Earthquakes deliver further blow to Türkiye’s underwriters as death toll rises

There are rising concerns over the capabilities of the Turkish insurance sector to respond following the series of earthquakes which struck Türkiye and Syria this week.

Several earthquakes hit both countries on 6 February with the death toll rising to nearly 10,000 as the 72 hour “golden window” for the rescue of those trapped in the debris coming to a close. The quakes were among the strongest in the last 100 years and on top of the tragic human cost the disasters have damaged or destroyed nearly 8,000 buildings.

Md. Shabbir Ansari, senior insurance Analyst at GlobalData, said the insured costs will be dwarfed by the economic costs but Turkish insurers and reinsurers have been placed under increasing pressure by the scale of the losses.

“The preliminary estimate of economic loss due to the current catastrophic event is more than $1 billion, and it will take years for Turkish insurers to settle the insured losses,” he explained. “The economic loss is expected to be more than two times the losses from a similar earthquake in 2020.

“According to GlobalData’s Global Insurance Database, property insurance gross written premiums (GWP) stood at TRY 26.1 billion ($2.9 billion) in 2021 and accounted for 29.8% of the Turkish general insurance market. The Turkish property insurance market registered an underwriting loss in 2021 as the combined ratio crossed 100% for the first time in the last 10 years and stood at 107.2%.

“The combined ratio, which is a combination of loss and expense ratio, is expected to deteriorate further over the next few years due to the current catastrophic event.”

Ansari added: “The Turkish Catastrophe Insurance Pool (TCIP) along with its major reinsurance partners including Munich Re and Swiss Re is expected to absorb a major share of the losses arising from this earthquake. TCIP is a public institution that was set up in the year 2000 with a provision to settle catastrophic insurance claims of up to $2.5 billion.

“Insurers in Türkiye were already reeling under the pressure of high inflation that impacted their profitability. Inflation in the country stood at 58% in January 2023 and was 49% in the same period last year. High inflation rates lead to higher average cost of claims for insurers.

“As companies are yet to recover from the impact of the 2020 earthquake, the recent earthquake will further impact the profitability of property insurers. As a result, Turkish property insurers are expected to register underwriting losses in 2023 and 2024.

“Increased frequency of such large-scale natural calamities will further create the demand for natural catastrophic insurance in the country and support its growth. However, the profitability of insurers is expected to remain challenged over the next few years due to increasing claims and rising inflation.”

Rating agency AM Best described the earthquakes as representing “another blow for the local (re)insurance industry”.

In its report on the potential impact of the disaster the company said while initial information indicates that insurance penetration in the region is relatively low compared to the most populous centres in Western Türkiye, the tremors occurred against a backdrop of a prolonged period of extreme economic turbulence, which AM Best believes significantly weakened the creditworthiness of the local (re)insurance market.

It added: “The TCIP’s latest published annual report shows reinsurance cover incepting in 2021 had a lower limit of TRY 5.0 billion ($0.4 billion as at 31 December, 2021) (unchanged from the previous year), while the upper limit stood at TRY 36.9 billion ($3.2 billion) (up from TRY 32.2 billion the previous year).

“Munich Re and Swiss Re had the highest risk shares in the excess of loss programme, with the remaining capacity understood to be provided by international reinsurers in Europe, the London market and Bermuda.”

Best added the latest figures from TCIP suggest compulsory earthquake insurance penetration at around 52% in the region most affected by the latest incidents.

“As a result, AM Best expects that – as with previous natural disasters in the country – there will be a significant variance between the economic and insured losses from the two earthquakes,” it added.

The report continued: “While it is likely that international reinsurance markets will pick up a proportion of the losses, AM Best notes that these events occur at a time when (re)insurers in Türkiye are facing an extremely challenging operating environment, characterised by significant inflation and a weakening currency.”