Since December 2001 the law provides for the possibility to apply a relief scheme for life insurers. The aim of such a scheme is to avoid an emergency scheme and bankruptcy, which generally adversely affect the rights of policyholders. The continuity of the insurance portfolio is maintained by means of a temporary measure. This measure is funded externally and is designed to restore the portfolio to health.
Any such scheme is conditional on the prior establishment of the portfolio’s chance of survival. There must therefore be a real chance that external funds made available can be repaid at the end of the year and that a reasonable return can be earned on them.
DNB can decide to set up a relief scheme if:
- other supervision instruments have had little or insufficient effect and, should policy remain unchanged, the corporate failure of the life insurer must be feared, and
- the portfolio of the life insurer still has a chance of survival.
This concerns a situation in which the solvency margin of the life insurer is lower than the statutory minimum and no longer reaches the level of the required guarantee fund. In addition, DNB must have refused consent for the finance scheme. Finally, the portfolio of the life insurer must still have a chance of survival. This means that DNB is sufficiently confident that the results to be achieved on the life insurer’s portfolio can improve in the future.
No general criteria for determining the survival chance can be given. Various aspects can play a role in this assessment. These include in any event the cause of the problems, whether the factors can be influenced and the composition of the insurance portfolio and investment portfolio.
The relief can consist of obligatory reinsurance of all or part of the life insurer’s portfolio or obligatory transfer of the life insurer’s portfolio. The latter is the most radical option. Leave of the court is required for an obligatory transfer of a portfolio.
The arrangement of reinsurance or the transfer of the insurance portfolio is carried out by a relief institution established by the Dutch Association of Insurers (Verbond van Verzekeraars). The institution in question, known as ‘Opvang I NV’ was established on 9 January 2002. Further arrangements concerning the relief institution have been laid down in a binding agreement between DNB, the Minister of Finance and the organisation representing the life insurance industry, i.e. the Dutch Association of Insurers. This includes arrangements about the shareholding and participation of the life insurers and the board of the relief institution.
Which of the two measures is applied depends on the facts and circumstances of the case. Obligatory reinsurance is, in principle, intended for a relatively short period. Afterwards the life insurer will again be free to continue its insurance business. Obligatory transfer of all or part of the portfolio to the relief institution signifies the end of the business operations of the life insurer. In this case the relief institution becomes a life insurer with its registered office in the Netherlands.
Obligatory reinsurance (coupled, in principle, with the transfer of the related assets) is considered in particular if there is still sufficient confidence in the management and business operations of the life insurer. In the absence of such confidence, however, the appropriate measure is to transfer the portfolio.
In the case of reinsurance or portfolio transfer the life insurer that is in difficulties is required to transfer the necessary assets to the relief institution. These are the assets that serve as cover for the technical provisions up to the amount of the provisions relating to the reinsured or transferred obligations.
DNB can give directions to the life insurer and the relief institution to ensure the effectiveness of the relief operation.
Relief is provided on the basis of a relief plan drawn up by DNB. This plan indicates, for example, what forms of relief are needed and the extent of the funds that will be involved. The life insurer and the relief institution act in accordance with the relief plan.
DNB is advised on the commencement and application of relief by a confidential committee established by law. This committee consists of a chairman and other members, who have sufficient experience of and authority in the life insurance industry to advise DNB on the application of relief. The members are subject to a duty of confidentiality.
Resources must be available in order to carry out a relief operation. This mainly concerns the additional funds that must be made available to the relief institution following the obligatory portfolio transfer in order to enable the institution to meet the statutory solvency requirements.
The requisite amount, which is advanced by the Dutch Association of Insurers, is apportioned among the DNB-supervised life insurers. They include branches of Dutch life insurers in other EU countries and exclude Netherlands-based branches of life insurers with their head office in another member state. In consideration of their contribution the life insurers receive compensation partly in the form of shares in the relief institution and partly in the form of a subordinated loan to the relief institution.
DNB determines what amount will be made available for the application of the relief in a given case and what amount will be paid by each life insurer. The life insurers pay their shares to the relief institution.
Once a relief operation has been initiated, the relief institution will reimburse the amounts to the contributing insurers as quickly as possible on the basis of a reimbursement plan drawn up by DNB. The plan specifies, among other things, the frequency and amount of the repayment instalments and any interest rate to be applied.
The total amount that can be made available is subject to a maximum (EUR 213 610 176). This also applies where relief is provided for more than one life insurer. The amount that can be made available for each relief operation is also subject to a maximum (EUR 106 805 088). The amount in respect of which there is an appreciable risk that it will not be repaid is also subject to a maximum (EUR 106 805 088). Both amounts will be fixed at half the amount that can be made available if the relief is provided simultaneously for more than one life insurer. These amounts are adjusted annually by reference to the change in the requisite solvency margin of DNB-supervised life insurers.
End of relief
The end of the relief operation depends on the measures taken.
In the case of obligatory reinsurance the relief operation will end as soon as the obligatory reinsurance is no longer necessary and the costs incurred in connection with the relief have been repaid. In the case of obligatory portfolio transfer the relief operation will end once the portfolio has been sold or, if this is not possible, the shares of the relief institution have been sold and the relief institution has become a ‘normal’ life insurer. In these situations, too, the costs should be reimbursed.
The relief operation ends in any event as soon as the relief has been reimbursed in accordance with the reimbursement plan. The relief also ends if the aim of the relief can no longer be achieved or it has become apparent that the costs can no longer be recovered.