Standard & Poor's non-life insurance rating outlook

Standard & Poor's non-life insurance rating outlook
Belgian non-life insurance market stable due to investment return on strong technical reserves

Standard & Poor's has established a stable outlook on the Belgian non-life insurance market, indicating that ratings are more likely to remain the same than to change.

Non-life underwriting results in the Belgian market are worse than the European norm, with the market's combined ratio in 1999 deteriorating to 115%, from 113% in 1998. Although preliminary figures for 2000 point to reduced underwriting deficits, the underwriting result is still expected to be poor. Nevertheless, a strong reliance on investment returns and life profits in composite companies continue to deliver profits and lead to market stability.

As a result of the market's substantial investment returns from its reserving strength, insurers are able to write non-life business at uneconomic rates and yet remain profitable. Without the strong investment result, the market, which is mature, highly competitive and showing little room for expansion, would suffer, due to its high claims incidence and premium pricing structures.

The technical reserving strength, which remains a key feature of the market's stability, has been driven by a cautious regulatory environment and benign fiscal regime. Tax authorities are now beginning to recruit insurance specialists and there is a possibility of a more aggressive tax approach, but both insurance companies and the regulator will defend the reserving pattern in the market.

Growth in the market, in which composite insurers are prominent, remains largely limited to its life sector. This sector has experienced a boom in recent years due to the introduction of unit-linked business in 1997. Now, as elsewhere in Europe, its growth looks set to continue as the Belgian government aims to offset the burden of its ageing population and privatise pension provisions.

Although the continued growth has promoted bancassurance as a major distributor for life products, the agent/broker network remains the prevalent form of distribution in the non-life market. Intermediaries maintain a very strong role in the market, with many policyholders probably unaware of who their insurer is.

The insurance market
Following the European trend, insurers in Belgium are consolidating into larger entities. Between 1996 and 2000, the number of authorised insurers in Belgium declined by 19% to a total of 207 companies (1999: 219). The top five non-life companies accounted for 57% of total premiums in 1999, (an increase of 22.7% over five years) and the top 15 companies accounted for 85% of total premiums (compared with 56.1% five years ago). Of the authorised insurers, branches of EU companies contributed 73 (1999: 79) and there were six (1999: six) non-EU companies. There are also a significant number of companies operating in Belgium through the Freedom of Services Act (without a physical presence). Belgium is the headquarters of ACE (formerly Cigna) and Chubb for continental Europe.

With effect from January 1, 1999, Royale Belge and Axa Belgium merged to form Axa Royale Belge. The company operates in both Belgium and the Netherlands, and the latter accounts for a third of premium written. Fortis AG, formerly known as AG 1824 Cie Belge d'Assurances Generales, changed its name during 1999. In 1999, the company's corporate insurance portfolio was transferred to Dutch insurer Fortis Corporate Insurance (previously AMEV Interlloyd).

Fortis Group acquired Dutch insurer Stad Rotterdam in 2001. KBC Insurance was formerly called ABB Verzekeringen, but in June 1998 the current name was adopted, reflecting the merger with Belgian banks Almanij Kredietbank and Cera Bank.

SMAP – Droit Commun is part of the SMAP Group (Société Mutuelle des Administrations Publiques), which specialises in insurance for the Belgian civil and public services and is one of Belgium's leading motor insurers. The SMAP Group is the only non-French member of the mutual grouping, Groupement des Entreprises Mutuelles d'Assurances (GEMA). SMAP acquired bancassurer Mauretus in 2000, which itself acquired Arfin Verzekeringen/Arfin Kredit in May 2001.

AGF Belgium Insurance was formed in 1999 with the merger of AGF/L'Escaut, Assubel Accidents & Dommages, Assubel Vie, Afilife and others. Naviga recently absorbed its sister company Belgamar and purchased Credit Mar, a small maritime banking operation.

In May 2001, Winterthur-Europe purchased the CGNU group Belgian operations, CGU. Dexia Bank is to merge with Artesia Bank, which owns DVV Insurance.

Non-life business grew in real terms by 2.1% in 1999, continuing the mediocre trend established in prior years, reflecting soft conditions in key lines and market maturity. There was little change in the portfolio composition.

Market features

Long notice periods
Policyholders are required to give three months' notice by recorded delivery when they wish to cancel their policies, thus discouraging policyholders from changing their insurers. The only exceptions are Luxembourg-based insurers that account for 24% of total Belgian life business.

Compulsory insurances
There are a number of compulsory insurances – the most significant are workers' compensation and third-party motor. Workers' compensation covers only accidents and not industrial disease or repetitive strain injury. It is managed primarily by the private sector and is not a part of the social security system, as it is throughout the majority of Europe. It is subject to the supervision of the Minister of Social Security.

Motor vehicle third-party liability became compulsory in 1956. Victims of accidents involving motor vehicles can claim reimbursement for physical damages from a compensation fund, should the insurer be in default. Discussions are currently taking place with a view to setting up a pool for sub-standard risks. The Motor Guarantee Fund would manage this and its purpose would be to offer cover for those risks that are otherwise unable to obtain cover.

Belgium's imposition of the use of a no-claims bonus scheme has caused some debate, as the European Commission believes these schemes should be at the companies' discretion and not obligatory, since the third non-life directive specifically requires companies to be given the freedom to set their own prices.

Catastrophe cover
Currently there is no earthquake or flood damage cover. However, draft legislation has been agreed to make it a compulsory part of comprehensive fire policies, thus transferring the burden of natural catastrophe compensation from the state to the insurance industry. Plans are also underway to set up a Belgian reinsurance mutual to provide quota share reinsurance protection for natural disasters, covering floods and earthquakes, on a named peril basis. All reinsurers would join the mutual and buy unlimited stop loss cover. Currently, compensation is paid by the state from the Fonds de Calamité. An annual premium tax is levied and rated according to the class of business written.

Most insurance contracts are taxed at 9.25%, but marine hull and cargo business is taxed at 1.4%. The responsibility for payment is with the insurer or the Belgian intermediary.

The majority of non-life insurance in Belgium is produced via the agent/broker distribution channel and insurers view these as their prime marketing target, not the policyholder. Bancassurance has made little real penetration in non-life, but has been a key driver of the expanding life market. Banks and insurers will continue to move their business and markets closer together. Telesales and internet marketing have also made little material impact to date, which reflects the stranglehold of the agent/broker relationship.

Insurance regulation and supervision

Direct insurers, life and non-life, are regulated by the Office de Contrôle des Assurances (OCA)/Controledienst voor de Verzekeringen at:

Avenue de Cortenbergh 61
1040 Brussels
Tel: +32 2 737 07 11
Fax: +32 2 736 88 17

The OCA was set up in 1976, following the Supervision Act of July 1975, prior to which government supervision of insurance was restricted to certain classes of business. It also regulates mortgage companies, pension funds and insurance brokers. It is a governmental body accountable to the Ministry of Economic Affairs.

Its purpose is to protect the rights of insureds and third parties concerned with the carrying out of insurance contracts. It does this by ensuring compliance with regulations that encompass such areas as authorisation, price regulation and solvency control. Companies in difficulty would be asked to follow certain steps, ranging from providing a business plan to asking shareholders to sell their shares and putting in place a provisional board of directors. The OCA also has the power to order a company to cease trading or compel its liquidation. No regulated insurance companies have failed since 1979. The OCA has no supervisory or regulatory powers over reinsurers.

Under the 1975 act, the Commission des Assurances was instituted as an advisory body. The act provided for the obligatory consultation with the Commission prior to the exercise of regulatory power by the OCA. Its members are representatives of different elements within the insurance sector, including trade union and consumer groups.

The Union Professionnelle des Entreprises d'Assurances (UPEA – website: has a staff of 100, all of whom must be bilingual, and represents the broad interests of insurance companies. It is only concerned with Belgian operations and is financed by its members. It consults with the OCA and the Commission des Assurances on legislation.

An insurance company must be constituted as a Société Anonyme, a Société Cooperative or an Association d'Assurance Mutuelle. Companies seeking authorisation must file documentary evidence, satisfying the OCA of the following:

  • the identity of the company
  • board of directors
  • shareholders
  • business plan
  • financial guarantees.

    Each class of business is authorised separately. According to EU directives, insurance companies established and authorised in another EU country are exempt from authorisation. Supervision of these companies is assured by the supervisory authority of the home country. With this exception, no insurance activity can be carried out in Belgium without approval by royal decree. There is a requirement that shareholders be “fit and proper persons”. Other than this, there are no regulations on ownership, although potential shareholders wanting to buy more than 10% of an insurance company's shares must inform the OCA.

    Composite insurers established before 1979 continue to exist, although the life and non-life operations have separate books of account and maintain separate solvency margins. However, since then, no new authorisations have been granted. Many of the larger insurers are composites. The 1975 Supervision Act limits the activities of insurance companies to insurance business.

    Accounting rules were implemented by the OCA through a royal decree in 1979. The European directive on the annual accounts was implemented by the royal decree of November 17, 1994. As a result, the presentation of company accounts was changed from the 1995 year of account. Accounts must be published in French and Flemish and be audited by a member of the Institut des Reviseurs d'Entreprises, who has passed an examination organised by the OCA.

    The method of supervision has been altered from a priori to a posteriori as a result of which, from 1994, all lines of business (33 non-life and seven life) must be reported separately to the OCA. Each line must be profitable and have assets covering reserves. Companies may be forced to raise the rates on unprofitable lines. Insurance companies must inform the OCA of their reinsurance programme.

    A law on the distribution of insurance products was brought into force at the beginning of 1997. Under this law, anyone becoming an insurance intermediary must reach a certain level of professional knowledge and a distinction is to be made to consumers between independent brokers and tied agents.

    It also requires intermediaries operating in Belgium to register in Belgium and states that brokers must guarantee the cover which they are broking if it is placed with an EU insurer registered outside the country

    Since this effectively blocks foreign placement of a domestic risk, the Bureau International des Producteurs d'Assurances et de Réassurances (BIPAR), the international intermediaries' organisation, states that this goes against the right of the freedom of services and thus considers it to be a breach of the Treaty of Rome. According to the EU insurance directives, registration is not required in a national register for foreign insurance intermediaries which already operate lawfully in their home countries.

    Belgium is a bilingual country and insurance policy documentation must be produced separately in both Flemish and French.

    Aggrieved parties can take an insurance complaint to the Insurance Companies Supervisory Board. A judgment by the Insurance Companies' Supervisory Board is binding on insurers. A complaint can also be taken to the Insurance Ombudsman.

    Reinsurance companies
    Reinsurance companies, unless they write, or have written, some insurance, are not regulated or supervised at all. In view of the collapse of three Belgium-based reinsurance companies in the 1990s, namely Dai Ichi Kyoto Re, Kobe Re and North American Fidelity and Guarantee (leaving an estimated £71m in unpaid claims), it is generally agreed that some form of control is required. No new legislation has so far been introduced. However, draft legislation is being prepared, laying down a number of conditions which reinsurance companies must meet:

  • all companies must register with the OCA
  • shareholders and at least two members of the board of management have to be considered “fit and proper persons”
  • a minimum capital of BFr100m (£151m) and a solvency margin calculated according to the first non-life directive are required
  • the same rules regarding annual accounts are to apply to reinsurers as to direct insurers and the accounts must be approved by an auditor.

    Belgium has a population of approximately 10 million and covers an area of 11,781sqm. The capital is Brussels, which has a population of 1 million and is the headquarters of the EU. The country's main seaports are Antwerp, Zeebrugge and Ostend. It is divided into three areas: Brussels , Flanders (North East, Flemish-speaking) and Wallonia (South West, French-speaking). The Flanders region accounts for approximately 60% of GDP. The national currency is the Belgian Franc (BFr), but with the move to economic and monetary union adopted by 11 EU countries in January 1999 (Austria, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain) the currency will become the Euro (() in January 2003. The agreed central rate is BFr40 = (1. £1 = BFr66.12, as at July 19, 2001.

    The outlook reflects the government's strong commitment to fiscal consolidation, which has wide public support. With Standard & Poor's placing greater emphasis on public finances in its analysis of the sovereigns in the EMU, any significant departure from Belgium's debt-reduction strategy would quickly result in downward rating pressure.

    Belgium insurance analyst contacts:
    Kevin Willis, London 020 7847 7085
    Joelle Drut, London 020 7847 7063

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