Insights December Turkish Insurance Bulletin Our Turkish Insurance Bulletin keeps senior executives around the world up-to-date with the developments in the Turkish insurance market 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. The s of top 10 life, pensions and non-life players. Latest updates on regulations. 5 year CAGR for life insurance premiums was 11.5% (3.1% in real terms), a combination of stagnant or declining premium levels in and respectively with higher growth in and. Figure 1. Life insurance premium production (gross written premiums) 4,00 Market statistics Life insurance premiums 3,50 3,00 787 910 981 In, life premium production has shown a contraction, 3.4% (10.7% in real terms) compared to previous year. The main driver was the reduction on the credit-linked business due to the decline in the volumes of consumer loans and mortgages during the first two quarter of the year, as a result of increased interest rates. In, life premium production made a recovery by growing 14.7% (5.4% in real terms) compared to. 2,50 2,00 1,50 1,00 50 561 515 514 591 577 695 565 593 793 662 750 761 782 855 972 815 761 795 902 934 945
Insights December Figure 2. Private pensions change in aggregate contributions Private pension contributions* 10,00 9,00 8,00 7,00 3,000 In, the private pension contributions increased by 11.8% (3.4% in real terms) compared to previous year, at a rate lower than adjacent years, mainly due to the economic developments in the first two quarters. In, the pension contribution increased by 36.5% (25.5% in real terms) compared to. 6,00 5,00 4,00 3,00 2,00 1,00 30,00 25,00 20,00 629 623 614 548 709 711 790 669 1,080 840 984 880 1,447 2,110 1,225 1,699 1,641 1,196 1,431 1,420 Figure 3. Non-life insurance premium production (gross written premiums) 5,581 6,088 2,030 1,916 1,827 7,990 5,914 5 year CAGR pension contributions was 29.5% (19.7% in real terms). The growth rates were particularly higher since, when the state contribution system was introduced. The 3 year CAGR was 32.3% (22.4% in real terms) despite the relatively lower growth during. Non-life insurance premiums The growth of the non-life industry has been substantially higher than inflation for many years, the 5 year CAGR to was 17.9% (9% in real terms). From to, non-life premium production increased by 9% (0.8% in real terms) compared to previous year. Motor premiums for both Casco and MTPL products dropped in real terms during the period. From to, non-life premium production increased by 20.1% (10.3% in real terms) compared to previous year. As with previous years, the non-motor branches grew at a consistent rate, whereas the motor branches grew more strongly after the real terms reductions in. This growth was driven by the MTPL branch of business which saw very dramatic price increases during the calendar period. 15,00 10,00 5,00 3,268 2,624 2,976 3,080 3,961 3,156 3,610 3,760 4,819 3,666 4,213 4,418 4,532 5,099 5,623 4,908 5,511 6,203 6,393 6,968 The growth of the non-life industry has been substantially higher than inflation for many years, the 5 year CAGR to was 17.9% (9% in real terms). 2 willistowerswatson.com * The private pension contributions are calculated as the difference of aggregate contributions between 31/12/ and 31/12/. The published contributions are the total lifetime contributions paid by business in-force at the publication date. E.g. if a policy lapse after 31/12/ and before 31/12/, then its contributions are included in 31/12/ figure but not in 31/12// figure. As a result, the difference between two dates is no equal to the premium production written between these dates.
Insights December Motor Casco premiums In, motor Casco premium production increased by 1.2% (-6.5% in real terms) compared to previous year. In, motor Casco premium production increased by 9.2% (0.3% in real terms) compared to previous year. Following several years of reducing claims frequency, the claims trends levelled out during the period. However continued strengthening in competition in the branch 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 growth rate is lower than the 5 year CAGR of 12.2% (3.7% in real terms), and we expect this to continue in 2016 as the competitive market continues to reduce margins on the product. Motor TPL premiums MTPL has traditionally been the most volatile class of business, and this has continued with a vengeance in and. In, MTPL premium production increased by 2.7% (-5.1% in real terms) compared to previous year. Recovering penetration and increasing vehicle counts were reduced by the substantially decreasing trend in average premium which began in Q2. In, MTPL premium production increased by 25.6% (15.4% in real terms) compared to previous year. However, average premium increases during were significantly higher, with premiums more than doubling between January and January 2016. We discuss some of the causes and effects of these changes later in this article. The 5 year CAGR was 22.2% (13% in real terms). The increases contribute to the continuing feeling of volatility in the branch, similar dramatic increases occurred in. Figure 4. Motor casco premium production (gross written premiums) 600 500 400 300 200 100 869 750 826 671 1,051 886 987 863 1,283 1,042 1,188 1,020 1,162 1,328 1,445 1,321 1,215 1,183 1,255 1,202 Figure 5. MTPL premium production (gross written premiums) 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 665 607 674 598 810 713 772 679 1,171 961 970 835 1,437 1,311 1,408 1,814 1,188 1,303 1,597 1,292 1,382 1,281 2,467 1,704 1,512 1,227 1,222 1,259 3 Turkish Insurance Bulletin
Insights December Figure 6. Health premium production (gross written premiums) 4,00 3,00 789 924 Health premiums In, health premium production increased by 18.5% (9.5% in real terms) compared to previous year. In, the increase was 17.3% (7.8% in real terms) compared to previous year. Both of these are somewhat higher than the 5 year CAGR of 15% (6.3% in real terms), and we would hope this trend of faster growth would continue giving the relatively low penetration of health insurance. 2,00 1,00 647 613 573 537 526 439 725 472 386 598 347 507 292 465 428 1,174 361 1,006 813 880 699 580 Figure 7. Fire premium production (gross written premiums) 5,00 Of particular interest in terms of products is the growth of supplementary health products, which would bring an efficient value proposition to customers compared to other low-cost products. There is much anticipation that the product type will take-off and, while growth figures have been impressive in percentage terms, supplementary health has not yet gained significant traction in volumes, which are necessary to make the product a mainstream success. In the proportion of premiums written on supplementary health policies was 4.2%. Fire premiums Following substantial increases in. In, fire premium production increased by 15.6% (6.9% in real terms) and in, it increased by 14.2% (5% in real terms) compared to previous year. This brings the 5 year CAGR to 17.3% (8.4% in real terms). 4,00 3,00 2,00 1,00 994 814 670 669 557 527 482 763 399 604 561 469 899 556 597 701 1,079 809 888 1,068 1,266 914 1,057 1,155 Market share and ranks Among top 10 life insurance companies, Ziraat Emeklilik is still the market leader but with a reducing. Allianz Yaşam now took over Anadolu Hayat Emeklilik. AvivaSA lost some and ranked 7th, 2 levels below last year. Garanti Emeklilik also lost some market share whereas, Halk Emeklilik and Aegon were the companies who managed to increase by over 1%. Among top 10 private pension providers, AvivaSA took over the market leadership from Anadolu Hayat Emeklilik. Ziraat Emeklilik entered the top 10 list, replacing Groupama. Allianz Yaşam lost some whereas, Halk Emeklilik increased the pension in addition to the life owing to the momentum of the privatisation process, which was cancelled later in the year. In terms of contribution production the top 10 companies by asset size also rank in top 10, with the exception of NN Emeklilik. 4 willistowerswatson.com
Insights December Figure 8. Top 10 life companies by Company () production production 1 Ziraat Hayat ve Emeklilik AŞ 631 15.9% 617 18. 2 Allianz Yaşam ve Emeklilik AŞ 441 11.1% 337 9.8% 3 Anadolu Hayat Emeklilik AŞ 403 10.2% 366 10.7% 4 Garanti Emeklilik ve Hayat AŞ 329 8.3% 319 9.3% 5 Metlife Emeklilik ve Hayat AŞ 321 8.1% 257 7.5% 6 Halk Hayat ve Emeklilik AŞ 318 8. 238 7. 7 AvivaSA Emeklilik ve Hayat AŞ 263 6.7% 258 7.5% 8 Cigna Finans Emeklilik ve Hayat AŞ 254 6.4% 210 6.1% 9 Vakıf Emeklilik AŞ 244 6.2% 186 5.4% 10 Aegon Emeklilik ve Hayat AŞ 196 4.9% 134 3.9% Top 10 companies 3,398 86. 2,922 85.3% Total life companies 3,953 3,425 Figure 9. Top 10 private pension companies by Company () 31/12/ AuM 31/12/ AuM 1 Avivasa Emeklilik ve Hayat 9,212 19.2% 7,127 18.8% 2 Anadolu Hayat Emeklilik 8,945 18.6% 7,394 19.6% 3 Garanti Emeklilik ve Hayat 7,587 15.8% 6,096 16.1% 4 Allianz Yaşam ve Emeklilik 6,768 14.1% 5,669 15. 5 Vakıf Emeklilik 3,557 7.4% 2,557 6.8% 6 NN Hayat ve Emeklilik 1,945 4.1% 1,768 4.7% 7 Allianz Hayat ve Emeklilik 1,675 3.5% 1,294 3.4% 8 Halk Hayat ve Emeklilik 1,565 3.3% 930 2.5% 9 BNP Paribas Cardif Emeklilik 1,448 3. 1,159 3.1% 10 Ziraat Hayat ve Emeklilik 1,461 3. 836 2.2% Top 10 companies 44,162 92. 34,831 92.1% Total pensions companies 47,999 37,812 Changes to motor premium volumes have driven many of the changes in the top ten non-life companies. In particular Allianz and Mapfre growing their s while AXA and Aksigorta both reducing shares between and. Overall the concentration of the market within the top-ten insurers reduced from 77.1% in to 75.3% in, this is of interest since this proportion typically has increased year on year due to consolidations and growth of the larger insurers. Whether this will continue into 2016 is a question, we are seeing new entrants appearing in the market which may further dilute s of existing players who are unwilling or unable to compete for motor insurance share. However we also expect that M&A activity might recommence as reserving questions begin to be answered and capital concerns unwind. 5 Turkish Insurance Bulletin
Insights December Figure 10. Top 10 non-life companies by Company () production production 1 Allianz Sigorta AŞ 4,051 15.3% 3,216 14.6% 2 Anadolu Anonim Türk Sigorta Şirketi 3,610 13.7% 3,005 13.6% 3 Axa Sigorta AŞ 3,066 11.6% 3,078 14. 4 Mapfre Genel Sigorta AŞ 2,111 8. 1,491 6.8% 5 Aksigorta AŞ 1,622 6.1% 1,714 7.8% 6 Güneş Sigorta AŞ 1,288 4.9% 1,213 5.5% 7 Groupama Sigorta AŞ 1,115 4.2% 1,058 4.8% 8 Sompo Japan Sigorta AŞ 1,063 4. 687 3.1% 9 Eureko Sigorta AŞ 1,003 3.8% 801 3.6% 10 Ziraat Sigorta AŞ 932 3.5% 703 3.2% Top 10 companies 19,861 75.3% 16,965 77.1% Total non-life companies 26,391 22,015 Regulatory update Minimum wage increase During the general election in Turkey, different political parties made promises about substantially increasing the minimum wage. These promises included promises by the government, particularly after the initial election result ended in a hung parliament. Therefore, at the beginning of 2016 the Turkish minimum wage increased by 3 to 1300 per month. This increase is substantially higher than typical increases in minimum wage over the previous few years, which have averaged around 12% per year and are applied on a semi-annual basis of typically around 6%. There was zero minimum wage increase in July 2016, and it is not clear whether there will be an increase in January 2017. Private pension system, changes to the charging structure and levels The regulator issued an update #29366 dated 25/05/ to the private pensions regulation regarding the charging structure of private pension policies. Summarise from the article. In the first five years, the annual level of management charges and entry fee cannot exceed 8.5% of the monthly minimum gross wage (1,647 TL in the first half of 2016). Upon lapse, during the first five years, companies can charge up to the total amount chargeable (based on the minimum wage valid during the first half of the year of lapse) within the first five years, less charges to date. The total level of management charges and entry fee and fund charges (after 2016 for existing policies) cannot exceed a certain level of the state contributions (6 for year 6, 7 for year 7, 8 for year 8, 9 for year 9 and 10 for year 10). This is only valid for premium paying policies with a fund level lower than 120 times the monthly minimum wage. Fund management charges can be collected from the contributions and fund subject to the new limitations. Charge caps on liquid and gold funds are 1.09%, bond funds are 1.91% and equity funds: 2.28% with a 2.5% return of charges at policy year six, 5% return at policy year seven, 25% return at and after policy year 15. No need for return if the fund charges are below 1.1% of overall fund amount. Please refer to our Insights article Turkish private pensions: Sector consolidation on the cards issued in February 2016 for a detailed discussion of the changes. Annuities The regulator is trying to promote the launch new annuity products. The new circulars mention two different types of products one targeting individual below age 56 and another age 56 and above, to be sold as a decumulation option in the private pensions system. The products targeting age 56 and above should be whole life annuities with a CPI guarantee, surrender benefit and an offer a death benefit option. 6 willistowerswatson.com
Insights December In the recent years, the industry was reluctant to introduce new annuity products due to the lack of credible mortality basis, mortality improvement factors and matching assets. The regulator has recently addresses both issues. We understand an academic group was commissioning to update the TRHA annuitant mortality tables. We also understand the regulator shared the details on a planned bond issue for a long term CPI indexed bond. Impact on minimum wage increase on non-life business The impact of the minimum wage increase to insurance claims has several aspects, for property claims the change will impact the labour costs for repairs which, given the short tail of these claims, is likely to increase claims inflation for these claim types. For liability claims, involving the disability or death of a victim, the impact is in our opinion, more significant. A substantial proportion of claims amounts are settled based on minimum wage calculations, either because the victim was paid minimum wage, or they did not have a documented income. A proportion of claims will be for victims who are salaried in excess of the minimum wage or whose income is otherwise estimated (for example self-employed individuals with appropriate documentation of income). To a large extent these claim amounts will not be significantly affected by the minimum wage change (although, for example, pension and caregiver amounts will likely be based upon the minimum wage). We also observe that the increase will apply to all claims, including claims for accidents that occurred before 2016. Therefore the immediate effect of the increase is to substantially raise the requirement of total bodily injury reserves including case reserves and IBNR. This has particularly impacted the Motor Liability and General Liability lines of business. Use of best estimate reserving techniques and discounted reserves may have very significant effect on the financial results of MTPL and other branches in the short-term. The impact of phasing will also be effective for next couple of years meaning that the financial year results will be affected by the runoff performance of the business Use of best estimate reserving techniques and discounted reserves may have very significant effect on the financial results of MTPL and other branches in the short-term. The impact of the phasing in of the changes will also be effective for next couple of years meaning that the financial year results will affected by the runoff performance. MTPL general conditions and law changes and 2016 brought a significant number of changes to the laws and regulations governing the motor insurance liability product and the claims. New MTPL General Terms and Conditions were published by Secretariat of Treasury on 1 June, with minor updates applied on 8 August 2016, these new conditions introduced the following key changes: a The beneficiary of the MTPL policy was defined, in particular this explicitly excluded the dependents of the driver at fault for the accident, b The calculation of compensation for loss of value claims, is defined, c The calculation of compensation for disability and death claims (loss of support), is defined. d The documents required to bring a motor insurance claim are defined. We do not anticipate that the minimum wage change, in itself, is a reason for re-opening of claims previously settled in court, however, the change may increase the benefit to claimants who could reopen claims for other reasons. Re-opening of claims is a serious challenge for the Turkish insurance industry and we anticipate it will continue to be a challenge. Overall we see a range of increases due to minimum wage of between 12% and 15% of the total reserves. We observe that most companies have undertaken impact assessments to individual claims and most are applying increases to the case reserves for individual cases and also case reserves averages. 7 Turkish Insurance Bulletin
On 26 April 2016 there was a change in law which strengthened the implementation of the General Terms and Conditions in the following ways: a Refers to General Terms & Conditions for the calculation of compensation for the compulsory MTPL products, and requires that calculation methods used are from the General Terms & Conditions, unless the General Terms & Conditions does not contain the calculation method. b Defines the beneficiary of the MTPL policy, in particular this explicitly excluded the dependents of the driver at fault for the accident. This is aligned with the General Terms & Conditions change. c Refers to General Terms & Conditions for the other inclusions of claims types within the compulsory MTPL policy. Explicitly stating that all other risks are excluded. d Brings in a requirement to report claims to an insurer before the court, and requiring the claimant to wait fifteen days after reporting before bringing a court case against an insurer. Specifies that documents required will be defined by the General Terms & Conditions. The immediate impact of the new law and Terms and Conditions is expected to be the removal of liability for at fault driver claims on policies incepted after the introduction of the new law, and also the change to the actuarial calculation methods for compensation amounts. The industry had seen a significant rise the number of driver at fault claims since a high court ruling in made the claims valid, the new conditions should revert the situation back to the 2008 situation where the claims were not accepted. We continue to see some ambiguities about the interpretation of the law, such as whether the change in calculation method and the exclusion of at fault driver claims is retrospective, and whether it is applied based on the underwriting date or the accident date, or the reporting date. This ambiguity is expected to be resolved as cases are settled in the court system, but this may take some time. We have observed since the change a significant increase in the number of claims for the loss in value of the vehicle and we anticipate that the number of such claims will continue to increase as claimants become more aware of the coverage. As the number increases so we expect the average claim amount to reduce. We anticipate that the change in actuarial calculation method, and its definition in the terms and conditions referred to by the law, should improve the consistency of court decisions, and should reduce the proportion of claims in litigation. The fifteen day requirement for claimants to report claims to an insurer should also have an impact in speeding up claims reporting, it is not yet clear whether this impact has directly reduced reporting delays or the proportion of claims in litigation, but we are seeing reporting delays across the industry reducing, especially for those companies who have transformed their claims processes to focus on fast reporting and fast settlement activities. About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. Willis Towers Watson Danışmanlık Limited Şirketi Astoria İş Merkezi Büyükdere Cad. No:127 A Kule Kat:4 Şişli / İstanbul Tel: +90 212 337 21 00 turkey@willistowerswatson.com The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, email eu.unsubscribe@willistowerswatson.com with the publication name as the subject and include your name, title and company address. willistowerswatson.com/social-media Copyright 2017 Willis Towers Watson. All rights reserved. WTW-EU-17-PUB-2643 willistowerswatson.com