Insurance sector struggles to cope with 'cost increases' in the second half

Commenting on the financial results for the first six months of 2023, Taylan Türkölmez, Deputy Chairman of TSB, underlined that the high performance achieved in investment income in the half year is not sustainable and said, "With the cost pressure that will be created by the lagged inflation caused by exchange rate increases, our companies will use their profits in the half year to mitigate these effects in the second half of the year."

Taylan Türkölmez, Deputy Chairman of the Insurance Association of Turkey (TSB), the guiding organization of our country's insurance industry, made statements regarding the six-month financial statements of the insurance industry. In the statement, it was stated that the insurance sector, which stood by our people and our economy in difficult times with approximately TL 70 billion in damages incurred in the Kahramanmaraş earthquake, mobilized all its resources to fulfill its responsibilities duly: "Our sector, which is old with the Republic, strengthened its place in the financial system with the target of TL 500 billion premium production in the 100th year of our Republic."

In the first half of 2023, the insurance industry generated TL 186 billion in premium production, up 139% year-on-year. The total indemnity undertaken by the sector increased by 273% compared to the same period of the previous year and reached 165 billion TL with the impact of the Kahramanmaraş earthquakes. In the 'Fire' branch, where the impact of the earthquake was the highest, the claims incurred by the sector increased by 914% from TL 6 billion to TL 66 billion.

Türkölmez stated that the sector's technical profitability in branches other than 'Traffic' followed a positive course, and explained the reason for the traffic branch's continued technical losses as follows: "The successive increases in cost parameters, the inability to freely determine premiums despite the gradual increase in cost factors such as brokerage and litigation expenses other than compensation, caused the loss ratio in the traffic branch to hover at very high levels of 142%."

Stating that insurance companies had to maximize the revenues of non-traffic branches in order to eliminate the destructive effect of the traffic branch, which is the most important element of the non-life insurance sector's production portfolio with a 26% share, Taylan Türkölmez said: "The technical income from non-traffic branches and the increase in investment income due to exchange rate appreciation increased the profit of the non-life insurance sector from TL 3 billion to TL 23 billion. The total profit of the entire insurance sector, including the life pension sector, amounted to TL 30 billion."

Türkölmez continued his words as follows: "Even though our sector showed a significant performance to compensate for the loss of equity in the past periods, the premium-equity balance, which is a very important parameter for the insurance sector, could not be prevented from widening to the detriment of equity. Total premium production in the non-life sector, which produced 3 times as much premium as shareholders' equity in the previous periods, increased to 4 times that of shareholders' equity."

"Our equity structure must be strong for our sector"

Türkölmez underlined that the high performance achieved in investment income in the half year due to the conjuncture does not have the quality of continuity and emphasized that the cost pressure to be created by the lagged inflation caused by the exchange rate increases will cause companies to use the profits they made in the first half of the year to mitigate these effects in the second half of the year, and thus the premium equity balance is expected to deteriorate further.

Türkölmez concluded his words as follows: "For a sustainable equity structure, it is of utmost importance to resolve the factors that erode the equity in the first place, and for this purpose, it is of great importance to switch to free tariffs in the Traffic branch within certain criteria and to reform the practices that harm both the insured and the entire system. In this way, our companies, which continue their struggle to protect their equity, will not have to use the resources of other insurance branches. It should be emphasized that the stronger the equity structure of the insurance sector, the greater the protection shield it will provide to our policyholders and our country. In order to prepare the insurance sector, which is expected to protect the country's resources by assuming a role to prevent a possible Marmara earthquake from turning into a survival problem, it is necessary to pave the way for sustainable equity growth."

Translated with www.DeepL.com/Translator (free version)