Recent development 

On August 23, 2015, the Undersecretariat of Treasury issued its Regulation on Measurement and Evaluation of Capital Adequacy for Insurance, Reinsurance and Private Pension Companies. The regulation came into effect on August 23, 2015, except for the reinsurance risk calculation rules that will come into effect on January 1, 2016. The regulation tightens solvency requirements by increasing risk coefficients for reinsurance risks and excess premium increase risks, adopting a country-specific approach.

Solvency basis

Insurance, reinsurance and private pension companies must maintain minimum capital against their current liabilities and risks. A company's capital is the sum of its (i) core capital, including its paid-in capital, net profit for the period, and profit and capital reserves; (ii) supplementary capital, including equalization provisions and quasi-equity loans; and (iii) other capital items, including a portion of subscribed capital.

The higher sum from the two formulas below is used to calculate minimum required capital:

  • the sum of the values for non-life, life and private pension businesses calculated separately: (i) the higher of the values based on a ratio of premiums or claims for non-life insurance businesses, (ii) the sum of the values based on a ratio of mathematical reserves and sum-at-risk for life insurance businesses, and (iii) the ratio of total private pension savings for private pension businesses.  
  • the sum of the (i) asset risk, (ii) reinsurance risk, (iii) excess premium increase risk, (iv) outstanding claims provision risk, (v) underwriting risk, and (vi) exchange rate risk where each risk is calculated based on the coefficients prescribed under the regulation.                          

The solvency ratio is calculated by dividing the capital by the minimum required capital. The solvency ratio must be at least 1.00. However, an insurer or reinsurer must report to the Treasury on its past solvency performance and projections after it submits its solvency statements, if its solvency ratio is 1.00 to 1.15.

What the Treasury did

  • Insurers and reinsurers can now include their quasi-equity loans (e.g., subordinated debt) into their capital up to 30% of the minimum required capital (100% for cooperatives (kooperatif)). Previously this was set at 30% of the capital excluding quasi-equity loans.  
  • The minimum required capital for private pension products calculated under the first formula is now applied at a flat rate of 0.50% of the total pension savings. Previously, a three-tiered structure with rates ranging from 0.25% to 0.50% was used.  
  • Asset risk coefficient categories have been expanded to reflect the risks associated with different securities, such as 0.00 for government bonds and lease certificates (i.e., sukuk), 0.05 for bank debt securities and BIST-30 index shares, 0.25 for private company shares, and 0.30 for investment derivatives. The risk coefficient for deposits held by intra-group banks has been increased from 0.00 to 0.03.  
  • Reinsurance risk coefficients are set at the following ratios of the premium ceded to reinsurers: (i) 0.00 for risks ceded to reinsurance pools in Turkey, (ii) 0.03 for reinsurers licensed in Turkey, (iii) 0.06 for reinsurers approved by the Treasury that have adequate financial and technical resources (applied at 0.09 for intra-group reinsurers), and (iv) 0.12 for other reinsurers (applied at 0.15 for intra-group reinsurers). The risk coefficients were previously set at 0.00 for risks ceded to reinsurance pools in Turkey, 0.03 for Treasury-approved reinsurers, and 0.12 for other insurers.  
  • Higher risk coefficients (i.e., 0.15 for Treasury-approved reinsurers and 0.30 for other insurers) are still applied for premiums ceded to a single reinsurer under a proportional, non-proportional or facultative reinsurance agreement if the ceded premiums under the agreement exceed (i) 0.60 for Treasury-approved third party reinsurers, (ii) 0.40 (down from 0.50) for Treasury-approved intra-group reinsurers, and (iii) 0.15 for other insurers.  
  • If the premiums written by an insurer and reinsurer outperform the year-on-year market growth of the non-life and life segments' (branş) (e.g., health insurance and personal accident business segments) gross written premiums by more than 20% (previously set at 10% for motor vehicle insurance and 50% for other insurance business segments), an excess premium increase risk must be calculated. The excess premium increase risk coefficient is applied at 0.20 only to premiums outperforming market growth.  
  • Insurers and reinsurers are not required to calculate excess premium increase risk during the first three years following licensing in an insurance segment that was previously limited to the first year of operations. If the annual gross written premiums of an insurer or reinsurer do not exceed TRY 100 million, the insurer or reinsurer is not required to calculate the excess premium increase risk.  
  • New outstanding claims provisioning and underwriting risk coefficients have been established.  
  • Insurers' risks calculated under the second formula are further adjusted depending on the distribution channels and related-party arrangements. For example, direct sales, distance-selling and intra-group bancassurance sales will result in a higher risk than third party bancassurance sales or insurance agent sales.  
  • Insurers and reinsurers that fail to satisfy the prescribed solvency ratios are subject to sanctions. Where an insurer's or reinsurer's solvency ratio is from 1.00 to 1.15, the insurer or reinsurer must submit a report to the Treasury explaining the reasons for the deficiency and its projections. Where an insurer's or reinsurer's solvency ratio is from 0.70 to 0.99, the insurer or reinsurer must submit a payment schedule to the Treasury and pay the capital deficiency within a year. Where an insurer's or reinsurer's solvency ratio is from 0.33 to 0.69, the insurer or reinsurer must submit a payment schedule to the Treasury and increase its solvency ratio to 0.70 and 1.00 within six months and one year, respectively. If the solvency ratio falls below 0.33, the Treasury is entitled to impose further sanctions, such as suspending its operations and cancelling its operating license.  


The Turkish insurance sector was recently shocked by the Treasury's confiscation of a major local insurance company, Ege Sigorta. While it is not clear if this action is directly linked to this development, the Treasury, a week after the confiscation, tightened the rules for solvency requirements for insurers and reinsurers, showing its commitment to prudential regulations despite not being a sector-specific regulatory authority. The regulation takes into account the specifics of the Turkish insurance and private pension market where related-party transactions are dominant from asset management to distribution channels by deeming intra-group transactions higher risk. The Treasury set a detailed risk structure for the asset management and reinsurance policies of insurers. The numerical clarification on the Treasury's right to implement safeguards against capital deficiencies is important for transparent oversight as the previous rules were applied at the Treasury's discretion.