Challenges persist, but operating environment more stable for Turkish insurers: Fitch

A recent report by Fitch Ratings indicates a positive trend in the operating environment for Turkish non-life insurers, driven by lower inflation and improved pricing practices, particularly in motor damage insurance.

This optimism is further bolstered by Fitch’s recent upgrade of Turkiye’s sovereign rating to ‘B+’ from ‘B’, with a revised outlook from stable to positive, which enhances insurers’ asset quality assessments.

Moreover, recent regulatory reforms, such as the introduction of a new system for indexing motor third-party liability (MTPL) insurance premiums, offer additional avenues for growth and stability in the sector.

Despite these promising developments, challenges persist, including volatile economic conditions and high but stabilising inflation rates, which continue to pressure claims costs.

Moreover, the aftermath of the February 2023 earthquake has resulted in increased reinsurance costs, impacting insurers’ technical results.

However, the sector has found some relief in the form of higher interest rates, reaching 50% in March 2024. This increase has provided non-life insurers with much-needed support, enabling them to earn positive inflation-adjusted returns.

Looking ahead, insurers are expected to witness stronger financial performances in 2023 and 2024, driven by higher investment income and foreign exchange gains.

While reinsurance played a crucial role in mitigating the impact of the earthquake, it has also led to a substantial rise in reinsurance costs, impacting insurers’ balance sheets.

Moreover, the MTPL line, despite being the largest in the non-life sector, remains a significant drag on underwriting performance due to regulated pricing.

Despite regulatory changes aimed at improving the situation, the MTPL segment continues to pose profitability challenges for insurers.

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