Capital adequacy in the insurance business, and assessment of Turkish insurance sector within the scope of solvency II

Solvency II, as being a new risk-based capital adequacy system, a fundamental and wide-ranging review of the current European Union insurance directives, introduces deep-rooted changes regarding the arrangements towards determining the capital amount, which should have been held by the (re)insurance undertakings against unforeseen events. It is expected that, as from the date of January 1st, 2014, Solvency II is to take the place of the current capital adequacy arrangements being applicable throughout EU. Due to not being an EU member, Turkey is not obliged to comply with the Solvency II arrangements. However, in the course of the EU harmonization process, it is expected from Turkey to comply with the Solvency II arrangements in the coming years. A survey study was performed in order to ascertain the levels of preparation of the (re)insurance companies, operating in Turkish insurance sector, to Solvency II, and to determine the expected effects of the Solvency II arrangements on the Turkish insurance sector. It was also intended to survey whether there was any meaningful difference between not only the life and non-life, but also domestic and foreign, and small and medium-scaled companies in view of the levels of their preparation to Solvency II, and that of the effects of Solvency thereon. As a result of the research, it has been ascertained that, levels of preparation of the foreign companies are higher than those of the domestic companies, in view of compliance with Solvency II. Similarly, it has further ascertained that, levels of preparation of the medium-scaled companies are higher than those of the small-scaled companies, in view of compliance with Solvency II. Within the scope of the survey, expected effects of Solvency II on Turkish insurance sector have been examined under the titles of the overall effects, as well as the expected effects to occur on capital, product supply and pricing policy, organizational structure and corporate management system, and on the explanatory requirements. In parallel with the responses having been received by the managers of the participant companies of the survey, the effects of Solvency II on Turkish insurance sector are expected to be high; however, the aforementioned effects do not differ meaningfully in view of the scopes of operation, capital structures, and scales of the same companies.