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Long-lived Dutch might be bad news for insurers

(Agencies)
Updated: 2010-09-01 08:54

The Dutch are set to live longer -- good news for them but bad news for insurers that are expected to suffer from higher capital requirements and tighter profit margins as a result.

The Dutch Actuarial Society's latest table of prognoses estimate average lifespans will be three years longer in coming decades. Men will live to an average age of 85.9 years, while women will live to 87.6, the society said.

That was 3.4 years and 3.3 years longer, respectively, than it forecast in its 2005 model. The society's tables are used by Dutch insurers when designing insurance contracts.

SNS Securities said the changes would increase risks for insurers on annuities, term life insurance and health insurance contracts. It would also force insurers to hold more capital to cover future obligations.

"Due to the upward adjustments of the life expectancy table we believe that the margins as well as operational result of the insurance companies are affected," analyst Maarten Altena said.

He said the new estimate would extend insurers' liabilities by 5-7 percent, depending on their customer profiles.

Concerns about the impact of greater longevity are not exclusive to the Netherlands. Britain's Pension Protection Fund, which backstops failed corporate pensions, said last week it would build its funding buffer up to deal with concerns about the impact of longer lives.

IMPLICATIONS NEXT YEAR

SNS's Altena forecast the largest implications for the main listed insurers -- Aegon, ING and Delta Lloyd -- but said he did not expect detailed reactions from them until early next year once they had analyzed the impact.

Shares in all three fell on Tuesday, although their declines were mostly in line with the European insurance sector.

Aegon declined to comment. A Delta Lloyd spokesman referred to a cautionary statement the company made in its half-year results on the prospect of mortality assumption changes:

"Delta Lloyd Group considers the probability that the effect of updated mortality assumptions having a negative effect on the results to be higher than the probability of a positive effect. This effect could potentially be material."

An ING spokesman said the company had already noted a trend of increasing life expectancy as well.

"ING uses mortality rates for its calculations and therefore we obviously pay close attention to developments in this area, like the recently published mortality rates by the (actuarial society), he said.

The government office Statistics Netherlands currently estimates the life expectancy for Dutch men at 78 years and women at 82 years. That is an improvement of seven years for men and eight years for women from half a century ago.