Analysis of the Turkish General Insurance Market
Short Description
In-depth analysis of the Turkish general insurance market, including examination of industry dynamics, profitability and...
Description
2010 By Alexander D. JARVIS Blog: www.alexanderjarvis.com Twitter: ADJBlog
AGENDA 1.
Competitive Comparison
2.
General Insurance Industry Overview Of Turkey
3.
General Insurance Underwriting Analysis
4.
Overview Of Underwriting Ratios In Turkey
5.
Developing General Insurance Underwriting Competence
6.
Expansion Options To Gain Market Share
NOTES 1.
Presentation is focused on general insurance • Defined as all insurance excluding life and pension. Excludes GI generated in non-life companies Data set • As of the end of 2009 there are 57 companies operating in the market. Out of 56 insurance companies, 33 of them are licensed in non-life insurance, 9 in life insurance and 14 in pension/life business. There is only one licensed reinsurance company in the domestic market. In addition, there are four non-life and one life insurance companies licensed but currently not in operation for variety of reasons. The report covers data for general insurance companies as follows: 25 explicitly and 13 grouped into “Other” Arranged in two groups by 5 year trailing average net earned premiums (“NEP”) • Group one is largest 13 companies • Group two is next largest 12 and Other (Grouped under “Remainder”) Data aggregation/cleansing • All companies have been aggregated on a trailing basis for acquisitions to provide consistency over time (i.e. Acquirer includes target data in prior years) • Government data set are not 100% accurate and errors have been corrected with best estimates, as found NEP is used throughout presentation meaning Expense Operating Ratio is calculated on a financial rather than solvency basis (which would use Net Written Premiums) • Calculation: NWP- Change in Prov. for Unearned Premium - Change in Prov. for Unexpired Risks
2.
3.
4.
5.
Group 1 1 2 3 4 5 6 7 8 9 10 11 12 13
AXA Anadolu Allianz Groupama Yapi Kredi Ergo Aksigorta Gunes Mapfre Genel Eureko FIBA Aviva Ray
Ave. Earned Premium 832.25 758.86 488.83 429.62 405.60 390.73 378.35 292.44 198.89 176.44 166.26 158.60 136.40
Group 2 14 15 16 17 18 19 20 21 22 23 24 25 26
Ankara Zurich Chartis HDI Birlik Isik Liberty Hur Generali Dubai Group SBN Coface Remainder
Ave. Earned Premium 99.46 79.92 79.27 68.16 67.71 61.65 49.44 34.51 29.09 13.77 13.20 11.51 16.90
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. (*) Licenced but Inactive Insurance Companies. Note: Other under Remainder is a provided grouping
Remainder 1 2 3 4 5 6 7 8 9 10 11 12 13
Euro Bati (Liquidated ‘09) Cardif Atradius Demir Turk Nippon Rumeli (*) Other Magdeburger (*) Merkez (*) Inter (*) Neova Ace Total
Ave. Earned Premium 7.59 6.46 2.26 0.37 0.31 0.12 0.08 0.01 0.00 0.00 0.00 0.00 0.00 16.90
EXECUTIVE SUMMARY •
•
Whilst without difficulties at both a political and economic level, and underdeveloped compared to the banking system, Turkey has experienced phenomenal growth in the general insurance market, buoyed by a young and growing population, EU ascendancy and GDP growth • GWP have outpaced the growth of almost every other nation, although of late this growth has stalled Fierce competition from foreign entrants has aided the market development (FDI was key) but has meant that seldom few companies have made underwriting results in the preceding 5 years • •
•
Few domestic companies continue to go it alone Given growth prospects in home countries, it is unlikely that competition driven by foreigners will abate in the short term The legal framework around insurance is creating opportunities, but also encouraging competition •
•
Competition has further intensified in TPL vehicle insurance following the introduction of ‘free’ tariffs (Pricing flexibility) in 2007 • Efforts to control acquisition expenses of insurers, such as the amounts yielded under bancassurance agreements, have not been effective Distribution channels unique in Europe, strongly polarised to agencies, with the highest bancassurance rate but with amongst the lowest levels of brokers and direct •
•
•
Direct and online sales are in their infancy, but given that the model has been tried and tested abroad, it should engage the market at an accelerated rate when the channel is focused upon There are niches across the industry given its nascent status; low penetration, premium per capita, less take-up by women, underdeveloped branches such as ‘support’, distribution networks to access etc. • Compulsory insurance is a growth area in third-party, earthquake protection and commercial liability • Penetration is the lowest in Europe and the government is seeking to increase holding thereof All in all, the Turkish market is highly attractive for its growth prospects, but the real question for insurers is how to make it a profitable one •
The answer lies, arguably, in gaining competitive advantage in underwriting, particularly in selection and competitive, effective pricing over the long-term
1
HISTORY •
Insurance in Turkey dates back to 1870’s. During the Ottoman Empire, insurance was mainly run by foreign, international agencies
•
In 1900, 81 foreign insurance companies operating in Turkey came together under the umbrella of the first professional organisation “Insurers Syndicate of Turkey”
•
After the proclamation of the Republic in Turkey in 1923, Turkiye Is Bankasi was established in 1924. Then in 1925, the commencement of Anadolu Sigorta A.S, the insurance group of Turkiye Is Bankasi, followed
•
Liberalization of the regulations governing the insurance sector commenced in the 1980s, in parallel with legal reform of other financial sectors (Primarily the banking and securities) and gathered momentum in the early 2000s
•
The late 2000s saw the regulatory framework develop at an acceleration rate, driven by aspirations to join the EU and promises to the IMF
•
Today, there are 57 insurance and reinsurance companies in total in Turkey, most of which are privately owned and 33 (operating actively) which are non-life •
• •
These companies have to be a member of the “The Association of the Insurance and Reinsurance Companies of Turkey,” the present incarnation of the 1900 organisation • The General Directorate of Insurance the Prime Ministry Undersecretariat of the Treasury regulates the insurance system of the country Since 1988, companies have had to either operating in the life or non-life sector The penetration of foreign insurers, given few barriers to entry and a government encouraging inward FDI is high •
Competition is fierce, detrimentally impacting pricing ability and ergo profits
SEGREGATION OF LIFE AND NON LIFE (1 OF 2) •
Required to do one or the other (life vs. non life) • •
Since 1998, insurance companies have been obliged to act either in the life or non-life insurance branches Even though non-life insurance companies cannot issue new policy in life branch they are allowed to keep their existing portfolio garnered prior to the regulation • • •
•
As of the end of 2009 there were 4 non-life insurance companies which have life portfolio as well These companies are Aksigorta AS, Generali Sigorta AS, Hür Sigorta AS and Merkez Sigorta AS. Merkez Sigorta AS is currently inactive in all branches
In the current system, life insurance companies can also operate in health and casualty branches as well •
•
However, if life insurance company also operate in the pension system, it can only work in casualty and not health • Pension companies can not operate in health and other non-life branches except casualty branch The division between the life and non-life has necessitated the structuring of separate operating entities, largely distinguishable by the common use of suffix's • • • •
Sigorta for general insurers Hayat for life Emeklilik for life and pension An example of this is Aviva Sigorta and Aviva Emeklilik and similarly so for Allianz etc.
SEGREGATION OF LIFE AND NON LIFE (2 OF 2) •
Non-life dominates the insurance market and continues to do so •
•
According to CES, on a premium basis, non-life share has actually increased from 82.1% in 1999 to 86.6% in 2008 • Indeed, in 2008 Turkey had the third highest proportion of non-life to life It is similar in structure to other developing European countries such as Romania, Hungary, Bulgaria, Latvia, Lithuania, Estonia and Iceland
Breakdown of European Insurance Premiums By Country (2008) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
Life
Non-life
Source: Analysis of CEA Statistics N°40: European Insurance in Figures, Data 1999-2008
Non-Life Average
COMPANIES •
In 2009 there were 37 non-life insurers, 10 life insurers, 14 life / pension companies and 1 reinsurance company •
•
Türkiye İş Bankası (İşbank) founded Milli Reasürans T.A.Ş. (“Milli Re”) to operate the formerly compulsory reinsurance system in 1929 and under the present system covers cession for 30% of the market with foreign players accounting for the rest • According to CES, Turkey has consistently had the 19th most number of insurers in Europe 4 of 37 non-life insurance companies and 1 of 10 life insurance companies were not active in 2009
•
As a result, 57 of 62 total companies actively operate in the market •
•
Inactive companies are Inter Sigorta AS, Magdeburger Sigorta AS, Merkez Sigorta AS, Rumeli Sigorta AS and Rumeli Hayat Sigorta AS • Due to the stated reasons of: “Authority of Selling New Contracts Has Been Cancelled” or “Stopped Selling New Contract Voluntarily” As will be discussed, the number of foreign companies in the market has markedly increased
Non-Life Companies Growth Since 2003 (Number) 40 35 30
7 9
25
11
14
19
22
23
18
16
14
14
2006
2007
2008
2009
20 15
29
10
24
21
5 0 2003
2004
2005
Domestic Foreign Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: TSRB state 2009 non-life companies as 36 - presumably characterisation of operating companies or timing of corporate actions
ENTRANTS AND CORPORATE ACTIVITY •
As illustrated on the preceding page, there have been an increasing number of new players in recent years – from 7 in 2003 to 23 in 2009
•
Naturally, there has been a degree of consolidation, seeing foreign players buy out local partners (With consequent name changes) and assets being merged
•
In 2008, Allianz and AXA bought out the remaining shares of their partners Koc and Oyek
•
A substantial force was created in Groupama in 2009 when both Başak Sigorta and Güven Sigorta were brought into the fold
Entrants
Corporate Activity Year
Activity
2009
Bati liquidated
2009
Güven Sigorta AS merged to Groupama Sigorta AS
2009
Basak Groupama became Goupama
2009
Ergoisvicre changed name to ERGO
2009
AIG rebranded to Chartis
2008
AXA Oyek amalgamated into AXA (Partner buyout)
2008
Koc Allianz became Allianz (Partner buyout)
2008
Turkiye Genel became Mapfre Genel
Year
Company
Note
2009
Neova Sigorta A
Licence
2009
Ziraat Sigorta AS
Licence
2008
Dubai Group Sigorta AS
Licence
2008
Zurich acquired life business of TEB (Sigorta)
2008
Ace European Group Ltd
Branch
2008
SBN acquired Tikaret
2008
Türk Nippon Sigorta AS
Generate premiums again
2008
Zurich Sigorta As
Acquires Teb
2008
Harel acquired Turk Nipon
2008
Cardif Sigorta AS
Licence
2008
Toprak became Euro. Likely linked to asset requisition by gov.
2008
SBN Sigorta AS
Acquires Tikaret
2007
Eureko acquires name Garanti through 80/20% ownership JV
2007
Mapfre Sigorta AS
Acquires Genel Sigorta
2006
Basak became Basak Groupama in 2006
2007
Eureko Sigorta AS
Acquires Garanti Sigorta
2007
Atradius Sigorta AS
Licence
2006
Finans becomes part of Fiba in 2006
2007
Coface Sigorta AS
Licence
2006
ERGO acquires majority of shares of Turkish insurer Isvicre
2006
Ergo (Munich Re)
Acquires Avrupa Holding
2006
Liberty acquires Sekera in 2006
2005
HDI acquired Ihlas in 2005
2006
Liberty Sigorta As
Acquires Seker Sigorta
2005
HDI Sigorta AS
Acquires Ihlas
OVERVIEW OF BRANCHES •
Involvement per Non-Life Branch
18 branches •
•
Branches
Before the new Insurance Law no: 5684 came into effect in June 2007 (Replacing Insurance Supervision Law No. 7397) there were 10 non-life branches According to current regulations, non-life insurance companies can operate in some or all 18 non-life branches •
See slide “Segregation of life and non life”
•
•
Life insurance companies could operate some or all 7 life branches Most companies act in all sectors •
•
Health and casualty numbers are high due to life companies Insurers generated premium in 17 of the 18 non-life branches •
There has not been premium production in the Support branch as of yet
Health(*)
36
Casualty(**)
54
Land Vehicles
29
Railway Vehicles
30
Air Vehicles
30
Sea Vehicles
30
Transport
30
Fire/Natural Disaster
30
General Damages
30
Land Vehicles Liability
29
Air Vehicles Liability
29
Sea Vehicles Liability
30
Public Liability
30
Credit
15
Fidelity Guarantee
30
Financial Loss
31
Legal Protection
23
Support
5
(*) 7 of are life companies
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Number of Companies
(**) 23 of are life or pension companies
CHANGE IN COMPANIES PER BRANCH •
Indicating greater competition per branch, the aggregate number of companies per branch has increased from 261 to 272, with a nadir in 2007, having fallen 4%
•
• This increased 11% in 2008 and fell 4% again in 2009 Accident (Casualty) is competitive due to life and pension competition
•
Smaller segments of agriculture and legal protection have grown since 2006
•
Credit has experienced the greatest percentage in and outflow of companies •
5 companies exited in 2009, although some of the more recent players are two of the world leaders
Growth
Companies per Branch
Number (Aggregate) 290
2006
2007
2008
2009
0%
2%
9%
2%
Personal Accident
285
0%
-15%
14%
-13%
Health
280
0%
-16%
15%
-3%
Engineering
275
0%
-16%
15%
-3%
Marine
270
0%
-16%
15%
-3%
Fire
265
0%
-16%
15%
-7%
Accident
260
0%
0%
4%
4%
Motor Vehicle TPL
255
7%
38%
5%
-4%
Agriculture
250
0%
20%
0%
11%
Legal Protection
245
133%
57%
18%
-38%
Credit
240 0
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
10 2009
20 2008
30 2007
40 2006
50 2005
60
2005 2006 2007 2008 2009 Number
DETAILED OVERVIEW OF PRODUCT LINES •
The share of life business in total volume has been increasing as the growth rate in non-life business slowed down •
•
Life insurance accounted for nearly 15% of total premiums in 2009 compared to 85% for non-life insurance The following table shows the composition of direct and gross premium per branch for the last two years and gross premiums %
Premium Production per Branches 2008 000 TL Non-Life Total Health Travel Health
Gross Premium
2009 Direct Premium
Gross Premium
% Total Direct Premium
GP Growth
2008
2009
10,204,054
9,995,307
10,614,147
10,371,213
4%
87%
85%
1,305,015
1,266,962
1,390,174
1,320,202
7%
11%
11%
21,118
21,106
25,009
24,994
18%
0%
0%
505,364
502,671
540,754
535,867
7%
4%
4%
2,850,269
2,838,698
2,662,573
2,652,218
-7%
24%
21%
0
0
153
153
0%
0%
Air Vehicles
31,019
30,968
57,327
57,166
85%
0%
0%
Sea Vehicles
100,415
99,183
112,590
110,438
12%
1%
1%
Transport
312,920
305,195
261,394
254,395
-16%
3%
2%
1,827,796
1,784,112
1,925,466
1,877,438
5%
16%
15%
Casualty Land Vehicles Railway Vehicles
Fire and Natural Disaster General Damages (Engineering)
806,960
774,531
934,662
900,813
16%
7%
8%
Land Veh. Liab. (Compulsory)
1,723,053
1,715,151
1,938,566
1,927,234
13%
15%
16%
Land Vehicles Liability (Other)
339,233
291,457
319,654
277,580
-6%
3%
3%
31,610
31,302
47,104
46,187
49%
0%
0%
Air Vehicles Liability Sea Vehicles Liability
266
266
375
302
41%
0%
0%
233,386
226,190
251,946
246,103
8%
2%
2%
40,946
34,558
27,712
26,625
-32%
0%
0%
464
464
16,642
14,225
3487%
0%
0%
Financial Loss
41,808
40,080
65,353
62,580
56%
0%
1%
Legal Protection
32,413
32,413
36,693
36,693
13%
0%
0%
1,575,828
1,564,374
1,822,030
1,821,764
16%
13%
15%
11,779,882
11,559,681
12,436,177
12,192,977
Public Liability Credit Fidelity Guarantee
Life Total Total
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
DETAILED OVERVIEW OF PRODUCT LINES •
Largest five branches account for ~80% of premiums and policies but the premiums per contract are relatively small. Commercial vehicle insurance contracts are generally large
Branch Details No.of Company Generating Premium
No.of Written Policies
Direct Premium (000 TL)
Share in Total Direct Premium %
Health
36
1,090,739
1,345,181
13.15
Casualty
50
5,920,558
530,241
5.18
Land Vehicles
28
3,704,523
2,613,227
25.54
Railway Vehicles
2
6
153
0.00
Air Vehicles
17
269
57,166
0.56
Sea Vehicles
27
12,418
110,379
1.08
Transport
29
1,200,135
251,432
2.46
Fire and Natural Disaster
29
3,036,715
1,545,231
15.10
General Damages
29
2,045,868
771,720
7.54
Land Veh, Liab, (Compulsory)
28
10,767,687
1,887,097
18.44
Land Vehicles Liab, (Other)
28
864,205
228,173
2.23
Air Vehicles Liability
16
273
46,187
0.45
Branch Name
Sea Vehicles Liability
3
85
302
0.00
Public Liability
29
281,481
245,322
2,40
Credit
10
21,334
26,625
0.26
Fidelity Guarantee
12
61,047
14,225
0.14
Financial Loss
19
50,881
62,580
0.61
Legal Protection
20
506,433
36,693
0.36
Support
0
0
0
0.00
Subtotal 1
29,564,657
9,771,935
95.51
Compulsory Earthquake
28
3,451,613
317,893
3.11
Subsidized Agriculture
22
213,051
98,777
0.97
Green Card
10
52,135
43,201
0.42
Subtotal 2
3,716,799
459,871
4.49
General Total
33,281,456
10,231,806
100.00
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
OVERVIEW OF COMPETITION BY PRODUCT LINE •
Competition in branches can be split into core areas and periphery, smaller branches according to total GWP •
•
Core areas are fire/disaster, general (Liability less so), health and land vehicles cumulatively accounting for 88.6% of the total market • Greatest concentration here, with larger companies dominating • Smaller companies occasionally are more focused in specialty areas and have gained large holdings Car insurance is the largest sector in terms of premiums, with health and casualty being the next, albeit smaller, largest contributors
•
Each of health, land vehicles, land vehicles liability and fire and natural disasters branches generated more than 10% of total premium production in 2009
•
Parallel to their share in premium production, health, land vehicles, land vehicles liability and fire and natural disasters branches have each share of over 10% in total claim payments in 2009 •
•
Auto insurance constituted approximately 60% of total claim payments of non-life branches in 2009 Land vehicles, land vehicles liability, health/sickness and fire and natural disasters branches account for approximately 78% of total premium and 69% of total policies issued in non-life branches
STRENGTH OF BUSINESS PER PRODUCT LINE (1 OF 2) •
The table below illustrates the contribution of GWP per branch for Group 1
•
Land vehicles, general and fire and natural disaster are the largest contributors, on average accounting for approximately 79% across the branches
•
Allianz, Yapi Kredi and to some extent Analdolu and Aksigorta have large exposure to health
•
Eureko has the most differentiated exposure, with the highest exposure to accident (2nd across all companies) and general liability. Exposure to land vehicle liability is the lowest of group 1 and 3rd lowest across all companies. This is notable as Eureko has consistently made the highest aggregated underwriting result
Group 1 – Total GWP per Branch % (Read across) Core area
Periphery
%
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Periphery Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
AXA
2.34
0.08
0.00
na
0.00
23.24
7.28
2.71
0.78
33.96
26.44
0.46
0.00
0.61
2.10
Anadolu
3.58
0.48
0.46
0.01
0.40
18.28
8.00
2.81
12.31
27.18
21.00
0.39
na
2.90
2.19
Allianz
6.65
0.12
0.17
0.89
1.39
18.94
6.27
2.43
28.24
18.37
11.22
0.42
na
2.00
2.88
Groupama
1.87
0.00
0.43
na
0.08
19.97
10.55
0.82
11.76
30.52
20.56
0.42
na
1.21
1.81
Yapi Kredi
2.17
0.22
0.07
0.01
na
14.94
7.14
1.64
46.81
16.40
8.05
0.13
na
0.84
1.59
Ergo
4.32
0.01
0.43
na
0.22
14.76
3.87
1.67
5.75
30.03
34.35
0.33
0.06
0.26
3.93
Aksigorta
2.27
0.50
0.32
na
0.97
17.35
10.14
1.70
13.77
30.97
18.87
0.53
0.19
0.35
2.06
Gunes
1.62
2.22
3.11
0.01
0.31
18.08
11.91
1.56
7.98
25.70
23.16
0.50
0.24
1.90
1.71
Mapfre Genel
2.71
0.19
0.07
na
0.56
18.88
11.56
2.63
8.85
28.76
21.67
na
na
na
4.12
Eureko
12.84
3.57
0.04
0.17
0.76
23.26
18.11
4.57
5.12
19.54
7.48
0.12
na
1.22
3.20
FIBA
3.00
0.27
na
1.09
0.29
18.37
14.62
0.80
1.91
27.02
28.54
0.71
0.13
0.94
2.29
Aviva
3.99
na
na
na
1.04
25.66
10.81
1.82
na
17.74
35.02
0.46
na
0.34
3.12
Ray
2.32
2.42
2.90
na
0.19
19.76
12.09
3.35
0.53
28.37
22.34
0.40
0.13
1.66
3.54
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
STRENGTH OF BUSINESS PER PRODUCT LINE (2 OF 2) •
The table below illustrates the contribution of GWP per branch for Group 2
•
Similar to group 1, group 2 has high exposure to land vehicle branches, however as can be seen with the heat map, exposure is much more disparate
•
Group 2 has 60% of the exposure in general damage and 14% of health (presumably there are advantages of scale here)
•
• Accident contribution to total GWP is much higher Group 2 have more specialist providers •
Chartis has atypical exposure to accident, general liability and transport and incidentally made the 4th most underwriting results when aggregated over 5 years Coface, a subsidiary of BNP, focuses exclusively on credit and is a new entrant
•
Group 2 – Total GWP per Branch % (Read across) %
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
Ankara
4.51
na
na
na
na
14.11
10.11
0.84
1.28
31.06
35.97
0.30
na
0.52
1.31
Zurich
10.47
0.11
-0.02
-0.40
2.60
28.22
18.29
6.10
4.92
19.95
3.83
0.40
0.01
0.18
5.36
Chartis
32.02
na
0.18
na
7.92
14.36
2.55
17.49
3.43
3.11
1.13
na
6.56
0.00
11.25
HDI
2.21
na
na
na
na
10.20
2.53
2.52
0.35
33.93
46.62
0.31
na
0.04
1.30
Birlik
5.04
na
na
na
na
39.98
13.01
0.76
1.40
23.03
15.73
na
0.00
0.02
1.01
Isik
6.70
0.11
0.19
na
0.01
23.98
7.06
2.11
0.80
19.75
36.74
0.07
0.94
0.06
1.49
Liberty
2.93
na
na
na
0.00
8.85
4.14
0.72
0.17
55.55
27.02
na
na
0.06
0.57
Hur
0.63
na
na
na
0.03
6.81
1.37
0.13
0.07
5.75
84.99
na
0.01
0.00
0.20
Generali
1.93
0.09
0.28
na
0.08
28.81
6.18
2.03
0.51
35.31
19.09
0.64
0.09
0.61
4.35
Dubai Group
2.49
na
na
na
0.01
8.99
1.71
0.67
0.66
43.01
40.51
0.76
0.05
0.35
0.78
SBN
12.13
0.09
na
na
na
8.30
3.64
0.84
4.28
16.64
53.80
na
na
0.03
0.25
na
na
na
100.00
na
na
na
na
na
na
na
na
na
na
na
Coface
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
SHARE OF TOTAL MARKET PER PRODUCT LINE (1 OF 2) •
The table below illustrates market share for each branch, per company as a % of total GWP
•
Group 1 accounts for approximately 86% of market share (note: total G1&2 equals 99.13% as remainder excluded)
•
The core area or fire/disaster, general, health and land vehicles cumulatively account for 77.4% of the total market (88.6% including group 2)
•
• Land vehicles dominates with 40.5% (47.4% total) The heat map demonstrates how market share, particularly in the core area, trails off by size
Group 1 – Market Share per Company per Branch (% of Total Market) %
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
AXA
0.30
0.01
0.00
na
0.00
2.95
0.92
0.34
0.10
4.31
3.35
0.06
0.00
0.08
0.27
Anadolu
0.44
0.06
0.06
0.00
0.05
2.26
0.99
0.35
1.52
3.36
2.59
0.05
na
0.36
0.27
Allianz
0.61
0.01
0.02
0.08
0.13
1.75
0.58
0.23
2.61
1.70
1.04
0.04
na
0.18
0.27
Groupama
0.11
0.00
0.03
na
0.00
1.17
0.62
0.05
0.69
1.79
1.21
0.02
na
0.07
0.11
Yapi Kredi
0.13
0.01
0.00
0.00
na
0.90
0.43
0.10
2.83
0.99
0.49
0.01
na
0.05
0.10
Ergo
0.29
0.00
0.03
na
0.01
0.99
0.26
0.11
0.39
2.02
2.31
0.02
0.00
0.02
0.26
Aksigorta
0.19
0.04
0.03
na
0.08
1.47
0.86
0.14
1.16
2.62
1.60
0.04
0.02
0.03
0.17
Gunes
0.12
0.16
0.22
0.00
0.02
1.31
0.86
0.11
0.58
1.86
1.67
0.04
0.02
0.14
0.12
Mapfre Genel
0.10
0.01
0.00
na
0.02
0.67
0.41
0.09
0.32
1.03
0.77
na
na
na
0.15
Eureko
0.69
0.19
0.00
0.01
0.04
1.25
0.97
0.24
0.27
1.05
0.40
0.01
na
0.07
0.17
FIBA
0.09
0.01
na
0.03
0.01
0.56
0.44
0.02
0.06
0.82
0.87
0.02
0.00
0.03
0.07
Aviva
0.11
na
na
na
0.03
0.70
0.30
0.05
na
0.48
0.96
0.01
na
0.01
0.09
Ray
0.06
0.06
0.07
na
0.00
0.50
0.30
0.08
0.01
0.72
0.56
0.01
0.00
0.04
0.09
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
SHARE OF TOTAL MARKET PER PRODUCT LINE (2 OF 2) •
Group 2 exposure is similar to group 1 with the exception of health
•
Larger market shares are held in accident and transport
•
No company here has a branch with more than 1% of total market share
•
Group 2 accounts for approximately 13% of the total market on a total GWP basis
Group 2 – Market Share per Company per Branch (% of Total Market) %
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
Ankara
0.09
na
na
na
na
0.27
0.20
0.02
0.02
0.61
0.70
0.01
na
0.01
0.03
Zurich
0.22
0.00
0.00
-0.01
0.06
0.61
0.39
0.13
0.11
0.43
0.08
0.01
0.00
0.00
0.11
Chartis
0.55
na
0.00
na
0.14
0.25
0.04
0.30
0.06
0.05
0.02
na
0.11
0.00
0.19
HDI
0.04
na
na
na
na
0.18
0.04
0.04
0.01
0.59
0.81
0.01
na
0.00
0.02
Birlik
0.06
na
na
na
na
0.45
0.15
0.01
0.02
0.26
0.18
na
0.00
0.00
0.01
Isik
0.07
0.00
0.00
na
0.00
0.27
0.08
0.02
0.01
0.22
0.41
0.00
0.01
0.00
0.02
Liberty
0.01
na
na
na
0.00
0.04
0.02
0.00
0.00
0.26
0.12
na
na
0.00
0.00
Hur
0.00
na
na
na
0.00
0.04
0.01
0.00
0.00
0.03
0.45
na
0.00
0.00
0.00
Generali
0.02
0.00
0.00
na
0.00
0.24
0.05
0.02
0.00
0.30
0.16
0.01
0.00
0.01
0.04
Dubai Group
0.02
na
na
na
0.00
0.07
0.01
0.01
0.00
0.32
0.31
0.01
0.00
0.00
0.01
SBN
0.10
0.00
na
na
na
0.07
0.03
0.01
0.04
0.14
0.45
na
na
0.00
0.00
na
na
na
0.12
na
na
na
na
na
na
na
na
na
na
na
Coface
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
RELATIVE MARKET SHARE BY BRANCH (1 OF 2) •
The largest companies generally hold 10% stakes across the board, with a few exceptions in more specialist lines
•
The Core branches show relative dominance by the larger players with other companies lighting up the heat map around the periphery
•
Certain lines have extremely high concentration- average top-5 concentration is 70% • • •
In health, the top 5 constitute 83% of the market Air vehicle, credit and other are over 90% Top 10 average concentration is 91%
Group 1 – Relative Market Share by Branch (Read Down) %
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
AXA
6.57
1.72
0.10
na
0.00
15.53
10.28
13.78
0.92
16.53
15.27
16.07
0.00
6.96
10.39
Anadolu
9.78
10.50
12.10
0.41
7.57
11.89
11.00
13.93
14.08
12.88
11.81
13.34
na
32.04
10.52
Allianz
13.61
1.97
3.31
30.03
19.80
9.23
6.46
9.02
24.17
6.52
4.72
10.55
na
16.54
10.39
Groupama
2.42
-0.01
5.40
na
0.70
6.17
6.89
1.92
6.38
6.87
5.49
6.84
na
6.33
4.14
Yapi Kredi
2.89
2.30
0.86
0.12
na
4.75
4.80
3.97
26.17
3.80
2.21
2.21
na
4.53
3.75
Ergo
6.42
0.12
6.23
na
2.28
5.22
2.89
4.50
3.57
7.73
10.49
6.09
2.46
1.55
10.29
Aksigorta
4.24
7.48
5.84
na
12.64
7.72
9.54
5.76
10.77
10.04
7.26
12.19
9.42
2.65
6.77
Gunes
2.59
28.10
48.07
0.30
3.43
6.88
9.57
4.52
5.33
7.12
7.61
10.00
10.22
12.25
4.80
Mapfre Genel
2.14
1.17
0.52
na
3.07
3.55
4.59
3.76
2.92
3.93
3.52
na
na
na
5.72
Eureko
15.21
33.57
0.43
3.39
6.24
6.56
10.80
9.81
2.54
4.02
1.82
1.75
na
5.86
6.68
FIBA
2.01
1.46
na
12.03
1.35
2.94
4.94
0.97
0.54
3.15
3.95
5.94
2.40
2.55
2.71
Aviva
2.41
na
na
na
4.36
3.69
3.29
2.00
na
1.86
4.35
3.44
na
0.83
3.31
Ray
1.29
10.72
15.62
na
0.76
2.62
3.39
3.39
0.12
2.75
2.56
2.78
1.96
3.73
3.47
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
RELATIVE MARKET SHARE BY BRANCH (2 OF 2) •
The smaller lines have less levels of concentration, permitting larger market shares
•
• Across air vehicles, Gunes has considerable stakes, dominating the liability side Coface as a monoline is also the dominant player in credit, with under half of market share. Allianz is the second largest player with Fiba having a smaller stake
•
In accident, Chartis, Allianz and Eureko lead
•
The smaller players of the market muddle around the core of the market with sporadic shares in the periphery
Group 2 – Relative Market Share by Branch (Read Down) %
Accident
Air Air Vehicles Vehicles Liab.
Credit
Fire and Financial General General Natural Loss Damages Liab. Disasters
Health
Land Legal Land Vehicles Protectio Vehicles Liab. n
Other
Sea Transport Vehicles
Ankara
1.94
na
na
na
na
1.45
2.19
0.65
0.23
2.32
3.19
1.59
na
0.91
0.99
Zurich
4.97
0.41
-0.10
-3.15
8.59
3.19
4.37
5.25
0.98
1.64
0.37
2.33
0.08
0.35
4.48
Chartis
12.28
na
0.66
na
21.14
1.31
0.49
12.15
0.55
0.21
0.09
na
66.62
0.00
7.59
HDI
0.85
na
na
na
na
0.94
0.49
1.76
0.06
2.27
3.69
1.49
na
0.06
0.88
Birlik
1.26
na
na
na
na
2.37
1.63
0.34
0.15
0.99
0.81
na
0.03
0.02
0.44
Isik
1.65
0.21
0.46
na
0.02
1.41
0.88
0.94
0.08
0.85
1.87
0.22
6.14
0.06
0.65
Liberty
0.30
na
na
na
0.00
0.21
0.21
0.13
0.01
0.98
0.56
na
na
0.02
0.10
Hur
0.07
na
na
na
0.03
0.19
0.08
0.03
0.00
0.12
2.03
na
0.03
0.00
0.04
Generali
0.36
0.13
0.51
na
0.11
1.28
0.58
0.69
0.04
1.14
0.73
1.47
0.42
0.46
1.43
Dubai Group
0.41
na
na
na
0.01
0.36
0.14
0.20
0.05
1.24
1.39
1.57
0.21
0.24
0.23
SBN
2.27
0.13
na
na
na
0.37
0.34
0.28
0.33
0.54
2.07
na
na
0.02
0.08
na
na
na
43.23
na
na
na
na
na
na
na
na
na
na
na
Coface
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
DISTRIBUTION - CHANNEL DETAIL •
Distribution is discussed in detail later in the presentation
•
Land vehicle & liability (and most of other vehicle) and legal protection are almost exclusively distributed through agents constituting 77% of the premiums agents sell
•
In direct, 68% of air vehicle is sold, with approximately half of rail/sea/air and 35% of credit • These are invariably substantial contracts- air contracts average at TKL 191k Brokers are particularly strong in financial loss, credit and public liability
• •
Banks sell the half of casualty agents don’t, lead fidelity guarantee with moderate shares in fire/general damage
•
Agents, according to Nielsen, will retain their potency, with 43% of surveyed anticipating to purchase from there in the future. 23% will from banks and only 10% directly. 24% are undecided (Notably, 88% of surveyed are unsure when they will buy insurance next too)
Distribution Contribution by Branch Legal Protection Financial Loss Fidelity Guarantee Credit Public Liability Sea Vehicles Liability Air Vehicles Liability Land Vehicles Liab. General Damages Fire Transport Sea Vehicles Air Vehicles Railway Vehicles Land Vehicles Health Casualty
Direct Agencies Banks Brokers Other
0%
20%
40%
60%
80% 100%
Premium Dist. Volume by Branch Legal Protection Financial Loss Fidelity Guarantee Credit Public Liability Sea Vehicles Liability Air Vehicles Liability Land Vehicles Liab. General Damages Fire Transport Sea Vehicles Air Vehicles Railway Vehicles Land Vehicles Health Casualty
Direct Agencies Banks Brokers Other
0
1,000,000
2,000,000
3,000,000
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data and Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
DISTRIBUTION – BANCASSURANCE – GROUP 1
en el
al T ot
ay R
vi va A
Fi ba
E ur
ek o
G ap fr e M
un es G
ks ig or ta
E rg
o
K re ap i Y
ro up am G
lli an z A
ol u na d A
xa A
A
di
Bancassurance is the highest in Europe AXA is the leader in bancassurance with 5 large agreements (10 in total) Aksigorta benefits from relationship with AK Bank, as does Anadolu with TIB HSBC have a great number of agreements a
• • • •
Akbank Tas
0
0
0
0
0
0
866
0
0
0
0
0
0
Aktif Yatirim Bankasi
1
1
5
0
0
0
0
1
0
0
0
0
0
866 8
Albaraka Turk Katilim Bankasi
0
1
100
0
0
0
0
102
0
0
0
100
0
303
Alternatifbank
0
47
0
0
0
0
0
0
0
0
0
0
46
93
Anadolu Bank
63
0
0
86
0
0
0
88
0
0
0
85
0
322
Arap Turk Bankasi
0
6
0
0
0
0
0
0
0
0
0
0
0
6
Asya Katilim Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Bank Pozitif Kredi Ve Kalkinma Bankasi
5
0
0
0
0
0
0
0
0
0
0
25
0
30
Birlesik Fon Bankasi
0
0
0
1
0
0
0
0
0
0
0
0
0
1
Citibank
0
1
0
0
0
0
0
0
0
0
0
0
0
1
Deniz Finansal Kiralama
0
0
0
0
0
0
0
0
0
0
0
1
0
1
424
0
0
411
0
0
0
0
0
143
0
290
0
1,268
Denizbank Eurobank Tekfen
0
0
0
0
0
0
0
0
0
38
0
0
0
38
458
0
0
0
0
0
0
0
0
0
436
0
0
894
Fortis Bank
293
0
0
0
0
0
0
0
0
0
1
0
276
570
Hsbc Bank
337
0
332
0
0
413
0
0
331
0
0
334
0
1,747
Finansbank
Iller Bankasi Ao Ing Bank Millennium Bank
0
0
0
2
0
0
0
0
0
0
0
0
0
2
324
0
354
0
0
0
0
0
0
0
1
0
0
679 19
19
0
0
0
0
0
0
0
0
0
0
0
0
Sekerbank Tas
0
0
0
0
0
0
0
0
0
0
0
0
0
0
T. Garanti Bankasi
0
0
0
0
0
0
0
0
0
661
0
0
0
661
T. Sinai Kalkinma Bankasi
0
1
0
0
0
0
0
0
0
0
0
0
0
1
T. Vakiflar Bankasi Ao
0
0
0
0
0
0
0
442
0
0
0
0
0
442 1,195
T.C. Ziraat Bankasi
0
0
0
1,195
0
0
0
0
0
0
0
0
0
Tasfiye Halindeki Emlakbank
0
0
0
1
0
0
0
0
0
0
0
0
0
1
Tekstil Bankasi
0
0
0
0
0
0
0
51
0
0
0
44
0
95
Turk Ekonomi Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Turkiye Finans Katilim Bankasi
0
0
0
0
0
0
0
0
0
180
0
0
0
180
Turkiye Halk Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Turkiye Is Bankasi
0
1,089
0
0
0
0
0
0
0
0
0
0
0
1,089
Turklandbank
25
0
0
0
0
0
0
27
0
0
0
0
0
52
Yapi Ve Kredi Bankasi
0
0
0
0
838
0
0
0
0
0
0
0
0
838
Yatirim Finansal Kiralama
0
0
0
0
0
0
0
0
0
0
0
1
0
1
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
DISTRIBUTION – BANCASSURANCE – GROUP 2
T
ot al
R
em
C
of a
S
bn
ce
ai nd er
ro up G ub ai D
en er al i G
ur
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Aktif Yatirim Bankasi
0
0
3
0
0
0
0
0
0
0
0
0
0
3
Albaraka Turk Katilim Bankasi
0
0
0
0
0
100
0
0
0
0
0
0
0
100
Alternatifbank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Anadolu Bank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Arap Turk Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Asya Katilim Bankasi
0
0
0
0
0
159
0
0
0
0
0
0
0
159 10
B
H
Li be rt y
Is ik
ir lik
di H
ha rt is
Akbank Tas
C
Z
nk ar A
ur ic h
Group 2 do not benefit from bancassurance as the larger companies do, with only domestic companies having meaningful relationships
a
•
Bank Pozitif Kredi Ve Kalkinma Bankasi
0
0
10
0
0
0
0
0
0
0
0
0
0
Birlesik Fon Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
1
1
Citibank
0
0
38
0
0
0
0
0
0
0
0
0
0
38
Deniz Finansal Kiralama
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Denizbank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Eurobank Tekfen
0
0
0
0
0
0
0
0
42
0
0
0
0
42
Finansbank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Fortis Bank
0
0
0
0
0
0
0
0
0
0
0
0
297
297
Hsbc Bank
0
0
335
0
0
0
0
0
0
0
0
1
0
336
Iller Bankasi Ao
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Ing Bank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Millennium Bank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Sekerbank Tas
0
0
0
0
0
0
249
0
0
0
250
0
0
499
T. Garanti Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
T. Sinai Kalkinma Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
T. Vakiflar Bankasi Ao
0
0
0
0
0
0
0
0
0
0
0
0
0
0
T.C. Ziraat Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Tasfiye Halindeki Emlakbank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Tekstil Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Turk Ekonomi Bankasi
0
0
0
0
0
0
0
0
0
0
0
1
0
1
Turkiye Finans Katilim Bankasi
0
0
0
0
0
180
0
0
0
0
0
0
0
180
Turkiye Halk Bankasi
0
0
0
0
628
0
0
0
0
0
0
0
0
628
Turkiye Is Bankasi
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Turklandbank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Yapi Ve Kredi Bankasi
0
0
0
0
0
0
0
0
0
0
0
1
0
1
Yatirim Finansal Kiralama
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
DISTRIBUTION – AGENTS – AGGREGATED BY YEAR •
Agents are integral for general insurance sales in Turkey and have grown at a 9% CAGR
•
Groupama has benefitted substantially from its tie up with both Başak Sigorta and Güven Sigorta who have substantial agent networks
Group 1 - Aggregated by Year 1,600
25,000
1,400 20,000
Ray
Group 2 - Aggregated by Year 16,000
1,600
14,000
1,400
12,000
1,200
Aviva 1,200
FIBA
Coface
Eureko 1,000
15,000
Mapfre Genel Aksigorta
1,000
10,000
600
Yapi Kredi
800
8,000
5,000 200
0
0 2005
2006
2007
2008
2009
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Allianz Anadolu AXA Average
Liberty Isik
600
6,000
Groupama 400
Generali Hur
Ergo 10,000
SBN Dubai Group
Gunes 800
Remainder
Birlik HDI
4,000
400
2,000
200
0
0 2005
2006
2007
2008
2009
Chartis Zurich Ankara Average
DISTRIBUTION – AGENTS 4 YEAR CAGR •
Growth for Group 2 has been on average similar to Group 1; a stark difference to a comparison of brokers
•
Eureko’s growth has arisen from a low base
•
Groupama’s outperformance has occurred through corporate action
Group 1 – CAGR (2005-09)
Group 2 - CAGR (2005-09)
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
CAGR
Average
CAGR
Average
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: CAGR unavailable for Dubai Group and Coface as new entrants. Coface added as 0% to allow SBN to show up graphically
DISTRIBUTION – AGENTS - DISTRIBUTION BY COMPANY (1 OF 2) •
It is interesting to note that some of the largest players such as AXA have grown Agents slower than the average
•
• Average CAGR for Group 1 is approximately 12% The effect of the Groupama tie-up illustrates its dominance in agency in the chart below
•
Group 1 CAGR is almost identical to that of the entire market (Few bps higher)
Group 1 – Agent Distribution by Company 7,000
35%
6,000
30%
5,000
25%
4,000
20%
3,000
15%
2,000
10%
1,000
5%
0
0%
2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
CAGR
Ave CAGR
Total CAGR
DISTRIBUTION – AGENTS - DISTRIBUTION BY COMPANY (2 OF 2) •
Average CAGR for Group 2 is approximately 11% against market of 12%
•
The largest companies by agents are: •
Groupama (26.16%), AXA (7.16%), Gunes (6.82%), Ergo (6.31%), Anadolu (6.06%), Aksigorta (5.91%), Allianz (5.35%) and HDI (3.45%)
Group 2 - Agent Distribution by Company 900
45%
800
40%
700
35%
600
30%
500
25%
400
20%
300
15%
200
10%
100
5%
0
0%
-100
-5%
2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data.
2008
2009
CAGR
Ave CAGR
Note: Gaps in CAGR as no data available
Total CAGR
DISTRIBUTION – BROKERS - AGGREGATED BY YEAR •
The average share of brokers per group is 8%, though 66% of brokers are held by the top 12 companies (Group 1)
•
The largest companies by brokers are: •
Anadolu (6.96%), Gunes (6.84%), Ergo (6.50%), Chartis (6.38%), Allianz (6.15%), Mapfre Genel (5.45%), Groupama (5.34%), Aviva (5.22%)
Group 1 – Aggregated by Year 600
60
500
50
Ray Aviva
Group 2 - Aggregated by Year 600
60
500
50
FIBA 400
300
200
40
30
20
Eureko
400
40
Generali
Gunes
Hur
Aksigorta
300
30
0 2005 2006 2007 2008 2009 Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Liberty
Ergo
Isik
Yapi Kredi
Birlik
Groupama
200
20
AXA
HDI Chartis Zurich
100
10
Average 0
Dubai Group
Mapfre Genel
Anadolu 10
Coface SBN
Allianz 100
Remainder
Ankara Average
0
0 2005
2006
2007
2008
2009
DISTRIBUTION – BROKERS - 4 YEAR CAGR •
Growth for Group 2 has been on average been far greater than Group 1 largely due to a lower base for growth than the larger players •
In particular Chartis, HDI and Birlik
Group 1 – CAGR (2005-09)
Group 2 - CAGR (2005-09)
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
-20%
-20%
CAGR
Average
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
CAGR
Average
Note: CAGR shortened for SBN, Coface, Hur & Remainder as no data available
DISTRIBUTION – BROKERS - NUMBER (1 OF 2) •
It is interesting to note that some of the largest players such as AXA have grown brokers slower than the average
•
• Average CAGR for Group 1 is approximately 5% Anadolu has grown well since 2006, as have Ergo and Mapfre Genel
•
Broker growth leapt in 2006, but growth has since stalled •
Yapi Kredi fell greatly in 2006
Group 1 – Number of Brokers Over 5 years 60
20%
50
15%
40
10%
30
5%
20
0%
10
-5%
0
-10%
2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
CAGR
Ave CAGR
Total CAGR
DISTRIBUTION – BROKERS - NUMBER (2 OF 2) •
Average CAGR for Group 2 is approximately 25% (Ex-remainder)
•
Chartis has seen the largest nominal growth of Group 2, though the pace has been average
•
HDI and Birlik have grown the fastest on CAGR, as have SBN and CoFace
•
Generali, whilst one of the smaller insurers, has a notably large number of brokers
Group 2 - Number of Brokers Over 5 years 120
120%
100
100%
80
80%
60
60%
40
40%
20
20%
0
0% -20%
-20 2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
CAGR
Ave CAGR
Note: Gaps in CAGR as no data available
Total CAGR
STAFFING STRATEGY - BRAND BUILDING •
General insurers employ over a thousand marketing personnel
•
Many of the large companies do not have any directly employed marketing staff
•
• E.g. Axa, Allianz and Groupama Over half are employed by domestic companies
•
Yapi Kredi has the largest marketing force followed by Eureko – together accounting for over half the total
Group 1 – Marketing Staff Male AXA
Female
Group 2 - Marketing Staff % of Total
Total
Male
Female
% of Total
Total
0
0
0
0.0%
Ankara
0
0
0
0.0%
37
62
99
9.4%
Zurich
15
56
71
6.8%
Allianz
0
0
0
0.0%
Chartis
10
12
22
2.1%
Groupama
0
0
0
0.0%
HDI
0
0
0
0.0%
Yapi Kredi
122
210
332
31.7%
Birlik
2
10
12
1.1%
Ergo
0
0
0
0.0%
Isik
25
1
26
2.5%
Aksigorta
0
0
0
0.0%
Liberty
0
0
0
0.0%
Gunes
31
36
67
6.4%
Hur
10
4
14
1.3%
Mapfre Genel
28
22
50
4.8%
Generali
0
0
0
0.0%
Eureko
80
118
198
18.9%
Dubai Group
0
0
0
0.0%
FIBA
37
10
47
4.5%
SBN
0
0
0
0.0%
Aviva
25
19
44
4.2%
Coface
1
3
4
0.4%
Ray
28
30
58
5.5%
Remainder
4
0
4
0.4%
Total
455
593
1,048
100.0%
455
593
1,048
100.0%
Anadolu
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Total
STAFFING STRATEGY - TOTAL • General insurers employ approximately 7,600 personnel directly • The large companies largely employ proportionately to their size • According to CES, Turkey employs the 14th most people staff in insurance (Thought their estimate is 16,007, more than double of SGM estimates) and that rate from 1999 to 2008 has been a CAGR of 5%; the 4th highest
Group 1 – Total Staff Male
Female
Group 2 – Total Staff % of Total
Total
Male
Female
% of Total
Total
AXA
280
290
570
7.4%
Ankara
109
109
218
2.8%
Anadolu
378
342
720
9.4%
Zurich
91
105
196
2.6%
Allianz
272
338
610
8.0%
Chartis
66
96
162
2.1%
Groupama
254
220
474
6.2%
HDI
116
80
196
2.6%
Yapi Kredi
243
298
541
7.1%
Birlik
83
63
146
1.9%
Ergo
182
309
491
6.4%
Isik
103
51
154
2.0%
Aksigorta
295
288
583
7.6%
Liberty
97
88
185
2.4%
Gunes
233
294
527
6.9%
Hur
69
57
126
1.6%
Mapfre Genel
118
126
244
3.2%
Generali
53
64
117
1.5%
Eureko
137
191
328
4.3%
Dubai Group
62
39
101
1.3%
FIBA
121
141
262
3.4%
SBN
34
20
54
0.7%
Aviva
80
104
184
2.4%
Coface
15
8
23
0.3%
Ray
99
100
199
2.6%
Remainder
134
108
242
3.2%
3,724
3,929
7,653
100.0%
3,724
3,929
7,653
100.0%
Total
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Total
2
TRENDS (1 OF 2) •
Turkey has a nascent insurance industry that requires a bespoke approach
•
Given level of competition, profit vs. market share strategy must be carefully chosen over the short and long term
Trend
Thoughts
Dynamic Of Development
• •
Turkey has experienced huge interest from foreign financial institutions for its macroeconomic growth potential (7% CAGR over preceding decade) Trust in the insurance sector is strong, sustaining growth throughout the financial crisis
Stable But Key Macro/Industry Factors Undermine
•
“Size Of The Prize”
•
Most CEE countries are comparatively small on a global scale, though Turkey is the 13th largest market in Europe (CES direct premium basis), thus directing corporate development strategy to succeeding here
Development Stage
•
Turkey is comparatively underdeveloped to Western Europe and marketing and product manufacturing are geared to this Lowest European penetration rate (1.3% premium to DP vs. 7.58% in Europe) and the robust growth in insurance and pension sectors in recent years increased foreign investors’ attention to Turkish insurance market Premiums per capita are lowest in Europe Related insurance employees offered training through organisations
• •
• • •
Overcapitalisation of insurers and high, if irregular, growth in GWP with fluctuating and marginal profit Premium volume falling in real terms Relatively high propensity to save, but scepticism of doing so through third parties and low penetration
TRENDS (2 OF 2) Trend
Thoughts
Regulation
•
Rapidly evolving regulatory framework around financial services and insurance - weighted in favour of policyholders
Competition
•
Fierce competition has seen large scale acquisition/partnership. The few remaining domestic players will be bought out eventually In the fight for market share irrational exuberance is taking hold (Distribution fees) affecting margins. A wave of consolidation is inevitable in the proceeding 3 years
•
Non- Life Still Greater Than Life In Turkey, But Slowly Changing
• •
Majority Of Players In The Market Are In Nonlife
•
Education And Preferences
•
•
•
Total non-life insurance premiums written exceeds the total life insurance premiums, with non-life business accounting for approximately 85% of total business Life and pensions is going to take a higher relative share given development in annuity market and pension scheme structures As of the end of 2009 there are 57 companies operating in the market, 33 of which are non-life insurance There is only one licensed reinsurance company in the domestic market Awareness of insurance is low and perception of its value questionable Savings mentality of “cash in the mattress” still important to consider
PEST (*) – POLITICAL – REGULATION (1 OF 2) •
Insurance Supervision Board, under the General Directorate of Insurance of the UT, established in 1963 supervises all insurance activities in Turkey
•
Whilst compared to some countries, the issues are less acute, confidence in Turkey’s government has been questionable, however the tide may be turning • •
Referendum on September 12 to vote on significant changes to the 1982 constitution (long criticised for a bias towards military influence on politics, weak protection of personal freedom and articles that could hinder the process of accession into the EU) The anticipated accession of Turkey to the EU has engendered rapid regulatory change to ensure EU standards •
•
Including transition to IFRS and reserving standards
Driven by Turkey’s obligations to the EU, and to fulfil one of its commitments to the IMF, Turkey passed Insurance Law No. 5684 on 14 June 2007 which is the principle law governing insurance • •
•
Secondary legislation was largely completed in 2008 and in 2009 was generally implemented The regulation provides a legislative basis in harmony with EU regulations and should provide the foundation for continued growth • Covers insurance companies, agencies, brokers, actuaries and consultants, reinsurers and the Association of Turkish Insurance and Reinsurance Companies • Law is very pro- consumer, including requirement to explicitly state uncovered risks. Similarly in India, the regulator has not permitted free wording The law introduced a number of compulsory insurance types: •
TPL vehicle (personal, public transport), commercial (Dangerous materials, bottled gas), finance leased goods, transport of goods- aviation/ships, professional liability for brokers), earthquake (Turkish Catastrophe Insurance Pool “TCIP”- discussed on proceeding page) and workers comp (Only from the state but optional private may be provided)
(*) PEST is an acronym for a macro based analysis - Political, Economic, Social and Technological
PEST – POLITICAL – REGULATION (2 OF 2) •
And introduced a number of funds and centres: •
•
TCIP, Agricultural Insurance Pool, Turkish Motor Insurance Bureau, Guarantee Fund, Insurance Arbitration Centre See author’s summary of Turkish insurance law for more details on provisions
•
Pricing control in general insurance •
•
Opening up of free tariffs (TPL vehicle in 2007) has intensified competition. This is viewed as a first step taken towards complete deregulation of the rates schedule • But this does not mean free pricing, under the new system, the Treasury sets base prices but insurers are allowed to charge premiums within a band ranging between ‐ 5% and +10% of those • India has undergone a similar process and the consequences were telling. De-tariffing was introduced in January 2007 and price changes in profitable lines were so dramatic and have impacted premium growth to the extent that the regulator intervened 8 months later in September and capped maximum discounts at 52.5% Because of change in regulation in 2008 for Provisions for Unearned Premiums and Outstanding Losses, technical provisions within short term liabilities has increased in recent years •
•
The amendment affected especially the amount of provisions for Unearned Premiums and Outstanding Losses, this has hit unearned premiums hardest • There was an increase of 23% in technical provisions in 2008 compared to previous year No limit in FDI per company and effectively no barriers to entry •
Foreign Direct Investment Law number 4875 states that it is free for foreign investors to engage in FDI in the Republic of Turkey with no restriction on foreign ownership and no need to seek permission from the Undersecretariat of Treasury
PEST – POLITICAL - REGULATION - TURKISH CATASTROPHE INSURANCE POOL (TCIP) •
Prior to the 1999 Marmara earthquake, Fire insurance policies used to cover the earthquake risk in Turkey
•
The TCIP started operation in 2000, based on the California Earthquake Authority and New Zealand Earthquake and War Damage Commission.
•
The aim of the TCIP is to: •
•
Transfer the national risk to world-wide risk sharing pools under the management of the international reinsurance • Provide minimum amount standard insurance for residents living in different risk zones • Provide earthquake coverage of $30k per housing unit with a deductible amount of 2% Governance • •
•
Leadership: Board of members, who represent government, academia and insurance companies Administrative power: General Directorate of Insurance the Prime Ministry Undersecretariat of the Treasury • Pool Manager: Garanti Insurance (Since August 2005) Terms of TCIP • • •
Coverage: Earthquakes, fires due to an earthquake, explosions and landslides following an earthquake Contract duration: one-year Cover: Losses of residential buildings within the municipality borders •
•
It does not offer any coverage for the rural areas or for the building contents
Tariffs: 15 which are calculated annually according to 5 earthquake risk zones and three types of buildings. The insured value of a property is decided by (cost per square meter * square metres * tariff)
PEST – ECONOMIC - COUNTRY RISK ANALYSIS •
Turkey has high levels of political and financial system risk. The vast majority of countries in the Middle East & Northern Africa region are either CRT-3 or CRT-4 (Best ranking)
•
In 2009, the Turkish economy, like most of Europe, experienced a sharp decline in economic growth, contracting by more than 5% •
•
The cycle nadir for 2010 was forecasted with economic growth initially muted at 1% for 2010; in fact Q1 growth was 11.7% Historically inflation has been a concern, being both high and volatile •
•
In 2007, inflation hit a 30 year low of ~8%, but in 2008 was in the double digits again • A combination of global economic stagflation, with restrained world commodity prices should slow inflation, unfortunately the underlying demand drivers may not oblige The economy has experienced erratic growth over the preceding years due to a fundamentally underdeveloped banking system, large current account deficits, and a lack of structural reforms •
•
In 2009, amazingly, the deficit decreased 67% to $13.9bn over 2008’s $42bn Turkey seeks accession to the EU and while talks have commenced some strong opposition amongst current EU members suggests that accession will most likely not occur in the near term •
Issues such as the status of Kurds in Turkey and the political treatment of Cyprus have detrimentally impacted their prospects
Source: AM Best Country Risk Profile
AM Best Risk Position
PEST – ECONOMIC - SUMMARY •
Gross Domestic Savings and GDP •
•
GDP growth has historically been strong in Turkey, but structurally there are issues. The possibility of Turkey continuing with strong GDP expansion around 7-8%, if it retains current levels of savings of ~17% of GDP (26% in 1988), is low • Turkey is services led (Which is a decent unemployment sponge) constituting over 60% of GDP with industry ~28% (Manufacturing 18%) FDI (inward) • •
•
Economic prosperity has been directly tied to Turkey’s success in attracting foreign capital After surging in 2005 and peaking in 2007, FDI plummeted during the 2008-2009 global economic crisis in tandem with the global FDI trends • According to most recent Undersecretariat of the Treasury data, the decline has continued into 2010, as total IFDI during January-May decreased by 34% over 2009 • Culturally there is ingrained suspicion (fears of exploitation and domination) of foreign corporations in Turkey, and given the still fragile economic/political stability, the resurgence of IFDI to 2007 levels is far from assured, though, likely to continue Employment •
•
Turkey’s chronically high unemployment rate dropped to 12% in April 2010, and has been one of the biggest issues in the economy, hitting 16.1% in February 2009 • Of late, the recuperation in industrial output and exports played a major role in increasing employment Inflation and interest rates • • • • •
During the financial crisis of 2001, the Lira experienced a radical devaluation, the rate of inflation exceeded 100% for a time. Since then, however, Turkey’s inflation has declined more than tenfold, but with the increase in FDI and decreasing risk factors has lead to a Lira overvaluation Interest rates are high for a number of reasons, including inflation, savings/investment gap etc. Some analysts worry policymakers are driving up interest rates as part of a disinflation program. According to the Central Bank of Turkey, the annual expected rate of inflation grew from 7.34% to 7.5% in September The expected current account deficit (CAD) for 2010 is $33.7bn and economic growth is 5.5%
PEST – ECONOMIC - COMPARISON •
Inflation decreased substantially in 2004 and has trended steadily at a premium to other countries, which has been supported by a resulting GDP growth premium, but since 2007, GDP has fallen with the market and is in fact less than the US in 2009
•
The high unemployment rate is likely going to be an issue for social cohesion as Turkey looks to grow
Real GDP %
Unemployment Rate %
12
16
10
14
8
12
6
10
4
8
2
6
0 -2
4
-4
2
-6 2002
2003
2004
USA
2005 Euro Area
2006
2007
Japan
2008
2009
0 2002
Turkey
2003 USA
2004
2005 Euro Area
2006 2007 Japan
CPI Inflation rate EoY %
Overview of Turkey %
35
35
30
30
25
25
20
20
2008 Turkey
2009
15
15
10
10
5
5
0
0
-5
-5 2002
2003 USA
2004
2005 Euro Area
2006 2007 Japan
2008 Turkey
2009
-10
Source: International Monetary Fund, World Economic Outlook Database, April 2010
2002
2003 GDP
2004 2005 2006 End-Year CPI Inflation Rate
2007
2008 2009 Unemployment Rate
PEST – SOCIAL - SUMMARY •
In sum, insurance is a small and growing sector, but rising income levels, availability of financing and changes in lifestyles/ aspirations will drive consumer demand over the next few years, increasing penetration for most consumer products
•
Insurance coverage in Turkey is very low, although comprehension of insurance does not appear to be the reason for this • •
•
Predominant information sources are agents (37%) and friends (33%) according to Nielsen survey In aggregate 27% of people learnt about insurance directly from insurers (Traditional media, TV and insurers websites) Those that do not have insurance find their financial status (60%) to be the key element (Which given economic turbulence is ominous) or that social security will cover them (33%). The remainder alternatively don’t see the point or think they will manage better themselves •
•
Future purchases however, will be orientated around private health, life and pension products, with accident, housing and earthquake smaller contributors, but with larger growth from the base level of prior purchases Key social factors are: • •
Men are the largest insured group by sex 16-24 year olds are the least covered insurance group, with other groupings (25-34, 35-44 and 45-64) holding largely equal average holding •
•
Education plays a key role in insurance with high school and higher recipients holding 86% of coverage •
• • •
Other than in certain branches such as household, accident and private pensions
Less educated people have highest coverage in personal accident and workplace insurance
Social economic status is a telling factor in insurance, with AB and C1 holding 84% Self employed and full time employed are the largest group by profession, particularly in workplace insurance Married people are the highest insured at an average 71% across branches
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
PEST – SOCIAL – INSURANCE AWARENESS •
Private pensions in total are the most known products, with comprehensive car insurance being the strongest unaided line (See categorisation of ‘unaided’ and ‘Total’ below) • •
Peculiarly TPL auto insurance is half as know as comprehensive, and despite being mandatory for homes, only one in five people unaided were aware of earthquake insurance The government is aware of the lack of take-up of mandatory insurance and is endeavouring to increase this in the years to come
Insurance Awareness of Insurance (% N=3033) 0
10
20
30
40
50
70
80
90
46
Car- Comprehensive
93.4
35.8
Private Health
91.7
32.1
Housing Workplace
24
Car- TPL
24
Mandatory Earthquake
22.3
88 83.6 83 86.1
16.3
Personal Accident Education
2.2
Travel
2.1
Agriculture
2.1 0.8
•
96.2
40.1
Life
1.
100 92.6
41.8
Individual Retirement
Liability
60
Survey Method
76.6 44 50.8 44.3
20.4 Unaided
Total
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
Unaided
Without assistance surveyed were initially asked to indicate is they knew various insurance products
2. Total (Prompted) •
Surveyed were finally provided an information card and asked whether they had heard of the insurance
PEST – SOCIAL – SEX •
Ownership of insurance is much higher in men than women (65/35%)
•
• This is most acute in workplace insurance (85%) and third party liability car insurance (75%) Given this trend, some companies have begun focusing on women with targeted advertising
Men vs. Women Ownership of Insurance (% N=749) 0% Total
10%
20%
30%
40%
70%
80%
90%
35% 81%
Car- TPL
19%
75%
Personal Accident
25%
74%
Car- Comprehensive
26%
71%
Life
Housing
60%
65%
Workplace
Mandatory Earthquake
50%
29%
70%
30%
63%
37%
61%
39%
Individual Retirement
58%
42%
Special Health
58%
42% Men
Women
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
100%
PEST – SOCIAL – AGE •
The 16-24 are the smallest holders of insurance, however health and life insurance are held by 21% and 27% respectively
•
25-34 year olds have the largest stake of individual retirement (private pension) insurance
•
35-44 year olds have ~30% holding share across the range of branches (Min/max: 29/39%) with a 39% stake in personal accident
•
45-64 year olds have large shares of compulsory earthquake and housing insurance which is logical, at 40% and 41% respectively
Age Ownership of Insurance (% N=749) 0%
10%
Total
30%
15%
Life
40%
21%
Personal Accident
20%
Car- TPL
9%
Housing
9%
Car- Comprehensive
8%
Workplace
8%
Individual Retirement
7%
60%
70%
21%
32%
22%
26%
23%
21%
39%
16%
33%
24%
35%
33%
26%
41% 34%
32%
32%
28%
39%
33% 34%
25-34
19% 40%
32%
16-24
90% 29%
30%
17%
80%
28%
27%
11%
50%
28%
Private Health
Mandatory Earthquake
20%
35-44
45-64
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
19%
100%
PEST – SOCIAL – EDUCATION •
Approximately 45% of all insurance is held by university and master’s graduates, with 41% being held by those with high school education – 86% in total
•
Primary and ‘medium’ school recipients hold on average 14% of insurance implying a direct correlation between education and coverage •
The highest coverage of 18% is in workplace insurance and 15% in personal accident
Education Ownership of Insurance (% N=749) 0% Total
10%
5%
Workplace
6%
Housing
6%
Car- Comprehensive
6%
Mandatory Earthquake
5%
Individual Retirement
4%
Personal Accident 3% Private Health Life
30%
9%
9%
Car- TPL
20%
40%
60%
70%
80%
41% 9%
45% 44%
8%
39%
36%
6%
50%
31%
5%
57%
38%
4%
51%
39%
9%
40%
12%
36%
2% 3%
50%
51% 47% 49%
35%
61% 50%
1% 5% First
Medium
45% High School
Uni and Msc
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
90%
100%
PEST – SOCIAL – SOCIO ECONOMIC STATUS •
AB group has the largest coverage with the exception of commercial insurance, and are particularly strong in private health
•
C1 have and average holding of ~40% with a 50% share of workplace insurance
•
C2 individuals are underserved in disaster insurance (likely linked in part to property ownership), but have their highest relative ranking in personal accident
•
Average person income per year is TL 2,066 (*) •
Average income for AB is 1.5x C1 and 2.0x C2
SES Ownership of Insurance (% N=754) 0% Total
10%
20%
30%
40%
50%
45%
Private Health
Average Income
60%
70%
80%
39% 29%
Housing
55%
33%
Individual Retirement
54%
37%
51%
Mandatory Earthquake
51%
Personal Accident
48%
Car- TPL
47%
Life Workplace
10% 12% 10%
37%
13%
42% 26% 38%
43%
43%
35%
50% AB
C1
100%
16%
62%
Car- Comprehensive
90%
C2
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish Note: (*) Average income excludes people who replied no answer and don’t know.
7% 25% 14% 15% 15%
SES
Income TL
AB
2,606
C1
1,781
C2
1,324
PEST – SOCIAL – PROFESSION •
Self employed are the largest group, dominating workplace insurance, car (comprehensive and TPL)
•
Full time employees are the second largest group, particularly in private health and pensions
•
Housewife insurance is linked to home, health and pension with retirees focusing home on earthquake
•
Students are the second smallest group, but the third largest in personal accident
•
Temporary unemployed are the smallest group by some margin, but interestingly, along with students, have ~8% life insurance share
Professional Ownership of Insurance (% N=749) 0% Total
10% 14%
Housing
8%
17%
Individual Retirement
17%
Mandatory Earthquake
15%
Car- TPL Workplace Personal Accident Life
30%
14%
11%
7%
Housewife
0%
37%
2%
29%
47%
5%
28%
14%
42% Self Emplyeed
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
6% 9%
38%
35% Temp. Unemployed
5%
26%
45%
38%
Retired
4% 7%
82%
8%
100%
40%
2%
5% 4%1%
90%
25%
35%
2%
80%
45%
5% 2% 0%
4%2%
70%
37%
22%
2% 4%
9%
60%
32%
1%
6% 3%
7%
50%
38%
13%
12%
40%
3%
20%
Private Health
Car- Comprehensive
20%
Full Time
9% Student
2%
PEST – SOCIAL – MARITAL STATUS •
Married individuals constitute 71% of insureds and generally dominate across the branches, particularly in house and car related insurance
•
Single insureds have a larger share (35%-47%) in life, pension and health insurance but do not have an equal share in any line
Marital Status Ownership of Insurance (% N=749) 0%
10%
20%
30%
Total
40%
50%
60%
70%
80% 30%
71%
Housing
90%
19%
82%
Mandatory Earthquake
80%
20%
Car- Comprehensive
79%
21%
Car- TPL
79%
21%
Workplace Personal Accident
31%
69%
Individual Retirement
34%
66%
Private Health Life
26%
74%
39%
61% 47%
53% Married
Single
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
100%
PEST – TECHNOLOGICAL - SUMMARY •
System investment • •
•
The level of investment in banking IT systems has not been matched in insurance Indeed, banking systems are complex but the requirements for insurers are equally so, particularly in the age of heightened internal control requirements • This is particularly the case for both domestic companies and foreign players operating in partnership, where IT systems may not be adequate, requiring investment and development Automation of processes and CRM •
•
Off the shelf and bespoke software enables insurers to more rapidly process large volumes of applicants and manage insureds • Best practice abroad will increasingly be implemented in Turkey and foreign entrants have the opportunity to move their partners up the tech-tree and increase efficiency (As above) Computing power •
•
Advances in computing have facilitated greater depth of data analysis underpinning underwriting processes for companies desiring to develop a competitive advantage Direct and internet distribution •
•
The proliferation of the internet has laid the foundation for online insurance distribution, however given the nascent nature of the industry, knowledge of insurance, per se, is underdeveloped • Once comprehension increases, online sites (including comparison ones) will proliferate. • Direct, telephone marketing will grow concurrently Internet driven information era •
Ability to more rapidly access comparative information of insurers will engender even more competitive pricing for consumers
5-FORCES (*) (1 0F 2) Force
Analysis
Threat of new entrants
• • •
•
•
Power of Suppliers
•
• • • • • • •
New entrants persist annually, with recent additions from Dubai, Coface etc. There are minimal barriers to entry to the Turkish market Insurance cannot be tied to other services in bancassurance for example (mortgage insurance), there are emerging leading brands, but little loyalty, minimal switching costs and unprohibitive legislation (Capital requirement is not too high) Whilst insurance is a scale business, there are enough large insurers globally who all want a piece of Turkey. Requirements to obtain licences to operate are not impossible to obtain (As they were in China for AMC initially) There are no discernable profitable niches insurers operates in that should fear new entrants; it is across all branches; credit insurance with only 15 operators has been generating underwriting losses for example. Having said that, no premiums have been generated in the support branch Defining suppliers as insurers and capital providers, none have much control over the market. There is already an excess of capital and plenty to be found to support growth as needed The market of insurers is highly fragmented with little concentration Outsourcing is generally low in Turkey at present although third parties such as IT providers are utilised. There is little power here In terms of human capital there is limited supply but little anecdotal evidence to assert there is a battle for talent as of yet (underwriters being poached) There is only one reinsurer licenced in Turkey with 30% of the market, but global cession is permitted The residual market is dealt with entirely by the Undersecretariat funded by insurers Smaller incumbents are aware they lack the firepower so whilst their relative power is limited it will not be for long as they receive endless proposals from foreign insurers Structurally there is little ability to create “power”; many suppliers and substitutes, low switching costs in GI, penetration is low other than in compulsory insurance and no intermediaries to consumers to speak of
(*) 5-forces is an industry level analysis with 4 factors impacting the resultant degree of industry-competitive rivalry
Threat
5-FORCES (2 0F 2) Force
Analysis
Power of Buyers
• •
•
•
Availability of Substitutes
•
Degree of Competitive Rivalry
•
•
• • •
Personal lines do not pose a threat to the insurance industry Given the nature of the industry, commercial lines do not have excessive pricing control. As a commoditised product there is little latitude in tariffs, and insurers are aware of maintaining their LOR (thought there are invariably insurers that will sacrifice growth for profit). There are limited large commercial line customers to be fought after to gain the “millions in premiums” As the insurance market matures, supported by information availability through the internet, price and service can be easily compared. This taken together with high price elasticity increase bargaining power of customers In terms of distribution, there are multiple channels. Banks (bancassurance) are in the driving seat, spoilt with choice. Insurers cannot directly control brokers and agents but certainly can compete for them There are innumerable substitutes (Or as of 2009, 37 GI insurers) in the market and the majority of which offer the same suite across the same branches There are a few specialty insurers in the market in single lines, but empirically have not demonstrated competitive advantage, the niches are small and furthermore there are not barriers to entry In the face of a growing, large market, competition to become a leading player in Turkey is incredibly fierce. With little ability to differentiate, and selling a commoditised product, the general insurance market is difficult Rivalry is much higher in the non life market than the life one Majority of players are global heavyweights implying little differentiation. Due to penetration competition is for new customers, rather than stealing existing ones from one another Success is a two phase notion. Initially, brand building is integral with best access to distribution to drive GWP. Low cost structure, greater efficiency and better customer service will beat out competitors eventually and aid in generating underwriting result across the cycle. This is to be supported by strong investment generation capabilities. In the second phase, applying hitherto generated underwriting knowledge to minimise the LOR and effective cost control to minimise COR will support further market penetration to cement market position
Threat
SWOT (*) - STRENGTHS/OPPORTUNITIES •
Intense competition arisen from deregulation is promulgating innovation; from underwriting, marketing and insured servicing and rights
•
Innovations in distribution and improvements in market penetration will follow resulting in new channels, particularly in the direct and online space
•
Aggressive insurer marketing budgets and government education programs will buoy consumer awareness of the industry and expand the market
•
A highly deregulated environment and increasingly liberated tariff control will allow market forces set premiums according to their strategy and further differentiate themselves
•
Liberalisation in the future away, from the state in certain branches, will create new channels of insurance
•
Allowing insurers to issue their own policy wordings and remove unlimited exposure clauses will enable underwriters to tailor products to customers more easily
•
Undersecretariat reporting requirements ensure significant market transparency
•
Relatively stringent capitalisation requirements are key to licence renewal and ensures that rogue companies will not undermine the market and strengthen scepticism of financial companies and foreigners
•
All insurance participants, including agents, brokers, actuaries and advisors are governed by law and regulated ensuring a duty of care
(*) SWOT is an acronym for a company/industry level analysis – Strengths, weaknesses, opportunities and threats
SWOT - WEAKNESSES/THREATS •
Profitability likely to remain low as premiums rates will remain under pressure due to intense competition, particularly in the main lines (Vehicle, general insurance and mandatory insurance lines)
•
Future of reinsurance questionable in a highly ceded market •
•
As the market becomes more deregulated, costs may rise as treaty reinsurers reduce ceding commissions to compensate for the lower rates Reliance on transfers to new assets from investment performance to compensate for marginal underwriting results subject insurers to the volatility of the financial markets which are still recovering
•
Overcapitalised market means that insurers are likely not generating an adequate return on capital and may lead to volatility and shortening of hard/soft cycles
•
Traditional distribution networks, particularly agents given their dominance, need to be further educated and increasingly match future product offerings
•
Natural catastrophes are an issue in Turkey particularly earthquakes, whilst there is the TCIP, given the nature of insurance contracts, insurers have to be aware of possible obligations
UNDERWRITING RESULTS GENERALLY COMPRESSED Underwriting Result
Investment Return
• Growing GWP but at lower tariffs due to excessive competitive pressure in many insurance segments • COR increased in 2005-10 due to several major claims • Some other segments are also experiencing increasing benefit payments (e.g. health) • No sustainable progress made in cutting administrative costs
• A downturn in the equity markets continues in the light of the persistent economic and investor confidence crises • Low interest rates continue to reduce possibilities for attractive investments • Write off on securities has arguably not yet been fully effected
Declining earnings from capital investments
Increasingly weak underwriting result
The traditional offsetting of underwriting result loss is becoming increasingly difficult
VALUE CHAIN •
The areas of value chain for developing core competences to manage COR are presented below, grouped into 3 specialisms
•
Only the largest companies can competently cover the whole value chain • This is the reason for the significant “sell outs” by domestic players Companies are polarised to some extent between sales and product focus, as can be seen by the use of marketing staff
• •
Some companies such as AXA, Allianz and Groupama have no marketing staff whereas others such as Anadolu do and so focus on a sales channel specialism to gain market share rather than outsourcing it • Many may just see the sales channel as a large cost centre
Disaggregated Value Chain for COR Analysis Marketing
Sales Channel
Cust. Support
Sales
EOR Mgmt. Product
LOR Mgmt.
Prod. Dev.
Platform/ Transacti on
Source: Model fundamentally based on Roland Berger analysis
Asset Mgmt.
Brand
Under write
Admin/ Claims
INTERNATIONAL INSURANCE COMPARISON - TOTAL Total Insurance Growth, Penetration And Density By Region (2009) Premiums (USDm)
Real growth
Share of world market (%)
Premiums in % of GDP
Premiums per capita (USD)
Turkey
8,400
9.09
0.21
1.44
115.7
America
1,349,495
-6.14
33.19
6.91
1,470.2
North America
1,238,586
-7.08
30.46
7.94
3,634.5
110,910
5.75
2.73
2.82
192.2
Europe
1,610,620
1.83
39.61
7.58
1,861.5
Western Europe
1,525,953
2.61
37.53
8.46
2,922.4
84,667
-10.86
2.08
2.75
262.7
Asia
989,451
2.78
24.33
6.08
243.1
Japan and newly industrialised Asian economies
699,012
-0.42
17.19
10.33
3,307.6
South and East Asia
261,887
12.14
6.44
3.43
74.0
Middle East and Central Asia
28,552
3.40
0.70
1.54
92.0
Africa
49,287
-11.13
1.21
3.26
48.8
Oceania
67,241
-9.57
1.65
6.24
1,862.9
World
4,066,095
-1.07
100.00
6.98
595.1
Industrialised countries
3,532,716
-1.78
86.88
8.61
3,404.9
533,379
3.53
13.12
2.89
91.5
OECD
3,466,714
-2.04
85.26
8.20
2,808.4
G7
2,744,580
-2.41
67.50
8.71
3,670.8
Euroland
1,074,916
7.34
26.44
8.04
3,058.5
EU, 27 countries
1,481,834
2.15
36.44
8.42
2,774.6
NAFTA
1,255,938
-6.88
30.89
7.63
2,788.5
ASEAN
44,669
3.23
1.10
2.97
83.4
Latin America and Caribbean
Central and Eastern Europe
Emerging markets
Source: Swiss Re, Economic Research & Consulting, sigma No. 2/2009. For Turkey, data was backed out from stats from Undersecretariat of Treasury Report 2009 and therefore there are errors from rounded data
INTERNATIONAL INSURANCE COMPARISON – NON-LIFE Non-Life Insurance Growth, Penetration And Density By Region (2009) Premiums (USDm)
Real growth
Share of world market (%)
Premiums in % of GDP
Premiums per capita (USD)
Turkey
7,100
5.97
0.41
1.22
97.80
America
769,869
-1.00
44.38
3.94
838.80
North America
702,584
-1.50
40.51
4.50
2,061.70
67,285
4.30
3.88
1.71
116.60
Europe
657,105
-1.20
37.88
3.05
750.60
Western Europe
590,433
-0.50
34.04
3.22
1,111.30
66,672
-7.50
3.84
2.16
206.90
Asia
257,184
5.60
14.83
1.57
62.80
Japan and newly industrialised Asian economies
160,946
2.20
9.28
2.35
753.80
South and East Asia
74,532
13.90
4.30
0.98
21.10
Middle East and Central Asia
21,706
4.70
1.25
1.17
70.00
Africa
16,723
0.40
0.96
1.10
16.60
Oceania
33,649
2.90
1.94
3.12
932.20
World
1,734,529
-0.10
100.00
2.98
253.90
Industrialised countries
1,485,759
-0.60
85.66
3.60
1,424.90
248,770
2.90
14.34
1.35
42.70
OECD
1,491,240
-0.70
85.97
3.51
1,201.80
G7
1,170,656
-1.30
67.49
3.65
1,539.00
Euroland
446,144
0.40
25.72
3.40
1,293.50
EU, 27 countries
575,050
-0.70
33.15
3.20
1,054.50
NAFTA
712,249
-1.30
41.06
4.33
1,581.40
ASEAN
16,417
5.30
0.95
1.00
28.00
Latin America and Caribbean
Central and Eastern Europe
Emerging markets
Source: Swiss Re, Economic Research & Consulting, sigma No. 2/2009. For Turkey, data was backed out from with stats from Undersecretariat of Treasury Report 2009 and therefore there are errors from rounded data
EU NON-LIFE INSURANCE PENETRATION COMPARISON •
It is worth examining penetration of non-life insurance in Turkey in greater detail
•
• Calculated as premiums to GDP Since 1999, Turkey has had the lowest penetration in all of Europe, though growth is the 4th highest on a CAGR basis (4.3%)
•
This serves to indicate the huge potential of the market
Non-Life Penetration and Growth (Sorted by 1999 Level) 10.0%
10.0%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
1999
2008
2008 Average
1999 Average
Source: Analysis of CEA Statistics N°40: European Insurance in Figures, Data 1999-2008
CAGR (1999-2008)
EU NON-LIFE INSURANCE PREMIUM PER CAPITA COMPARISON •
Premiums per capita are drastically low in Turkey too
•
• In 1999, Turkey had the 3rd lowest level and in 2008 now has the lowest Growth has been fairly high at 13.7% CAGR (off a very low base) but this has been at the 7th fastest, implying it has not kept up with other developing markets
Average Non-life Premiums Per Capita (Sorted by 1999 Level) € per capita 1,800
30.0%
1,500
25.0%
1,200
20.0%
900
15.0%
600
10.0%
300
5.0%
0
0.0%
1999
2008
1999 Average
2008 Average
CAGR (1999-2008)
Source: Analysis of CEA Statistics N°40: European Insurance in Figures, Data 1999-2008. Note axis has been capped for 2008 to aid visibility
INTERNATIONAL INSURANCE COMPARISON – GROWTH IN NON-LIFE •
Explosive historic growth has slowed in adverse market conditions (with life growing faster) though is line with other emerging markets
•
South and East Asia have faired well, but are larger markets so have more latitude for growth
Non-life Premiums Growth Rates Versus Average Growth By Region Growth Rate 2009
Annual Average Growth Rate 1999-2008
Turkey
2.7%
32.7%
World
-0.1%
3.3%
Industrialised countries
-0.6%
2.7%
North America
-1.5%
2.6%
Western Europe
-0.5%
3.5%
Continental Europe
0.1%
3.4%
Japan / newly industrialised Asian economies
2.2%
0.9%
Oceania
2.9%
2.2%
Emerging markets
2.9%
9.3%
13.9%
12.0%
4.3%
6.3%
-7.5%
10.7%
Africa
0.4%
6.6%
Middle East and Central Asia
4.7%
10.2%
South and East Asia Latin America and the Caribbean Central and Eastern Europe
-10.0%
Graphical Overview Growth rate 2009
0.0%
Annual average growth rate 1999-2008
10.0%
20.0%
30.0%
40.0%
Source: Swiss Re, Economic Research & Consulting, sigma No. 2/2009. For Turkey, stats were utilised from Undersecretariat of Treasury Report 2009, 2008 and 1999 and taken total non-life premiums including those generated by life and pension business. Ordinarily in this report these are omitted
GLOBAL PREMIUM COMPARISON •
Global insurance premium production in 2009 was $4.1tn with 4.77% decrease on 2008
•
Non-life insurance premium was $1.7bn with a gross annual decrease of 3.16%
•
Real negative growth rates were less than gross in lieu of the credit crisis
•
Turkey is similar in developments to other emerging markets, however, in 2008 non-life insurance premium decreased in Turkey
•
The following graphs show a comparison of real growth rates in developed countries, emerging markets and Turkey since 2005 and premium production for developed countries and emerging markets
Real Growth Rates of Premium
Premium and Allocation (2009)
% 16.0%
(USD bn) Industrialised Markets United States Japan United Kingdom France Germany Italy Hong Kong Emerging Markets Latin America and Caribbean Central and Eastern Europe South and East Asia Middle East and Central Asia
14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 2005 Turkey
2006
2007
Industrial countries
2008
2009
Emerging markets
Source: Sigma Magazine, World Insurance in 2009, No: 2/2010
Non – Life % Sector % World 1,486 647 107 92 89 127 54 3 249 67 67 75 22
Africa
17
World
1,735
Turkey
Note: Turkey % sector is emerging markets
11
27% 27% 30% 9% 7%
86% 37% 6% 5% 5% 7% 3% 0% 14% 4% 4% 4% 1% 1%
4%
1%
44% 7% 6% 6% 9% 4% 0%
NON-LIFE EU PREMIUM COMPARISON •
European direct premiums have grown at a CAGR of 5%
•
Turkey has faired better growing at 12%
•
Turkey’s share of direct premiums has grown at a CAGR of 7%, growing from a 0.68% share to 1.28% in 2008 to place it as the 13th largest market on this basis
EU Direct Premiums and Turkey as a % of Europe €m 1.40%
450,000 400,000
1.20%
350,000 1.00%
300,000 250,000
0.80%
200,000
0.60%
150,000
0.40%
100,000 0.20%
50,000 0
0.00% 1999
2000
2001
2002
2003
EU Total Premiums
2004
2005
Turkey % of Europe
Source: Analysis of CEA Statistics N°40: European Insurance in Figures, Data 1999-2008
2006
2007
2008
GENERAL INSURANCE STATS Direct Premiums (TL & %)
Premium to Inflation (%)
140%
14,000
200%
120%
12,000
150%
100%
10,000
100%
80%
8,000
50%
60%
6,000
0%
40%
4,000
20%
2,000
0%
Increase (%)
Inflation (Wholesales)(1) (%)
0
Premium Receivables (TL & %) Increase (%)
Direct Premiums
Direct to Receivable Premiums 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
200%
4,000
150%
3,000
100%
2,000
50%
1,000 0
0%
Increase (%)
Premium Receivables
Participation (TL & %) 400%
4,000,000
300%
3,000,000
200%
2,000,000
100%
1,000,000 2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
Premium Receivables
1982
Direct Premiums
0 1980
0%
Increase (%) Participation Source: Sigortacılık Genel Müdürlüğü, 2009 data Note: (1) Wholesale insurance = PPI (12 Months percentage increase in PPI) Source - TURKSTAT
GENERAL INSURANCE ASSET STRUCTURE Asset Structure (%)
Fixed Assets
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
400%
1,600
300%
1,200
200%
800
100%
400 0
0%
-400
-100% Increase (%)
Fixed
Securities Portfolio (TL & %) Equity Capital
Assets
Fixed
Securities Portfolio
Equity Capital (TL & %) 250%
8,000 7,000
200%
200%
8,000
150%
6,000
100%
4,000
50%
2,000
6,000 5,000
150% 100%
0
0% Increase (%)
4,000
Assets (TL & %)
3,000
150%
Securities Portfolio
25,000 20,000 15,000 10,000 5,000 0
2,000
50%
1,000
0%
0
100% 50% 0%
Increase (%)
Equity Capital
Source: Sigortacılık Genel Müdürlüğü, 2009 data
Increase (%)
Assets
PREMIUM VOLUME AND COVERAGE •
In 2009, total insurance premium in non life grew to TL 10.6bn with direct premium production prior to cession at TL 10.4bn
•
Total coverage in 2009 reached to TL 24.2bn (excluding health/sickness classes as most have unlimited coverage)
•
The delta between coverage and premiums can be explained by failing tariffs
•
Whilst nominally positive, direct premiums have not been able to keep up with inflation, decreasing in real terms in both 2008 and 2009
Total Gross Premium and Coverage TKL m 30
TKL m 30
25
25
20
20
Reduced pricing
15
Direct Premium & Real/Nom change TKL m 14
% 25%
12
20%
10
15%
8 10%
15 6
10
10
5
5
2
0
0
0 2005
2006 Non-Life Premium
2007
2008
2009
Non-Life Coverage (*)
5%
4
0% -5% 2005
2006
2007
2008
2009
Life Direct Premium (bn)
Non-Life Direct Premium (bn)
Nominal Change (%)
Real Change (%)
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data Note: (*) Whole coverage amount given for bodily injure in third party liability insurance has been included in total since 2008. It has about 40% share in total coverage amount in those years.
PREMIUM VOLUME FALLING IN REAL TERMS •
Insurance is a financial sectors which is highly elastic to GDP with rapid and levered impact to change and development in the economic environment •
•
When GDP grows, insurance premium growth exceeds that of GDP, but the fall in GDP leads to a higher shrinkage in insurance market • The situation was reversed only in 2008 when non-life premium production fell in real terms despite the GDP growth The following graph show growth and decline in rates of direct premium volume in real and nominal terms for the preceding ten years
Real and Nominal Growth Rates of Premium in Non-Life (*) Branches % 100 80 60 40 20 0 -20 2000
2001
2002
2003
2004 Real Growth
2005
2006
2007
2008
2009
Nominal Growth
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data Note: (*) Whole coverage amount given for bodily injure in third party liability insurance has been included in total since 2008. It has about 40% share in total coverage amount in those years.
CYCLICALITY – PREMIUM GROWTH DOES NOT ALWAYS KEEP UP WITH GDP •
The following graph shows direct premiums (Turkish insurance industry) vs. constant price GDP growth and indicates that, during a soft cycle, premium growth can fall below GDP growth
•
When this occurs it can indicate that price per unit of risk is declining since demand for insurance tends to grow at, or slightly higher than, the overall economy •
•
This phenomena also leads claim cost growth to outpace premium growth ~50% of the time in more mature markets Turkey is no exception to cyclicality with approximately four soft periods since 1982
•
• Interestingly two of these periods occurred during hard cycles in the USA • However, whilst the US has averaged annual growth of ~6%, Turkey has averaged ~64%! GDP and premium growth are closely correlated with a r2 of 87%
Growth Rates of Premiums and GDP in Non-Life Branches % 140%
r²
USA up cycle
USA up cycle
120%
87%
100% 80%
Forecasted
60% 40% 20%
Softening Softening
Softening
Softening
0%
Direct premium change
Gross domestic product, current prices change
Source: International Monetary Fund, World Economic Outlook Database, April 2010, TSRB and Sigortacılık Genel Müdürlüğü Note: Premium forecasts from 2010 to 2015 have been derived from IMF forecasts through linear regression
CYCLICALITY – INDUSTRY-WIDE SURPLUS GROWTH LEADS TO LOWER PRICING •
While no two cycles are the same in amplitude and length, price declines inevitably follow periods of surplus growth (and normally strong pricing)
•
Surplus is a good measure of underwriting capacity and therefore supply • •
•
•
Changes in surplus are the key driver of the insurance pricing cycle The cyclicality of ROE is not only driven by lower prices but by equity bases that grow rapidly during a hard market The following graph shows the relationship between equity capital (proxy for surplus) and direct premiums. Hard markets are evident following sharp increases in equity capital • It is possible that we may be presently entering a hard market Soft cycles tend to end when underwriting losses deplete surplus and can be accelerated by catastrophic events (such as a financial crisis, or more typically a natural one)
Surplus to Premium Growth (With GDP Comparison) 140%
USA up cycle
120%
Erzincan earthquake
250%
USA up cycle
Izmar flood
Marmara and Duzce earthquake
100%
200%
80%
150%
60%
100% Black Sea Flood
40%
50%
20%
Hard Market
Hard Market
0% 1981
1983
1985
1987
Direct Premiums
1989
1991
1993
Hard Market 1995
1997
1999
Gross domestic product, current prices change
0% 2001
2003 Equity Capital
Source: International Monetary Fund, World Economic Outlook Database, April 2010, TSRB and Sigortacılık Genel Müdürlüğü
2005
2007
MARKET CONCENTRATION (1 OF 2) •
Concentration by premium has largely remained constant (Whereas life has become more fragmented)
•
Interesting the concentration by shareholders equity increased in 2005 as foreign entrants flooded in (but this obscured slightly by an inflation adjustment inured BoY 2005) and has fallen in 2008 •
One could assert that companies have recently become more evenly capitalised
Net Earned Premiums
Premium Share by Branch in 2009
100% 90% 80% 70% 60% 50% 40% 2005
2006
2007
2008
2009
Top 5
Top 10
Accident
57%
79%
Air Vehicles
90%
99%
Air Vehicles Liability
88%
99%
Credit
96%
100%
Financial Loss
70%
95%
Fire and Natural Disasters
51%
78%
General Damages
51%
79%
General Liability
59%
83%
Health
82%
97%
Land Vehicles
54%
79%
Land Vehicles Liability
52%
75%
% of Top 5
% of Top 10
Legal Protection
62%
87%
% of Top 25
% of Top 5 Average
Non Life Total
50%
78%
% of Top 10 Average
% of Top 25 Average
Sea Vehicles
74%
93%
Transport
49%
78%
Source: Sigortacılık Genel Müdürlüğü, 2009 data
MARKET CONCENTRATION (2 OF 2) •
•
As can be seen in the chart to the side, concentration is low in Turkey, the 13th largest and 9th fastest growing market in 2008 It is ranked the 25th least concentrated of 29 countries for the top-5 and 21st for the top-10
•
Concentration is more similar to developed countries such as the UK than developing countries with which it has a similar distribution structure, such as Estonia which has great concentration
•
Poland has similar size and growth potential and is far more concentrated
Source: CEA Statistics N°40: European Insurance in Figures, Data 1999-2008
Market Share Of The Largest Non-life Insurance Groups Total non-life premiums (€m) Country Turkey Greece Spain Germany Switzerland United Kingdom Cyprus France Portugal Ireland Bulgaria Belgium Denmark Italy Poland Malta Latvia Austria Romania Croatia Hungary Czech Republic Sweden Estonia Luxembourg Slovakia Slovenia Finland Iceland Liechtenstein Lithuania Netherlands Norway
2008 5,352 2,596 32,597 84,937 15,015 61,289 401 60,826 4,324 3,334 773 9,927 6,271 37,454 5,730 93 449 8,852 1,936 988 1,706 3,310 6,983 245 705 965 1,377 3,252 259 235 435 50,113 4,742 413,153
2000 2,480 1,267 17,051 70,110 10,175 55,400 186 41,082 3,571 2,964 176 7,121 3,947 27,874 3,119 85 165 6,290 n.a. 493 794 1,343 4,749 83 n.a. 375 756 2,346 249 n.a. 98 18,994 4,495 287,837
First 5 2008 47.4% 35.0% 42.8% 43.2% 46.8% 47.6% 48.1% 54.8% 63.0% 64.0% 65.3% 67.7% 68.0% 69.4% 71.3% 74.1% 74.8% 74.9% 75.1% 79.6% 79.9% 80.6% 83.5% 84.2% 84.4% 89.1% 90.2% 91.5% 99.0% n.a. n.a. n.a. n.a. 53.9%
First 10 2000 44.9% 46.8% 27.8% n.a. 61.5% 35.7% 46.6% 53.4% 73.4% 71.6% n.a. 58.0% 72.2% 59.5% 80.6% 65.1% 59.1% 55.4% n.a. 83.7% 89.9% 80.4% 84.9% 90.0% 83.2% 85.6% 94.0% 88.5% 99.4% n.a. 71.1% 40.4% n.a. 49.9%
2008 73.7% 56.3% 62.0% 63.8% 66.7% 67.1% 69.9% 74.1% 81.8% 92.8% 83.5% 85.8% 85.6% 86.2% 86.0% 19.9% 100.0% n.a. 92.5% 93.4% 92.5% 92.8% 93.0% 97.8% 97.0% 97.6% 99.8% 99.4% 100.0% n.a. n.a. n.a. n.a. 72.3%
2000 70.2% 62.6% 43.2% n.a. 83.6% 42.9% 67.7% 69.3% 77.7% 94.4% n.a. 76.6% 85.8% 82.9% 90.2% 82.2% 89.9% 76.7% n.a. 93.9% 97.9% 92.2% 94.0% 100.0% 95.7% 95.1% 99.6% 97.2% 100.0% n.a. 86.1% 56.8% n.a. 64.6%
First 15 2008 85.9% 72.2% 74.5% 74.4% 79.3% 75.5% 82.6% 86.4% 94.6% 98.5% 84.0% 92.7% 91.9% 91.7% 92.6% 5.8% 100.0% n.a. 97.8% 98.9% 97.6% 94.8% 98.1% 100.0% 99.4% 99.2% 100.0% 100.0% 100.0% n.a. n.a. n.a. n.a. 81.8%
Premium Share by Branch in 2009
2000 82.0% 72.6% 55.9% n.a. 91.2% 48.5% 79.2% 81.0% 87.2% 99.6% n.a. 87.0% 92.5% 92.0% 95.8% 88.8% 99.5% 87.7% n.a. 98.2% 100.0% 95.5% 97.6% 100.0% 99.3% 98.8% 100.0% 99.0% 100.0% n.a. 93.4% 65.5% n.a. 73.2%
DOMESTIC COMPETITION •
Given the penetration of foreign players, it is evident that domestic players have been unable to compete effectively alone •
•
Recognising the limited financial resources of Turkish companies, terms of business partnership (Joint Venture) were introduced to the Turkish Legal System with the enactment of the Communiqué numbered 2009/2 The number of non-life companies has decreased from 56% of the market in 2006 to 35% in 2009 • •
•
Initially, domestic companies partnered with foreigners or set up joint ventures Over time, the partnerships were bought out (Koc and Olak in 2008) and new entrants bought majority shares • Presently there are few large domestic competitors going it alone Domestic companies have been historically operating in an underdeveloped and unsophisticated market, rarely venturing out of their national borders •
•
Foreign competitors are invariably global MNCs with considerable experience and capital resources • Without the barriers to entry and legal requirements of some international economies, domestic players have been unable to compete; rather than be competed out of the market, they have partnered or sold In the future, those untied domestics will eventually be bought out
FOREIGN COMPETITION – OVERVIEW •
Multinational insurers are keenly interested in emerging insurance because their home markets are saturated, while emerging countries have low insurance penetrations and high growth rates •
•
The charts below show the increasing dominance of foreign players in non-life on the left and in life, pension and reinsurance on the right Typically foreign insurers take only a small share of an individual country’s market • • •
•
In Taiwan for example, foreign companies took only a 3 per cent share seven years after opening In Korea, their share was 1 per cent after 20 years In China, a large and complex markets like India, private insurers have not made much headway. In Turkey, success has been more rapid largely because of regulation differences Unlike in India where foreign entrants must partner with domestic players and hold minority stakes, insured have looser reigns •
Minority shareholders rights are assured through Turkish Commercial Code No. 6762
Non-Life Number of Companies
Life, Pension & Reinsurance
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0 2006
2007 Foreign
2008 Domestic
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2009
2006
2007 Foreign
2008 Domestic
2009
FOREIGN COMPETITION – SATURATION OF MATURE MARKETS •
As discussed, the lack of growth opportunities in domestic markets is driving MNC insurers further afield to gain exposure to growth
•
The total Turkish insurance sector was 36th in global premiums of 88 countries with a 0.21% share in 2009
•
According to premium per capita, Turkey was 65th place in 2008 with $106.2 PPC; a 6th of the world benchmark
•
• It reached to $113 in 2009 The attractiveness of Turkey is evident by the multiple of premium/GDP in the chart below • •
Turkey is on average, 5.25x smaller than all the groupings Even compared to other emerging markets, is less than half
Premium Per Capita (USD) and GDP (%) Turkey
Turkey
World
Europe
Industrial
Emerging Markets
$ US and %
2009
2008
2008
2008
2008
2008
Pr.Per Capita
113.0
106.2
633.9
2,043.9
3,655.4
89.4
Life
16.9
17.8
369.7
1,244.1
2,142.6
47.4
Non Life
96.1
88.4
264.2
799.8
1,481.0
42.0
1.3%
1.2%
7.1%
7.5%
8.8%
2.7%
5.70 x
6.02 x
7.10 x
2.19 x
Premium/GDP
Multiple of P/GDP to Turkey
Source: Sigma Magazine, World Insurance in 2009, No: 2/2010
FOREIGN COMPANY STRUCTURE OVERVIEW •
Majority of companies have controlling stakes
Group 1 – Foreign Holding Structure Company Name
Controlling Shareholder
Country
Capital (TL m)
Dominant's Share (%)
Foreign Share (%)
Premium (TL bn)
Market Share (%)
AXA
Axa Holding
France
310
73%
73%
1,277
10.4%
Allianz
Allianz Se
Germany
200
84%
94%
931
7.6%
Groupama
Groupama Int.
France
134
64%
99%
590
4.8%
Yapi Kredi
Ykb As
Turkey
80
53%
27%
608
5.0%
Ergo Emeklilik
Ergo Holding As
Germany
60
100%
100%
23
0.2%
Gunes
Vakifbank Tao
Turkey
150
34%
30%
727
5.9%
Mapfre Genel
Mapfre Int. Sa
Spain
350
90%
81%
361
2.9%
Eureko
Eureko Bv
Holland
60
80%
84%
539
4.4%
Aviva
Aviva Int. Hold.
England
75
99%
99%
275
2.2%
Ray
Tbih Fin. Group N.V.
Austria
97
84%
84%
254
2.1%
Capital (TL m)
Dominant's Share (%)
Foreign Share (%)
Premium (TL bn)
Market Share (%)
Group 2 – Foreign Holding Structure Company Name
Controlling Shareholder
Country
Zurich
Zurich Ins. Co.
Switzerland
72
100%
100%
216
1.8%
Chartis
Aig Memsa Hold.
ABD
44
100%
100%
174
1.4%
HDI
HDI Int. Hold. Ag
Germany
84
100%
100%
175
1.4%
Liberty
Liberty Seguros
USA
183
51%
99%
46
0.4%
Generali
Generali Turkey Hold.
ITALYA
26
100%
100%
85
0.7%
Dubai Group
Dubai Ins. Group L.L.C.
Dubai
65
98%
98%
76
0.6%
Coface
Coface
France
18
100%
100%
12
0.1%
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
FOREIGN COMPETITION – OWNERSHIP STRUCTURES •
There were only 17 foreign shared insurance companies in Turkey in 2000, this number increased to 24 in 2006, 32 in 2007, 41 in 2008 and 43 in 2009 (Total)
•
As of 2009, 24 of 37 non-life insurance companies and 19 of 24 life and pension companies were foreign owned directly or indirectly •
•
Share of foreign partners is above 50% in 35 of these companies with 8 holding minority stakes The change from minority to majority shareholdings over time illustrates growing confidence in the Turkish market- minority shares may illustrate a “dipping of toes” moving to larger shares and or standalone ambitions
Number of Companies with Foreign Partners Year
No.of Company
No.of Company with Foreign Partners
Foreign Partner's Share
100%
90%-100%
51%-90%
20%-50%
< 20%
2000
62
17
2
2
2
5
6
2001
59
16
2
4
2
4
4
2002
58
15
2
4
2
3
4
2003
57
11
2
3
1
3
2
2004
58
16
2
3
2
4
5
2005
55
20
2
5
2
6
5
2006
55
24
5
4
6
8
1
2007
61
32
7
5
10
9
1
2008
62
41
16
11
7
6
1
2009
62
43
18
12
5
7
1
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
FOREIGN COMPETITION – CAPITAL COMPARISON •
•
As a result of increase of foreign investment in Turkish insurance market, the share of foreign owned companies exceeded 50% in total capital and total premium in 2008 • See point of reversal From 2006, the share began to substantially change
•
• See point of inflexion At the end of 2009, share of foreign investment reached to 55% in total paid-in capital while there was no big change in share for premium volume
•
The following table presents foreign companies share in total capital and total premium
Premium and Paid-in Capital Comparison 100% 90%
Reversal
80% 70% 60%
Inflexion
50% 40% 30% 20% 10% 0% 2003 Foreign Paid-in Capital (%)
2004
2005 Foreign Premium Volume (%)
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2006
2007
Domestic Paid-in Capital (%)
2008
2009
Domestic Premium Volume (%)
FOREIGN COMPETITION – CHANGE IN OWNERSHIP •
Examining ownership (Across all insurance lines- due to data availability) across a longer horizon (1991-2009) it is pertinent to note that ownership was largely stagnant from 1992 to 2003 •
•
From this point there was a gentle reversal in ownership ratio which began to accelerate from 2003 In 2005 real interest took hold seeing a point of inflexion in which foreign capital flooded in
•
The following table presents foreign companies share in total capital and total premium
Domestic and Foreign Ownership Across All Insurance Lines 100% 90%
Reversal
80% 70% 60%
Inflexion
50% 40% 30% 20% 10% 0% 1991
1992
1993
1994
Foreign Paid-in Capital (%)
1995
1996
1997
1998
1999
Foreign Premium Volume (%)
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2000
2001
2002
2003
2004
Domestic Paid-in Capital (%)
2005
2006
2007
2008
2009
Domestic Premium Volume (%)
FOREIGN COMPETITION – NATIONAL INTEREST •
The French have always have an interest in Turkey, this is illustrated by a ~16% market share
•
Germany follow with a 9.2% stake
•
England is largely represented by Aviva
•
Entrants favour majority stakes but yield ownership to obtain better partnerships
Companies Owned or Shared by Foreigners by Country Capital (TL m)
Average Dominant Share
Average Foreign Share
Premiums (TL m)
Market Share
Austria
97.0
84.3%
84.3%
253.8
2.1%
BAE
40.0
53.0%
100.0%
0.3
0.0%
Belgium
51.1
100.0%
100.0%
23.7
0.2%
Bulgaria
1.0
86.8%
90.8%
0.0
0.0%
Dubai
65.0
98.5%
98.5%
75.8
0.6%
England
89.7
99.3%
99.3%
278.6
2.3%
France
476.0
84.3%
92.8%
1,923.9
15.7%
Germany
346.0
91.0%
97.4%
1,129.3
9.2%
Holland
145.3
93.3%
94.7%
550.2
4.5%
Israel
28.7
95.8%
96.1%
4.2
0.0%
Spain
350.0
90.0%
81.0%
361.2
2.9%
Turkey
230.0
43.7%
28.6%
1,335.1
10.9%
USA
226.5
75.5%
99.5%
220.8
1.8%
Total
2,146.4
84.3%
89.5%
6,156.8
50.1%
Country
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
CAPITAL OVERVIEW Shareholders Equity TKL ‘000 12,000
Paid in Capital Split 45% 40%
10,000
35% 30%
8,000
25% 20%
6,000
Reinsurance Co. Life and Pension Co. Non Life Co.
10% 5% 0%
2,000
-5% 0
-10% 2006
2007
2008
2009
Non Life Co. Growth % Life and Pension Co. Growth % Reinsurance Co. Growth %
Paid in Capital by Insurance Type TKL ‘000 6,000
30%
5,000
25%
4,000
20% 15%
Non Life Co.
10% 2,000
5%
1,000
0%
0
-5% 2006
2007
2008
Reinsurance Co. Life and Pension Co.
3,000
2009
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
90%
3,500
80%
3,000
70% 60%
2,500
50%
2,000
15%
4,000
TKL ‘000 4,000
Non Life Co. Growth % Life and Pension Co. Growth % Reinsurance Co. Growth %
40%
1,500
30%
1,000
20%
500
10%
0
Domestic Foreign Foreign % Domestic %
0% 2006
2007
2008
2009
Foreign Chare in Capital 120%
120%
100%
100%
80%
80%
60%
60%
40%
40%
Non Life Co. Growth %
20%
20%
Life and Pension Co. Growth %
0%
0% 2006
2007
2008
2009
Life and Pension Co. Non Life Co.
CAPITAL – GROWTH OF PREMIUMS AND CAPITAL •
Capital coming in faster than premiums •
•
Premium to Shareholders’ Equity ratio is 150% on average. Premium to Shareholders’ Equity ratio shows a declining trend as the growth in capital is much larger than the growth in total premium • ROE fell to 3.6% in 20009 from 15.2% and ROA fell to 1.7% from 5.9% As can be seen in the rebased chart below, growth in equity capital in insurance (Proxy for policyholder surplus- GI is over 85% of premiums), capital is growing higher than premiums
Equity Capital and Premiums Rebased to 1980 (Base year 100) TKL 600,000,000 500,000,000
Accelerated growth
400,000,000 300,000,000 200,000,000 100,000,000 0
Direct Premiums
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Equity Capital
DISTRIBUTION - CHANNEL OVERVIEW (1 OF 4) •
Turkey’s distribution structure is one of the most unique in Europe, polarised with amongst the highest levels of bancassurance and agents and the lowest of direct and brokers
•
Private insurance agencies generates approximately 70% of total premium in non-life branches and this level has remained constant in the preceding few years, but has overall come down somewhat
•
Banking agencies follow private agencies with a share of 13%. This has increased 19% from 11% in 2006 to 2008 •
• •
Peculiarly, given bancassurance is not very well developed in non-life and constituted less than 10% in all EU countries, the highest market share is held in Turkey, with Portugal, the UK, France, the Netherlands and Spain following • The penetration of bancassurance is similar to that of Brazil, with Malaysia and Mexico having similarly high level Brokers distribute 11% of premiums and increased 19% over the same period from 9% The share of direct premium generated by insurance companies is approximately 6% and has fallen significantly (38%) from 9.7% in 2006 to 6% in 2009
Distribution by Channel 1% 11%
6%
Direct
13%
Agencies Banks Brokers Other 70%
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data and Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
DISTRIBUTION – EU COMPARISON (2 OF 4) •
In Europe, non-life policies are distributed through traditional intermediaries (Agents and brokers) apart from Switzerland, the Netherlands, Croatia and Nordic countries where direct sales predominate
•
Agents held more than a 50% share in six countries (Italy, Poland, Portugal, Slovenia, Germany and Turkey) and more than 30% in 11 of the 25 countries
• •
Turkey has the second highest level of agents across Europe • Italy has a greater level, this is similar in Spain, although the data is unavailable The structure is similar to that of Germany and Portugal
•
The most notable deficiency is in direct sales where the EU average is 29% vs. Turkey’s 7%
•
Brokers remain of much less import than agents in the majority of European countries, though there are expectations where they do dominate in countries such as Belgium, Ireland and the UK, where they accounted for more than 50% of non-life premiums
Non-Life Insurance Distribution Channels (2008) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Direct sales
Agents
Brokers
Bancassurance
Source: Analysis of CEA Statistics N°40: European Insurance in Figures, Data 1999-2008
Other
DISTRIBUTION – CONSIDERATIONS (3 OF 4) •
Costs to distributors and reinsurers have remained largely constant •
•
Life insurance commissions however are seen to be out of control, with one anecdote stating life commissions to bank branches are at 50% • Attempts to limit competition with a “no more than 20% above the average” limit resulted in a circular formula which the Undersecretariat has admitted to and is seeking to ameliorate A Roland Berger “Global Survey” found in traditional markets insurers focus on product (42%) but in emerging CEE sales channels are the main focus (60% vs. 29% in mature) •
•
This makes sense, as with low levels of penetration, the focus is more on getting people insured than the specifics of the contract as in more mature countries with limited differentiation Marketing and branding is hugely important at ‘Where Insurance is Bought?’ present to establish market leading positions •
•
•
At present the market is highly fragmented, though there are leaders emerging, the battle has yet to be won • Nielsen found 69% of people found brand reliability was the key element in buying insurance Nielsen research supports Sigortacılık Genel Müdürlüğü data, finding too that agents are the dominant sales channel, followed by the banks
0.2% 8% 2% 8%
The internet and direct channels constitute only 10% of surveyed sales
Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
Bank Branch 22%
Agents Direct Broker Internet
59%
Don't know- company provides
DISTRIBUTION – DRIVERS OF CHANGE (4 OF 4) •
The current distribution structure with agents dominating (70% vs. ~30% for mature countries or 40% in Europe in general) is unlikely to remain and has already come down from ~80% in the past 5 years, a trend mirrored in India which also was agent dominated
•
The drivers for this will be as follows: •
•
As the market becomes more informed, complex products will be demanded, largely in the commercial space, such as for block coverage which will particularly favour brokers • As is precedented in Europe (particularly on the continent), bancassurance will gain traction amongst consumers, though this will likely favour life more, related mortgage products and household insurance may do well • Diversification by insurers through a multichannel strategy that will erode agent and broker predominance • Direct and internet will be longer term plays, though offerings have been launched in the past year or so Given the infantile nature of the market insurers will be treading lightly, as by being too aggressive they may undermine their existing efforts • •
•
Agents may feel threatened and lose confidence in their current tie Given many companies have seen large annual changes in both directions oft heir agent network this is not something to be taken lightly The assertion that agency dominance will diminish must be tempered as Italy, a mature market has persisted with extraordinarily high levels of agent sales, therefore we cannot assume Turkey will change over time
INSURANCE EMPLOYEES •
Insurance and individual pension sectors employed more than 60,000 people in 2009
•
The 62 insurance companies employed 15,602 people
•
There are 15,579 intermediaries in Turkey as of 2009 year end
•
The number of brokers licenced is 72, of which 57 are non-life
•
There are 908 real and 431 legal entities loss adjusters (And 1,154 agricultural loss adjusters)
•
There are 36 actuaries working the Turkish Insurance market
•
• Insurers are now legally obligated to employ actuaries in non-life Below are the preceding four years of insurance, agencies, brokers, loss adjusters and total employees
Staff and Growth 35,000
20%
30,000
15%
25,000
10%
# of Broker # of Loss Adjuster # of Insurance Agency
20,000
5%
15,000
0%
10,000
-5%
5,000
-10%
0
-15%
# of Personnal in Insurance Co
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
Personnal in Insurance Co Growth % Insurance Agency Growth % Loss Adjuster Growth %
INSURANCE EMPLOYEES Insurance Industry Staff
Loss Adjustors (Note right axis)
16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 12,500 12,000
12% 10% 8% 6% 4% 2% 0% -2% -4% 2006 2007 2008 # of Personnal in Insurance Co
970 960 950 940 930 920 910 900 890 880 870
2009
2006
Agents (Note right axis) 15%
16,000
10%
15,500
5%
15,000
0%
14,500
-5%
14,000 13,500 13,000 # of Insurance Agency
2008
2008
2009
# of Loss Adjuster Growth %
Brokers (Note right axis)
16,500
2007
2007
# of Loss Adjuster
# of Personnal in Insurance Co Growth %
2006
2% 1% 0% -1% -2% -3% -4% -5% -6% -7% -8%
60 50 40 30 20 10
-15%
0
# of Insurance Agency Growth %
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
70
-10% 2009
16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4%
80
2006
2007 # of Broker
2008
2009
# of Broker Growth %
3
UNDERWRITING RATIOS GROWTH •
•
•
Growth in EOR has been fairly low at 0.5% on average • However this is misleading, exceptionally sized figures were removed • The average is in fact 10.0%, with the best 5 averaging (7.2)% (vs. uncleansed (7.0)%) LOR growth has been the biggest impact on underwriting ratios with an average annual increase of 3.2% across the industry, with some notable large losses amongst smaller companies • Similarly without data cleansing the average is 5.0% with the best 5 averaging (2.4)% (vs. uncleansed (2.2)%) COR average is therefore heavily impacted by LOR growth
Average Growth in Underwriting Ratios (2006 – 2009) 15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
LOR
EOR
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
COR
LOR Average
EOR Average
COR Average
LOR – PER COMPANY •
Majority of Group 1 suffers an average LOR with some outliers in 2008/9 and Eureko, Fiba and Aviva outperforming
•
Group 2 is far more disparate with some experiencing extreme losses and Chartis performing exceedingly well (given its focus, implying there are not necessarily advantages of branch diversification)
Group 1 – LOR Over 5 Years by Company 100% 80% 60% 40% 20% AXA
Anadolu
Allianz Groupama Yapi Kredi 2005
2006
2007
Ergo
Aksigorta
2008
Gunes
2009
Mapfre Genel Average
Eureko
FIBA
Aviva
Group Average
Group 2 – LOR Over 5 Years by Company 100% 80% 60% 40% 20% Ankara
Zurich
Chartis
HDI
2005
2006
Birlik 2007
Isik
Liberty 2008
Hur 2009
Generali Average
Dubai Group
SBN
Coface
Group Average
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Group 2 LOR maxed out at 100% and Remainder removed for comparability
Ray
LOR – PER COMPANY AGGREGATED •
The charts below to show the aggregated LOR ratios over 5 years
•
• The green average line above and below the blue group average line shows under and over performance Group 1 acts broadly in line with Group 2 again being more volatile
Group 1 – Aggregated LOR Over 5 Years by Company 250%
500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0%
200% 2009 150%
2008
100%
2007
50% 0%
2006 2005 Average Group Average
Group 2 – Aggregated LOR Over 5 Years by Company 250%
500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0%
200% 150% 100% 50% 0% Ankara
Zurich
Chartis
HDI
Birlik
Isik
Liberty
Hur
Generali Dubai Group Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Remainder removed for comparability
SBN
Coface
2009 2008 2007 2006 2005 Average Group Average
EOR – PER COMPANY •
EORs are much more varied than LORs, and the better performing LOR companies do not have the lowest EORs (Higher costs in active underwriting selection?)
Group 1 – EOR Over 5 Years by Company 100% 80% 60% 40% 20% 0% AXA
Anadolu
Allianz Groupama Yapi Kredi 2005
2006
2007
Ergo
Aksigorta
2008
Gunes
Mapfre Genel
2009
Average
Liberty
Hur
2009
Average
Eureko
FIBA
Aviva
Ray
Group Average
Group 2 – EOR Over 5 Years by Company 100% 80% 60% 40% 20% 0% Ankara
Zurich
Chartis 2005
HDI 2006
Birlik 2007
Isik 2008
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Group 2 LOR maxed out at 100%
Generali
Dubai Group Group Average
SBN
Coface
EOR – PER COMPANY AGGREGATED •
Similar to LORs, Group 2 EOR is varied and Group 1 performance is generally homogenous
•
Group 2 average EOR is far greater than group 1 implying advantages to scale
Group 1 – Aggregated EOR Over 5 Years by Company 500%
100%
400%
80%
300%
60%
2008
200%
40%
2007
100%
20%
2009
0%
0%
2006 2005 Average Group Average
Group 2 – Aggregated EOR Over 5 Years by Company 500%
100%
400%
80%
300%
60%
200%
40%
100%
20%
0%
0% Ankara
Zurich
Chartis
HDI
Birlik
Isik
Liberty
Hur
Generali Dubai Group
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Remainder removed for comparability
SBN
Coface
2009 2008 2007 2006 2005 Average Group Average
COR – PER COMPANY •
The charts below show the annual COR
•
The grey average line over the top of the red box illustrates the vast majority of companies operate in excess of a 100% COR
Group 1 – COR Over 5 Years by Company 150% 140% 130% 120% 110% 100% 90% 80% AXA
Anadolu
Allianz Groupama Yapi Kredi 2005
2006
Ergo 2007
Aksigorta 2008
Gunes 2009
Mapfre Genel
Eureko
FIBA
Aviva
SBN
Coface
Average
Group 2 –COR Over 5 Years by Company 150% 140% 130% 120% 110% 100% 90% 80% Ankara
Zurich
Chartis 2005
HDI
Birlik 2006
Isik 2007
Liberty 2008
Hur 2009
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Group 2 LOR maxed out at 100%
Generali Average
Dubai Group
Ray
COR – PER COMPANY AGGREGATED •
Group 1 performs better than Group 2
Group 1 – Aggregated COR Over 5 Years by Company 600%
120%
500%
100%
400%
80%
2009
300%
60%
2008
200%
40%
2007
100%
20%
0%
0%
2006 2005 Average
Group 2 – Aggregated COR Over 5 Years by Company 700%
140%
600%
120%
500%
100%
2009
400%
80%
2008
300%
60%
200%
40%
100%
20% 0%
0% Ankara
Zurich
Chartis
HDI
Birlik
Isik
Liberty
Hur
Generali Dubai Group
SBN
Coface
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Remainder removed for comparability, Dubai is a new entrant
2007 2006 2005 Average
COR – UNDERWRITING RESULT ANALYSIS •
Performance is largely consistent viewed on an annual basis
Group 1 – Yearly Underwriting Result 20% 10% 0% -10% -20% -30% -40% AXA
Anadolu
Allianz
Groupama Yapi Kredi 2005
2006
Ergo 2007
Aksigorta
Gunes
Mapfre Genel
2008
2009
Liberty
Hur
Eureko
FIBA
Aviva
Ray
Average
Group 2 – Yearly Underwriting Result 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% Ankara
Zurich
Chartis
HDI 2005
Birlik 2006
Isik 2007
2008
2009
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Remainder removed for comparability
Generali Average
Dubai Group
SBN
Coface
COR – UNDERWRITING RESULT ANALYSIS AGGREGATED •
Below we can see the aggregated underwriting results
Group 1 – Aggregated Underwriting Result 80%
15%
60%
10%
40% 20% 0% -20% -40%
5%
2009
0%
2008
-5%
2007
-10%
-60% -80%
-15%
2006 2005 Average
Group 2 – Aggregated Underwriting Result 40%
10%
20%
5%
0%
0%
2009
-20%
-5%
-40%
-10%
-60%
-15%
2007
-80%
-20%
2006
-100%
-25%
2005
-120%
-30%
Average
-140%
-35% Ankara
Zurich
Chartis
HDI
Birlik
Isik
Liberty
Hur
Generali
Dubai Group
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: Remainder removed for comparability
SBN
Coface
2008
4
OVERVIEW •
General insurers generate profit by paying out less in losses (LOR) and expenses (EOR) than they generate in premium revenue and investment income
•
Revenue is generated up front from premiums through selling an insurance policy and providing coverage over the next ~12 months, depending on structure
•
Other than premium revenue, insurers generate income through interest, dividends and capital gains on the float
•
General Insurers should be analysed excluding investment operations for the following reasons: •
•
Whilst underwriting and investment divisions of an insurer should interact (For no other reason to avoid ALM) the functions operate independently • Insurers mostly invest in highly rated, sovereign fixed income held to maturity • Investors focus on underwriting activities as they are investing in that ability not their investment competence (with the exception of Berkshire Hathaway), furthermore they can (or believe to be the case) invest more efficiently themselves which is the same reason they like excess capital to be returned • Real competitive advantage generally comes from excelling in COR related activities This section will analyse the 3 components which make up underwriting result as will be delineated on the proceeding page
COMPONENTS OF GI INCOME STATEMENT AND KEY RATIOS •
•
This section will analyse underwriting result through inductive method reasoning focusing on 3 areas. In doing so we will be able to understand how to compete effectively 1. Revenue (Premiums) 2. Expenses (EOR) 3. Losses (LOR) Investment return is however integral to insurance profitability, so shall be touched on in revenue
Components Of GI Income Statement And Key Ratios Component Revenue
̶
Source Premium
NA
NA
2
Losses and Loss Adjustment Expenses
Loss ratio (LOR)
Incurred loss and LAE
3
Underwriting expenses (Acquisition cost, overhead etc.)
Expense ratio (EOR)
Underwriting expenses
+ ˭
Above Costs
˭ +
Underwriting result
Returns on float
Calculation
1
Expenses
Total Expenses
Key Ratio
Investment income
˭
Net income (*) Alternatively one may used ‘net premiums written’ which is frequently the case
+ ˭
Net premiums earned
Net premiums earned (*) LOR + EOR
Combined operating ratio (COR)
Net premiums earned
COR Difference
1 - COR
Investment income ratio (IIR)
Net investment income
Operating ratio
COR + IIR
Net premiums earned
MANAGING REVENUE – OVERVIEW (1 OF 2) •
The key to underwriting is to successfully charge premiums commensurate with the risk being taken on, while remaining competitive in the market place •
• •
This is obviously difficult with significant competition in Turkey at present, with likely focus being market share than profit It is dangerous to manage a business with a sole focus top line growth (market share) In the early phases of development, the focus of consumers is not so much on product manufacturing, per se •
•
Structuring product to maximise penetration and cash flow (for reinvestment in these capital constrained times) is important, however structuring expertise will be more important in the future In the pursuit of capturing the high growth in the industry it is pertinent to note that insurers are finding their feet in managing “adverse selection.” Insurers want to grow GWP but doing so runs the risk of accepting higher-risk clients •
•
Higher premiums to do not necessarily equate to higher profits irrespective of potentially of investment income from the float which in a low interest environment is ominous As insurance is fundamentally a commoditised product it is difficult to differentiate oneself from competition •
•
Financial strength rating is important to an extent, but only to a threshold (AA for casualty and A for property) However by doing so one may attract more premiums. Examples are: • •
Customer service: Chubb Low cost provider/easy to deal with: GEICO
MANAGING REVENUE – OVERVIEW (2 OF 2) •
Pricing is the key manageable driver of revenue, but it is difficult to get right
•
Insurers must price policies in advance of providing protection, with only an educated guess as to the actual loss and LAE components of costs until policies have expired, losses have been reported (short vs. long tail), and all claims have been paid
•
Insurers underwriting practices centre on (and are discussed in this presentation): •
•
Selection decision to optimise spread of risk of insured and avoid adverse selection (Discussed in “Components of Losses – obstacles to managing Insurance exposure”); • Offering policy coverage terms and conditions attractive enough to lure customers, but restrictive enough to facilitate sound actuarial analysis (Discussed in slide “Components of Losses – pricing characteristics”) • Pricing coverage to be market competitive while generating revenue to cover losses and expenses and ideally earn a RoC over the hurdle rate It is evident that top line strategies impact each aspect of the business, but if price has not be squared off, perfect selection and lean operations will not be sufficient
MANAGING REVENUE - MARKETING P’S •
An interesting manner of analysing company margins (i.e. revenue) and market power is through applying the 4P’s of marketing
Trend
Question
Analysis
Product
•
•
• •
Does it fit with market positioning and market segmentation? Is it tangibly differentiated? Are market trends in the right direction?
• • •
Placement
• • •
Do brokers/agents/banks favour the product? Are prospects properly identified and served? How are you securing shelf space?
• • •
Low cost vs. full service. Being ‘Stuck in the middle’ is never positive regardless of industry and the consultant What is important to customers at this phase of Turkey’s development? Capital allocation to branches and countries? Do you want to win in Turkey? Competition for shelf space is fierce- what can you do to get it and at the right margin? Being a part of the market leader is a highly attractive selling point. Success breeds success Find the gaps in the market
Promotion
• •
Is the target customer aware of the product? Is there any reward for loyalty?
•
With so many competing brands, being the one people remember is key. Despite comparison sites this is still an imperfect market
Price
• • •
What is the pricing strategy? Market capture or underwriting result? Is there perceived value in the brand?
•
Insurers are going for market share, but should you be playing the long game to avoid being consolidated rather than the one consolidating?
MANAGING REVENUE - PRICING ABILITY •
Fundamentally the issue with market profitability for insurers is the lack of pricing ability
•
To some extent pricing is restricted, but with the introduction of free tariffs in TPL vehicles in 2007, insurers have, at least some structural pricing flexibility
•
• Opportunity to segment within insurance types, pricing products according to defined criteria Fragmented market •
•
Combined shares of the top 10 companies in land vehicles branch is 79% all competing to gain market share Barriers to entry low and prize is large • •
•
In the 2006-2008 period 13 foreign companies entered the Turkish insurance market Looking ahead for 2010, incumbents estimate that these entries into the Turkish market will continue • Total non life companies increased from 32 to 37 from 2006-2009 with foreign insurers increasing from 14 to 24 over the same period implying significant acquisitions Growth in premiums but not in profit • • • •
For the past 2 years, premiums have been less than inflation, with GWP contracting However in 2009 volume rose by 14.5% implying rates and thus profits have contracted Paid (64 to 69%) and incurred (55 to 61%) losses have been increasing over past 5 years Paid to incurred losses have moved between 86 and 94%, likely due recently to more conservative reserving practices •
These have not increased beyond 100% en masse
MANAGING REVENUE - ISSUE IS LOW TARIFFS •
Fundamental issue of why there are so few cases of underwriting results in Turkey is that prices are too low and companies are paying the price
•
When technical results is analysed, structurally there are improvements • • • •
The retention ratio has gone up There has not been any substantial difference in the rate of agency commission Commission from reinsurance activities has been decreasing too The premium growth rate has decreased and the loss and expense ratios have been increasing
Technical Ratio (NB: See note) 2007
2008
2009
Premium Growth Rate
15.39%
6.30%
3.91%
Premium Retention Rate (*)
70.12%
74.59%
75.49%
Claims Payment Ratio
66.04%
60.63%
61.12%
Reinsurance Commission Rate
19.83%
18.34%
16.59%
Intermediary Comm. Rate
15.35%
14.56%
15.52%
Loss / Premium Ratio (**)
64.93%
75.30%
79.87%
Expenses / Premium Ratio
21.98%
16.50%
23.77%
(Loss + Expenses)/Premium R.(**)
86.92%
91.80%
103.63%
2.58%
4.38%
1.16%
Technical Profitability Ratio
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data NB Note: There figures are taken directly from government statistics. Analysis indicates that they are slightly wrong. They are presented as is for the purpose of comparability (One error will work its way through so to speak). (*) Calculated as considering for only proportional treaties. (**)Calculated for life companies as life branch excluded
• • • •
MANAGING REVENUE – THE LONG GAME
In order to maintain margins, premium growth must keep up with claim cost inflation • The insurance industry has not generally been good at this In order to keep up with the rate of inflation at minimum, premiums should grow at the same rate of nominal GDP (Proxy gauge for growth of insured values base) In reality, premiums should grow faster as inflation segments insurers are exposed to tend to outpace overall inflation rate. Where this does not happen price per unit of risk falls • Economics posits if overall growth is less than unit demand growth, then price is falling Turkey, because of its growth, has empirically performed better than markets such as the US in this respect, with premium growth being lower than GDP 15% vs. 55% in the US
•
The chart below shows the spread between premium and GDP growth
•
In mature markets ,if industry demand grows at 3-5% and capacity grows at 6% then the industry is inevitably in a constant state of supply/demand imbalance making it hard for premium growth to keep up with claims growth • Given heightened competition of late it would be a fair assumption that the ability for insurers to overcome claims growth in the future will be diminished (See the trend line)
Premium Spread to GDP – Below GDP Growth in Soft Cycles 50% 40% 30% 20% 10% 0% -10% -20%
Spread
Linear (Spread)
Source: International Monetary Fund, World Economic Outlook Database, April 2010, TSRB and Sigortacılık Genel Müdürlüğü Note: Spread forecasts from 2010 to 2015 have been derived from IMF forecasts through linear regression
AGGREGATED EARNED PREMIUMS (NET) – GROUP 1 •
The top 5 companies dominate the market
•
AXA is giving Anadolu a run for their money despite being the long term dominant incumbent
Group 1 - Net Earned Premiums by Company TKL ‘m 6,000
TKL ‘m 1,200 Ray
5,000
1,000
Aviva FIBA Eureko
4,000
800
Mapfre Genel Gunes Aksigorta
3,000
600
Ergo Yapi Kredi Groupama Allianz
2,000
400
Anadolu AXA Average
1,000
200
Top 5 Ave Top 10 Ave Top 25 Ave
0
0 2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
Average
AGGREGATED EARNED PREMIUMS (NET) – GROUP 2 •
The Top 5/10/25 lines illustrate how scale in premiums rapidly trails off and companies become equally sized
Group 2 - Net Earned Premiums by Company TKL ‘m 800
TKL ‘m 800
700
700
Remainder Coface SBN
600
600
Dubai Group Generali
500
500
Hur Liberty
400
400
Isik Birlik HDI
300
300
Chartis Zurich
200
200
Ankara Average Top 5 Ave
100
100
Top 10 Ave Top 25 Ave
0
0 2005
2006
2007
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
Average
ANNUAL EARNED PREMIUMS (NET) BY COMPANY Group 1 – Annual Net Earned Premium Per Company TKL ‘m 1,000 900 800 700 600 500 400 300 200 100 0
2005 2006 2007 2008 2009 Average
Group 2 – Annual Net Earned Premium Per Company TKL ‘m 1,000 900 800 700 600 500 400 300 200 100 0
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2005 2006 2007 2008 2009
COMPANIES THAT HAVE MADE AN UNDERWRITING RESULT •
The most profitable companies are Eureko, Fiba, Mapfre Genel and Chartis
•
7 others have made profit, but only Aviva has done so twice
•
Dubai is neutral but as a new entrant should be ignored
Company / Year Spread of Underwriting Results (And losses) 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Eureko
FIBA
Mapfre Genel
Chartis 2005
Dubai Group 2006
Aviva 2007
Gunes 2008
Yapi Kredi 2009
Hur
Birlik
Allianz
Ergo
Average
Aggregated Result Profits (And losses) 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8%
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Eureko
FIBA
Mapfre Chartis Dubai Genel Group Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Aviva
Gunes
Yapi Kredi
Hur
Birlik
Allianz
Ergo
2009 2008 2007 2006 2005 Average
ANALYSIS OF BEST UNDERWRITERS BY BRANCH •
Eureko, Fiba, Mapfre Genel and Chartis are the most successful underwriters in the Turkish market
•
Aviva and Yapi Kredi have had more success than the remainder of competitors
•
Interestingly, AXA and Anadolu the major forces in the market, have not made an underwriting result in the last 5 years
•
Whilst there may be benefits of scale for attracting premiums, and in theory benefits of the law of large numbers/pooling, it evidently does not correlate to underwriting result and managing adverse selection
•
Most successful companies are underweight in vehicle segments other than specialist ones and are strong in accident and general liability
% Allocation of Business per Branch Fire /
Land
Air
Air
Fin.
Nat.
Gen.
Gen.
Cred.
Loss
Dis.
Dam.
Liab.
na
0.56
18.88
11.56
2.63
Acc.
Veh.
Liab.
Mapfre Genel
2.71
0.19
0.07
Eureko
12.84
3.57
0.04
0.17
0.76
23.26
18.11
4.57
5.12
19.54
7.48
0.12
na
1.22
3.20
FIBA
3.00
0.27
na
1.09
0.29
18.37
14.62
0.80
1.91
27.02
28.54
0.71
0.13
0.94
2.29
Chartis
32.02
na
0.18
na
7.92
14.36
2.55
17.49
3.43
3.11
1.13
na
6.56
0.00
11.25
Company average
12.64
1.34
0.09
0.63
2.38
18.72
11.71
6.37
4.83
19.61
14.71
0.42
3.35
0.72
5.22
Market Average
5.45
0.65
0.58
12.72
0.89
18.50
8.46
2.61
7.03
25.90
26.84
0.41
0.65
0.70
2.60
Multiple of MA
2.32 x
2.05 x
0.16 x
0.05 x
2.68 x
1.01 x
1.38 x
2.44 x
0.69 x
0.76 x
0.55 x
1.02 x
5.17 x
1.03 x
2.01 x
Mapfre Genel
0.50 x
0.29 x
0.12 x
na
0.63 x
1.02 x
1.37 x
1.01 x
1.26 x
1.11 x
0.81 x
na
na
na
1.59 x
Eureko
2.36 x
5.45 x
0.06 x
0.01 x
0.85 x
1.26 x
2.14 x
1.75 x
0.73 x
0.75 x
0.28 x
0.29 x
na
1.75 x
1.23 x
FIBA
0.55 x
0.42 x
na
0.09 x
0.33 x
0.99 x
1.73 x
0.31 x
0.27 x
1.04 x
1.06 x
1.74 x
0.21 x
1.34 x
0.88 x
Chartis
5.88 x
na
0.31 x
na
8.93 x
0.78 x
0.30 x
6.69 x
0.49 x
0.12 x
0.04 x
na
10.14 x
0.00 x
4.33 x
Company average
2.32 x
2.05 x
0.16 x
0.05 x
2.68 x
1.01 x
1.38 x
2.44 x
0.69 x
0.76 x
0.55 x
1.02 x
5.17 x
1.03 x
2.01 x
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Land
Veh.
Legal
Sea
Health
Veh.
Liab.
Prot.
Other
Veh.
Trans.
8.85
28.76
21.67
na
na
na
4.12
INVESTMENT RETURN – GROUP 1
•
This paper has purposefully detracted from investment return on float toward underwriting performance, but to do so entirely would only tell part of an insurer’s story
•
Financial performance, namely profit must include investment performance in its evaluation • This is viewed by dividing net investment return (Post investment expense) earned on the investment portfolio by the premiums earned, thereby illustrating investment efficiency and consequently, success • Deducting this from the combined ratio gives the insures underlying operating ratio – the standard measure for assessing overall financial performance Investment income provides invaluable buffer to cover losses and expenses and similarly, taken together, a ratio less than 100 indicates underlying profitability
• • •
As can be seen below the larger companies generate larger investment returns in nominal terms, but this is simply a function of creating profit from a larger asset base • To see returns on a relative basis, performance % should be looked at Having said that the largest 4 companies have outperformed their peers, though it is not statistically meaningful given small players such as Isik and Eureko have faired well too
Group 1 – 5-Year Annual Investment Return and Performance TKL '000 180,000
16%
160,000
14%
140,000
12%
120,000
10%
100,000
8%
80,000
6%
60,000 40,000
4%
20,000
2%
0
0%
2005 2006 2007 Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
2008
2009
Average
Investment Performance
INVESTMENT RETURN – GROUP 2 •
Average investment return, excluding SBN and remainder outliers, has been 8.8% over the preceding five years and almost identical for the two groups, implying little economies of scale in investment capabilities
•
Investment profits have somewhat conspicuously faired well over the past five years, steadily increasing, during an epoch which featured considerable economic turbulence
•
• This may partly be a function of the asset base growing Companies which have not shown investment performance in asset management, such as Generali, logically show consequent underperformance in profits
Group 2 – 5-Year Annual Investment Return and Performance TKL '000 25,000
25%
20,000
20%
15,000
15%
10,000
10%
5,000
5%
0
0%
-5,000
-5% Ankara
Zurich
2005
Chartis 2006
HDI 2007
Birlik
Isik 2008
Liberty 2009
Hur
Generali
Average
Dubai Group
SBN
Coface
Remain Average
Average Investment Performance (2nd axis)
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. Note: High returns are due to Other Technical Income being included which for smaller companies can create anomalies. Second axis scale has been brought down for visibility purposes. SBN figures has due to Ticaret Sigorta inclusion which had Other Income approximately the same size as investment income by way of example
UNDERWRITING PROFIT/LOSS COMPOSITION – GROUP 1 •
•
The chart below illustrates the composition of 5-year average underwriting result. underwriting profit and investment return • Investment return transfer from non-tech account and other technical income (Net) As discussed, few companies generate underwriting result, but as can be seen, almost every company generates underwriting profit which is sustained through investment returns
Group 1 - Composition of Average 5-year Underwriting Profit/Loss TKL '000 125,000 100,000 75,000 50,000 25,000 0 -25,000 -50,000
Underwriting Result Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Underwriting Profit
Investment Return
UNDERWRITING PROFIT/LOSS COMPOSITION– GROUP 2 •
Investment return amongst the smaller companies has averaged 15% against 9%
•
Despite this, both underwriting profit and result are more pronounced
•
The smaller companies are invariably new entrants such as Coface and Dubai Group
Group 2 - Composition of Average 5-year Underwriting Profit/Loss TKL '000 15,000 10,000 5,000 0 -5,000 -10,000 -15,000 -20,000 -25,000 Ankara
Zurich
Chartis
HDI
Birlik
Underwriting Result Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Isik
Liberty
Hur
Underwriting Profit
Generali
Dubai Group
Investment Return
SBN
Coface
Remain Average
UNDERWRITING PROFIT – GROUP 1 •
The chart below illustrates annual underwriting profit for the preceding five years
•
Companies that generate profit or losses consistently do so
•
2006 and 2009 were the worst years for underwriting profit
Group 1 – 5-Year Annual Underwriting Profit TKL '000 120,000 100,000 80,000 60,000 40,000 20,000 0 -20,000 -40,000 -60,000 -80,000 AXA
Anadolu
Allianz
Groupama Yapi Kredi 2005
2006
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Ergo 2007
Aksigorta 2008
Gunes 2009
Mapfre Genel
Eureko
Average
FIBA
Aviva
Ray
UNDERWRITING PROFIT – GROUP 2 •
Group 2 have consistently made smaller profits than the larger companies in the market
•
Liberty and Ankara have made particularly large annual losses, as did Dubai in its first year
Group 2 – 5-Year Annual Underwriting Profit TKL '000 20,000 10,000 0 -10,000 -20,000 -30,000 -40,000 -50,000 -60,000 Ankara
Zurich
Chartis
HDI 2005
Birlik 2006
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Isik
Liberty 2007
Hur 2008
Generali 2009
Dubai Group Average
SBN
Coface
Remain Average
COMPONENTS OF EXPENSES •
Similar to any business, operating efficiency is important, but in general insurance there are some differences
•
Operating efficiency is calculated by dividing operating expenses excluding losses and related expenses into total premiums, such that the cost of underwriting operations relate to the premium revenue generated from those operations
•
The components are as follows:
•
• Policy/customer acquisition costs • General and administration costs Policy acquisitions costs are relatively large for a general insurer (Though smaller in a sense to life business). Costs paid to distributors under an indirect sales model, particularly in a growing and competitive environment can cut deep into profits. Whilst high incentives may need to be initially offered to capture networks to gain market penetration, they are inherently unsustainable •
• •
Insurers therefore need to understand what is important to their network of bancassurers, agents and brokers and focus on the areas such as brand or education and the like, that are valued and can come at a lower cost General and admin costs are the same to any business and managers need to be aware of the usual productivity and related cost metrics As mentioned, this can be done in two ways, from statutory accounts, net premiums written is the denominator and under financial accounts such as IFRS or GAAP, net premiums earned are used (Solvency vs. going concern conventions)
MANAGING EOR •
•
The huge spend being put into branding at present will likely collapse in approximately 5 years time, shifting to a sales orientation (See value chain slide) • Short term focus is on brand establishment and this is an unavoidable capital investment There is generally limited opportunity to outsource non-core aspects of the value chain given insurers’ strategic goals, composite structure and importance of marketing and sales at present • • • • •
Sales is effectively outsourced given the distribution structure of the market (franchise) Potential economies of scale could be garnered through offering admin/backoffice outsourcing to domestic and even foreign insurers should the capability be present already Marketing and branding is key Claims management as a typical core back office activity is difficult to outsource Underwriting and risk management is central to an insurer (which makes differentiation possible) and directly linked to LOR
5-Year Average EOR 80% 70% 60% 50% 40% 30% 20%
Average Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data
Linear (Average)
MANAGING EOR – BRAND INVESTMENT WARRANTED
•
Nielsen research provided interesting insight into the motivation to purchase insurance
•
• Brand reliability is overwhelmingly key Providing sound product structuring and payment terms are more important than variety
•
Additionally, expense of educating and providing information resources to the distribution network, particularly agents is a worthwhile expense
•
Insurers are evidently doing a decent job at customer servicing, as surprisingly, 81% are extremely happy with insurers and only 2% decidedly unhappy • • • •
Those unhappy with insurers are due to reimbursements not meeting expectation and officials being ignorant or uninterested in the customer (poor service), ether at the insurers or from an agent 56% of complaints pertain to auto insurance ( which given prevalence is expected) Of cancelled insurance contracts, majority pertained to private pension, life and health insurance, with most doing so due to financial situation, rather than increased premium payments and dissatisfaction with agents (the two next top reasons) To buy insurance again, most need their financial situation to improve (49%), premiums to be improved or more attention to complaints to be given. 26% wont take up insurance again
Elements of Brand 0%
10%
20%
30%
Variety Of Products Offered Content Of The Bond Appropiate Payment Terms Advised Of The Company Prevalence Of Agents Recognition Of The Agents Advice Provided Don't Know/Someone Else Organised Variety Of Products Offered Received A Visit Received Special Promotion Other Than Source: Sigorta Tutum ve Davranış Araştırması, Nielsen 2008. Translated by author from Turkish
40%
50%
60%
70%
COMPONENTS OF LOSSES •
Fundamental to an insurers underwriting operations is how much they are paying out in claims and LAE for euro taken in
•
This is best analysed by dividing total losses into premiums earned (LOR, which throughout this presentation is calculated on a calendar-year loss basis)
•
There are two main components of losses
•
Incurred losses • •
•
Indicate insurers risk selection and pricing ability; this is the bread and butter of insurance To be able to write business effectively there are a number of characteristics which are integral, and two obstacles to be avoided which are discussed in the proceeding pages • Effective pricing implies insurers are able to write profitable business, but in Turkey there are constraints on free pricing Loss Adjustment Expenses •
•
Indicates claims-handling efficiency. Invariably, insurers with low EORs will also be effective in keeping down LAE. LAE is exogenous to the factors in managing losses, per se • Claims handling is a key factor in client servicing and in Turkey, insurers are legally bound to pay out claims without delay (Art 32.3) It is important to note that across insurers, different levels of premiums are underwritten across different branches; the branches have inherently different short and long tail characteristics •
Writers of general household insurance (Range 40-60% generally) should, ceteris paribus, have lower LOR than long tailed writers such as health insurance (Range of 60-110%) given their lower reliance on investment income – longer tail businesses have more time to generate investment income
LOSSES – IDEAL CONDITIONS FOR MANAGING INSURANCE EXPOSURE •
For insurers to have the possibility of writing profitable business the following five factors to varying degrees are required
Characteristic Analysis Large number of similar exposure units
•
Accidental
• •
Insurers are at a disadvantage if the insured in some way controls whether the loss occurs To mitigate the likelihood of this, insurers must be vigilant in policy terms and ensure loss adjustors are thorough/sufficient staff employed and potentially could instigate stricter policies of more suspicious claims that may consequently make more use of the IAS but would be balanced with faster claims payment to enhance the brand (“easy to deal with”)
Definite and measurable
• •
Avoid more specialist branches and write standard policies By operating in branches with characteristic 1, insurers are able to accumulate experience in the area of measurement. Furthermore, one can be more restrictive in the types of policies written. Where there is appetite for more specialist policies (e.g. satellite launches) cession can be effectively applied
Not catastrophic
•
Losses are hard to manage when multiple insureds are exposed to a single peril or event such as earthquakes. It is difficult to apply either pooling or law of large numbers to calculate appropriate rates since all homes in the landfall zone are exposed to loss Elements of this risk are identified and removed from standard contracts in the case of earthquakes in Turkey through the TCIP related legislation
•
•
Economically feasible to ensure
•
Simple matter of scale, thereby benefitting from the principles of pooling and the law of large numbers Particularly applicable in branches such as vehicle that are less prone to catastrophic (specific) loss and where millions of similar independent exposures are insured. They have more stable loss ratios than lines with fewer exposures
Common sense dictates that underwriting should ensure that the price per unit of risk will generate a sufficient ROC and undue risk is not being taken on (e.g. writing CDS on CMOs etc.)
Source: Characteristics from ‘Property and liability insurance principles – 2nd edition, Smith Treishman, Wiening, Johnson
LOSSES – OBSTACLES TO MANAGING INSURANCE EXPOSURE •
Even when the preceding ideal conditions are adhered to and managed, insurers must overcome two obstacles in order to build a profitable book of business: adverse selection and moral hazard
•
This is necessarily difficult to control
Characteristic Analysis Adverse Selection
• • • • •
Moral Hazard
• • • •
People who have the greatest probability of loss are logically the ones most likely to seek insurance from insurers. insurers are most at risk of being adversely selected against when attempting to gain share by lowering price At present, competition is fiercely high and prices, as a matter of course, are coming down Insureds who are poor risks are in all likelihood, more able to purchase insurance at attractive rates and terms though they have greater probabilities of loss than others Given low penetration of insurance, this issue not yet a large one Chasing top line growth rather than the bottom line is a mind-set that needs to take hold and have underwriting processes adhered to. There is a precarious balance of priorities Dishonest tendencies in the character of the insured increase the probability of loss occurring It is difficult to identify and assert dishonourable tendencies in groups en mass. What can be done to mitigate this however, is tiered pricing, but as we have discussed pricing is not yet free There is little evidence that fraud is overtly high In Turkey as outlined in the proceeding page
Source: Characteristics from ‘Property and liability insurance principles – 2nd edition, Smith Treishman, Wiening, Johnson
LOSSES – MORAL HAZARD (FRAUD)? •
There is not much evidence that fraud is high, or at least is being detected
•
In 2009 there were 561 complaints referred to the relatively new IAC – a fraction of the number of policies underwritten •
•
•
Under Insurance Law 5684, in order to settle the disputes arising between the policy holder beneficiary of an insurance contract and the insurer, an Insurance Arbitration Commission (IAC) was formed within the Association whereto complaints are directed Breaking these down • 55% of non payment complaints go to arbitration • Complaints are mainly general in nature: 74% relate to auto insurance and 10% to fire • The vast majority are small, less than TKL 5,000 This is not a perfect indicator of fraud, but merely a useful proxy given available information
Instances of Arbitration No.of Apply
Settled by Rapporteur
Referred to Arbitrator
Other (*)
Refusal to pay
476
49
261
166
Complaint as to inadequate payment offer by insurer
85
12
52
21
Total
561
61
313
187
Source: Analysis of Sigortacılık Genel Müdürlüğü, 2009 data. (*) Rejected because of not completing the procedure, withdrawn by insured or in searching step
LOSSES – TIERED PRICING (1 OF 2) “In professional baseball it still matters less how much money you have than how well you spend it.” - Moneyball, Michael Lewis (*)
•
Tiered pricing is similar to the economic concept of price discrimination (All three degrees) and similarly involves market segmentation, though the principal motivation is risk categorised pricing, though the tariffs will as a matter of course be discriminatory to some extent •
•
In this context, tiered pricing entails putting applicants into defined boxes from which a risk-priced, market competitive tariff will be charged • The manner by which the boxes are defined and prices levied is key Computing technology has facilitated the possibilities for refined segmented pricing methodology •
•
Progressive, as the pioneer, reaped super-normal growth and profit (From 1994 to 2003, Progressive’s revenues grew at a 17% CAGR and its COR averaged 93.7%) when its tiered model was still a competitive advantage as it was more able to price risk (**) But as a policy pricing tool that segments customers and prices policies offered based on statistically reliable quantitative characteristics, it is only as good as the data at its disposal •
There are a number of cases where contentious data points have been used to tier insured • •
Education/Occupation – GEICO criticised Credit rating – Generally attacked by consumer advocacy groups
(*) Moneyball is about baseball analysts who deconstructed the game, viewed it quantitatively, and then put it back together in a better way (**) In baseball, the Oakland A’s Billy Beane analysed statistics and figures that others ignored, found value in “cheap” players who were overlooked by others, and produced a superior won-lost record on a shoestring budget. The A’s won-lost record is not the result of chance. It’s the result of a strategy that takes advantage of data and statistics Source: McKinsey and InsurQuote, 2004, Presentation to Auto insurance Report National Conference
LOSSES – TIERED PRICING (2 OF 2) •
Insurers should determine which factors in Turkey are most predictive when determining risk profile •
•
Research found that for a sample risk, Nationwide generated one price, while Progressive—the company with the most sophisticated pricing—generated 131 different price points • Progressive’s multiple prices were the result of a more expansive list of questions asked at the time of application and a more aggressive analysis of the relationships between rating characteristics The greater the granularity of the underpinning data, the more tiered the pricing can be, ergo, insurers are able to compete more favourably, assured that the price per risk is underpinned by empirical analysis • • •
Aid positive brand building through avoiding mis-priced business; overcharging good risks and under-pricing bad ones Research showed Progressive did not deviate meaningfully from the market average, while less successful companies frequently went above or below Progressive’s higher profits are likely driven in part by less sophisticated competitors tending to make mistakes when reducing prices in an effort to chase growth or maintain market share •
They pay the price later through higher claim costs
•
•
In non-standard auto, prices were below industry average, but more dispersed than competitors indicating ability to identify risk and segment customers In sum, effectively tiering applicants within legal constraints leads to higher profitability and long term growth in Turkey
Source: McKinsey and InsurQuote, 2004, Presentation to Auto insurance Report National Conference
LOSSES – PRICING CHARACTERISTICS (1 OF 2) •
InsurQuote and McKinsey research identified four key pricing characteristics to successful underwriting: granularity, dispersion, interactions, and variables Note
Granularity
• Granularity is the number of pricing “cells” an insurer generates based on the data it gathers to underwrite a risk • Age, would be four cells if drivers are placed in broad ranges such as 16-25, 26-40, 41-60, and 61 and up. But age would be seventy cells if each year from 16 to 85 is considered individually, assuming it can be calculated that each year has a distinct risk characteristic • If the correlation between age and credit is such that credit is more important for middle-aged drivers than young or old drivers, that would result in more cells than if credit is given the same weight for all age groups
Action • Greater granularity increases a company’s ability to adjust and adapt pricing as it learns more about the relative importance of variables and their relationships to each other • The existence of a large number of cells does not conclude to sophisticated pricing but rather indicates the potential effectiveness of a pricing model
New variables
• Enhance the granularity of data
• To lead price sophistication, insurers cannot merely identify new interactions among established rating factors, it must also identify new variables • Education and occupation are examples of leading edge • By making sense of data new correlations can be found such as whether repair costs are greater than theft replacement costs, or if applicants ask for increased bodily injury limits above the standard ( “physical damage symbols”) implies they have a higher propensity for risk taking behaviour and should be priced accordingly
• Corporate culture is essential to make this effective; encourage assumptions to be tested and new ideas to be introduced and actually executed • Reward innovation for both success and “smart failures”
LOSSES – PRICING CHARACTERISTICS (2 OF 2)
Dispersion
Interaction among variables
Note • Each variable has a certain importance. The interaction of variables, creates an exponential increase in granularity • Age, credit scores, and territory become more important when taken together. It pertains to making sense out of the data, the relative risk of one insured vs. another
Action • This is more about human cognition than computer power • Encourage staff to make sense of what they are presented
• For example, Land Rovers being farm vehicles rurally and status symbols in Chelsea, and more likely to be stolen there than in the suburbs • Dispersion is the range of premium that an insurance company generates from its cells. A company may have high granularity, but if its dispersion is low, it isn’t bringing more accurate prices to the marketplace.
• A company may have high granularity, but if dispersion is low accurate prices aren’t reflected in the marketplace
• E.g. Company with low dispersion range: €400 to €600. More analytically sophisticated company has range of €250-to- €750 for the same risks
• Insurers should establish prices that are high enough to encourage the highest-risk drivers to move (or stay with a competitor), thereby punishing competitors that lack the pricing sophistication
• Price sophisticated companies are constantly changing as they learn from mistakes and identify hypothesis’ to test. The least sophisticated companies are static and fail to respond to the market and competitors • Also, less sophisticated insurance companies retain more under-priced customers and so their loss ratio rises
• Do not rely too much on pricing model and continually test new assumptions
LOSSES - MANAGING LOR •
Underwriting is the heart of insurance core competence, sine qua non to insurance in Turkey •
•
•
While the importance of distribution, brand, expenses, claims handling, and distribution network/relationships shouldn’t be minimized, there‘s no substitute for having the most accurate price for a risk, or class of risk, particularly if it is market competitive Underwriting and pricing decisions must be made in light of the structures of the varying branches, bearing in mind competition, but not doing so where the price per risk is unacceptably high for the perceived advantages of market share A principle generally asserted here to manage LOR is to stick close to the shore and avoid difficult risks (Which would not meet the ideal criteria mentioned previously) •
•
However, there are many companies that specialise in in writing difficult risks and they receive higher premiums for underwriting them accordingly • Note, the experience to enable them to do so has been garnered over a number of years. • Insurers could conceivably position themselves to be a specialist writer in such business in a few years time should it endeavour to garner the requisite knowledge • Progressive had highest growth rates In non-standard auto If insurers are to compete on price, then to do so profitably they must have a competitive advantage in tiered pricing
MANAGING COR •
The Combined Operating Ratio or COR is simply the sum of the losses and expenses incurred •
•
It brings together a measure of an insurer’s underwriting COGS efficiency and operational efficiency to provide a gauge of overall underwriting performance- under 100% implying results Ergo, as a function of LOR and EOR, insurers are faced with a number of balancing questions: •
•
Is it better to write a policy for a preferred-risk driver for a €500 premium, or a high-risk driver for €2,000? • Should insurers spend more to reduce its loss ratio or less to reduce its expense ratio? • What mix of insured and branches is most profitable and worth insurers allocating capital to? • Will a high commission (and excess of competitions already ‘high’ commissions) induce an agent, broker or bank to “produce” more profitable business, or could insurers bypass them, try establish a direct line and offer a lower premium with the money that’s been saved on EOR? Each of these questions lends itself to quantitative analysis
•
A leading, or at least market EOR is eminently achievable and there are consultants who can help businesses achieve this. Naturally each business will have its own set of issues. Be they legacy ones of bringing an acquiree up to international best practice, or due to an ill structured indirect sales structure
•
The leaders in the market will be those who are able to hold their LOR down and in turn generate larger underwriting results, being the principal negative on the way to the bottom line • •
•
A combination of factors are required, and not just systems and software Fundamentally a culture of success which will challenge norms and pursue better way of doing things and pricing risk, with management that is supportive and rewarding To conclude, leading businesses will run a tight ship and lead the market in its underwriting practices. Top line growth will be managed over the long term
5
OVERVIEW (1 OF 2) •
As we have seen, underwriting result is attained by managing top line growth, operating the business effectively (minimising EOR) and instigating accurate and competitive pricing and selection techniques
•
That is indeed easier said than done, and insurers, en masse, not having generated much underwriting result and employing many staff more erudite than the author are testament to that fact
•
Incumbents therefore need to undergo a process of reflection and ask question of themselves
•
The aforementioned are a series of random thoughts to commence the process:
•
Distribution • •
Looking at the early attempts of Apple (A very different industry) to grow in Japan where they initially went with a local partner with no existing consumer-tech business - are you selling through the right people and is your existing partner the right one? Given the competition for distribution channels, are you targeting the right ones and are there new ones to attract more and attractive applicants? : •
•
Can you do things better and different than has been done before? Little things can make a big difference, so can you create differentiation – services, such as user tools that have mass attraction? •
•
•
The opportunity to be the leader under the direct model or innovate new channels such as promoting housing related insurance through, say estate agents?
Create invaluable tools insured would use daily/weekly to induce barriers to switching, so even if competitor cheaper, you don’t want to live without the tools. Integrate technology with other financial groups such as banks for must need services • iPhone app for renewing insurance AND checking you bank balance • Partner with Mint (online service) for Turkish market? American Airlines created competitive advantage through an agent ticketing system called SABRE • What is a killer app for agents given dominance of agents in Turkey?
Network effect: do certain lines market better and drive ancillary purchase in ‘core’ products? •
Go about achieving success in a different way
OVERVIEW (2 OF 2) •
Product •
How can products in each branch be structured with ancillary benefits to create differentiation given in this stage of the market vanilla products are in demand? •
Greater allowance for transfer of developed benefits from an insurer to reduce switching costs
•
•
Given the market is relatively unsophisticated, could a large education spend, partnered with the Undersecretariat, concurrently with a complex product offering position the company as market leader of terms of knowledge? Brand •
What are options for brand differentiation, and can value be made segregating the market, dividing brand into ‘premium’ and ‘value’? •
Differentiate service. ‘Platinum card’ package – create prestige
EOR •
EOR is simply the costs of operating the business. Every Euro paid in underwriting expense is a Euro that doesn't flow to the insurer's bottom line
•
Success therefore amounts to leveraging scale economies • •
To attract customers, insurers have to advertise: what is the most cost efficient means of doing so?. High brand equity imbues a leverage factor Paid commissions to distribution channels; banks, agents and brokers: Does head on competition on price pay in the long and short term, or are there other drivers? •
•
Pay employees a salary: what and how many staff are required for any given level of contracts? •
•
•
Are you flexible to scale up and down to market changes and are staff delivering?
• Pay taxes and other operational expenses: is the business structured correctly? Understanding the answers to these questions comes from experience and increased trade, by insourcing (offering outsourcing) there is potential to gain: • Economies of scale • Know how synergies • Capacity use optimisation However this option is uncertain given • • • •
•
GEICO has achieved long-term success by cutting out the middle-man as Dell did, but will this negatively affect existing relationships?
Perspective of loss of competitive advantage (For large insurers everything is core) Trust amongst insurers (Will the “partner” undermine them) Threat of having a strategic dependency And generally collaboration amongst insurers is quasi-novel in the industry, though Zurich offers claims management and Allianz offers underwriting and claims management for example In the current market, most insurers have consolidated and developed IT infrastructure and may now be placed to insource and leverage their scalable platforms
LOR •
LOR is the art of mitigating risk at pricing per unit and discipline
•
Given intense competition, appreciation of the underwriting cycle, balancing GWP land grab (greed) vs. profitable business long-term growth is a fine balance, but one the would well be worth thinking through
•
• Discipline when ‘all others lose their head’ in the hard cycle Focus should be in developing superior skill in calculating accurate prices •
•
In doing so they will be able to outperform their competitors by a wide margin over the horizon Insurers that chase market share and fail to develop skill will find themselves faced with adverse selection, an inability to grow profitably or remain the same size profitably, and a poor ability to shrink their way to better profitability when phase 2 of the market comes
•
Reinsurance as a tool to write more business and get more experience •
Turkish GI is heavily reinsured which impacts profitability structures •
•
Higher cession proportion would allow insurers to write greater volume of business and mitigate inevitable claims •
•
Some companies appear to be innovating in this area
Is there a balance?
Questions •
Reinsurers with the highest credit rating benefit from having sight of more business and understand the market better as a result. How can insurers do this? •
•
Can’t own brokers/agencies to get increased volume (See law summary)
How can you get more data from customers?
6
OVERVIEW •
When an insurance company with a quality brand offers lower prices, it now has a better chance of gaining new business than in the past, but this can only be sustained if the lower prices are the result of more accurate pricing skills, meaning the VNB is profitable
•
• Ultimately, more accurate pricing is more important that a quality brand Insurers can grow rapidly and produce an excellent loss ratio even though its brand is only modestly useful
•
• Over time, companies with most accurate pricing may end up with the best brands There are a number of tactics and strategies for insurers to undertake to expand market share, around gaining distribution channels, preparing itself to participate in the inevitable wave of consolidation arising from phase 1 and its conceivable “mispricing cycle” •
•
However they inevitably involve playing the same game as competitors, which will likely be an expensive one The best course of action is twofold: •
•
A combination of moderation in direct expansion by offering favourable distribution terms and engaging in expensive acquisitions • A zealous focus on creating a competitive advantage in the underwriting systems, as over time this will lead to profitable business being written, which self-perpetuates and self-funds expansion Acquisitions are not on a financial basis the best course of entering the market, or expanding market share, as valuations have risen exponentially, and in essence, ‘there are no good deals left’ • •
The sell side realises long-term potential and the multiple reflects that, the buy-side still likely smarting with capital constraints retains the bargain hunting mentality Investment banking advise emphasises the need for ‘deep pockets’
PARTNERSHIPS •
Partnerships with as many touch-points amongst distribution channels are imperative to deal with fierce competition
•
Partnerships will play a significant role and incumbents are actively looking for them, such as Aksigorta
•
• Press statement enunciating their desire for a leadership position and will sell no more than 50% However, distribution is being bought up in the bank channel by competitors such as BNP; insurers must therefore seek to differentiate themselves and secure mutual agreements •
• •
Whilst traditionally “loose” strategic partnerships may be preferred to tie up distribution, JVs which also may have been viewed as unrealistic are necessary (and may hopefully serve as a basis to creep up to 100% control) • The main focus of the JV is to leverage the existing client base The market is now difficult to enter and more recent entrants are already being rumoured to be takeover targets. New entrants with small war-chests will be required to align themselves, but given the paucity of players, this is unlikely. Furthermore, those left have stated they will only do so if they are assured a commanding position in the market • •
Structurally, the market does not lend itself to immediate profitability; unemployment is high and research has illustrated that insurance is neither seen as a necessity or even a good thing underpinning the dubious status as the lowest penetrated market in Europe The ‘informal’ economy, according to some estimates, is in the region of 25% of GNP •
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Employers still evade paying social security contributions for their employees, for example, by not registering them or adjusting categories in their favour- such as smaller salaries and contract basing
Having said that, the late development of the market has facilitated best-practice to some extent •
In comparison to another growth nation, Russia, the tax system is a marginally more favourable, the regulatory environment is well-advanced, products transparent and consumers with more of a longterm focus
CONSOLIDATION •
Given the level of competition in the market and empirical evidence that GI is inherently cyclical in nature, consolidation at some point is inevitable
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Analysis of EOR provides prima facie evidence that there are benefits of scale
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The basis for consolidation is somewhat difficult in the short term, given:
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• The majority of domestic players have been bought or have aligned themselves • Macro trends for foreign entrants domestic markets are poor, pulling them to growth markets There are therefore little to no low hanging fruit to commence a wave of consolidation, and foreign players will only exit if losses become unpalatable and/or some exogenous events happen, such as corporate distress requiring divestments (UK banks)
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In the absence of deals, there have been many cases of foreigners buying out partners, such as in 2008 with Allianz and Koc and AXA with Oyak for $525 for the remaining 50%
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At present, foreign entrants are taking a long term perspective. Whilst penetration may be low and market share fragmented, they will be content with small % holdings, expecting penetration to increase and other benefits, such as compulsory insurance expanding in scope and take-up thereof, thereby benefiting players that have been incumbent for a number of years •
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Two of the largest players, AXA and Allianz have been in the Turkish market since 1998 and 1988 respectively, the longest of any other foreign player Likely consolidation will benefit those with the greatest resolve. Many entrants are dominant globally and fall into the camp of wanting to rapidly gain market share, which impacts LOR, and to get to ~15% will cost them, with no certainty that the investment will pay off
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Those remaining Turkish players may eventually be lured away from going it alone
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• Yapi Kredi received overtures in August 2008, but a deal was not consummated The market will eventually consolidate to a handful of players, they will be those companies who have established a great distribution network across channels, strong brand equity and are inherently profitable •
A similar situation is envisaged in the pension market where only 4 players will be believed to be left standing, at the end of the day
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