Pension-risk transfer (PRT) deals in the Netherlands are steadily increasing as the deadline for a radical reshaping of the pensions space nears.
Anecdotal evidence indicates that some Dutch schemes are moving to buy-outs to sidestep recently introduced rules that require all defined benefit plans to runoff and switch to defined contributions frameworks by the start of 2028.
Those rules, enshrined in the Futures of Pensions Act – or Wet Toekomst Penisoenen (WTP) – came into force in 2023. The WTP was formulated to update and stabilise the country’s €1.7trn pension industry amid a rapidly ageing population and changing employment patterns.
The WTP has spurred buy-outs on account of the transition process being costly – the legal processes of dividing assets into individual pension pots is complex and subject to strict regulatory requirements. Administrators of smaller plans are also reluctant to expose their members to the volatility of markets within a defined contribution framework. As well, the regulatory oversight of the De Nederlandsche Bank (DNB), the Dutch central bank, provides for fewer safeguards among DC schemes.
“The WTP is resulting in an increase in pension buy-outs,” said André de Vries, Vice President, Business Development, EMEA at Reinsurance Group of America (RGA).
“Over recent years, more than 10 pension funds have executed a pension buy-out or are in an advanced stage of implementing such transactions.”
Among the deals publicised this year, Athora Netherlands’ Zwitserleven – one of three large local insurers in the Dutch PRT market – bought the pension obligations of Stichting Nedlloyd Pensioenfonds, a closed pension fund with 6,000 pensioners and 2,200 former participants. The deal involved around €950m of invested capital.
The evolution of the Dutch PRT sector was also evident in the merger of local insurance providers Achmea and Lifetri in November. The latter, which is backed by San Francisco-based private capital giant Sixth Street, also represented a continuation of overseas capital entering European pension markets.
The resultant company, Achmea Pension & Life Insurance, said it was aiming to capture 20% of the Dutch PRT market.
The third company in the market is the insurance business of financial services group Nationale Nederlanden (NN).
Initiatives to soften the blow of the WTP have so far failed to ease concerns and hopes that an election due at the end of October might change the picture have also evaporated.
“No material adjustments to the WTP are expected anymore based on what the larger political parties have indicated in their election programmes,” de Vries said.
“Under the WTP. DB pension benefits can be lowered in case of insufficient assets. Life insurance companies are not allowed to take such measures regarding their DB pension benefits.”
While business is on the up, the total deal volume is unlikely to match the levels of the UK or the US, the world’s largest PRT markets. For a start, the class of DB schemes most likely to use PRT – corporate funds known as Ondernemingspensioenfondsen – numbered about 100 at the end of 2024, down significantly from a high of more than 1,000 in the late 1990s, according to central bank data. They hold funds that manage about €290bn, according to advisory firm Milliman.
“It is difficult to predict, but market participants indicated to expect a total cumulative volume of buy-outs resulting from the WTP at €20bn to €30bn of assets under management, maybe even more,” said de Vries.
The largest pool of assets is held by a handful of industry-wide setups called Bedrijfstakpensioenfondsen, which hold about €1.24trn. They have grown through consolidation over the past couple of decades as the industry has sought economies of scale, lower administrative costs and diversified investments. However, they are unlikely to be candidates for PRT, Milliman predicts.
Unsurprisingly, given the smaller holdings of the corporate schemes, PRT deal sizes have not reached the heights seen in the UK, where £3bn-£5bn transactions have not been uncommon. Nevertheless, the Stichting Nedlloyd Pensioenfonds contract – which was the biggest struck by Zwitserleven – could signify a move towards larger schemes seeking buy-outs.
“The buy-outs that have been executed over the recent years vary in size from less than €100m to almost €2bn, with some even larger pension funds in the process of considering or implementing a buy-out,” said de Vries.
The proliferation of PRT deals in the Netherlands has been accompanied by a parallel evolution of associated capital and risk management strategies. Longevity reinsurance had become a fixture of de-risking activities before the WTP was introduced, with NN Group in particular behind deals that exceeded €13bn, and the firm recently completed a $4bn longevity reinsurance deal with Prudential Financial. But market participants have also begun using funded reinsurance, or asset-intensive reinsurance (AIR).
Under such structures, longevity and market risk are transferred to reinsurers, freeing up capital for insurers to bid for further and/or larger contracts; funded re is already prevalent in the UK market, where it’s estimated the structures will support almost 30% of bulk annuity premiums by 2026.
However, the Dutch regulators also seem to have been taking their cues from across the North Sea. They’ve adopted an equally cautious position as the UK’s Prudential Regulation Authority, concerned that funded reinsurance deals could bring their own risks to the market. Consequently, since January, Dutch insurers have been required to seek approval from the central bank before signing such contracts.
“Longevity reinsurance is still a very attractive risk and capital management tool… and… extending their toolbox with AIR gives these life insurers even more means to manage their risk and capital profile which is valuable as buy-outs are very capital intensive,” said de Vries.