Zurich Sigorta on Turkey’s growing insurance sector

Mrassociates speaks to Yılmaz Yıldız, CEO of Zurich Insurance Turkey, about the country's growing insurance sector

December 10, 2014

The Turkish insurance sector, like the country’s economy, has taken off in recent years, due to favourable demographics, urbanisation, and an expanding middle class. Mrassociates speaks to Yılmaz Yıldız, CEO of , to ask whether this growth is set to stay.

Mrassociates:Yılmaz, Turkey has been one of the world’ fastest growing economies. Is this still the case? And how does this translate in the insurance sector?
Yılmaz Yıldız: It was one of the fastest after China and India: eight, nine percent growth rates we’re talking about. But with the ‘new normal’ which you see… okay, America’s doing pretty well, but Europe’s slowed down, no growth. In China what they call the ‘new normal’ is around seven percent growth. So overall there’s a shifting paradigm in terms of slower growth than what we’ve seen before.

So that also impacts Turkey. On one side you have the Fed tapering, which is expected to increase the interest rates; and the slowdown in the global economy is impacting the Turkish economy as well. So our ‘new normal’ is three to four percent in the next few years.

The non-life insurance sector is very much impacted by what happens in the general economy

The non-life insurance sector is very much impacted by what happens in the general economy. So, when the Turkish economy was growing eight to nine percent, the non-life market was growing 15-20 percent. Now with three to four percent growth, the growth rate in non-life is expected to be 10-15 percent: still slower than before, but materially higher than Europe and most of the emerging markets.

Mrassociates: Well which insurance sectors are the most developed? What sort of coverage does the country have, and what do you focus on?
Yılmaz Yıldız: So if you look at non-life, you’re looking at a $10bn market, which is growing 10-15 percent per annum.

Now, half of the market is auto; then the second biggest segment is property, then health, followed by marine, construction, liability, and the others.

If you look at auto ownership in Turkey, and you compare that to Europe, it’s one third to one fourth. And with the Turkish economy’s growth and increasing GDP per capita, auto ownership is expected to increase.

Add on top of that the kasko [comprehensive insurance] penetration rates, which is hovering around 30 percent, you have the overall market growth, plus penetration being just 30 percent: huge upside potential. So the kasko is one of the main lines that is expected to grow in future years.

The second one is liability: overall liability is growing, and it’s expected to grow substantially as well. Health, similarly, the third line. And on the commercial property, marine, construction; all these are very much linked to the investment climate, and as the Turkish economy grows, those will grow as well.

And lately, environmental risks, and short-tier products are demanded. And so in fact, we will be one of the first in Zurich to provide those to the companies.

Mrassociates: Well the Turkish government has implemented a number of policies to encourage insurance, such as the 25 percent state contribution to private pension plans. What impact has this had?
Yılmaz Yıldız: The private pension system started toward the end of 2003, and you have the state’s mandatory social security system. And this is a complementary and voluntary system on top of the state’s social security system.

And from 2003 until 2014, we have five million citizens voluntarily entering the private pension system, and the funds under management have become about $15bn. And the average growth rate is 30 percent per annum.

The Turkish government is trying to increase the savings rate; and one of the best ways to increase your long-term savings rate is to convince the citizens that they should be part of this private pension system, and save for the long-term.

Mrassociates: So what funds do you invest in, and how do you manage risk?
Yılmaz Yıldız: Financial income is a vital part of insurance companies, and usually you make more money from financial income than from technical income, because of the nature of the insurance business. Because you collect the premiums, but the claims come later on.

We have a very well managed and very well governed asset management policy; basically with our colleagues at headquarters, and we have special committees that we determine the strategic asset allocation. And for each country that changes. In Turkey, depending on the Turkish economy and investment climate, plus Zurich Group’s approach to asset management and the strategic allocation, we determine what that strategic asset allocation should be, and then we invest.

We have a very well managed and very well governed asset management policy

Mrassociates: Well Turkey is a close neighbour to a number of politically unstable countries in the Middle East. What impact has this had on the insurance sector, and what challenges does it pose?
Yılmaz Yıldız: Well, what is happening in Syria and Iraq is very unfortunate. It’s a human tragedy, on the one side. And on the other side it’s having a major impact on trade, as well.

Iraq is in the top three, top four trading partners in Turkey. Syria was a major trading partner before these unfortunate events happened. As such with these events, especially in Syria – the trade with Syria has diminished substantially. With Iraq, Turkey imports oil and exports all types of consumer goods and infrastructure capital goods.

In terms of insurance, in that geography; insurance penetration is lower compared with the other parts, but certain products such as marine and auto are impacted negatively, because of the higher loss ratios, and what happened there. So yes, you do have damage due to uprisings and some other events, but the impact so far has been marginal.

Mrassociates: Well, many of the insurance companies in Turkey are foreign-owned or partnered, so does this mean that Turkey’s a good place to invest for companies looking for new growth markets?
Yılmaz Yıldız: The past 10 years, more than $100bn were invested across the sectors; but roughly one third has been in the financial sector. And within that, insurance took a big share.

We see interest continuing, actually. There are new entrants, there are mergers and acquisitions that are going on. And if you go forward, there will be certain consolidation in the market, and M&A activity will continue.

Mrassociates: Well finally, how do you stay ahead of the competition?
Yılmaz Yıldız: Going forward we have to continue our growth. We’re growing more, 40-50 percent faster than the market.

We’re one of the most profitable – if not the most profitable – non-life insurance company. And our multi-product, multi-channel strategy will continue, and we will make sure that we are the best judged by our customers, our employees, and of course, our shareholders and stakeholders.

Mrassociates: Yılmaz, thank you.
Yılmaz Yıldız: Thank you.


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