Turkey has long held a strategically important position at the crossroads of Europe, Asia, and the Middle East. This is probably more so that case now given the current geopolitical situation in the region, as well as ongoing trade tensions worldwide.

As a G20 economy and NATO member with deep trade links across multiple regions, it continues to be an important hub for manufacturing, shipping and logistics. It has also long been a market with significant interest for foreign financial services companies seeking to expand in emerging markets. While it is no stranger to political instability, currency volatility, and high inflation, it remains a leading economic powerhouse in the region with significant potential based on strong fundamentals in many areas.

As part of the 2024–2028 Strategic Plan published by the Turkish Insurance and Private Pension Regulation and Supervision Authority (SEDDK) highlighted its goals for expanding the insurance market in Turkey in several areas. Among other ideas discussed, the document outlines priorities for strengthening capital adequacy, digitalisation, and access to financial protection products across the sector. While only a brief reference is made to surety, the plan does include notable, targeted aims related to our sector:

  • Expand access to surety and other financial insurance lines, particularly to support small and medium-sized enterprises (SMEs),
  • Enable e-bonding systems through further digital integration, and
  • Explore potential broadening of access to building completion guarantees, subject to market readiness and regulatory safeguards.

These points, though high-level, signal an intent to use the surety market as a lever for increasing private-sector investment and contractual performance—especially among SME counterparties.

New regulatory framework for surety risk exposure

While the strategy document outlines medium-term goals, more immediate regulatory developments have followed. On 25 April 2025, SEDDK published Circular No. 2025/13 (see here in Turkish), establishing capital-based limits on the issuance of surety bonds and setting out rules for how insurers must calculate and monitor their exposure. However it should be noted that the circular does not apply to housing or building completion guarantees, which are explicitly excluded from its scope.

The core provision of the circular is Article 4, which introduces quantitative limits on both individual and portfolio-wide exposure, including:

  • The exposure an insurer may hold (net after ceded and admitted reinsurance) to any one insured party or risk group is limited to 15% of its own equity. This cap may increase to 25% or 35% if certain conditions relating to the insured’s financial strength, sector classification, and the size of the bond relative to the insured’s equity are met.
  • Separately, the Circular also states that an insurer’s total gross surety exposure, before ceded reinsurance, may not exceed five times its equity. In calculating this figure, the circular sets out the risk weightings for different categories of surety exposure. These determine how much of the gross bond value counts toward the limit, depending on the type of insured and the bond characteristics. Insurers should refer to Article 4 of the circular for the full set of classifications and thresholds.

The Circular also allows risk exposure to be reduced where bonds are reinsured with counterparties that meet SEDDK’s financial and technical requirements, in line with the existing capital adequacy regulation in Turkey. However, there is some lack of clarity about how this and other aspects of the Circular will work in practice. It appears that when calculating the risk based on the insured’s equity, that this shall be done on a net of reinsurance basis; however, when calculating the insurers own total exposure limit, that this is done on a gross basis.

Conclusion

Implementation of the new rules is staggered with limits relating to individual insureds applying from 1 July 2025 and limits relating to risk groups due to come into effect from 1 January 2026. However, as noted above, remaining uncertainty about interpretations of aspects of the Circular will require more information from SEDDK. Ongoing discussions and data collection are understood to be taking place within the Turkish market currently and this will hopefully bring greater clarity.

While the aim of Circular 2025/13 is to broaden access to surety and improve financial and risk management within the insurance sector, the resulting guidelines seem overly conservative. This may result in lower appetite within the market rather than to open the sector as had been the original aim of SEDDK. Aspects of the circular, such as limits on risk size described and linking this to insurer equity, are also somewhat out of step with international practice in the EU, US, and other developed markets.

Those with an interest in the Turkish market are recommended to read the circular closely and assess what implications this may have for them.