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Oct 2022

Turkiye : Insurers seek to protect capital through inflation-indexed bond

Source: Middle East Insurance Review | Aug 2022

The Insurance Association of Turkiye (TSB) is in talks with the country’s treasury on a potential inflation-indexed bond issue, the group’s head told Reuters, as insurers seek a new mechanism to protect their capital from soaring inflation.
 
Turkiye’s inflation rate hit 73.5% in May and is expected to rise further in the country where real yields are sharply negative and the central bank’s policy interest rate has been held at 14% since December, reported Reuters.
 
TSB secretary-general Ozgur Obali said in an interview that a bond with returns above inflation would provide relief to insurers. Insurers can buy around TRY30-32bn ($1.8-1.9bn) of the bond, highlighting the level of potential demand for the bond.
 
“We’re expecting an investment tool that would at least prevent our capital from eroding. We have reached out. Now it depends on the availability of the authority,” Mr Obali said, referring to approval needed from the treasury, which would issue the bond.
 
The treasury declined to comment, said the reports.
 
Inflation has been driven to 24-year highs by the weak lira, which lost 44% last year and is down 21% this year due largely to the government’s unorthodox monetary policy stance.
 
Insurance companies’ premiums increase in line with inflation, but their profits have declined. Income has stalled because yields on financial investments remain below inflation.
 
Mr Obali said he expects smaller insurance companies to merge with others or be acquired by bigger ones, following a global trend. “I think (consolidations) are inevitable. When the conditions are appropriate, I believe they will accelerate substantially.” M 
 
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