# Turkey: Turkey Strengthens Solvency Of Insurance And Private Pension Companies

Last Updated: 22 September 2015
Article by

On August 23, 2015, the Undersecretariat of Treasury issued its Regulation on Measurement and Evaluation of Capital Adequacy for Insurance, Reinsurance and Private Pension Companies. The regulation came into effect on August 23, 2015, except for the reinsurance risk calculation rules that will come into effect on January 1, 2016. The regulation tightens solvency requirements by increasing risk coefficients for reinsurance risks and excess premium increase risks, adopting a country-specific approach.

### Solvency basis

Insurance, reinsurance and private pension companies must maintain minimum capital against their current liabilities and risks. A company's capital is the sum of its (i) core capital, including its paid-in capital, net profit for the period, and profit and capital reserves; (ii) supplementary capital, including equalization provisions and quasi-equity loans; and (iii) other capital items, including a portion of subscribed capital.

The higher sum from the two formulas below is used to calculate minimum required capital:

• the sum of the values for non-life, life and private pension businesses calculated separately: (i) the higher of the values based on a ratio of premiums or claims for non-life insurance businesses, (ii) the sum of the values based on a ratio of mathematical reserves and sum-at-risk for life insurance businesses, and (iii) the ratio of total private pension savings for private pension businesses.
• the sum of the (i) asset risk, (ii) reinsurance risk, (iii) excess premium increase risk, (iv) outstanding claims provision risk, (v) underwriting risk, and (vi) exchange rate risk where each risk is calculated based on the coefficients prescribed under the regulation.

The solvency ratio is calculated by dividing the capital by the minimum required capital. The solvency ratio must be at least 1.00. However, an insurer or reinsurer must report to the Treasury on its past solvency performance and projections after it submits its solvency statements, if its solvency ratio is 1.00 to 1.15.

### What the Treasury did

• Insurers and reinsurers can now include their quasi-equity loans (e.g., subordinated debt) into their capital up to 30% of the minimum required capital (100% for cooperatives (kooperatif)). Previously this was set at 30% of the capital excluding quasi-equity loans.
• The minimum required capital for private pension products calculated under the first formula is now applied at a flat rate of 0.50% of the total pension savings. Previously, a three-tiered structure with rates ranging from 0.25% to 0.50% was used.
• Asset risk coefficient categories have been expanded to reflect the risks associated with different securities, such as 0.00 for government bonds and lease certificates (i.e., sukuk), 0.05 for bank debt securities and BIST-30 index shares, 0.25 for private company shares, and 0.30 for investment derivatives. The risk coefficient for deposits held by intra-group banks has been increased from 0.00 to 0.03.
• Reinsurance risk coefficients are set at the following ratios of the premium ceded to reinsurers: (i) 0.00 for risks ceded to reinsurance pools in Turkey, (ii) 0.03 for reinsurers licensed in Turkey, (iii) 0.06 for reinsurers approved by the Treasury that have adequate financial and technical resources (applied at 0.09 for intra-group reinsurers), and (iv) 0.12 for other reinsurers (applied at 0.15 for intra-group reinsurers). The risk coefficients were previously set at 0.00 for risks ceded to reinsurance pools in Turkey, 0.03 for Treasury-approved reinsurers, and 0.12 for other insurers.
• Higher risk coefficients (i.e., 0.15 for Treasury-approved reinsurers and 0.30 for other insurers) are still applied for premiums ceded to a single reinsurer under a proportional, non-proportional or facultative reinsurance agreement if the ceded premiums under the agreement exceed (i) 0.60 for Treasury-approved third party reinsurers, (ii) 0.40 (down from 0.50) for Treasury-approved intra-group reinsurers, and (iii) 0.15 for other insurers.
• If the premiums written by an insurer and reinsurer outperform the year-on-year market growth of the non-life and life segments' (branş) (e.g., health insurance and personal accident business segments) gross written premiums by more than 20% (previously set at 10% for motor vehicle insurance and 50% for other insurance business segments), an excess premium increase risk must be calculated. The excess premium increase risk coefficient is applied at 0.20 only to premiums outperforming market growth.
• Insurers and reinsurers are not required to calculate excess premium increase risk during the first three years following licensing in an insurance segment that was previously limited to the first year of operations. If the annual gross written premiums of an insurer or reinsurer do not exceed TRY 100 million, the insurer or reinsurer is not required to calculate the excess premium increase risk.
• New outstanding claims provisioning and underwriting risk coefficients have been established.
• Insurers' risks calculated under the second formula are further adjusted depending on the distribution channels and related-party arrangements. For example, direct sales, distance-selling and intra-group bancassurance sales will result in a higher risk than third party bancassurance sales or insurance agent sales.
• Insurers and reinsurers that fail to satisfy the prescribed solvency ratios are subject to sanctions. Where an insurer's or reinsurer's solvency ratio is from 1.00 to 1.15, the insurer or reinsurer must submit a report to the Treasury explaining the reasons for the deficiency and its projections. Where an insurer's or reinsurer's solvency ratio is from 0.70 to 0.99, the insurer or reinsurer must submit a payment schedule to the Treasury and pay the capital deficiency within a year. Where an insurer's or reinsurer's solvency ratio is from 0.33 to 0.69, the insurer or reinsurer must submit a payment schedule to the Treasury and increase its solvency ratio to 0.70 and 1.00 within six months and one year, respectively. If the solvency ratio falls below 0.33, the Treasury is entitled to impose further sanctions, such as suspending its operations and cancelling its operating license.

### Conclusion

The Turkish insurance sector was recently shocked by the Treasury's confiscation of a major local insurance company, Ege Sigorta. While it is not clear if this action is directly linked to this development, the Treasury, a week after the confiscation, tightened the rules for solvency requirements for insurers and reinsurers, showing its commitment to prudential regulations despite not being a sector-specific regulatory authority. The regulation takes into account the specifics of the Turkish insurance and private pension market where related-party transactions are dominant from asset management to distribution channels by deeming intra-group transactions higher risk. The Treasury set a detailed risk structure for the asset management and reinsurance policies of insurers. The numerical clarification on the Treasury's right to implement safeguards against capital deficiencies is important for transparent oversight as the previous rules were applied at the Treasury's discretion.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter

|
|
© Mondaq® Ltd 1994 - 2017
All Rights Reserved

Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).

Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
Accounting
Anti-trust
Commercial
Compliance
Consumer
Criminal
Employment
Energy
Environment
Family
Finance
Government
Healthcare
Immigration
Insolvency
Insurance
International
IP
Law Performance
Law Practice
Litigation
Media & IT
Privacy
Real Estate
Strategy
Tax
Technology
Transport
Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
• To allow you to personalize the Mondaq websites you are visiting.
• To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
• To produce demographic feedback for our information providers who provide information free for your use.
• Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
If you do not want us to provide your name and email address you may opt out by clicking here
If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

### Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

### Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

### Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

• To allow you to personalize the Mondaq websites you are visiting.
• To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
• To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

### Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

### Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

### Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

### Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

### Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

### Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

### Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

### Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

### Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

### Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

### Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

### How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

By clicking Register you state you have read and agree to our Terms and Conditions