WHERE THERE’S AN ASSET

Turkey 2013 | FINANCE | REVIEW: INSURANCE

Allianz's purchase of Yapı Kredi Sigorta not only made the European insurer the biggest player in the Turkish insurance market, but reaffirmed the attractiveness of the market to foreign investors.

When Allianz purchased Yapı Kredi Sigorta for $879 million in 1Q2013, it became top dog in a sector that has experienced strong growth figures over recent years on the back of a young, qualified workforce. More investment is now expected as a result of government incentives offered in private pension plans (BES).

Turkey's insurance sector offers much potential due to its low penetration rate, with premium production accounting for just 1.3% of GDP, well below figures of more than 8% in developed economies. Total premiums were valued at TL19.83 billion in 2012, an increase of 15.5% compared to 2011, a level of growth far above the world average for the year. Non-life premium production accounted for 86.3% of this total, at TL17.12 billion. The life segment accounted for 13.7% of total premiums, at TL2.71 billion. In the non-life segment, more than 45 million policies were issued. The largest sub-segments within the non-life sector were motor insurance, valued at TL4.54 billion, motor vehicle liability insurance (TL3.9 billion), fire and natural disasters (TL2.7 billion), and health insurance (TL2.2 billion).

In 1Q2013, growth continued apace, with a 27% increase recorded in overall premium production compared to the same period in the previous year. Total premiums produced in the quarter were valued at TL6.5 billion, up from TL5.1 billion in the same period in 2012. Non-life categories comprised the lion's share of the total, at TL5.6 billion, with the remainder coming from the sale of life insurance policies.

Following Allianz's purchase of Yapı Kredi Sigorta from Yapı Kredi Bank, it grew its market share to 15%, up from 7%, making it the largest insurer in Turkey among the more than 30 companies present in the sector. AXA, the former number one, is now second with 12%, while Anadolu Anonim Türk Sigorta Şirketi holds 11%. Foreign investments will possibly continue over 2013, on the back of new regulations in the BES market that allow anyone over 18 to take part, whereas before plans were reserved for the employed.

AT A PREMIUM

A number of areas saw significant year-on-year premium growth over 2012, with motor vehicle insurance posting a large increase, from TL3.8 billion in 2011 to TL4.5 billion in 2012, an increase of 20%. Motor vehicle liability insurance, which is mandatory in Turkey, grew by 32% from TL2.97 billion in 2011 to TL3.9 billion. There is still room to grow, however, with non-compulsory motor insurance displaying a penetration rate of between 30% and 35%, compared to compulsory third-party motor vehicle liability insurance, which has a penetration rate of between 90% and 95%. Another top grower was fire and natural disaster insurance, increasing 15% from TL2.3 billion in 2011 to TL2.6 billion in 2012. Insurance policies related to health and illness rose 12% between 2011 and 2012 from TL2 billion to TL2.2 billion. Accident insurance grew by a more modest 1% from TL663 million in 2011 to $670 million in 2012, while general liability grew by 9% from TL386 million in 2011 to TL420 million in 2012. Life insurance penetration remains low, and growth is slow at just 1% between 2011 and 2012, from TL2.68 billion to TL2.71 billion. Non-life premiums, on the other hand, grew by 18% over the same period, from TL14.48 billion to TL17.12 billion. In 1Q2013, the largest grower was in the compulsory motor insurance area, with growth of 50% compared to 1Q2012, while non-compulsory premiums in the same area increased by 20%.

In order to boost overall premiums, some insurers are now looking to “enter the under-penetrated parts of the business," explained Uğur Gülen, General Manager of AK Sigorta. “In Turkey 10 years ago, per capita income was $3,000. Currently, this number has reached over $10,000. However, the market follows a very simple rule: if you don't have an asset, you don't need insurance," he went on to explain. AK Sigorta sees potential in home insurance, with penetration languishing at just 20%, or 4 million of the country's 17 million homes. Additionally, only 1.7 million people have private health insurance, while 65% of policies in this area are issued by corporations. “As people get richer, they will demand access to better health care," concluded Gülen.

THE BREAKDOWN

Allianz now has a market share of 15%, and access to Yapı Kredi Bank's 928 banking branches, where Yapı Kredi Sigorta (Insurance) products were sold. The deal was signed for $879 million as part of Allianz's push into fast-growing, emerging markets. Yapı Kredi Bank retained a 20% share in the insurer. Allianz, now the largest insurer in Turkey, is slightly ahead of AXA, which has 12%. Anadolu Anonim Türk Sigorta Şirketi, or Anadolu Sigorta, holds 11%. Before the acquisition, Turkey's insurers had a total volume of approximately TL20 billion, and Anadolu Sigorta, along with AXA, held a combined market share of 30%. The third and fourth players then accounted for 16%, with Allianz previously in that third position with a 7.3% market share. Despite the large acquisition in 1Q2013, AK Sigorta's Gülen sees no sign of consolidation. “I believe that the competition brings innovation and new ideas to the market, and the number of players in Turkey will only increase in the future," he said. Following the purchase of Yapı Kredi Sigorta, AK Sigorta is now the third largest non-life insurer in Turkey, with a market share of over 8%. Other significant players include French firm Groupama, domestic company Güneş Sigorta, and Eureko Sigorta, which is owned by Dutch insurance group Achmea, and was originally called Garanti Sigorta. Foreign firms dominate more than half of Turkey's insurance sector, a testament to the country's importance in the global operations of major financial groups. “Turkey is one of the core markets of Achmea outside of the Netherlands," said Okan Utkueri, CEO of Eureko Sigorta. Profitability has also been key in keeping foreign interest piqued. In 1Q2013, growth in profits was in line with the market's growth rate of 27%, reaching TL162.6 million from TL128.7 a year earlier.

PENSIONS

Further foreign investments are expected over 2013 following a first-quarter regulation amendment meaning that anyone above the age of 18 can open a BES, whereas before only those in employment had access to such products. In addition, the government is now making a 25% contribution to the monthly plans of account holders. The results have been impressive. In the first two months of 2013, registered BES holders increased by 200,000, around four-and-a-half-times more than in the same period of 2012. There are now 3.1 million registered BES holders, with a value of TL19.7 billion. The average age of holders is between 18 and 34, an age grouping that accounts for 42% of all holders.

Turkey's insurance sector will continue to attract the attention of foreign firms in the coming years, boosted by government incentives and the country's currently under penetrated population. As the per capita GDP rate continues to grow in line with Turkey's ambitious Vision 2023, the only way is up for premium production.