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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.




                                                                                                                      11
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.
                                                                                                                                     12
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.


                                                                                                                        13
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

                                                                                                                                              14
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.


                                                                                                                           15
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


                                                                                                                       16
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%.
                                                                                                                      17
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.




                                                                                                                         18
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




                                                                                                                            19
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
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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
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