Rating Action Commentary
ֳ Revises Turk P&I's Outlook to Negative; Affirms at IFS 'BB-'
Fri 04 Sep, 2020 - 4:57 AM ET
ֳ - Paris - 04 Sep 2020: ֳ has revised Turk P ve I Sigorta A.S.'s (Turk P&I) Outlook Rating to Negative from Stable and affirmed the company's Insurer Financial Strength (IFS) Rating at 'BB-'. A full list of rating actions is below.
Key Rating Drivers
The revision of the Outlook on Turk P&I's IFS Rating follows ֳ's similar rating action on Turkey's Long-Term Local-Currency Issuer Default Rating (IDR) Outlook on 21 August 2020. Today's rating action reflects Turk P&I's substantial exposure to the Turkish operating environment and the deposits held in Turkish banks on its balance sheet.
Turk P&I's ratings reflect the company's weak business profile compared with other Turkish insurers', and investment risks that are skewed towards the Turkish banking sector. The rating also reflects Turk P&I's strong liquidity profile, strong but potentially volatile earnings, and adequate capitalisation. We expect the company to remain fairly resilient to coronavirus pandemic-related pressures.
ֳ ranks Turk P&I's business profile as 'moderate' compared with other Turkish insurers', despite the company's small size, limited history and less established business lines. This is because we believe its ownership structure, equally divided between public and private interests, and its strategic role in Turkey, are positive for its business profile. However, we believe the Negative Outlook on Turkey's rating adds pressure to the company's operating environment.
Turk P&I's investments are concentrated in deposits in a single state-owned bank, and therefore the company's investment risks are heightened by the Negative Outlook on Turkey, which weighs on the asset quality of the country's banking sector.
Turk P&I delivered a strong financial performance during 1H20, with strong growth despite some pandemic-induced pressure. We expect capitalisation to remain supportive of the rating at end-2020, supported by a capital increase of TRY 11.5million in April 2020.
The National IFS Rating of 'A+(tur)' with a Stable Outlook largely reflects Turk P&I's regulatory solvency level being in line with that of higher-rated peers on the National scale, and very strong but potentially volatile earnings. However, the rating is constrained by the company's weak business profile versus other Turkish insurers'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action on/downgrade of the IFS Rating:
--A material adverse change in ֳ's rating assumptions with respect to the COVID-19 impact.
--Material deterioration in the Turkish economy or the company's investment quality, as reflected in a downgrade of Turkey's Long-Term Local-Currency IDR.
--Deterioration in the company's business risk profile, due to for example further deterioration in the maritime trade environment.
Factors that could, individually or collectively, lead to positive rating action on/upgrade of the IFS Rating:
--A material positive change in ֳ's rating assumptions with respect to the COVID-19 impact.
--Material improvements in the Turkish economy or the company's investment quality, as reflected in a revision of the Outlook on Turkey's Local-Currency IDR to Stable.
--Sustained profitable growth while its regulatory solvency ratio remains comfortably above 100%.
Factors that could, individually or collectively, lead to positive rating action on/upgrade of the National IFS Rating:
--Seasoning of Turk P&I's business model over time, through sustained profitable growth while its regulatory solvency ratio remains comfortably above 100%. An upgrade is unlikely in the near term given the company's current business profile.
Factors that could, individually or collectively, lead to negative rating action on/downgrade of the National IFS Rating:
--Deterioration in the company's business profile, due to for example inability to meet growth targets and maintain return on equity above inflation levels.
--Regulatory solvency ratio below 100% for a sustained period.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [/site/re/10111579]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on ֳ's ESG Relevance Scores, visit .
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
Applicable Criteria
Additional Disclosures
Endorsement Status
| Turk P ve I Sigorta A.S. | EU Issued |