Turkey’s insurance market remained in the black in 2014 with an after-tax profit of TRY1.39 billion (US$597 million), the best result seen since 2008. Stronger investment returns and a general tendency to more technical underwriting, as well as an absence of major losses, were contributing factors.
Total premium income, meanwhile, increased just 7.3% to TRY26 billion, compared to the double-digit rates of previous years (see Figure 1). The slowdown was mainly due to sluggishness in the motor business, with third-party liability (TPL) and own damage premiums increasing only 2.7% and 1.9%, respectively.
On the bright side, other branches have performed well. The credit line increased by 30%, fire and natural disasters rose 16%, and general liability jumped 25%, figures from the Undersecretariat of the Treasury have shown.
Regulatory guidance
Top-line growth could be boosted by the recent introduction of compulsory lines, including insurance for bankruptcy of builders of residential properties and accident insurance for mine workers, which was made mandatory after last year’s mining disaster in Soma. However, there are no plans for further compulsory lines, said Dr Ahmet Genç, Deputy Undersecretary of the Treasury.
The Treasury expects to issue other new regulations in the rest of the year. These include amendments to general conditions of motor TPL and motor own damage, and amendments to regulations on private pension, capital adequacy and brokers.
Regulations issued or amended last year included those relating to loans-related insurance transactions, distance selling of insurance products, and general conditions on surety insurance.
A new Insurance Agencies Regulation was also introduced, aimed at clarifying insurance agency activities and providing protective provisions for both parties of insurance agency relations. Previously, leasing, factoring and financing companies were allowed to operate as insurance agencies. Under the new Regulation, these companies are now required to set up a separate company to provide agency services.
Although Turkey is not obliged to comply with Solvency II, work on adapting to the regulation has been in progress since 2009. Quantitative Impact Studies, used to refine the implementation guidelines, have been completed for the Turkish market. “We are as ready as some European companies,” said Dr Genç.
Foreign interest
About three quarters of Turkey’s active insurers are foreign-owned or partnered, and foreign investments have continued to pour in. In 2013, Allianz acquired non-life insurer Yapi Kredi Sigorta for $894 million, while Malaysian sovereign wealth fund Khazanah Nasional purchased Acibadem Sigorta for approximately $250 million. In 2014, London-based private equity firm EMF Capital Partners acquired non-life player Aviva Sigorta at an undisclosed price.
But despite talk of consolidation and the wave of acquisitions, the industry remains fragmented. In fact, the number of direct insurers has remained constant at around 60 in the past few years. Having said that, capital adequacy rules have been putting pressure on small and medium-sized companies. Since the start of this year, five insurers have been liquidated, while other companies are potential targets for foreign investors.
Lloyd’s, meanwhile, has expressed interest in Turkey and is negotiating for licence there as part of its Vision 2025 growth strategy. A recent draft bill, once approved, will allow for Lloyd’s direct entry into the market.
Takaful market in infancy
Turkey is described by EY as a rapid-growth market for takaful once regulatory infrastructures are operationalised. In its report, “Global Takaful Insights 2014”, EY stated that “while some companies have been established with the intention to write insurance on takaful basis, the current regulatory framework limits the scope for full takaful operations”.
There are currently two takaful providers in Turkey – Neova Sigorta and Katilim Emeklilik which offer general and family products, respectively. Another insurer, Doga Sigorta, is reportedly planning to enter the takaful market.
“Our regulation is convenient for the takaful activities,” said Dr Genç, adding that the Treasury is planning an awareness campaign jointly with the takaful sector.
Ready for lift off
Infrastructure projects planned over the next decade – including a third bridge across the Bosphorus, a new Istanbul airport and a high-speed railway system – are likely to trigger fresh market growth. Combine these with favourable economic and demographic trends, and it is not hard to understand why businesses are getting excited about Turkey.