Investor Presentation Istanbul, Turkey – June 2019
Agenda 1. Turkey at a Glance 2. Our Markets • Private Pension System • Life Insurance 3. Corporate Profile 4. Financial Results 2
Turkey at a Glance
Turkey at a Glance A Fast Growing Economy CPI*** and Interest Rates**** GDP Average Annual Growth* 7% 25% 6% 20% 5% 15% 4% 10% 3% 2% 5% 1% 0% 0% 1990-1999 2000-2009 2010-2018 Turkey OECD Euro-15 CPI Interest Rates Budget Balance (% of GDP)** 0% -1% -2% -3% -4% -5% -6% Euro Area EM Turkey 4 * OECD National Accounts Data, **IMF, ***Turkish Statistics Institute, ****World Bank National Accounts Data
Turkey at a Glance Urgent Need to Increase Domestic Savings Weight of Pension Funds in Household Savings (TRY billion)** Current Account Balance (% of GDP)* 6% 7% 1.500 4% 6% 2% 1.250 5% 0% 1.000 4% -2% 750 -4% 3% -6% 500 2% -8% 250 1% -10% 0 0% 2011 2012 2013 2014 2015 2016 2017 2018Q1 2019Q1 Pension Funds Total Household Savings Weight of Pension Funds Euro Area EM Turkey Republic of Turkey – 11th Development Programme Domestic Saving Rate (% of GDP)* Article 222: The main aim of the development 35% programme is to increase the amount of domestic savings and to direct these savings to the prioritized 30% sectors and to financing of productive investments. 25% 11th Development Programme (2019-2023), prepared by the Presidency of Strategy and Budgeting was approved by the Grand 20% National Assembly of Turkey on 18.07.2019, and published in Official Gazette No. 30840 (repeated) on 23.07.2019. 15% 10% 2011 2012 2013 2014 2015 2016 2017 Euro Area EM Turkey * IMF, except for Turkey’s domestic saving rate which is from Ministry of Development. 5 ** CBT Financial Stability Report: All data represents 3rd quarter figures, except for 2012 which shows the year-end figures. *** April 2019 , IMF
Turkey at a Glance Demographic Opportunity Window Population by Age 9,0% 2018 2080 8,0% 7,0% Population (millions) : 82.4 107.1 6,0% 5,0% Median Age : 32.0 45.0 4,0% Fertility : 2.10 1.65* 3,0% 2,0% Proportion of Elderly Population : 8.8% 25.6% 1,0% 0,0% 2018 2080 2019 Decreasing fertility and increasing longevity means a demographic transition. April • 47 percent of the population is under 30 years old. Population 15 Years And Over (thousands) : 61,261 • Only 9 percent of the population is over 64 years old. Labor Force (thousands) : 32,401 • The youth dependency ratio is relatively high. • Employed (thousands) : 28,199 More people are living off retirement savings, thus a decrease in the saving rate is a common issue. Labor Force Participation Rate : 52.9% • In the interim period when the youth dependency ratio is falling fast and the old- age dependency ratio is only increasing modestly; larger potential labor force and Unemployment Rate : 13.0% higher private saving to fund investment is a major demoghraphic advantage. Non-Agricultural Unemployment Rate : 15.0% Source: Turkish Statistics Institute - The World Bank – IMF 6 * As of 2050
Our Markets Private Pension System Life Insurance
Our Markets Private Pension System: Positioned in Pillar III Three-Pillar System Pillar I Pillar III Pillar II State Pension Private Pension Occupational Pension Mandatory Voluntary Workplace Pensions Securing a minimum Opportunity to with Auto Enrolment standard of living increase retirement starting by 2017 income Retirement, health, Maintenance of disability and Available since 2003 current living unemployment standards in terms of replacement rate 8
Our Markets Pillar III Private Pension System: Important Features Funds are managed by Started in 2003. asset management 18 companies in 2019. companies. Defined contribution and Minimum retirement age: 56 voluntary participation. Completion of 10 years. Participants can switch funds, Incentives for both pension plans and transfer participant and employer. between companies. 9
Our Markets Pillar III Private Pension System: Well Designed Structure Regulation Administration Monitoring ✓ Capital Markets ✓ Pension ✓ Pension Board (SPK) Accounts Monitoring Center Administered by (EGM) ✓ Undersecretariat Pension ✓ ISE Settlement of Treasury Companies and Custody ✓ Ministry of Labor ✓ Pension Funds Bank and Social Managed by (Takasbank) Security Asset Management ✓ Ministry of Companies Finance 10
Our Markets Pillar III Private Pension System: Incentives For Participants For Employers Contribution Stage Investment Stage Benefit Payments Employer contributions are tax deductible up to 15% of gross salary with a cap of • • • Contributions with a cap of Investment income of Withholding tax applies only annual legal minimum wage. annual legal minimum wage is pension funds are tax on the investment income: subject to 25% state exempt. contribution . 5% (completion of 10 years in • the system & 56 years of age) Transaction of pension • Vesting Period: funds are exempt of fees 10% (completion of 10 years in % 15 at the end of 3 years and taxes. the system) % 35 at the end of 6 years % 60 at the end of 10 years 15% (before completion of 10 % 100 at retirement date or years in the system) death/disability cases 11
Our Markets Pillar III Private Pension System: Charging Structure Management Fee / Entrance Fee Fund Management Fee First 5 years of the contracts No change in fund management fee levels. A new rebate structure will be implemented by 2021. Maximum limit: 8.5% of the Fund Management Fees monthly legal minimum wage • Money market funds: 1.09% • Applicable for the first 5 years of • Fixed income & index funds: 1.91% the contract. • Equity and managed funds: 2.28% • One common cap for entrance fee • State contribution funds: 0.36% and management fee. Rebate Structure • Beginning with 2.5% by the 6th year of the contract. • 2.5% gradual increase each year. • Maximum 25% after the 15th year. • Rebate is not applicable below 1.1% of pension assets. 12
Our Markets Pillar III Private Pension System: Growth Accelerated with Increased Government Support • 25% State Contribution since 2013 Under Discussion Implemented • Withholding tax limited to capital gains • Pension fund transfers from provident • Severance Payments funds* by the end of 2017 • Fee Structure Efficiency • Auto-Enrolment started in 2017 Number of Participants Pension AUM Growth (Thousands) 8.000 (TRY billion) 120 7.000 100 6.000 5.000 80 4.000 60 3.000 40 2.000 20 1.000 0 0 AUM State Contribution * Funds from associations, foundations, provident funds and other organizations with retirement provisions. 13 Source: Pension Monitoring Center as of 30.06.2019
Our Markets Pillar III Private Pension System: Big Growth Potential Pension Funds as a Percentage of GDP Pension Participants Social Security Participants 6.8 Million 0% 25% 50% 75% 100% 125% 150% 175% 200% 22.1 Million Netherlands Iceland Switzerland Australia United Kingdom United States Canada Chile Israel Work Force OECD Total 56% Finland 31.8 Million Denmark Ireland Working-Age Population Japan 61.0 Million New Zealand Total Population Estonia Mexico 82 Million Slovak Republic Korea Norway Portugal Spain Big Growth Potential Poland Czech Republic The Turkish pension market has a very low level of GDP Belgium Italy penetration compared to other countries with similar GDP Germany Austria per capita. Slovenia Sweden This illustrates a huge growth potential when combined Hungary Luxembourg with the demographic opportunity window. Turkey 2% Latvia Greece France Greece Source: OECD Pension Markets in Focus 2018; Turkish Statistics Institute as of 31.01.2019; Social Security Institution as of 31.12.2018; 14 Pension Monitoring Center as of 30.06.2019
Our Markets Attractive Market The Number of Companies* Foreign Investment Share 19 19 74% 18 18 18 73% 17 17 17 69% 65% 65% 63% 61% 14 13 10 54% 9 53% 52% 45% 6 6 5 39% 37% 4 4 4 4 4 36% 2010 2011 2012 2013 2014 2015 2016 Life Private Pension Paid-In Capital GWP The pension system started with 11 companies in 2003. Due to strong growth expectations and government support, the system attracted more local and international groups. Source: Undersecretariat of Treasury, Insurance and Private Pensions Annual Reports 15 * Active companies
Our Markets Pillar III Private Pension System: Key Highlights Total Amount of Contributions Distribution of Contributions Key Figures by Contract Type by Marketing Channel (2017 total) Participants : 6.8 Million Individual Participant Funds : TRY 87.0 Billion 75,7% State Contribution Funds : TRY 13.1 Billion Assets Under Management : TRY 100.1 Billion Bank 71% Other Intermediaries : 49,599 3% Pension Companies : 17 Direct Sales Non- 10% Sponsored Agent Groups Corporate 11% 19,5% Sales 5% Employer Sponsored Groups 4,8% Participant Age Distribution* Average of Total Amount of Regular Contributions per Year (TRY) 3.000 33,3% 2.500 25,6% 25,1% 2.000 11,1% 1.500 4,9% 1.000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0-25 25-34 35-44 45-55 56+ Source: Pension Monitoring Center 16 *As of 28.06.2019
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