The Unbeaten Path

For a huge global company like Allianz, what is the importance of the Turkish market, and what are your expectations?

In today’s globalized business environment, companies should have a strong presence in emerging markets in order to maintain sustainable growth. Since Turkey is one of the so-called MIST countries, its relevance is clear to us. The Turkish economy is showing the most dynamic growth in Europe and it is one of the continent’s largest economies with a fairly young population of 75 million people. The opportunities in the Turkish insurance sector are shaped by the dynamics of a growing middle class, favorable demographics, and low penetration rates. We see rapid progress in Turkey along with an attractive economic landscape and stability in the physical, regulatory, and economic infrastructure. The acquisition of Yapı Kredi Sigorta by Allianz is the biggest investment made in the Turkish insurance sector, and it definitely underlines Turkey’s position as one of the key markets. This is how we see Turkey in a nutshell and why we are investing in this country. Turkey is clearly one of the key markets where growth potential is seen, and where we see also that growth can be captured without losing focus on profitability. We are subscribing to double-digit growth over the next year, and we also plan to have double-digit growth in profitability over the coming years.

How do you expect the merger with Yapı Kredi to change your role in the market?

We are becoming the market leader in Turkey in non-life, life, and pensions. We have a combined market share of 15.6% in non-life and 20.4% in pensions. In terms of life protection, we rank third following some company mergers. Furthermore, we have taken the lead in the health branch with a market share of 33%, which is around 19 percentage points ahead of second place. Our plan is of course to maintain our market position, but we will never do so for the sake of market share only. We are always focused on sustainability, which means that if we cannot maintain our market share with a return on our risk capital, we will forego market share. The sustainability of growth and profitability is always our top priority. Our mission is to serve the Turkish population because, as a market leader, what you feel most is a responsibility to society. Turkey is growing, emerging, and transforming into a developed economy, but as of yet the assets of Turkish wealth on a global scale are rather low and they need to be protected from any downturn. As Allianz, we are aware of the emerging needs of the market, where we brought our global expertise. On the one hand, we are utilizing our global knowledge and expertise in Turkey, but on the other hand we are also benefiting from our local experiences.

How does the new private pensions law change your outlook on the growth potential of private pensions in Turkey?

Pension savings have been supported with state contributions, which is a major milestone in the development of savings in Turkey in general. Again, looking at it from a macro perspective, it was an extremely smart move from the government. When we consider the level of the current account deficit, increasing the local domestic savings quota is crucial. As of October, the contribution of the state to the pension funds was around TL700 million. We are talking now about a sector worth TL24.2 billion as of October in total pensions volume, of which TL700 million comes from the state. This was a major milestone in the development of Turkey as an economy, and for us as an insurance player. It was very important because we are now in a position to gain scale. Pensions profitability margins are quite low, for both the insurance and the asset management companies in Turkey. To have an asset management culture, to grow funds, and to intensify savings in order to establish a professional sector is the only sustainable plan, and with the current margins this is going to be difficult.

As awareness and participation in the insurance and private pensions system grows, what effects will we see on a macro level in Turkey’s economy overall?

It is important to increase the savings quota in Turkey. Deputy Prime Minister Ali Babacan’s latest announcements mark a rise in savings in 2013, and I believe that pensions do play a role in this. In Turkey, we have a problem of high and growing private debt, and this will become a problem in due course. I would even go so far as to say that we might already have an asset bubble. As insurance players in Turkey, we need to do a better job of communicating and convincing all related stakeholders, i.e. customers, the government, regulators, peers, and also connected sectors like banking, into making a story of it. Insurance is a very basic need for societal development, and we have to leave the foundations in the hands of those who are in a position to manage them. The government, regulators, peers, and banks have to communicate this together to our customers. It will be a great development for Turkish society and the country’s long-term growth because we will be more tolerant to external shocks, and one strong way to buffer a downturn is insurance. That is something we need to communicate better, and here again Allianz, as the market leader, will play an important role.

You mention a lot of opportunities and risks in the sector. How would you assess the level of foreign interest from investors and companies thinking about entering Turkey’s pension and insurance sector?

Foreign investor interest in the Turkish insurance market is very high, which is reflected in the capital ownership of the market—70% of paid-up capital belongs to foreign players. There is still potential for more, and I think it is also good for Turkey’s development because a local player in the long term will find it hard to persist in an environment that involves larger investments. Digital technology developments, particularly in big data and other niche areas, play an increasingly important role in our interconnected world. Our purchase of Yapı Kredi Sigorta is the start of a broader consolidation that will occur over the coming five years. It can be foreseen that there will be more opportunities to enter the market. I think there is still the opportunity to enter with a brand new establishment, rather than through M&A activity.

You have outlined what needs to be done by players in this sector to grow and help the Turkish economy. Are you optimistic about these issues?

We enjoy fruitful discussions with the regulator and the government. For example, the government understands the relevance of insurance, and this will further improve over time. We will do our best to support the government and the regulator. We will always bring the global know-how of Allianz into those discussions. We have a good track record so far, the growth rates are good, and profitability will increase.

© The Business Year – December 2013