Dutch insurers could be adversely affected by coronavirus outbreak, warns Fitch

Fitch Ratings has revised the outlook on the Dutch insurance sector to negative from stable on increased financial markets volatility and heightened economic recession risk resulting from the coronavirus pandemic.

Fitch believes disruptions in financial markets and the broader economy caused by the coronavirus outbreak could adversely affect Dutch insurers' mainly through weaker investment performance and higher asset risk while business models are relatively well-shielded to the short- and long-term effects of Covid-19.

"Dutch insurers have generally prudent investment policies and are strongly capitalised. These two factors help them to withstand short-term financial market volatility. However, potential sustained disruptions in the broader economy leading to deterioration in credit markets could weaken insurers' balance sheets and capital strength over time," the agency said. "In addition, Dutch insurers are also substantially exposed to adverse developments in the Dutch housing market through large investments in domestic residential mortgages."

Fitch warned that due to the extraordinary nature of the outbreak, the magnitude of the responses and the speed at which the events are unfolding, insurers are at the risk of rating and/or rating outlook changes. "It [is] likely that we will see risks that have not been observed before".

Dutch life insurers are primarily exposed to longevity risk and less so to mortality risk, which limits their sensitivity to a potential spike in mortality rates related to Covid-19. Fitch, however, noted that non-life could mainly be affected through an increase in sickness, business interruption and event insurance claims. In addition, asset management fees could reduce on lower asset balances.

Furthermore, Dutch health insurers are likely exposed to higher claims as a result of patients seeking treatment for Covid-19. However, the Dutch risk equalisation system balances out concentrations by business mix, such as policyholder age or geographic location. A sharp rise in claims could stretch the operational capabilities of insurers, in Fitch's view.