Fitch Ratings has released a new report which shows that Turkish insurers’ Financial Strength ratings are under pressure from the Negative Outlooks on the Turkish sovereign and Turkish banks’ ratings.
Insurers have limited exposure to lira volatility as policyholder liabilities are mostly denominated in local currency, and the sector’s technical profitability is strong despite the coronavirus pandemic.
Turkish insurers’ investments are mostly placed with domestic counterparties, primarily banks. The Negative Outlooks on the Turkish sovereign and Turkish banks’ ratings therefore feed directly into its assessment of insurers’ asset quality and operating environment, and insurers’ ratings are on Negative Outlook as a result.
Fitch revised the Outlook on Turkey’s ‘BB-‘ sovereign rating to Negative in August 2020. This was largely driven by lower foreign-exchange reserves, weak monetary policy credibility, negative real interest rates and a sizeable current account deficit.
Despite the pandemic, Turkish insurers’ technical profitability was strong in 1H20.
The overall non-life sector loss ratio has a reported decreased of 67% from 78% in 2019, whilst the combined ratio was below 100%, indicating a technical profit. This follows a series of technical losses from 2014.
