Why Dutch insurers remain on the sidelines as Netherlands pushes defence spending

By Mateusz Rabiega

Aug 24 (Reuters) - The Dutch government's pledge to increase defence spending to 3.5% of GDP by 2035 as part of its NATO commitments is already running into difficulty due to differences with some of the financial institutions it wants to help fund the plan.

Talks initiated by the Dutch Defence Ministry (MoD) in 2024 with big domestic insurance companies to explore a framework for potential defence investments have stalled over insurers' requests for government help in screening defence companies.

Dutch insurers had a combined €455 billion ($531.44 billion) in assets under management at the end of March, including pension funds they own such as AZL, and Dutch dentists' fund SPT, according to De Nederlandsche Bank data.

Yet the Dutch Insurers Association, representing the sector in the talks, said they lack expertise to perform due-diligence in the secretive defence sector, while a spokesperson for the MoD said screening investments remains the responsibility of investors.

"We need the government for this. Defence is a very untransparent industry for us and the government is the party that has all the context, the information needed to really make a good decision," a spokesperson for the insurers' association said.

The last substantive discussions with the government were held last September and no further talks have been scheduled, the association said.

The Netherlands spent around 2.2% of GDP on defence last year, and the MoD estimates that meeting the 3.5% target by 2035 will require extra defence spending of €16 billion-€19 billion a year. The government aims to source roughly half of future defence purchases domestically and from European suppliers, to build up the country's defence sector.

Dutch insurers have shown growing interest in the sector. To become significant investors, however, they would need specific information about where a defence company sells to and details of all its products, to comply with their own environmental, social and governance (ESG) policies that prohibit investment in companies producing certain weapons or supplying certain countries, the association spokesperson said.

The Ministry of Defence acknowledges that gathering information on suppliers can be difficult because of secrecy requirements and has launched a website compiling public information on suppliers, though the insurance industry says the material does not fully address its needs.

INSURERS PREFER BONDS

Another challenge for insurers investing in defence companies is that their risk and investment profile is better suited for fixed-income instruments, such as bonds and other forms of debt, analysts and the insurers' association said.

"A government-issued defence bond could be a more natural investment. Fixed-income securities represent a much larger share of insurers' portfolios than direct equity. A bond could therefore fit more easily," the association spokesperson said.

Top Dutch insurers NN Group, ASR Nederland and Achmea combined had nearly €146 billion in fixed-income portfolios as of the end of June, with the largest portions allocated to government debt.

One solution, the association says, would be for the Netherlands to set up a sovereign debt tool, like France which is at the forefront of Europe's defence push. That could broaden the addressable pool of funds available to insurers, while also shifting the duty of vetting defence firms onto the debt issuer.

Last year, a French state-backed public investment bank BpiFrance launched two programmes: the €450 million Defence Fund targeting retail investors, and the €1 billion European Defence Bonds aimed at institutional investors, with the aim of supporting French and European small and medium-size defence firms.

'DEFENCE' NOT A DIRTY WORD ANYMORE

ASR Nederland made its first defence investment last year, in an undisclosed company, and said it is prepared to commit up to €100 million per transaction. Achmea increased its defence exposure to €150 million in 2025 from €20 million and expects further growth. ASR said it needs more information before making bigger investments.

Still, ASR Nederland's own ESG rules, for example, only allow it to invest in defence companies based in the Netherlands and only in companies that do not supply high risk countries (as defined in the IRBC Framework on Controversial Weapons and Trade in Weapons with High-Risk Countries).

NN Group has updated its approach to support the European defence value chain, including investment in military-related IT, infrastructure, equipment and aerospace.

"Defence is not a dirty word anymore... but if we want to make a bigger step, then we would really need additional information from the government," the insurers' association's policy advisor Deniis Heijnen told Reuters.

SMALL MARKET MEANS FEW OPPORTUNITIES

Even if government and insurers agree a framework, investors face another challenge: a shortage of opportunities large enough to attract institutional capital.

The Dutch defence sector has expertise in building warships, naval radar systems, small land vehicles, UAV drones and C4ISR systems, as well as defence components and satellite systems. Major manufacturers include Damen Naval, Thales Nederland, GKN Fokker, Airbus Netherlands and VDL Group, yet the sector's annual revenue totalled €10.2 billion in 2025, according to the MoD, which is small compared with France, Germany, Italy and Britain.

"Institutional investors like pension funds and insurance companies often feel the individual ticket sizes are too small," said Hans Huigen, chief executive of Dutch defence industry association NIDV.

PwC Nederland estimated in a 2025 report that the MoD will need to spend around €62 billion by 2030 on defence equipment, with €41 billion of that expected to be earmarked for Dutch manufacturers, either in contract or sub-contracting contracts.

The Netherlands has a pool of around 400 domestic makers of components and sub-systems, metal parts, frames, engines, chassis and sensory systems, but to handle that sort of spending they would need to increase their combined output by 3-4 times by 2030, according to PwC.

Huigen said a €300 million-€500 million fund capable of providing loans could help bridge a key financing gap for scale-ups, though he questioned whether enough companies currently exist to justify setting one up.

"It all comes down to reducing risk, rather than increasing returns," Huigen said.

Until then, a potentially significant source of capital to help the Netherlands expand its defence industry and meet its NATO commitment could remain on the sidelines.

($1 = 0.8562 euros)

(Reporting by Mateusz Rabiega; Editing by Matt Scuffham and Susan Fenton)