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6 October 2016

Insurance and Private Pensions Sector in Turkey

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1. SECTION

Turkish Insurance Market: An Overview

3

As of today;

38Non Life

2 Reinsurance

4 Life

18 Life and

Pension

A total of 62 companies

Number of Insurance Companies

4

72%

Foreign players in the market:

• Reflecting the trust into the Turkish market

• Transfering global practices to the local

players

• Enabling policyholders to benefit from

international novelties and developments

Foreign Capital in the Market

Share of foreign capital in total

paid-up capital

Source: Undersecretariat of Treasury, ı sura e and Private Pension Report 2015

5

Number of employees working for the insurance companies 19.353

75.000 people

Employed in the

insurance sector

More than

Brokers 119 Loss adjusters 1 305

Agents 15 587

Number of employees

6

Total Assets

23,2 24,4

28,3

32,5

36,0 35,2

36,9

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

2010 2011 2012 2013 2014 2015 2016/Q2

Assets (Billion USD)

0

2.000

4.000

6.000

8.000

10.000

12.000

2011 2012 2013 2014 2015

1.598 1.5061.780

1.497 1.380

8.616

9.508

10.920

10.3649.930

Life

Non-life

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Written Premiums 2011-15 (million USD)

Overall premium production has increased 80% since 2011

Annual average incrase: 16%.

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Premium production increases by % 33 in 2016 second quarter compared to the same period of the previous year.

Written Premiums 2015 Q2-2016 Q2 (million USD)

-

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

2015/8 2016/8

945 1.003

6.607

7.962

Life Non life

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Source: TSB

14,3 15,8 15,4 8,2

37,7 38,9 38,2

19,3

2,8 3,0

3,1

2,7

-

10,0

20,0

30,0

40,0

50,0

60,0

70,0

2013 2014 2015 2016/6

Million

Traffic Non Life (except traffic) Life

2013 2014 2015 2016/6

Life 2,8 3,0 3,1 2,7

Non Life (except traffic) 37,7 38,9 38,2 19,3

Traffic 14,3 15,8 15,4 8,2

Total 54,8 57,7 56,7 30,2

Number of Insurance Policies

3,36%

14,74%

11,53%

11,25% 11,06%

6,87%

10,83%

30,36%

ACCIDENT

LAND VEHICLES

FIRE AND NATURAL FORCES

SICKNESS/HEALTH

GENERAL DAMAGES

OTHER

LIFE

MTPL

10

Breakdown of Insurance Premiums by Branches, 2015

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Premium Production by Distribution Channel (2016 Quarter 2)

Center;

[DEĞER] Agency;

[DEĞER]

Bank;

[DEĞER]

Broker;

4,1%

LIFE Center

[YÜZDE]

Agency

[YÜZDE]

Bank

[YÜZDE]

Broker

15%

NON LIFE

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Total Insurance Coverage Provided by the Sector 2010-15

Source: Undersecretariat of Treasury, Insurance and Private Pension Report 2015

In 2015, the sector povides an insurance coverage 44 times of the ou try s GDP .(2015 GDP=715 billion USD)

21

23

28

33 35

32

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015

Total Coverage (trillion USD)

13

102

66

31

84

18 29 24

67 56

141

67

44

82

23

57

19

74

59

0

20

40

60

80

100

120

140

160

Trafic Land

Vehicles

Fire and

Natural

Disaster

Health TA‘SİM General

Losses

Accident Total

Non-life

Life

LOSS RATIO (%)

GROSS LOSS RATIO (%) GROSS LOSS RATIO (%)

Loss Ratio by Branches

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Profitability

TECHNICAL PROFIT/LOSS (million USD)

BRANCHES 2016-06 2015-06

Traffic -189,8 -477,8

Land Vehicles 94,4 115,3

Fire and Natural Disaster 48,2 31,5

Health -10,9 17,9

General Losses 39,3 35,0

Accident 77,6 77,5

Total Non-life 125,8 -84,1

Life 121,4 115,3

2016 2. quarter

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2016/Q2

Quarter 2 Technical Profit: 254,4 million USD Net Profit: 249,3 million USD

Profit in;

Non-life branches: 125,8 million USD

Life branches: 121,4 million USD

Private Pensions: 7,2 million USD

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ROE

4

0

-11

12

10

-7

2

-15

-10

-5

0

5

10

15

Non life companies(%)

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13 14 14

18

20

12

0

5

10

15

20

25

Life and Pension companies(%)

Paid-Claims in Non Life Branches

17

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

20112012

20132014

2015

5,25,9 6,2

6,3 6,4

Paid Claims(billion USD)

Paid Claims in Life Branch

18

0,0

0,2

0,4

0,6

0,8

1,0

1,2

20112012

20132014

2015

1,0 1,11,2

1,0

0,8

Paid Claims(billion USD)

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2. SECTION Importance of the Insurance Sector and Prospects for Development

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Premium Per Capita (USD): An International Comparison

153

4017

4823

307

1902

142

4096 4358

312

1634

0

1000

2000

3000

4000

5000

6000

Turkey USA UK Asia Europe

2014 2015

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Penetration Rate: Insurance Premiums/GDP

In 2015, penetration rate of Turkish insurance sector is below the penetration rate of world average which was 6,2%.

Source: Sigma No3/2016, Sigma no4/2015, Sigma no3/2014, Sigma no3/2013, Sigma no3/2012, Sigma no3/2011

1,3 1,3 1,4 1,5 1,4 1,6

6,9 6,6 6,5 6,3 6,2 6,2

7,5 7,1

6,7 6,8 6,8 6,9

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015

Penetration Rate(%)

Turkey World Europe

Private Pension Funds/GNP of OECD Countries % (2014)

Importance of Private Pension Funds in the Economy

159,3 146,8

120,3 110,0

96,0 84,4

83,0 76,2

68,3 58,1

54,9 51,0

48,6 37,2

30,2 20,0

15,7 11,3 10,6 10,1 9,5 9,3 8,8 8,8 8,0 7,3 6,7 6,7 5,8 5,6 5,5 4,2 4,1 3,2

0,6 0,5

0 20 40 60 80 100 120 140 160

NetherlandsIceland

SwitzerlandAustralia

United KingdomWeighted average

United StatesCanada

ChileIreland

IsraelFinland

DenmarkSimple average

JapanNew Zealand

MexicoEstonia

Slovak RepublicPortugal

SpainSwedenNorwayPoland

Czech RepublicKorea

GermanyItaly

AustriaBelgium

TurkeySloveniaHungary

LuxembourgGreeceFrance

2.2

37,2

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Source: OECD, Pension

Markets in Focus, 2015

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Fırsat Su a De ografik Yapı / İletişi e Açık Ge ç Nüfus

• Population 79 milyon • Urban Population % 92 • Age 0-14 % 24 • Age 15-64 % 67,8 • Age 65+ % 8,2 • Average 31

• Internet Usage % 58 • Ratio of ocial Network Usage % 53 • Cell-phone Usage %90

Demographic Structure

Source: TUIK, 2015

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Büyük Yatırım Projeleri

• Total value of investments reached to 69

billion USD in Turkey during the last 5 years.

• Huge projects have been financed by banks and insured by insurance companies of Turkey ; Projects such as 3rd Bridge, 3rd Airport, Eurasia Tunel, İz ir-İsta ul Highway, electrcity production and distribution privatizations.

Source: Banks Association of Turkey/Statistics of Project Finance/June 2015

Investment Projects

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KOBİ’leri Sigortala ası

• SME s constitute 99,8% of total firms in business

• SMEs accounted for 52,8% of value added generated in the economy by 2013

• SME s accounted for 63,8% of the turnover, 53,3% of investments and 66,4% of exports (2014)

• 50% of SME s are uninsured

• SME s present an important opportunity for insurance sector

Source: TUİK, 2015

Insurance Potential of the SME’s

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• Insurance and Private Pension Sectors are well regulated industries, regulated under the Insurance Law , Private Pension Savings and Investment System Law , and related subordinate legislations. By and large insurance sector has been operating in line with the EU and international norms and standards • Works are underway to bring the Turkish Insurance Industry in line with

the Solvency 2 Directive • Studies continue to update mortality and annuity tables in life insurance

branch

Highly Regulated and Transparent Sector

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Pazarla aya Yö elik Fırsatlar

• Digital distribution channels in insurance business have become critical especially reaching to young generations.

• Providing tailor-made insurance product for customer needs ,

• Focus on the customer satisfaction ,

would contribute to increase the insurance penetration in Turkey.

Opportunities for Marketing

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SONUÇ

Turkish economy presents opportunities for local and

international insurance companies thanks to its dynamics

and solid legislative infrastructure

As a Result;

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Hot Topic: MTPL

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-83 -188

-358

-190

-377 -275

-714

-343 -404

-860

-190

-1.000-900-800-700-600-500-400-300-200-100

0

Technical loss

Total amount of loss: 3,9 billion USD

Zorunlu Trafik Sigortalarında zarar In the last decade, companies reported loss in MTPL for each and every

single period

Loss in MTPL

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Trafik Sigortası Primleri Neden Yükseldi? Neden Bu Dönemdeki Prim Artışları Daha Yüksek?

2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016-

Q2

Equity 2.858 4.359 4.300 4.609 3.227 3.067 2.813 3.633 3.702 2.763 2.898

Balance Sheet Profit 107 325 456 117 -119 -9 -365 403 333 -212 49

ROE 3,7% 7,4% 10,6% 2,5% -3,7% -0,3% -13,0% 11,1% 9,0% -7,7% 1,7%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

-1.000

0

1.000

2.000

3.000

4.000

5.000

MıL

LıO

N U

SD

Equity and Balance Sheet Profits of Non-life Insurance Companies

Loss in MTPL

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Reasons for the Loss MTPL Offers a Wide Insurance Coverage

• MTPL provides coverages for;

• Material damages

• Treatment expenses and

• Permanent disability and deprived of support

Treatment costs are paid by Social Security Instıtution(SGK) after the

change of Traffic Law, No:2918.

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Percentage of bodily injured claims increased in total claims.

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -

Q2

13% 13% 15% 16% 13%

17%

26%

35%

47% 51% 52%

56%

Reasons for the Loss Percentage of the Bodily Injured claims in Total claims

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Source: Insurance Europe, Haziran 2016

Reasons for the Loss Turkey’s and EU Countries’ Damage Frequencies

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Source: Insurance Europe, Haziran 2016

Reasons for the Loss EU Countries’ and Turkey’s Average MTPL premiums

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Briefly;

Although Turkey

has been marked by the highest damage frequency,

in Europe

MTPL Premium charges were the

lowest among other European

countries…

Reasons for the Loss Turkey vs. EU (2013)

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105 127

157 125 131

221

-

100

200

300

400

500

600

700

2011 2012 2013 2014 2015 2016-M8

USD

Average MTPL Premium

Reasons for Loss Raise in Claims/Raise in Premiums

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Trafik Sigortası AylartTGöre Ortalama Primler

302

329

360

422

441

466

523 589

611

651

679

683

664

659

613

0

100

200

300

400

500

600

700

800

The Most Popular Question?

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The Most Popular Question?

IN 2015; • 1.2 million accidents

• 7.500 people had lost their lives

• 12.000 people had become permanently

incapacitated

• 2.000 people had become reliant on care

• Retroactivity…

Source:TUIK 2015

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Average Frequency(%)

Average Premium(€) Loss Ratio(%)

Combined Ratio (%)

Turkey (2015/9) 9 105 133 163

222 103 127

EU(2014) 5,9%* 221 77 105,3*

Turkey (2016/2.Quarter)

*Source: Insurance Europe, Haziran 2016

The Most Popular Question?

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Trafik Sigortası Tavan Prim Uygulaması Öncesi ve Sonrası Durum

Taxi

Before Price

Ceiling (Oct.

2015)

August

2016

Change(Oct.

2015 -

August2016)

1.2.3. Pillar 3.272 4.021 22,9%

4. Pillar 2.281 3.371 47,8%

5. 6. 7. Pillar 1.238 1.939 56,7%

Van

Before Price

Ceiling (Oct.

2015)

August

2016

Change(Oct.

2015 -

August2016) 1.2.3. Pillar 1.666 1.432 -14,0%

4. Pillar 594 895 50,6%

5. 6. 7. Pillar 451 660 46,3%

Minibus Before Price

Ceiling (Oct. 2015)

August

2016

Change(Oct.

2015 -

August2016)

1.2.3. Pillar 2.566 2.236 -12,9%

4. Pillar 1.026 1.406 37,0%

5. 6. 7. Pillar 693 1.076 55,2%

Bus ( 31+ ) Before Price

Ceiling (Oct. 2015)

August

2016

Change(Oct.

2015 -

August2016)

1.2.3. Pillar 6.268 8.785 40,1%

4. Pillar 4.138 6.659 60,9%

5. 6. 7. Pillar 3.038 4.742 56,1%

Tariff System: Is it a Solution! or a Dilemma!

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Trafik Sigortası Basamaklara Göre Poliçe Adetleri

Policy 1.2.3.

Pillar 4. Pillar

5. 6. 7.

Pillar

OTOMOBILE 1% 20% 79%

TAXI 6% 13% 81%

VAN 2% 21% 77%

TRUCK 5% 16% 79%

MINIBUS (10-17 Seat) 3% 20% 77%

BUS (18-30 Seat) 6% 20% 74%

BUS (31+ Seat) 9% 19% 72%

ALL VEHICLES GROUP 2% 20% 78%

Tariff System: Is it a Solution! or a Dilemma!

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268.236

3.257.162

12.495.407

1.2.3. Pillar 4. Pillar 5. 6. 7. Pillar

Tariff System: Is it a Solution! or a Dilemma!

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Tariff System: is it a Solution! or a Dilemma!

2010 2011 2012 2013 2014 2015 Ekim

1.Pillar 0,36% 0,28% 0,24% 0,21% 0,17% 0,15%

2. Pillar 0,95% 0,68% 0,54% 0,46% 0,42% 0,36%

3. Pillar 3,20% 2,31% 2,16% 1,84% 1,66% 1,54%

0,00%0,50%1,00%1,50%2,00%2,50%3,00%3,50%

Pillar Percentage

1.Pillar 2. Pillar 3. Pillar

Accelerating Premium in MTPL has deterrent effect and preventive effect

for driving safety.

2010 2011 2012 2013 2014 2015 Ekim

4. Pillar 32,48% 34,23% 30,14% 28,17% 28,01% 27,17%

5. Pillar 19,49% 21,48% 23,13% 21,35% 20,22% 18,74%

6. Pillar 14,01% 12,43% 14,35% 15,80% 14,61% 14,50%

7. Pillar 29,51% 28,58% 29,44% 32,17% 34,91% 37,53%

0,00%5,00%

10,00%15,00%20,00%25,00%30,00%35,00%40,00%

Pillar Percentage

4. Pillar 5. Pillar 6. Pillar 7. Pillar

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Final Remarks

• Loss trend in MTPL continues. Loss of MTPL reached to 190 million USD in

the 2nd quarter of 2016

• Loss trend causes a risk for sustainability in MTPL branch.

• Court decisions should be in line with the legislation,

• Premium decline trend will go on due to competition. But it will take time

• Free tariff system definitely must continue..

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Thank you very much for your patience...

Meh et Akif Eroğlu

Secretary General

Turkish Insurance Association

akif.eroglu@tsb.org