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ANSGR - Anadolu Anonim Turk Sigorta Sti News Story

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Last Trade - 05/03/21

Sector
Financials
Size
Mid Cap
Market Cap £390.3m
Enterprise Value £81.6m
Revenue £732.1m
Position in Universe 95th / 646

Fitch Affirms Anadolu Sigorta's IFS Rating at 'BB'; Outlook Stable

Tue 19th May, 2020 6:27pm
(The following statement was released by the rating agency)


Fitch Ratings-Paris-May 19: 

Fitch Ratings has affirmed Anadolu Anonim Turk Sigorta Sirketi's (Anadolu 
Sigorta) Insurer Financial Strength (IFS) Rating at 'BB'. The Outlook is Stable. 
A full list of rating actions is below.

Key Rating Drivers

The rating actions are based on Fitch's current assessment of the impact of the 
COVID-19 pandemic, including its economic impact, under a set of rating 
assumptions described below. These assumptions were used by Fitch to develop 
pro-forma financial metrics for Anadolu Sigorta that are compared with both 
rating guidelines defined in its criteria, and relative to previously 
established Rating Sensitivities for Anadolu Sigorta.

Under our rating-case assumptions, Anadolu Sigorta's credit fundamentals remain 
robust and commensurate with current ratings. The affirmation of Anadolu 
Sigorta's IFS Rating reflects resilient capital levels under our pro-forma 
analysis, along with some manageable deterioration in asset quality and 
financial performance. 

Anadolu Sigorta's investment portfolio is highly concentrated in cash and 
deposits in Turkish banks, which represented around 65% of total investments at 
end-2019. Anadolu Sigorta's credit quality is therefore highly correlated with 
that of Turkish banks and the sovereign, whose ratings are currently on Stable 
Outlook, and which largely drives our assessment of Anadolu Sigorta's investment 
and liquidity risks under our rating-case assumptions.

Anadolu Sigorta's IFS Rating also reflects adequate capitalisation, as measured 
by a regulatory Solvency ratio comfortably above 100%, and a Fitch PRISM 
Factor-Based Model score of 'Adequate' at end-2019, and remaining at that level 
on a pro-forma basis. 

Anadolu Sigorta's financial performance improved in 2019 and during 1Q20, with a 
return on equity (ROE; including equalisation provision) improving to 19% at 
end-2019 (2018: 17%), above the 2019 average inflation of 12% in Turkey (2018: 
20%), and net profit increasing 21% year-on-year at end-1Q20. Its combined ratio 
improved to 104% at end-1Q20 (2019: 111%, 2018: 113%), due largely to decreasing 
claims in motor insurance amid COVID-19-related lockdown measures. 

Under our rating-case scenario, we expect ROE to remain above inflation levels, 
while movements in the combined ratio should be marginal, because we believe 
that a sharp decrease in motor claims would largely mitigate an overall decrease 
in business volumes and potential increase in health insurance claims. We 
believe Anadolu Sigorta adequately manages its foreign-exchange (FX) risk, with 
sufficient levels of foreign-currency-denominated investments and increased 
hedging since 2018.

The affirmation of Anadolu Sigorta's National IFS Rating largely reflects a 
robust franchise in Turkey, as the second-largest non-life insurer in Turkey by 
premium income at end-1Q20, and a regulatory Solvency ratio consistently over 
100%. Fitch views Anadolu Sigorta's overall business profile as 'favourable', 
against other Turkish market players, which is supported by the company's very 
strong and robust position in the highly competitive Turkish insurance market. 

Key Assumptions

Assumptions for COVID-19 Impact (Rating Case):

Fitch used the following key assumptions, which are designed to identify areas 
of vulnerability, in support of the pro-forma ratings analysis discussed above:

--Decline in key stock market indices by 35% relative to 1 January 2020.

--Increase in two-year cumulative high-yield bond default rate to 13%, applied 
to current non-investment grade assets, as well as 12% of 'BBB' assets.

-- Downward pressure on interest rates.

RATING SENSITIVITIES

The ratings remain sensitive to any material change in Fitch's rating-case 
assumptions with respect to the COVID-19 pandemic. Periodic updates to our 
assumptions are possible given the rapid pace of changes in government actions 
in response to the pandemic, and the pace with which new information is 
available on the medical aspects of the outbreak. An indication of how ratings 
would be expected to be impacted under a set of stress-case assumptions is 
included at the end of this section to help frame sensitivities to a severe 
downside scenario.

Factors that could, individually or collectively, lead to a negative rating 
action/downgrade on Anadolu Sigorta's IFS Rating:

--A material adverse change in Fitch's rating assumptions with respect to the 
COVID-19 impact.

--Material deteriorations in the company's investment quality, which could occur 
in the event of a downgrade of major Turkish banks' ratings or of Turkey's 
Local-Currency Issuer Default Rating (IDR).

--Deterioration in the company's capital position, as measured by a regulatory 
solvency ratio below 100%.

Factors that could, individually or collectively, lead to positive rating 
action/upgrade on Anadolu Sigorta's IFS Rating:

--A material positive change in Fitch's rating assumptions with respect to the 
COVID-19 impact.

--Material improvements in the company's investment quality, which could occur 
in the event of an upgrade of Turkey's Local-Currency IDR or of major Turkish 
banks' ratings.

Factors that could, individually or collectively, lead to a negative rating 
action/downgrade on Anadolu Sigorta's National IFS Rating:

--Substantial deterioration in the company's market position in Turkey.

--A decline in the company's regulatory solvency ratio to below 100%.

Factors that could, individually or collectively, lead to positive rating 
action/upgrade on Anadolu Sigorta's National IFS Rating:

--An ROE exceeding inflation levels for a sustained period, provided the 
company's market position remains very strong.

Stress Case Sensitivity Analysis

--Fitch's stress case assumes a 60% stock market decline, two-year cumulative 
high-yield bond default rate of 22%, further downward pressure on interest 
rates, and a downgrade of Turkey's sovereign rating by one notch. 

--The implied-rating impact under the stress case would be a downgrade of the 
IFS Rating by one notch.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions 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 
https://www.fitchratings.com/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

The highest level of ESG credit relevance, if present, is a score of 3. This 
means ESG issues are credit-neutral or have only a minimal credit impact on the 
entity(ies), either due to their nature or to the way in which they are being 
managed by the entity(ies). For more information on Fitch's ESG Relevance 
Scores, visit www.fitchratings.com/esg.

Anadolu Anonim Turk Sigorta Sirketi; Insurer Financial Strength; Affirmed; BB; 
RO:Sta

; National Insurer Financial Strength; Affirmed; AA+(tur); RO:Sta

Contacts: 

Primary Rating Analyst

Stephane Vago, 

Associate Director

+33 1 44 29 91 88

Fitch France S.A.S.

60 rue de Monceau 

Paris 75008

Secondary Rating Analyst

Harish Gohil, FIA

Managing Director

+44 20 3530 1257

Committee Chairperson

Federico Faccio, 

Senior Director

+44 20 3530 1394

 

Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: 
athos.larkou@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Insurance Rating Criteria (pub. 02 Mar 2020) (including rating assumption 
sensitivity)

https://www.fitchratings.com/site/re/10112692

Applicable Model 

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to 
criteria providing description of model(s).

Prism Factor-Based Capital Model, v1.7.1

1-https://www.fitchratings.com/site/re/969155

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10122138

Solicitation Status 

https://www.fitchratings.com/site/pr/10122138#solicitation

Endorsement Status

https://www.fitchratings.com/site/pr/10122138#endorsement_status

Endorsement Policy 

https://www.fitchratings.com/regulatory

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