Morningstar DBRS Assigns a Financial Strength Rating of A to ASR Schadeverzekering N.V. and ASR Levensverzekering N.V. and an Issuer Rating of BBB (high) to ASR Nederland N.V.; all Trends are Stable

DBRS Ratings GmbH (Morningstar DBRS) assigned a Financial Strength Rating of A to ASR Schadeverzekering N.V. and ASR Levensverzekering N.V. and an Issuer Rating of BBB (high) to ASR Nederland N.V. (ASR or the Company). The trends on all credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings take into account ASR's strong market position in the Netherlands, further underpinned by the recent acquisition of Aegon Nederland NV (Aegon NL). The Company also has a well diversified product offering in both life and non-life business and is exclusively focused on the domestic market. ASR's risk profile reflects the Company's significant exposure to credit risk and market risk in its investment portfolio which has a significant concentration towards mortgage loans and real estate.

The credit ratings also reflect ASR's sound profitability, supported by strong underwriting performance within the non-life business, which positively contribute to internal capital generation. The Company's solvency II ratios are well above the minimum requirement but somewhat below peers' average, negatively impacted by Aegon NL acquisition.

CREDIT RATING DRIVERS
ASR's credit ratings would be upgraded if the Company maintains strong profitability levels while improving its solvency ratios and reducing the risk profile of its investment portfolio.

Conversely, the Company's credit ratings would be downgraded if ASR's regulatory capital levels decrease from their current level and its profitability deteriorates materially.

CREDIT RATING RATIONALE

Franchise Strength Building Block Assessment: Strong/Good
ASR Nederland N.V. (ASR or a.s.r. or the Company) is one of the largest insurance companies in the Netherlands, offering a wide range of financial products including P&C, life, income protection insurance, group and individual pensions, health insurance, funeral insurance as well as mortgages. In 2023, ASR completed the acquisition of Aegon NL. The acquisition allowed ASR to consolidated its market position as the second largest insurance company in the Netherlands, with a reported market share of 24.2% in 2022 of the overall Dutch insurance market (excluding the health insurance sector). ASR uses a multi-channel distribution strategy selling its products both directly (including online) and through intermediaries, independent advisors and mandated agents. ASR's operations are exclusively concentrated in the domestic market.

Risk Profile Building Block Assessment: Good/Moderate
In 2023, total non-life insurance revenue was almost equally split among P&C, Health and Disability. Within the P&C business, ASR is exposed to some catastrophe risk as well as inflation risk, which had a negative effect on claims. The vast majority of the life products portfolio is related to pension solutions. ASR's credit risk profile is weighed down by the significant mortgage and other loans investment portfolio (31% of total investments at end-2023). Nevertheless, around 46% of the investment portfolio at end-2023 consisted of high-quality, investment grade bonds. In Morningstar DBRS` view, ASR risk management framework is up to internationally recognized and accepted standards. The Company recently reached a settlement agreement with several customer organizations to compensate Dutch customers for mis-selling unit-linked life insurance products between 1990 and 2006.

Earnings Ability Building Block Assessment: Strong/Good
ASR's revenue generation improved significantly in 2023 thanks to both organic growth, mostly in the non-life business and inorganic growth with the acquisition of Aegon NL impacting mostly life revenues. The Company's 3-years average return-on-equity (ROE), as calculated by Morningstar DBRS, was 13.8% in 2023, improving from 12.6% (as reported using IFRS 4) in 2022 which is above domestic peers. Underwriting profitability remains strong with Non-Life Combined Ratio at 95.4% in 2023 vs. 96.3% in 2022. P&C and Disability CR improved to 93.5% in 2023 (94.4% in 2022). The Health combined ratio, partially constrained by the government driven nature of the businesses, improved to 98.9% in 2023 (101.2% in 2022).

Liquidity Building Block Assessment: Good
ASR's investment portfolio comprises a high portion of investment grade marketable bonds as well as cash and cash equivalents. While we consider that the ASR's liquid assets still provide significant buffer against unexpected liquidity outflows, the liquidity profile of the Company's investment portfolio is penalized by the significant portion of illiquid loans and mortgage. Overall, the HoldCo liquidity position is deemed sufficient, supported by positive cash flow from operations in both non-life and life businesses. However, it deteriorated significantly in 2023, taking into account the cash consideration paid for the Aegon NL transaction as well as higher coupon payments in 2022 for the issuance of EUR 1 billion Tier 2 debt in November 2022.

Capitalisation Building Block Assessment: Good
ASR's Solvency position deteriorated after the acquisition of Aegon NL. From a very robust Solvency II ratio of 221% at end-2022, the Company reported a Solvency II ratio of 176% at end-2023. The overall impact of Aegon NL was -31%, adverse market and operational developments including real estate revaluations, widening mortgage spread and the settlement of the unit-linked issue led to an additional reduction of -20% in the Solvency II ratio, partially counterbalanced by organic business capital generation. In 2024, ASR announced the sale of Aegon Bank NL (which operates under the brand name Knab). The transaction led to a pro-forma Solvency II ratio of 189%. The Company has demonstrated good access to capital markets issuing both unrestricted Tier 1 and Tier 2 capital instruments.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
Environmental concerns regarding Climate & Weather Risks are relevant to the credit rating of ASR as a P&C insurer, but did not affect the assigned credit rating or trend. DBRS Morningstar considered these ESG factors as part of product risk when assessing the Company's risk profile. The Company is exposed to weather-related losses from natural catastrophic events such as wildfire, flooding, storms and other extreme weather events. These events can lead to earnings volatility and unpredictable claims. However, in 2023, claims expenses benefited from a lower level of extreme weather-related events in the Netherlands. Climate risk is incorporated in the Company's risk appetite framework and the scenario analysis of the own risk and solvency assessment (ORSA).

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (April 15, 2024) https://dbrs.morningstar.com/research/431180/global-methodology-for-rating-insurance-companies-and-insurance-organizations. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://dbrs.morningstar.com/research/427030/morningstar-dbrs-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://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include Morningstar, Inc. and company documents, ASR's consolidated annual reports 2019-2023, ASR's consolidated interim reports (H1 2019-H1 2023), ASR's Investors' presentation and press releases. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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

Morningstar DBRS 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. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS 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 Morningstar DBRS 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/433284.

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

Lead Analyst: Mario De Cicco, Vice President, Global Insurance Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director, Global Insurance Ratings
Initial Rating Date: 27 May 2024
Last Rating Date: N/A
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