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| Summary of Project Information (SPI) |
| This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
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| Project number | 24299 |
| Project name | Milli Re III |
| Country | Turkey |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | Milli Reasurans T.A.S. |
| Environmental category | C |
| Date SPI disclosed | June 1, 2005 |
| Projected board date | July 15, 2005 |
| Status | Pending Disbursement |
| Previous Events | Signed: October 10, 2005
Approved: September 28, 2005 |
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| Description of company and purpose of project |
| The project consists of a seven year contingent facility of up to $50 million for Turkey’s leading reinsurer, Milli Reasurans T.A.S. (Milli Re or the company). The contingent facility will be structured to complement the existing facility IFC approved in 2001. The proposed $50 million facility will add another layer of reinsurance protection to hedge the company’s exposure to large losses suffered by commercial property owners from earthquakes. The project will strengthen and expand the operations of what is effectively Turkey’s only domestic private reinsurance company. The company, faced with increased demand for earthquake reinsurance coverage, is looking to increase its existing coverage capacity. The current facility will enable the company to underwrite more earthquake reinsurance, meet its regulatory solvency requirements, and not be constrained by the unavailability of international reinsurance coverage. |
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| Project sponsor and major shareholders of project company |
Milli Re was established in 1929 by Isbank as the first reinsurance company in Turkey. Since its establishment, Milli Re has been Turkey’s leading reinsurer, with a dominant domestic market share. Since Milli Re’s establishment, the Government had entrusted the company with handling a portion of mandatory reinsurance coverage for all insurance lines of business, except life. This mandatory requirement was lifted in 2002 and the company has not faced any adverse impact as its business lines have continued to grow.
There were four reinsurers licensed to operate in the market - Milli Re, Destek Re, Halk Re, and Istanbul Re. Halk Re stopped underwriting new business at the end of 1999 and Istanbul Re went in to liquidation as of 2001. Milli Re acquired Destek Re, in 2004, with the full merger expected to occur in 2005. Milli Re is the leading reinsurer in Turkey, capturing 80% of the reinsurance premium earned by the domestic reinsurers, representing 35% of the aggregate reinsurance premium earned in Turkey.
Milli Re is 92% owned by private shareholders, with the remaining balance held by the Turkish Treasury, Ziraat Bank (largest Turkish state bank), Basak Insurance and the State Railways. The largest private shareholders of Milli Re are Isbank (76.64%) and Milli Re’s own staff pension fund (10.53%).
Shareholding Structure of Milli Re as of June 2005
Isbank –76.64%
Milli Re Pension Fund – 10.53%
Guven Insurance –3.39%
Ziraat Bank – 2.5%
Undersecreteriat of Treasury – 2.5%
State Railways – 0.88%
Basak Insurance -2.5%
Ak Life Insurance – 0.15%
Koc Allianz Insurance – 0.13%
Others – 0.78% |
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| Total project cost and proposed IFC investment |
| As of June 2004, the aggregate sum insured by Turkish companies for any losses due to earthquakes amounted to over $103 billion. This risk is split between 15 zones throughout the country. IFC’s investment of up to $50 million would account for less than 0.05% of the total sum insured. |
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| Location of project and description of site |
| Location of project is in Istanbul, Turkey |
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| Project Development Impact and IFC's Role |
Project Development Impact:
The potential development and institution building impact is strong. IFC's proposed investment would be part of a broader initiative by the World Bank Group to strengthen Turkey's reinsurance sector and to work with Turkish authorities to bring about reform, policy changes and further liberalization in this sector. The main developmental impacts of this project are:
- Promote greater competition and commercialization of the domestic reinsurance industry, and enhance domestic reinsurance capacity; - Establish a strong local reinsurance institution in a market that otherwise would be underserved; - Contribute to the deepening of Turkey's financial markets, by developing a long-term back-up facility and prevent an outflow of foreign exchange in the form of reinsurance premiums abroad; - Ensure adequate insurance protection for Turkish businesses against catastrophic events; - Reduce the fiscal burden of the Turkish Government from recurrent earthquakes; - Encourage risk mitigation and safer industrial construction practices through the insurance mechanism.
IFC Role:
In this transaction the role of IFC is to:
- help strengthen the domestic reinsurance market by increasing local retention;
- provide a facility with the tenor and flexibility that is unavailable in the local market,
- enhance Milli Re's earthquake reinsurance coverage, and help retain its market dominance, as the current compulsory system of reinsurance cessions has been removed;
- provide an innovative financial instrument that will allow Milli Re to expand its absorption of earthquake risk and thereby provide risk coverage to additional clients; and
- build upon the World Bank's TCIP initiative. |
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| Environmental and social issues - Category C |
This is a Category C project according to IFC's Environmental and Social Review Procedure, because it is considered likely to have minimal or no adverse environmental or social impacts.
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| To contact the project company, please write to: |
Mr. Cahit Nomer, Director & General Manager
Tesvikiye Caddesi No: 43-57,
Tesvikiye 34367 Istanbul,
Turkey
Tel: +(90 212) 232 54 64 / 231 47 30
Fax: +(90 212) 230 48 10 |
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