Eonomic context
The dynamic economy of Turkey represents a complex mixture of modern industry and commerce, together with a traditional agricultural sector which still includes over 35% of the country’s active population. The private sector had an accelerated dynamics recently, although the state still plays a main role in industry, the banking sector, transports and communications. The most developed is the textile industry, with employees representing over a third of the active population, and the motor and electronic industries started to become more important in exports. The real increase of GDP was of 5% between 2005 and 2006, although this indicator was only above 6% in the past few years. The inflation dropped in 2005 to 7.7%, but in 2006 increased to 9.8%. Despite the gains from 2002 - 2006, due mainly to the reanimation of the foreign investors’ interest and to the stricter fiscal policy, the Turkish economy is still hindered by large current account deficits and debts.
The promising economic growth rate of 7% in Turkey, ranking 16th among the world’s economies, attracts numerous investors. The increase in foreign direct investments shall exceed USD 20 million and shall contribute with 1-1.5% to the annual economic growth rate of Turkey.
There are various reasons for which foreign investors prefer Turkey to other market economies, such as the state’s economic and political stability, the increase in the living standards, the institutionalization and the existing opportunities on the market.
The mergers and the take-overs in the banking field and the real estate transactions conducted by foreigners in the country will also support the consolidation of direct investment flows. In June 2006, Turkey counted 160 foreign investors in the financial field, two thirds of them coming from EU member states, the first states on this list being Germany, Great Britain and the Netherlands.
The insurance industry
2006 was a remarkable year for the insurance industry in Turkey, from several perspectives. The relevant market underwent significant changes and developments, especially through the acquisition of the main companies by foreign investors, the introduction of new insurance products and legislative changes in the field.
In 2006, the volume of gross underwritten premiums amounted to EUR 4.94 billion, this representing 1.73% of the GDP, given that in developed countries throughout the world this percentage reaches an average level of 9%. On the other hand, the premium production per capita registered in 2006 a value of EUR 68.4, quite little compared to EUR 2,380, as we see, in average, in developed countries.
Starting with the previous year, the Association of Insurance and Reinsurance Companies from Turkey has 55 members, of which 53 insurance companies and 2 reinsurance companies. 21 companies operate in life insurance, and the rest of 32 in non-life insurance. The number of persons hired in the insurance sector in Turkey reached a figure of 13,550, an increase by 550 in 2006 compared to the previous year.
Developments on the insurance market
One of the most important developments seen on the Turkish insurance market was the increase of foreign direct investments. The positive aspects of the economy, the reforms implemented within the process of harmonization with the EU standards, the predominantly young population, as well as the insurance market still in its beginnings placed Turkey in a very good position in the eyes of the foreign investors.
In 2006, BASAK Sigorta and BASAK Emeklilik were acquired by GROUPAMA International from France, IHLAS Sigorta was taken-over by the Germans at HDI International, ISVICRE Sigorta by ERGO Group, the insurance department of the gigantic MUNICH Re, and SEKER Sigorta went under the administration of the group American LIBERTY Mutual. As a result of these acquisitions, the majority stock of these companies was transferred to the foreign investors. At the beginning of January, this year, the selling of the majority stock from RAY Sigorta and GARANTI Sigorta also took place.
At the same time, the massive inflow of foreign capital, together with the major changes in the other fields of the economy brought improvements of the notable insurance market. Thus, disturbances in the banking system, especially the shaping of the corporate profile, changed the perspectives on the management of the customer relations management and quality management, thus creating the convergence between this field and the insurance industry through the bancassurance type partnerships. The bancassurance concept, with a tradition of over 15 years throughout the world, promises the use of new distribution channels, the lowering of operational costs, as well as the opportunities of introducing the technological infrastructure in the insurance segment. The synergy thus obtained shall support, beyond any doubt, the objectives of profitability and productivity of foreign companies that invested in the financial sector in Turkey. Out of 34 banks, 23 offer insurance products, either in partnership with a relevant company, or through their own insurance companies.
In talking about development we must mention that, beginning with the 1st of June 2006, TARSIM (The Agricultural Insurance Pool), created to cover the risks threatening the Turkish agricultural industry, started the underwriting, which is another positive aspect for the relevant market, considering that the insurance rate in the agricultural sector reaches only 1% at the level of the whole country. Last year alone, this pool gathered over 18 member companies.
Another aspect to be mentioned from the development point of view is the insurance rate, which on the motor segment reached 99%, as a result of the TRAMER launch, an information center for insurance companies on compulsory insurance policies for motor insurance and registered claims.
The lowering of the inflation and interest rates lead to a decrease in the insurance companies’ profits, outlining once again the importance of realizing technical profit. However, the fierce competition in the industry made the realization of a technical profit impossible, which influenced the increase of the claim rate and degenerated into a real problem, especially in the case of motor hull insurance.
Promising performances in 2006
The insurance market from Turkey saw a growth of 24% in 2006, compared to the previous year, for a volume of gross underwritten premiums of EUR 4.94 billion, and compared to 2004, in 2005 the relevant industry indicated a dynamics of 16%. If we consider the inflation and the economic growth, we can say that this was a promising evolution.
In the ranking of the first 5 insurance companies, according to the gross underwritten premiums, we have, in this order, ANADOLU Sigorta, AXA Oyak Sigorta, KOC ALLIANZ Sigorta, AKSIGORTA and YAPI Kredi Sigorta. The volume of underwritten premiums for the companies in top 5 amounts to EUR 2.11 billion and represents 42% of the total production for 2006.
Non-life insurance
On the non-life insurance market, the ranking of the first five companies on the market, according to the premium volume, is as follows: ANADOLU Sigorta, AXA Oyak Sigorta, KOC ALLIANZ Sigorta, AKSIGORTA and YAPI Kredi Sigorta. The gross underwritten premiums were of EUR 2.11 billion and represent 49% of the total production, which reached in 2006 a level of EUR 4.32 billion, 32% of this total being seen only in the last quarter of the year.
Life insurance
For this insurance class, the first insurers on the market are, in this order, ANADOLU Hayat Emeklilik, BASAK Emeklilik, AVIVA Hayat Emeklilik, YAPI Kredi Emeklilik and GARANTI Emeklilik, with cumulated underwritten premiums of EUR 451.3 million, representing 62% from the total of EUR 721.4 million in life insurance. The underwriting in the last quarter of 2006 represents 20% of the total, with EUR 147.7 million.
The industry is waiting for the regulations on the health insurance system in the legislation, General Health Insurance. These changes shall affect, most certainly, all segments of the market, in a positive manner, by introducing new products, increasing the volume of premiums and developing new distribution channels.
The low capitalization level represents a problem on the Turkish market, but this seems to have found a solution, in the near future, with the help of considerable investments and massive import of foreign capital, solutions that promise a rejuvenation of businesses developed in this field.
The insurance market registered, in 2006, an increase of 17%, excluding life insurance, which saw an increase of only 2%. Third party liability insurance, a relatively new insurance line in Turkey, had a real growth of 54%, although it still represents a small part of the total value. As a result of the economic growth and stability in the recent years, property insurance also saw an increase of 34%. Other important increases were seen in life insurance, with 14%, accident insurance with 13%, fire insurance, 12%, as well as maritime insurance, with a growth of 11%.
Motor insurance represents the highest percentage, 50.17%, the rest of 50% being distributed on the other non-life insurance lines. For the near future, we anticipate the development of third party liability and professional insurance, just like in the other developed countries.
Expectations and perspectives
For the current year, we expect new mergers and acquisitions, as foreign investors occupy their places in the agenda of the Turkish insurance market. A recent example being Vienna Insurance Group, announcing last month the entry on the Turkish insurance market. Within the harmonization with the European Union at legislative level, the new regulations on the national insurance industry shall enter into force by mid year. The legal provisions and the change in the customers’ demand anticipate a qualitative and quantitative increase in the products and services provided. Also, with the changes planned to take place this year, we expect a reorientation of the competition towards a higher quality.
The Association of Insurance and Reinsurance Companies from Turkey contributed to the preparation of the general conditions for introducing the new insurance products, given the set up of the mortgage loan system, which has recently become effective.
Also, the same body shall take the responsibility to promote nationally the extensive use of accident reports and shall draft surveys aimed at promoting the liberalization of tariffs practiced for compulsory motor insurance.
Economic stability had significant implications in the past two years for the insurance sector, which continues to have a remarkable development potential, thus attracting foreign investors. The expectations for 2007 focus on even faster growth in the volume of underwritten premiums, development of life and health insurance , as well as bancassurance partnerships and, why not, a visible increase in the number of insured persons.
