Insurance and Private Pensions

Sector in Turkey

M. Akif EROĞLUGeneral Secretary

04/10/2018

AGENDA

2

i. Turkish Insurance Market: An Overview

ii. MTPL1. Reducing Traffic Accidents

2. Tariff System

3. Regulation

4. Court & Insurance Arbitration

iii. Auto-enrollment

iv. Recommendations to develop Insurance & Private

Pensions Industry

v. The Bottomline

3

I. Turkish Insurance

Market: An Overview

4

Total Assets:

(2018/6): 164,8 Bln TL

(40,3 bln USD)

Premium Production:

2018/6: 26,7 Bln TL (6,5 bln USD)

2017: 46,6 Bln TL (12,8 bln USD)

Number of companies: 63

Non-life: 39

Life and Pension: 22

Reinsurance : 2

Main Indicators

Source: SDK 2017, TSB , 1 USD = 4,0865 TL, 2018 Q2 Exchange Rate for USD

BES & Auto-enrollment: Total Funds & Number of Participants (21.09.18)

5 Source: 21.09.2018 EGM

86,9 bln TL(21,3 bln $)

3,8 bln TL930 mln $

0

10

20

30

40

50

60

70

80

90

100

Total Funds

BES OKS

90,7 bln TL

(22,0 Bln $)

7,0

5,0

0

2

4

6

8

10

12

14

Number of Participants (mln)

BES OKS

12,0

Growth of GDP & Premium Production (%)

6 Source: TSB, TÜİK

8,9

8,5

2,2

42,9

6,1

3,2

7,4

13,6

10

8,8

13,8

-0,8

9,7

20,2

2,7

-5

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017

Growth Rate of GDP Growth Rate of Premium

Other7,3%

Accident3,9%

Sickness/Health13,2%

Fire and Nat. Cat.13,7%

General Damage12,5%

Land Vehicles15,9%

MTPL33,5%

Breakdown of Premium Production by Non-life Branches (2018/8)

Motor:

%49,4

7 Soruce: TSB August 2018

Gross Loss Ratio by Branches (2018/Q2 & 2017/Q2)

8 Source: TSB June 2018 Gross Loss Ratio

93

76

38

14

42

18

70

37

88

68

38

14

37

18

69

41

0

10

20

30

40

50

60

70

80

90

100

Traffic Land Vehicles Fire and NaturalDisaster

TARSİM General Losses Accident Total Non-Life Life

Gross loss ratio (%)

2018Q2 2017Q2

9

Profitability (2018/6 – 2017/6)

-23

56

88

52 41

108

-3

35 22

1 9 2

41

429

178

52

6

90

56

29 41

92

0

25 17

-31 5 -6

28

353

166

30

-100

-

100

200

300

400

500

Technical Profit (million USD)

2018/6 2017/6

Profitability (2018/Q2)

10 Source: TSB June 2018 Income Statement

Non-life Insurance 1,8 billion TL (428,6 mln $)

Life Insurance 727 million TL (177,8 mln $)

Private Pensions 213 million TL (52 mln $)

Total Technical Profit 2,7 billion TL (658,4 mln $)

Net Profit 2,8 billion TL ( 684,8 mln $)

01/07/2017 – 30/06/2018

Non-Life Life

ROE %17 %39,4

11

II. Agenda: MTPL

12

In 12,5 years, total loss: 8 bln TL

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018/Q2

MTPL -119 -245 -467 -296 -587 -462 -1.285 -654 -885 -2.385 19 -536 -96

Non-life 32 232 427 130 3 58 -589 834 1.030 -499 1.744 2.090 1.661

-3.000

-2.500

-2.000

-1.500

-1.000

-500

0

500

1.000

1.500

2.000

2.500

MTPL Technical Results

-119 -245 -467 -296 -587 -462 -1.285 -654 -885 -2.385 19 -538 -96

32 232 427 130 3 58 -589 834 1.030 -499 1.744 2.090 1.661

Source: TSB June 2018 Income Statement

2015 2016 2017 2018/Q2

Technical Profit ( Excluding Investment Income Transfered fromNon-Technical Part)

-2.728 -869 -1.367 -658

Technical Profit -2.385 19 -538 -96

-2.385

19

-538

-96

-2.728

-869

-1.367

-658

-5.500

-5.000

-4.500

-4.000

-3.500

-3.000

-2.500

-2.000

-1.500

-1.000

-500

0

500

Technical Profit Technical Profit ( Excluding Investment Income Transfered from Non-Technical Part)

13

MTPL Technical Results (million TL)

-2.728 -869 -1367 -658

-2.385 19 -538 -96

MTPL 2015 2016 2017 2018/Q2

Technical Profit -2.385 19 -538 -96

Investment Income Transfered from Non-Technical Part 343 888 829 563

Technical Profit ( Excluding Investment Income Transfered from

Non-Technical Part) -2.728 -869 -1.367 -658

14

The Reason Are:

Traffic Accidents

Issues on the Court

Stages

MTPL Price Cap

Regulation Effect

15

Main Reasons:

Traffic Accidents

16

Traffic Accidents: High frequency

%9

%5,9

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Turkey EU

EU-Turkey Claims Frequency (2014)

Source: 2016, European Motor Insurance Markets Addendum, TÜİK

17

Traffic Accidents: High claim

Turkey EU

9

4

Number

of people

lost their

lives in

the

traffic

accidents

EU vs. Turkey: Fatality in the accidents per 100 thousand people

Source: IRTAT, 2016

18

Traffic Accidents: Traffic Monsters

79,6 thousand

Drivers

303 thousandAccident

The number of accidents by those drivers who caused 3 and more accidents in the

preceeding 3 year-period. (2014-2017 May)

19

Main Reasons:MTPL Price Cap

Price Cap

20

% 118,4

Combined

Ratio

% 134,7

Loss Ratio

MTPL: Claims and Expenses

21

MTPL: Claims and Expenses

High Risk Insurance Pool

% 123,7

Combined

Ratio

% 136,7

Loss Ratio

22

Main Reasons: Regulation

Regulation effect

23

Main Reasons: Regulation

No standardization in the calculation of claims (deprivation of support

and permanent disability)

No standardization in the calculation of loss in value

Limitation of usage of equivalent spare parts

24

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

13% 13% 15% 16%13%

17%

26%

35%

47%51% 52% 51%

38%

The share of bodily injuries claims within the total paid claims has increased rapidly in

recent years.

Main Reasons: Regulation / Increase of Bodily Injuries

25

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

120,00%

2010 2011 2012 2013 2014 2015 2016 2017

Application Rates of Insurance ArbitrationCommission

MTPL Casco

• Number of application increased from26.000 to 85.000 between the years2015 to 2017.

Main Reasons Regulation / Increase of loss in value

% 95 of application is

MTPL, % 75 of application

is loss in value.

26

0%

10%

20%

30%

40%

50%

60%

70%

80%O

ca.1

4

Şub.14

Mar

.14

Nis

.14

May

.14

Haz

.14

Tem

.14

Ağu

.14

Eyl.

14

Eki.

14

Kas

.14

Ara

.14

Oca

.15

Şub.15

Mar

.15

Nis

.15

May

.15

Haz

.15

Tem

.15

Ağu

.15

Eyl.

15

Eki.

15

Kas

.15

Ara

.15

Oca

.16

Şub.16

Mar

.16

Nis

.16

Usage rates of Original/Equivalent Spare Parts

Usage rate of Original Spare Parts (%) Usage rate of Equivalent Spare Parts (%)

Main Reasons: Regulation / Decrease of Equivalent Spare Part Usage

27

Issues on the Court

stages

Main Reasons: Court Decisions

28

Decisions taken in

compliance with the

regulation

Decisions taken not

in compliance with

the regulation

Courts 39 42

Arbitration 24 27

Total 63 69

Court/Arbitration Decisions

Ensuring that court decisions are in compliance with

the regulation

29

Insurance Arbitration System

Average costof demands

made forloss in value

Loss in valuecalculated

byarbitration

The overallcost of lossin value byarbitration

*Includes expenses for experts and legal expense

2.037 TL

3.385TL

5.195 TL%155

Arbitration Fee 100 TL

Arbitrator Fee 350 TL

Expert Fee 330 TL

Legal Expenses 1800 TL

Total 2580 TL

Average claims amount increased to 5.000 TL from 1.000 TL in six years.

(2011-2017

30

II. Agenda

MTPL Efforts

31

Association Efforts

MTPL Action Plan

Reducing Traffic Accidents

Action for the Tariff system

Action for the Regulation

Action for the Court/Insurance Arbitration System

32

II. Agenda

MTPL Efforts

1. Reducing Traffic Accidents

33

Reducing Traffic Accidents: Workshop

We have taken initiative with all the stakeholders relating to the road safety in

order to achieve radical fall in the frequency of traffic accidents

34

Decreasing Traffic Accidents:Collaboration with Traffic Authority

35

Social Media Entries

36

Reducing Traffic Accidents:Collaboration with Traffic Authority

#Bu Kemer

Sana Çok Yakışır

37

Reducing Traffic Accidents: Recommendations

Sharing of drivers’ penalty scores for using in tariffs

Reduce black holes on traffıc

Training support/rehabilitation of drivers who make frequent accident

Suspending driving licence of drivers who make frequent accident

Colloboration with Universities and Education Ministry

Expanding the protocol on the sharing of the bodily injury minutes

Promoting telematics and smart security systems in vehicles

38

II. Agenda

MTPL Efforts

2. Tariff System

39

Actions taken for the Tariff System

Revising Premium Cap based on

The result of UW year basis for the MTPL Pool

The effect of exchange rate on costs

Implementing the free tariff in vehicle groups in the segments outside the pool

Revision of some intermediary costs and public expenses on MTPL tariff

Declining the rate of Social Security Institution’s(SGK) share

An increase in Premium cap

An increase in monthly

adjustment rate

40

II. Agenda

MTPL Efforts

3. Regulation

41

Regulation: General Terms

Regulation

Standart calculation method on the loss of support indemnity

Standart calculation of loss in value

Expanding the usage of equivalent spare parts

Removal of TSE exclusivity /OSEM)

Supporting domestic equivalent spare production to help minimizing current deficit (500 million USD less import)Special

Thanks.

42

II. Agenda

MTPL Efforts

4. Court & Insurance Arbitration

43

Efforts: Court/Arbitration

Efforts for courts/judges

Visiting Supreme Court President

Signing protocol with Turkish Academy of Justice

Discussion of MTPL regulation in panels and symposiums with the every level of

courts

44

45

46

Review of Arbitration System

Efforts for Arbitration Commission/Arbitrators

Detection of problems in arbitration system and improving solutions

Recommendations for revising the Insurance Arbitration Regulation

Sharing the proposals with the Insurance Arbitration Commission and the Ministry of

Treasury and Finance

Legislation change

Special Thanks..

47

III. Agenda: Auto-enrolment

Almost 400.000 workplaces, have 5-9 employees, will enroll to the pension system

48

Target PopulationNumber of Participants

(employees)Total Fund

14 mln 4,9 mln3,8 bln TL

(880 mln $)

1000+ 250-999 100-249 50-99 10-49 Total

%100 %99,8 %94,1 %94,1 %56,5 %64

Auto-enrollment : Opt-out ratio: 63%

Enrollment rates of workplaces to pension system by their size (number of employees)

Enrollment

rate of

workplaces,

10-49

emplyees,

%56,5

49

Strengthening the Social Security System and Increasing Savings

Source: 2018-2020 OVP Draft, 2021 – 2023

Social security systems is composed of three basic pillars.

Occupational pension plans form the 2nd pillar which is complementary to the social security

system, compulsory and entails employer contribution.

Auto-enrollment in our country consists of providing easy access to the 3rd pillar, voluntary,

pension system with no obligation to stay in the system and without employer contribution.

For the establishment of 2nd pillar occupational pension plans in our social security system we

need to reform the auto-enrollment practice

Next 20 years offer a demographic window of opportunity for Turkey, in terms of savings, due

to the high share of the population in productive working age group therefore this opportunity

should be seized..

50

Reforming Auto-enrollment

Once enrolled into the system employees should be locked-in for a certain period

Starting employer’ contribution as a small amount or transforming part of severance payment as

employer’ contribution

Changing the short-termness in perspective with constant communication with the public

Successful models in auto-enrollment

Rise of employees in occupational funds after auto-enrolment

New Zelland: %59,2 growth

UK: %47,2 growth

Italy: %11,6 growth

Employers’contribution

Compulsory

Effective communication

Source: EIOPA Pension Statistics 2004-2016, PPI Brefing Note No:99, OECD Statistics

51 Source: EGM 30 June 2018

Growth of 3rd Pillar Decelarates after Auto-enrollment/Revision need

2016 2017 2018

Q2 (Net Participant Number) 436.242 226.302 107.885

0

100.000

200.000

300.000

400.000

500.000

Q2 (Net Participant Number)Average annual increase in the new participants declined by 49% in the last two years

Private pension savings should be collateralized in loan applications

Legislative amendment allowing under 18s to enter into the private pension system

Average annual increase in the new participants declined by 49% in the last two years

52

IV. Agenda: Time to improve of Non-

banking Financial System

53

Bank89%

Insurance and Pension

4%

Other7%

2017

3,7 trln TL

Development of Non-Bank Financial System: Share of Insurance

Source: TSB, TBB, TCMB, SDK 2017, BDDK, July 2018

Turkey is a fast growing economy in need of long-term financial resources: diversity of funds

In this respect, it is necessary to increase domestic savings and develop insurance and pension industry

Credit/deposit rate= %125

Syndicated loans are fragile and relatively costly

2019-2021 Economy Program/YEP…

Banking system funds maturity very short …Not enough for funding long

term investments

54 Source: TCMB, IMF, Sigma, TBB, 2017

291%

105%

62,2%

4,7%0%

50%

100%

150%

200%

250%

300%

350%

EU Turkey

Assets/GDP (%)

Banking Sector Insurance Sector

Banking vs. Insurance

In 2017;

Turkey is the 17th biggest economy in

the world

Turkish Insurance Industry’s ranking: 39in the World

55

TL: %85

Foreign

Currencies: %15

Bank Account (TL); 34,4; 26%

Bank Account (Foreign Currencies); 8,5; 6%

Equities; 11,3; 8%

Eurobond; 10,9; 8%

Corporate Bonds; 13,9; 10%

T-bills&Gov. Bonds; 43,2; 32%

Bonds on gold; 4,8; 4%

Other Capital Market Instruments; 8,4; 6%

56 Source:: Takasbank, 30/06/2018; Balance Sheets 2018/Q2

Funds Supplied for the Economy&support Capital Markets

Capital Market

%81,2

DASK: 6 bln TL (1,5 bln USD), TARSİM: 1 bln TL (244,7 mln USD)

135,3 bln TL(33,1 bln USD)

longmaturity

57

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

Eyl.17 Eki.17 Kas.17 Ara.17 Oca.18 Şub.18 Mar.18 Nis.18 May.18 Haz.18 Tem.18

Equity Eurobond, Foreign Securities

Stabilizing Economy

Equities and Foreign Currencies in Portfolio of Pension Funds

Source: TCMB, BIST, Takasbank; Graph: TSB

TL : %85

Foreign

Currencies: %15

3,56

3,79

3,933,79 3,76 3,8

3,964,07

4,544,6

4,82

102.902

110.143 103.984

115.333

119.529 118.951

114.930

104.283

100.652

96.520

93.352 90.000

93.000

96.000

99.000

102.000

105.000

108.000

111.000

114.000

117.000

120.000

3

3,4

3,8

4,2

4,6

5

USD BIST100

58

2000 2050

,12

85+

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

,10 ,8 ,6 ,4 ,2 0 0 ,2 ,4 ,6 ,8 ,10 ,12

59

Increased life expectancy increases the pressure on social security systems. Private pension systems gain

importance,

Ageing

Population

Supporting Social Security System– Ageing Population

Source: EUROSTAT, TÜİK, UN Report

Men Women

Year Men Women Total

2014 (TÜİK) 75,3 80,7 78,0

2050 (UN Report) 81,0 85,0 83,0

Expected Lifetime

60

Support Social Security Systems – Insured/Pensioner Ratio

In 1980, Insured/Pensioner ratio = 3,3

Today, Insured/Pensioner ratio = 1,91

In 2020, Insured/Pensioner ratio = 1,60

Worsening

Dependency Ratio

61

V. Recommendation for

Growth of Insurance &

Pension Sector

62

Improving Insurance Sector/Life Insurance(2017)

Dünya Sigorta primleri

45,7%

85,3%

54,3%

14,7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World Turkey

Life Non-life

Supporting different life insurance branches (education insurance, return of premium life

insurance, old age insurance, care insurance) in order to level up with the world scale in terms

of insurance market development, (by means of increasing tax relief, constant communication

and providing public subsidies to investments such as nursing homes)

Source: Sigma, SDK 2017, SBM

Breakdown of Written Premium by Insurance Branches (life

& Non-life)

World vs. Turkey

Penetration Rate

Life Non-life

Turkey 0,20% 1,22%

EU 3,77% 2,68%

63

Improving Insurance Sector/Non-life – New Insurance Areas

Surety Bonds

Complementary Health Insurance

Credit Insurance

Cyber Risks

Tekaful insurance and pension (Comprehensıveness)

Liabilities

Climate change risks/Hail (three out of four vehicles don’t have casco insurance)

64

Improving Insurance Sector – Other Recommendations

Enforcement of insurance as a pre-requisite for issuing workplace

permits/licences

Increasing penetration of TCIP/Fire Insurance

Every 3

house out

of 4 lack of

household

insurance

Half of the

houses

don’t have

TCIP

insurance

Half of

the

companies

don’t

have fire

insurance

Increasing TCIP penetration for Houses & Increasing Facultative Earthquake Insurance for Workplaces

65 Source: Swiss Re

Half of civil dwellings and workplaces do not have earthquake insurance and are at serious

risk!

1999 Marmara Earthquake caused economic loss of US $ 20 billion

Only $ 1 billion of the damage paid by insurance companies

In an earthquake scenario of magnitude 7.5, it is estimated that 300 thousand buildings

will be damaged structurally in Istanbul.

It is estimated that the earthquake will cause losses up to approximately 10% of GDP

66

Improving Insurance Sector – Other Recommendations

Re-structuring regulatory and supervisory authority

Preparing the sector and all stakeholders for the Industry 4.0 and other radical

developments such us autonomous vehicles, new trends and custom changes of

generations…

Supporting digitalisation/insurtech/ start ups..

67

Improving Insurance Sector Awareness/Communication

Government support

To emphasize the importance of insurance and savings in the mosques (Cuma Hutbesi)

Public service broadcasting

Introducing courses into the curriculums with subjects to educate students on the role andimportance of insurance

More effectively designed insurance week /with the help of government support

68

Turkish Insurance Association Efforts;ROAD MAP

A

S

S

O

C

I

A

T

I

O

N Strategy & Distribution Channel & Communication Commities

WORKSHOPAUTHORITY

CEO’s

TOBB

SAIK

SEIK

MEDIA

BROKERS

S

T

R

A

T

E

G

Y

P

A

P

E

R

69

VI. The Bottomline is…

70

As a Result;

Insurance and Private Pensions Industry should be;

Recognized as «THE STRATEGIC INDUSTRY»

And should be;

Paid closer attention to our problems

Supported & Protected

71

Thank you very much for

your patience.

Mehmet Akif Eroğlu

Secretary General

Turkish Insurance Associationakif.eroglu@tsb.org.tr