Turkey: Memorandum About Insurance Audit Law

Last Updated: 29 September 2004
Article by Vural Günal




1. Insurance Supervisory Board

2. Granting Authorization to Insurance and Reinsurance Companies

3. Conditions for Establishment

3.1. Conditions for Granting Authorization

3.2. Mutual Insurance Company

3.3. Foreign Insurance Company

4. License

5. Board of Directors

6. Auditors

7. General Manager and Deputy General Managers

8. Amendments in Articles of Association

9. Groups of Insurance Activity

10. Insurance Agents

11. Sub-Agents

12. Insurance Broker – Reinsurance Broker

13. Insurance Producer

14. Actuary

15. Claims Surveyor

16. Bans and Exception

17. Premium Collection

18. Guarantee

19. Reserves

20. Determination of Premiums and Rates

21. Insurance Contracts

22. Making Insurance Abroad




The purpose of this Memorandum is to provide concise and brief information about the Insurance Audit Law promulgated in the Official Gazette on 25.06.1987 in order to help develop the insurance industry in Turkey, to ensure safe implementation of insurance procedures, to enable the use of the funds created by the insurance industry for economic development of the country, to guarantee and assure the benefits, receivables and compensations under the insurance contracts, and to regulate the insurance activities of natural and legal persons in the insurance industry such as insurance companies and reinsurance companies, specialized committees and organizations, surveyors, actuaries, agencies, brokers and insurance producers.


1. Insurance Supervisory Board:

The essential element of the mechanism provided by the Insurance Audit Law is Insurance Supervisory Board. Article 30 of the Law rules that: "insurance and reinsurance companies and legal and natural persons making insurance transactions or engaged in insurance business are subject to the audit and supervision of the Insurance Supervisory Board regarding compliance with the provisions of this Law or any other law related with insurance". Under this supervision and audit responsibility defined by the Law, all and any (i) activities, (ii) assets, (iii) subsidiaries, (iv) receivables, (v) equities, (vi) debts and, (vii) all other articles and issues affecting the financial and administrational structure of the insurance and reinsurance companies are "determined and analyzed" by the specialists of the Board.

Insurance companies pay to the Insurance Supervisory Board for its costs a supervision allowance equal to 0.3 percent of their annual net premiums (after deduction of cancellations).

2. Granting of Authorization to Insurance and Reinsurance Companies:

Insurance and reinsurance companies can be established, and those insurance and reinsurance companies established abroad can start operations, in Turkey only with the authorization of the Ministry of State in charge of Treasury Undersecretary.

3. Conditions for Establishment:

3.1. Conditions for Granting Authorization:

Insurance and reinsurance companies to be established in Turkey must fulfill the following criteria:

  • They must be established as a "Joint Stock Company" to carry out "solely and exclusively" insurance or reinsurance transactions.

  • Their founders must not have committed certain crimes as listed in the Law.

  • Their paid in capital must not be under 10 trillion 300 billion Turkish Liras as announced in the Official Gazette on 10.05.2003.

  • Their shares must be issued against cash payment and must be registered to name.

  • Their Articles of Association must be in conformity with the Law.

3.2. Mutual Insurance Company:

Insurance companies can also be established as mutual companies in accordance with the provisions governing the cooperatives, provided however that the number of their partners must not be under 200.

3.3. Foreign Insurance Companies:

Foreign insurance companies can operate in Turkey "only" by setting up branches in Turkey.

Paid-in capital of foreign insurance and reinsurance companies assigned for their operations in Turkey can not be less than the amount required for the establishment of Turkish insurance companies. Besides, foreign companies banned from carrying out insurance transactions in their home country are not allowed to operate in Turkey either. In case foreign insurance companies have more than one branch in Turkey, one of these branches must be assigned as the central branch – just like in the case of foreign banks - authorized and responsible to act as administrational center and to represent other branches. No need of separate (authorization) is required to be obtained for the branches to be opened after the first one.

4. License:

Insurance and reinsurance companies have to obtain a (license) from the Treasury Undersecretary in order to start their operations. This license is prepared SEPERATELY FOR EACH INSURANCE BRANCH the insurance company intends to operate.

This License can be cancelled due to reasons cited in Article 3 of the Law.

5. Board of Directors:

Board of Directors of insurance and reinsurance companies must be consisted of at least five members including the general manager who is a natural member thereof.

Foreign companies must establish a three-member (Directors’ Committee).

"More than half" of the members of both Board of Directors and Directors’ Committee should be graduates of a college or a university with 4 years of education, and should be learned and experienced at least in one of the fields of law, insurance, banking, economy, management, accounting, finance, mathematics, statistics or engineering which are deemed to be related with the insurance business.

6. Auditors:

Insurance and reinsurance companies must have at least two auditors. Four years of college or university education and being learned and experienced at least in one of the fields of insurance, banking, economy, law, finance, management and accounting are the qualifications sought in auditors.

7. General Manager and Deputy General Managers:

General Manager is required to have 10 years of experience in addition to 4 years of college or university graduation, and Deputy General Managers are required to have 7 years of experience above 4 years of college or university graduation. Areas of experience are the same as those referred for members of the Board of Directors.

For foreign insurance and reinsurance companies having operations in Turkey; managers and deputy managers of their central branch must possess the qualifications sought in general managers and deputy managers as given above.

8. Amendments in Articles of Association:

Articles of Association of insurance and reinsurance companies can be amended only with a prior consent/approbation of the Treasury Undersecretary.

9. Groups of Insurance Activity:

Insurance activities are separated into the following two main groups:

  • Life insurance

  • Non-life insurance.

Determination of the insurance BRANCHES to be included into these two main groups is under the authority of the Ministry.

Insurance companies can operate "only in one" of the two main insurance groups of (life) or (non-life).

Acquisition of 10% of the shares representing the capital of the insurance company is subject to the permission of the Treasury Undersecretary. Besides, acquiring above %10, 20%, 33% and 50% of the shares of the insurance company also requires authorization of the Treasury Undersecretary.

10. Insurance Agents:

  • Natural or legal persons

  • under whatsoever name and without any requirement to be controlled by an insurance company

  • acting as intermediary in insurance contracts of the insurance companies in Turkey or executing these contracts in the name of the insurance companies

  • in a certain district or region

  • in a continuous manner

  • based on an agreement

... are called "insurance agents".

11. Sub-Agents:

Natural or legal person agents assigned by insurance agents for insurance activities are called "sub-agents".

In short, (insurance agent) operates under contract with the insurance company, and (sub-agent) operates under contract with insurance agent.

12. Insurance Broker – Reinsurance Broker:

Natural or legal persons, who, representing the policy holder and acting totally independently in choosing the insurance company, introduce those seeking to buy an insurance policy in order to cover the risks and hazards to insurance companies, who make the required preparations prior to the execution of the insurance contract, and who give assistance during the term of agreement (especially in payment of the compensations) when needed are called (insurance broker); and those who fulfill such functions between insurance companies and reinsurance companies are called (reinsurance broker).

Insurance and reinsurance brokers are obliged to obtain license from the Treasury Undersecretary.

13. Insurance Producer:

Natural or legal person who, independently from both the policy holder and the insurer, negotiate the terms of the insurance contract by informing those who want to buy an insurance policy in various insurance branches, who give assistance in preparation of the insurance proposal form depending on the subject and character of the risk and hazard, and who earn commission in return for their work is called (insurance producer). Insurance producers can start their operations only after obtaining an (Insurance Producer Certificate) from the Association of Insurance and Reinsurance Companies of Turkey.

14. Actuary:

Persons who estimate the insurance risks and premiums by using statistical and probability calculations is called (actuary).

15. Claims Surveyor:

Persons who determine the value, reason and quality of the damages and losses resulting from materialization of the insured risks and hazards, and who carry out the activities such as estimation of the agreed value, preliminary survey and supervision as a part of their regular vocation are called claims surveyor.

Operation procedures and principles of actuaries and insurance claims surveyors are governed by the Regulation.

16. Bans and Exception:

An Insurance Company’s (i) Chairman and members of the Board, (ii) members of the Directors’ Committee, and (iii) authorized signatory owners and their relatives can not become an agent or sub-agent for such insurance company.

Insurance agents can not be engaged in other trade activities as a principle.

This provision does not apply for the agents of life insurance empowered to enact contracts and to collect premiums, and for agents of compulsory insurance.

Banks are not subject to this ban (Article 9/end).

17. Collection of Premiums:

Power to make an insurance contract and to collect premiums – in principle – belongs to the insurance company. Insurance company can assign this power to its agent by contract on the condition of registering such assignment in the trade register. (Assignment to sub-agent is not allowed.)

18. Guarantee:

Insurance companies are obliged to record a guarantee for the liabilities arising out of the insurance contracts and in proportion to their insurance premiums.

In case of sickness and individual accident insurance and in other non-life insurances, 20% or less of the value of the premiums as determined by the Treasury Undersecretary has to be recorded as guarantee.

In life insurance branch, the total of the guarantee is the sum of the "mathematical reserves" based on the net premiums of life policies, "reserves for the outstanding compensation in the life branch", and reserves for the "dividends accrued" (Article 12).

Newly found companies put as guarantee 20 percent of their paid in capital until the due date for recording guarantees. This guarantee is blocked in banks in the name of Treasury Undersecretary. If the guarantee is a real estate, it is mortgaged in favor of the Treasury Undersecretary. Guarantees of the insurance companies can only be used for compensating the policy holder for their receivables from the insurance company (Articles 14 and 18). The assets that can be accepted as guarantee are listed in Article 15 of the Law.

19. Reserves:

  • In fire and earthquake insurance branches, insurance and reinsurance companies are required to set aside as (reserves for earthquake damage) the premiums they retain and net revenues they acquire from these premiums for a period of 15 years.

  • Insurance and reinsurance companies are also required to set aside a (reserve for current risks) for their life policies with longer than one year term and for their commitments other than earthquake guarantees, and a (reserve for the outstanding damages) for outstanding losses in all insurance branches (Article 25).

20. Determination of Premiums and Rates:

Insurance company is free to determine the rates for the insurance contracts except the contracts for (the life insurance, health insurance with longer than one year term, and compulsory insurances).

Compulsory insurance premiums are set by the Ministry.

21. Insurance Contract:

An insurance contract is made in accordance with (general conditions) approved by the Treasury.

Insurance policy is prepared so as to cover the (general conditions).

22. Making Insurance Abroad:

Natural and legal persons based in Turkey have to make their insurances in Turkey and exclusively via licensed insurance companies having operations in Turkey. The insurances that are permitted to be made abroad (ship, aircraft, life insurance etc.) are listed in Article 29 of the Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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