OREANDA-NEWS. Fitch Ratings has affirmed Anadolu Anonim Turk Sigorta Sirketi's (Anadolu Sigorta) Insurer Financial Strength (IFS) rating at 'BBB-' and National IFS rating at 'AA+(tur)'. The Outlooks are Stable.

KEY RATING DRIVERS

The affirmation reflects Anadolu Sigorta's leading position in the Turkish non-life insurance market, adequate capitalisation, robust reinsurance protection and moderate but pressured profitability in a competitive local market.

The ratings are primarily constrained by the risks within the insurer's investment portfolio, in the form of significant exposure to the Turkish domestic banking system and sovereign (BBB-/Stable), through bank deposits and government bonds. Turkey's financial system remains vulnerable to sharp interest rate movements, exchange rate volatility and political uncertainty.

Anadolu Sigorta has maintained moderate profitability with a net income of TRY64m in 2015 (2014: TRY72m). The reduction in the net income was mainly a result of reserve strengthening in the motor third party liability line. This was driven by a change in the reserving methodology across the entire non-life insurance sector. Given the significant amount of additional incurred but not reported (IBNR) reserves required, the regulator allowed insurers to book these reserves gradually over five years. At end-2015, Anadolu Sigorta estimated that it will need to book TRY222m of IBNR reserves until YE19, which is equivalent to 16% of equity. Fitch expects the recently introduced legislation on outstanding claims reserve discounting to alleviate some pressures on the insurer's profitability and capital.

Anadolu Sigorta's investment strategy is conservative, with the majority of invested assets allocated to government bonds and bank deposits. However, Fitch believes that investment holdings could expose the company to significant losses if the financial environment in Turkey deteriorates. Exposure is currently manageable and profitability has been supported by strong and stable investment income.

Fitch views the insurer's capital position as 'Adequate', as measured by the agency's Prism factor-based model (FBM). Capital adequacy is driven by significant premium volumes relative to shareholders funds and moderate asset risk. The capital position is protected by a prudent reinsurance programme. Anadolu Sigorta's regulatory solvency position has been stable and above the sector average in 2015.

With a market share of 13.2% and TRY3.6bn of gross written premiums in 2015 (2014: TRY3.0bn), Anadolu Sigorta remains one of the major players in the Turkish non-life sector. Anadolu Sigorta has maintained its competitive position and market share following the inflow of foreign capital into the Turkish insurance sector.

RATING SENSITIVITIES

The ratings could be upgraded if the quality of Anadolu Sigorta's investment portfolio improves, which would be largely driven by an improvement in the credit quality of local banks and Turkey's sovereign credit rating.

A downgrade of Anadolu Sigorta's ratings could be triggered by a sovereign downgrade. The ratings could also be downgraded if the insurer's capital position deteriorates, as measured by a regulatory solvency ratio below 100% or a Fitch Prism FBM score of 'somewhat weak' following substantial underwriting or investment losses.