Rating Action Commentary
ֳ Revises Turk P&I's Outlook to Negative; Affirms IFS at 'BB-'
Fri 17 Dec, 2021 - 5:06 AM ET
ֳ - Madrid - 17 Dec 2021: ֳ has revised Turk P ve I Sigorta A.S.'s (Turk P&I) Outlook to Negative from Stable and affirmed the company's Insurer Financial Strength (IFS) Rating at 'BB-'. Simultaneously, ֳ affirmed Turk P&I's national IFS at 'A+(tur) with a Stable Outlook.
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 2 December 2021. Today's rating action reflects Turk P&I's exposure to the Turkish operating environment and the deposits held in Turkish banks on its balance sheet.
The rating of Turk P&I reflects a less established business franchise compared with other Turkish insurers', its investment risks that are skewed towards the Turkish banking sector, and exposure to the Turkish economy. The rating also reflects Turk P&I's strong liquidity profile, very strong but potentially volatile earnings, and adequate capitalisation.
The Negative Outlook revision on Turkey's sovereign rating reflects Turkey' increased economic and country risks, which affects ֳ's assessment of "industry profile and operating environment" (IPOE) and as a result, its assessment of Turk P&I's "company profile", both defined under its insurance criteria. The "company profile" scoring is tied to the IPOE score to reflect our assessment of country risk.
ֳ ranks Turk P&I's company 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 company profile. Turk P&I's increasing international diversification also benefits the company profile.
Investments on Turk P&I's balance sheet comprise bonds issued by the government and domestic banks as well as deposits in Turkish banks, with some concentration on a single state-owned bank. This indicates a high exposure to the banking sector in Turkey, although the company started to diversify its investment portfolio since 2020 towards bonds. Liquidity is very strong for the rating.
Turk P&I's earnings remained strong in 9M21, with net income of TRY30 million (9M20: TRY20 million). We expect the results will remain very strong for the rating and will continue to support the company's very strong expected growth in 2022.
Turk P&I scored 'Adequate' under ֳ's Prism Factor-Based Capital Model (FBM) and its solvency ratio stood at 105% at end-1H21. We believe capitalisation supports the rating, and we expect such capital levels to be maintained in 2021 and 2022.
The National IFS Rating of 'A+(tur)' largely reflects Turk P&I's regulatory solvency level being consistently over 100%, and very strong earnings. However, the rating is constrained by the company's moderate company profile versus other Turkish insurers'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade of the IFS Rating:
-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
-Business-risk profile deterioration, due to, for example, sharp deterioration in the maritime trade environment
Factors that could, individually or collectively, lead to positive rating action of the IFS Rating:
-Material improvements in the Turkish economy or the company's investment quality, as reflected in a revision of the Outlook to Stable on Turkey's Long-Term Local-Currency IDR, could lead to an Outlook revision to Stable on Turk P&I's IFS Rating
Factors that could, individually or collectively, lead to negative rating action on/downgrade of the National IFS Rating:
-Business-risk profile deterioration, due to, for example, inability to meet its growth targets and maintain a return on equity above inflation
-Regulatory solvency ratio below 100% for a sustained period
Factors that could, individually or collectively, lead to positive rating action on/upgrade of the National IFS Rating:
-- Sustained profitable growth with a regulatory solvency ratio comfortably above 100%
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 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, UK Endorsed |