NN Group NV's struggling Dutch motor insurance business will continue to suffer as a "hypercompetitive" operating environment stymies management's efforts, CEO Lard Friese told analysts Feb. 16.
The company reported a fourth-quarter 2016 net result in Dutch nonlife insurance of €27 million, down from €28 million in the year-ago period, but the division's operating result more than halved year over year, to €13 million from €28 million. The combined ratio, which reflects claims and other costs as a share of premiums, rose to 103.9% from 100.7% year over year.
"The real underperformance in nonlife is driven by the Dutch motor book, and that's where we have taken action," Friese said during a presentation. "We will continue to take action by culling nonprofitable products and by repricing the book."
He added: "I note here though that this takes time to translate into better results. I will explain to you why. No. 1, there is a reality of a hypercompetitive marketplace that hampers our ability to reprice as forcefully as we would like to. And we also are confronted now and then with adjustments to older claims that we need to settle over time. Please bear that in mind."
Aside from repricing the book, NN Group will also continue working to trim costs, Friese said.
NN Group's Dutch nonlife business is operating "significantly below expectations ... driven by unfavorable underwriting performance in both disability and [property and casualty], in particular individual disability and motor [insurance]," Barclays analysts wrote in a note shortly after the publication of the results. The operating result for the division was roughly half both Barclays' and consensus expectations, the analysts added.
NN Group booked a fourth-quarter 2016 consolidated net result of €148 million, less than half the €360 million reported in the year-ago period. The operating result from ongoing business rose 12.6% to €282 million, though this was 7.5% shy of consensus, Barclays noted. Shares in the insurer were down more than 6.5% in early-afternoon trading.
The decline in the consolidated result was partly the consequence of several unfavorable one-offs, including a portfolio transfer agreement that NN Re (Ireland) Ltd. signed with Canada Life International Re dac in October 2016, and a provision following the outcome of arbitration proceedings in respect to NN Group's former insurance subsidiary, ING Life Korea.
The insurer's Solvency II ratio — a measure of capital strength — stood at 241% at 2016-end, up from 236% recorded as of Sept. 30, 2016, and 239% booked at the end of 2015. NN Group said a 1-percentage-point downward revision of the ultimate forward rate, a metric being reviewed by European insurance regulatory EIOPA that sets the discount insurers use to value long-term liabilities, would knock 32 percentage points off its Solvency II ratio,
The group will propose a final 2016 dividend of 95 cents per share, which, combined with the interim dividend, brings the full-year dividend to €1.55 per share.
NN Group is buying rival Delta Lloyd NV for €2.5 billion in a deal that will create a company with a commanding position in Dutch life insurance. Friese said he expects the transaction to complete in the second quarter.