Berry Verkaar, Senior Vice President
2008 Reinsurance Market Position
Continued overcapacity in the market for Dutch catastrophe business, with an increased interest from European and (new) Bermuda players is evident from the 2008 Dutch renewal season. Interest from the London market appears to have declined, as players in this region seem either unable or unwilling to match the prices currently charged for Dutch catastrophe business. Sustained pressure on price has led to a further 5 percent to 10 percent reduction (on average) for property-catastrophe programs.
This year, the vast majority of the Dutch companies is prepared to increase the “safety levels” of their respective catastrophe programs further, a trend which is fueled in part by the relative competitiveness of catastrophe reinsurance prices. The stricter requirements set out by Dutch regulators are also a factor.
EQECAT’s catastrophe models have continued to be the preferred solution for most Dutch ceding companies, although there seems to be a growing interest in RMS simulation models, as they are the standard for most of reinsurers writing Dutch catastrophe business.
Dutch cedents have applied a wide variety of retentions and limits this year (both as percentages of their respective estimated premium incomes and as percentages of the 100-year and 200-year loss expectancies, as calculated by the leading catastrophe modeling firms).
Applying the most recent releases of the leading catastrophe models, it appears that Dutch property insurers are currently buying between 149 and 152 percent of their 100-year loss expectancies - depending on which model is used and bearing in mind the differences between portfolios. On the basis of 200-year loss expectancy, the coverage varies from 98 percent to 109 percent.
The chart above provides an overview of catastrophe programs purchased by a number of leading Dutch insurers, as well as an extrapolated total for the market, indicating program retentions and capacities as a percent of the estimated premium income (EPI).
The chart above shows the historic development with regard to retentions, limits, and the average Rate on Line (ROL) for Dutch Catastrophe programs. Despite numerous events (such as the hurricanes in the United States in 2005, and many tropical storms in the Asian/Pacific region), there has been a continuous reduction in catastrophe prices for Dutch business.
The chart above indicates the development of the market curve for ROLs in the Dutch market, clearly showing a sustained decrease over the last seven years. Provided that no significant catastrophes occur in the 2008 year, we expect that the prices will continue to favor cedents, due to the overcapacity for Dutch programs.
The Netherlands historically has been exposed to a full array of natural perils, including windstorm, hail, drought, flood, and (albeit regionally) earthquake. More recently, terrorism has been added to the list of potential threats.
As part of the North Atlantic windstorm area, this has remained one of the most important exposures for Dutch insureds and cedents. Windstorm Daria (January 25, 1990) was the most devastating windstorm to impact the country in the past two decades. Windstorm Kyrill (January 18, 2007) represented a loss burden of about EUR350 million (USD525 million) for the Dutch insurance industry, mainly as a result of damages to greenhouses and the high-value crops inside them.
Traditionally, flood (both fluvial and coastal) and earthquake exposures have been excluded automatically under Dutch property policies (with a few exceptions for large commercial and industrial covers). Flood losses affecting motor hull and construction all risks policies, however, fall under the existing scope of coverage
Despite the standard exclusion of flood and earthquake, high-level political discussions continued through 2007 to investigate the insurability of flood and earthquake. These talks were initiated and led by a dedicated governmental taskforce comprised of a number of Dutch Ministries, the Dutch Association of Insurers, and other experts.
Although a lot of progress has been made, the project is currently at a standstill, as the vice-minister of the Dutch Ministry of Transport, Public Works and Water management has elected to wait for the outcomes of other related studies. According to the Dutch Association of Insurers, ceding companies are prepared to continue with the discussions; however, they would prefer to align with the Dutch government before taking any further steps in this process.
Hail is normally covered under property and motor hull policies, while the exposure from drought and hail (e.g., affecting crops on the open field or in greenhouses) is normally covered by separate Agricultural insurance products.
Insurance penetration traditionally has been very high in the Netherlands and ranks among the highest in the world. The Dutch insurance market has always been quite open, inviting many foreign companies to start local initiatives or entities. A wide variety of life and non-life products is available, and are continuously being adapted to economic and fiscal developments.
Due to the introduction of a basic healthcare coverage for all Dutch citizens as of January 1, 2006, non-life premiums have gone up to EUR45.2 billion (USD67.8 billion), EUR 10.8billion (USD16.2 billion) when excluding accident and health business). In view of the above, the former distinction between public and private healthcare products and premiums has come to an end. Life premiums represent a volume of EUR25.2 billion (USD37.8 billion).
As in previous years, the consolidation of the Dutch insurance market has continued, including the sale of the local “Zwitserleven” (Swiss Life) portfolio to SNS Reaal Group (which in turn sold the Belgian part of “Zwisterleven” to Delta Lloyd).
The new Eureko combination (Achmea and Interpolis) is by far the largest player in non-life business (including accident and health), with a gross non-life premium income of EUR12.2 billion (USD18.3). The new UVIT combination (merger of the former Univé, VGZ and Trias companies) take the second position with a gross non-life premium income of close to EUR8.8 billion (USD13.2).
- Premium amounts reflect year-end 2006.