Stability, Competition, and Concentration in the Turkish Insurance Sector

This paper examines the impact of competition and concentration on stability in the Turkish insurance sector over the period 2002-2014. The main results indicate that non-life insurers are more stable in a less competitive and highly concentrated environment. This finding provides support for the competition-fragility view in the Turkish non-life insurance sector. In contrast, life/pension insurers are more stable in a highly competitive and more concentrated market. Hence, our findings provide support for the competition-stability view for Turkish life/pension insurers. The results further indicate that higher market power decreases (increases) earnings volatility in the non-life (life/pension) insurance sector. A quadratic term of the competition measures was also used in this study to capture a possible nonlinear relationship between competition and risk. The results suggest an inverse U-shaped pattern for the non-life insurer's case. That is, market power increases insurer stability until a threshold level. As for the life/pension insurer's case, the results also support a U-shaped relationship between market power and stability. The results further show that there is no nonlinear relationship between competition and stability.