DBRS Morningstar Assigns a Financial Strength Rating of “A” to Achmea Zorgverzekeringen N.V. and an Issuer Rating of BBB (high) to Achmea B.V.; all Trends are Stable

DBRS Ratings GmbH (DBRS Morningstar) assigned a Financial Strength Rating of “A” to Achmea Zorgverzekeringen N.V. and an Issuer Rating of BBB (high) to Achmea B.V. (Achmea or the Company). The trends on all credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings take into account Achmea’s strong franchise in the Netherlands supported by its leading market position in the health insurance business and P&C. The Company also benefits from a relatively well diversified product offering both domestically and to a lesser extent internationally. Underwriting risk in the insurance portfolio is considered limited also due to the large exposure to the mandatory basic health insurance which is regulated by the Dutch government. However, we note that the Company is exposed to market risk in its investment portfolio.

The credit ratings also reflect Achmea’s moderate profitability, constraint by the basic health insurance business which is inherently low margin. The Company’s bottom-line profitability deteriorated in 2022, affected by adverse market conditions. Nevertheless, Achmea continued to show strong underwriting results in the Non-Life business in H1 2023. Achmea’s capitalization is strong, supported by a robust solvency ratio well above the minimum requirements.

CREDIT RATING DRIVERS
The credit ratings would be upgraded if Achmea consistently improves its profitability, while maintaining its current robust capital position and adequate risk profile.

The credit ratings would be downgraded if the Company reports a significant deterioration of its risk profile combined with a sustained weakening of its capital position.

CREDIT RATING RATIONALE
Achmea is one the largest insurance and financial service providers in the Netherlands with a strong market position in the domestic market where it dominates the health insurance segment by gross written premiums (GWP). In addition, Achmea is market leader in property & casualty insurance and ranks among the top three providers of income protection insurance in the Netherlands. Achema operates mostly in the Netherlands and has a small international presence in Greece, Turkey, Slovakia, Canada and Australia.

In terms of risk profile, a large portion of Achmea’s operations (approximately 65% of total GWP in 2022) is related to the mandatory basic health coverage offering which is regulated by the Dutch government. Achmea cannot apply any risk differentiation to its customers and is forced to accept all new applications for basic health insurance policies. However, the Company receives contributions from the Health Insurance Equalisation Fund to compensate for the risk assumed in its basic health insurance portfolio. The remaining part of Achmea’s life and P&C product portfolio is subject to insurance risk, including catastrophe risk. We note that the majority of the Company’s investment portfolio is allocated to fixed-income securities which includes a large portion of loans and mortgages generated by Achmea Bank. Achmea’s exposure to market risk is considered relatively high, considering the magnitude of the negative impact of adverse market conditions on the Company’s financial performance, as well as the relatively high sensitivity of the Solvency II ratio to equity price fluctuations.

Achmea’s revenue generation is sound, supported by its leading market position in the domestic market. While GWP continued to increase in 2022 (+5% year-on-year), the Company’s net income decreased to EUR 105 million, from EUR 468 million in 2021. This was mostly attributable to adverse market conditions which led to significant realised and unrealised investment losses in 2022. We expect Achmea’s result to be less sensitive to market volatility from 2023 and beyond with the application of the IFRS 17/IFRS 9 accounting standards. While profitability is constraint by the health insurance business which is inherently low margin, we note that the Non-Life business in the Netherlands performed well as evidenced by a reduction of the combined ratio to 91.3% in H1 2023 down from 93.8% in H1 2022.

Achmea reported a robust Solvency II ratio of 195% at end-H1 2023, albeit decreasing from 209% at end-2022. The Company maintains a comfortable minimum Solvency II ratio tolerance level of 165%. Achmea’s financial leverage (as calculated by DBRS Morningstar) slightly improved in H1 2023 as a result of the partial refinancing of EUR 500 million subordinated loan during this period. Internal capital generation might be constrained by the significant exposure to basic health insurance in Netherlands, which is not a profit maximiser.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General Considerations

Environmental (E) Factors
Environmental concerns regarding Climate & Weather Risks are relevant to the credit rating of Achmea as a P&C insurer but did not affect the assigned credit rating or trend. The Company is exposed to weather-related losses from natural catastrophic events such as wind, wildfire, hail, flooding, and other extreme weather events. These events can lead to earnings volatility and unpredictable claims. DBRS Morningstar considered this ESG factor as part of product risk when assessing the Company’s risk profile.

There were no Social and Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023) at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The Grid Summary Grades for Achmea are as follows: Franchise Strength – Strong/Good; Risk Profile – Good; Earnings Ability – Good/Moderate; Liquidity – Strong/Good; Capitalization – Good/Moderate.

Notes:
All figures are in Euro unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations https://www.dbrsmorningstar.com/research/417109/global-methodology-for-rating-insurance-companies-and-insurance-organizations (14 July 2023). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The sources of information used for this credit rating include Morningstar Inc. and Company Documents, Achmea’s consolidated Financial Reports FY 2017-FY 2022, Achmea’s consolidated Interim Reports H1 2017-H1 2023, Achmea’s Financial Supplements FY 2017-H1 2023 and Achmea’s Investor Presentations H1 2017-H1 2023.

This credit rating concerns a newly rated issuer. This is the first DBRS Morningstar credit rating on this issuer.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/425467

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mario De Cicco, Vice President, Insurance, Global FIG
Rating Committee Chair: Marcos Alvarez, Senior Vice President, Global Head of Insurance, Global FIG
Initial Rating Date: 18 December 2023
Last Rating Date: N/A

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