Nicholas Birch in Istanbul -

Despite the continuing lack of long-overdue legislation, Turkey's insurance sector grew by 22% last year and looks set to grow by barely any less this year, as it gallops to make up for all the years of neglect.

And if the rest of Central & Eastern Europe is any guide, reforming Turkey's insurance laws will lead to an even bigger surge in the number of Western insurers looking for growth opportunities outside of their more mature developed markets.

"Turkey's insurance premium volume was only 1.58% of GDP in 2005, compared with 3% in the Czech Republic and around 8% in the developed world." explains Erhan Tuncay, chairman of Turkey's Union of Insurance and Reassurance Companies (TSRSB). "That alone is proof of this country's future potential."

In recent a report, the brokerage Raymond James wrote that, combined with stable growth, a mere one-percentage-point increase in insurance penetration over 10 years would ensure 10% average annual growth for the sector.

It's a prospect that has already begun to entice a new wave of international companies into Turkey.

Barbarians at the gate

Last year saw six foreign insurers entering the market, with French giant Groupama's February acquisition of a 57% stake in Basak Sigorta ve Emekliklik for $268m - by far the biggest deal.

Basak had TRY317m (€172m) in non-life premiums last year, making it Turkey's eighth largest player, with a 5.5% market share.

This year is expected to see a series of similarly sized deals, as both Garanti Sigorta and Aksigorta look to foreign partners to help them expand.

Garanti Sigorta's deal looks to be the first to be sealed, with the Turkish daily Milliyet reporting last week that the Dutch ING Group was "on the verge of reaching an agreement" on either an equal partnership or taking a 55% share.

American International Group, Aviva and Groupama are also known to be interested in a deal that Garanti Sigorta officials say will be completed in the first quarter of this year.

The number-four insurer Aksigorta, meanwhile, authorised UBS last November to assess the possibility of partnerships and strategic alliances for its pensions arm, Ak Emeklilik. Rumour has it that Aksigorta as a whole might be looking for a minority partner.

Analysts also say that regulations limiting risk introduced in 2006 will increase the likelihood of consolidation in what remains a slightly over-populated sector. It's that an outlook Sadrettin Bagci, banking and insurance analyst with the brokerage Ata Invest, finds exciting. "Banks were the stars from 2004 onwards," he says. "Now it's the insurance companies' turn to grab a bit of the limelight."

Bagci likes market leader Anadolu Sigorta, whose premium generation grew by 28.2% in Turkish lira terms through 2006. Others insurers like Aksigorta, whose aggressive moves in the health insurance sectors helped raise its market share last year to 8.4% in 2006 without any drop in profits.

And then there's Yapi Kredi Sigorta, bought by Koc last year along with Yapi Kredi bank. "We haven't seen full synergy yet," says Duygun Kutucu of Ak Investment. "That will push values up in 2007."

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