Morningstar DBRS Confirms Achmea Zorgverzekeringen N.V.'s Financial Strength Rating of "A" and Achmea B.V.'s Issuer Rating of BBB (high); all Trends are Stable

DBRS Ratings GmbH (Morningstar DBRS) confirmed Achmea Zorgverzekeringen N.V.'s Financial Strength Rating of "A" and Achmea B.V.'s (Achmea or the Company) Issuer Rating of BBB (high). 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 dominant market position in the health insurance business and non-life. 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 also considered limited because of the Company's large exposure to the mandatory basic health insurance that is regulated by the Dutch government.

The credit ratings also reflect Achmea's moderate profitability, constrained by the basic health insurance business, which is inherently low margin. On the other hand, the Company's bottom-line profitability improved in 2023, mostly thanks to higher investment income and more favourable market conditions. Achmea continued to show strong underwriting results in the non-life business but reported a much weaker combined ratio in the government-driven health insurance segment and in the international division. Achmea's capitalisation is strong, supported by a robust solvency ratio well above the minimum requirement.

CREDIT RATING DRIVERS
The credit ratings would be upgraded if Achmea consistently improves its bottom line and underwriting profitability, while maintaining its current solvency capital level and risk profile.

The credit ratings would be downgraded if the Company reports a significant deterioration of its capital position, including through an increase of leverage, and a sustained worsening of its risk profile.

CREDIT RATING RATIONALE
Franchise Building Block Assessment: Strong/Good
Achmea is one the largest insurance and financial services providers in the Netherlands. The Company benefits from a dominant position in the Dutch non-life and health insurance markets and ranks amongst the top five largest life and pensions solution providers by gross written premiums (GWP). Achmea's franchise benefits from good product diversification as the Company also provides savings products and mortgage loans in the Netherlands through the subsidiary Achmea Bank N.V. (Achmea Bank). Achema operates mostly in the Netherlands and has a small international presence in Greece, Turkey, Slovakia, Canada, and Australia.

Earnings Ability Building Block Assessment: Moderate
Achmea's profitability improved in 2023 after being severely affected by unrealised net losses on investments in 2022. In 2023, the Company reported a net profit of EUR 814 million (EUR -808 million in 2022, restated according to IFRS 17). This led to a return on equity (ROE) of 8.9% in 2023. In H1 2024, the ROE increased to 11% from 8.6% in H1 2023, on the back of higher operational results as well as higher investment income. While profitability is constrained by the health insurance business, which is inherently low margin, Morningstar DBRS notes that underwriting profitability in the non-life business is sound, although the combined ratio deteriorated to 96.4% in H1 2024 from 91.3% in H1 2023. However, the combined ratio is significantly higher in the government-driven health segment and in the international division.

Risk Profile Building Block Assessment: Good
In terms of risk profile, a large portion of Achmea's operations (approximately 70% of total GWP in 2023) 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 required 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 non-life product portfolio is subject to insurance risk, including catastrophe risk. Morningstar DBRS notes 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.

Liquidity Building Block Assessment: Strong/Good
Achmea holds a considerable portion of liquid assets and marketable securities in its investment portfolio, which is mostly related to bonds and equity. The bond portfolio is of high quality with only about 5% of the total portfolio either non-investment grade or not rated. Cash and cash equivalents increased to EUR 2.5 billion at end-H1 2024 from EUR 1.9 billion at end-2023. However, the liquidity of the investment portfolio is constrained by a relatively large portion of loans and mortgages and investment property. Achmea's claims and healthcare expenses are relatively stable. The risk related to the health insurance contracts is mitigated by the government contribution as part of the mandatory health insurance framework in place. In the non-life segment, Achmea is subject to risk connected to weather-related events and other catastrophic risks, which are partially managed through reinsurance.

Capitalisation Building Block Assessment: Good
Achmea reported a Solvency II ratio of 188% at end-H1 2024 (183% at end-2023), which remained sound and above the 100% minimum requirement as well as the minimum Solvency II ratio tolerance level of 165%. The Company's own funds benefitted from the issuance of EUR 750 million dated Tier 2 notes offset by the buyback of EUR 375 million perpetual Tier 2 notes accounted as equity under IFRS. Achmea Bank reported a solid Common Equity Tier 1 ratio of 18.4% at end-H1 2024, up from 16.9% at end-2023. Internal capital generation is constrained by the significant exposure to basic health insurance in the Netherlands, which is not a profit maximiser.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Environmental concerns regarding Climate and Weather Risks are relevant to Achmea's credit rating as a property and casualty 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. Morningstar DBRS considered this ESG factor as part of product risk when assessing the Company's risk profile.

There were no Social or 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 Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (10 September 2024), https://dbrs.morningstar.com/research/439195. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings, https://dbrs.morningstar.com/research/437781 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, Achmea's consolidated Financial Reports F2017 to F2023, Achmea's consolidated Interim Reports H1 2017 to H1 2024, Achmea's Financial Supplements F2017 to H1 2024, Achmea's Investor Presentations H1 2017 to H1 2024, and Achmea's Investor Presentations F2017 to F2023. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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' trends 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://dbrs.morningstar.com/research/444598.

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

Lead Analyst: Mario De Cicco, Vice President, Global Insurance & Pension Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director, Global Financial Institution Ratings
Initial Rating Date: 18 December 2023
Last Rating Date: 18 December 2023

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