Insured Growth

Turkey

Economic News

22 Jul 2010
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Having gone through a period of consolidation and foreign investment, with many of the industry's leading firms taking on overseas partners, and having apparently ridden out the worst of the global financial crisis, Turkey's insurance sector appears to be again gaining momentum.



There are some 60 companies in Turkey that offer insurance, reinsurance or private pension plan services, with most of the firms affiliated with local or foreign banks and the majority now having at least some overseas-ownership component.



Shares in traded companies in Turkey's insurance sector have ridden the wave of the global recession over the past year. The industry index on the Istanbul Stock Exchange (ISE) peaked at around 38,000 points in late April 2008 before tumbling to 16,845 by the end of October. The year 2009, meanwhile, has been one of recovery.



As of late August, the index was trading in the vicinity of 34,000 points, having broken through the 30,000 point barrier at the end of the previous month.



While the resurgence of insurance stocks followed the general trend of the ISE, the steady climb over the past three quarters is also a reflection of the industry's improving performance and future potential.



This potential is also borne out by the relatively low levels of insurance in Turkey, which ranks 68th globally in terms of insurance penetration yet is the 17th largest economy in the world.



Figures released by the Union of Insurance and Reinsurance Companies of Turkey (TSRSB) in early April showed that the country's insurers were providing coverage to 13.65m individuals or businesses as of the end of 2008, nearly 20% more than at the close of 2007. Much of this increase came from business, with many employers providing staff with health and life policies.



This coverage rate still leaves considerable room for expansion, though more work by insurers will be required to attract new clients, with many in Turkey yet to grasp the opportunities on offer from the industry.



While there has been growth in the numbers of those insured, this has not been fully reflected in premium levels. According to the domestic industry publication Sigortaci, the total premium production in the Turkish insurance market increased by 0.34% in the first quarter of 2009, reaching a total of $2.1bn. However, taking into account annualised inflation of just under 8%, the overall market saw a contraction.



The picture varied across different segments though, with premium production for life insurance, which represents around 15% of the total market, strengthening by 12% to $340m, while accident insurance premiums saw a 9% drop. There were also falls in premium levels of coverage for the maritime, automotive and, particularly, the agriculture sector, which recorded a decline of more than 30% compared to the figures for the first quarter of 2008.



These results are very much a reflection of the fallout of the economic crisis, which has seen Turkey's shipping industry hard hit, with many vessels laid up due to a lack of charters; automotive sales plunge; and agriculture prices drop, though it should be noted that the first quarter is also a fallow period for Turkish farmers, coming as it does in the dead of winter when activity and employment levels are at their lowest.



One segment that is recording high levels of growth is private individual pension plans. As of the end of March, the total of funds under management (FUM) by the 12 companies offering such services was $4.5bn, with 1.78m Turks paying into private pension schemes. Just two weeks later, on April 10, the FUM figure broke through the $4.6bn mark, with analysts expecting this trend to continue as the economy begins to pick up in the latter part of the year.



That pick up may have already started, at least for some companies in the sector. At the end of August, the initial first-half results started to come out from Turkish insurers, with Aksigorta – a member company of the giant Sabanci Holdings group – announcing a 251% increase in net profits from its insurance operations for the six months ending June 30 compared to the same period in 2008. The company reported a $24.7m first-half profit from its direct insurance activities, and a further $4m of black ink from other sources.



Given that Aksigorta posted a total $28m net profit for the first six months of 2009, it appears as if core activities, rather than subsidiary ones, have made a strong comeback.



With a growing awareness of the benefits to be had from holding insurance, money looks set to flow into the industry, and there could be further foreign interest in the sector as it moves towards meeting its potential.

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