance sector. The initial Financial Sector Assessment Program (FSAP) and the current assessment are benchmarked against the Insurance Core Principles (ICPs) issued in 2003. Progress has been made in addressing the recommendations arising from the assessment. The Financial Institutions Risk Analysis Method (FIRM) and the introduction of macroprudential supervision have strengthened The NetherlandsCentral bank's (DNB) risk-based supervision and market analysis. The updated regulatory framework has a high level of observance and the government has strengthened macro-prudential supervision to complement the traditional supervision approach.


Significant legislative changes and regulatory developments have taken place in the Netherland’s insurance sector. The initial Financial Sector Assessment Program (FSAP) and the current assessment are benchmarked against the Insurance Core Principles (ICPs) issued in 2003. Progress has been made in addressing the recommendations arising from the assessment. The Financial Institutions Risk Analysis Method (FIRM) and the introduction of macroprudential supervision have strengthened The NetherlandsCentral bank's (DNB) risk-based supervision and market analysis. The updated regulatory framework has a high level of observance and the government has strengthened macro-prudential supervision to complement the traditional supervision approach.

I. Assessment of Insurance Core Principles (ICPs)

A. Introduction and Scope

1. This assessment provides an update on the significant legislative changes and regulatory developments in the insurance sector of the Netherland’s since 2004.1 The current assessment was conducted from November 22-December 14, 2010. The Netherlands undertook an initial Financial Sector Assessment Program (FSAP) in 2004, which included a formal assessment of the Netherlands with the ICPs. The recommendations arising from the 2004 assessment were largely addressed.

2. Both the initial FSAP and the current assessment are benchmarked against the ICPs issued in 2003. The implications of the Global Financial Crisis that began in 2007 (GFC) and the authorities’ responses in strengthening the resilience of the insurance sector are noted by way of comments, where appropriate. The current assessment also took account of the relevant International Association of Insurance Supervisors (IAIS) standards and guidance that complements the ICPs.

B. Information and Methodology Used for Assessment

3. The level of observance for each ICP reflects the assessment of the essential criteria only. Advanced criteria are not taken into consideration in assessing observance of the ICPs. Each ICP is rated in terms of the level of observance as follows:

  • Observed—where all the essential criteria are observed or where all the essential criteria are observed except for those that are considered not applicable.

  • Largely Observed—where only minor shortcomings exist, which do not raise any concerns about the authorities’ ability to achieve full observance.

  • Partly observed—where, despite progress, the shortcomings are sufficient to raise doubts about the authorities’ ability to achieve observance.

  • Not observed—where no substantive progress toward observance has been achieved.

4. The assessment is based solely on the laws, regulations, and other supervisory requirements and practices that are in place at the time of Assessment. Ongoing regulatory initiatives are noted by way of additional comments. The assessment is largely based on the authorities’ self-assessment and other pertinent information provided. The assessors also received valuable inputs during meetings with industry and professional associations and significant insurers operating in the Netherlands.

5. The assessors are grateful to the authorities for their full cooperation and thoughtful logistical arrangements and co-coordination of various meetings with industry participants. In-depth discussions with and briefings by officials from the De Nederlandsche Bank (DNB) and Authority for Financial Markets (AFM) facilitated a robust and meaningful assessment of the Netherland’s regime.

C. Overview—Institutional and Macro Prudential Setting

Market structure and industry performance

6. The Netherlands recorded the highest insurance density in the world in 2009, with premium per capita of US$6,554 (US$2,046 for life and US$4,508 for non-life). Its insurance penetration was the second highest, at 13.6 percent of its GDP (4.3 percent for life and 9.3 percent for non-life).2 The number of employees working in the insurance industry totaled 50,910 as at end-2009.3

7. The Netherlands insurance industry has been consolidating as the number of insurers and insurance intermediaries was declining steadily since 2005 (see Table 1). As at end-2009, a total of 320 insurers were licensed, comprising 62 life insurers, 219 non-life insurers, 33 funeral-in-kind insurers, and 6 non-EU/EEA branches. The number of insurers further declined to 303 as at 3Q 2010 due to the exit of 11 non-life insurers, 5 life insurers, and 1 funeral-in-kind insurer. In 2009, DNB completed the licensing of 15 reinsurers that came under its supervision in 2008.4

Table 1.

The Netherlands: Declining Number of Insurers and Intermediaries

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Source: The Netherlands Insurance Industry in Figures 2010, The Netherlands Association of Insurers and DNB Annual Report 2009.

8. Total assets held by the insurance industry rose marginally by 1.7 percent from the 2007 level to reach € 392 billion (84 percent of GDP) as at end-2009. Life insurers represented 81 percent of the total assets (€ 317 billion) while non-life insurers held € 67 billion, with the remaining held by reinsurers (€ 7.5 billion) and funeral-in-kind insurers (€ 1.2 billion).

9. The larger life insurers are part of the internationally active, large complex financial conglomerates that dominate the Netherlands financial system. The benefits from diversification of risks by insurers across sectors and cross-borders and in adopting centralized risk management frameworks are recognized. Nonetheless, these conglomerates are exposed to significant contagion risks, as demonstrated by the GFC.

10. The six largest insurance groups had a combined market share of 85.9 percent in terms of assets and 53 percent in terms of premiums in 2009 (see Table 2). The Top-2 insurance groups on global consolidated basis, ING Insurance5 and Aegon6, derive only around 20 percent of their premiums domestically and held less than 30 percent of their assets in respect of their operations in the Netherlands.

Table 2.

The Netherlands: Netherlands Operations and Market Share of the Top 6 Insurance Groups

(in € mn)

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Source: DNB and Annual Reports.

11. Life insurers offer a diversified range of protection and investment-related products, as analyzed in Table 3.

Table 3.

The Netherlands: Analysis of Gross Premiums—Life

(In € mn)

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Source: DNB website Supervisory data on insurers, Annexes Life insurers

12. Non-life insurers are relatively smaller and the sector is less concentrated with only 2 insurers holding assets exceeding 5 percent of the sector’s total assets. The key products are accident & health, motor and fire (property) insurances (Table 4). Within the non-life sector, the health insurance segment is more concentrated than the property and casualty segment. Notably, accident & health premiums had increased sharply since 2005 due to the implementation of the health care reforms 8 in 2006. Some of the larger non-life insurers are also part of financial conglomerates. Premium rates have been under pressure across all lines of business due to intense competition. Long-term sustainability of non-life insurers hinges on achieving greater cost-efficiency.

Table 4.

The Netherlands: Analysis of Gross Written Premiums—Non-life

(In € mn)

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Source: DNB website Supervisory data on insurers T7.5: Benefits and premiums of supervised insurers.

13. Insurers’ investments are mainly concentrated in securities and equities. As at June 2010, life insurers’ investment in fixed income securities accounted for 44 percent (€ 140 billion) of investments while equities comprised 25 percent (€ 80 billion)9, followed by mortgage loans (8 percent or € 27 billion). Similarly, fixed income securities of non-life insurers constituted 59 percent of their investments (€ 24 billion) while their equities portfolio totalled € 5 billion (13 percent). Derivative investments of life insurers totalled € 14.36 billion (€ 0.7 billion in 2004) while non-life insurers reported negligible amounts.

14. There is a need to monitor intra-group balances of insurers and address the potential contagion risks appropriately. Investments in related companies constituted 6 percent and 11 percent of the investments of life and non-life insurers, respectively. The level of intra-group balances for some non-life insurers is high by international standards. Insurers are required to report significant intra-group transactions and balances and risk concentrations. While the DNB is legally restricted in imposing qualitative and quantitative thresholds on intra-group dealings directly, DNB has taken measures to influence intra-group transactions including adjusting the valuation basis for the purpose of computing solvency margin. DNB has indicated that one of its supervisory themes for 2011 is to focus on this area.

15. on average, technical provisions consistently accounted for about 83 percent and 61 percent of the total liabilities of life and non-life insurers, respectively. As at June 2010, life insurers maintained € 276 billion in technical provisions, of which € 113 billion were in respect of risks borne by policyholders under investment-linked policies. Technical provisions of non-life insurers totalled € 41 billion as at June 2010.

16. The level of capital and reserves in relation to technical provisions held by life insurers were relatively low compared to non-life insurers. As at 2010 June, life insurers’ capital reserves of € 25 billion was only 9 percent of technical provisions. In contrast, non-life insurers’ capital reserves totalled € 18 billion, representing 43 percent of technical provisions.

17. While the revenues of life insurers declined sharply in 2008/09, non-life insurers recorded increases in gross premiums. Changes in the tax regime, competition from banks and other financial products, weak demand for investment-linked insurance affected by depressed assets prices and loss of public confidence due to the profiteering policy affair’10 (woekerpolisaffaire) contributed to the unfavorable performance of life insurers. Sales of investment-linked policies fell sharply since 2006, from 391,000 policies to 78,000 policies in 2009.11 On the other hand, earned premiums of non-life insurers grew by 9.5 percent in 2008 and increased another 3.7 percent in 2009 to € 49 billion, double that of earned life premiums. Nonetheless, past experience suggests that non-life insurers could eventually be hit if the economic climate remains weak for a prolonged period.

18. Profitability and solvency of life insurers were hit by the GFC. Life insurers suffered a technical loss of € 6 billion in 2008, which reversed into a technical profit of € 2 billion in 2009 as the impact of the GFC subsided. Correspondingly, the overall solvency margin was reduced to € 10 billion in 2008 but recovered to € 14 billion in 2009 and the solvency cover12 increased from 209 percent to 245 percent. Many life insurers also had to compensate policyholders for “profiteering policies” which also eroded their profitability. One life insurer reported a deficit in solvency margin and was marginally solvent at year end-2009. In the first half of 2010, the overall solvency margin fell to € 10 billion, while the solvency cover decreased to 220 percent.

19. overall solvency of non-life insurance sector remains relatively stable but the solvency position of individual non-life insurers vary widely. Three non-life insurers failed to meet regulatory solvency requirements in 2008. Improved investment returns contributed to the positive solvency margin of all non-life insurers totaling € 10.5 billion in June 2010, with an average solvency cover of 271 percent. About 20 non-life insurers reported solvency covers of more than 10 times the required solvency margin, the majority with low minimum solvency requirements of less than € 1 million. One run-off non-life insurer was technically insolvent as of end-2009. (The solvency regime is described in ICP 23 under Section II-Detailed Principle-by-Principle Assessment.

20. The Netherlands government provided financial support to two insurers, Aegon Insurances and SNS Reaal NV. In October 2008, Aegon issued € 750 million of non-voting securities to Vereniging Aegon, funded by the government. In November 2008, the government bought € 750 million of securities issued by SNS Reaal NV to strengthen its capital position.13 ING was under EU pressure to dispose of its insurance company, Nationale Nederlanden, as a consequence of the received state support. Aegon, SNS Reaal and ING repaid a total of 45 percent of the aid given to them in late 2009.14.

21. Going forward, the Netherlands insurance industry faces significant strategic challenges. The insurance market is mature and saturated while confronting growing competition from banks and asset managers, which can now offer products with the same tax advantages. Life insurers also need to restore a dented public image and confidence resulting from the profiteering policies scandal. The migration to Solvency II is expected to provide appropriate regulatory incentives for insurers to price and manage their risks prudently and encourage proper asset-liability management.

Institutional framework and arrangements

22. The Netherlands has adopted the ‘Twin Peaks’, a functional cross-sectoral approach to regulation and supervision, implemented in a phased approach as from 2002. The impetus for the reform was the recognition the increasing interconnectedness of the sectoral activities and the dominance of large financial conglomerates in the Netherlands financial system. A more flexible supervisory approach is required to keep pace with the increasingly complex financial products that do not fit neatly into traditional sectoral boundaries. It is also aimed at strengthening ties between central banking and supervision.

23. The Act on Financial Supervision (Wft) provides a consolidated legal framework for supervising the financial sector in Netherlands. The shift in the supervisory approach dovetailed with the reform of the legislative framework for the financial sector. The Wft came into force on January 1, 2007 and aims to better reflect the cross-sectoral functional approach of the supervisory system. It replaces seven supervisory statutes, which were structured along the traditional sectoral lines. Where appropriate, the Wft introduces cross-sectoral rules to replace the relevant sectoral rules.

24. Under the current functional approach, DNB takes charge of prudential supervision while the AFM is responsible for conduct-of-business supervision. The division of responsibilities between DNB and AFM is defined by the Wft. In addition, a covenant between the DNB and the AFM facilitates the legal framework for supervisory cooperation. The covenant also facilitates the implementation of the designation of a lead supervisor under the Wft i.e., DNB generally leads the supervision of banks, insurers, and pension funds, while the AFM leads for securities firms. The lead supervisor would defer to the judgment of the other supervisor in its areas of responsibility. Besides defining prudential and conduct-of-business supervision, the covenant also establishes mechanisms for consultation and sharing of supervisory information. The Financial Stability Department of DNB coordinates macro-prudential surveillance.

25. An external Commission evaluated the extent of risk orientation of DNB’s insurance supervision and recommended enhancements. While the Commission concluded that DNB actively embodied risk orientation in its supervision, it recommended enhancements of statutory reporting, solvency regime, and group supervision of internationally active insurers. On DNB’s supervisory processes, the Commission suggested improving coordination and harmonization within DNB to address cross-sectoral issues; greater involvement of internal risk experts; formalizing job rotation; active engagement with the Boards of Insurers; as well as leveraging on the work of other supervisors, external auditors and actuaries. Continual refinement to DNB’s Financial Institutions Risk Analysis Method (FIRM) is also a key recommendation (more details on FIRM under Section B, ICP 4).15

26. DNB’s Supervisory Strategy for 2010-2014 incorporates the key lessons learned from the GFC. DNB will implement tighter supervision by adopting a supra-institutional approach in macro-prudential supervision, to complement the traditional micro-prudential supervision at institutional level. DNB will also devote more attention to institutions’ business models and strategies as well as their culture and conduct. The reorganization of DNB included the establishment of two new departments in January 2011. An Intervention Department specializes in dealing with troubled institutions, with a clear mandate to monitor the effect of any intervention and take appropriate supplementary measures. A new internal risk management department will ensure the orderly implementation of DNB’s enhanced supervisory approach through peer reviews and assessment of whether supervisors are correctly assessing risks. DNB will also leverage on the technical competencies of its “expert centers” more effectively.

Key findings and recommendations

27. The Netherlands has updated its regulatory regime and supervisory arrangements since the initial FSAP in 2004. The authorities have made significant progress in addressing the recommendations arising from the 2004 assessment. The Twin Peaks supervisory structure and the integrated Wft, have provided clarity to the authorities’ supervisory mandates. The Wft and related regulations establish clear regulatory requirements for licensing, corporate governance, internal controls, group-wide supervision, technical provisions, and supervision of intermediaries as well as consumer protection. The FIRM methodology and the introduction of macro-prudential supervision have strengthened DNB’s risk-based supervision and market analysis. Both the DNB and the insurance industry publish extensive industry and institution-specific data, contributing to more effective market discipline.

28. While the updated regulatory framework has a high level of observance with the ICPs, the supervisory orientation of the authorities is in transition, drawing from the lessons learned from the GFC. Recognising the increasing complexity and inter-connectedness of the financial system, the authorities have strengthened macro-prudential supervision to complement the traditional supervision approach at the institutional level. More intrusive supervision of insurers’ business models and strategies, as well as their culture and conduct would allow better understanding of insurers’ operations and risks. The impending implementation of Solvency II will sharpen DNB’s risk-based supervision, to be supported by timely regulatory reporting by insurers and systematic on-site inspections. For a successful transition, the supervisory authorities have to be adequately resourced and empowered to fulfill their statutory mandates.

Table 5.

The Netherlands: Summary of Compliance with the ICPs

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Summary of Grading

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Recommended action plan and authorities’ response

Recommended action plan
Table 6.

The Netherlands: Recommendations to Improve Observance of the Insurance Core Principles

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Authorities’ response to the assessment

29. The Dutch authorities want to express their appreciation to the IMF and the assessment team for their comprehensive work. The Financial Sector Assessment Program has been a useful exercise. The worldwide experience of the IMF and the use of a common methodology have delivered a useful insight in the current state of financial regulation and supervisory practice in the Netherlands.

30. The authorities welcome the overall assessment that indicates a high level of observance of insurance supervision with the well respected IAIS Insurance Core Principles. Notwithstanding this good result, the developments in the financial sector and the experience from the global financial crisis continue to call for vigilant action. The recommendations of the IMF are therefore well received and will be considered carefully by the authorities in their continuous efforts for strengthening supervision.

31. With regard to the recommendations, several initiatives have already been taken up since the conclusion of the FSAP mission.

32. As the assessment rightfully notes, most recommendations will be addressed with the upcoming implementation of the European Solvency II framework. Capital adequacy standards will be more robust and risk-sensitive under the new framework. Also, the quarterly returns that are now received from the institutions on an informal basis will then be formally required. In addition, Solvency II will strengthen DNB’s ability for group-wide supervision, including more stringent rules on intragroup transactions. The introduction of Solvency II will thus bring supervisory practice even further in line with the IAIS core principles.

33. Effective supervision of international active groups will remain a priority and DNB actively seeks cooperation with international supervisors both bilaterally and through colleges of supervisors. In addition, the scope of supervision with regard to holding companies will be strengthened under Solvency II and the review of the financial conglomerates directive. DNB will increase its supervisory resources to intensify its supervision and already started to do so in recent months, although its approach will remain risk-based and priorities will need to be made.

34. The Minister has recently announced proposals with regard to the institutional framework and the division of responsibilities between the Ministry of Finance and the supervisors. Also, the Ministry of Finance and the Ministry of Justice are exploring the possibilities to limit the liability of the financial supervisors by explicitly laying down the limitation in legislation.

35. The report rightfully acknowledges that the insurance sector is currently under pressure, because of adverse market conditions and its damaged reputation. Most of all, it is the responsibility of the sector itself to renew its business model and restore its reputation. Several initiatives have already been taken by the sector and the association of insurers. The AFM with its mandate for conduct of business supervision, is responsible for due care in the provision of services to clients and adequate consumer protection. In this context, it is noted that the supervision of intermediaries has been strengthened. The AFM is currently discussing with the Ministry of Finance whether its mandate in this respect should be strengthened.

II. Detailed Principle-by-Principle Assessment Methodology

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The Assessment was conducted by Su Hoong Chang, Insurance Supervision Advisor, contracted by the IMF, and Rodolfo Wehrhahn, Technical Assistance Advisor, IMF.


Swiss Re Sigma 2/10. The highest was Taiwan (16.8 percent of $379 billion). The high insurance density in non-life is largely attributable to health insurance coverage provided by non-life insurers.


The Netherlands Insurance Industry in Figures 2010, The Netherlands Association of Insurers


The Netherlands non-life reinsurers provide cover against fire and storm damage mainly to mutual fire insurers, while a few reinsure cross-border risks.


At the consolidated level, assets totaled € 290.4 billion and premiums amounted to € 30.5 billion.


At the consolidated level, assets totaled € 298.6 billion and premiums amounted to € 19.4 billion.


Non participating single premium products include annuities (direct ingaande lijfrentes) and single premium term insurance. The significant shift from single premiums non-participating business to indirect business in 2009 was due to the reclassification of premiums written for insurance cover of pension funds as indirect life business.


With the new regime, health insurance is mandatory. Health insurers are obliged to accept all applicants for insurance at a premium rate determined by the authorities i.e., risk-rated premiums are not allowed. For different risks, insurers are compensated by contributions from the “risk equalization” fund.


This is for the overall business. For the non unit-linked business equities represent just 4 percent of the related investments


This related to sale of policies with very high commission costs.


Source: The AFM Annual Report 2009


Available solvency as a percentage of required regulatory solvency.


Summary of Government Interventions in Financial Markets, the Netherlands (May 29, 2009)


DNB Annual Report 2009, page 44.


External Evaluation of Insurance Supervision-Summary by DNB, July 2009


Pursuant to the agreement between DNB and the Minister on information exchange and consultation regarding financial stability and crisis management, February 12, 2007.


Regulation on Technical Provisions and Solvency Margin.


Essential Criterion (b) states “The key objectives of supervision promote the maintenance of efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders.”


At the time of assessment, the Governing Board comprises 4 members, including the President, of which one Executive Director is in charge of prudential supervision of insurers and pension funds and one is in charge of prudential supervision of banks and other financial undertakings.


Essential criterion 3c) states: “The legislation grants sufficient powers for the effective discharge of supervisory responsibilities.”


ICP3 essential criteria q) states, inter alia: “The supervisory authority and its staff are adequately protected against the costs of defending their actions while discharging their duties


European Directives 2002/83/EC and 92/49/EC. Insurers authorized in one EU State acquire passporting rights enabling them to provide cross-border services either by establish branches in other EU State or on a cross-border basis.


The business operations are limited to only one (Article 3 on the Scope of Provisions of the Act on Financial Supervision) or more (Article 4 on the Scope of Provisions of the Act on Financial Supervision) classes of insurance business, excluding accident, health, motor vehicle liability, road transport liability, aircraft liability, marine liability, general liability, credit insurance, surety ship, and assistance.


As at time of assessment, there were 102 insurers exempted under Article 3. Their gross premiums written totaled € 9.2 billion in 2009 covering about 14,400 policyholders.


DNB Annual Report 2009


Towards a more stable financial system: macro-prudential supervision at DNB.


Explanatory Note to ICP 13 states that “The criteria envisage that on-site inspection may be carried out in a manner that is either full scale or on a focused basis”


The Penalty Scheme in Financial Legislation (Amendment) Act [Wet wijziging boetestelsel financiele wetgeving (the “Boetewet”)] and the Decree on Administrative Penalties in the Financial Sector [Besluit bestuurlijke boetes financiele sector] took effect on August 1, 2009


The members of the Confidential Advisory Committee are appointed for a maximum of 5 years on the joint nomination by DNB and the representative organizations for life insurers, Article 5 of the FSA Implementing Regulation (Uitvoeringsregeling Wft).


At the time the arrangement is activated the company needs a license as a (re)insurer.


The following terms are defined by Wft: participating enterprise, affiliated enterprise, holding (20 percent or more in share capital or 20 percent or more of voting rights), financial holding company, mixed activity holding company, mixed financial holding company, mixed activity insurance holding company, and insurance holding company


Suitable forms of capital listed in s95 of Bpr are: paid-up capital; reserves (excluding hedging transactions); undistributed profit; specified valuation of interests in subsidiaries and related companies; cumulative preference shares, subordinated loans that satisfied certain conditions; and debt certificates with an indefinite subject to certain conditions.


Article 15 of FSA Implementing Regulation.


“The AFM does not expect self-regulation to be sufficiently effective and has suggested to the Minister that the regulation relating to the duty of care should be adjusted in this respect. Embedding this in regulation will allow the AFM to oversee the processes of product development, marketing and distribution in a risk-driven way at an earlier stage” Source: The AFM Annual Report 2009.


AFM endorses main findings by Scheltema Committee, June 29, 2010.


Table 12.8, 12.10, and 12.11 of The Netherlands Insurance Industry in Figures 2010


FIRM criterion on “Improper conduct”: the risk that the reputation and possibly even the financial position of the financial institution is influenced due to the conscious or unconscious facilitation by or involvement of the financial institution with offences.


“To prevent and deal with internal fraud incidents” and ‘Assessment of interest concerning external registrations’.


Table 12.7 of The Netherlands Insurance Industry in Figures 2010

Kingdom of the Netherlands-Netherlands: Publication of Financial Sector Assessment Program Documentation: Detailed Assessment of Observance on Insurance Core Principles
Author: International Monetary Fund