Kemal CUHACI: Before we characterize the local reinsurance market evolution, we have to evaluate the premium structure on the market. The total premium production in the non-life sector mainly depends on motor and health branches from which approximately 60 % of the non-life premiums originate. The majority of the insurance companies on the market used reinsurance capacity on a quota share basis to some extent, for example 10% -20 % in the past. However, the reinsurers providing reinsurance facilities to these branches have begun to pull out of these branches due to unfavourable technical results as motor and health businesses incurred gradually increasing losses during the course of time. At present, the bulk of the motor and health businesses are being retained by the insurance companies as compared with several years ago.
The insured stocks in Turkey, which are subject to Fire, Engineering and Marine insurance, have substantially increased due to the economic development that has taken place in the last decade, and the insured liabilities have shown a correspondingly drastic increase. Consequently, the amount and volume of risks ceded on the reinsurers' shoulder both on an accumulative and individual basis has grown considerably, although insurance companies' retention increased due to the financial strength they have gained. Within this context, Fire, Engineering and Marine have become the major businesses which the insurance companies are using for reinsurance purposes.
As for the reinsurance structure of the insurance companies on the Turkish market, the structure of the capital in the market has shown a drastic change in the last decade, and approximately 70% of the paid-up capital belongs to foreign companies. In other words, the Turkish insurance market is an internationally capitalized market. At the time when the foreign capital inflow was seen several years ago, it was expected that this development will be reflected on the reinsurance structure of the companies, which is from proportional to non-proportional structure. However, there has been no change in the reinsurance programmes to the extent that was previously expected, and they continue to employ proportional reinsurance programmes through which the insurers rely on reinsurers at a greater degree in comparison with non-proportional reinsurance. Currently there are a limited number of insurance companies that employ non-proportional risk protection, whereas those using proportional treaties have the overwhelming majority of the market.
On the other hand, there has been a drastic change in the reinsurance panels in the last 5 years, particularly in the proportional bouquet treaties. The biggest reinsurance companies changed their reinsurance strategy and they allocated their reinsurance capacity to the non-prop cat business rather than the proportional reinsurance. Moreover, several Western reinsurers which are easily qualified as "secure" have changed their acceptance policy by the market, and considerably lowered their participation in the proportional treaties. But the insurance market that was exposed to a shortfall caused by such withdrawal replaced the western reinsurers by emerging countries and some far eastern reinsurers. At present, there are a considerable number of those reinsurers participating in the proportional programmes.
XPRIMM: Were the reinsurance strategies of the companies in Turkey affected by the financial crisis?
K. C.: The Global economic crisis which was effective particularly in the USA and the Euro Zone naturally affected the reinsurance markets globally. In the years 2011 and 2012, such an impact was felt on both the reinsurance capacity offered and the cost of reinsurance. But it can be argued that the Turkish market had difficulties with the reinsurance costs rather than the reinsurance capacity, although no catastrophic event happened in our country. The costs of the cat programmes have incurred a nearly 5-10 % increase on a yearly basis. On the other hand, there has been no major change monitored in the companies' reinsurance strategies.
XPRIMM: Do foreign companies in Turkey reinsure within their own group? What is your opinion about that?
K. C.: As mentioned before, the Turkish insurance market is an internationally capitalized local market, and the majority of the insurance companies have foreign capital, either fully or partially. These foreign insurance companies have always allocated a considerable part for MILLI Re in their reinsurance placement. They even assigned our company as a leader of their proportional treaties on the ground that the local reinsurer is more aware of the market realities and developments rather than a foreign reinsurer, no matter which one, even a leading reinsurer in the world. This fact is clearly manifested in the Turkish market if MILLI Re's position is taken into consideration. MILLI Re currently has leadership of 15 out of 21 proportional bouquet treaties. There are a limited number of foreign insurance companies that rely on their group reinsurance protection.
MILLI Re, as a reliable local reinsurer with its longstanding know-how and experience, will continue to exist and be a preferred partner for the foreign insurance companies operating on the Turkish insurance market.
XPRIMM: Is Turkey an attractive market for reinsurers?
K. C.: Turkish insurance industry, although not such a profitable market as it should have been, is gradually developing and showing real growth every year. On the other hand, it represents a greater attraction for the foreigners as it is increasing national productivity and national income, developing insurance awareness of the public, improving the legal infrastructure and positively impacting several economic and social factors which affect the insurance activities positively. Within this context, it also provides attraction for the reinsurers, just as for the insurers.
XPRIMM: How would you characterize the reinsurance brokers' activity on the Turkish market?
K. C.: The reinsurance brokers today are playing an increasingly important role for the insurance and reinsurance companies on the market. They produce services such as designing an adequate reinsurance programme in accordance with the companies' risk portfolios and risk appetites, the reinsurance treaties for placement of the companies' catastrophe loss excess with the most secure reinsurers, the modelling of cumulative risks in order to arrange compatible catastrophe reinsurance protection. In brief, reinsurance brokers are currently providing high quality services with a broader spectrum on the market, and they most probably offer more to the market as the insurance industry shows improvement in the future.
XPRIMM: What share of MILLI Re's business comes from the Turkish market and what share comes from abroad? Which are the most important countries/regions for MILLI Re outside of Turkey?
K. C.: 76% of MILLI Re's premium income came from the local market and 24% was generated by international business as of 31.12.2012. The international portfolio of MILLI Re includes more than 60 countries from Africa and Asia, which are in the operational field of FAIR Non-Life Reinsurance Pool managed by our company, as well as Eastern Europe and Latin American Markets.
When the breakdown of premium income is considered, it can be noticed that MENA Region (especially Saudi Arabia and United Arab Emirates), the Far East (primarily South Korea and China), India and Russia are the most important regions/countries in respect of MILLI Re's foreign portfolio.
XPRIMM: Do you plan to grow outside of Turkey? Which countries/types of insurance companies do you target?
K. C.: We believe that the international business portfolio will play an important role regarding the future growth of MILLI Re, therefore we will continue our marketing and underwriting efforts to further develop our portfolio. In addition to expanding our presence on our existing markets, Central and Eastern Europe, Latin America and the Sub Saharan Africa are the targeted regions/markets in view of MILLI Re's further growth of foreign portfolio.
XPRIMM: What are the main objectives in the near future?
K. C.: The main objective for MILLI Re regarding its international portfolio is to maintain a slow but steady growth which will create diversification as intended. Marketing activities will be an important tool used to achieve this goal. We would also like to underline the fact that technical profit is a priority for MILLI Re, as well as continuing to keep our already existing relations in the portfolio, and concentrating on the gradual increase in the number of partners.