A Quick Glance at the Turkish Insurance Industry
Positive economic developments, reforms accomplished during the EU harmonisation process and its young population make Turkey an attractive country for investment in the eyes of foreign investors. In an environment where international financial factors benefit from free movement, there has been a remarkable increase of foreign capital flowing into the Turkish insurance market, mostly as a result of mergers and acquisitions. The fact that foreign investors are at the same time insurers in their countries of origin will have a positive competitive impact in the Turkish market. A healthy competitive environment will be made possible by the formation and implementation of recent insurance legislation providing for free competition and at the same time regulating the financial structures of international companies. The long awaited Turkish Insurance Law has been discussed in the Turkish Parliament and was approved on 3rd June 2007, thereby filling the legal and regulatory gaps in the Turkish insurance sector - a very significant development.
As of 31st December 2006 there are 53 insurance companies and two reinsurance companies registered with the Association. In addition to these companies Coface Sigorta A.S. has been also been established and, indeed, other international carriers are moving into the market.
In 2006, thanks to the improvement of the technology infrastructure, the service quality of insurance companies and to the increases in the number of trained employees, total Premium of the insurance companies operating in Turkey increased by 23.68 % when compared to 2005 and reached TRY 9.7 billion (US$ 6.8 billion).
About 85% of this premium was generated in the non-life branches, with the remaining 15% being derived from life insurance.
The amount of premium generated by the top ten companies in the Turkish insurance industry corresponds to around 64% of the market premium. Seven out of these ten companies are backed up with foreign capital.
Branch-wise breakdown of premiums written in 2006 are presented below in comparison with 2005 figures.
A year without major losses
2006 can be described as a year without any major losses for the Turkish insurance industry. However, the non-technical price competition which has been ongoing for years prevented premium growth reaching its full potential, this also led insurance companies to sustain losses, particularly in motor own damage and health branches. Statistics currently being compiled for 2007 show little difference.
Foreign capital investments
Starting with 2005, the appetite of foreign direct investment for the Turkish insurance market showed a progressive trend during 2006 and 2007. During the course of 2006, majority of shares in Basak Sigorta and Basak Emeklilik were sold to Groupama and İhlâs Sigorta was acquired by HDI International, now known as HDI-Gerling.
American-based Liberty Mutual Group acquired shares in Şeker Sigorta, whereas Ergo Group, the German primary carrier owned by Munich Re took over shares in İsviçre Sigorta and İsviçre Hayat. Coface Insurance backed up with French capital obtained authorisation to operate in credit insurance. Further developments in 2007 are: the Spanish group Mapfre has taken a stake in Genel Sigorta; Aviva and Aksigorta have merged their life and pensions units; Eureko is teaming up with Garanti Bank’s life and non-life subsidiaries; ING has bought into the banking sector by taking over Oyak Bank.
About 60% of the total market premiums in 2006 were generated by foreign companies or companies with foreign shareholders. Seven out of the top ten companies in terms of premium production are either foreign companies or companies with foreign shareholders. The increased volume of foreign capital in the market is a natural consequence of globalisation.
In view of the fact that Turkey has a young population and an under-utilised insurance potential, it is expected that the interest of foreign capital in the Turkish insurance industry will continue in the years ahead.
In preparing this Spotlight article we received invaluable assistance from the leading independent risk advisers Martin & Martin Insurance and Reinsurance Brokers Co Inc in Istanbul (www.mmsb.com.tr) for which we are grateful.
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In our next e-newsletter we will feature a Spotlight on Taxation Issues. In these days of Compliance, Financial Service Authorities, Transparency, Scapegoats, etc, Insurance Premium Tax is coming under scrutiny. Insurance companies usually handle this in the country where the premiums are paid. But, especially with non-admitted policies, it is no longer as easy as it used to be for a carrier to pass all responsibility onto clients. Progress is sketchy and we will update you on developments in our next edition of WoRdS.
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