Insights June 218 Turkish Insurance Bulletin Willis Towers Watson Turkish Insurance Bulletin aims to keep senior executives around the world up-to-date with the developments in the Turkish insurance industry a market that remains a high growth insurance market. In this bulletin, we share the growth in life gross written premiums (GWP), non-life GWP and pension new contributions as well as how the motor Casco, motor third party liability (MTPL), fire and natural disasters and health branches performed. We also provide some updates on recent on regulations. Table 1: Life insurance premium production (gross written premiums) 8, 7, Market statistics Life insurance premiums In 217, life insurance premium production has shown a similar growth, 35.8% (21.4% in real terms) compared to previous year. Overall most players experienced a good year. 5 year CAGR for life insurance premiums was 2.3% (1.5% in real terms), which is a combination of declining premium levels in 214 and with significantly higher growth in 216 and 217. 6, 5, 4, 3, 2, 1, 1,83 1,678 1,71 981 787 91 1,115 695 92 1,656 782 815 593 1,146 855 934 662 761 1,658 945 1,99 761 972 795 212 213 214 215 216 217
Insights June 218 Table 2: Change in aggregate contributions for private pensions and auto enrolment 1 9 8 7 6 5 4 3 2 1 1,8 84 984 88 212 1,447 1,225 1,641 1,431 2 willistowerswatson.com 213 2,11 1,699 1,196 1,42 214 3, 2,3 1,916 1,827 215 2,187 1,928 1,723 1,46 216 Table 3: Non-life insurance premium production 45, 4, 35, 3, 25, 2, 15, 1, 5, 4,819 3,666 4,213 4,418 5,581 4,532 5,99 5,623 6,88 4,98 5,511 6,23 7,99 5,914 6,393 6,968 2,459 2,16 1,952 1,723 1,42 692 487 112 217 217- Autoenrolment 212 213 214 215 216 217 Table 4: Motor Casco premium production 8, 7, 6, 5, 4, 3, 2, 1, 695 593 662 787 782 855 761 972 91 815 761 795 981 92 934 945 9,674 7,359 8,781 9,633 1,678 1,115 1,146 1,99 11,291 8,598 9,63 1,759 1,83 1,71 1,656 1,658 212 213 214 215 216 217 Private pensions and auto enrolment contributions* In 217, the private pension contributions increased by 13.7% (1.6% in real terms) compared to a negative growth in previous year (-17.4%). Despite the growth, the change in contributions did not increase back to 215 levels. This is mainly due to the focus on auto enrolment system, both by the pension providers as well as the employees. 5 year CAGR private pension contributions was 16.8% (7.2% in real terms). The growth rates were particularly high in 213, when the state contribution system was introduced. The 3 year CAGR was 8.6% (-1.% in real terms), the impact of recent contraction is evident. After a year of industry wide discussions and the auto enrolment regulations were published at 17 December 216 (with number 29921) and the system was launched on 1 January 217. We have seen tremendous effort put in by the industry over the year. There are over 3.5 million customers remaining (of 7.5 million automatically enrolled during 217) in the auto enrolment system as of 31 December 217, after the opt-outs. Non-life insurance premiums From 216 to 217, non-life insurance premium production increased by 12.% (.1% in real terms) compared to previous year. This is due to the price caps applied to MTPL business, which is one of the driving engines of the non-life insurance industry. The non-motor branches grew at a consistent rate. Despite the negative or stagnant growth in motor branches in real terms during 217, average growth of the non-life industry has been substantially higher than inflation, the 5 year CAGR to 217 was 18.3 % (8.6% in real terms). Motor Casco premiums In 217, motor Casco premium production increased by 12.1% (.1% in real terms) compared to the previous year. In 216, this growth was 11.2% (2.4% in real terms). Following several years of reducing claims frequency, the claims trends levelled out during the period. However continued strengthening in competition meant that price increases were significantly below inflation. Penetration recovered somewhat from previous years as new car sales increased and the competitive prices encouraged customers to maintain policies for longer. The 5 year CAGR of 8.8% (-.1% in real terms) in 217 and we expect this trend to continue in 218 as the competitive market continues to reduce margins on the product. *The private pension contributions are calculated as the difference of aggregate contributions between 1/1/217 and 31/12/217. The published contributions are the total lifetime contributions paid by business in-force at the publication date. E.g. if a policy lapse after 1/1/217 and before 31/12/217, then its contributions are included in 1/1/217 figure but not in 31/12/217 figure. As a result, the difference between two dates is not equal to the premium production written between these dates.
Insights June 218 Table 5: MTPL premium production 14, Motor TPL premiums MTPL has traditionally been the most volatile class of business, and this has continued in 217 with new regulations on the price caps and the high risk driver pool. In 215, MTPL premium production increased by 35.4% (24.5% in real terms) compared to previous year. And in 216, the rise was 72.7% (59.2% in real terms). These changes are caused by price increases which are reactions to significant losses in the line of business as well as inflationary pressures from increasing injury claim numbers and increasing damage claims costs and shifting of competitive pressure onto the Casco insurance product. With the caps imposed in April 217, prices for MTPL reduced significantly and the growth rate was.8%(-9.9% in real terms) in 217. The 5 year CAGR was still 27.1% (16.6% in real terms) despite the downturns in 214 and 217. Health premiums In 217, health premium production increased by 19.% (6.3% in real terms) compared to previous year. This compares to the 5 year CAGR of 17.6% (7.9% in real terms) and demonstrates the increasing growth trend. The growth of supplementary health insurance have been impressive in percentage terms, and supplementary health production is also gaining more traction in volumes. In 217 the proportion of premiums written on supplementary health policies increased from 5.1% to 9.8%. This ratio excludes some hybrid product types which are shown within the private health figures. Fire premiums Fire increased by 19.% (6.3% in real terms) compared to previous year. This brings the 5 year CAGR to 16.8% (7.2% in real terms). 12, 1, 8, 6, 4, 2, 3,396 3,849 2,995 3,35 2,615 1,437 1,814 3,548 2,776 1,827 1,171 1,311 1,188 961 1,48 1,658 1,33 97 2,992 3,64 835 1,227 1,222 1,387 212 213 214 215 216 217 Table 6: Health premium production 6, 5, 1,429 4, 1,193 3, 2, 573 647 386 439 1, 465 57 813 88 863 924 71 789 613 1,112 537 894 725 598 1,429 1,624 1,174 1,6 212 213 214 215 216 217 Table 7: Fire premium production 7, 6, 5, 1,669 4, 3, 2, 1, 1,451 1,266 1,79 1,18 994 995 914 89 814 669 1,57 1,11 527 888 64 763 71 899 1,68 1,155 1,272 1,39 1,57 212 213 214 215 216 217 3 Turkish Insurance Bulletin
Insights June 218 Market share and ranks Among top 1 life insurance companies, Ziraat Emeklilik continues to be the market leader. Within this group, Metlife and Cigna Finans has grown over 5%. Beyond top 1, Fiba Emeklilik more than tripled its production and Katılım Emeklilik has shown strong growth. Table 8: Top 1 life companies by Company (m TL) 217 production 217 216 production 216 1 Ziraat Hayat ve Emeklilik 1,43 19.3% 1,84 2.2% 2 Metlife Emeklilik ve Hayat 756 1.4% 477 8.9% 3 Allianz Yaşam ve Emeklilik 629 8.6% 457 8.5% 4 Anadolu Hayat Emeklilik 576 7.9% 51 9.3% 5 Halk Hayat ve Emeklilik 512 7.% 397 7.4% 6 Garanti Emeklilik ve Hayat 499 6.8% 41 7.6% 7 Cigna Finans Emeklilik ve Hayat 482 6.6% 32 5.6% 8 AvivaSA Emeklilik ve Hayat 471 6.5% 317 5.9% 9 Vakıf Emeklilik ve Hayat 456 6.3% 374 7.% 1 Aegon Emeklilik ve Hayat 38 5.2% 272 5.1% Top ten companies 6,164 84.6% 4,592 85.5% Total life companies 7,287 5,371 Among top 1 private pension providers, top 5 companies have been stable over the years. Table 9: Top 1 private pension companies by Company (m TL) 31/12/217 AuM 217 31/12/216 AuM 216 1 Avivasa Emeklilik ve Hayat 15,187 19.5% 11,792 19.4% 2 Anadolu Hayat Emeklilik 14,67 18.7% 11,366 18.7% 3 Garanti Emeklilik ve Hayat 11,85 15.2% 9,529 15.7% 4 Allianz Yaşam ve Emeklilik 1,413 13.4% 8,141 13.4% 5 Vakıf Emeklilik ve Hayat 5,918 7.6% 4,766 7.8% 6 Ziraat Hayat ve Emeklilik 3,467 4.4% 2,375 3.9% 7 Halk Hayat ve Emeklilik 3,21 4.1% 2,282 3.8% 8 NN Hayat ve Emeklilik 2,899 3.7% 2,345 3.9% 9 Allianz Hayat ve Emeklilik 2,546 3.3% 2,49 3.4% 1 BNP Paribas Cardif Emeklilik 2,111 2.7% 1,735 2.9% Top ten companies 72,28 92.6% 56,379 92.7% Total pensions companies 77,965 6,848 However, on the auto enrolment side the picture of the first year in production is different. Government companies take the lead in terms of asset size. Anadolu Hayat and AvivaSA closely follow the dominating government players. This is also due to lower opt-out rates of public organisations compared to private companies. 4 willistowerswatson.com
Insights June 218 Table 1: Top 1 auto enrolment providers by Company (m TL) 31/12/217 AuM 217 31/12/216 AuM 216 1 Ziraat Hayat ve Emeklilik 426 23.6% 45 23.4% 2 Halk Hayat ve Emeklilik 3 16.6% 287 16.6% 3 Vakıf Emeklilik ve Hayat 239 13.3% 231 13.3% 4 Anadolu Hayat Emeklilik 184 1.2% 174 1.% 5 Avivasa Emeklilik ve Hayat 168 9.3% 165 9.5% 6 Garanti Emeklilik ve Hayat 137 7.6% 133 7.7% 7 Allianz Yaşam ve Emeklilik 12 6.6% 115 6.7% 8 Katılım Emeklilik ve Hayat 56 3.1% 54 3.1% 9 NN Hayat ve Emeklilik 5 2.8% 48 2.8% 1 BNP Paribas Cardif Emeklilik 33 1.8% 32 1.9% Top ten companies 1,714 95.% 1,646 94.9% Total pensions companies 1,84 1,734 Changes to motor premium volumes have driven many of the changes in the top ten non-life companies. While larger players except Aksigorta lost overall due to the shrinking MTPL premium production, smaller MTPL players has significantly grown, such as Doğa, Quick, Aksigorta, Ethica and Halk Sigorta. Overall the concentration of the market within the top-ten insurers reduced from 71.8% in 216 to 67.5% in 217. This is of particular interest since this proportion typically had increased year on year due to consolidations and growth of the larger insurers. The potential regulatory increases to the price caps will determine whether the larger players will come back to claim their s over 218. Table 11: Top 1 non-life companies by Company (m TL) 217 production 217 216 production 216 1 Allianz Sigorta 5,134 13.% 5,775 16.4% 2 Anadolu Sigorta 4,671 11.8% 4,484 12.7% 3 Axa Sigorta 2,98 7.4% 3,562 1.1% 4 Mapfre Sigorta 2,68 6.8% 2,795 7.9% 5 Aksigorta 2,636 6.7% 1,896 5.4% 6 Sompo Japan Sigorta 2,263 5.7% 2,236 6.3% 7 Ziraat Sigorta 1,736 4.4% 1,338 3.8% 8 Güneş Sigorta 1,661 4.2% 1,373 3.9% 9 Doga Sigorta 1,492 3.8% 8 2.3% 1 Halk Sigorta 1,48 3.7% 1,35 2.9% Top ten companies 26,662 67.5% 25,295 71.8% Total non-life companies 39,489 35,218 5 Turkish Insurance Bulletin
Insights June 218 Regulatory update IFRS 17 The IFRS 17 standards were published in April 217 and the discussions on whether the Turkish insurers report in compliant with the IFRS 17 standards have started right off. The Public Oversight, Accounting and Auditing Standards Authority, KGK is the local version of IASB. According to their handbook, Turkey has adopted IFRS Standards for the financial statements of all public interest entities. Listed companies, intermediary institutions and portfolio management companies were permitted to use IFRSs as of 23 (voluntarily), and have been required to use IFRSs since 25 (mandatory). All banks and financial institutions have been required to use IFRSs since 26. The KGK has a strategic objective of setting accounting standards in full compliance with the International Financial Reporting Standards. As of March 217, 1 Conceptual Framework for Financial Reporting, 43 Turkish Accounting/Financial Reporting Standards (TASs/TFRSs) and 25 TAS/TFRS Interpretations have been published in the Official Gazette. Those standards are continuously updated in accordance with the amendments made by the IASB with the effective dates as originally pronounced by the IASB preserved. Turkish Insurance Association is working jointly together with the Treasury and with participation from KGK in order to determine the road map and high level impact of compliance with IFRS 17. Given the strategic objectives of KGK, our expectation is that Turkish insurers will be required to comply in a timely manner. It is seen that both multinational and local players already started to work on the preparations. MTPL Price Caps and MTPL Pool As we covered in our previous bulletins, on 1 April 217 a regulation was applied that brought in additional caps for all segments of business (by circular numbered 217/1), in particular the regulation covered: Caps for all of the vehicle groups, differing by city (+6% for Istanbul, up to -5% for some cities) and No Claims Discount levels which are more generous at 15%-3%- 45% (but with no extension on the number of no claims discount levels). Allowance for inflation in the caps which will increase 1% monthly. Sales channels commissions cannot be under 1%. This regulation won t work retrospectively and the ability for a customer to cancel their product has been curtailed to reduce the potential of a lapse shock in the market. The regulation will be in force until the end of 217. As of 1st of September 217, the allowance for inflation in the caps which will increase 1.5% monthly (by circular numbered 217/8). As of 1st of January 218, the caps were increase by 5% (by circular numbered 217/23) and the application period was extended until the end of 218. On 11th July 217, the regulator also introduced the pool for risky insured, known as the MTPL pool (by regulation update #3121). According to the regulations: The MTPL pool is managed by Turkish Motor Insurers' Bureau (TMTB) The MTPL pool covers all the vehicles with NCD levels of 1, 2 and 3 as well as the taxis, minibuses, small and large buses, trucks and trailers with NCD levels of 4, 5, 6 and 7. The prices are calculated according to the price caps. However, the discounts are applied as 1%-2%-3% for the taxis, minibuses, small and large buses, trucks and trailers with NCD levels of 5, 6 and 7. The commission is 8% of the premium including Social Security loading but excluding loadings for Banking and Insurance Transaction Tax, Traffic Services Development Account, Assurance Account. The insurance company manages the claims process themselves and gets a 5% commission on the premium including Social Security loading but excluding loadings for Banking and Insurance Transaction Tax, Traffic Services Development Account, Assurance Account. The claims sharing will be performed in two stages. 5% of the premiums and paid claims are shared amongst the companies equally. The remaining 5% is shared according to the share of MTPL premiums in the past 3 years. This will be calculated at the beginning of every year and stays level during the year, with the exception of 217 where the premiums written from 1st January/214 to 12th April 217 are considered. A review committee of three members, one from each of The Turkish Insurance Association, TMTB and the Undersecretariat of Treasury will review the pool transactions and report to the Treasury. After a period of significant uncertainty, the MTPL pool together with price capping brought some stability to the market in terms of pricing and compulsory cover supply. However, there are some major concerns around its sustainability and longer term impacts on the bottom line. Some of the major concerns are as follow: The Insurance Association commissioned a reserve review study on MTPL following the introduction of price capping and high risky insured pool. The study has shown that the MTPL pool is significantly loss making with the price levels of 217 which is unlikely to change with the current inflation levels and standard monthly increase of caps. 6 willistowerswatson.com
Insights June 218 The lack of visible incentives for insurers to better manage pool claims might potentially worsen the results even more in the longer term. This becomes more of a concern when the claims management experience, capacity and capability of small companies are taken into account. Last but not least, the equal share principle together with the longer term impacts of reserve deficiencies may become a significant problem for the market and in particular for companies getting significant amount of shares from the pool with potentially inadequate levels of capital supporting it. Supplementary health insurance Supplementary health insurance has grown significantly in last years, from TL 72m premium production in 215, to TL 26m in 216 and TL 493m in 217. At the end of 217, it has a 9.8 % share within the health branch. On 1 August 216, the regulator allowed private pension companies to sell health insurance business (by circular numbered 216/3). We believe this is a useful amendment to fuel additional growth for the supplementary health insurance products, which could be sold in conjunction with auto enrolment business. We see the life players cooperating with existing health players, with a view to defeat the costly barriers of entry to the market, such as establishment of administration systems and development of products without any prior knowhow and experience. Fiba Emeklilik and Katılım Emeklilik were amongst the first life players who obtained the health insurance license and kicked off their sales. We understand that the government is supportive of supplementary health insurance and willing to use it as a tool to finance the expansion of city hospital concept in the country. There is a growing interest especially from the blue collar companies or from smaller companies that have not formerly been offering health insurance benefit to their employees. This interest might be an indication of potential interest from public with relatively lower purchasing power who have not formerly been able to afford health insurance for themselves and perhaps for their families. The future of supplementary health will therefore depend on the government policies, economy and the marketing efforts that will need to support the increase of awareness in the public domain. Currently, there are 6 participation insurance players active in the market, Neova, Ziraat and Doga Sigorta on the non-life side and Katılım, Ziraat and Vakıf Emeklilik on the life side. The premium production has been TL 1.3b, representing a 25.8% growth (12.4 in real terms) since 216. This excludes contributions to private pensions and auto enrolment funds with participating nature. According to the new regulation, companies: are required to quote a price of participation insurance correctly for each risk without any risk of borrowing the risk fund at any time. can manage participation insurance policy with mubadarah, wakala or hybrid management models. Also can apply a different model that is approved by the advisory committee. Details need to be disclosed in the contract. are required to establish an advisory committee or external advisor to ensure the security and reliability of the participation system. calculate the balance of risk fund in accordance with generally accepted actuarial and participation finance principles and announce the balance of risk fund at end of the each period. should clearly inform the participant before the contract or under the insurance contract, in case of a surplus. Various actions that can be taken for surplus amount, such as reducing future premiums, separating of reserve funds for future unpredictable risks, distribution to participants in full or partially and any other action approved by advisory committee. Participation Insurance System Participation Insurance (also known as Takaful or Islamic Insurance) regulations on working procedures and principles were published at 2 September 217 (number 3186). The share of participation banks in the finance industry has been growing in the recent years and participation insurance could potentially follow the same trends. 7 Turkish Insurance Bulletin
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