The country’s small insurance and pensions industry has long been valued for its potential to achieve sustained, above-par growth, and more than 20 multinational insurers have collectively spent over $3.5bn in Turkey since 2006 on acquisitions in the sector, in order to make sure that they did not miss out. In 2012 and early 2013, the industry began showing signs of finally delivering on that promise. While in previous years the insurance sector had largely followed the fortunes of the Turkish economy, in 2012 it maintained comparatively high growth rates, even as the overall economy slowed. The pensions segment even accelerated its growth, thanks to strongly performing capital markets and a powerful new government incentive of matching payments (see analysis).

However, the sector’s longstanding problem of low profitability in the highly competitive automotive insurance segment also worsened in 2012, pushing the non-life segment of the industry into the red for the first nine months of the year. While most other market segments remained profitable, losses on auto insurance have stymied the industry’s efforts to build capital, and if not resolved could limit future growth.

“Looking at the available data and trends, technical reserve level in the sector seems to be insufficient,” Mert Ekitmen, the general manager at Ergo Insurance, told OBG. “It is likely that this problem could be exacerbated by new capital adequacy regulations, however, it may also facilitate market consolidation.”

Size & Structure

While growing at a fast pace, the size of Turkey’s insurance industry, at TL19.8bn (€8.6bn) of gross written premiums in 2012, remains very small relative to the size of the country’s population and economy. Indeed, according to figures from Insurance Europe, the main association of European insurance and reinsurance companies, as of 2011 Turkey was the most underinsured of all the association’s 35 member countries. Turkey’s gross insurance premiums were just 1.3% of GDP, as compared to a 35-country average of 7.6%. (Notably, several poorer European countries are not members). For the multinationals that have been buying into Turkey’s insurance market, such figures underscore how much room there is for growth. Turkey’s €100 of gross insurance premiums per capita in 2011 compared to €360 in Poland, €1291 in Spain and €2921 in France.

The private pensions industry is also growing quickly from a small base. Pension assets reached 1.3% of GDP by the end of 2012, according to government data. By comparison, in 2011 Poland’s private pension fund assets were 15% of GDP and the UK’s were 96% of GDP, according to the Organisation for Economic Co-operation and Development.

Foreign Flavour

Multinational insurance groups increasingly dominate the insurance business in Turkey, with a combined 52% market share in 2012 by gross premiums, according to Insurance Association of Turkey data. That does not include the market shares of several companies in which multinationals own non-controlling stakes. Several of the 25 multinational insurers in Turkey have been doing business there for decades, but most entered during an acquisitions boom from 2006 to 2008. Acquisitions have continued since 2010 at a more moderate pace, and in 2013 the sale of the fourth-largest insurance group, Yapı Kredi Sigorta, to Germany’s Allianz, was expected to kick off more consolidations (see analysis).

The previously dominant ownership group, domestic banks, has been steadily selling out of the insurance sector. They were down to a 36% overall market share in 2012, but still held 65% shares in the life segment and the pensions business, according to Insurance Association of Turkey and government data. That, however, was before the sale of Yapı Kredi. The remainder of the market was held by a mix of large and small domestic business groups and local and foreign financial investors.

Sector Players

There were 62 active insurance, reinsurance and pensions companies in Turkey as of March 2013, made up of 44 groups with distinct majority owners. As per the international standard, the insurance business is divided into life and non-life segments, which are subject to different regulatory regimes reflecting the different time frames under which they operate. The non-life segment breaks down further into motor, property, health and other sub-segments. The life insurance and pensions businesses are closely linked, with most companies that are in one also in the other. Life insurance and pension plans are marketed mainly by banks, and most insurance and pensions companies are either affiliates of banks or have distribution agreements with banks. The investment management of pension plans is often farmed out to asset managers, which can be affiliates or unrelated contractors. In the non-life segment, most retail marketing is done through networks of licensed, neighbourhood-based agents. Corporate customers and wealthy individuals with special needs typically buy insurance through brokers, some of them operating nationally and many serving the region.

More Growth Fewer Profits

Gross insurance premiums grew in 2012 by 15.5% in nominal lira terms, or 8.8% in real terms. That was a welcome result, as it was significantly higher than the real growth rate of the overall economy. GDP growth for 2012 was a disappointing 2.2%, following predictions as high as 4.5% at end-11. In previous years, insurance industry growth had been roughly in line with GDP, frustrating industry employees who believed faster growth was possible, in light of the size of the economy.

Tarik Serpil, the executive director of risk management at Marsh, an insurance broker, told OBG that Turkey’s insurance market “has not grown as fast as expected. Although we have seen a great deal of foreign investment, we have not witnessed as big an increase in the abilities of insurance firms, in terms of capital and service levels.”

Even the strong growth of insurance premiums in 2012 was a mixed blessing for firms, as it was driven for the most part by rapid growth in the increasingly loss-making auto segment. Sector financial results published by the Insurance Association of Turkey show that mounting auto segment losses were chiefly responsible for a 26% year-on-year decline in the insurance and pensions industry’s profits to TL182m (€78.6m) in the first three quarters of 2012. Also, falling interest rates have eaten investment profits.

The non-life segment recorded deepening losses of TL176m (€76m) in the first three quarters of 2012, compared to TL25m (€10.8m) in the same period of 2011. The performance of other insurance segments in 2012 was mixed, with some improving profits and others accelerating their top-line growth, but no major segment managing to do both.

The pensions business was the one unambiguous bright spot, with accelerating growth and improving profitability in 2012. Strong subscriber growth of 18% in 2012 sped up even further in early 2013 thanks to implementation of the matching-payments reform at the beginning of the year. The success of the pensions business ultimately helped lift the collective profits of life insurance and pensions companies to TL358m (€154.6m) in the first three quarters of 2012, up 32% from the same period of 2011.

Motoring Losses

Automotive coverage is the biggest segment by far of Turkey’s insurance sector, accounting for 43% of gross insurance premiums in 2012. Coverage for own damage reached 23% of total premiums, while mandatory liability coverage accounted for 18% and other automotive liability for 2%.

All automotive segments have been growing quickly, as new drivers hit the road and existing drivers upgrade to more expensive vehicles. However, the mandatory liability segment is burdened by strict price regulations, and all auto segments are subject to fierce competition for market share. The result has been deepening losses. Although average premiums grew 28% in 2012, they remained low at TL255 (€110). Costs grew much faster, bringing technical losses for mandatory liability coverage to TL652m (€281.5m) in the first three quarters of 2012, up 83% from the same period of 2011. Own damage policies also made technical losses in the first three quarters of 2012: TL102m (€44m), down by 40% from the same period of 2011. The number of such policies grew 7% to 4.7m in 2012, while premiums per policy grew 12%. Axa, the French multinational, was the undisputed but perhaps unenvied leader in Turkey’s mandatory liability sub-segment, with a 26% market share in 2012. The locally owned Anadolu Sigorta was number two, with 12%. In the own damage sub-segment, Anadolu held the lead with 16% of the market, while Axa was second with a 15% share.


Insurance of buildings and other property besides vehicles for damage or theft accounted for 22% of the Turkish insurance market in 2012, with fire (9%) and earthquake (4%) coverage the biggest components. Fire, earthquake and (where applicable) flood insurance are often marketed together as “housing packages” equivalent to the homeowner policies typically demanded by mortgage lenders.

However, unlike in the US and Western Europe, mortgage bankers play only a small role in leading Turkish homeowners to insure their homes. Very few of the homes in Turkey are under mortgage, which Serpil estimated was less than 5%. Instead, the main lever that leads Turks to insure their homes is a legal requirement that all owners of buildings and apartments hold insurance against earthquake damage. Due to lax enforcement, only around a quarter of homes were insured as of the end of 2012, with the ratio even lower in regions that have not recently had earthquakes. Enforcement is stepping up, with a new rule implemented in August 2012 that requires utility providers including water, electricity and gas to check whether building or apartment owners have insurance before establishing service. As the new rule does not require utilities to check their existing customers, enforcement occurs for existing buildings and apartments when they change owners. With the new rule, mandatory earthquake policies grew by 30% to 4.7m in 2012, while in fire insurance, which for homeowners is typically sold in a package with earthquake coverage, the number of policies grew 25% to 4.8m.

Mehmet Kalkavan, the Insurance Association of Turkey’s deputy secretary general, told OBG he expected the reform in earthquake insurance would gradually push the number of homes with disaster coverage towards 100% over the course of many years. He confirmed that the new rule does not require utility firms to check on their current customers, only new ones. As a result, enforcement for buildings and apartments has only happened with changes in ownership. Kalkavan also said that insurers suffered from an extraordinary number of industrial fires, which caused the disaster segment to only roughly break even in the first three quarters of 2012 after earning TL126m (€55m) of technical profits in the same period of 2011. The general property damages sub-segment, comprising mainly engineering and agricultural property coverage, fared much better, making TL125m (€54m) of technical profits in the first three quarters of 2012, up from TL14m (€6m) in the same period of 2011. Anadolu and Axa have been battling over the top spot in the fire and disaster sub-segment. Anadolu reclaimed the number one spot in 2012 with a 13% share to Axa’s 12% share.

In the general damages sub-segment, domestically owned Ziraat Insurance was number one with a 12% to Anadolu’s 10%, reflecting Ziraat’s strong position in crop and livestock coverage.


The health segment, which accounted for 14% of Turkey’s insurance market in 2012, also had a mixed year. On the positive side, average health care premiums increased by 15%, driving technical profits up to TL137m (€59.1m) in the first three quarters of 2012, up from TL16m (€6.9m) in 2011. On the negative side, the number of health insurance policies fell by 4% in 2012, following a previous trend of rapid growth that had seen policies double between 2009 and 2011. Insurers are increasingly challenged to attract and retain middle-class clients as the quality and funding of the public health care system has dramatically improved over the past decade. Kalkavan said he believed employers, health insurers and hospitals would be moving more towards a cost-sharing system with the public health care system, one in which the public system covers a portion of the costs of service that is based on the cost of the same service at public hospitals, with insurers picking up the private hospital’s additional charges.

Although attractive in principle, in practice it is very difficult to make such agreements. So far only one insurer, Mapfre Genel, has such a system working, which requires those with the coverage to go to a particular hospital. Kalkavan said his group is working for broader agreements that allow customers to go to any participating hospital.

Health insurance is a specialised segment with a different set of market leaders from other non-life segments. Yapı Kredi Sigorta was the clear segment leader in 2012, with a 23% share. Allianz was number two, with 16% of the segment, and Acıbadem, a dedicated health care insurer affiliated with the Acıbadem health care hospitals group, was number three, with a 10% share. The segment was heading for a shakeup and consolidation in 2013, as Yapı Kredi was sold to Allianz and Acıbadem was expected to head for the auction block (see analysis).

Pensions & Life

Life insurance was slightly down in 2012, largely because customer demand and the potential for profits were shifting to the strengthening pensions business. Most companies that sell life insurance also sell pension plans, and vice versa. Life insurance accounted for 14% of the insurance sector in 2012, down from a 16% share in 2011. The number of persons declined by 1%, while premiums per person covered fell by 2%. Even so, life insurance remained a profitable segment, making TL183m (€80m) of technical profits in the first three quarters of 2012, up 12% from the same period of 2011.

Meanwhile the number of people with pension plans grew by 18% in 2012 to reach 3.1m, while pension assets, boosted by the strong performance of Turkish equities and bond markets, grew 42% to reach TL20.3bn (€8.8bn). The success of the pensions business has helped push the aggregate net income of life insurance and pensions companies up to TL358m (€154.5m) in the first three quarters of 2012, up 32% from the same period of 2011. Pension subscriber growth accelerated again in 2013 as the government began matching 25% of contributions, up to the national minimum wage, to personal pension accounts. The number of people with pensions grew by more than 170,000 to 3.3m in just the first nine weeks of 2013, a pace that if it held would lift subscriber numbers to around 4.1m by the end of the year.

Getting Specialised

While the more specialised segments of Turkey’s insurance market are very small indeed, multinational insurers are keen to stake out early leading positions. The clearest example of this is in the credit insurance segment, which accounted for only 0.35% of the insurance market in 2012 but saw 45% top-line growth. The segment is dominated by three multinational firms that specialise in credit insurance: France’s Coface; Euler Hermes, a unit of Allianz; and Dutch-Spanish Atradius. All three entered the market by founding new companies.

Kalkavan said he saw great potential in political insurance, which he said Turkey’s contract construction industry lacked during the recent fighting in Libya.


The pensions sector in Turkey is expected to grow for years as housewives and people with unreported incomes take advantage of the matching-payment incentive. However, the near-term consequences of the new rules may create challenges. “The new regulation lowered the fees that we generate,” Cemal Kismir, the CEO of BNP Paribas, told OBG. “The projections show that it will be offset by higher volumes over the medium to long term.”

Still, for the segment to reach its potential, Turkish employers will have to be sold on the idea of contributing to private pensions as part of their benefits packages for employees – and that will depend for the most part on bringing the many Turkish business that operate partly in the shadows into the formal economy. The large number of small, family owned businesses make that a particularly hard task. Currently, many businesses avoid paying even the full amounts they should to employees’ public pensions by reporting to authorities only part of their workers’ real pay. Indeed, the new matching-payment incentive is largely aimed at drawing the many people who receive part of their wages informally into the private pensions system. At the same time, it is also a result of Turkey’s savings rate receding to 12%, with the government launching the scheme in order to increase the savings rate to include the individuals with no income.

Turkey’s property insurance market also appears set to grow rapidly, whether or not home mortgages become widespread. The problem of low profitability in the automotive segment will not be easily overcome. There is strong popular resistance to elevating premiums, which manifests itself through the very competitive market and through the political process in the form of price regulation. But insurers will need to increase premiums rapidly to keep pace with rising costs. While some multinationals can afford to sacrifice profits in return for market share and the higher profits that should come from that in the longer run, some companies will have to back away from the segment to build capital and invest in other areas.

“To match the needs of Turkish society, Turkish insurers need to deliver new products, develop new approaches. They need to do new things, not just more of what they have always done,” Marsh’s Serpil said. Turkish insurers are also facing the complex issues involved in the next planned round of European insurance regulatory reform known as Solvency II. Turkey implemented the current European regulatory framework, Solvency I, in the course of harmonising laws and regulations with the EU. Since then it has closely followed the Solvency II process to stay current. Solvency II is aimed at stricter regulatory standardisation across Europe, and particularly at toughening capital standards. Turkey got a head start on the latter by strengthening its own capital requirements in 2008 to roughly twice those of Solvency I. Kalkavan told OBG the Insurance Association of Turkey had a committee studying the demands of Solvency II and it had found no big shortfalls among Turkish insurers “Maybe one or two insurers will need additional capital, but if so the government will ask them to increase their capital, and they will,” Kalkavan said.