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Equity / Mid Cap. / Insurance Visit Note
12 October 2009 OUTPERFORM (U)
Anadolu Hayat Upside Potential 40%
* Excluding dividend yield
Stock Data TL US$
Bloomberg: ANHYT TI Reuters: ANHYT IS
Price at 09 10 2009 4.08 2.79
Securing the future ... 12-Month Target Price 5.70 3.43
Mcap (mn) 1,020 697
AuM figures surprisingly strong. Despite a noteworthy economic Float Mcap (mn) 214 146
contraction, AuM in the private pension system reached to TL8.5bn level, No. of Shares Outstanding 250 mn
which indicates a 46% YoY growth. Despite buoyant growth figures since
Free Float (%) 21.00
the inception of the system, with a 0.8% penetration private pension funds
Avg.Daily Volume (3M, mn) 1.8 1.2
are still another under-penetrated retail area. We forecast a TL9.0bn AuM
size at the end of this year, and TL28.9bn AuM size in 2013 with a 35.2%
Market Data TL
CAGR in five years. In fact, these handsome growth figures could be on
ISE 100 50,218
the conservative side with a 1.9% expected AuM/GDP ratio in 2013.
US$ Spot Rate 1.464
Anadolu Hayat grows stronger than the sector. With its strong 56% YoY
US$ 12-Month Forw ard 1.5680
AuM growth, Anadolu Hayat increased its market share by a 1.3pps YoY to
Price Performance (%) 1 Mn 3 Mn 12 Mn
21.7% in the rapidly growing pension business. We expect Anadolu Hayat
TL 35 69 113
to reach TL2.0bn AuM by the end of this year, and gain the market
US$ 37 79 97
leadership with 22.0% share. Anadolu Hayat will continue to record strong
Relative to ISE-100 25 28 37
pension revenues with an already completed initial lump sum costs that will
lead into a rich bottom-line in the coming years. Note that, Anadolu Hayat
is one of the two profitable companies in the pension business.
Life premium growth to exceed sector average. Life insurance sector is
posting strong growth figures in 2009 despite the economic contraction Price / Relative Price
thanks to the shift from time deposits to annuities in the low interest rate
4.5 TL Relative 160
environment and new products i.e. unemployment insurance, credit card
4.0 140
insurance. The sector achieved a 15.5% YoY growth and total life
3.5 120
premiums reached to TL1.1bn in July’09. Anadolu Hayat has even been
3.0
stronger than the sector. The Company generated TL257mn life premiums 100
2.5
with a 24.1% YoY growth and maintained its market leadership with 23.2% 80
2.0
share with a 1.6pps gain on annual basis. Life business technical profit 60
1.5
should come down by a 9.8% YoY to TL10.2mn in 2009. 40
1.0 ANHYT
We have revised up our valuation for Anadolu Hayat owing to 0.5 Relative to ISE 100 20
stronger pension business outlook and lower cost of equity. Our new 0.0 0
12-month price target is now TL5.70, indicating a hefty 40% upside -06
01 08-06 03-07 10-07 05-08 12-08 07-09
potential. We welcome the Company’s earning visibility and long-term
52 Week Range (Close TRY) 1.10 4.10
growth story. Note that, our model implies an ROE expansion in the
years to come. Also, we are quite conservative on our dividend
payout assumption as the management guidance points to 80%
payout ratio for the foreseeable future.
ANSGR (TLm n) 2007A 2008A 2009E 2010E
Life premiums 338 341 409 439
Life technical profit 26.3 11.3 10.2 12.9
Pension AuM 910.3 1,323.0 1,983.0 2,616.9
Pension technical profit -18.3 6.9 19.1 31.3
Net profit 45.8 52.9 73.7 78.8 Kutlug Doganay
kdoganay@isyatirim.com.tr
Shareholders Equity 344.3 349.9 380.7 399.3
+90 212 350 25 08
ROAE 13.7 15.2 20.2 20.2
P/E 22.5 19.4 13.9 13.0
P/BV 3.0 2.9 2.7 2.6
Please refer to important disclaimer at the end of this report. 1
12/10/2009 Anadolu Hayat
Summary of Key Financials Company Overview
Incom e Statem ent (TL m n) 2007A 2008A 2009E 2010E 2011E Anadolu Hayat Emeklilik is a w ell positioned
Life Technical Income 557 629 566 597 665 life-insurance and private pension fund
management outfit of the Is Bank Group. The
Earned life premiums 338 341 409 439 484
Company is the only pension fund and life
Life investment income 219 288 156 157 179 insurance company listed in the ISE w hich
Other technical income 0 1 1 1 1 offers exposure to the grow th prospects in
Life Technical Expenses (531) (618) (556) (584) (652) both the pension fund and term-life
Incurred Losses (376) (388) (435) (457) (482) businesses.
Change in mathematical reserves (117) (181) (72) (72) (107)
Operating expenses (38) (49) (50) (55) (63)
Life segment technical Profit/ Loss 26 11 10 13 13
Shareholder Structure (%)
Pension Technical Income 38 59 90 111 130
Fund management fee 18 27 41 57 75 2%
Management fees 12 17 25 27 28
16%
Entrance fees 7 12 23 27 27
Others 2 3 0 1 1
Pension Technical Expenses (57) (52) (71) (80) (90)
Investment management expenses (4) (6) (8) (11) (14) 20%
Operating expenses (50) (45) (62) (68) (75) 62%
Others (3) (1) (1) (1) (1)
Pension technical Profit/ Loss (18) 7 19 31 40
Investment Income 58 59 72 64 70
Investment Expenses (5) (9) (7) (7) (8)
Isbank Anadolu Sigorta
Other Income/ Losses (3) (1) (2) (3) (2)
Free Float Others
Pre-tax Profit (Loss) 57 67 92 98 112
Tax (11) (14) (18) (20) (22)
Net profit (loss) 46 53 74 79 90 Valuation Chart (x)
Balance Sheet (TL m n)
50.0 P/ E P/ BV (r hs)
3.8
Cash & Banks 332 391 448 485 550
40.0 3.0
Participations 0 43 46 49 52
Life policyholder's investments 1,446 1,590 1,662 1,734 1,841 30.0 2.3
Receivables 918 1,331 1,993 2,628 3,479 20.0 1.5
Others 22 15 15 17 18
10.0 0.8
Financial Assets 82 4 4 4 5
Tangible Assets 23 23 24 26 28 0.0 0.0
01/07 09/07 05/08 01/09 09/09
Total Assets 2,825 3,400 4,197 4,946 5,977
Payables 937 1,352 2,043 2,696 3,572
Technical reserves 1,506 1,670 1,743 1,819 1,931 EPS Estimates (TRY)
Other liabilities 31 25 27 28 30 0.4
Reserves for other risks 6 3 3 3 3
0.3
Paid in Capital 175 250 250 250 250
Profit Reserves 124 42 51 65 94 0.2
Net income 46 53 74 79 90
0.1
Total Shareholder's Equity 344 350 381 399 441
Total liabilities & equity 2,825 3,400 4,197 4,946 5,977 0.0
Ratios & Metrics 2006 2007 2008 2009E 2010E
ROAE (%) 13.7 15.2 20.2 20.2 21.4
EPS grow th (%) 80.8 (19.1) 39.5 6.9 14.1
P/E (x) 22.5 19.4 13.9 13.0 11.4
P/BV (x) 3.0 2.9 2.7 2.6 2.3
Dividend yield (%) 1.1 2.6 4.1 5.8 4.6
2
12/10/2009 Anadolu Hayat
Investment Positives
Investment AuM figures surprisingly strong. Despite a noteworthy economic contraction, AuM in
the private pension system reached to TL8.5bn level, which indicates a 46% YoY growth.
Case Number of participants in the system grew at 14% increasing to 1.9mn by end of Sep-
tember, up from 1.7mn a year ago. Despite buoyant growth figures since the inception of
the system, with a 0.8% penetration private pension funds are still another under-
penetrated retail area. We forecast a TL9.0bn AuM size at the end of this year, and
TL28.9bn AuM size in 2013 with a 35.2% CAGR in five years. In fact, these handsome
growth figures could be on the conservative side with a 1.9% expected AuM/GDP ratio in
2013.
Anadolu Hayat grows stronger than the sector. With its strong 56% YoY AuM growth,
Anadolu Hayat increased its market share by a 1.3pps YoY to 21.7% in the rapidly grow-
ing pension business. We expect Anadolu Hayat to reach TL2.0bn AuM by the end of
this year, and gain the market leadership with 22.0% share. Despite a one-fold jump in
the churn rate (9.5% in 2008 to 18.0% YtD), Anadolu Hayat is still a net acquirer thanks
to its strong fund performance and sound name. Note that, the churn rate of the sector
reached to 29.5% from 20.0% in 2008. Anadolu Hayat has secured the economies of
scale in the pension business and will continue to record strong pension revenues with
an already completed initial lump sum costs that will lead into a rich bottom-line in the
coming years. Note that, Anadolu Hayat is one of the two profitable companies in the
pension business.
Geometrical growth in the technical profits of the pension business. The Company
recorded TL6.9mn technical profit in its pension business in 2008YE financials after
reaching the breakeven in 3Q08 due mainly to the accounting changes for the allocation
of operational expenses between the life insurance and pension businesses. Therefore,
the Company reached a breakeven before the projected 2010YE. We expect TL41.3mn
fund management fees (up by a 55.4% YoY) due to strong AuM size and TL24.8mn
management fees (up by a 46.6% YoY) thanks to increase in both number of participants
and average contribution. We expect the entrance fee amount to reach TL23.4mn with
almost one-fold increase due to doubled churn rate in 2009. Private pension technical
profit should soar to TL19.0mn in 2009 and continue to grow with a 36.3% CAGR by the
end of 2013, in our view.
Life premium growth to exceed sector average. Life insurance sector is posting
strong growth figures in 2009 despite the economic contraction thanks to the shift from
time deposits to annuities in the low interest rate environment and new products i.e. un-
employment insurance, credit card insurance. The sector achieved a 15.5% YoY growth
and total life premiums reached to TL1.1bn in July’09. Anadolu Hayat has even been
stronger than the sector. The Company generated TL257mn life premiums with a 24.1%
YoY growth and maintained its market leadership with 23.2% share with a 1.6pps gain
on annual basis. However, this superb growth does not translate into higher profitability
due to the portfolio mix as Anadolu Hayat’s bulk of premium generation comes from the
least profitable segment of annuities. The most profitable term-life policies have been
lacking momentum due mainly to the contraction in the housing and longer-term retail
loans. Life business technical profit should come down by a 9.8% YoY to TL10.2mn in
2009. On the other hand; improved profitability in life segment in the upcoming years
should be on the cards once the loan market rebounds again. Life technical profit should
grow with a 15.8% CAGR by the end of 2013, in our view.
We have revised up our valuation for Anadolu Hayat owing to stronger pension
business outlook and lower cost of equity. Our new 12-month price target is now
TL5.70, indicating a hefty 40% upside potential. We welcome the Company’s earn-
ing visibility and long-term growth story. Note that, our model implies an ROE ex-
pansion in the years to come. Also, we are quite conservative on our dividend pay-
out assumption as the management guidance points to 80% payout ratio for the
foreseeable future. Based on TL73.7mn 2009E earnings and 80% dividend payout
ratio (we only incorporated 80% payout only on 2009E earnings), Anadolu Hayat
shares offer a 5.8% dividend yield.
3
12/10/2009 Anadolu Hayat
Investment Negatives
A more distant and sensitive cash flow. Anadolu Hayat’s business line is susceptible
to business downturns. As the cash flows depend on the growth in the distant future, an
adverse shift from the positive outlook of Turkey’s economic prospects, may affect
Anadolu Hayat more severely than it might for other companies.
Embedded growth may lure more competition. There are twelve companies in Turkey
that received pension fund management licence. Although, we do not foresee more li-
cences to be granted in the near future, competition may increase, with more strongly felt
presence of foreign players.
Valuation We value Anadolu Hayat at TL1,222mn using Dividend Discount Model (DDM) analysis
summarised below. Our target valuation corresponds to TL5.70 12-month forward look-
ing target share price. We calculate 40% upside and assign OUTPERFORM recommen-
dation for the Company.
♦ We forecast a TL9.0bn AuM size at the end of this year which is expected to reach to
TL28.9bn in 2013 with a 35.2% CAGR in five years. In fact, these handsome growth
figures appear to be on the conservative side with an implied 1.9% AuM/GDP ratio in
2013. We expect Anadolu Hayat to reach TL2.0bn AuM by the end of this year, and
to gain the market leadership with 22.0% in the sector.
Our target valuation ♦ We foresee that life insurance premiums will exceed TL1.7bn this year, a 12% YoY
corresponds to TL5.70 12- increase, and will reach to TL2.6bn in 2013. This translates into a still infant industry
month forward looking with a mere 0.2x Premiums/GDP ratio. Anadolu Hayat preserves its 23% market
target share price. We share until 2013, in our view.
calculate 40% upside and
♦ We have pencilled in the participation-adjusted equity and net earnings in our model
assign OUTPERFORM
between 2009 - 2018. Furthermore, we assigned a 80% dividend payout ratio in
recommendation for the
2009, which also the Company guidance, and employed a 60% payout ratio for the
Company
rest of the forecast horizon. We are quite conservative in our dividend payout as-
sumption as the management guidance points to 80% payout ratio for the foresee-
able future.
♦ The cost of equity is derived via the indicative TL/$US swap rate as the risk-free rate
and an equity risk premium of 6% and a beta of 1. This resulted in a 16.5% cost of
equity on average. Anadolu Hayat is poised to record 22.9% adjusted ROAE in 2010
and is set to generate 30.5% ROAE in our projection horizon.
♦ We have revised up our valuation for Anadolu Hayat owing to stronger pension busi-
ness outlook and lower cost of equity. Our new 12-month price target is now TL5.70,
indicating a hefty 40% upside potential. We welcome earnings visibility and long-term
growth story of the Company. Note that, our model implies an ROE expansion in the
years to come.
Dividend Discount Model
Anadolu Hayat (TLm n) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TV
Adjusted Equity 331 346 384 434 499 583 703 834 978 1,137 1,325
Adjusted Net Earnings 73 77 89 109 137 172 229 273 314 353 406
Dividends Paid 59 47 54 66 83 104 138 164 189 212 244
Cost of Equity 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5%
Adjusted ROE 18.0% 22.9% 24.5% 26.8% 29.3% 31.7% 35.5% 35.5% 34.7% 33.4%
Sustainable Grow th 8.0%
Long Term Cost of Equity 16.5%
Fair Equity Value 1,222
12-Month Price Target 5.70
4
12/10/2009 Anadolu Hayat
Forecasts Our life insurance market assumptions draw a stagnant picture
Macroeconomic instabilities and high real interest rates put a dent in growth in the
life insurance premiums for years. The introduction of the private pension business
has also limited the life premiums growth by challenging the endowments with more at-
tractive tax incentives. Therefore, penetration in life insurance market, which is 0.2% of
the GDP, is still significantly low in Turkey compared to its global peers. We forecast a
11.2% CAGR in life insurance premiums while keeping the penetration level constant
throughout our projections.
Turkish life insurance market forecasts
We forecast a 11.2% 5,000
CAGR in life insurance
4,000
premiums while keeping
the penetration level 3,000
constant throughout our
2,000
projections
1,000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Endow ments Annuities Term life
Source: TSRSB, Is Investment estimates
Despite lucrative growth Term life segment has the lion’s share with 55% of total life premium generated as
figures for several of the end of 2008, followed by the endowments with 36% share while the annuities is
consecutive years, the smallest segment holding 9% share of the total. According to our forecast, the break-
endowments have been down of life premiums will grow in favour of annuities thanks to the retired private pen-
performing stagnant sioners.
growth after the inception
Despite lucrative growth figures for several consecutive years, endowments have been
of the private pension
performing stagnant growth after the inception of the private pension scheme as majority
scheme
of the accumulated funds were transferred to the pension system until Oct’06. Penetra-
tion level in the endowments market is currently at 0.06% of the GDP and is expected to
edge down to 0.05% in our forecasts.
Term-life policies are generally bundled with long-term consumer credits and
mortgage loans in Turkey. The major motive of the growth in the term life business
faces a risk from the drafted Turkish Consumer Law. According to the draft law, banks
will not be able to bundle term life policies with either consumer or mortgage loans as a
prerequisite, rather they will recommend life insurance products to borrowers as a com-
plementary product or cost cutting measure of the interest on loan. Penetration level in
the term-life market is currently at 0.08% of the GDP and is expected to moderately grow
to 0.10% in our forecasts.
Annuities are expected to Annuities are expected to grow with the retired private pensioners as these pro-
grow with the retired grams currently offer lump sum payments at the end of the pension plan. There-
private pensioners as fore, this segment is expected to lead the life insurance business with an embedded
these programs currently growth potential tied to the evolving private pension system. Once the retirements begin
offer lump sum payments intensely in the private pension business, the number of annuities is expected to register
at the end of the pension visible growth rates over the medium-term. Penetration level in the term-life market is
plan. currently at 0.01% of the GDP and is expected to moderately grow to 0.03% in our fore-
casts.
5
12/10/2009 Anadolu Hayat
Breakdown of life premiums
Endow m
ents
27%
Term life
55% Endow m
ents
36%
Term life
54% Annuities
Annuities
19%
9%
2008 2019
Source: TSRSB, Is Investment estimates
Anadolu Hayat’s life insurance business forecasts
We forecast a 11.4% According to the latest figures, Anadolu Hayat remains the market leader with
CAGR in life insurance 23.2% share in the life insurance business (ranked second with a 21.6% market
premiums and 22.9% share a year ago). Anadolu Hayat has 31%, 98% and 4% respective shares in the en-
average market share dowments, annuity and term-life businesses. The Company is almost the sole player in
between 2008 - 2019 the annuities market with its 98% share, and ranks the first in the endowments market.
period Anadolu Hayat’s share in the term-life business shrank to 4% in 2008 due mainly to the
slowdown in retail and mortgage loans as some 97% of the Company’s portfolio comes
from individual contracts related to the credit market. Note that, the picture is different for
the rest of the sector as only 26% of the term-life policies were individual contracts in
2008. We forecast a 11.4% CAGR in life insurance premiums and 22.9% average mar-
ket share between 2008 - 2019 period.
Anadolu Hayat’s life insurance business forecasts
1,250 23.5%
1,000 23.0%
750 22.5%
500 22.0%
250 21.5%
0 21.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Endow ments Annuities Term life Market Share
Source: TSRSB, Is Investment estimates
Anadolu Hayat’s life business technical profit should grow at a 8.4% CAGR be-
tween 2008 - 2019 according to our forecasts. Going forward, we based our life insur-
ance model on a 88.8% average payout-to-technical income ratio and 12.7% opex/
earned premiums ratio assumptions.
6
12/10/2009 Anadolu Hayat
Turkish private pension market forecasts
We forecast a 28.9% CAGR in total AuM in the Turkish private pension market be-
tween 2008 - 2019 which translates into a decisive flight from TL6.4bn AuM level to
TL104.0bn AuM at the end of 2019. Number of participants of the private pension sys-
tem is assumed to increase at a 8.6% CAGR in the respective period (from its current
level at 1.93mn). Rise in our monthly average contribution assumptions follow the ex-
pected inflation trend meaning no real growth at all which should also be read as a con-
servative stance on the industry’s long-term growth potential.
Despite buoyant growth figures, we believe we have been conservative in our
Turkish private pension market forecasts with a targeted 3.7% AuM/GDP ratio at
the end of our projection horizon, 2019, which is still significantly infant compared to
the current penetration levels of Emerging Europe countries i.e. Czech Republic with a
5.0% AuM/GDP ratio, and Poland with a 12.0% AuM/GDP ratio. Note that, our growth
assumption does not include the potential drivers those we have explained in the follow-
ing sections i.e. vesting and transfer of foundation funds.
Turkish private pension market forecasts
we believe we have been 120.0 4.0%
conservative in our 3.5%
100.0
Turkish private pension 3.0%
80.0 2.5%
market forecasts with a
targeted 3.7% AuM/GDP 60.0 2.0%
ratio at the end of our 40.0 1.5%
1.0%
projection horizon 20.0
0.5%
0.0 0.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total Contributions (TL) Total AuM (TL) Total AuM / GDP
Source: EGM, Is Investment estimates
Anadolu Hayat’s private pension business forecasts
Currently, Anadolu Hayat has 21.9% and 21.6% market share in number of partici-
pants and total AuM, respectively. We estimate a 20.9% average market share in
number of participants which is expected to end up the projection horizon at 19.5% in
2019. Likewise, we estimate a 21.7% average market share in total AuM in the respec-
tive period which is expected to end up at 21.9% in 2019.
Anadolu Hayat’s private pension business forecasts
25.0 23%
we estimate a 21.7% 20.0 22%
average market share in
total AuM in the 15.0 21%
respective period which is 10.0 20%
expected to end up at
21.9% in 2019 5.0 19%
0.0 18%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total AuM (TL) Market share
Source: EGM, Is Investment estimates
7
12/10/2009 Anadolu Hayat
Anadolu Hayat’s private pension technical income forecasts
Anadolu Hayat currently charges 2.4% weighted average fund management fee on
its AuM. We assumed that the fund management fee will edge down to 1.8% by the end
of 2019. However, FMF should grow at a 27.3% CAGR between 2008 - 2019 and reach
to TL377mn from TL26.6mn thanks to the strong AuM growth.
We forecast a 21.0% Anadolu Hayat charges 0% to 8% management fee on contributions for individual
CAGR growth in Anadolu pension plans to cover its administrative expenses while management fee for
Hayat’s private pension group pension plans ranges from 0% to 5%. That is to say, the Company charges 4%
technical revenues management fee on the average. Our projections end up with 2.2% management fee on
between 2008 - 2019. contributions in 2019 which translates into a 10.7% CAGR in the management fee reve-
nues between 2008 - 2019.
Entrance fee is the third contributor to Anadolu Hayat’s private pension business
technical income. Anadolu Hayat defers half of the monthly minimum wage if the pen-
sion contributor leaves within five years. Despite being a net acquirer, entrance fee’s
share in the technical income should rise to 27% this year owing to the doubling churn
rate i.e. 19% YtD. We expect the Company’s churn rate to peak in 2009 and follow a
downward trend in the period ahead with an average of 8.0% until 2019.
To sum up, we forecast a 21.0% CAGR growth in Anadolu Hayat’s private pension
technical revenues between 2008 - 2019. The Company will reach to TL476mn in 2019
technical income in its private pension segment from TL58.5mn level recorded back in
2008.
Anadolu Hayat’s private pension technical income forecasts
500
The Company will reach to 400
TL476mn in 2019 technical
300
income in its private
pension segment from 200
TL58.5mn level recorded
100
back in 2008
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
FMF Management fee Entrance fee Others
Source: EGM, Is Investment estimates
Anadolu Hayat’s breakdown of private pension technical revenues
Others
4%
Entrance
fee
21% FMF
79%
FMF Others
46% 1%
Entrance
fee
9%
Manage
Manage ment fee
ment fee 11%
29% 2008 2019
Source: EGM, Is Investment estimates
8
12/10/2009 Anadolu Hayat
Anadolu Hayat’s private pension technical expense forecasts
The major technical expense side of the pension fund business is commission
paid to the agents. The commission expense is 24% of the initial year’s contribution.
The Company gives commission at lower rates declining to 2% and 1% in the second
Anadolu Hayat’s private year and the following years. We have kept these rates constant in our forecasts due
pension technical profit mainly to stay on the conservative side.
should post a 40.5%
Fund management expenses constitute the bulk portion of the technical expenses
CAGR between 2008 -
in Anadolu Hayat’s opex i.e. 24% of the FMF in 2007 and 21% of the FMF in 2008.
2019 according to our
Looking forward, we have incorporated a gradual decline in the commission expenses
calculations
and we expect the fund management expenses to edge down to 15.0% of the FMF in
2019 as the AuM figures increase.
All, Anadolu Hayat’s private pension technical profit should post a 40.5% CAGR
between 2008 - 2019 according to our calculations.
Anadolu Hayat’s private pension technical expense forecasts
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
0
-50
-100
-150
-200
-250
-300
Fund management expenses Operating expenses Others
Source: EGM, Is Investment estimates
Anadolu Hayat’s breakdown of private pension technical expenses
Manage
ment fee
29%
Others Others
1% 0%
FM
expenses
Manage 11%
ment fee FM
29% expenses
31%
2008 2019
Source: EGM, Is Investment estimates
9
12/10/2009 Anadolu Hayat
Sector growth is dominated by non-life insurance products Turkish insurance sector
Turkish Life has been enjoying robust real growth rates for the last couple of years (19% CAGR be-
tween 2003-2008) due to the improving macroeconomic fundamentals backed by flour-
Insurance ishing disinflation program and escalating insurance awareness. Despite favourable tax
Sector incentives for the life insurance products which are not existent for other savings instru-
ments, most of the growth was derived from non-life policies, as the fast growing private
pension system has cannibalised demand for life insurance. Penetration and density
figures remain utterly low compared to those of Emerging Europe where the average
premiums in percentage of GDP and per capita were 0.8% and US$108 respectively in
2007, suggesting significant upside for the Turkish life insurance sector with penetration
at 0.2% of GDP and density at US$15 per capita.
Life insurance penetration & density, Emerging Europe
2.5 300
Turkish life insurance 2.0 225
sector with penetration at 1.5
150
0.2% of GDP and density 1.0
at US$15 per capita 0.5 75
0.0 0
Romania
Ukraine
Turkey
Poland
Czech
Slovakia
Greece
Crotia
Estonia
Russia
Hungary
Lithuania
Bulgaria
Latvia
Serbia
as % of GDP, LHS US$ per capita, RHS
Source: Swiss-Re, TSRSB
The sector generated TL11.8bn gross premiums in 2008, 6.9% higher compared to
a year ago. The premium production in the life insurance reached TL1.57bn in 2008,
with a year-on-year rise of 11.5% following a flat performance observed in 2007. The top
ten companies in the sector accounts for 87% of the premiums generated that corre-
sponds to 11.6% of the total premium production by the insurance sector. Term life seg-
ment has the lion’s share with 55% of total life premium generated as of the end of 2008,
followed by the endowments with 36% share while the annuities is the smallest segment
holding 9% share of the total.
Turkish life insurance, gross premiums in TLbn and penetration as % of GDP
0.23%
0.22% 0.21%
0.19%
0.18%
0.17% 0.17%
1.6
1.4 1.4
1.2 1.2
1.0
0.8
2003 2004 2005 2006 2007 2008 May-09
Life premiums Premiums/GDP
Source: TSRSB
10
12/10/2009 Anadolu Hayat
In 2008, 26 companies operated in the life insurance sector in Turkey. Anadolu Ha-
yat maintained its leadership by a wide margin with 21.9% share in the life insurance
industry's total premium production, followed by Basak Groupama with 18.8% share. The
remaining players have single digit market shares in the sector. The top-ten companies
in the sector accounts for 87% of the total premiums generated.
Life insurers’ market shares (2008)
Others, % 13.2 Anadolu
Hayat, % 21.9
The top-ten companies in Vakif, % 3.7
the sector accounts for Axa, % 4.6
87% of the total premiums
generated Birlik, % 4.7
AIG, % 4.7
Basak
Groupama, %
Allianz, % 5.0 18.8
Yapı Kredi, %
7.0 AvivaSA, % 8.7
Garanti, % 7.8
Source: TSRSB
Banks lead the distribution channels The principal channel for the generation of the
life premiums is via bancassurance as most of the major players are bank affiliates. This
is fair enough as life products are either a type of savings instruments or bundled with
long-term loans i.e. mortgage loans. Bancassurance has been dominant in the industry
for years, and accounts for 55% of the insurance sales as of the end of 2008, followed by
the agencies that have 28% share.
Breakdown of distribution channels (2008)
Brokers
0.7%
The principal channel for
the generation of the life Direct
premiums is via 16.0%
Banks
bancassurance as most of 55.3%
the major players are bank
affiliates
Agencies
28.0%
Source: TSRSB
Types of life insurance products available in Turkey There are mainly three sub-
segments in the Turkish life insurance market; namely term-life, endowments (whole life)
and annuities.
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12/10/2009 Anadolu Hayat
Breakdown of life insurance premiums
2.0
1.6
1.2 37% 55%
49%
0.8 8%
9% 9%
0.4 55%
43% 36%
0.0
2006 2007 2008
Endow ments Annuity Term life
Source: Treasury
Term-life insurance
Term-life is built on being Term life insurance is a life insurance product that is set in a term, meaning it only
the most cost effective covers a specified period of time. It is built on being the most cost effective thus profit-
thus profitable form of able form of insurance since a term life policy is usually only given to a healthy person,
insurance where the probability of loss is comparatively low. Term-life policies are generally bun-
dled with long-term consumer credits and mortgage loans in Turkey. The insurance com-
pany would be required to pay the agreed upon amount if the insured passes away or
becomes unable to generate income during that time period.
As of end of 2008, group term life policies accounted for 74% of the gross premi-
ums generated in the Turkish life insurance industry. Individual one year policies is
the fastest growing segment with a 67% CAGR between 2005-2008, followed by individ-
ual 1+ year policies thanks to the growing mortgage loans. Basak Groupama is the mar-
ket leader in the term life insurance segment by a wide margin with 33% market share in
2008.
Breakdown of term-life premiums, TLmn (2008) Term-life segment market shares (2008)
Birlik Avivasa
Garanti
8% 8%
14%
332
Yapi Kredi
195 6%
145
307 Finans
233 339 5%
100
97 Others
132 95 74
24 126 26%
27 42 38 Basak
2005 2006 2007 2008 Groupama
Individual 1 year Individual 1+ year Group 1 year Group 1+ year 33%
Source: Treasury Source: Treasury
The major motive of the growth in the term life business faces a risk from the
drafted Turkish Consumer Law. According to the draft law, banks will not be able to
bundle term life policies with either consumer or mortgage loans as a prerequisite, rather
they will recommend life insurance products to borrowers as a complementary product or
cost cutting measure of the interest on loan. However, banks continue to require term-
life policies, irrespective of their being compulsory, since they are not able to collateralise
their risk.
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12/10/2009 Anadolu Hayat
Provided that an applicant insists on denying to have a policy, banks generally
reflect the expected fees on these policies to their loan rates. Therefore, borrowers
usually agree to have a term-life policy when securing a consumer loan. It is also impor-
tant to note that banks require term-life policies for each category of consumer loans.
Endowments
Endowment policies are revenue based life insurance products which are gener-
ally bundled with dead/injury clauses. The endowment is designed to terminate and
pay out the cash amount at a designated time, after a prescribed number of years (for
example, 20 year endowment, and 30 year endowment) or at a specific age (for exam-
ple, endowment at 60, and endowment at 65). In the event of the individual's demise, his
heirs receive the sum assured with accumulated profits on investments (till the time of
his demise). In case the individual survives the tenure, he receives the sum assured and
accumulated profits.
Despite lucrative growth Despite lucrative growth figures for several consecutive years, endowments have
figures for several been performing stagnant growth after the inception of the private pension
consecutive years, scheme as majority of the accumulated funds were transferred to the pension system
endowments have been until Oct’06. Note that, private pension products are more attractive than endowment
performing stagnant policies in terms of tax benefits and commission rates. On the other hand, endowment
growth after the inception plans have its own advantages as they do not have age limit clauses like private pension
of the private pension plans i.e. 56 age.
scheme
Anadolu Hayat dominates the endowment market with 31% share as of the end of 2008.
Individual policies have the lion’s share in endowment plans with 82% share.
Breakdown of endowments premiums, TLmn (2008) Endowments market shares (2008)
54 AIG
43 12%
Yapi Kredi
Avivasa
22 22 11%
12%
724
633
474 463 Allianz Axa
13% 7%
21 6 5 7
58 76 65 72
2005 2006 2007 2008 Anadolu
Indv. survival Indv. endow ment Others Hayat
Indv. permanent life Group permanent life 14% 31%
Source: Treasury Source: Treasury
Annuities
An annuity is a contract under which an insured makes a lump-sum payment or
series of payments. In return, the insurer agrees to make periodic payments to the in-
sured beginning immediately or at some future date. Annuities typically offer tax-deferred
Once the retirements growth of earnings and may include a death benefit that will pay your beneficiary a guar-
begin intensely in the anteed minimum amount, such as your total purchase payments.
private pension business,
Anadolu Hayat leads the annuity market with 98% share as of 2008. Turkish annuity
the number of annuities is
market is largely composed of the matured endowment policies, and is expected to grow
expected to register
with the retired private pensioners as these programs currently offer lump sum payments
visible growth rates over
at the end of the pension plan. Therefore, this segment is expected to lead the life insur-
the medium-term
ance business with an embedded growth potential tied to the evolving private pension
system. Once the retirements begin intensely in the private pension business, the num-
ber of annuities is expected to register visible growth rates over the medium-term.
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12/10/2009 Anadolu Hayat
The mandatory pay-as-you-go (PAYG) public pension program in Turkey is facing
Turkish Private very tough and vital challenges. The clearest evidence of this situation is the growing
Pension Sector financial imbalance of the system. To solve these problems the government has followed
a strategy which includes gradual changes to the rules of this program, together with the
development of a voluntary pension scheme which could provide a source of supplemen-
tary pension income.
The legal and institutional framework of the Turkish Private Pension System was
completed in 2002. In the meantime, ten pension companies were granted the license
to transform from life insurance company to pension company by the Undersecretariat of
Treasury and one company was given the license to be established as a pension com-
pany. In total, eleven companies were granted the pension operation license. After the
approval of the initial pension plans, the Individual Pension System officially commenced
on October 27, 2003. Currently, there are twelve firms participating in the market with the
first five companies having 79% share in terms of assets under management (AuM).
According to the latest data released by the EGM (Pension Monitoring Center),
AuM in the private pension system reached to US$8.3bn level, which indicates a
103% CAGR since 2004YE. Number of participants in the system grew at double digit
growth rates increasing to 1.9mn by end of August, up from 314K by year end 2004.
Despite buoyant growth figures, private pension funds are another under-penetrated
retail area. The pension funds to GDP ratio was 0.05% in 2004, 0.17% in 2005, and
reached 0.7% in 2008.
Private pension AuM vs. number of participants
1.9 1.9
1.7 1.8
1.6 1.7
1.5 8.3
The pension funds to GDP 1.4
1.5 7.7
1.3 6.9
ratio was 0.05% in 2004, 1.2 6.4
1.1 5.8
0.17% in 2005, and 1.0 5.2
0.9 4.6 4.8
0.8 4.1
reached 0.7% in 2008 0.7 3.6
2.8 3.2
2.3
1.6 1.9
1.2
Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09
AuM, TLbn no of participants, mn
Source: EGM
Private pension funds in % of GDP (2008)
Netherlands 132%
Sw itzerland 124%
UK 79%
Turkish private pension U.S. 76%
market is still under- OECD Total 74%
penetrated compared to Japan 25%
major countries Poland 12%
Spain 9%
Czech Rep. 5%
Germany 5%
France 2%
Turkey 1%
Source: OECD
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12/10/2009 Anadolu Hayat
Market shares, no. of contributors (most recent data) Market shares, AuM size (most recent data)
Others Anadolu Others Avivasa
21% 21% 21% 22%
ING Vakif
8% 6%
Garanti Anadolu
20% Garanti 22%
Yapi Kredi
14%
14%
Avivasa Yapi Kredi
16% 15%
Source: EGM Source: EGM
Tax Incentives of Pension Fund System
Participants in the individual pension system enjoy a three-phase tax incentive.
The first is that in the payment phase, paid contributions could be deducted from the tax
Participants in the base within the relevant period under certain limits. At the second phase, i.e. investment,
individual pension system earnings from pension mutual funds are exempt from income tax. Finally, accounts of
enjoy a three-phase tax those who pay contributions for at least ten years and become entitled to retirement after
incentive turning the age of 56 are subject to a lower level of withholding tax.
Contribution to pension fund savings is deductible from the income tax base up to 10%
of the gross income with a cap of annual minimum wage (minimum wage per month cur-
rently TL693 per month). So assuming that an individual is on the 25% income-tax
bracket on average and makes an average monthly contribution of TL100, he will be
receiving a tax reimbursement of TL25.
Another important advantage granted to the pension fund system is the exemption
from withholding tax. Investment income of individuals is subject to a withholding tax
rate of 15% for all financial assets, except for pension fund assets. Tax charges on pen-
sion fund investments are collected as a withholding tax upon exit from the system. With-
holding tax rate differs according to age and number of years stayed in the system.
Maximum tax advantage is provided to the participants who are older than 56
years and remained in the system for a minimum of 10 years. The accumulated
funds (principal + total return) of the participants, who meet these two criteria, are taxed
effectively at a 3.75% withholding tax (%25 of the total return is totally tax deductible,
and the remaining %75 is taxed at a 5% rate). The accumulated funds of the participant
Maximum tax advantage is who stay in the system for a minimum of 10 years, but is younger than 56 is taxed at a
provided to the 10% withholding tax rate. The funds of participants who stay in the system less than 10
participants who are older years are taxed at 15%. Therefore, the system penalizes early redemption (staying less
than 56 years and than 10 years and departing before 56 years of age).
remained in the system
Pension Monitoring Center (EGM) contacted participants in March 2009 to investigate
for a minimum of 10 years
the awareness of tax incentives of the system. According to the study, for individual con-
tracts that make up the great majority, it appears that 77% percent of participants are tax
payers as wage-earners or self-employed; and about 21% are retired or housewives.
This investigation found that awareness of this highly important advantage among par-
ticipants was rather low, while the level of awareness was observed to be significantly
affected by the type of contract the participant signed. Only 33% of the participants join-
ing in the system individually benefit the tax advantage, while this percentage is up to
53% for participants with group individual and non-contributory group pension contracts.
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12/10/2009 Anadolu Hayat
Accroding to the study, 56% of individual participants fail to benefit the tax advantage
because they are unaware of the advantage, do not know how to, or find unnecessary to
utilize it, while this percentage is 40% for participants joining in the system as part of a
group. Furthermore, because the tax advantage requires the person to be a taxpayer,
this is also an important factor that limits the utilization for individual participants.
Asset Allocation
According to the data provided by the EGM, pension mutual funds are composed
of 69.7% of Government bonds & bills, 15.7% of reverse repo and 7.7% of stocks
as of 2008YE. Due to the economic fluctuations, investments in reverse repo reached
22% and investments in stocks dropped to 6% in 2008. TL-denominated pension con-
tracts dominate the total with 94% share according to the latest weekly data published by
the EGM while € and US$-denominated contracts have respective 1% and 5% shares.
Consolidated asset allocation of pension mutual funds (%)
Pension mutual funds are
composed of 69.7% of
Government bonds &
bills, 15.7% of reverse
repo and 7.7% of stocks
as of 2008YE
Consolidated asset allocation of pension mutual funds (%)
Source: EGM
AG: Aegon, AL:Allianz, AH: Anadolu Hayat, AS: Avivasa, BA: Basak Groupama, ER: Ergo Isvicre,
FI: Finans, FO: Fortis, GA: Garanti, IN: ING, VA: Vakif, YK: Yapi Kredi
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12/10/2009 Anadolu Hayat
Distribution Channels
The principal distribution channel of the private pension sector is individual direct
sales located in the bank branches. In fact, individual direct sales have been the
strongest distribution channel since the inception of the private pension business. Con-
trary to the property/causality and life insurances, agencies and bancassurance have
smaller stakes among the intermediaries as sales personnel are required to hold li-
cences to be eligible for marketing pension products.
Distribution of contributions according to distribution channel (%)
Source: EGM
Private Pension Fees
Pension funds fees constitute the main source of operating income of the private
pension companies. There are three types of fees charged: 1) Fund Management Fee
(charged on the assets under management), 2) Management Fee (charged on the funds
flow), and 3) Upfront Fee (paid when opening an account.
There are three types of Fund Management Fee: This fee is charged on the accumulated savings and capped at
fees charged: 1) Fund 3.65% annually. ING charges the highest rate as of end of Jul’09 (3.23% annually) fol-
Management Fee (charged lowed by Anadolu Hayat (2.48% annually). As of 2008YE, fund management fees consti-
on the assets under tute some 43% of the total pension technical income of the sector. Level of the fund
management), 2) management fees are strongly correlated with the funds’ performances though in a
Management Fee (charged downward trend due to heightened competition in the sector.
on the funds flow), and 3)
Management Fee: Pension fund management companies charges a fee capped at 8.0%
Upfront Fee (paid when
annually, as a percentage of premium contributions in order to cover their administrative
opening an account
expenses. As of 2008YE, management fees make up 29% of the total pension technical
income of the sector.
Entrance Fee: Although there is an entrance fee to open a pension account, most of the
players in the sector waive or defer this fee. It cannot exceed 50% of the minimum wage.
Participants will be kept exempt from the entrance fee if they stay in the pension funds
for a minimum of 3 to 5 years. As of 2008YE, entrance fees constitute 27% of the total
pension technical income of the sector.
Private Pension Expenses
The major technical expense side of the pension fund business is commission
paid to the agents. The commission expense is 20% of the initial year’s contribution.
For the following years, the Company gives commission at lower rates ranging from 1-
2%.
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12/10/2009 Anadolu Hayat
Growth Opportunities
The new vesting regulation will boost up the group contracts The new vesting regu-
lation, the vesting of employer-sponsored benefits over a certain period as a retention
Vesting is expected to tool was put into practice in July 2007. Vesting refers to the right you have to the portion
boost the group contracts of an eventual private pension financed by the employer’s contributions to the pension
as it has major benefits plan. All accrued benefits fully vest after five years of service. Vesting is expected to
for employers as well boost the group contracts as it has major benefits for employers as well. Employer contri-
butions are deductible from the company’s tax base and employers have the option of
rewarding employee royalty.
Transfer of foundation funds will enable remarkable increase in corporate partici-
pations to the system. Enforced in Aug’08, the regulation on transfer from foundations
and retirement funds to the private pension system signify remarkable developments that
will increase corporate participations to the system. The regulation set out the principles
regarding the transfer of the accumulations within the retirement commitment plan of
The regulation on transfer non-retired members (active members) to the private pension system, and those of re-
from foundations and tired members (passive members) to annuity contracts. Accumulations of passive mem-
retirement funds to the bers can also be transferred to the private pension system, provided that the relevant
private pension system decision is adopted by the authorized bodies of the organization concerned and the
signify remarkable member consents to the transaction.
developments that will
Throughout Turkey, there are currently 90K foundations and retirement funds owned by
increase corporate
various associations. There is not an exact figure on total accumulated fund size but it is
participations to the
estimated to be somewhere around US$5.0bn - US$8.0bn as of 2008.
system
Despite its low awareness among participants, tax incentives of the private pen-
sion system are still a major catalyst for growth. Further tax incentives compared to
other investment vehicles with stronger advertising and marketing should probably boost
the awareness of the system’s embedded strengths, and hence stimulate growth.
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12/10/2009 Anadolu Hayat
The Company Anadolu Hayat Emeklilik is the only life insurance and private pension company,
which is directly listed in the ISE. Founded as Turkey's first life insurance company
(by taking over the life insurance activities carried out by Anadolu Anonim Turk Sigorta)
in 1990, Anadolu Hayat Sigorta was transformed into a private pension company in 2003
and started operating under the name Anadolu Hayat Emeklilik thereafter. Isbank is the
main shareholder of the Company with 62% stake, followed by Anadolu Sigorta with 20%
stake while the remaining 16% shares are free float.
Life Insurance Business
Anadolu Hayat Emeklilik According to the latest figures, Anadolu Hayat remains the market leader with
is the only life insurance 23.2% share in the life insurance business (ranked second with a 21.6% market
and private pension share a year ago). Anadolu Hayat has 31%, 98% and 4% respective shares in the en-
company, which is dowments, annuity and term-life businesses. The Company is almost the sole player in
directly listed in the ISE the annuities market with its 98% share, and ranks the first in the endowments market.
Anadolu Hayat’s share in the term-life business shrank to 4% in 2008 due mainly to the
slowdown in retail and mortgage loans as some 97% of the Company’s portfolio comes
from individual contracts related to the credit market. Note that, the picture is different for
the rest of the sector as only 26% of the term-life policies were individual contracts in
2008.
Anadolu Hayat’s market shares in the life insurance market
25.5%
24.6%
Anadolu Hayat remains
the market leader with 23.2%
23.2% share in the life
21.9%
insurance business
2006 2007 2008 2009
Source: TSRSB
Breakdown of Anadolu Hayat’s life insurance premiums
0.4
12% 10%
15%
0.3
30% 39%
33%
0.2
0.1 58% 52% 51%
0.0
2006 2007 2008
Endow ments Annuity Term life
Source: Treasury
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12/10/2009 Anadolu Hayat
Technical Profitability
Despite its strong presence in the sector, Anadolu Hayat’s technical profitability
has been below the market average and those of its main competitors’. The Com-
pany posted respective 5%, 8% and 3% technical margins in its life business in the last
three years while the sector’s technical margins were 12%, 18% and 6% in the respec-
tive periods. The fluctuation of Anadolu Hayat’s technical margin mainly stems from the
portion of term-life policies in its portfolio. Note that, term-life is the most profitable seg-
ment in Anadolu Hayat’s portfolio with a 40% technical margin, based on the Company
guidance.
Technical profitability of the first three life insurance companies vs. sector
56%
Despite its strong
presence in the sector, 43%
Anadolu Hayat’s technical
profitability has been 26%
18%
below the market average 13% 12% 12%
and those of its main 5% 6% 6%
competitors’
2006 2007 2008
Anadolu Hayat Basak Groupama Garanti Sector
Source: Treasury
Distribution Channels
Anadolu Hayat distributes its products to the customers through regional offices in Istan-
bul, Ankara, Adana, Bursa and Izmir, a branch in the Turkish Republic of Northern Cy-
prus, bank branches, its direct marketing team and agents. The Company’s breakdown
of distribution channels is quite different from the rest of the sector as agencies lead the
distribution channels by a wide margin. Anadolu Hayat agencies are close to 300 in num-
ber who generated sales of significant amounts in endowment life insurance policies.
The Company continued to make effective use of bancassurance via the nationwide net-
works of over 1,700 branches of Isbank, TEB, HSBC, Anadolubank, TSKB and Bank-
Pozitif. Each one serving as a natural Anadolu Hayat agent, Isbank branches constitute
the primary distribution channel component increasing the Company's access to custom-
ers countrywide and ensuring continuity in service. Located in Isbank's branches in 38
cities, the Company's direct sales force possesses great significance within the distribu-
tion channels.
Breakdown of Anadolu Hayat’s distribution channels (2008)
Banks
The Company’s 26.2%
breakdown of distribution
channels is quite different
from the rest of the sector Brokers
as agencies lead the 1.1%
Agencies
distribution channels by a 52.8%
wide margin.
Direct
20.0%
Source: TSRSB
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12/10/2009 Anadolu Hayat
Pension Business
According to the latest figures from the EGM, Anadolu Hayat ranks second in the
private pension business with a 21.7% stake in total AuM, just a tick below the mar-
ket leader Avivasa’s 21.8% stake, and first in terms of number of participants with 21.9%
share in total. Anadolu Hayat outpaced the sector average in growth and achieved
11.6% YtD increase in the number of participants, and 36.8% YtD growth in AuM. The
sector's growth rates for the same criteria were 9.9% YtD, and 31.3% YtD respectively.
Anadolu Hayat’s AuM (TLmn) and number of participants (mn)
0.38 0.42
0.30
0.19
1,821
1,323
910
528
According to the latest 2006 2007 2008 2009 (YtD)
figures from the EGM, AuM no. of participants
Source: EGM
Anadolu Hayat ranks
second in the private
Anadolu Hayat’s market share in total AuM and number of participants
pension business with a
21.7% stake in total AuM 21.6% 21.9%
20.4%
17.7%
21.7%
20.8%
19.9%
18.8%
2006 2007 2008 2009 (YtD)
Share in AuM Share in no. of participants
Source: EGM
Revenue Streams
Anadolu Hayat charges the second highest commission rates in the sector for its
pension funds. The Company charges 2.4% weighted average fund management fee
on its total AuM. FMF has 45% share in Anadolu Hayat’s pension technical income. Be-
ing one of the best performers in the sector, Anadolu Hayat deserves higher FMF, in our
view. Note that, fund performance is the key to individual investor preferences. However,
we expect FMF to follow a downward trend in the long-run with increased competition in
the sector and limited investment returns with easing interest rates.
Development of average monthly FMF ratios according to founders
3.6%
Anadolu Hayat charges 3.2%
the second highest 2.8%
commission rates in the
sector for its pension 2.4%
funds. 2.0%
1.6%
4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09
AH AS GA IN YK Sector Average
Source: EGM
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12/10/2009 Anadolu Hayat
Anadolu Hayat’s market share in total AuM and number of participants
27.7
24.7
21.0 20.5 21.3
18.6 18.0 18.3
17.4
14.7
12.6 12.5
10.2 9.2
8.9
2007 2008 3Q09
AH AS GA IN YK
Source: EGM (after deducting FMF)
AH: Anadolu Hayat, AS: Avivasa, GA: Garanti, IN: ING, YK: Yapi Kredi
Management fees are the second most important contributor to Anadolu Hayat’s
private pension business technical income with 30% share. The Company charges
0% to 8% management fee on contributions for individual pension plans to cover its ad-
ministrative expenses while management fee for group pension plans ranges from 0% to
5%. All, Anadolu Hayat charges 4% management fee on the average.
Entrance fee is the third contributor to Anadolu Hayat’s private pension business
technical income with 17-20% share. Anadolu Hayat defers half of the monthly mini-
mum wage if the pension contributor leaves within five years. Despite being a net ac-
quirer, entrance fee’s share in the technical income should rise to 27% this year owing to
the doubling churn rate i.e. 19% YtD.
Pension Expenses
The major technical expense side of the pension fund business is commission
paid to the agents. The commission expense is 24% of the initial year’s contribution.
The Company gives commission at lower rates declining to 2% and 1% in the second
year and the following years. Investment management expenses constitute the bulk por-
tion of the remaining expenses in Anadolu Hayat’s opex i.e. 24% of the FMF in 2007 and
21% of the FMF in 2008.
Distribution Channels
Bancassurance is the primary distribution channel of Anadolu Hayat’s in the pri-
vate pension business. The Company is the service provider executing the most exten-
sive and effective implementation of bancassurance in its industry within the scope of the
cooperation established with Isbank, HSBC, TEB and Anadolubank. Isbank has 67,2%
share in the Company’s pension production followed by HSBC with 18,9% share. TEB
and Anadolubank have minor contribution to the pension business with respective 2,8%
and 1,2% shares in the distribution network. Direct sales account for 3,4% of the pension
production while agencies and brokers have 1,0% and 5,5% shares, respectively.
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12/10/2009 Anadolu Hayat
This report has been prepared by “İş Yatırım Menkul Değerler A.Ş.” (İş Investment) solely for the information of clients of İş Investment.
Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services
are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies,
investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who
supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be
suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and
with the assistance of independent advisors, as they believe necessary.
The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital
Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of
Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is
its accuracy or completeness guaranteed.
All information in these pages remains the property of İş Investment and as such may not be disseminated, copied, altered or changed in
any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written
permission of İş Investment. (www.isinvestment.com)
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23
