Asset intensive reinsurance agreements – new requirement to obtain DNB’s prior consent

New consent requirement – Article 3:267e of the Wft 

On 1 January 2025, the Dutch Financial Markets (Amendment) Act 2024 (Wijzigingswet Financiële Markten 2024, the Amendment Act) will enter into force. In accordance with the Amendment Act, starting from 1 January 2025, Dutch insurers must obtain the Dutch Central Bank’s (De Nederlandsche Bank, DNB) prior consent before making any amendments to, or entering into an asset-intensive reinsurance agreement that allows a reinsurer to hold assets in a non-EU Member State (a third country). Consent is not required if the agreement prohibits the transfer of assets to a third country.¹

Since the introduction of the Solvency II Directive², European insurers tend to enter into reinsurance agreements that not only involve a risk transfer, but also an asset transfer, or where the reinsurer does not pay out reinsured losses immediately, but at a later date. Such reinsurance agreements are referred to as ‘asset-intensive reinsurance agreements’. Under the relevant agreements, the reinsurer will derive its profit margin not only from the received reinsurance premiums paid for the risk transfer, but also from the investment returns on the assets held following the related asset transfer.

Parties acquiring Dutch insurers relatively often consider an asset-intensive reinsurance deal. The background to this is that there are many Dutch insurers with long-term liabilities, such as funeral insurers and life insurers.

DNB will grant its consent to an insurer entering into an asset-intensive reinsurance agreement, unless the application of the prudent person principle (ex Article 132 of the Solvency II Directive), cannot be safeguarded. DNB will assess whether the relevant claim on the reinsurer meets the prudent person principle in the going-concern situation as well as in situations where there is no longer a going-concern, such as in the event of an insolvency of the acquiring reinsurer.

The purpose of this amendment is to ensure that Dutch insurers always comply with the prudent person principle in their mandatory reporting (verslagstaten) regarding their on-balance assets. This measure aims to mitigate some of the risks associated with asset-intensive reinsurance agreements, such as risk of recovery, non-compliance with the prudent person principle, and third countries not acknowledging the applicability of the Dutch and European legal frameworks. 

Procedure for obtaining DNB’s consent

The procedure for requesting DNB's prior consent will be laid down in the new Article 122a of the Dutch Decree on Prudential Rules (Financial Supervision Act) (Besluit Prudentiële Regels Wft) (Bpr Wft). Requests for consent can be submitted through DNB’s online portal (MijnDNB).

To enable DNB to assess whether the prudent person principle is observed, this request should be accompanied by the following documentation:  

a.    the reinsurance agreement including annexes, including an explanation of how the value of the claim of assigned by the insurer against the reinsurer is valued;
b.    surety agreements (if applicable);
c.    information on the geographical location of the assigning insurer's claim against the reinsurer and the related collateral;
d.    substantiation of the adequacy of the assigning insurer’s risk management with regard to reinsurance;
e.    an analysis of credit risks concerning reinsurance, including the credit worthiness of the reinsurer;
f.    data on the basis of which DNB can reasonably assess whether DNB can still make use of its powers pursuant to Article 3:137 Wft following the reinsurance;
g.    an opinion of the assigning insurer's risk management function on the records provided by the insurer accompanying this request to DNB, as well as the insurer's ability to comply with the prudent person principle.

As the amendment does not stipulate a diverging assessment period, it is expected that DNB will process requests for consent within a statutory review period of 6 weeks, which may be extended to 13 weeks.  

DNB’s draft Q&A currently 'in consultation'

DNB is currently in the process of adopting a Q&A on the new requirement of Article 3:267e of the Wft³. The consultation period of the Q&A has recently ended, but the Q&A is not yet final.

In the draft Q&A, DNB considers, amongst other things, whether it expects particular types of reinsurance to qualify as ‘asset-intensive’. Per the draft Q&A, DNB currently expects that the reinsurance of insurances without a capital-accrual element will not qualify as ‘asset-intensive’ and therefore will not be subject to the new consent requirement.

Another noteworthy point is that DNB currently expects to adopt a 'proportional approach' when deciding on a request for consent. A request for consent concerning 'non-material' asset-intensive reinsurance may, for instance, be accompanied by more concise documentation. If this proposed approach is ultimately adopted in its current form, this would mean a significant reduction in the administrative burden resulting from this new Article 3:267e of the Wft.

As the consultation period of the draft Q&A has ended, DNB is expected to adopt its final Q&A in the near future.

Practical takeaways

• From 1 January 2025 onwards, there is a new requirement for Dutch insurers to obtain DNB’s prior consent before making any amendments to, or entering into an asset-intensive reinsurance agreement that allows a reinsurer to hold assets in a third country.
• Dutch insurers who intend to amend an existing reinsurance agreement, or who enter into a new asset-intensive reinsurance agreement should take into account DNB’s statutory review period.
• A request for consent should be accompanied by extensive documentation, which will take time and effort to prepare. 
• Dutch insurers and reinsurers from third countries should take note of DNB’s final Q&A on this new requirement, once adopted. 

If you are looking to learn more about this topic, or if you seek assistance in requesting DNB’s consent, feel free to reach out to our team.

¹Article 3:267e of the Dutch Financial Supervision Act (Wet op financieel toezicht, the Wft).
²Directive 2009/138/EC.
³DNB draft Q&A on asset intensive reinsurance contracts, version 27 September 2024.