Harmonization of Turkish Insurance Market with the EU

1. Harmonization of Turkish Insurance Market with the EU Murat KAYACI Undersecretariat for Treasury EIET Conference İstanbul, October 21, 2011

2. Content • Regulatory and supervisory authority • Alignment with the EU acquis • Brief history • Recent initiatives • Current status • Comments • Alignment in the field of intermediaries

3. Introduction • Undersecretariat for Treasury • Reports to the Deputy Prime Ministry in charge of economic policies • Main functions with respect to insurance • Regulation and supervision of the insurance and private pension markets • Regulation and supervision activities • Carried out by two units • Directorate General of Insurance • Preparation and implementation of legislation • Off-site supervision and overall monitoring of the system • Other • administrative issues • Operations related to taking up and pursuit of insurance activities • Insurance Supervisory Board • On-site inspection activities

4. Brief history ..... Directorate General of Insurance • Tasks: preparation and implementation of legislation • conduct work on harmonization with the EU insurance acquis • EU alignment • On-going process • harmonization with the EU insurance acquis have already started as early as 1990s • basic principles reflected in 1994 revision to the legislation • e.g., life / non-life seperation: considered as one of the significant milestones on the way to harmonization • Solvency requirements... • Beyond EU alignment: membership • Turkey follows a sligtly different pattern from the standard accession procedure • an association agreement was signed in 1963 between TR and European Economic Community • regular reports are published since 1998 on the basis of the agreement • accepted as a candidate by the European Union in the Helsinki Summit • negotiations on various chapters have not been opened yet • screening process finalized for “Chapter 9: Financial Services” • suspension of negotiations (inc. financial services) halted the process • however, TR has carried on with the harmonization process unilaterally

5. Recent initiatives - 1 • Recognition as a candidate country put Turkey in a process of change • Substantial progress was observed by the enactment of Law # 5684 in 2007 • Law on Insurance (# 5684) • Basic framework covering a wide range of areas • Flexible structure • Lays out basic principles • Requires the preparation of secondary for details • Aims • Restructuring of the insurance market • Building a playground in international standards • in line with the EU directives • approximates IAIS Core Principles • Provides with further alignment possibilities • Delegates the Council of Ministers the power to do so when necessary

6. Recent initiatives - 2 • Law #5684: basic areas of alignment • Removal of the prior approval in the establishment process • Adoption of life / non-life seperation • Re-definition of capital requirement • Minimum capital • Branch-wise additional capital • Clarification of reasons • Denial of license application • Cancellation / suspension of licenses • Solvency requirements • Re-definition of technical reserves • Removal of tariff barriers and recognition of tariff liberalization • Registration requirements for intermediaries • Classification of insurance branches • Extension of scope of guarantee fund to cover all compulsory insurances • Turkey harmonized its insurance legislation with the EU acquis to a great extent • Still expected to incorporate some rules into its domestic system

7. Overview - 1 • Regular reviews by the EU • Progress towards the implementation of the EU legislation has been regularly reviewed by progress reports • Extracts from 2011 EU Progress Report “Some progress can be reported on insurance and occupational pensions. With a view to adopting Solvency II in due course, the Undersecretariat of Treasury initiated the fifth Quantitative Impact Study (QIS5) on 10 December 2010, in which all market agents were obliged to participate. While the calculation of the basic solvency margin follows the EU's Solvency I principles, Turkish regulation even contains a second risk-based methodology to define the required capital level and obliges market participants to meet the higher requirement. The Treasury published an implementing regulation detailing the rules and procedures applicable for the supervision and audit of insurance sector and private pension companies. The regulation defines the responsibilities and rights of public authorities, as well as the sector, while introducing ethic rules for relevant Treasury staff. There has been no progress in the establishment of an independent regulatory and supervisory authority for the insurance sector.Further progress is needed, particularly in the minimum amounts of cover in third party liability insurance for motor vehicles. The level of alignment with the acquis in the insurance sector remains incomplete. Turkey already enjoys a high level of alignment with the acquis on financial market infrastructure.”

8. Overview - 2 Pending issues... • To a great extent, alignment record is good, particular areas in the need of alignment • Freedom of service, freedom of establishment • EU requirement: single pass and home member country supervision • No restrictions on entry into market • Any EU company has the right of establishment • No discremination: Companies can practice the same lines of business • Turkey stands as an attractive market • recent trends depict an increase in the flow of foreign capital • Leading European insurance groups have already been operating • Considered as an issue of full membership • Takes place in the action plans which would achieve a satisfactory conditon by the day of accession for the implementation of the acquis • MTPL • relatively low minimum amounts of cover • remains incomplete but gradual increases are still in progress • the concern about non-compliance does not remain valid: Turkey participates in the green card system • Administrative capacity of the supervisory authority: independent authority • overall administrative capacity remains high • enforces rules effectively • but some deficiencies remain • Staff • Operational and financial independence • The issue requires political intervention

9. Insurance Intermediaries Several words on insurance mediation • Turkey has adopted the principles brought by 2002/92/EC • Registration requirements • Professional requirements • Consumer protection • Sanctions • Information requirements • Further issues: emphasis on vocational training • Law No. 5684 considers vocational education an important issue • Coordination of efforts and facilities by Insurance Training Center • On- going trainings for insurance intermediaries

10. Thank you... murat.kayaci@hazine.gov.tr  +90 (312) 2128238