Turkish insurers’ earnings and capital adequacy will likely come under severe strain in 2022-23 as they face one of the most challenging environments of the past decade, according to Fitch Ratings.
In a recent report, the agency stated that some insurers could be pushed below minimum regulatory solvency levels due to the effects of macroeconomic deterioration, soaring inflation and the continuing price cap on motor third-party liability (MTPL).
These could force Turkish insurers to raise capital or to be acquired by stronger competitors.
Fitch forecasts that Turkish CPI inflation will remain very high – end-2022: 60% and end-2023: 55% – after it rose over 70% in May 2022.
Fitch said: “Insurers are unlikely to be able to increase their prices enough to cover the rise in claims costs. They are constrained by pricing competition and, for MTPL insurance, by regulatory price caps.”
MTPL is the non-life sector’s largest business line by net premium written, and it has been the main drag on the sector’s underwriting performance in recent years.
The price caps remove insurers’ ability to charge enough for the risk they are taking, forcing them to underwrite MTPL policies at a loss.
According to Fitch, high inflation will exacerbate this problem, and MTPL pricing is not expected to be liberalised in the near future.