A merging movement: Consolidation comes calling

Mergers and acquisitions (M&A) activity is heating up in Turkey’s insurance market, as liquid global financial markets encourage multinationals to bid for businesses that are growing faster than the overall economy. While pace of deals is unlikely to match that of 2006-08, when multinationals invested heavily in Turkey’s insurance market, the latest M&A wave is still expected to be impressive, with a number of large deals. For example, Yapı Kredi Sigorta, Turkey’s leading health insurer in 2012 and fourth-largest insurer overall, was sold in March 2013 to German insurer Allianz for €684m. That figure was over 21 times the company’s 2012 net income of TL76m (€32.8m), a healthy multiple that reflects on the firm’s rapid growth rates in recent years. Acıbadem Insurance, number three in the health segment, was also being offered for sale in early 2013.

Post-Crisis Management

Deal-making was halted during the crisis, but M&A activity was revived in 2010-12, with many sales by international groups that had been weakened during the downturn. There was also greater global interest in Turkey’s fast-growing private pension market, where most firms are also life insurers. In the biggest such deal, the wounded Belgian bank Dexia sold its Turkish life insurance and pensions company to the US group MetLife in July 2011 for $229m. MetLife merged that insurer with another small Turkish insurer it had acquired in 2010 by purchasing Alico internationally. Then, in July 2012 the NBE sold a 51% stake in its Turkish life insurance and pensions unit, Finans Emeklilik ve Hayat, to the US group Cigna for $104m. In the non-life segment, the Dubai Group’s debt provided an opening for Maurice Greenberg, the American insurance mogul who was squeezed out of AIG during its 2008 bailout, to get back into the Turkish insurance market. In September 2012, Greenberg’s new Starr Group teamed up with Oman Insurance, a division of Qatar’s Mashreq Bank, to buy Dubai Group’s Turkish insurer for an undisclosed sum. Two Turkish firms also sold in 2010-11. Fiba Holding spun off Finansbank’s nonlife insurance unit, the number 13 insurer, to Sompo Japan for $309m. In February 2011, Turkey’s Sabancı Holding sold half its 62% stake in non-life insurer Ak Sigorta, the sector’s fifth-largest firm. Dutch-Belgian Ageas bought it for $211m and spun off the insurance arm from Fortis group, while BNP Paribas Cardif took over Fortis’ life and pension unit.

More to Come

While the Yapı Kredi tender moved into the final stages, Reuters reported in February 2013 that Acıbadem Sigorta was being offered for sale. The sale will be an exit for the Abraaj Group, a Dubai private equity fund manager, which bought 50% stakes in the specialised health insurer and the related hospitals group Acıbadem health care in 2007.

Acıbadem Insurance, which sells health and life insurance, had a net income of TL27.9m (€12m) in 2012, up from TL7.6m (€3.3m) in 2011, while gross premiums increased 34%, according to company reports and Insurance Association of Turkey data. The firm ranks 19th among the country’s insurance groups, but third in the health segment, with a 10% market share. Other insurers that may come up for sale include the number 24 firm, Işık, a non-life insurer owned by Bank Asya, a Turkish Islamic bank (“participation bank” in local parlance). Asya marketed Işık in 2011 and 2012 but is waiting for offers. Besides the potential for multinationals with second-tier Turkish insurers to buy each other, insurers owned by domestic banks are all expected to also go on sale. “The banks are selling out of the insurance industry completely,” Tarik Serpil, the executive director of risk management at Marsh in Turkey, told OBG.

Riding The Wave

The previous M&A wave saw multinationals arrival in Turkey, but the Yapı Kredi sale heralds consolidation and the deal will make Allianz number one. Serpil sees multinational insurers that own Turkish firms driving consolidation. “These firms cannot settle for the number 18 or 20 positions in Turkey,” he told OBG. “Either they will grow, or sell.”