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Assessment of the leverage used in funding the acquisition or expansion of a qualifying holding



In the process of assessing an application for a declaration of no-objection, does De Nederlandsche Bank (DNB) assess the leverage used in funding the acquisition or expansion of a qualifying holding in an insurance firm, and can such assessment lead DNB to include specific requirements in the DNO?

Published: 07 July 2022


Yes, DNB assesses the leverage used in funding the acquisition or increase of a qualifying holding in an insurance firm. DNB may include specific requirements in the DNO.


An acquiring entity proposing to acquire or increase a qualifying holding in an insurance firm having its registered office in the Netherlands needs a declaration of no-objection (DNO) from DNB pursuant to Section 3:95 of the Financial Supervision Act (Wet op het financieel toezicht - Wft). As part of the acquisition or expansion approval process, DNB has the statutory right and obligation to thoroughly scrutinise and assess the financial soundness of acquiring entities, including entities registered outside the European Union, and to assess whether the insurance firm can meet and continue to comply with its prudential requirements.

With respect to borrowed funds used to finance the acquisition or increase of the qualifying holding, DNB assesses whether such indebtedness adversely affects the financial soundness of the proposed acquiring entity or the target undertaking’s capacity to comply with its prudential requirements.

As part of this assessment, DNB expects the acquiring entity to:

  • Keep leverage below a reasonable limit, structured in such a way that debt service (interest and future repayments) will not create undue pressure for cash outflow on the target undertaking, including under stressed circumstances. In evaluating undue pressure for cash outflow, DNB considers, among other situations, dividend and coupon payments1, excessive predetermined cost arrangements such as asset management fees, and other types of charges for intercompany costs.

  • Thoroughly simulate the impact of the leverage on the target undertaking. If financial projections and simulations reveal risks, the acquiring entity must draw up concrete plans to effectively mitigate these risks.

  • Provide sufficient information about the financing.

  • Provide solid evidence showing that, even with the use of leverage, the acquiring entity is financially sound and able to provide additional funding to the target undertaking if necessary.

  • Confirm that the acquisition is not reimbursed through any planned capital outflows from the target undertaking (e.g., through asset sales), unless DNB has given explicit consent.

The assessment by DNB may lead DNB to include specific requirements in the DNO including, but not limited to, a leverage threshold. The value of such threshold depends on the details of the proposed financing structure. To impose a threshold, DNB may conduct a cross-sectoral benchmarking exercise.

Relevant laws and regulations

This Q&A relates to the following laws and regulations:

  • Section 3:95 of the Wft
  • Section 3:100 of the Wft
  • Section 3:104 of the Wft
  • Article 59 of the Solvency II Directive (2009/138/EC)

Q&As provide further insight into our policy practice, because we use them to publish our interpretation of statutory supervisory rules. Institutions subject to our supervision may choose to comply with the laws and regulations in other ways, however. If they do so, they must be able to demonstrate that their interpretation complies with the applicable laws and regulations and substantiate this. To read more about the status of our policy statements, go to the Explanatory guide to DNB's policy statements on Open Book on Supervision.

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