Fitch Revises Outlook on Turk P&I's IFS Rating to Stable, Affirms at 'B'

Mon 25 Sep, 2023 - 11:55 AM ET


Fitch Ratings - Madrid - 25 Sep 2023: Fitch Ratings has revised the Outlook on Turk P ve I Sigorta A.S.'s (Turk P&I) Insurer Financial Strength (IFS) Rating to Stable from Negative and affirmed the rating at 'B'. Fitch has also affirmed Turk P&I's National IFS Rating at 'A+ (tur)' with a Stable Outlook.


The revision of the Outlook follows the revision of the Outlook on Turkiye's sovereign rating Stable from Negative on 8 September 2023. The sovereign rating and Outlook weigh on our assessment of industry profile and operating environment, company profile and investment risks.


The affirmation of the IFS Rating reflects Turk P&I's 'Moderate' company profile compared with other Turkish insurers, investment risks skewed towards the Turkish banking sector, and exposure to the Turkish economy, in line with the rest of the market. The rating also reflects Turk P&I's strong earnings and weakened capitalisation.


Given that the majority of Turk P&I's liabilities are in foreign currencies, its IFS Rating is constrained by Turkiye's 'B' Country Ceiling to account for transfer and convertibility risk.



Country Ceiling Constrains Rating: Turk P&I's IFS Rating is capped at Turkiye's Country Ceiling of 'B' because the company predominantly settles its liabilities in foreign currency. This results in transfer and convertibility risk - the risk that the Turkish government may place restrictions on the ability of Turk P&I to obtain foreign currency.


Turkish Marine Specialist: Fitch assesses Turk P&I based on the insurer's Standalone Credit Profile, but also considers its ownership structure, which is equally divided between public and private interests. We believe the company's ownership and its strategic role in the Turkish economy are supportive of its credit profile. Turk P&I was


Turkiye's first protection and indemnity (P&I) insurance provider and also underwrites hull and machinery insurance, which accounted for 67% of net premiums in 1H23.


'Moderate' Business Profile: We rank Turk P&I's business profile as 'Moderate' compared with Turkish peers, despite its small size, limited history and less established business lines. This is because its increasing international diversification, in addition to its ownership and strategic role in Turkiye, benefits the business profile. Turk P&I's business volumes should continue to grow strongly in 2023-2024, supported by new local laws, such as compulsory insurance for tourist boats, as well as strong development of the international business.


Weakened Capitalisation: The company's capitalisation, as measured by Fitch's Prism Factor-Based Model (Prism FBM) score based on end-2022 data, deteriorated to 'Somewhat Weak' from 'Adequate' at end-2021. Turk P&I's regulatory solvency ratio also weakened to 72% at 1H23 from 90% at end-2022. This was driven by a strong increase in net premiums, while equity increased more slowly. We expect the regulatory solvency ratio to be restored to over 100% by end-2023 through an increase in paid-in capital approved by the shareholders.


High Exposure to Banking System: Turk P&I's balance sheet comprises deposits at Turkish banks, with some concentration on a single state-owned bank as well as bonds issued by the government and domestic banks. This indicates high exposure to the banking sector in Turkiye, in line with the rest of the Turkish insurance market.


Strong Earnings: The company's earnings have been strong over the past five years and Fitch views financial performance and earnings as a rating strength. For 8M23, it reported net income of TRY96 million (8M22: TRY12 million), equivalent to net income return on equity of 51%. Turk P&I's profitability is highly influenced by foreign-exchange results.


In 8M23, Turk P&I's underwriting performance slightly deteriorated but remained strong, as reflected in a gross combined ratio on a US dollar basis of 94% (2022: 82%) due to inflation impacting claims costs and a few larger claims due to international expansion. Turk P&I has been taking actions to mitigate these increases in claims costs and has seen an improvement in the combined ratio in the last few months. Turk P&I receives most of its premium income and pays most of its claims in foreign currency.


Business Profile Constrains National Rating: The National IFS rating of 'A+(tur)'/Stable reflects Turk P&I's strong earnings but its weak business profile, mainly due to its size and scale compared with peers, constrains the rating.



IFS Rating:


Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:


--A downgrade of Turkiye's Country Ceiling


--Business-risk profile deterioration due to, for example, a sharp deterioration in the maritime trade environment


Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:


--An upgrade of Turkiye's Country Ceiling


National IFS Rating


Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:


--Business profile deterioration


--Regulatory solvency ratio below 100% for a sustained period


Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:


-- Sustained profitable growth with a regulatory solvency ratio comfortably above 100%



The principal sources of information used in the analysis are described in the Applicable Criteria.



The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit



Rating Actions




Turk P ve I Sigorta A.S.

Ins Fin Str / B Rating Outlook Stable

Ins Fin Str / B Rating Outlook Negative