Dutch insurers see buyout market accelerate

The four insurance companies that are active in the buyout market in the Netherlands are all seeing a growing interest from pension funds.

With funding ratios close to multi-decade highs and with the pension transition in full swing, all stars seem to be aligned for an acceleration of a market with an estimated size of €20-30bn.

Speaking to IPE, actuary Wichert Hoekert of WTW noted an “increased interest” in buyouts among his pension fund clients.

“Funds have completed the reorientation on whether or not to convert accruals to DC [defined contribution]. This coincides with the current high funding ratios. I do think that activity in the buyout market is now at its peak. There are several transactions in the making,” he said.

This year, more than half a dozen buyouts have already been concluded, with several additional pension funds, such as Dow still in talks with insurers.

“Many pension funds were already exploring a buyout, but we are also seeing the market accelerate,” said Arthur van der Wal, chair of the board of Pension & Life at Achmea.

ASR, which concluded four buyouts this year, has also noted an increase in demand.

“Given the favourable market conditions, in addition to an increased demand for quotations, we are also seeing more questions about how a favourable outcome for participants can be maintained as much as possible, while the pension fund is carrying out all the necessary actions to be able to make decisions and go through regulatory process of approval,” said a spokesperson for the firm.

According to WTW’s Hoekert, this process takes about six months.

Athora/Zwitserleven, the insurer which so far has been most successful in terms of transactions in the buyout market, also speaks of “increasing activity”.

A spokesperson said: “A lot of the uncertainty spinning from the ongoing pension reform has been removed and funding ratios are robust. This allows pension funds to purchase guaranteed pension entitlements from us, with inflation compensation linked to the European inflation index on top of that.”

ASR pointed to various deals – including that of the insurer itself with the pension funds Staples and British American Tobacco, in which 100% inflation (HICP) could be purchased for the participants – as a direct reason for the “increased attention of pension funds to buyouts”.

Nationale-Nederlanden keeps a low profile

Only Nationale-Nederlanden, until a few years ago the only player offering buyouts, is keeping a remarkably low profile. A spokesperson said that talks with pension funds have not led to deals.

“NN has strict criteria about the margins it wants to make on a buyout. The possibilities that have come to our attention did not meet our requirements and were rejected,” the spokesperson continued.

According to Hoekert, all insurers usually give a quote, but there are indeed exceptions. “It does happen that one or more insurers do not submit one. Sometimes this is due to capacity restrictions, but sometimes also for very specific reasons.”

Although no insurer is commenting on specific funds, Nationale-Nederlanden’s response seems to explain why both the Dow and Campina funds are negotiating with only three of the four providers.

Zwitserleven said that it participates “in all the processes to which we are invited, both large and small”.

The firm added: “We think it is important to always participate in RFPs. After all, it is important for pension fund boards and their participants that there is something to choose from.”

Achmea also takes every request seriously, said van der Wal. “Every application is assessed on its merits. In doing so, we also look very closely at what exactly a pension fund board requires and what ambitions the board itself has towards its participants. If we can meet that, then we will really start such a process.”

Market estimates

Where Zwitserleven still estimates the total size of the buyout market at €20-25 billion until 2028 – of which it believes it can achieve a market share of 30-40% – compared to WTW actuary Hoekert’s estimate of €20-30bn, Van der Wal already dares to think a little bigger.

“We received more requests than we thought when we started working on our partnership with Sixth Street two years ago,” he said. “We always saw €20bn to €30bn as the potential. But when I look at what is going on in the market, I see amounts that are already above that ambition. Of course, that doesn’t mean that you are going to get all that, but we can say that it is ahead of our expectations.”

This article was first published on Pensioen Pro, IPE’s Dutch sister publication