## _cr11205

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---

### Market structure and industry performance
- Insurance density in 2009: premium per capita of US$6,554 (US$2,046 for life and US$4,508 for non-life).
- Insurance penetration in 2009: 13.6 percent of GDP (4.3 percent for life and 9.3 percent for non-life).
- Number of employees in the insurance industry as at end-2009: 50,910.
- Consolidation trend (declining number of insurers/intermediaries since 2005):
  - Licensed insurers as at end-2009: total 320 (62 life insurers, 219 non-life insurers, 33 funeral-in-kind insurers, and 6 non-EU/EEA branches).
  - Licensed insurers as at 3Q 2010: total 303 (exit of 11 non-life insurers, 5 life insurers, and 1 funeral-in-kind insurer).
  - DNB completed licensing of 15 reinsurers in 2009 that came under supervision in 2008.
- Selected figures (End-2005 / End-2009):
  - Non-life insurers: 227 / 219
  - Reinsurers: - / 15
  - Funeral-in-kind insurers: 41 / 33
  - Insurance intermediaries: 20,086 / 10,123
  - Underwriting agents: 398 / 338
- Total industry assets as at end-2009: € 392 billion (84 percent of GDP).
  - Life insurers’ assets: € 317 billion (81 percent of total assets).
  - Non-life insurers’ assets: € 67 billion.
  - Reinsurers’ assets: € 7.5 billion.
  - Funeral-in-kind insurers’ assets: € 1.2 billion.
- Market concentration (2009):
  - Six largest insurance groups combined market share: 85.9 percent (by assets) and 53.2 percent (by premiums).
  - Top-2 groups derive around 20 percent of their premiums domestically and held less than 30 percent of their assets for Netherlands operations.
- Operations in the Netherlands — Top 6 groups (Assets @ end-2009; Premiums in 2009 in € mn):
  - Eureko (Achmea): 64,390; 18,198
  - ING insurance: 75,536; 6,388
  - ASR (formerly Fortis): 39,291; 4,873
  - SNS Reaal: 53,575; 4,362
  - Delta Lloyd groep: 38,560; 3,812
  - Aegon: 66,122; 3,729
  - Total (Top 6): 337,474; 41,362
  - Industry total: 392,855; 77,683
  - Market share (Top 6): 85.9% (assets); 53.2% (premiums)

### Life insurance — premiums, investments, technical provisions and solvency
- Gross premiums — Life (In € mn; 2005 / 2009 / % of total):
  - Regular premiums — Non-participating: 7,479 / 7,620; 31.2%
  - Regular premiums — Participating: 5,861 / 5,542; 22.7%
  - Single premiums — Non-participating: 4,511 / 3,815; 15.7%
  - Single premiums — Participating: 6,696 / 4,537; 18.6%
  - Insurance-linked savings contracts: 538 / 0
  - Indirect business: 280 / 2,887; 11.8%
  - Total: 25,365 / 24,401; 100.0%
- Notable reclassification: shift from single premiums non-participating business to indirect business in 2009 due to reclassification of premiums for insurance cover of pension funds as indirect life business.
- Insurers’ investments (as at June 2010):
  - Life insurers:
    - Fixed income securities: 44 percent (€ 140 billion)
    - Equities: 25 percent (€ 80 billion)
    - Mortgage loans: 8 percent (€ 27 billion)
    - Derivative investments: € 14.36 billion (compared with € 0.7 billion in 2004)
  - Non-life insurers:
    - Fixed income securities: 59 percent (€ 24 billion)
    - Equities: 13 percent (€ 5 billion)
    - Derivative investments: negligible amounts
- Related-company investments and intra-group balances:
  - Investments in related companies: 6 percent (life insurers) and 11 percent (non-life insurers) of investments.
  - Intra-group balances for some non-life insurers are high by international standards.
  - DNB legally restricted from imposing qualitative and quantitative thresholds on intra-group dealings directly, but has adjusted valuation basis for computing solvency margin and identified intra-group balances as a supervisory theme for 2011.
- Technical provisions and capital ratios (as at June 2010):
  - Technical provisions:
    - Life insurers: € 276 billion (of which € 113 billion in respect of risks borne by policyholders under investment-linked policies).
    - Non-life insurers: € 41 billion.
  - Capital and reserves in relation to technical provisions:
    - Life insurers’ capital reserves: € 25 billion, representing 9 percent of technical provisions.
    - Non-life insurers’ capital reserves: € 18 billion, representing 43 percent of technical provisions.
- Profitability and solvency developments:
  - Life insurers:
    - Technical loss in 2008: € 6 billion.
    - Technical profit in 2009: € 2 billion.
    - Overall solvency margin: € 10 billion in 2008; recovered to € 14 billion in 2009.
    - Solvency cover increased from 209 percent to 245 percent (2008–2009).
    - One life insurer reported a deficit in solvency margin and was marginally solvent at year end-2009.
    - First half of 2010: overall solvency margin fell to € 10 billion; solvency cover decreased to 220 percent.
  - Drivers of adverse performance for life insurers:
    - Changes in the tax regime.
    - Competition from banks and other financial products.
    - Weak demand for investment-linked insurance affected by depressed asset prices.
    - Loss of public confidence due to the profiteering policy affair (woekerpolisaffaire).
    - Sales of investment-linked policies fell from 391,000 policies in 2006 to 78,000 policies in 2009.

### Non-life insurance — composition, premiums and solvency
- Non-life sector characteristics:
  - Relatively smaller sector and less concentrated; only 2 insurers holding assets exceeding 5 percent of sector’s total assets.
  - Key products: accident & health, motor and fire (property) insurances.
  - Health insurance segment more concentrated than property and casualty segment.
  - Accident & health premiums increased sharply since 2005 due to health care reforms implemented in 2006 (mandatory health insurance; insurers obliged to accept all applicants at a premium rate determined by the authorities; risk-equalization fund compensates insurers).
- Gross written premiums — Non-life (In € mn; 2005 / 2009 / % of total):
  - Accident & health: 11,477 / 40,492; 76.0%
  - Motor: 4,565 / 4,539; 8.5%
  - Fire: 3,520 / 3,676; 6.9%
  - Transport: 681 / 859; 1.6%
  - Others: 3,452 / 3,717; 7.0%
  - Total: 23,695 / 53,282; 100.0%
- Premium trends and pressures:
  - Non-life insurers’ earned premiums: grew by 9.5 percent in 2008 and 3.7 percent in 2009 to € 49 billion (double earned life premiums).
  - Premium rates under pressure across all lines due to intense competition.
  - Long-term sustainability depends on achieving greater cost-efficiency; sector vulnerable if economic climate remains weak.
- Solvency status (non-life):
  - Three non-life insurers failed to meet regulatory solvency requirements in 2008.
  - Improved investment returns contributed to 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, majority with minimum solvency requirements of less than € 1 million.
  - One run-off non-life insurer was technically insolvent as of end-2009.

### Systemic risks, contagion and supervisory priorities
- Contagion risk: large internationally active financial conglomerates present contagion risks across sectors and borders; GFC demonstrated material contagion exposures.
- Derivatives exposure: life insurers’ derivative investments increased to € 14.36 billion as at June 2010 (from € 0.7 billion in 2004), warranting attention.
- DNB supervisory constraints and actions:
  - Legal restriction on imposing direct qualitative and quantitative thresholds on intra-group dealings.
  - Use of supervisory measures (e.g., adjusting valuation basis for solvency margin) to influence intra-group transactions.
  - Identified intra-group balances as a supervisory theme for 2011.
- Macro‑prudential monitoring and market analysis:
  - DNB periodically reviews sector conditions, monitors premium income trends, investment portfolios, solvency ratios and market developments (equity markets, interest rates).
  - Macro stress testing: national sectoral exercise in 2009; participation in CEIOPS European stress test in 2010.
  - Example supervisory action: 2009 risk analysis led to requests for commission structure details and measures to reduce risks at 6 insurers.

### Institutional framework, governance and supervisory model
- Twin Peaks model implemented since 2002: DNB responsible for prudential supervision; AFM responsible for conduct-of-business supervision; covenant facilitates cooperation and lead supervisor designation.
- Act on Financial Supervision (Wft) effective January 1, 2007, replaced seven sectoral statutes and introduced cross-sectoral rules.
- DNB organization and resources:
  - Insurance Supervision Division: 134 staff.
  - Average period of employment with DNB: 10 years.
  - Supervision Academy (Toezichtacademie) established in 2010 for in-house training.
- External evaluation (July 2009) recommended enhancements to statutory reporting, solvency regime, and group supervision; DNB Supervisory Strategy 2010-2014 incorporates GFC lessons and reorganized to establish an Intervention Department and internal risk management department (effective January 2011).
- FIRM Framework (introduced 2004) for risk-based supervision; VITA to be implemented from January 2011 to strengthen supervisory process, thematic inspections and expert involvement.
- Licensing and market access:
  - Licensing categories: life insurance, non-life insurance, funeral services in kind insurance, and reinsurance.
  - DNB maintains a public register of licensed entities.
  - Exemptions for small mutuals exist; 102 insurers exempted under Article 3 with gross premiums written totalling € 9.2 billion in 2009 covering about 14,400 policyholders.

### Observance of IAIS Insurance Core Principles (ICP) and FSAP findings
- Summary of ICP compliance counts (exact):
  - Observed (O): 22
  - Largely observed (LO): 6
  - Partly observed (PO): 0
  - Not Observed (NO): 0
  - Total: 28
- Key FSAP findings:
  - High level of observance with the ICPs; Twin Peaks and the Wft provide clarity of supervisory mandates.
  - FIRM methodology and macro-prudential supervision strengthened DNB’s risk-based supervision.
  - Supervisory orientation transitioning toward more intrusive review of business models, strategies, culture and conduct; successful Solvency II transition requires adequate resourcing and empowerment.

### Selected recommended action plan (selected recommendations by Core Principle)
- Core Principle 2 (Supervisory objectives)
  - Consider articulating more clearly how supervisory mandates apply to respective roles in protecting policyholders.
- Core Principle 3 (Supervisory authority)
  - Consider broadening legal authority of DNB and the AFM.
  - Consider providing explicit legal protection to DNB and the AFM, as well as their staff members, against lawsuits for actions taken in good faith while discharging their duties, provided they have not acted illegally.
  - Consider publication of reasons for removal of Board members.
  - Review adequacy of supervisory resources, particularly for supervision of internationally active insurance groups and implementation of Solvency II.
- Core Principle 7 (Suitability of Persons)
  - Consider strengthening collaboration with professional associations to promote more robust quality control over the work of auditors and actuaries without compromising confidentiality of official information.
- Core Principle 12 (Reporting to supervisors)
  - DNB should be empowered to require insurers to submit quarterly returns as a routine supervisory practice, with appropriate powers for enforcement and sanctions.
- Core Principle 17 (Group-wide supervision)
  - Consider removing explicit legal restriction against DNB to impose qualitative and quantitative limits on intra-group transactions and balances under the Bptfg.
  - Review adequacy of supervisory resources for effective supervision of internationally active groups/conglomerates.
  - Harmonize supervisory approach for insurance groups and conglomerates on risk concentration and solvency requirements.
  - Formulate regulatory requirements applicable to non-regulated holding companies, in line with Solvency II and international developments.
- Core Principle 25 (Consumer Protection)
  - Carefully consider trade-offs between self-regulation and robust supervision to protect policyholders.
- Core Principle 28 (AML/CFT)
  - Update legal provisions on record retention, appointment of anti-money laundering compliance officers and requirements where insurers rely on intermediaries to perform CDD, to bring these in line with FATF Recommendations.

### Regulatory transition, government interventions and sector conduct
- Government interventions during GFC:
  - October 2008: Aegon issued € 750 million of non-voting securities to Vereniging Aegon, funded by the government.
  - November 2008: Government bought € 750 million of securities issued by SNS Reaal NV.
  - ING under EU pressure to dispose of Nationale Nederlanden as consequence of state support.
  - Aegon, SNS Reaal and ING repaid a total of 45 percent of aid given in late 2009.
- Solvency II:
  - Migration to Solvency II expected to provide more risk-sensitive capital adequacy standards, improve asset-liability management incentives, and strengthen group-wide supervision.
  - Implementation timing noted: Solvency II implementation by the Netherlands in 2012 (source notes) / January 2013 referenced elsewhere for expected impact on supervision.
- Conduct, consumer protection and sector reputation:
  - Life insurers face reputational damage from profiteering policy scandal (woekerpolisaffaire) and need to restore public confidence.
  - AFM responsible for conduct-of-business supervision, strengthened supervision of intermediaries, and consideration of mandate enhancements with the Ministry of Finance.
  - Transparency and disclosure measures: commission transparency effective January 1, 2009; commissions disclosure for payment protection insurance from January 1, 2010; prohibition on commissions for certain complex products from 2013.

*Source: IMF staff assessment, Netherlands insurance sector, Assessment conducted November 22–December 14, 2010.*

### 1. Declining Number of Insurers and Intermediaries .................................................................6

### 1. Declining Number of Insurers and Intermediaries

### Introduction and assessment scope
- Assessment update on significant legislative changes and regulatory developments in the Netherlands insurance sector since 2004.
- Current assessment conducted from November 22-December 14, 2010.
- Benchmarking: ICPs issued in 2003; IAIS standards and guidance considered where relevant.
- Observance ratings reflect essential criteria only (advanced criteria not considered).
- Observance rating categories: Observed; Largely Observed; Partly Observed; Not Observed.
- Assessment based on laws, regulations, supervisory requirements and practices in place at time of assessment; largely based on authorities’ self-assessment and meetings with DNB, AFM, industry and professional associations.

### Market structure and industry performance — key findings
- Netherlands recorded the highest insurance density in the world in 2009: premium per capita of US$6,554 (US$2,046 for life and US$4,508 for non-life).
- Insurance penetration in 2009: 13.6 percent of GDP (4.3 percent for life and 9.3 percent for non-life).
- Number of employees in the insurance industry as at end-2009: 50,910.

- Consolidation trend: number of insurers and insurance intermediaries declining steadily since 2005.
  - Licensed insurers as at end-2009: total 320, comprising 62 life insurers, 219 non-life insurers, 33 funeral-in-kind insurers, and 6 non-EU/EEA branches.
  - Licensed insurers as at 3Q 2010: total 303 due to exit of 11 non-life insurers, 5 life insurers, and 1 funeral-in-kind insurer.
  - In 2009, DNB completed licensing of 15 reinsurers that came under its supervision in 2008.

- Table 1 (selected figures from supervisory sources):  
  - End-2005 / End-2009 (where reported):
    - Non-life insurers: 227 / 219
    - Reinsurers: - / 15
    - Funeral-in-kind insurers: 41 / 33
    - Insurance intermediaries: 20,086 / 10,123
    - Underwriting agents: 398 / 338

- Total industry assets as at end-2009: € 392 billion (84 percent of GDP).
  - Life insurers’ assets: € 317 billion (81 percent of total assets).
  - Non-life insurers’ assets: € 67 billion.
  - Reinsurers’ assets: € 7.5 billion.
  - Funeral-in-kind insurers’ assets: € 1.2 billion.

- Large life insurers are part of internationally active, large complex financial conglomerates; these conglomerates benefit from diversification but face significant contagion risks (evidenced by the GFC).

- Market concentration (2009):
  - Six largest insurance groups combined market share: 85.9 percent (by assets) and 53.2 percent (by premiums).
  - Top-2 groups (global consolidated basis) derive around 20 percent of their premiums domestically and held less than 30 percent of their assets in respect of their operations in the Netherlands.

- Operations in the Netherlands — Top 6 groups (Assets @ end-2009; Premiums in 2009 in € mn):
  - Eureko (Achmea): 64,390; 18,198
  - ING insurance: 75,536; 6,388
  - ASR (formerly Fortis): 39,291; 4,873
  - SNS Reaal: 53,575; 4,362
  - Delta Lloyd groep: 38,560; 3,812
  - Aegon: 66,122; 3,729
  - Total (Top 6): 337,474; 41,362
  - Industry total: 392,855; 77,683
  - Market share (Top 6): 85.9% (assets); 53.2% (premiums)

### Life insurance — premiums, investments and solvency
- Analysis of gross premiums — Life (In € mn; 2005 / 2009 / % of total):
  - Regular premiums — Non-participating: 7,479 / 7,620; 31.2%
  - Regular premiums — Participating: 5,861 / 5,542; 22.7%
  - Single premiums — Non-participating: 4,511 / 3,815; 15.7%
  - Single premiums — Participating: 6,696 / 4,537; 18.6%
  - Insurance-linked savings contracts: 538 / 0
  - Indirect business: 280 / 2,887; 11.8%
  - Total: 25,365 / 24,401; 100.0%

- Notable classification change: significant shift from single premiums non-participating business to indirect business in 2009 due to reclassification of premiums written for insurance cover of pension funds as indirect life business.

- Insurers’ investments (as at June 2010):
  - Life insurers:
    - Fixed income securities: 44 percent (€ 140 billion)
    - Equities: 25 percent (€ 80 billion)
    - Mortgage loans: 8 percent (€ 27 billion)
    - Derivative investments: € 14.36 billion (compared with € 0.7 billion in 2004)
  - Non-life insurers:
    - Fixed income securities: 59 percent (€ 24 billion)
    - Equities: 13 percent (€ 5 billion)
    - Derivative investments: negligible amounts

- Related-company investments and intra-group balances:
  - Investments in related companies: 6 percent (life insurers) and 11 percent (non-life insurers) of investments.
  - Intra-group balances for some non-life insurers are high by international standards.
  - Insurers required to report significant intra-group transactions and balances and risk concentrations.
  - DNB legally restricted from imposing qualitative and quantitative thresholds on intra-group dealings directly, but has taken measures to influence intra-group transactions, including adjusting valuation basis for computing solvency margin.
  - DNB indicated one supervisory theme for 2011 is focus on intra-group balances.

- Technical provisions and capital ratios (as at June 2010):
  - Technical provisions:
    - Life insurers: € 276 billion (of which € 113 billion in respect of risks borne by policyholders under investment-linked policies).
    - Non-life insurers: € 41 billion.
  - Capital and reserves in relation to technical provisions:
    - Life insurers’ capital reserves: € 25 billion, representing 9 percent of technical provisions.
    - Non-life insurers’ capital reserves: € 18 billion, representing 43 percent of technical provisions.

- Profitability and solvency developments:
  - Life insurers:
    - Technical loss in 2008: € 6 billion.
    - Technical profit in 2009: € 2 billion.
    - Overall solvency margin: € 10 billion in 2008; recovered to € 14 billion in 2009.
    - Solvency cover increased from 209 percent to 245 percent (2008–2009).
    - One life insurer reported a deficit in solvency margin and was marginally solvent at year end-2009.
    - First half of 2010: overall solvency margin fell to € 10 billion; solvency cover decreased to 220 percent.
  - Drivers of adverse performance for life insurers:
    - Changes in the tax regime.
    - Competition from banks and other financial products.
    - Weak demand for investment-linked insurance affected by depressed asset prices.
    - Loss of public confidence due to the profiteering policy affair (woekerpolisaffaire).
    - Sales of investment-linked policies fell from 391,000 policies in 2006 to 78,000 policies in 2009.

### Non-life insurance — composition, premiums and pressures
- Non-life sector characteristics:
  - Relatively smaller sector and less concentrated; only 2 insurers holding assets exceeding 5 percent of sector’s total assets.
  - Key products: accident & health, motor and fire (property) insurances.
  - Within non-life, health insurance segment is more concentrated than property and casualty segment.
  - Accident & health premiums increased sharply since 2005 due to health care reforms implemented in 2006 (health insurance mandatory; insurers obliged to accept all applicants at a premium rate determined by the authorities; risk-equalization fund compensates insurers for different risks).

- Analysis of gross written premiums — Non-life (In € mn; 2005 / 2009 / % of total):
  - Accident & health: 11,477 / 40,492; 76.0%
  - Motor: 4,565 / 4,539; 8.5%
  - Fire: 3,520 / 3,676; 6.9%
  - Transport: 681 / 859; 1.6%
  - Others: 3,452 / 3,717; 7.0%
  - Total: 23,695 / 53,282; 100.0%

- Premium trends:
  - Non-life insurers’ earned premiums grew by 9.5 percent in 2008 and increased another 3.7 percent in 2009 to € 49 billion, which was double that of earned life premiums.
  - Premium rates under pressure across all lines due to intense competition.
  - Long-term sustainability of non-life insurers depends on achieving greater cost-efficiency.
  - Past experience suggests non-life insurers could be hit if the economic climate remains weak for a prolonged period.

### Risks, supervisory observations and priorities
- Contagion risk: large financial conglomerates present contagion risks across sectors and borders; GFC demonstrated material contagion exposures.
- Need for monitoring: intra-group balances and related-party exposures require monitoring and appropriate supervisory action.
- DNB constraints and actions:
  - Legal restriction on imposing direct qualitative and quantitative thresholds on intra-group dealings.
  - Use of supervisory measures (e.g., adjusting valuation basis for solvency margin) to influence intra-group transactions.
  - DNB identified intra-group balances as a supervisory theme for 2011.
- Derivatives exposure: life insurers’ derivative investments increased to € 14.36 billion as at June 2010 (from € 0.7 billion in 2004), warranting attention.

*Source: IMF staff assessment, Netherlands insurance sector, Assessment conducted November 22–December 14, 2010.*

### 19. Overall solvency of non-life insurance sector remains relatively stable but the

### 19. Overall solvency of non-life insurance sector remains relatively stable but the solvency position of individual non-life insurers vary widely.

### Solvency status and sector-level findings
- 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.

### Government interventions and industry responses
- 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.
- 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.

### Strategic challenges and regulatory transition
- The insurance market is described as mature and saturated and faces growing competition from banks and asset managers, which can now offer products with the same tax advantages.
- Life insurers need to restore 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.
- Implementation timing noted elsewhere: Solvency II implementation by the Netherlands in 2012 is expected to result in a more robust and risk-sensitive solvency regime.

### Institutional framework and supervisory developments
- The Netherlands adopted the ‘Twin Peaks’ functional cross-sectoral approach to regulation and supervision, implemented in a phased approach as from 2002.
- The Act on Financial Supervision (Wft) came into force on January 1, 2007, replacing seven sectoral supervisory statutes and introducing cross-sectoral rules where appropriate.
- Under the Wft, DNB takes charge of prudential supervision while the AFM is responsible for conduct-of-business supervision; a covenant between DNB and AFM facilitates supervisory cooperation and designation of a lead supervisor.
- An external Commission (External Evaluation of Insurance Supervision–Summary by DNB, July 2009) found DNB actively embodied risk orientation but recommended enhancements to statutory reporting, solvency regime, and group supervision of internationally active insurers, as well as process and resourcing improvements including FIRM refinement.
- DNB’s Supervisory Strategy for 2010-2014 incorporates GFC lessons: tighter supra-institutional macro-prudential supervision, more attention to business models, strategies, culture and conduct; reorganization in January 2011 established an Intervention Department and a new internal risk management department.

### Key findings from the FSAP assessment (selected)
- The updated regulatory framework has a high level of observance with the ICPs; Twin Peaks and the Wft provide clarity of supervisory mandates.
- FIRM methodology and the introduction of macro-prudential supervision have strengthened DNB’s risk-based supervision and market analysis.
- Both DNB and the insurance industry publish extensive industry and institution-specific data, supporting market discipline.
- Supervisory orientation is transitioning toward more intrusive review of insurers’ business models, strategies, culture and conduct; successful Solvency II transition requires adequate resourcing and empowerment of supervisory authorities.

### Summary of ICP compliance counts (exact)
- Observed (O): 22
- Largely observed (LO): 6
- Partly observed (PO): 0
- Not Observed (NO): 0
- Total: 28

### Recommended action plan (selected recommendations by Core Principle)
- Core Principle 2 (Supervisory objectives)
  - Consider articulating more clearly how supervisory mandates apply to respective roles in protecting policyholders.
- Core Principle 3 (Supervisory authority)
  - Consider broadening legal authority of DNB and the AFM.
  - Consider providing explicit legal protection to DNB and the AFM, as well as their staff members, against lawsuits for actions taken in good faith while discharging their duties, provided they have not acted illegally.
  - Consider publication of reasons for removal of Board members.
  - Review adequacy of supervisory resources, particularly for supervision of internationally active insurance groups and implementation of Solvency II.
- Core Principle 7 (Suitability of Persons)
  - Consider strengthening collaboration with professional associations to promote more robust quality control over the work of auditors and actuaries without compromising confidentiality of official information.
- Core Principle 12 (Reporting to supervisors)
  - DNB should be empowered to require insurers to submit quarterly returns as a routine supervisory practice, with appropriate powers for enforcement and sanctions.
- Core Principle 17 (Group-wide supervision)
  - Consider removing explicit legal restriction against DNB to impose qualitative and quantitative limits on intra-group transactions and balances under the Bptfg.
  - Review adequacy of supervisory resources for effective supervision of internationally active groups/conglomerates.
  - Harmonize supervisory approach for insurance groups and conglomerates on risk concentration and solvency requirements.
  - Formulate regulatory requirements applicable to non-regulated holding companies, in line with Solvency II and international developments.
- Core Principle 25 (Consumer Protection)
  - Carefully consider trade-offs between self-regulation and robust supervision to protect policyholders.
- Core Principle 28 (AML/CFT)
  - Update legal provisions on record retention, appointment of anti-money laundering compliance officers and requirements where insurers rely on intermediaries to perform CDD, to bring these in line with FATF Recommendations.

*Source: IMF FSAP Netherlands—section on insurance sector solvency, supervisory framework, findings and recommended action plan.*

### 29.      The Dutch authorities want to express their appreciation to the IMF and the

### _cr11205 - 29.      The Dutch authorities want to express their appreciation to the IMF and the

### Appreciation and overall assessment
- The Dutch authorities express appreciation to the IMF and the assessment team for comprehensive work and find the Financial Sector Assessment Program (FSAP) a useful exercise.
- The IMF’s worldwide experience and common methodology delivered useful insight into the current state of financial regulation and supervisory practice in the Netherlands.
- Authorities welcome the overall assessment indicating a high level of observance of insurance supervision with the IAIS Insurance Core Principles.
- Despite good results, ongoing financial sector developments and lessons from the global financial crisis require vigilant action; IMF recommendations will be carefully considered.

### Actions taken and Solvency II
- Several initiatives have already been taken since the conclusion of the FSAP mission.
- Most recommendations will be addressed with the upcoming implementation of the European Solvency II framework.
- Expected Solvency II impacts:
  - Capital adequacy standards will be more robust and risk-sensitive.
  - Quarterly returns currently received informally will be formally required.
  - Solvency II will strengthen DNB’s ability for group-wide supervision, including more stringent rules on intragroup transactions.
- Solvency II is expected to bring supervisory practice further in line with IAIS core principles.

### International cooperation, supervisory scope and resources
- Effective supervision of internationally active groups remains a priority.
- DNB actively seeks cooperation with international supervisors bilaterally and through colleges of supervisors.
- Scope of supervision regarding holding companies will be strengthened under Solvency II and the review of the financial conglomerates directive.
- DNB will increase supervisory resources to intensify supervision; implementation has begun in recent months, while maintaining a risk-based approach and prioritization.

### Institutional framework and liability limitation proposals
- The Minister has announced proposals regarding the institutional framework and division of responsibilities between the Ministry of Finance and the supervisors.
- The Ministry of Finance and the Ministry of Justice are exploring possibilities to limit liability of financial supervisors by explicitly laying down the limitation in legislation.

### Insurance sector condition and conduct supervision
- The report acknowledges the insurance sector is under pressure due to adverse market conditions and damaged reputation.
- Responsibility lies primarily with the sector to renew business models and restore reputation.
- Several initiatives have been taken by the sector and the association of insurers.
- The AFM, with a mandate for conduct of business supervision, is responsible for due care in provision of services to clients and adequate consumer protection.
- Supervision of intermediaries has been strengthened; AFM is discussing with the Ministry of Finance whether its mandate should be further strengthened.

### Principle 1 — Conditions for Effective Insurance Supervision (summary)
- Core relying elements: policy, institutional and legal framework; well developed and effective financial market infrastructure; efficient financial markets.
- Minister of Finance bears political responsibility for the proper functioning of the Netherlands financial system, including regulatory structure, financial sector legislation and use of budgetary resources in crisis management. (Footnote: Pursuant to agreement dated February 12, 2007.)
- Wft empowers DNB for prudential supervision and assigns conduct-of-business supervision to AFM.
- DNB has a dedicated Financial Stability Department to coordinate macro-prudential surveillance.
- Legal and institutional environment:
  - Civil law plus domestic and EU legislations; most financial regulations derived from EU Directives.
  - Alternative dispute mechanisms exist (e.g., Complaints Board for Financial Services (Kifid–(Klachteninstituut Financiële Dienstverlening)).
- Accounting and auditing:
  - Accounting standards are in line with IFRS with national adaptations; internationally active insurers may apply IFRS in full.
  - Annual accounts and annual prudential returns must be audited (Civil Code, Book 2, Title 9 and s3:72 of Wft).
  - Certified Auditors regulated under the Certified Auditors Act and registered with NIVRA.
    - As at end-2009, there were 12,246 active members registered with NIRVA and 6 firms with more than 100 members.
    - A certified auditor must pass the examination administered by NIVRA and has at least 3 years of practical auditing experience.
    - NIVRA standards aligned with International Standards on Auditing.
- Actuarial profession:
  - Actuarial Association of the Netherlands (AG) is a member of the International Actuarial Association.
  - AG administers qualification examinations; members must have at least 3 years of practical experience.
  - There were about 900 full members registered with the AG, of which, around 120 are qualified to certify insurers’ technical provisions.
  - AG issues technical and ethical standards; to date AG has not taken disciplinary actions against its members.
  - Actuarial reports must be accompanied by an actuary’s certification on adequacy of technical provisions; DNB has established actuarial technical standards.
- Disciplinary notifications and whistleblowing:
  - NIRVA publishes disciplinary actions, but such decisions are not automatically notified to DNB.
  - AG considers severity of breach when deciding disclosure.
  - Auditors and actuaries have whistle blowing obligations and are protected by legal immunity.
  - DNB received 2 notifications from external auditors in 2009 and 2010 and none from actuaries. (s:88, s3:89, s4:27 of Wft).
- Data and market infrastructure:
  - Extensive socio-economic data available from Central Bureau of Statistics, Centraal Planbureau, Sociaal-Cultureel Planbureau, and industry sources.
  - Netherlands Association of Insurers (VvV) has established an Insurance Statistics Centre (CVS).
  - The Netherlands has a well-developed, internationally oriented financial sector with access to a wide range of financial instruments supporting asset-liability management.
  - DNB facilitates money and securities market functioning within the European System of Central Banks.
- Legislative updates:
  - Wft was recently updated (Reparatiebesluit Wft) with changes effective on January 1, 2009.
- Assessment: Observed.
- Comments: Insurance supervision is facilitated by a sound and progressive financial sector policy framework and market infrastructure; adoption of international accounting and auditing standards; deep, liquid markets aiding asset-liability management.

### Principle 2 — Supervisory Objectives (summary)
- Wft definitions:
  - Prudential supervision objective: “Prudential supervision shall focus on the solidity of financial undertakings and on the contribution to the stability of the financial sector.” (s1:24 of Wft)
  - Conduct-of-business supervision objective: “Conduct-of-business supervision shall focus on orderly and transparent financial market processes, integrity in relations between market parties and due care in the provision of services to clients.” (s1:25 of Wft)
- DNB and AFM have clear mandates for prudential and conduct-of-business supervision, but mandates do not explicitly address policyholder and third-party claimant protection (Essential Criterion reference).
- DNB and AFM have cooperation and coordination mechanisms to clarify roles and address potential conflicts (refer to ICP 5).
- Neither DNB nor AFM plays a formal role in promoting financial sector development.
- Assessment: Observed.
- Comment/advice: Authorities are advised to consider articulating more clearly how supervisory mandates apply to protecting policyholders.

### Principle 3 — Supervisory Authority (summary)
- Organizational form and governance:
  - DNB is a state-owned public limited company; the Minister represents the Netherlands State as sole shareholder.
  - Governing Board and Supervisory Board exercise oversight; Bank Council serves as sounding board.
  - Governing Board composition:
    - President and between 3 to 5 Executive Directors, appointed for a term of 7 years. (Footnote: At time of assessment, Governing Board comprised 4 members including President.)
    - Suspension/relief only if duties not fulfilled or guilty of serious misconduct; dismissal must be made public though reasons need not be disclosed.
  - Supervisory Board comprises 9 to 12 members appointed by the Minister for a term of 4 years; has Audit Committee and Remuneration Committee.
  - Internal Audit reports to Supervisory Board/Audit Committee through Governing Board; Head of Internal Audit appointed by Supervisory Board; performance appraisal by Governing Board with inputs from Supervisory Board; Head meets Audit Committee separately once a year.
  - AFM is an autonomous administrative authority governed by a Supervisory Board and an Executive Board; Chairs and members appointed by the Minister based on non-binding recommendation of the Supervisory Board; suspensions/dismissals published in Government Gazette (s1:26 & 1:27 of Wft).
- DNB organization and mandates:
  - At time of assessment, DNB organized into 12 divisions, each headed by a Division Director.
  - Three Divisions responsible for prudential supervision; one Division for policy development; a dedicated Financial Stability Division established.
  - Ministry of Finance (MoF) establishes financial sector laws and regulatory policies; Wft authorizes DNB/AFM to issue supervisory rules within legal parameters defined by MoF; DNB/AFM authorized to issue guidelines under the Awb.
  - DNB/AFM must request MoF for additional legal powers not currently provided under Wft to discharge supervisory objectives. (Essential criterion 3c reference)
- Regulatory bottlenecks and legislative process:
  - New procedure: DNB and AFM to report identified regulatory/supervisory bottlenecks annually to Parliament via “Letters of Legislation.”
  - Letter of Legislation dated October 18, 2010 requested broadened possibilities for timely regulation and specific legal authorities (e.g., statutory basis to supervise product development).
- Examples of lacking DNB powers:
  - Lack of legal power to require submission of routine quarterly returns (refer to ICP 12).
  - Lack of power to determine qualitative and quantitative thresholds on intra-group transactions directly (refer to ICP 17).
- Ministerial powers and enforcement tools:
  - Minister may revoke supervisory rules deemed to “impose an unreasonable burden on the financial markets”; Minister had not exercised such powers.
  - DNB and AFM have a range of preventive and corrective powers and may take immediate enforcement actions to protect policyholders (refer to ICP 14 and ICP15).
- Budgets, financing and accountability:
  - Budgets and financial statements of DNB/AFM subject to Minister approval; part of budget financed through levies on supervised entities; tariffs for levies issued by Minister.
  - Draft budget for supervision open for consultation with panels of supervised institutions twice a year.
  - DNB’s budget must be approved by Supervisory Board and subsequently by the Minister and the Minister of Social Affairs and Employment (s1:39 and s1:40 of Wft).
  - Once annual budget approved, DNB has discretion in allocation aligned with risk-based supervision (refer to ICP 4).
  - Fines and financial penalties may offset budgeted costs in the following year.
  - DNB is transparent and accountable: yearly budget identifies supervisory objectives and themes (e.g., DNB Supervisory Strategy 2010-2014 and Themes 2010); Annual Reports of DNB/AFM outline supervisory actions and results and are available on websites; DNB accounts to external bodies including the Netherlands Court of Audit (s1:30 to s1:36 of Wft).
- Internal policies and industry consultation:
  - DNB has internal policies covering conflicts of interest; gifts and invitations; private investments; professional conduct; complaints; use of information and data; integrity.
  - DNB/AFM consult industry on material changes to Wft, regulations and supervisory practices; draft bills open for public consultation before submission to Parliament.
- Ministerial performance assessment:
  - Minister to assess efficiency and effectiveness of DNB/AFM and their collaboration 3 years after Wft entered into force and every 5 years thereafter; Minister may take measures if DNB or AFM “seriously fails to perform its duties” (s1:42 to s1:44 of Wft).
  - Various external investigations into authorities’ activities were conducted in 2008 and 2009.
  - An external Commission evaluated the risk-based supervision framework of DNB in run-up to Solvency II as described in Vision on Supervision 2006- (text cut off).
- Assessment: (implicit within text) DNB/AFM possess substantial powers and accountability structures but have identified legal gaps requiring legislative enhancement and clarified authority for certain supervisory tools and thresholds.

*Source: IMF staff report content unit _cr11205 - 29.      The Dutch authorities want to express their appreciation to the IMF and the*

### 2010. The Commission issued a public report in July 2009. (Paragraph 25 under Section

### _cr11205 - 2010. The Commission issued a public report in July 2009. (Paragraph 25 under Section

### Accountability, legal authority and protection
- DNB and the AFM are subject to clear accountability mechanisms under the Wft; supervisory decisions are subject to appeal under the Awb at the Court of Justice in Rotterdam and appeals against fines to the College van Beroep voor het bedrijfsleven (s1:110 of Wft).
- The Netherlands Civil Code (BW) protects the employees of DNB/AFM provided they carry out duties in good faith, but there is no explicit legal protection for DNB and AFM entities themselves. The MoF and Ministry of Justice are exploring the possibility of limiting liabilities of DNB/AFM explicitly under the law.
- Recommendation excerpts:
  - Broadening the legal authority of DNB and the AFM to enhance the effectiveness of their supervision;
  - Providing explicit legal protection to DNB and AFM and their staff members against lawsuits for actions taken in good faith while discharging their duties, provided they have not acted illegally;
  - Publication of reason for removal of Board members;
  - Review the adequacy of supervisory resources particularly for effective supervision of internationally active insurance groups and implementation of Solvency II.
- Assessment: Largely observed.

### Resources, staffing and protections
- Insurance Supervision Division: 134 staff.
- Average period of employment with DNB: 10 years.
- Supervision Academy (Toezichtacademie) established in 2010 for in-house training.
- DNB considers terms of employment benchmarked against private banks to be competitive.
- Observations:
  - DNB advised to review adequacy of supervisory resources for effective supervision of internationally active insurance groups and implementation of Solvency II.
  - DNB and its staff are not explicitly protected against legal actions under the Wft; BW conditions for honoring third-party claims require careful consideration in light of ICP 3.

### Supervisory process — FIRM and VITA
- FIRM Framework (introduced 2004) comprises:
  - Methodology for assessing risks and sustainability of supervised entities;
  - Process supported by tools;
  - “FIRM scores” to reflect different risk profiles.
- FIRM outputs map to three supervisory programs: base, risk identification, risk mitigation; FIRM scores are communicated to supervised entities.
- Recommended/ongoing FIRM enhancements (from external Commission):
  - Better differentiation between large and small institutions;
  - Inclusion of macro and meso prudential risks;
  - Involving experts in risk assessments and stress tests;
  - Distinguishing economic rather than legal entities;
  - Introducing peer group benchmarks; presenting FIRM scores as a standard measure; linking FIRM to primary supervisory process; transparent monitoring of risks; consistent use in management reports.
- DNB actions:
  - Reviewing and updating FIRM to incorporate external inputs and macro-prudential elements; introduced criteria to identify systematically important financial institutions in 2010.
  - Published DNB Supervisory Strategy 2010-2014 and will implement VITA from January 2011. VITA strategic principles include: elements of good supervision, thematic vs institution-specific, experts vs supervisors, intervention and enforcement, and risk management of supervisory process.
- Assessment: Observed.

### Supervisory cooperation and information sharing
- Domestic:
  - Twin Peaks structure requires close cooperation between DNB and AFM; Wft procedural rules oblige consultation and reasonable time for views before specified measures (s1:46 to s1:50 of Wft).
  - Covenant between AFM and DNB supplements legal provisions; regular board and senior management meetings; covenant with the Netherlands Health Authority.
  - Institute on Governmental Expenditures reported no significant problems; AFM Annual Report 2009 noted cooperation progressing well with scope for optimisation.
  - Annual joint risk assessment meetings initiated.
- International:
  - DNB may conclude information-exchange agreements but these are not prerequisites; signatory to EU/EEA Protocols and IAIS Multilateral MoU; MoUs with Australia, Canada, and 2 States in the US.
- Declining information requests: DNB may decline where purpose/use not related to financial market supervision, incompatible with Netherlands law/public interest/Wft, inadequate confidentiality safeguards, or unspecified purpose. AFM may decline for sovereignty, national security, public interest, or pending/decided legal proceedings (s1:51, s1:65, s1:90 of Wft).
- Cross-border duties: DNB must consult other EU supervisors before taking actions affecting another EU State’s supervisory duties and must provide adequate information to facilitate supervision of groups/conglomerates (s1:51a, s1:53, 1:54, 1:57 & s1:59 of Wft).
- Assessment: Observed.

### Licensing and market access (Principle 6)
- Licensing assigned to DNB; 4 categories: life insurance, non-life insurance, funeral services in kind insurance, and reinsurance (s2:26, s2:27, s2:48 and s2:54 of Wft).
- Since July 2009, DNB may take measures against de-facto Directors of illegal (unlicensed) firms, including administrative fine and/or cease-and-desist order.
- Restrictions:
  - Life insurers not allowed to conduct non-life business and vice-versa; life insurers may conduct pension funds management activities; insurers exempted from licensing for advisory services in respect of financial products other than financial instruments (s2:27, s2:28, s2:30, s2:76 , s3:36 of Wft).
  - Insurers may not pursue business other than that for which the licence was granted.
- EU passporting: EU-based insurers may “passport” services via home supervisor notification under single license; Netherlands insurers must seek DNB approval before operating branches or providing services to other EU or non-EU states (s2:34, s2:115, s2:117, s2:120 of Wft).
- Licensing requirements include expertise and propriety, sound conduct of business, management and governance, control and operational structures, legal form, minimum equity capital, solvency, and transparent group structure (s2:26b, s2:31, s2:37, s2:41, s2:49, s2:51, s2:54a, s2:54e. s3:10 &s3:16 of Wft). Detailed requirements under Decree on Market Access; applicants submit proposed business model, reinsurance program and 3-year financial forecasts (s1:2 and s1:3 of the Decree).
- DNB required to maintain a public register of licensed entities (s1:107 of Wft).
- Exemptions:
  - Non-life mutual insurers of limited size/business lines exempted if at least half of gross annual premiums from members; Article 3 applies to those with less than 3,000 policyholders and gross annual premiums of less than € 455,000.
  - Article 4 imposes stricter requirements for gross annual premiums higher than € 455,000 but less than € 5 million.
  - As at time of assessment, there were 102 insurers exempted under Article 3. Their gross premiums written totalled € 9.2 billion in 2009 covering about 14,400 policyholders.
  - Non-life insurers specializing in export credit insurance guaranteed by the Netherlands government and Non-life Swiss insurers with branches in the Netherlands are exempted on specific bases.
- Assessment: Observed.

### Suitability of persons (Principle 7)
- Wft requires key functionaries to have appropriate expertise and propriety beyond doubt; DNB conducts integrity assessments screening criminal, financial, supervisory, tax, administrative law, and other past history (s3:8 and s3:9 of Wft).
- Decree on Prudential Rules (Bpr) sets basis for properness assessments (s2 to s9 of DPR).
- Significant owners/acquirers of qualifying holdings require a Declaration of No Objection (VVGB) and are subject to fit and proper assessment; insurers must notify DNB annually of persons owning qualifying holdings and changes in control (s3:99, s3:103 of Wft and Directive 2007/44/EC).
- Auditors and actuaries:
  - No specific fit and proper requirements in Wft; DNB lacks legal power to approve external auditors and actuaries.
  - Certifying auditors/actuaries must comply with professional standards set by NIVRA and AG.
  - DNB may invoke objection rights against an auditor or actuary not in position to perform duties satisfactorily or with doubts about fitness/propriety/independence; direction is addressed to an individual (s1:78 of Wft).
  - AG and NIVRA do not have formal arrangements to exchange information with DNB.
- Joint policy:
  - DNB and AFM issued a joint policy on fit and proper requirements on September 1, 2010, intended to apply from January 1, 2011.
- Activity levels:
  - In 2009, DNB assessed the fitness and/or propriety of 375 key functionaries of insurers.
- Assessment: Observed.
- Comment: Scope for strengthening collaboration with professional associations (AG and NIVRA) for quality control of auditors and actuaries, within confidentiality constraints.

### Changes in control and portfolio transfers (Principle 8)
- Qualifying shareholding defined as 10 percent or more of capital or voting rights or equivalent control (s1:1 of Wft).
- VVGB required for acquiring or increasing qualifying holdings; holders must notify DNB of changes; insurers notify DNB annually of qualifying holdings and changes in control (s3:103, s3:104 of Wft).
- DNB will issue VVGB unless acquisition might:
  - jeopardize sound and prudent operations;
  - result in control structure that impedes effective supervision;
  - lead to undesirable development in the financial sector (s3:95, s3:100, s3:103 & s3:104 of Wft).
- Policy practice:
  - DNB may impose conditions/restrictions on VVGBs and may set specific financial resource requirements case-by-case; as policy, DNB does not issue a VVGB if applicant’s (consolidated) equity is not positive.
  - Acquisition of qualifying holding in one of the 5 largest insurers is subject to Minister approval; acquisition of qualifying holding in one of the 5 largest by another bank/insurer/reinsurer among the 5 largest also requires Minister approval (s3:97 of Wft).
  - In 2009, DNB issued 64 VVGBs and 2 group VVGBs in respect of insurers.
- Portfolio transfers:
  - Subject to DNB consent unless requested by policyholders; DNB must assess solvency impact (s3:112 to s3:114a, s3:118 & s3:118a, s3:122, s3:126, s3:127, s3:128 of Wft).
  - Life insurer transfers require publication; if more than 25 percent of policyholders object, DNB shall withhold consent (s3:119 & s3:120 of Wft).
  - Non-life policyholders affected by transfer may opt to cancel and receive pro-rata premium refund.
- Assessment: Observed.

### Corporate governance (Principle 9)
- Corporate governance requirements under BW, Book 2; Netherlands generally uses two-tier structure (Supervisory Board and Management Board).
- Listed insurers expected to observe Corporate Governance Code on a “comply or explain” basis; Code updated in 2008.
- Wft regulates corporate governance interface from perspective of controlled and sound business operations (s3:10, s3:15 to s3:17 of Wft).
- Industry initiatives:
  - Insurers drafting industry code of conduct (VerzekeraarsVernieuwen) reflecting corporate social responsibility and Parliamentary inquiry developments from GFC.
  - DNB, MoF, AFM engaged to provide guidance.
- Remuneration and culture:
  - DNB and AFM published principles for controlled remuneration policy in May 2009; DNB investigated remuneration practices of 27 financial undertakings and found risks in remuneration policies not adequately controlled.
  - New supervisory rules for remuneration policy issued in 2010 (Besluit en regeling beheerst beloningsbeleid).
  - DNB developing a framework for supervising culture and behavior; general outline published, detailed guidance under development.
- Board interaction:
  - Boards obliged to communicate and meet with DNB; Bpr requires effective and independent compliance functions (s1:72-s1:74 of Wft and s21 of Bpr).
- Actuarial reporting:
  - No concept of “responsible actuary” but prudential returns include actuarial report certified by independent actuary with direct access to Board.
- Assessment: Observed.

### Internal controls (Principle 10)
- Bpr supervisory expectations include policies/procedures on:
  - proper checks and balances and segregation of duties (s10 & s18 of Bpr);
  - measures to minimize conflict of interest and related-party arm’s length execution (s11 of Bpr);
  - handling and recording of incidents which must be notified to DNB (s12 of Bpr);
  - assessment of properness for integrity-sensitive appointments (s13 of Bpr).
- Insurer responsibilities:
  - Align internal controls with nature, size, risks, complexity; adopt clear organizational structures, reporting lines, adequate management information; establish effective independent internal audit; remediate deficiencies promptly.
  - Outsourcing: insurers remain ultimately accountable; risks must be assessed regardless of location (s3:18 of Wft).
  - Certifying actuaries present actuarial report to Executive and Supervisory Boards and provide information requested by DNB.
- DNB supervisory actions and findings:
  - DNB has access to internal audit reports and has required strengthening where needed (s17 & s20 of Bpr).
  - 2009 self-assessments: around 190 submitted; results indicated need for more attention to integrity policy, systematic analysis of integrity risks, and internal supervision of operational management.
  - DNB organized workshops and developed a questionnaire to assist small and mid-size insurers; observed improved risk analyses and internal audit performance following interventions.
- Assessment: Observed.

*Source: _cr11205 - 2010. The Commission issued a public report in July 2009. (Paragraph 25 under Section*

### conclusions and takes action as appropriate.

### _cr11205 - conclusions and takes action as appropriate.

### Macro‑prudential monitoring and market analysis
- DNB periodically reviews conditions, developments, and risks/vulnerabilities of the insurance sector using internal confidential and public data, taking into account insurers’ operating environment.
- Key market indicators monitored: trend of premium income, investment portfolio, solvency ratios, impact of market developments (e.g., equity markets, interest rates).
- Market studies: recent study on structure of the financial system of the Netherlands; confidential study into The Netherlands insurers’ business models; external experts engaged as sparring partners.
- Process: analysis → formal risk assessment → risk mitigating measures → evaluation of residual risk (core of DNB’s macro‑prudential framework).
- Publications and disclosure: quarterly bulletin; “Overview of Financial Stability” twice a year; insurance statistics (balance sheet, profitability, solvency) on DNB’s website; VvV and CVS provide additional information.
- Ad hoc information requests used to gain insight into emerging risks (e.g., declines in life sales, reputation risks from mis‑selling, exposures to certain asset classes, low interest rate susceptibility).  
- Example actions: 2009 risk analysis identified increased prudential risk at a number of small and mid‑size insurers → insurers requested to submit commission structure details → DNB took steps to reduce risks of 6 insurers.
- Macro stress testing: national sectoral exercise in 2009; participation in CEIOPS European stress test in 2010.
- International perspective: sector large and internationally oriented; DNB surveys international environment and publishes analysis (e.g., variable annuities risks; Netherlands insurers’ US losses).
- Assessment: Observed.
- Comment: DNB is proactive and transparent; publication of statistics facilitates insurer understanding of macro exposures.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 12 — Reporting to supervisors and off‑site monitoring
- Legal/regulatory requirements:
  - Wft requires financial statements, annual reports and other statutory returns within 5 months after end of financial year, with auditors’ opinion and actuarial certifications; life insurers must submit actuarial basis for premium rating and technical provisions for new products; some statutory returns public (s3:71 to 3.74 of Wft).
  - Insurers must submit annual summaries of policies issued in the Netherlands and other EU states during the financial year.
- Board responsibility: accuracy/completeness of information submitted to DNB; DNB empowered to impose administrative fines and cease and desist orders for breaches.
- Quarterly reporting:
  - Introduced informally in 2009 after 2008 crisis; returns due within 6 weeks of end‑of‑quarter; provide composition of assets and liabilities.
  - No firm legal basis to enforce quarterly returns in absence of special circumstances; no sanction power regarding quarterly returns (s131 of Bpr).
  - Review of new quarterly returns in 2009 resulted in 200 resubmissions.
- Reporting platform: submissions subject to validation, plausibility checks; early warning indicators flag unusual trends.
- Prudential returns include solo and consolidated reporting, off‑balance sheet activities, outsourced functions (Regeling Staten financiële ondernemingen); group reporting required by Bptfg.
- Notifications and whistleblowing: insurers must notify DNB immediately of any (expected) deficit in required solvency margin; auditors and actuaries have whistle‑blowing obligations—DNB received 2 notifications from external auditors in 2009 and 2010 and none from actuaries (s3:57, s3:88 & 3:89 of Wft).
- Assessment: Largely observed.
- Recommendation (from source): DNB should be empowered to require insurers to submit quarterly returns as routine supervisory practice, with appropriate enforcement and sanctions.
- Comment: Systematic review process in place; quarterly returns should form part of routine supervisory tools.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 13 — On‑site inspection
- Legal powers: Wft authorizes inspections of insurers and intermediaries; DNB empowered to inspect outsourced activities (s1:72 of Wft). If licensed by AFM, inspection powers of DNB restricted and vice versa.
- Supervisory approach: reliance on external auditors, internal auditors, compliance functions; continuous monitoring of larger insurers via rolling program of thematic inspections focusing on specific supervisory issues; no full‑scale inspection conducted at time of assessment.
- Operational details:
  - Thematic reviews based on expert center checklists; inspection findings discussed with insurers; DNB may issue letters requiring remedial measures with timelines.
  - Under VITA (to be implemented in January 2011), expert centers responsible for thematic inspections; supervisors account managers ensure findings addressed.
  - DNB may inspect EU branches of Dutch insurers or request relevant supervisors to verify branch data; has conducted joint inspections with foreign supervisors.
- Assessment: Observed.
- Comment: Thematic inspections prioritized based on holistic risk profiles; joint inspections with foreign supervisors performed.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 14 — Preventive and corrective measures
- Supervisory philosophy: non‑legal measures (warning letters, meetings, consultations, investigation reports) used first; legal interventions applied when necessary.
- Possible interventions under Wft include:
  - Prohibiting branches of insurers from conducting new business in Netherlands (s1:58).
  - Disallowing a Netherlands insurer from conducting new business in another EU State if non‑compliant with host supervisor (s1:59).
  - Requiring recovery schemes, higher solvency margin requirements (s3:132 to s3:134, s3:139).
  - Requiring restructuring schemes or financing schemes if solvency falls below required guarantee (s3:136).
  - Mandating submission of asset lists and restricting/prohibiting asset disposals for failure to maintain adequate technical provisions or solvency (s3:135, s3:137–s3:145).
- Intervention Ladder: supervisory intervention intensifies at levels of 200 percent → 150 percent → 130 percent of current Solvency I minimum; at 130 percent, recovery plan considered; restrictions may include prohibiting dividends or share repurchases.
- Emergency powers: DNB can issue temporary, generally binding regulations in special circumstances (s1:28 of WFT).
- Assessment: Observed.
- Comment: DNB empowered to take wide range of preventive measures and uses an Intervention Ladder to calibrate responses.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 15 — Enforcement and sanctions
- Enforcement framework: DNB considers seriousness of breaches; joint Enforcement Policy issued with AFM; internal Working Instruction applies.
- Enforcement measures available:
  - Issue Directive requiring remedial action (s1:75).
  - Appoint a receiver (s1:76).
  - Disallow passporting of services (s1:77).
  - Disqualify auditors and actuaries (s1:78).
  - Disqualify Directors and key functionaries (s3:8 and s3:9).
  - Impose financial penalties/administrative fines up to a maximum of € 8 million (s1:79 to s1:81, s1:98 to s1:100).
  - Issue public warnings (s1:94).
  - Modify/withdraw license or impose licensing conditions (s1:104).
  - Bring criminal proceedings (s1:86).
  - Declare emergency regulations in winding up and apply for receiver (refer ICP 16).
- Administrative fines: may range from € 4 million to € 8 million depending on gravity and ability to pay.
- Since July 1, 2009, DNB can impose administrative sanction on natural person de facto in control of a regulated entity.
- 2009 legal measures taken against insurers: cease and desist orders (20), submission of restructuring plan (4), recovery plan (3), silent receivership (3).
- Assessment: Observed.
- Comment: DNB takes a proportionate approach in exercising enforcement and sanction powers under the Wft.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 16 — Winding‑up and exit from the market
- Consultation and powers:
  - Insurers must consult DNB before winding up or resolution (s3:30 & 3:44).
  - Wft specifies criteria to withdraw license; DNB may request court to declare bankruptcy under Bankruptcy Act (s1:104).
  - DNB may declare emergency regulations in winding‑up and apply for a receiver; emergency regulations suspend pre‑declaration obligations except secured debts and financial guarantee contracts (s3:161–s3:207).
- Early Intervention Arrangement Life Insurers (EIALI):
  - Confidential Advisory Committee appointed by Minister advises DNB on EIALI (Vertrouwenscommissie opvangregeling leven); relief may be reinsurance or portfolio transfer to special purpose “relief company”; relief company needs (re)insurer license when arrangement activated.
  - DNB may instruct life insurer and relief company; forced portfolio transfer subject to court sanction.
  - EIALI considered if life insurer breaches guarantee fund requirement and restoration plan not approved, provided portfolio still viable (s3:150–s3:155, s3:200).
- Funding limits for relief (2010):
  - Total available at any time: € 249,062,018 (2010).
  - Maximum per relief situation: € 124,531,009 (2010).
  - Available amount where significant risk it will not be redeemed may not exceed € 124,531,009 (2010).
  - Relief funded by levies on life insurers (s3:156/7).
- Recognition of foreign insolvency proceedings: home State insolvency recognized; receiver of home State entitled to exercise powers subject to Netherlands law (s3:239, s3:240, s3:255).
- Priority of claims: insurance related claims rank ahead of unsecured debts except pension awards and wages; priority does not apply to entities for risk acceptance and reinsurers (s3:198, s3:204, s3:211, s3:213 & s3:224).
- Assessment: Observed.
- Comment: Wft provides orderly exit options and high level of protection for policyholders.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Principle 17 — Group‑wide supervision
- Legal definitions and scope: Wft defines insurance group, financial conglomerate; criteria for supervision as financial conglomerate established (s3:16 & s3:269).
- Scale: 62 insurance groups/conglomerates met criteria at assessment; top 6 held 86 percent of total assets as at end‑2009.
- Supplementary supervision: applies to holding companies of insurers, subsidiaries of insurance holding companies or non‑EU insurers, Netherlands insurers whose parent is a mixed‑activity insurance holding company (s3:268–3:286).
- Coordinator role: when DNB designated coordinator for a financial conglomerate, responsibilities include coordinating information collection, supervising financial situation of conglomerate, supervising capital adequacy, risk concentration, intra‑group contracts, and planning coordination with relevant supervisors (s3:290, s3:294).
- Enforcement against group members: DNB may act if intra‑group contracts/positions or risk concentrations threaten solvency (s3:295).
- Group requirements and Bptfg specifics:
  - Reporting of significant intra‑group contracts/positions above thresholds determined by DNB; DNB does not determine qualitative/other quantitative threshold—assesses risks per transaction (s5 of Bptfg). Supervisory Regulation defines significant intra‑group as > 20 percent of insurer’s required solvency margin; risk concentration significant if > 20 percent of own funds of a financial conglomerate.
  - Adjusted solvency methods for insurance groups (three methods prescribed) and supplementary methods for financial conglomerates (four methods under Annex B), prohibition of multiple gearing, restrictions on circular/cross financing, reporting of significant intra‑group contracts/positions.
  - Bptfg requires procedures for capital adequacy and risk management at group/conglomerate level (s28 of Bptfg).
- Cross‑border cooperation: DNB observes CEIOPS Helsinki Protocol; supervisory colleges established for major cross‑border groups; limited information exchange with non‑EU/EEA supervisors.
- Assessment: Largely observed.
- Comments and authorities’ advice:
  - Regulatory frameworks broadly in line with EU Directives; Solvency II implementation will strengthen group supervision, subject to supervisory resources.
  - Authorities advised to consider:
    a) removing explicit legal restriction against DNB imposing qualitative and quantitative limits on intra‑group transactions under Bptfg;
    b) reviewing adequacy of supervisory resources, particularly for internationally active groups/conglomerates;
    c) harmonizing supervisory approach for insurance groups and conglomerates in risk concentration and solvency requirements;
    d) formulating regulatory requirements for non‑regulated holding companies, in line with Solvency II and international developments.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Prudential requirements — selected principles (18–23)
- Principle 18 (Risk assessment and management)
  - Insurers required to implement effective risk management and controls (s3:17 of Wft); Bpr requires management of concentration, credit, counterparty, liquidity, market, operational, interest‑rate (non‑trading), residual, securitisation and insurance risks.
  - Requirement for independent risk management functions; internal models subject to systematic validation (s23, s23c, s24, s25 of Bpr).
  - Outsourcing rules: DNB can define core activities that cannot be outsourced; outsourcing must not hinder supervision and must permit DNB inspection (s3:18, s27–s31 of Bpr).
  - Assessment: Observed.
  - Comment: High‑level requirements in Wft supplemented by Bpr; DNB assesses effectiveness under FIRM Framework.
- Principle 19 (Insurance activity)
  - Insurers’ frameworks must address underwriting, pricing, reinsurance (refer ICP 18). Life insurers submit profitability tests for new products; DNB assesses technical provisions and solvency to evaluate premiums indirectly.
  - Reinsurance: DNB assesses strategy at licensing; may adjust value of reinsurance recoverables; reinsurance supervision extended to reinsurers since September 1, 2008.
  - Prohibition: non‑life insurers may not underwrite risks from armed conflict, civil war, insurrection, riot, or mutiny (s3:38).
  - Assessment: Observed.
  - Comment: DNB does not routinely monitor underwriting and premium pricing but monitors via risk management, technical provisions, solvency, and reinsurance review.
- Principle 20 (Liabilities)
  - Wft requires adequate technical provisions; Bpr prescribes elements for insurance liabilities; life technical provisions based on conservative prospective actuarial methods; non‑life provisions for unearned premiums, outstanding claims, IBNR; discounting allowed only if settlement ≥ 4 years (s114–s121 of Bpr).
  - Netherlands Liability Adequacy Test (LAT): liabilities = best estimate + risk margin; best estimate based on discounted cash flow projections; insurers must report methods/assumptions and have LAT audited and certified by actuary; shortfalls must be increased to LAT level (Rsmtv; s121 of Bpr).
  - Sensitivity tests required: increase/decrease of 1 percent in interest rate and increase/decrease of 10 percent in equities prices on assets, technical provision, other liabilities, own funds.
  - Assessment: Observed.
  - Comment: Clear legal principles and guidelines; DNB can require remedies for shortfalls.
- Principle 21 (Investments)
  - Insurers must have strategic investment policy and risk management proportionate to operations (s23 of Bpr). Policies should cover pledging/lending of assets, derivatives, and contingency plans (s23(4)).
  - Investment rules include diversification (s122 of Bpr); concentration limits: single undertaking 5–10 percent of gross technical provisions; single property 10 percent of gross technical provisions; non‑guaranteed loans 1 percent of gross technical provisions (s123 of Bpr); no more than 40 percent of assets covering technical provisions in registered covered bonds of a particular issuing bank (s124a of Bpr).
  - Valuation per BW/IFRS; DNB can revalue or disqualify assets covering technical provisions and solvency margin (s89 & s122 of Bpr).
  - Assessment: Observed.
  - Comment: Regulatory requirements in place for proportionate investment risk management.
- Principle 22 (Derivatives and similar commitments)
  - Derivatives permitted to limit investment risk or for efficient portfolio management (s122 of Bpr); DNB policy on alternative investments applies; no specific limits but use must comply with investment guiding principles and be integrated into strategy and risk control.
  - Disclosure requirements for derivatives under BW, IFRS, and prudential returns.
  - Assessment: Observed.
  - Comment: Policy aligned with international best practice.
- Principle 23 (Capital adequacy and solvency)
  - Solvency regime based on Solvency I with enhancements; Solvency II Directive adopted in 2009 (2009/138/EC); implementation planned to commence December 2012; DNB introduced RiSK tool in 2009 for QIS4 reporting.
  - Around 200 small‑sized insurers will fall outside Solvency II scope; Solvency II Basic being formulated for about 100 insurers; others may be exempted if stringent criteria met.
  - Guarantee Fund: must constitute one third of required solvency margin; insurers must notify DNB of expected shortfall (s3:53 and s3:57).
  - Minimum Guarantee Funds and solvency margins: Bpr prescribes Guarantee Funds ranging from € 1.1 million to € 3.5 million; minimum solvency margin for some small exempted mutual non‑life insurers is € 205,000 (s49, s50 and S95 of Bpr).
  - Insurers required to perform sensitivity tests annually (1 percent interest rate, 10 percent equity) on assets, technical provisions, other liabilities, own funds.
  - Assessment: Largely observed.
  - Comment: Solvency II implementation (January 2013 per source) expected to enhance risk sensitivity and DNB’s risk‑based supervision.

*Source: _cr11205 - conclusions and takes action as appropriate.*

### Markets, consumers, fraud and AML/CFT — selected principles (24–28)
- Principle 24 (Intermediaries)
  - AFM responsible for licensing/registering intermediaries; licensing criteria include expertise, competence, propriety, conduct policy, control/operational structure, professional liability insurance for brokers (s2:83–s2:105).
  - Professional competence requirements for employees under Wft and Bgfo (s4:9; Chapter 2 of Bgfo).
  - Brokers must notify AFM when establishing branches in other EU States (s2:125 & s2:126).
  - Brokers/agents must be authorized in writing by insurers; insurers obliged to report Wft infringements by brokers/agents to AFM (s4:79, s4:93, s4:94, s4:97).
  - Bgfo limits initial commission of a broker to 50 percent of total remuneration; no cap currently on remuneration payable to brokers; commissions to independent intermediaries for complex products prohibited from 2013.
  - Professional liability insurance minimum: € 1 million per incident and at least € 1.5 million per annum aggregate (Article 15 of FSA Implementing Regulation).
  - AFM monitors conduct and can impose directions, fines, disqualifications, revocations; Integrity Unit established.
  - Assessment: Observed.
  - Comment: AFM administers licensing with clear criteria and actively monitors conduct.
- Principle 25 (Consumer protection)
  - Wft requires adequate information to consumers at all stages; providers must obtain client financial position, knowledge, experience, objectives and risk tolerance (s4:20, s4:23, s4:24).
  - Bgfo elaborates disclosure details, distance agreements, telemarketing, Financial Information Leaflet for complex products (s60–s62, s65–s67, s72–s80).
  - Advertisement rules: risk indicators; costs and principal financial risks disclosure (s52 of Bgfo).
  - Cancellation rights: distance life insurance cancel within 30 days; general insurance contracts 7 days (s4:28, s4:63).
  - Complaints handling required; VvV monitors industry complaints (2009: 2,175 new life complaints; 1,803 new non‑life complaints; outstanding end‑2009: 545 life, 301 non‑life; 1,599 healthcare complaints all dealt with in 2009).
  - Transparency of commissions rules effective January 1, 2009; applies to payment protection insurance from January 1, 2010; commissions disclosure required; prohibition on commissions for certain complex products from 2013.
  - Assessment: Largely observed.
  - Comment: Wft requires fair treatment and information, but life insurance reputation tarnished by mis‑selling; scope for improving product development and supervisory duty of care; authorities advised to weigh trade‑offs between self‑regulation and robust supervision.
- Principle 26 (Information, disclosure & transparency)
  - Insurers must publish financial information; annual accounts and reports filed with Chamber of Commerce (except small mutuals); listed insurers comply with stock exchange disclosure rules.
  - DNB publishes selected prudential return information; since 2007 prudential returns include quantitative and qualitative risk disclosure; subset should be published by insurer with auditor statement (s3:72 of Wft).
  - Assessment: Observed.
  - Comment: DNB and AFM publish extensive market data and selected regulatory information publicly.
- Principle 27 (Fraud)
  - Wft and related regulations authorize DNB to supervise administrative organization and internal control; FIRM Framework includes supervisory assessment of fraud risk.
  - Fraud covered by civil and criminal laws; insurers must report serious fraud to DNB (s3:10).
  - DNB co‑operates with VvV and law enforcement; participated in IAIS guidance and survey on fraud.
  - 2007/2008 self‑assessment: 79 percent of insurers covered fraud in their risk assessments; DNB developed two practical manuals.
  - Centre Countering Insurance Fraud established by VvV in 2007; 2009: 3,244 reports filed (1,650 motor; 2,080 related to claims).
  - 2010: Register of Coordinator for Fraud Control and elementary course for insurance employees introduced; 2011: new sector fraud protocol to be adopted by VvV.
  - Assessment: Observed.
  - Comment: Proactive approach with cooperation across industry and enforcement agencies.
- Principle 28 (AML/CFT)
  - Legal framework: Wft, Bpr, WWFT (effective August 1, 2008), URWWFT implementing FATF Recommendations.
  - Supervision: DNB designated supervisor for life insurers; AFM for intermediaries; WWFT provides risk‑based supervision and enforcement.
  - Requirements:
    - Bpr requires life insurers to conduct CDD, risk classification procedures, monitoring of unusual transactions, documentation (s14 of Bpr).
    - WWFT sets CDD rules including enhanced CDD, incidental transactions > € 15,000, PEPs; Q&A issued with product examples.
    - Record retention: BW and General Tax Law require records for 7 years; WWFT requires identity records kept for 5 years after relationship termination or transaction; no requirement for beneficial owner identification data retention except where one natural person acts on behalf of another.
    - No explicit legal requirement to appoint AML‑CFT Compliance Officer; Bpr requires compliance function implicitly covering AML‑CFT.
    - Life insurers must file suspicious transaction reports to FIU within 14 days; 2009 insurers filed 9 STRs.
  - DNB AML/CFT supervisory organization: Expert Centre for Integrity (13 staff); 2 insurance prudential supervisory teams; Expert Centre for register and fit/proper testing; Expert Centre for Enforcement (10 staff); Supervisory Policy Department (3 staff).
  - DNB audited 10 selected life insurers in 2009 — control measures regarding customer files found inadequate in a number of cases; relationship with intermediaries needs better safeguards.
  - Assessment: Largely observed.
  - Recommendation (from source): Authorities advised to update legal provisions on record retention, appointment of AML‑CFT compliance officers, and requirements where insurers rely on intermediaries to perform CDD to align with FATF Recommendations.

*Source: _cr11205 - conclusions and takes action as appropriate.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11205.pdf_