Türk sigorta sektörünün piyasa yapısı ve analizi
Market structure and anaysis of Turkish insurance sector
- Tez No: 36373
- Danışmanlar: PROF.DR. İLHAN ULUDAĞ
- Tez Türü: Yüksek Lisans
- Konular: Sigortacılık, İşletme, Insurance, Business Administration
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 1994
- Dil: Türkçe
- Üniversite: Marmara Üniversitesi
- Enstitü: Sosyal Bilimler Enstitüsü
- Ana Bilim Dalı: Belirtilmemiş.
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: 126
Özet
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Özet (Çeviri)
T.C. MARMARA UNIVERSITY INSTITUTE OF BANKING and INSURANCE DEPARTMENT OF INSURANCE MARKET STRUCTURE and ANAYSIS OF TURKISH INSURANCE SECTOR (Master Thesis) Adviser : Prof. Dr. İlhan ULUDA? Prepared by : Lütfi AYKAÇ Istanbul, 1994103 TABLE OF CONTENTS INTRODUCTION. 105 LA GENERAL ANALYSIS ON TURKISH FINANCIAL SECTOR 108 A.Financial Markets 108 l.The Money Market 108 2. The Capital Market 109 II. MARKET STRUCTURE OF TURKISH INSURANCE SECTOR 109 A. Conceptual Framework of Insurance 109 l.Deflnition 109 2. Functions 110 3. Essentials. 110 4.Main Regulatory Institutions. Ill 5. Kinds of Insurance Agreements,.112 B.HESTORTCAL Development of Insurance in Turkey 113 CMarket Structure: Microeconomics Analysis 114 D.TheFactors Affecting Market Structure 115 1. Specialization 115 2.Economies of Scale 115 3.Holding Structure 116 4.Mergers 116 5. Human Capital 116 III.FLNANCIAL STRUCTURE OF INSURANCE SECTOR IN TURKEY 116 A. Assets and Liabilities 116 1. Assets Portfolio 117 2.Liabilities Portfolio 118 B.PROFTT and Loss Account 118 1. Revenue Structure 119 2.Expense Structure 119 LV.LNVESTMENT PORTFOLIO OF INSURANCE SECTOR: AN ANALYTICAL APPROACH... 120 A.LEGAL Framework Affecting the Use of Funds in Insurance Sector 120 l.Restriction on Real Estate and Participation 720 2.Prohibition of Business on Real Estate and Goods 120104 S.The Use and Investment of the Guarantees. 120 4.The Amount of Capital 121 5. Prohibition on the Field of Activities Other Than Insurance Business 122 6. Prohibition onRistum and Discount 122 7. Maximum Commission Rates and Terms of Payment 122 B. Analysis of Investment Portfolio in Insurance Sector 122 1. Securities 123 2.The Loans 123 3.Real Estate 123 CONCLUSION 124105 INTRODUCTION Insurance sector has an increasing trend all over the world. Premium production, the primary product of this sector is the monetary indicator of the demand for insurance. The level of national income is the most important factor that determines the premium production. The ratio of premium production to per capita income is hence very important to analyze the place of insurance. That relationship displays a stable character in non life insurance branches. In addition to national income, inflation, market structure and understanding of insurance in the society become effective in life insurance's. Life insurances are developing very rapidly in most of the countries. Demographic structure and changes in social security systems have a noticeable impact in these developments. Particularly in the developed countries' population is becoming older. Meanwhile social security systems are incapable of solving the problems caused by deteriorating demographic structure. So many countries are beginning to privatize their social insurance bodies and to demand from individuals to place reserves for their retirement system. As the level of income rises, standard of living and the demands for personal retirement rise as well. So, there is good prospect for the development of life insurances in the long run. On the other hand, deregulation and technology leads to intensification of competition between insurance firms and other106 financial institutions. Such a competition is of high importance when collection of funds is taken into consideration. Role of insurance sector in the economy is relatively small in the developing and undeveloped countries. The low level of income in these countries is a major reason. In addition to those, structural characteristics and problems are important as well. Furthermore, the fact that most insurance companies are owned by foreign firms is another impediment behind the development of insurance sector in these countries. Furthermore, investment portfolios of the insurance companies display some typical characteristics in developing countries. The type of financial instruments used by the firms and the low levels of interest in capital markets in these countries separate the ones in developed countries. With parallel to the developments in the economic growth and the level of income, Turkish insurance sector has recently performed substantial improvement. This industry offers good prospects on premium production, compulsory insurance branches, insurance products, insurance funds and portfolio investment of the collected funds. Analysis of this potential is of utmost importance in grasping the clues related to present and future structure of the Turkish insurance industry. This thesis that tries to approach the insurance sector from this perspective consists of four chapters. In the first chapter, a general analysis of Turkish financial sectors with respect to financial markets, financial instruments and financial institutions are given.107 In the second chapter, conceptual framework for the insurance sector is drawn and the market structure of the insurance industry is analyzed from a microeconomics point of view. The factors affecting the market structure within the microeconomics framework are identified. The third chapter analyzes the balance sheets and the profit and loss tables of the insurance companies. Assets and liabilities' portfolios and income-expense structure are taken into consideration for both of branches, namely life and nonlife insurance. The fourth chapter of the thesis is related to the use of funds in the insurance industry. Following the legal frame, the structure of investment portfolios as securities, issues and real estate are explained.108 LA GENERAL ANALYSIS ON TURKISH FINANCIAL SECTOR A.Financial Markets Financial markets are the transmission mechanism between saver- lenders and borrower-spenders. Through a wide variety of techniques, instruments and institutions, financial markets mobilize the savings of millions and channel them into the hands of borrower- spenders who need more funds than they have on hand. Financial markets are conduits through which those who do not spend all their income can make excess funds available to those who want to spend more than their income. In general, there are two ways to bring the supply of lending and the demand for borrowing together. Ultimate lenders can lend directly to ultimate borrowers intermediary. The short-term financial market is called the money market as distinct from the long-term capital market. The principal short-term financial intermediary is the commercial bank. 1. The Money Market The money market specializes in short-term instruments that almost by definition are highly liquid- that is, readily marketable, with little possibility of loss.109 2. The Capital Market The capital market is the market for long-term borrowing and lending. The primary instruments of the capital market are stocks and bonds (equity and debt). Although firms fund most of their capital expenditure with internal funds, they need to supplement these funds raised externally in the capital market. A principal reason for the reliance on internal funds is the information problem involved in external borrowing. Households are the ultimate source of most lending in the capital market. This lending takes place either directly through the purchase of stocks and bonds or indirectly through financial intermediaries, such as life insurance companies, pension funds, and mutual funds. II. MARKET STRUCTURE OF TURKISH INSURANCE SECTOR A. Conceptual Framework of Insurance l.Definition The insurance is defined in the article 1263 of the Turkish Commercial Law (TTK) as:“ Insurance is a contract in which the insurance company undertakes to indemnify, in return of a premium, the material damages confronted by the insurer.”We can define insurance and hence categorize its elements as follows:110 Private benefits of individuals are guaranteed and protected upon their own wish.. Damage should be by accident, randomly. Otherwise insurer will not be responsible in any way and form against the insured.. Many similar units that are under the threat by the same degree of risking of a certain risk should be gathered. Losses that are uncertain for each of these single units in this way can be transformed to one single, expected and certain loss for the whole union.. Damage should be measurable in terms of money. 2. Functions The functions of insurance can be summarized as to: a) Provide the security and stability for entrepreneurs and investors. b) provide accumulation of capital. c) provide loans. d) develop international economic relationships. e) increase social welfare. f) create a tax resource. 3. Essentials The fundamental principles that both parties should follow in insurance agreement can be categorized as:111 a) absolute good faith: parties should not act fraudulently or deceitfully. b)insurable interest: insurer undertakes to cover the loss due to a risk that damages insured monetary measurable benefit in return of a certain premium. c)indemnify: insurers pay the undertaken amount of indemnity in case of occurrence of the event except for the life insurances, indemnities can be as repair and restoration or substitution. d)proximate cause: the cause of the damage should be the undertaken risk of the insurance policy. e)subrogation: once insurer pays the indemnity, he legally replaces the insured against the third parties and he is entitled for all claims of insured. f)double insurance (contribution): If the same value is insured against the same risk at the same time by more than one insurer and for the benefit of the same insured interest; the insurer who paid the indemnity according to the policy, has the right of inviting other insurers to share The loss. 4.Main Regulatory Institutions a)lnsurance Supervisory Committee (SMK) Insurance and reinsurance companies, insurance surveyors, and all other individuals and institutions who provide insurance or reinsurance services are subject to supervision and audit by the Supervisory Authority established by the Act no.7397 date 21.12.1959112 b)The Association of Turkish Insurance and Reinsurance Companies First established in 1927 by another name, then according to the Act in 1959 and to its main regulation in 1975 got its actual name. Membership is compulsory for any insurance or reinsurance company acting within Türkiye. c)lnsurance and Reinsurance Companies Permission of the Ministry to which the Undersecretariat of Treasury and Foreign Trade is attached are necessary in order to establish such companies or to begin activities as a branch of an established foreign company. The essentials of establishment for insurance and reinsurance companies are determined by the regulation announced in the Official Newspaper no 19848 on June 21st, 1988. d)lntermediary Institutions Individuals or legal bodies who will act as agents or producers should fulfill guarantee conditions. Bank letters of guarantee; treasury-bills or government bonds; commercial papers or share stocks quotated in stock market that are not owned by insurance companies and their participation; foreign exchange cash accounts reserved in banks to the order of insurance and reinsurance companies; or real estate collateral may satisfy this provision.. agency. producers. reinsurance producers113 5. Kinds of Insurance Agreements Insurance activities are first categorized under two groups:. Life insurances. Non life insurances The 1988 Act imposed that life and non-life insurances must be separately accounted. In 1990 with a regulation of The Undersecretariat of Treasury and Foreign Trade, these activities are separated in terms of firms, too. The non-life category is divided in itself to eight sub-categories: a)fire b)marine c)accident d)machinery e)hail f)animal death g)sickness h)legal charges and liability B.Historical Development of Insurance in Turkey The beginning of insurance history in Turkey goes back to 1872 when three British insurance companies (Sun, Northern and North British) have opened their agencies. In the beginning of 20th century the number of insurance agencies climbed up to 44. Most of them114 were owned by foreigners and due to lack of regulations in this field they had acted freely which was at the end leading to disorder and instability. The first regulation was realized through a law named Ecnebi Anonim ve Sermayesi Eshama Munhasim Şirketlerle, Ecnebi Sigorta Şirketleri Hakkında Kanunu Muvakkat in 1914. This was followed by the establishment of first national insurance company called Türkiye Milli Sigorta Şirketi. Then, some other foreign insurance companies called İttihadı Milli, Şark Sigorta and Milli have been set up in 1918, 1922 and in 1924 respectively. In 1925 Anadolu Anonim Türk Sigorta Şirketi was established through the efforts of Turkey İş Bankası. Regarding insurance and reinsurance the first regulations in real terms were issued in 1927 with the law called Sigorta Şirketlerinin Teftiş ve Murakabesi Kanunu and Mükerrer Sigorta Hakkında Kanun. Afterwards the new laws were followed in 1959 and 1987. In 1987 insurance services were transferred to the Undersecretariat of Treasury and Foreign Trade. As of 1992, there are 55 insurance companies of which 5 insurance firms deal with reinsurance. C. Market Structure: Microeconomics Analysis In this part we will rather concentrate on market structure of insurance sector within the framework of microeconomics. The competition among firms in the insurance sector and the level of competition can be analyzed under several factors. 1. Number of Actors115 The number of insurance firms is not adequate for a perfect competitive market. There are only 53 in 1993. 2. Homogeneity There is no difference in terms of quality among the products offered by insurance companies in Turkey. 3. Openness Customers have not complete and continuous knowledge about the products in insurance sector. 4. Mobility There are certain regulations and legal restrictions on entry and exit from the insurance market in Turkey. D.The Factors Affecting Market Structure We can basically define five factors affecting market structure that is presented in following. 1.Specialization Most of insurance companies offer same products. Specialized insurance companies are few in number. 2.Economies of Scale Although there are different economies of scale in insurance sector that can be consistent in a competitive market, market structure is between monopolistic and oligopolistic competition.116 3.Holding Structure Big and powerful insurance companies are able to acquire other firms directly or to buy an important part of the shares of them. 4.Mergers There are horizontal and vertical merger experiences based on economic reasons in Turkey. 5.Human Capital The human capital in Turkey is below the desired level. As of 1993, there are 5,933 personnel employed by the insurance firms. III. FINANCIAL STRUCTURE OF INSURANCE SECTOR IN TURKEY Financial statements of insurance firms are subject to rules and regulations imposed by Undersecretariat of Treasury. Insurance companies should declare their balance sheet and profit and loss account within one month following the date of assembly meeting. A. Assets and Liabilities Balance sheets of insurance firms will be analyzed from two different perspectives. Firstly we will compare consolidated balance sheets as of last two years. Then we will make a comparison between the consolidated balance sheets of life and non life insurance. Moreover items in assets and liabilities will be separately evaluated for each of the comparisons.117 l.Assets Portfolio An asset side of a typical insurance firm is made up of bonds, stocks, real estates, fixed assets, loans and participation. As it is seen in Table 8, securities have performed 141% increase among 1992 and 1993. Foreign securities and bonds have contributed much to this increase. Foreign securities have had a higher return. On other hand, bonds and T-bills were highly liquid and have carried a lower risk. Governments have also forced insurance companies to keep a certain amount of bonds in their portfolio and made them attractive by providing tax benefits. Stocks are evaluated as a risky investment instrument by insurance firms although it has showed a 44% increase in 1993. But in general performance of this type of instruments has to do with a well- functioning and improvement of stock exchange market in Turkey. Real estate is seen as an important investment against inflation. Due to its liquidity problem, it is accepted as a long term instrument. A 58% increase has been witnessed in real estate investment. This increase remained below with respect to other instruments. There are also legal restrictions that are responsible for this poor performance. When we look at the balance sheets of life and non life insurance companies in 1993, it is seen that in non life insurance, investment instruments are highly liquid due to short term obligations while in life insurance liquidity has a secondary role.118 In Table 9, total amount of securities in life insurance is TL 3,859 billion while TL 3,581 billion non life insurance. Insurance firms in life branches have invested TL 3,744 billion bonds in 1993. On other hand the ones in non life branches have invested TL 2,853 billion bonds. Stocks are usually preferred by the firms in non life insurance due to liquidity. That is also true for foreign securities. The last item in assets portfolio in Table 9 is real estate investment, which is perceived as an important instrument with a high return against inflation. Therefore that instrument has a larger share in non life insurance. 2. Liabilities Portfolio As it can be seen in Table 8, the amount of capital (equity) in the liabilities of the insurance firms has increased 69% in 1993. Free reserves with a 363% increase have shown the best performance. Technical reserves with a 116% increase have reached to TL 9,040. billion in 1993. Credit accounts have reached to TL 3,572 billion with a 91% increase. Total amount of equity of non life insurance firms is TL 2,879 billion, and that of life insurance firms is TL 383 billion in 1993. 17 % of total profit (TL 2,383 billion) belongs to life insurance and 83% of it go to non life insurance. B.Profit and Loss Account Profitability of insurance firms consists of the technical profit coming from their real business activities and the financial profit arising from the investment of the funds.119 General expenses of insurance firms are not taken into consideration in the calculation of technical profit and are shown in financial expenses. This is why the technical profit is smaller in amount. If in calculation of technical profit general expenses are taken into account, efficiency of insurance activities can be measured. l.Revenue Structure As seen in Table 10, premium revenues have increased 94% between 1992 and 1993, although net commissions have performed less with a 48% increase. In same table, net losses paid and other revenues have increased 109% and 135% respectively. Within the revenues, financial profit has performed better than technical profit. Stock and bond revenues have played a major role in financial profit. In general, insurance firms are tended to invest in financial investment instruments and had a good profit out of them. 2. Expense Structure Main expense items include commissions paid, losses paid, other expenses and financial expenses. Commissions paid have increased from TL 1,340 billion to TL 1,963 billion in 1993. On other hand losses paid have increased from TL 2,036 billion to TL 4,293. billion Financial expenses have jumped up to TL 2,626 billion with a 80% increase in 1993. Technical expenses were different between life and nonlife insurance. A 78% of technical expenses has belonged to non life insurance branches. In terms of financial expense non life insurance120 had a 85% share in total. Such a difference is valid for all expense items as well. IV.INVESTMENT PORTFOLIO OF INSURANCE SECTOR: AN ANALYTICAL APPROACH A. Legal Framework Affecting the Use of Funds in Insurance Sector The funds collected from premiums usually constitute an important amount of the funds in an economy and thus legal restrictions are applied for proper use of these funds. Some of the legal restrictions imposed on insurance firms in determining the level of investment on financial assets include the following areas. 1. Restriction on Real Estate and Participation Total amount of the shares of a participation can not exceed the 25% of securities portfolio. Total amount of funds allocated for real estate and participation can not exceed total equity of the insurance firm. 2.Prohibition of Business on Real Estate and Goods Insurance firms can not deal with real estate and goods on a commercial basis. 3. The Use and Investment of the Guarantees The law defines and regulates the assets that can be used in guarantees such as deposits in TL, foreign currencies accepted by Central Bank, bonds, T-bills, shares of public economic enterprises121 and capital market instruments defined in Capital Market Law and accepted by Undersecretariat of Treasury, and real estates owned by insurance firms in Turkey. 4. The Amount of Capital a. Paid in capital should be higher than a certain amount. At the moment it is TL 50 billion according to decree in force of law with a number of 510. b.The ratio of capital to assets can not be lower than 8% after substracting real estates and participation's from capital.122 c.The capital can not be lower than the amount determined as adequate reserves which are. mathematical reserves. premium reserves. reserves for outstanding losses. reserves for possible losses. reserves for losses due to earthquake 5.Prohibition on the Field of Activities Other Than Insurance Business According to the decree in force of law with a nm. 510 insurance and reinsurance firms can not make business other than their field of activities. 6. Prohibition on Risturn and Discount 7. Maximum Commission Rates and Terms of Payment These are determined by the regulations prepaid by Undersecretariat of Treasury. B. Analysis of Investment Portfolio in Insurance Sector Insurance firms provide long-term and short-term funds. There are certain rules and restrictions imposed by the government in the management of these funds. Within that framework insurance firms choose the way to invest these funds as they wish. There are bonds, stocks, real estates and loans in a typical investment portfolio of an insurance firm.123 1. Securities The development of financial instruments in the portfolio of an insurance firm can be analyzed in Table 12. According to this analysis the most important items are bonds, stocks and other fixed income securities. The amount invested in bonds was TL 102,9 billion in 1992. It has reached to TL 6,597.9 billion in 1993. 88% of total securities in 1993 was government bonds. This is rather a result of legal restrictions and its security, eventhough it leads to diminishing profitability. The share of stocks in total amount of securities is relatively law. It was only 8% in 1993. 2. The Loans As it is seen in Table 13, loans on life policies have reached to TL 58,347 million and provided TL 8,942 million income in 1993. That means a 66.945% and 118.74% increase respectively. Loans on mortgages on the other hand have declined to TL 1.401 million (60.15% decrease). Its revenues have actually gone down to TL 216 million as well. S.Real Estate The return of real estate has declined from 3% in 1992 to 1% in 1993. Furthermore the share of fixed income securities has declined from 45% in 1988 to 21% in 1993. Its share in total securities has also declined to 26% in 1993.124 CONCLUSION The economic development level of countries depends on the increases in income level and thus increases in savings on the one hand; and to lead these funds to efficient investments. In this way, the money market and the capital market would be able to develop and have a weighted place in the economy. As non-depository, non-bank financial institutions; insurance companies contribute to a safe and stable economic environment while they are providing protection against economic and social risks. This is a crucial point for investors who seek for a secure future. Insurance companies offer a substantial amount of fund due to the premiums that they collected for the potential investors. The conscience about the importance of insurance and so the increase in insurance demand, the widening of variety of insurance services and increase in creating funds of companies may be taken as the most important target for the Turkish insurance sector. The relationships of insurance companies with the banks are much more closer in Türkiye than in the developed countries. In fact, in Türkiye, this relationship is in the opposite direction. In developed countries, insurance companies were established separately and yet before the banks, and then they intended to set up their banks. However in Türkiye, banks in order to improve their market position and to be able to use insurance funds attempt to own an insurance company. This situation causes insurance sector to remain under the125 control of the banking sector and thus bring the conditions of monopolistic competition or oligopoly in the existence. Insurance in Türkiye has been and is still less developed than other service industries and also in a lower position in the world insurance rank. In developed countries, insurance sector; besides providing security and protection for individuals and institutions; plays a very important role in financing corporate investments. However, in our country, the fact that this sector is underdeveloped and it doesn't have a strong economic power prevents these advantages. The interference's of government in the insurance sector bring constrictions on insurance funds. These very valuable resources which are necessary for productive investments are restricted only to satisfying public sector borrowing requirements. The most important function that the insurance sector should fulfill is to take part in the capital market as corporate investor. To be able to reach this goal, insurance companies should specialize in their area, they should improve and strengthen their financial structure and employ well qualified human resources. Another crucial problem that insurance companies should resolve is to find new profitable investment instruments; because actually, the return generated on insurance companies' funds are lower than alternative financial instruments' one. A good example for potential new instruments that insurance companies can use in their investments may be mortgage loans and real estate backed instruments.
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