Risk management blossoming in Turkey

Q: When and why did you form the Turkish risk management association?

A: The Enterprise Risk Management Association was established in April 2009 to increase awareness about risk management in Turkey. The association aims to improve risk management in Turkey. We believe that the adoption and practice of risk management within corporations will improve business results and hence will create value for the whole of the Turkish economy.

Q: How many members do you have, what kinds of companies do they represent and what is the potential size of the association?

A: Currently, we have 33 members including the largest and most successful companies in Turkey, but also, in Europe such as Sabancı and Koç. Leading companies in telecommunications, aviation, medicine, retailing, food and beverage, energy and construction are represented by both individuals and corporations. Financial companies such as banks, insurance companies and funds are not allowed to become members of this association. We believe that ERMA will serve as a common platform for Turkish business people to enhance risk management skills and provide a discussion platform about risks and opportunities for the future.

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Q: Why should a company join the association? What are the services and benefits that you offer?

A: ERMA is the first association in Turkey that aims to enhance, improve and standardise enterprise risk management principles in the non-financial industry. Although risk management is a core business in the financial industry, it is a new and evolving subject for the non-financial industries. Therefore, sharing knowledge and expertise becomes more valuable. Our association includes members that represent the largest and leading companies within their industries. ERMA serves as a platform where, for common risks, both in micro and macro dimensions, solutions are found. We also aim to establish subcommittees and professional groups in order to carry out research and studies on related topics that will enable us to monitor the dynamic structure of risks and risk management techniques.

Q: What are your plans for 2010? Do you have any events planned and if so when and where?

A: It has been approximately nine months since ERMA was established and after the general assembly, we have started to organise meetings and conferences where we can promote our association. Also, we are organising management meetings for the board members during which we discuss the next steps and will form a ‘roadmap’. We plan to organise a wide-ranging meeting with the participation of risk managers and those responsible for risk in various companies. Additionally, we will arrange protocol visits to governmental agencies and other associations such as the Capital Markets Board of Turkey (the national securities market regulator), the Istanbul Stock Exchange, Association of Insurance and Reinsurance Companies and the like. Near the end of 2010, we plan to organise a training program or a panel discussion on enterprise risk management.

Q: How is the insurance market in Turkey? Do you have adequate capacity for larger risks and what is the rating outlook for 2010?

A: In 2009, the most outstanding loss that the Turkish insurance market experienced was a flood catastrophe in September. Approximately TL700m has been paid to insureds in a really limited time. The market responded on time and proved its strength to the insurance buyers. During 2009 the market produced approximately TL12.5bn premium income that represented an increase of 5.57% compared to 2008.

Despite the deep credit and liquidity crisis in the world today, the global insurance market’s recovery period was relatively quick. The global insurance sector protected their capital and capacity unlike other financial institutions. Global reinsurance markets have shown their resilience thanks to advanced risk management policies. It is obvious that the burden of the crisis declines on a daily basis. We can therefore predict that there will be a growth in capacity for the global insurance markets during the coming year, unless catastrophic events occur. With the capacity increase in reinsurance markets, Turkey will attract extra reinsurance capacity and buyers will gain bargaining power for wider terms and conditions for 2010. We expect growing support from Far Eastern markets this year. Therefore we expect improvements both in the treaties and in the facultative agreements of the Turkish insurance companies in 2010.

Q: What do you see as the main risks that face risk managers in 2010?

A: 2009 was an adjustment year for Turkey after the effects of the global financial shock. Because of the temporary nature of current growth, it is thought that the recovery will be slow and bumpy. High domestic borrowing requirements of the public, ongoing problems in the global economy and high unemployment rates are seen as factors that will limit credit expansion. Unless demand, in both domestic and foreign markets, strengthens and consumer confidence is recovered, an increase in capacity utilisation is not expected. Additionally, while the outlook for foreign exchange rates is positive, inflation will gain impetus this year. So, in financial terms, it would not be wrong to say that 2010 will be as difficult for the Turkish economy and risk managers as it was in 2009.