Earthquakes put Turkey’s insurance market under further strain

Devastating earthquakes in Turkey, which are reported to have killed at least 9,000 people, serve “another blow” to the local insurance and reinsurance market that was already under “severe strain”, according to AM Best. Ahead of any insured loss estimates from the catastrophe, AM Best said it expects a significant gap between economic losses, which the US Geological Survey said could be upwards of $1bn, and insured losses from the shocks. AM Best said data from Turkey’s catastrophe insurance pool indicated about 52% of homes in the region most affected by the earthquakes were covered. The ratings agency said the Turkish Catastrophe Insurance Pool (TCIP) paid claims of $52m against an estimated economic loss of $400m from the last major earthquake to hit Turkey in 2020. It added that Turkey’s insurers are already in the middle of a prolonged and extreme period of economic turbulence that has “significantly weakened the creditworthiness of the local (re)insurance market”. Last year Turkey’s insurers and reinsurers recorded a significant deterioration in risk-adjusted capital, AM Best said, while inflation is running high in the country. Reinsurance is expected to protect local insurers from the worst impact of recent catastrophes, AM Best said. But it warned: “The tragic events represent yet another headwind for a market already facing an extremely challenging operating environment, characterised by significant inflation and a weakening currency.” GlobalData agreed that the devasting Turkish earthquakes will impact local property insurers’ profits, which dropped into the red in 2021 and recorded a combined ratio of 107%. Md Shabbir Ansari, senior insurance analyst at GlobalData, said economic losses from this week’s earthquakes are likely to be more than double the earthquake in 2020. “It will take years for Turkish insurers to settle the insured losses,” he warned. “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,” he said. The most recent earthquakes affected the south-east region of Turkey, where insurance penetration rates are lower than in the west of the country, AM Best said. Although earthquake insurance is compulsory for homes, there is no legal penalty for not having cover and take-up varies widely across the country, the rating agency explained. Munich Re and Swiss Re held the highest risk shares in the TCIP’s excess of loss programme for the last published annual report, although the scheme was renewed towards the end of 2022. International reinsurers in Europe, the London market and Bermuda share the remaining capacity for the programme. The TCIP excludes coverage for commercial properties, which are not subject to mandatory earthquake insurance, although AM Best said it is common for buyers to hold earthquake cover included in other policies.

Earthquakes put Turkey’s insurance market under further strain

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