Belgian and Dutch insurers resilient to rising credit risks

Written by Adam Cadle

22/03/2023

Belgian and Dutch insurers’ conservative investment portfolios should be resilient to rising credit risks amid weakening economic conditions and tightening monetary policy, Fitch Ratings has said.

In particular, the strong average credit quality of bond portfolios and the conservative approach to loan investments significantly limit the risk of credit losses and continue to support the insurers’ ratings.

About 80% of the insurers’ investments are fixed-income. The average credit quality of bond portfolios is typically in the low ‘AA’ or high ‘A’ category. Credit quality has weakened slightly in recent years as insurers took more risk in search of higher yields but Fitch said it does not expect this to continue now that yields in general have increased.

Dutch insurers, in contrast to Belgian insurers, have built up substantial residential mortgage loan exposure in recent years, in line with an expanding mortgage market. Mortgage loans accounted for about a quarter of the Dutch insurance sector’s investments at end-2021. High inflation and rising interest rates will put pressure on borrowers in 2023 but strict mortgage loan underwriting in recent years, together with strong household savings and tight labour markets, mean that most mortgage borrowers are well placed to service their debt, Fitch stated.

"Rising interest rates are generally positive for insurers, and the associated falls in bond values do not pose a significant economic risk for Belgian or Dutch insurers as they can typically hold bonds until maturity. The insurers also tend to match the duration of their assets to their liabilities or use hedging to limit their capital sensitivity to interest rate movements. In addition, the insurers’ diverse business mixes and strong capital positions limit the risk of capital pressure due to increased ‘mass-lapse’ assumptions under Solvency II."

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