INTERVIEW: ASR CEO Consolidation Inevitable In Dutch Insurance

First Published Friday, 27th August 2010 02:14 pm - © 2010 Dow Jones


By Maarten van Tartwijk

Of Dow Jones NEWSWIRES

UTRECHT -(Dow Jones)- Consolidation of the pressured Dutch insurance sector will be inevitable in the near future as insurers need to scale up to keep profits at acceptable levels, Chief Executive Officer Jos Baeten of ASR Nederland said Friday.

"The Dutch insurance market is very mature and doesn't offer the growth rates you see in Eastern Europe and Asia. If you want to stay attractive for investors, you need to be able to offer solid returns. Therefore, economies of scale will be important," Baeten told Dow Jones Newswires.

But it will take at least three years before consolidation takes off because some of the biggest players--ING Groep NV (ING), Aegon NV (AEG) and SNS Reaal NV (SR.AE)---are banned from making acquisitions as they still have to repay state aid, Baeten said.

Another reason for the delay, Baeten added, is that insurers are preparing themselves for new and stricter capital requirements--known as Solvency II--which are expected to be implemented at the end of 2012 or in early 2013.

But when all the state aid is redeemed, and insurers have adapted to the new regulatory environment, Baeten said that consolidation will be inevitable.

The CEO said scaling up is important to keep profits at acceptable levels, because the Dutch insurance market is facing harsh times with "lower margins and tighter regulation," forcing the major players to improve efficiency.

Life insurers in the Netherlands are struggling with the effects of the economic downturn and also have to regain the trust of consumers, many of whom bought overpriced unit-linked insurance plans in the past and who are increasingly shifting their money to cheaper bank savings products.

Nationalized ASR Nederland on Friday painted a gloomy picture of the insurance market, despite reporting a big jump in first-half net profit due to better results on investments and cost-cuts. The company, which was bought by the Dutch government as part of the breakup and financial rescue of former Dutch-Belgian financial services giant Fortis Holding, said it seeks more ways to save cash to counter the market challenges, and announced it is studying strategic options for its real-estate development arm, including a sale.

ASR's market outlook echoed comments from other big life insurance players. Earlier this month, Delta Lloyd NV (DL.AE) announced new cost-cutting measures, saying that difficult market conditions are squeezing margins. And nonlisted Eureko BV said last week that it will continue to focus on cost-cuts to keep its market share in what it described as a highly competitive market.

Other major players such as ING's Nationale Nederlanden, SNS Reaal, and Aegon have also focused on slashing costs in the past two years to offset the slump.

Baeten said that insurance companies will have adjust to a new reality, where cloudy economic prospects, stricter regulations and waning consumer trust will pressure earnings. "The high and stable margins from the past won't come back," he added.

ASR Nederland will be privatized in coming, years but the Dutch government hasn't detailed yet how or when that will happen.

ASR has said previously it wants to remain independent and that it would prefer an initial public offering. CEO Baeten declined to give further comment on the company's future. "We're having good talks with our shareholder and that's all I can say."

Company website: www.asrnederland.nl

-By Maarten van Tartwijk; Dow Jones Newswires; +31 20 571 5201; maarten.vantartwijk@dowjones.com

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