Insurers take cautious stance on Turkey

Weeks of unrest began in May with a small-scale demonstration by environmentalists protesting against plans to redevelop a city park in Istanbul, but have since escalated into a widespread anti-government movement. The country is split between rival ideologies, secular on one side, conservative and Islamic on the other. The secularists have become increasingly frustrated with the government of Prime Minister Recep Tayyip Erdogan and his party the AKP, which is seen as pushing a more Islamist agenda. Protests escalated after a police crackdown that has reportedly left at least four people dead. "Turkey is in the midst of the biggest anti-government street protests since the Islamist-leaning Justice and Development Party (AKP) took power more than a decade ago," according to Andrew van den Born, Executive Director in Willis' Political and Trade Credit Risks division. "But after being elected to his third term two years ago with 50% of the vote, besides denting his image abroad and exposing the increasing polarisation of Turkish society, the last two weeks of protest is unlikely to have any immediate impact upon Erdogan's government."hideAccording to political risk analysts at Control Risks, the protests increase uncertainty over the country's future leadership, with a knock-on effect on the business environment. Mr Erdogan's plans to amend the constitution and create an executive presidency, which he would hope to win in 2014, look unlikely to be realised and may affect the government's stable policy platform, it said. "This is a crisis for Erdogan, undoubtedly, but not an insurmountable one," said Control Risk in a recent update. However, the protests have given voice to a significant movement that feels marginalised by Mr Erdogan's term in office, it added. "This may not last long, but it is proving significantly destabilising for Turkey while it does," it said. Turkey has enjoyed strong economic growth in recent years, fuelled by trade and foreign investment. According to the World Bank, Turkey is now the eighteenth largest economy in the world. Gross domestic product increased by 8% in 2011. In less than a decade per capita income has nearly tripled and now exceeds $10,000. From a decade ago Foreign Direct Investment (FDI) has grown from just over $1bn to an average of $13bn in the past five years. "Whilst the recent concessions to suspend plans to redevelop Gezi Park as well as an investigation into police brutality may serve to defuse the crisis, any further political turmoil could put in jeopardy Turkey's investment grade status and ultimately its ability to fund itself," said Mr Van den Born. Another issue that could further complicate the situation in Turkey is the destabilising effect of the civil war in neighbouring Syria, which threatens to spill over into wider sectarian violence. "In the past, the political risk view of Turkey was relatively benign. It is a secular society but there has been an increasing influence from Islamists, and recent events highlight rising levels of political risk," said Mr Van den Born. "There is also a risk of contagion from unrest in Egypt and the civil war in Syria, while the anti-government protests have been hijacked by a number of interested parties, including Islamists," he said. Whether the situation in Turkey will escalate remains uncertain, although continuing Islamist involvement could worsen the situation, said Mr Van den Born. Uncertainty will have implications for foreign direct investment, upon which Turkey has come to rely. "The events in Turkey are already affecting investor confidence," he said. Political risk insurers are also being more cautious in their approach to Turkey, said Mr Van den Born. "Insurers want to see how events will unfold before they offer further political risk cover. The market is still open for payment risk, but terrorism and political violence is not available at the moment. It's not a question of price, but of appetite," he said. As yet events have not led to increased demand for political risk insurance in Turkey, but are likely to do so going forward, said Mr Van den Born. "As with the Arab Spring, these events demonstrate to risk managers that there is no such thing as a safe county, and that they need to assess political risk wherever they are exposed," he said. The situation in Turkey also exposes potential gaps in coverage, according to Mr Van den Born. "On Saturday night, Turkey's EU minister, Egemen Bagis, said that anyone entering Taksim square could now be considered a terrorist. As with the riots in Thailand in 2010 and the events of the Arab Spring, the political unrest in Turkey has brought into focus once again the possible deficiencies in buying stand-alone terrorism coverage," he said. "Whilst the Erdogan government has labelled the protestors 'terrorists', the requirement that a terrorist act must influence or overthrow the government could possibly result in a gap in coverage although much depends on the specific wording of the relevant policy," said Mr Van den Born. "As a result investors are recommended to consider the purchase of political violence insurance which is much broader in its offering than many stand-alone terrorism products."

Insurers take cautious stance on Turkey

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