How Turkey’s currency crisis could make Zurich Turkey more profitable

CEO Yılmaz Yıldız expects greater investment income will more than offset higher claims costs

January 21, 2019
Transcript

Turkey, once the darling of emerging market investors, is going through some difficult times due to its ongoing currency and debt crisis. Yılmaz Yıldız from Zurich Turkey explains how Turkey’s insurance sector has been affected, how Zurich Turkey has been meeting or exceeding its targets in spite of the crisis, and what the future holds for Turkey. In the second half of this interview Yılmaz discusses the general trends in emerging markets, and how Turkey is positioned within them.

Mrassociates: What’s been the impact of the crisis on Turkey’s insurance sector?

Yılmaz Yıldız: Since the currency crisis has not morphed into a financial, economy-wide crisis; as of now we see impact, but not as much as what we’ve seen in the currency markets.

However, a stagflation scenario is a high probability. And the non-life insurance sector will be impacted by that. So, what we expect to see is a slowdown in premium growth rates across all lines of business. But more importantly, the currency crisis, one thing that’s happening is: inflation has increased substantially. The figures as of yesterday is the annual rate is around 25 percent. And claim costs are increasing substantially.

On the other side, due to inflation, and due to the increase of interest rates by the central bank, we will also see an increase on the investment income.

What that all leads to is less income from insurance operations, and more income from financial transactions and investment income. So overall the profitability may not suffer – or may even improve due to financial income – but the core insurance business will inevitably suffer, because of higher costs of claims.

Mrassociates: And for Zurich Turkey specifically? How has 2018 been, and what’s your projection for 2019?

Yılmaz Yıldız: 2018 has been very good so far – even despite the volatility in the last two quarters, we will meet or exceed our targets. Because Turkey and Turkey’s insurance market is still very attractive, and if you have the right strategy, the right team, and a good execution track record, there’s no reason why you shouldn’t be making your targets or exceeding your targets going forward.

To that end, we have launched new innovative products, especially on the cyber and on the health side, and on the SME side. So those new products will generate revenues for us. Secondly, we’re in the process of having some new partnerships in place, and also with our existing partnerships we are doing more with less.

Secondly, to contain the claim inflation and to remedy the rather negative movement of expenses, we are really focusing on underwriting discipline and claims management. So that’ll continue.

So, overall on the financial side, we expect that our profitability will not suffer. Our growth rate will slow down. But overall we’re doing well in 2018, and we’re confident that we’ll do well in 2019 as well.

Mrassociates: So what does the future hold? What’s the timeline for Turkey getting back on its previous trajectory?

Yılmaz Yıldız: I think one thing that is really important to realise is, Turkey is going through a currency crisis. It is not a financial crisis, and it is not an economy-wide crisis. It is only a currency crisis. And with the right measures to contain this currency crisis, it will not be too difficult for Turkey to get back to its growth trajectory very soon.

And the government has announced the midterm plan, in which I think most of the right measures have been taken. And as long as these are done, it will be contained as a currency crisis, and it will not morph into a financial or economy-wide crisis.

Mrassociates: Yılmaz Yıldız, thank you very much.

Yılmaz Yıldız: Thank you.