Commercial risk is the risk that the company's objectives will not be achieved due to insufficient response to changes in environmental factors. DH Reinsurance operates from a reinsurance position and is therefore dependent on individual life insurers. Market movements but also strategic reconsiderations by these parties have a direct influence on production at DH Reinsurance. The Dutch insurance market is mainly characterized by consolidations, efficiency gains and significant price competition. DH Reinsurance focuses mainly on term life insurance, a product that is mainly taken out in combination with mortgages. Due to these developments, the number of providers on the Dutch market is becoming increasingly smaller. Because DH Reinsurance operates from a reinsurance position, it is becoming increasingly difficult for the end customer to find the route to an insurance solution.

DH Reinsurance carried out a strategic reorientation in 2021 and determined a long-term growth strategy. The implementation of this growth strategy started in 2022. This has now ensured that a new customized track for new policyholders has been set up in the Netherlands with various insurers. In addition, new reinsurancerelationships have been entered into with partners in Germany and the United Kingdom. This has led to substantial growth in recent years.

Part of the market risk is the interest rate and matching risk that may arise when hedging the insurance liabilities. The interest rate risk arises from market valuations of the underlying portfolios, such as liabilities and fixed-income securities. The liabilities are fully covered by fixed-income securities. Due to the diversification in the duration of the investments and the relatively short duration of the liabilities, interest rate changes have little influence on DH Reinsurance's solvency position. In addition, DH Reinsurance is little affected by the so-called UFR drag due to the shorter insurance liabilities.

The credit risk is divided into the following components:

Debtor risk
DH Reinsurance has no debtor relationship with consumers. The debtor risk in this context lies with the primary insurance companies. DH Reinsurance has a current account relationship with its ceding insurers. The current account is drawn up and checked every month. As a rule, this is settled monthly. Some foreign ceding insurers are settled annually. The debtor risk is negligible.

Counterparty default risk
No deposit has been made for the reinsurer QBE. The reinsured provision is included in the calculation of the counterparty risk under Solvency II.

DH Reinsurance makes a deposit with a number of foreign ceding insurers equal to the provision for insurance liabilities. This deposit serves as security for the ceding insurer. The risk of this deposit is limited. The cash balances at banks are subject to counterparty default risk. DH Reinsurance mitigates this risk by spreading the liquidity position among banks with at least an A rating.

The mortgage fund also falls under this risk. The mortgage fund is mainly related to guaranteed mortgages (Dutch Mortgage Guarantee) granted after 1 January 2013, where repayment is the norm and overcrediting is capped (loan to value capped at 106%). This shifts the majority of the mortgage fund's debt risk to the Dutch state. The mortgage fund is an investment with a low risk profile. The counterparty default risk is assessed as low.

Liquidity is the ability to make the investments on the balance sheet liquid, for example when distributions have to be made or collateral has to be deposited. At DH Reinsurance, the obligations that require liquid assets mainly consist of payments that must be made to the ceding insurers. If mortality increases, higher payments in the portfolio may have to be taken into account than expected. DH Reinsurance pays out the obligations to ceding insurers at the time of claim by the ceding insurer. Claims are settled with the reinsurer on a quarterly basis. The settlements with the foreign ceding insurers are drawn up and processed at the end of the financial year. DH Reinsurance always maintains a reasonable buffer of liquid assets and invests mainly in funds that are relatively easy to liquidate.

DH Reinsurance does not invest in derivatives and therefore runs no risk of having to provide collateral. Part of the liquid assets (GBP 1,000) is in a blocked account at a bank, because the bank in question has issued a letter of credit to a ceding insurer.

DH Reinsurance strives for reliable and auditable administrative processing with its administrative organization, internal controls, reporting lines and processes. These measures are recorded in an AO/IB manual. The size of DH Reinsurance makes the company extra vulnerable to operational risks, especially in the area of continuity of activities. Vital processes are guaranteed by spreading the knowledge of the work among several people and outsourcing to relevant experts. DH Reinsurance uses a number of cloud service providers for the IT infrastructure and office automation. In addition, IT management, asset management, payroll administration, and key functions have been outsourced.

Various control measures are in place regarding services provided by third parties, including appropriate contracts and SLAs, as well as periodic monitoring of risk reports by, and evaluation meetings with the service providers. At least once a year, an assessment is conducted to determine whether continuing the service is appropriate.

Given the high costs, expense risk is the main risk. This concerns the risk that cost coverage in the insurance rates and portfolio is insufficient to finance operational costs. An important part of the insurance risk is formed by acceptance on incorrect conditions. Incorrect assessment of the risk can lead to loss on mortality, damage to existing solvency and loss of confidence among both the ceding insurer and ultimately the consumer. To manage these risks, an acceptance procedure is used that does justice to the special risks that DH Reinsurance wants to reinsure. This procedure is primarily aimed at medical acceptance. For higher insured capitals, in addition to the procedures that the ceding insurer itself uses internally, our own financial acceptance procedure applies. Capital in excess of our own retention is also reinsured with another party. An annual study is conducted into mortality per condition or group of conditions. DH Reinsurance also carries out an annual life adequacy test based on RJ guidelines. The balance sheet provision is tested for adequacy. The results of this test show that the balance sheet provision is adequate (+ 4,484).

DH Reinsurance annually carries out an Own Risk and Solvency Assessment (ORSA) in which a number of stress scenarios relating to these threats are calculated. The most recent ORSA report has shown that it is unreasonable to assume that increased mortality risks pose a threat to the continuity of the company in the medium term. DH Reinsurance's solvency is more than sufficient to counter (temporary or structural) setbacks in any area. The continuity of the company is not jeopardized. Negative economic developments can even have a positive impact on solvency.