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Ownership and organisational requirements
Ownership of (re)insurers
Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?
There are no specific limitations on foreign ownership of or investment in (re)insurers under Turkish legislation. Foreign (re)insurers may also operate through opening a branch in Turkey.
Pursuant to the third article of the Insurance Law, (re)insurers planning to operate in Turkey must be established as a joint stock company or a cooperative. (Re)insurers must be engaged in no other business aside from insurance transactions and business which is directly related to insurance operations.
In addition, the founders of (re)insurers must have sufficient financial standing and good repute, as well as a clean judicial record and financial background. If founders are legal persons, those individuals with management and auditory powers over such legal persons must meet the criteria applicable to real person founders, aside from the financial standing requirement. If they are to act within a holding company, the financial standing of the holding company should be sufficient to carry out insurance activities.
What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?
Article 9 of the Insurance Law and Article 19 of the Regulation on the Establishment and Working Principles of Insurance Companies and Reinsurance Companies govern the acquisition of shares in (re)insurers.
The prior authorisation of the Undersecretariat of the Treasury General Directorate of Insurance is required for share acquisitions which directly or indirectly reach or exceed 10%, 20%, 33% or 50% of the insurer’s share capital, as well as for share transfers which will cause a shareholder’s shares to reach or fall below these thresholds.
The transfer of shares that grant the privilege of nominating members to the insurer’s executive boards (insofar as this will influence the company’s supervision and management) is also subject to the prior authorisation of the undersecretariat, irrespective of these percentage thresholds.
The public offering of shares amounting to more than 10% of the insurer’s capital also requires the approval of the undersecretariat.
If the share volume acquired through public offering or purchases in security exchanges exceeds 10%, 20%, 33% or 50% of the insurer’s capital, the exercise of shareholding rights and registration in the share registry will be subject to the approval of the undersecretariat.
Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?
The conditions relating to the organisation of (re)insurers are stipulated in the first paragraph of Article 4 of the Insurance Law. According to this provision, (re)insurers planning to operate in Turkey must be established as a joint stock company or a cooperative. The structures of these companies are regulated under the Commercial Code.
The Insurance Law also provides specific provisions. In particular, the board of directors of a (re)insurer must comprise at least five persons, including the general manager. The general manager must be a natural person. Members of the board of directors must meet the same eligibility criteria as those applicable to founders of (re)insurers, with the exception of the financial standing criterion. At least one deputy general manager should be responsible for issues relating to the conduct of insurance business or insurance techniques. (Re)insurers must establish an effective internal control system – including internal auditing and risk management mechanisms – in order to maintain and regularly audit compliance of all of their business and operations with insurance legislation, other relevant legislation, internal company regulations, management strategy and policies, and to detect and prevent mistakes, fraud and unlawfulness in this regard.
Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?
Pursuant to Article 4 of the Insurance Law, natural person founders of joint stock (re)insurers must:
- not be bankrupt or have declared bankruptcy;
- have the financial standing and good repute necessary to become a founder or shareholder of a (re)insurer;
- not hold a certain amount of shares (specified in the Insurance Law) in companies which are subject to winding up, or which have been subject to the close supervision of the undersecretariat according to the Insurance Law; and
- not have been sentenced to imprisonment or to pay more than one judicial fine, or convicted of serious offences, even if they have enjoyed amnesty.
Certain conditions apply to directors and officers, including the following authorised persons under the Insurance Law:
- Members of the board of directors must meet the same eligibility criteria for founders of (re)insurers, with the exception of the financial standing criterion. The majority of the board should hold at least a four-year undergraduate degree and have at least three years’ experience in any of the fields specified in the Insurance Law.
- General managers and deputy general managers must meet the same eligibility criteria for founders of (re)insurers, with the exception of the financial standing criterion. They should hold at least a four-year undergraduate degree. General managers should have at least 10 years’ experience. Deputy general managers engaged in insurance business and techniques should have at least seven years’ experience in any of the fields specified in the Insurance Law, whereas those serving in other deputy general manager posts should have at least seven years’ experience in the field for which they are responsible. At least one deputy general manager should be responsible for issues related to insurance business or techniques.
Even if they have been employed under other titles, other managers who perform duties and have powers equivalent or superior to the post of deputy general manager are subject to the provisions applicable to general managers and deputy general managers.
Also, pursuant to the third paragraph of Article 6 and Article 8 of the Regulation on the Establishment and Working Principles of Insurance Companies and Reinsurance Companies, the financial standing requirement concerning the members of the board of directors and general manager, deputy general managers and other directors shall be assessed on the basis of certain factors, such as:
- due tax obligations;
- due social security premium obligations;
- execution proceedings against them for loans and financing taken out in the past five years; and
- other issues to be determined by the undersecretariat to measure financial standing.
Apart from the abovementioned requirements, the work of directors of (re)insurers is restricted under the relevant legislation in order to prevent conflicts of interest. In this regard, members of the board of directors, auditors and employees authorised to sign on behalf of the company cannot:
- serve as agents of the company for which they work;
- engage in insurance loss adjustment or brokerage activities;
- be shareholders or members of the board of directors or board of auditors in companies founded to engage in such activities; or
- engage in paid employment relating to the company's field of activity.
These restrictions also apply to the spouses of these persons and children under their custody.
Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?
Before commencing operations in Turkey, (re)insurers must obtain a licence from the Undersecretariat of the Treasury General Directorate of Insurance for each insurance branch that they wish to operate. Following the execution of establishment proceedings under the relevant regulations, registration with the Trade Registry and relevant announcement and fulfilment of the capital requirement, the company must submit a licence application to the undersecretariat along with certain documents (eg, regarding tariffs, products and business plans) specified in the Regulation on the Establishment and Working Principles of Insurance Companies and Reinsurance Companies.
What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?
Pursuant to the third paragraph of Article 5 of the Insurance Law, (re)insurers must raise their paid-up capital to a specified amount determined by the undersecretariat in consideration of the number of insurance branches for which licences have been requested and their respective coverage. This amount can be no less than TL5 million. The undersecretariat is authorised to increase this amount, provided that it does not exceed the rate of increase stipulated in the Producer Price Index of the Turkish Statistical Institute.
Moreover, during their operations (re)insurers must set aside the required reserves depending on their production and ensure full compliance with the capital requirements stipulated under the relevant legislation.
Do any other financial requirements apply?
Certain financial requirements are set out under the legislation governing (re)insurer operations. According to Article 9 of the Regulation on the Measurement and Assessment of Capital Requirements of Insurance and Reinsurance Companies and Pension Companies, (re)insurers must meet a required equity capital amount calculated pursuant to Article 6 of the regulation.
Pursuant to the first paragraph of Article 17 of the Insurance Law, insurers must allocate guarantees according to the principles set out under the law within the scope of this article in order to meet their commitments arising from the insurance contracts that they have concluded in Turkey. The required guarantee amounts for both life and non-life insurers are set out in detail in the regulations. However, as per the fourth paragraph of Article 17 of the Insurance Law, non-life insurers must establish a minimum guarantee fund that should be no less than one-third of their equity, the calculation method for which is to be determined by regulation. The minimum guarantee fund established by non-life insurers shall in any period be no less than one-third of the capital requirement for each branch operated by the company.
Moreover, pursuant to Article 4 of the Regulation on Financial Structures of Insurance, Reinsurance and Pension Companies, insurance and pension companies which operate life and personal accident branches must establish guarantees in proportion to their commitments arising from the insurance contracts that they have concluded in Turkey. This regulation also sets out the necessary measures to be taken where (re)insurers have negative financial structures.
In addition, the Regulation on Technical Provisions of Insurance, Reinsurance and Pension Companies and Assets on which Such Provisions Are to Be Invested requires (re)insurers to set aside specified technical provisions to meet their existing and potential liabilities, and stipulates the methods and principles applicable to the assets in which these provisions shall be invested.
As per Article 20 of the Insurance Law, the minister of finance may require (re)insurers to implement certain measures (within an appropriate period) in order to strengthen their financial structure where:
- they fail to meet the minimum guarantee fund amount stipulated by the legislation;
- they fail to allocate the required guarantee;
- they do not hold sufficient and appropriate assets to cover technical reserves;
- they fail to fulfil their obligations arising from contracts; or
- their financial structures are otherwise weakened and endanger the rights and benefits of insureds.
Are personnel of (re)insurers subject to any professional qualification requirements?
The Regulation on the Establishment and Working Principles of Insurance Companies and Reinsurance Companies includes provisions on the qualifications of certain types of personnel:
- Employees with first-degree signatory authority must have qualifications similar to those applicable to the general manager and deputy general managers.
- Directors and employees assigned to the company’s accounting branch should have sufficient knowledge of Turkish financial reporting standards and insurance accounting systems. Directors assigned to the accounting branch must have at least three years’ experience in the subject.
- Employees performing and monitoring investments and derivative instrument operations should have relevant knowledge of the subject, while directors should have at least three years’ work experience.
What rules and requirements govern the business plans of (re)insurers?
The business plan must be submitted to the regulator for at least the first three years following the company’s establishment and must include details of:
- the reasons for establishment;
- estimates for at least the first three years of operations; and
- the company’s viability to continuously meet its liabilities.
Article 12 of the Regulation on the Establishment and Working Principles of Insurance Companies and Reinsurance Companies sets out the specific required content of the business plan of (re)insurers.
What risk management systems and procedures must (re)insurers adopt?
As part of their organisational structure, (re)insurers must establish an internal control system that includes risk management systems. Risk management activities are directly dispatched and managed by the general manager of the company.
Pursuant to Article 21 of the Regulation on Internal Systems, (re)insurers must establish written policies and implement procedures on both a consolidated and non-consolidated basis to manage all risks arising from their activities and those of their subsidiaries and affiliates subject to full consolidation.
Risk limits shall be determined:
- in accordance with the risk level that the company may assume, its activities and the volume and complexity of its products and services; and
- at the level of the (re)insurer’s personnel, its business units, the entire company and the group to which it belongs.
(Re)insurers must regularly review the risk limits and adapt them in accordance with changes in market conditions and company strategies.
Reporting and disclosure
What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?
Several reporting requirements apply to (re)insurers arising out of various secondary legislation based on the Insurance Law. These reporting obligations relate to the following (among other things):
- the introduction of new products;
- the appointment of members of the board of directors;
- amendments to the article of association;
- financial statements;
- the capital adequacy statement;
- reinsurance reports;
- the establishment or winding up of regional directorates and branches;
- information regarding contracts signed with agencies to carry out audits for the accounting period;
- the appointment of insurance agencies;
- the organisation and technical sub-structure of distance contracts; and
- records and statistics for all complaints.
Do any other operating requirements apply in your jurisdiction?
Joint stock companies established in accordance with the Commercial Code and companies established as cooperatives to carry out mutual insurance activities under the Cooperatives Law (1163) can engage only in insurance activities and activities directly related to insurance.
Insurers and shareholders, members of the board of directors, auditors and employees of insurers must not make any asset-reducing transactions pursuant to Article 19 of the Insurance Law. Accordingly, these persons must use company resources only for payments, financial support and advances to personnel subject to the articles of association or by resolution of the general meeting or the board of directors; nor shall these persons enter into transactions which reduce the value of assets contrary to the rules of goodwill or shift income in any case.
What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?
The Insurance Law provides for administrative and judicial penalties and prison sentences for non-compliance with the requirements set out under the law.
Accordingly, non-compliance with certain administrative duties set out under the Insurance Law is subject to an administrative fine of between TL1,000 and TL25,000. Administrative fines are applied by the undersecretariat.
Certain other non-compliant acts are subject to judicial fines and prison sentences. In particular, real persons and the executives of legal persons may be subject to a prison term of between one and five years or a judicial fine of between 300 and 1,000 days.
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