MANAGEMENT’S ASSESSMENT

Esteemed Shareholders,

In 2021, we lived under the shadow of the Covid-19 pandemic. We saw restrictions loosen and quarantine practices among countries begin to ease with accelerating vaccination rates, especially in the second half of the year. Although concerns have risen again with the emergence of the Delta variant, it was a year in which we learned to live with the epidemic worldwide. In addition, we adjusted our business conduct according to pandemic conditions.

In its October 2021 World Economic Outlook Report, the International Monetary Fund (IMF) pointed out that the global economy is continuing to rebound. However, the IMF also noted that the recovery has been disrupted and lost momentum due to the outbreak of the new covid variant. The report projected that the global economy will grow by 5.9% in 2021 and 4.9% in 2022.

The IMF report lifted the growth forecast of the Turkish economy for 2021 from 5.8% to 9% while that for 2022 remained at 3.3%. In 2021, Turkey’s economy expanded by 7% in the first quarter year-on-year. During this same period, consumption expenditures contributed strongly to growth with 4.7 points while investment expenditures and net exports accounted for 2.9 points and 1.1 points, respectively. In July, net direct investments rose by USD 1 billion, the highest level since November 2018. Capital investments of foreign companies in the country amounted to USD 1 billion while property investments amounted to USD 453 million. A look at the distribution of direct investments by sector reveals that investment in wholesale and retail trade, as well as in the financial and insurance sectors was robust.

The insurance sector in particular maintained its growth despite the highly negative conditions of the pandemic. The Turkish insurance market has been positively diverging from the global market in terms of premium growth, technical profitability, and digitalization. With double-digit growth figures and higher expansion rates than other sectors in recent years, Turkey’s insurance industry continues to chart its success with real growth year after year.

At Aksigorta, we are doing our best to develop the Turkish insurance sector and increase insurance awareness in our home country. Every day, we are reshaping our goals and strategies in line with this assumed responsibility.

Public policies for the sector

Recently, uncertainty has prevailed in public opinion upon the cancellation decisions made by the Constitutional Court and the Council of State on traffic insurance, ambiguity in the calculation of bodily damage compensation, and the removal of the section related to traffic insurance from the bill of law adopted in the Turkish Parliament. With the Road Traffic Act Proposal adopted in May 2021, disputes in traffic insurance have declined, unnecessary proxy fees have ceased to be a burden on the insured and claims processing times have accelerated.

With both the rise in natural disasters and the marked increase in time spent at home during the pandemic, demand for home insurance expanded in 2021. Insurance awareness should be created before disasters occur. Although DASK became mandatory after the 1999 earthquake in Turkey, the overall DASK insurance rate is only 58.40% with just 10.3 million policies in force. Half of the homes in Turkey subject to DASK are uninsured. At the beginning of 2021, DASK launched a campaign with the goal of 100% insurance coverage. The Compulsory Earthquake Insurance Tariff Communiqué increased guarantees and provided protections against inflation. In addition, the communique stipulates that the resulting premium difference is not charged to the insured and a 10% discount applies to premiums.

The pandemic, after entering our lives last year and bringing life to a standstill the world over, has contributed to the insurance sector in terms of understanding the risks that we may face in life. This very challenging experience has boosted risk awareness across society. We see this best reflected in health insurance. While working to expand health insurance coverage, the sector introduced flexible payment and instalment advantages, supplementary support packages for agencies, and digital remote management of claims processing. The insurance industry’s robust technological infrastructure and fast adaptation to remote working allowed sales and services to continue uninterruptedly despite the pandemic. These positive developments were supported by public policies as well. Healthcare related policies are expected to increase further after the pandemic. At Aksigorta, we plan to work with both the sector and internally to raise societal awareness of insurance.

Digital risks

We live in a time when digital transformation not only boosts the competitiveness of companies, but also becomes an inevitability. Organizations that fail to embrace digitalization are pushed off the playing field. While using the healing and competition enhancing power of digitalization, we should remain mindful of the growing incidence of cyber-attacks. In Turkey alone, over a million malware attacks were recorded over the past year. Nationwide, three malware attacks were experienced each minute in 2021, up 81% compared to the prior year. Some 43% of these attacks targeted small enterprises. As a result, cybersecurity insurance is a must for SMEs and the IT systems infrastructure should be designed to resist such attacks.

Against this backdrop, demand for cyber insurance, a major shield against cyber risks, is also on the rise. The global cyber insurance market is forecast to expand by 21% to USD 9.5 billion in 2021 and grow further to USD 20.4 billion by 2025, according to research conducted by Finaria.

Aksigorta has spurred the digitalization of the Turkish insurance sector with its investments in this key area. We have introduced an innovative perspective to this tradition bound sector with our breakthroughs, such as robotic transformation and artificial intelligence digital assistant. Even during the rapid uptake of digitalization, Aksigorta has always underscored the presence of digital risks in today’s world. In cooperation with Boğaziçi University, we launched the Digital Security Platform, a comprehensive educational and information resource. This unique platform aims to explain digital risks at the societal level and raise the awareness of users, families and companies on this important issue. With the Digital Security Platform, we are raising public awareness and knowledge on digital risks while ensuring that institutions and individuals prepared in this regard. This key initiative is designed to benefit society as a whole.

Insurtech

Insurtech, a key part of the Industry 4.0 revolution, makes it easier for all insurance companies to reach more users and for policyholders to have lower-cost solutions. We have seen firsthand the added value provided by insurtech initiatives, especially in our customer-oriented services and applications, both at Aksigorta and in sector-specific areas. The applications implemented as a result of our cooperations with insurtech start-ups also play an integral role in improving our customer satisfaction score and boosting customer loyalty.

Aksigorta supports start-ups under the ITU Çekirdek Insurtech program. By coming together with key players in the insurance sector, we support entrepreneurs who develop technologies that will add value to the sector. Thanks to this forward-looking program, entrepreneurs are provided with access to the insurance industry and ongoing support is assured to successful enterprises.

Investment in Digital

ADA, our artificial intelligence digital assistant, is now three years old and successfully performing 4 million transactions per year. In addition to instantly answering hundreds of thousands of requests from our agencies, ADA has started providing voice support to our customers in the call center. Aksigorta customers can also easily track their recent status on damage claims with ADA.

The basis of insurance is the calculation of risks that may occur in the future and the cost that will arise accordingly. This accurate and precise calculation allows us to avoid unnecessary losses for the company, while providing more affordable and fairer products for our customers. In general, actuaries in the insurance industry perform this complex calculation with GLM models for individual insurance policies, especially for engine products. At Aksigorta, we created another layer with artificial intelligence algorithms by including data scientists in this calculation. As a result, Aksigorta’s MTPL and MOD product rates are far more affordable and competitive. In fact, by offering the fairest price to its customers, Aksigorta both protects its customers’ budgets and benefits the company in terms of profitability and market share.

Another effort of ours in digitalization and next-generation insurance was starting the telecommunication insurance business and breaking new ground in Turkey. Thanks to the power of digitalization, Aksigorta now ensures that its customers can easily manage their insurance processes from the comfort of their homes. We implemented telecommunication insurance as a new channel where we can reach our customers. With this innovation, we started to bring many insurance products – such as personal accident, DASK and home coverage – to our customers via smart phones.

We took customer experience to the next level with the Aksigorta mobile application. We launched the app as a major step toward our next-generation insurance vision. This mobile application stands out by offering a digital service point to be integrated with all other channels for customers. Aksigorta mobile application provides customers with omnichannel freedom and creates more value for its customers with the company’s collaborations in different sectors. The app also serves as a digital platform that provides a new way of communicating between the agency and the customer. By focusing on before- and after-sales with the Aksigorta mobile application, we aim to create a meaningful relationship and actively participate in the world of risks of our customers.

Financial achievements

As Aksigorta, we left behind a year in which we increased our market share to 8.5% and strengthened our position in the sector. Our premium production increased by 33% compared to the previous year and reached TL 7.0 billion. Our net profit stood at TL 189 million as of the end of 2021.

Future outlook

In the coming year, Aksigorta aims to protect what is valuable with next-generation solutions, for a sustainable life. Maintaining a sharp focus on profitable growth, Aksigorta’s sustainability investments will create value for all its stakeholders. We are targeting growth across our portfolio in all distribution channels and product groups. Aksigorta aims to differentiate with competitive pricing, innovative products, and easy processes, while maintaining operational efficiency. By investing further in technology and digitalization, Aksigorta will provide channel freedom to its customers and help its business partners transform.

After our successful completion of 2021, we would like to congratulate all our employees and our agencies located across Turkey for their efforts and dedication. We also extend our sincerest thanks to all our shareholders, especially our main shareholders Sabancı Holding and Ageas.

Respectfully yours,

Haluk Dinçer

Chairman of the Board of Directors

Uğur Gülen

Board Member and General Manager