The profitability of Anadolu Anonim Turk Sigorta Sirketi's (Anadolu Sigorta) improved substantially in 2023, supported by both stronger, albeit still negative, underwriting performance and higher investment income as interest rates rose sharply in 2H23, notes Fitch Ratings.
The insurer invests largely in bank deposits, which offer very high returns, given the increase in interest rates to 42.5% in December 2023. In 2023, the company reported a net income of TRY5.9bn [$178.3m] (2022: TRY1.1bn), corresponding to a net income return on equity (ROE) of 55% (2022: 22%).
In 1Q24, Anadolu Sigorta's reported combined ratio improved to 100% (1Q23: 126%), due to improved performance of the motor third-party liability line, in part driven by an increase in the discount rate from 28% to 35%, as announced by the Turkish regulator in February 2024. However, underwriting performance remains unprofitable.
Ratings affirmed
Fitch has affirmed Anadolu Sigorta’s Insurer Financial Strength (IFS) Rating at 'BB-' with a ‘Positive’ outlook. Fitch has also affirmed Anadolu Sigorta's National IFS Rating at 'AA+(tur) with a ‘Stable’ outlook.
The affirmation reflects Anadolu Sigorta's company's very strong position in the country's highly competitive insurance sector, high asset risk driven by its substantial exposure to Turkish assets, as well as adequate capitalisation and improved profitability, says Fitch. The ‘Positive’ outlook reflects that on Turkiye's sovereign rating as the sovereign rating and its outlook affect Fitch’s assessment of the industry profile and operating environment where the insurer operates as well as Anadolu Sigorta's company profile and the credit quality of its investment portfolio.
The company's 'AA+(tur)' National IFS rating largely reflects its strong franchise in Turkiye, and a regulatory solvency ratio consistently and comfortably over 100%.
Aside from profitability, key rating drivers for Anadolu Sigorta include:
Leading Turkish Insurer: Anadolu Sigorta's business profile is supported by the company's very strong position in the country's highly competitive insurance sector. Anadolu Sigorta was the third-largest non-life insurer in Turkiye at end-2023, with a market share of about 10%. Fitch expects its strong competitive positioning to support the resilience of Anadolu Sigorta's credit profile against the challenges posed by the Turkish economy.
Improved Investment and Asset Risk: Anadolu Sigorta is highly exposed to domestic assets. Its investment portfolio largely comprised deposits in Turkish banks and Turkish government bonds at end-2023. As a result, Fitch sees the company's credit quality as highly correlated with that of Turkish banks and the sovereign. Although asset risk remains its main rating weakness, Anadolu Sigorta's investment risk has improved following the sovereign upgrade due to higher average investment credit quality, as measured by a lower risky assets ratio.
Capitalisation Supportive of Rating: The company's capitalisation, as measured by Fitch's Prism Global model, improved to 'Adequate' at end-2023 from 'Somewhat Weak' at end-2022. The improvement was driven by a higher equity base as a result of higher retained earnings. The local regulatory solvency ratio was comfortably above 100% at end-2023 and end-1Q24, which support the company's ratings. Other capital metrics, such as net written premium/equity and net leverage, also improved and remained supportive of the rating.