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NN Group has reduced its exposure to Dutch residential mortgages in the first half of the year due to lower volumes and redemptions, but the insurer’s chief financial officer has argued the loss is insignificant.
Annemiek van Melick said since the banking turmoil in March, the Dutch insurer received queries regarding the firm’s asset quality, in particular on illiquid assets such as real estate and mortgages.
The value of the firm’s Dutch mortgages from insurance entities fell slightly to €39.8bn (£34.2bn) in the first six months of 2023 from €40.2bn at the end of 2022. The value dropped despite the allocation to this asset class remaining unchanged at 28% of NN’s €141.2bn investment portfolio.
Van Melick asserted that losses would be “very negligible”, citing “very strict bankruptcy laws” in the Netherlands.
“If you're unable to repay your mortgage, you do remain liable even after selling your house,” she told analysts on Tuesday.
She added around 25% of NN’s mortgages is backed by the Dutch government via a mechanism called NHG (National Mortgage Guarantee), which provides the lender a guarantee to payment obligations when the mortgage can no longer be paid.
In addition, 76% of NN’s mortgage portfolio has a fixed rate period of more than 10 years.
Van Melick said: “We hold long maturity mortgages with fixed rates, limiting the refinancing risk for our customers.”
NN also reduced its exposure to real estate in H1 2023. The asset class accounted for 9% of the group’s investment portfolio - a proportion which remained unchanged since the end of 2022. However, the value of this investment is now €12.4bn, slightly lower than the €12.9bn in December as a result of negative revaluations.
Van Melick argued the firm had the ability to price in inflation through rental income for the majority of its portfolio, adding that its investments in property had “strong occupancy rates” averaging more than 95%.
Among NN’s real estate segments, offices had the lowest occupancy rate at 81%, but van Melick said the insurer was finalising negotiations to invest in an office in Amsterdam. She expected the occupancy rate to improve once the deal is closed.
She concluded: “Overall, we are confident in our high quality investment portfolio, including our illiquid assets, and remain committed to a strong and resilient balance sheet.”
How are rising interest rates and falling property value changing insurers’ investments in real estate?