Over the past 12 months, Milli Reasurans (Milli Re) has significantly improved its shareholder's equity while maintaining its market position and improved operating performance, says S&P Global Ratings (S&P).
The rating agency considers Milli Re to be a moderately strategically important subsidiary of its parent, IsBank (not rated), and thinks the parent has the capacity to provide financial support to Milli Re, if needed. IsBank owns an 87.6% stake in Milli Re.
S&P therefore revised its outlook on Milli Re to ‘Positive’ from ‘Stable’ and affirmed its 'B' issuer credit and financial strength ratings. S&P also raised its Turkiye national scale rating on Milli Re to 'trA' from 'trBBB+'.
The positive outlook reflects S&P’s expectation that Milli Re will continue to improve its competitive position and capital adequacy over the next two years.
Rationale
Milli Re has significantly improved its shareholders' equity on an absolute basis to TRY26.3bn ($632m) at year-end 2024, from TRY15.2bn at year-end 2023. By 30 June 2025, this had climbed further to TRY31.7bn (approximately $792m). This increase has also resulted in an improvement in Milli Re's capital adequacy, measured according to S&P models. The international rating agency also believes that Milli Re has adequate retrocession protection, backed by highly rated international reinsurers to cover its high natural catastrophe exposure. S&P therefore expects that, over 2025-2027, Milli Re's capital adequacy will remain above the 99.50% level, according to S&P’s risk-based capital model.
Milli Re's net combined (loss and expense) ratio (on a consolidated level) also improved significantly to 115% in 2024 from 135% in 2023. Historically, high inflation and the weakening Turkish lira have kept Milli Re's underwriting performance highly volatile, such that net combined ratios often exceed 100%. (Lower combined ratios indicate better profitability. A combined ratio of greater than 100% signifies an underwriting loss.) The underwriting loss is offset by the company's high investment income, supported by high interest rates and the revaluation of invested assets and affiliates. Therefore, on a net income basis, Milli Re has consistently reported positive net income over the past five years, and S&P expects this to continue for the next two years.
Investments
Milli Re's concentration of investments in Turkiye heightens its risk exposure. The company holds most of its investments in local financial institutions, the credit quality of which is predominantly speculative grade. As a result, the average asset quality of its portfolio is low. In addition, while Milli Re's management aims to manage foreign-exchange-volatility risk by holding some long positions in foreign-currency-denominated assets that match its liabilities, the rampant depreciation of the lira in recent years continues to affect underwriting performance.