Yapı Kredi Sigorta A.Ş.
Transkript
Yapı Kredi Sigorta A.Ş.
2010 ANNUAL REPORT CHAIRMAN’S MESSAGE Yapı Kredi Sigorta’s primary objectives in 2011 are to increase its contribution to the national economy by accelerating the Company’s profitability and market share growth, and to maintain its leading and pioneering market position while adhering to high standards of insurance industry ethical conduct. 8 CONTENTS GENERAL MANAGER’S MESSAGE Yapı Kredi Sigorta met its challenging performance targets in 2010, as it began to reap the benefits of restructuring efforts that included significant improvements in software infrastructure and business processes. INSURANCE SECTOR IN TURKEY Although the Turkish insurance sector is well below the European average in terms of the penetration rate and per capita premium production, its approximately 700% growth between 2000-2010 is nothing sort of remarkable. 9 12 Part I - Introduction 2 Yapı Kredi Sigorta A.Ş. Agenda of General Assembly of Shareholders 3 From the Board of Directors… 4 Unconsolidated Financial Highlights for the Accounting Period 6 Milestones 6 Amendments to Articles of Association in 2010 7 Shareholding Structure and Capital 8 Chairman’s Message 9 General Manager’s Message 10 Insurance Sector in the World 12 Insurance Sector in Turkey 14 Overview of Yapı Kredi Sigorta in 2010 15 Developments in the Company 16 Social Responsibility and Support for the Arts 17 Technical Results PART II - Management and Corporate Governance Practices 24 Board of Directors 25 Auditors 25 Senior Management 27 Internal Audit 28 Organizational Chart 30 Headquarters and Regional Management 31 Terms of Office and Professional Experience of Auditors 31 Information about the General Assembly Meetings 32 Summary Board of Directors Report Submitted to the General Assembly 34 Overview of Activities of the Company in Its Respective Risk Group 35 Information on Human Resources Practices 36 Corporate Governance Principles Compliance Report 39 Statutory Auditors’ Report 40 Information about Internal Audit Activities Part III - Overview of Financial Information and Risk Management 43 Compliance Statement for the Annual Report to be Submitted to the General Assembly 44 Independent Auditor’s Report 45 Compliance Opinion for the Annual Report to be Submitted to the General Assembly 46 Unconsolidated Financial Information 108 Convenience Translation of the Unconsolidated Balance Sheet and Income Statement 115 Profit Distribution 116 Overview of Financial Status, Profitability and Payment of Compensation 117 Information on Risk Management Policies Based on Risk Types 118 Summary Financial Results for the Five-Year Period Including the Report Period Part IV – Consolidated Financial Information 123 Independent Auditor’s Report 124 Compliance Opinion for the Annual Report to be Submitted to the General Assembly 125 Consolidated Financial Information 204 Information Regarding Consolidated Partnerships 205 Information for Shareholders 206 YKSGR Share Performance in 2010 207 Directory PART I INTRODUCTION 2 Introduction Yapı Kredi Sigorta A.Ş. Agenda of General Assembly of Shareholders 1. Inauguration of the General Assembly and election of the Presidency of the Council, 2. Reading out and deliberation of the reports of the Board of Directors and Auditors on the Company’s 2010 activities and accounts, and of the summary of the Independent Auditor’s Report prepared by Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.; amendment and rejection of the Board of Directors’ proposal on Balance Sheet and Income Statement for the year 2010, 3. Release of the Board of Directors and Statutory Auditors of their fiduciary responsibilities for the Company’s activities in 2010, 4. Adoption, amendment or rejection of the Board of Directors’ proposal on the distribution of dividends for the year 2010, 5. Provision of information to the General Assembly as regards the dividend distribution policy for the year 2011 and after, pursuant to the principles of Corporate Governance, 6. Provision of information to the General Assembly on the Company’s public disclosure policy, pursuant to the Capital Markets Law, 7. Determination of the number of members and term of office of the Board of Directors, and the election of its members, 8. Election of Company Auditors, 9. Determination of the gross monthly salaries of the members of the Board of Directors and of Auditors, 10.Provision of information to the General Assembly as regards charitable donations and assistance that the Company provided to foundations and associations during the year 2010, 11.Provision of information to the General Assembly on transactions with related parties, 12.Approval of the independent external auditors selected by the Board of Directors in order to audit the financial statements for the year 2010, pursuant to the Communiqué on Independent Audit Standards in Capital Markets issued by the Capital Markets Board, 13.Decision to allow the Board Members to enter into business transactions, directly or on behalf of others, and to become shareholders and carry out other transactions of other companies active in the fields of activity of the Company, under Articles 334 and 335 of Turkish Commercial Code. 14.Authorization of the Presidency of the Council to sign the minutes of the General Assembly and contending with this action that no further action is necessary, 15.Wishes. Yapı Kredi Sigorta 2010 Annual Report From the Board of Directors... Dear Shareholders, The Company generated a total of TRY 758 million in premium production in 2010, of which TRY 337 million originated from health branches and TRY 421 million from other branches. We hereby present for your examination and approval the Balance Sheet and Profit & Loss Statement reflecting the 2010 financial position of the Company, which employs well-skilled personnel to deliver the highest-quality services, to inspire trust, and to follow innovative and customer-oriented business principles. Board of Directors 3 4 Introduction Unconsolidated Financial Highlights for the Accounting Period Key Indicators Unless stated otherwise, the following data is expressed in TRY terms. Financial Highlights 2009 2010 Total Premium Revenue 607,976,823 758,182,493 24.7 Total Underwriting Profit (22,696,400) 46,547,641 305.1 Total Assets 752,854,306 902,063,337 19.8 80,000,000 80,000,000 0.0 289,989,583 330,212,608 13.9 Paid-in Capital Shareholders’ Equity Ratio (%) Profit Before Tax (10,151,462) 47,676,157 569.6 Net Profit (11,930,295) 42,549,071 456.6 December 31, 2009 December 31, 2010 Ratio (%) Shareholders’ Equity 289,989,583 330,212,608 13.9 Cash and Financial Assets 344,961,937 448,162,030 29.9 Total Assets 752,854,306 902,063,337 19.8 Total Short-term Liabilities 454,916,791 561,535,803 23.4 Total Long-term Liabilities 7,947,932 10,314,926 29.8 466,304,280 622,684,691 33.5 28.3 Summary Financial Results Written Premiums (Net) Earned Premiums (Net) 441,451,956 566,487,506 (387,397,607) (439,782,046) 13.5 Investment Income Transferred From Non-technical Section 38,745,037 55,661,252 43.7 Unexpired Risks Reserve (6,915,853) 6,671,660 196.5 Change in Other Technical Reserves (Net) (1,824,436) (2,754,730) 51.0 72.0 Incurred Losses (Net) Other Technical Income (Net) Operating Expenses Technical Division Balance Investment Income Investment Expenses Other Income (Expenses) Current Tax and Other Legal Liabilities Current Profit After Tax 2,923,206 5,028,119 (116,594,556) (138,092,460) 18.4 (22,696,400) 46,547,641 305.1 51,354,369 69,412,660 35.2 (43,464,449) (61,739,948) 42.0 4,655,018 (6,544,196) (240.6) (1,778,833) (5,127,086) 188.2 (11,930,295) 42,549,071 456.6 Yapı Kredi Sigorta 2010 Annual Report December 31, 2009 Premium Distribution Fire and Catastrophe Marine Sea Vehicles December 31, 2010 Premium Ratio (%) Premium Ratio (%) 90,839,359 14.9 103,561,926 13.7 9,683,478 1.7 11,105,191 1.5 0.3 5,103,114 0.8 2,573,218 Land Vehicles Liability 48,954,371 8.1 61,902,739 8.2 Motor Own Damage 99,728,087 16.4 147,683,262 19.4 Air Vehicles Liability Air Vehicles 404,845 0.1 407,565 0.1 1,319,269 0.2 964,520 0.1 General Damages 43,383,082 7.1 55,243,330 7.3 Casualty 13,165,201 2.2 16,346,018 2.2 32,844 0.0 0 0.0 Credit General Liability Health Legal Protection Total 9,982,051 1.6 19,279,183 2.5 284,571,739 46.8 337,430,078 44.5 809,383 0.1 1,685,463 0.2 607,976,823 100.0 758,182,493 100.0 December 31, 2009 December 31, 2010 Loss Distribution Paid Loss Ratio (%) Paid Loss Ratio (%) Fire and Catastrophe 34,441,475 7.8 7.8 21,436,432 4.7 4,100,795 0.9 3,041,355 0.7 485,704 0.1 1,767,760 0.4 Marine Sea Vehicles Land Vehicles Liability 36,007,369 8.1 34,711,125 7.6 Motor Own Damage 90,080,588 20.2 113,111,203 24.8 Air Vehicles Liability 0 0.0 0 0.0 Air Vehicles 357,964 0.1 34,066 0.0 General Damages 19,741,789 4.4 23,638,868 5.2 Casualty 1,380,508 0.3 2,591,616 0.6 0 0.0 0 0.0 1,390,647 0.3 2,040,477 0.4 257,147,801 57.8 253,927,888 55.6 575 0.0 3,192 0.0 445,135,215 100.0 456,303,982 100.0 Credit General Liability Health Legal Protection Total Key Ratios (%) Underwriting Profit/Premium Production 2009 2010 (3.7) 6.1 Profit Before Tax/Total Assets (1.3) 5.3 Profit Before Tax/Shareholders’ Equity (3.5) 14.4 Premium Production/Total Assets 80.8 84.0 Shareholders’ Equity /Total Assets 38.5 36.6 5 6 Introduction Milestones Yapı Kredi Sigorta currently holds a 6.3% share in the non-life insurance sector, which comprises 57 companies, and is the sector leader in the health insurance branch with a 19.8% market share. Yapı Kredi Sigorta was originally founded in 1943 under the name Halk Sigorta. In 1972, Yapı Kredi Bank, then a member of the Doğuş Group, purchased a 75% stake in Halk Sigorta. In 1980, the Company joined the Çukurova Group when its parent, Yapı Kredi Bank, acquired it. Yapı Kredi Sigorta shares began trading on the Istanbul Stock Exchange on October 19, 1994; at present, 33.69% of the Company’s stock is publicly traded. In 1990, as required by changes in the legal framework, all health and life insurance activities, which were till then carried out by a separate department of Halk Sigorta, were transferred to a separate company, Halk Yaşam Sigorta A.Ş., wholly owned by Halk Sigorta. In 2000, the Company’s name was changed to Yapı Kredi Sigorta A.Ş. (Yapı Kredi Insurance) and the name of its subsidiary Halk Yaşam Sigorta was changed to Yapı Kredi Yaşam A.Ş. (Yapı Kredi Life Insurance). One of the requirements of the draft Private Pension System Law discussed in the subcommittees of the Grand National Assembly of Turkey in late 2000 was a rule stating that insurers who set up and managed private pension funds could not be active in any branch other than life insurance. Yapı Kredi Yaşam Sigorta’s health insurance activities were accordingly transferred to Yapı Kredi Sigorta on January 1, 2001 in order to make it possible for the former to engage in the business of providing private pensions. Concurrently, Yapı Kredi Sigorta’s life insurance portfolio was transferred to Yapı Kredi Yaşam Sigorta, whose name was changed to Yapı Kredi Emeklilik (Yapı Kredi Pension) in 2002. The Company, which created a small but robust structure in the sector early on, gradually increased its market share in the years that followed. Yapı Kredi Sigorta holds a 6.3% share in the current non-life insurance sector, which comprises 57 companies, and is the sector leader in the health insurance branch with a 19.8% market share. On September 28, 2005, Yapı Kredi Bank and its subsidiaries were acquired by Koç Finansal Hizmetler, a partnership between Koç Holding and the Italy based UniCredit. Effective the same date, Yapı Kredi Sigorta began carrying out its operations as a member of the same group. Yapı Kredi Sigorta operates through its Istanbul headquarters, Istanbul regional office, Kadıköy and Bakırköy regional offices as well as offices located in the Mediterranean, Aegean, Southern, Central Anatolian and Bursa regions. In addition, the Company provides a comprehensive range of insurance services to customers throughout Turkey through an extensive network of professional agencies and branches of Yapı Kredi Bank. Yapı Kredi Sigorta currently operates in the branches of casualty, health, motor own damage, railway vehicles, air vehicles, sea vehicles, marine, fire and catastrophe, general damages, land vehicles liability, air vehicles liability, sea vehicles liability, general liability, credit, fidelity, financial loss and legal protection. Amendments to the Articles of Association in 2010 There were no amendments to the Articles of Association in 2010. Continually strengthening its position among Turkey’s leading insurers, Yapı Kredi Sigorta is widely considered to be the driving force of the country’s insurance sector due to its market foresight, its courage in taking necessary actions and its innovative approach. Yapı Kredi Sigorta 2010 Annual Report Shareholding Structure and Capital Information about the Company’s shareholding structure, the changes made to its capital and shareholding structure during the period, and the titles and shares of real persons and legal entities that own a qualified share is presented below. The Company’s shareholding structure, as of December 31, 2010 is as follows: Partners Share (%) Share Amount (TRY) Yapı ve Kredi Bankası A.Ş. 53.10 42,480,000 Yapı Kredi Faktoring A.Ş. 7.95 6,358,787 Yapı Kredi Yatırım A.Ş. 5.26 4,209,333 Publicly Traded Total 33.69 26,951,880 100.00 80,000,000 7 8 Introduction Chairman’s Message Yapı Kredi Sigorta’s primary objectives in 2011 are to increase its contribution to the national economy by accelerating the Company’s profitability and market share growth, and to maintain its leading and pioneering market position while adhering to high standards of insurance industry ethical conduct. In 2010, the sharp recession resulting from the global financial crisis subsided and recovery picked up in a number of countries. Compared to developed economies, Turkey has ranked among the countries to rebound most rapidly from the crisis with appropriate fiscal and monetary policies: Turkey’s 5.5% economic growth rate for the third quarter of 2010 was the second highest in Europe. In 2009, during the depths of the crisis, the Turkish economy contracted by 4.7%. The following year, the Turkish economy returned to pre-crisis levels thanks to strong GDP growth, low inflation and stable interest rates. Given that the real economy has yet to reach pre-crisis levels in many developed countries, they will have to continue the recovery process in 2011. As the global economy is reshaped by numerous dynamics and influences today, Turkey strides confidently toward becoming one of the most prominent players of the changing world economic order. We expect the country to continue its growth trend in 2011, although at a slower pace. In this economic environment, Turkey benefits from an insurance sector, which increases its contribution to the country’s economy on a yearly basis. The country’s steadily growing insurance sector assumes risks under guarantee to ensure that economic activities continue uninterrupted, and provides funds for the national economy via capital accumulation. In the first half of 2010, the Turkish insurance sector’s share in the country’s total financial assets stood at 2.7%. Although this share was somewhat below expectations, Turkish insurance companies provided collateral sources of TRY 24.9 trillion in 2009, a clear indicator that the sector is vital to the national economy. An analysis of the sector’s growth performance shows favorable results. Although these positive results have yet to translate into profitability, we are still prompted to make an upward revision of our expectations of the insurance sector, which outperformed the overall Turkish economy in 2010. Turkish premium volume is still low considering the country’s position as one of the world’s top 20 economies; however, this figure is predicted to continue to rise in 2011. As one of the leading companies in the Turkish nonlife insurance sector, Yapı Kredi Sigorta reported total premium production of TRY 758 million with 6.3% market share in 2010. Yapı Kredi Sigorta grew by 24.7% in nominal terms over the year, as the non-life insurance sector grew by 12.6%; the Company also maintained its leadership position in the health branch with premium production of TRY 337 million and 19.8% market share. The year 2010 was a period of breakthroughs with infrastructure related and organizational projects, as well as innovations on the service side. For the Turkish insurance sector, 2010 saw price competition create significant pressure on operating profits. Due to the considerable drop in inflation, which had remained at a high level for years, and the fall in interest rates to single digits, income from financial investments no longer had a large positive impact on the financial statements. As the sector develops, it seems inevitable that insurance companies which are unable to offset their underwriting loss with fiscal revenue, price competition will be replaced by service competition. We expect the Turkish insurance sector, which now has a more robust foundation thanks to new legal regulations, to deliver profitable growth performance in all branches in 2011 thanks to appropriate pricing policies and the forecasted level of GDP growth. Yapı Kredi Sigorta’s primary objectives in 2011 are to increase its contribution to the national economy by accelerating the Company’s profitability and market share growth, and to maintain its leading and pioneering market position while adhering to high standards of insurance industry ethical conduct. On behalf of the Board of Directors, I would like to take this opportunity to express my gratitude and extend my regards to Koç Finansal Hizmetler Group Companies, our business partners, for their unlimited support, and our employees for their diligent efforts. Tayfun Bayazıt Chairman of the Board of Directors Yapı Kredi Sigorta 2010 Annual Report 9 General Manager’s Message Yapı Kredi Sigorta met its challenging performance targets in 2010, as it began to reap the benefits of restructuring efforts that included significant improvements in software infrastructure and business processes. As global economic growth geared up in 2010, Turkey achieved a stronger macroeconomic balance, and a growth trend above that of the pre-crisis period. In addition, buoyancy in the financial markets impacted the Turkish insurance sector by eliminating the contractionary effect of the economic crisis and allowing growth in the sector to resume. The insurance sector, which had contracted in 2009, grew by 6.8% in real terms in 2010, taking into account the annual inflation rate of 6.4%. The Company’s field of operation, non-life branches, which constitute 84.6% of the insurance sector, grew by 5.8% in real terms to TRY 11.9 billion in premium production. Irrational price competition, which became even more pronounced during the economic crisis, was the main stumbling block for the Turkish insurance sector in 2010. As sector companies opted to not expand the overall current insurance market, but instead to increase their share within it, they started to adopt pricing policies based of those of their rivals. As a result, many companies were unable to post underwriting profits. It is obvious that investment income, which is used in periods of inflation to offset losses incurred by insurance activities, can no longer play such a role in financial results since interest rates remain in single digits. In the future, as long as economic stability is maintained, the key to profitable growth in the insurance sector will be profit yielded by underwriting results. Despite the difficult competitive environment, the Company’s operational performance in 2010 clearly indicates that the “Winds of Change” initiative implemented last year continue to blow in the direction of success. Yapı Kredi Sigorta strengthened its position in the sector thanks to the Direct Sales Team, an expansion of nearly 30% in the agency network and the strong sales and service structure composed of Yapı Kredi Bank branches. The objective of the recently adopted commission practice is to achieve profitable growth via the agency sales channel. The Company has upgraded its products according to market demand and competition, and implemented business process improvement projects to boost productivity. In 2010, the Company’s premium production grew by 24.7% in nominal terms, well above the rate of growth in the sector, to TRY 758 million. In face of the uncertainty reigning in the sector, Yapı Kredi Sigorta generated TRY 42.5 million in net profit, thanks to its growth and price policies as well as the Company’s productivity enhancing measures. In non-life branches, Yapı Kredi Sigorta ranks among the top five players, with 6.3% market share; and in the health branch, the Company has maintained its leadership position with TRY 337 million in premium production and 19.8% market share. As of end-2010, Yapı Kredi Sigorta continued to offer the most extensive and first-rate health insurance service with uncompromised quality, through its network of contracted firms comprising about 2,200 pharmacies, hospitals and doctors’ offices. In 2010, the Company also reaped the benefits of restructuring efforts including significant improvements in the software infrastructure and business processes, and achieved its challenging performance targets. The launch of the New Elementary Insurance software enabled more rapid delivery of higher quality services to customers, and resulted in a strong system infrastructure that can be easily modified. Yapı Kredi Sigorta completed efforts to allow bank branches to issue motor own damage policies through the new infrastructure, which contributed to productivity improvements in this sales channel. The Company plans to expand the bank sales channel product offering in 2011. In 2010, new insurance sector regulations were introduced to strengthen the financial structure of companies. These new regulations aimed to provide the sector with a strong foundation to ensure that it completely meets its policyholder liabilities, and avoids damages incurred in the event that risks materialize. The objective of revisions to the Regulation on Technical Reserves is to use capital increases to strengthen those companies under the risk of allocating insufficient reserves. Additionally, the Association of the Insurance and Reinsurance Companies of Turkey (TSRŞB) has initiated ad campaigns across the nation to raise the awareness about the importance of insurance. As the Turkish insurance sector is forecast to grow in 2011 even more than in the reporting year, we at Yapı Kredi Sigorta have set our targets as delivering the highest quality services to policyholders and agencies while abiding by high standards of insurance industry ethical conduct, extending our service network, achieving profitable growth across all channels with appropriate pricing policies, and boosting employee satisfaction. I would like to express my gratitude and extend my regards to our esteemed customers and business partners for their trust and support to the Company during the insurance sector’s challenging year 2010, and to our employees who are the real drivers of our success. Associate Professor S. Giray Velioğlu General Manager 10 Introduction Insurance Sector in the World According to statistics published by Aon Benfield, out of a total of USD 252 billion of damage incurred in 2010 worldwide, some USD 38 billion were insured assets. The International Chamber of Commerce’s World Economic Survey indicates that global economic growth has picked up in the wake of the worldwide financial crisis. The survey is composed of questions on the general economic situation and economic indicators of various countries, and responded by 1,103 experts from 116 nations. According to the results of the survey, there is a slowdown in economic growth in some regions including North America and Asia, in contrast to a significant acceleration in others. According to the real growth figures in a study in Sigma, a periodical on the global insurance sector published by Swiss Re, the insurance sector closed the year 2009 with a 1.1% contraction from the previous year. This figure suggests that the repercussions of the global crisis started to subside in 2009, given the 3.6% contraction experienced in 2008. In 66% of the nations analyzed in the Sigma study, the rate of increase in premium production is above the GDP growth rate; however, the drop in premium production in developed nations has translated into an overall global contraction. Nevertheless, due to the dynamism in emerging markets and the recovery in lending and stock markets, the year 2009 brought about an increase in investment income and overall profitability. An analysis of premium production across the world reveals that the US ranked first, Japan second, the United Kingdom third, and that Turkey dropped two positions to 38th place right after Argentina. According to the study featured in the report’s 2/2010 issue, the world economic situation is more promising than the previous year and the slow growth experienced in the major global economies in 2010 will pick up speed in the coming year. During the financial crisis, the insurance sector continued to assume risks and make claims payments. Unlike the banking sector, it continued its operations without any government support or guarantees, barring a handful of exceptions. The study forecast that during 2010 and 2011, as Asian nations continue to grow rapidly, the United States, China and many emerging economies would show a strong growth trend. In Western Europe, and Central and Eastern Europe, whose economies depend on exports to Western Europe, however, economic recovery is expected to take longer due to the lingering recession. From a climatic perspective, 2010 was the hottest year ever on record, and the 33rd year in a row in which average weather temperatures increased, according to data dating back to 1880. Despite the rising temperatures, however, the number of tropical storms has stayed below average for the last five years, and they have inflicted less damage than in previous periods. In terms of insured major risks, total loss incurred in 2010 was much larger than in the previous three years. The key events which marked this period were the earthquake in Chile and the flooding that hit Pakistan and China. According to statistics published by Aon Benfield, out of a total of USD 252 billion of damage incurred in 2010 worldwide, some USD 38 billion were insured assets. The number of events of a catastrophic scale reached around 300. Nevertheless, an analysis on an individual basis reveals that the only event in 2010 in which total loss to insured assets surpassed USD 5 billion was the Chilean earthquake. Total damage incurred by the largest two catastrophes of 2010 stands at about USD 60 billion. However, these events occurred in areas with low insurance penetration, and claims payments totaled approximately USD 9 billion. Statistically, it is possible for similar catastrophes to happen in areas with high insurance penetration. In such a case, the claims payment for losses of a similar scale is estimated at USD 20 billion. There were changes in legal and regulatory requirements and practices in Europe in 2010. Solvency II, meant to increase the protection of policyholders, has received the support of FERMA (Federation of European Risk Management Associations). However, federation members expressed concerns to the European Commission about the excessive level of capital requirements in CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) recommendations under Solvency II, for middle and large-scale collaterals. The chairman of FERMA stated that to meet such capital requirements, premiums would have to rise 20% in non-health branches, which would have an adverse effect on the investment capacity and competitiveness of FERMA members. Other points made include that the insurance sector should not be unfairly penalized due to the financial failings of the banking sector, and that capital increases would not provide a guarantee against catastrophes, yet would have an adverse effect on premium costs and product presence. Yapı Kredi Sigorta 2010 Annual Report The European Commission has approved the new Block Exemption Regulation. The Commission had previously decided that the Block Exemption Regulation needed to be upgraded in terms of common calculations, tables, studies and insurance pools. The new Block Exemption Regulation brings more stringent rules in issues that include additional requirements about the declaration of common calculations and the calculation of insurance pools. The Regulation also takes into account other matters such as a wider definition of risk as demanded by the European insurance and reinsurance federation CEA and abolition of the ban on double membership in insurance pools. In 2010, in order to prevent irregularity and forgery in insurance, EHFCN (European Healthcare Fraud & Corruption Network) and the Centre for Counter Fraud Studies of Portsmouth University in UK published a study showing that 5.59% of global annual health indemnity payments are caused by malpractices or fraud. As a result of analyses in the UK, US, New Zealand, France, Belgium, the Netherlands and other developed countries, the experts discovered that fraud in health services expenditures amounts to EUR 180 billion (USD 260 billion). In 2010, acquisitions continued in the global market, and Resolution Ltd. declared its purchase of Bupa’s health portfolio for USD 164 million. Aviva reached an agreement with PT Asuransi Wahana Tata and acquired a 60% stake in PT Asuransi Winterthur Life Indonesia (WLI). China’s third largest insurance company, Ping An Insurance Group Company (PAIGC), merged with Newbridge Asia. In addition, ICBC declared that an agreement was reached on the transfer of a significant stake of the Sino-French joint venture AXA-Minmetals Assurance Company. BNP Paribas established a joint venture named BNP Paribas Assurance TCB Life Insurance Co. with Taiwan Cooperative Bank in order to enter the Taiwanese market. Great Eastern Holdings acquired Malaysia’s Tahan Insurance Company for USD 4.7 million, while ACE Group declared that the Malaysian Ministry of Finance approved of its request to purchase Jerneh Insurance Berhad. ACE also reached an agreement to acquire New York Life’s life insurance business in Hong Kong and Korea for USD 425 million. Allianz purchased 14% of the shares of Brazil’s Allianz Seguros from Ita’u Unibanco, obtaining the majority of shares and the control of the company. Zurich Insurance Co. Ltd. declared its acquisition of Lebanon’s Compagnie Libanaise D’Assurances (CLA), while the Canadian company Sun Life Financial Inc. unveiled its plans to sell its reinsurance business to Warren Buffett’s Berkshire Hathaway. A report by Ernst & Young L.L.P. showed that the takaful insurance market grew 30% during the year to reach USD 8.9 billion in premium production. According to Moody’s Investors Service, the increase in products in line with the religion of Islam could generate a fivefold rise in the assets of Islamic financial corporations. Growth in the takaful market is particularly expected in certain countries that include Malaysia, Bahrain, Kuwait, Yemen, Qatar, Saudi Arabia and United Arab Emirates. However, a Standard & Poor’s report pointed to the intense competition in the takaful market, which is affected by the dynamics of the global investment markets. Additionally, the absence of risk-related regulation and supervision in Gulf countries is underscored as a source of concern about the nascent market. 11 In emerging countries in 2009, insurance premium volume grew by 3.5%, outpacing that in industrialized nations and putting a brake on the fall in worldwide premium production. Although the growth rate is at the lowest level of the last 35 years, the share of emerging market nations in global premium production rose to 13%. In Asia, on the other hand, the growth in Chinese premium production reached 13% in health branches and 19% in non-health branches in 2009. The World Economic Forum report “Global Risks 2010” underlined the interconnection between different risks and the need for a radical overhaul of the risk management approach. Economic risks, insufficient infrastructure investment and chronic diseases were mentioned as the risks with the greatest negative impact. 12 Introduction Insurance Sector in Turkey Although the Turkish insurance sector is well below the European average in terms of the penetration rate and per capita premium production, its approximately 700% growth between 2000-2010 is nothing sort of remarkable. In 2010, premium production in the Turkish insurance sector grew by 13.6% over the previous year, to TRY 14.1 billion. The sector shook off the effects of the economic crisis and bounced back to its pre-crisis volume, generating TRY 11.9 billion of premium production in non-life and TRY 2.2 billion in the life branch. Compared with a year earlier, growth in 2010 reached 19.7% in life insurance, and 12.6% in non-life branches. Taking into account inflation for the year (CPI: 6.4%), the growth in real terms of the non-life insurance sector stood at 5.8% in 2010. Premium production in motor own damage, one of the largest branches in the non-life sector rose by 16.7% in 2010, to TRY 3.1 billion, while premium production in the land vehicles liability branch increased by 13.1%, to TRY 2.5 billion. The health branch expanded by 20.5%, to TRY 1.7 billion in premium production. A breakdown of the sales channels of premium production in the Turkish non-life insurance sector in 2010 reveals that the agencies channel accounted for a 67.8% share, the bank channel 13.3%, the brokers channel 10.8% and the direct sales channel 8.1%. The largest increase in premium production was observed in the bank channel. In addition, alternative distribution channels, which facilitate access to policyholders, also started to gain in importance. Although the Turkish insurance sector is well below the European average in terms of the penetration rate and per capita premium production, its approximately 700% growth between 2000-2010 is nothing short of remarkable. This figure is an indication of the high potential for insurance operations in Turkey. In recent years in the country, the insurance sector made significant progress with government support; however, price competition continued to have a very adverse effect on the sector’s profitability level in 2010. As a result, the Undersecretariat of Treasury has taken a variety of measures to ensure the healthy functioning of the sector, and to uphold fair competition. The Communiqué on Adequate Protection against Catastrophic Risks and Measures against Factors that Disturb the Market and Adversely Affect Companies’ Financial Structures, dated January 7, 2010 and numbered 01350, clearly defined the framework of activities toward branches which pose a risk for the sector as a whole. These measures by the Undersecretariat of Treasury try to encourage the insurance sector to become more trustworthy in the eyes of policyholders. In 2010, the Turkish insurance sector experienced a dynamic period and made progress on many fronts. One of the most positive developments in the sector was the Compulsory Financial Liability Insurance against Medical Malpractice, which came into force on July 30, 2010. This new mandatory scheme provides insurance against risks that might occur during medical practice, and as a result brings yet another important risk under guarantee. A group of insurance company representatives including Yapı Kredi Sigorta officers continue their efforts to align insurance legislation with the Solvency II Directive numbered 2009/138/EC and relevant guidelines. In addition, the Capital Adequacy project that aims to combine 13 directives issued by the European Union under a single framework also continues. Yapı Kredi Sigorta 2010 Annual Report 13 Another key development for the sector in 2010 was the work on Regulation on Insurance Agencies drafted by Undersecretariat of Treasury in order to establish a framework for the operations of agencies, which make up the largest sales channel in the Turkish insurance sector. One of the most significant problems facing the Turkish insurance sector is the low penetration rate. To improve this situation, TSRŞB continued its ad and promotion campaign in the visual and written media, which started in 2009, to raise insurance awareness in Turkey As of year-end 2010, 57 insurance companies and one reinsurance company are active in the Turkish insurance sector. In 2010, Birlik Sigorta Hayat A.Ş. changed its name to Halk Hayat ve Emeklilik A.Ş. in December, Axa Hayat Sigorta A.Ş. to AXA Hayat ve Emeklilik A.Ş. in June, and Ergo İsviçre Sigorta to Ergo Sigorta in May. In addition, New Life Yaşam Sigorta A.Ş. unveiled its decision to turn over its insurance portfolio to another insurance company as of November. In 2011, forecasts indicate that the repercussions of the economic crisis will subside further, product and service diversification will replace the price competition strategy, new products and product revisions will provide insurance to a larger number of risks, alternative distribution channels will allow access to more diverse customer segments, and the sector’s share in GDP will increase in parallel with overall economic growth and the expansion of a number of other related sectors. According to 2009 data, the number of insurance companies which are more than 50% foreign-held rose to 35; the share of foreign capital in the sector’s total paid-in capital reached about 55%. Turkey’s young population and low insurance penetration rate make the country’s sector an attractive market. Due to its great potential, the sector continued to attract the attention of foreign investors in 2010. 14 Introduction Overview of Yapı Kredi Sigorta in 2010 Yapı Kredi Sigorta operates and provides services with a staff of 905 employees. A comparison of the 2010 year-end figures with those of 2009 shows that the number of Yapı Kredi Sigorta agencies increased to 993 from 761, contracted health institutions rose to 2,198 from 2,095, and contracted service stations increased to 764 from 693. Yapı Kredi Sigorta operates and provides services with a staff of 905 employees. A comparison of the 2010 year-end figures with those of 2009 shows that the number of Yapı Kredi Sigorta agencies increased to 993 from 761, contracted health institutions rose to 2,198 from 2,095 and contracted service stations increased to 764 from 693. In 2010, 866 branches of Yapı Kredi Bank also provided services on behalf of the Company. In non-life branches, Yapı Kredi Sigorta generated approximately TRY 758 million in premium production and secured a 6.3% share of the Turkish insurance market, in which 57 companies are currently operating. The table below details the regional distribution of employees, agents, and contracted firms. Regional Offices Number of Employees Number of Agencies Number of Contracted (Excluding Bank Institutions in the Health Branches) Branch * Number of Contracted Service Stations Southern Regional Office 32 96 143 57 Central Anatolian Regional Office 85 152 275 109 Marmara 1 Regional Office 51 49 165 79 Aegean Regional Office 74 145 315 130 Mediterranean Regional Office Central Office Total 32 59 121 58 631 492 1,179 331 905 993 2,198 764 * Hospitals, Medical Diagnosis Centers, Pharmacies, Contracted Physicians, and the like. Yapı Kredi Sigorta 2010 Annual Report 15 Developments in the Company Yapı Kredi Sigorta achieved all of its main objectives, realized a growth rate nearly double that of the non-life sector average, and reached TRY 758 million in premium production in 2010. As a partnership between Koç Group and UniCredit, Yapı Kredi Sigorta operates under the umbrella of Koç Finansal Hizmetler. An important player in the Turkish insurance sector, in which 57 companies currently operate, the Company has a 6.3% market share. In 2010, Yapı Kredi Sigorta provided high-quality and widely accessible services to its policyholders with its strong sales network composed of 993 professional agencies, 866 Yapı Kredi Bank branches, 357 direct sales employees, in addition to its 548 administrative employees, 2,198 contracted institutions, and 764 contracted service stations. Yapı Kredi Sigorta achieved all of its main objectives, realized a growth rate nearly double that of the non-life sector average, and reached TRY 758 million in premium production in 2010. In the health branch, the Company maintained its well-established leadership position and delivered the highest quality services through its network of contracted firms comprising 313 hospitals, 952 pharmacies and 367 doctor’s offices. During the economic crisis, Yapı Kredi Sigorta focused on its internal business processes and developed a number of initiatives to boost profitability and sustain growth over the long term. These initiatives were successfully implemented in 2010; as a result, the Company climbed up the sector rankings in terms of premium production and posted TRY 46.5 million in underwriting profit, one of the strongest performances in the sector. The underwriting profit ratio rose to 6.1% in 2010, up from (3.7)% in the prior year, while the loss ratio fell to 71.6%, down from 75.2% in 2009. The system infrastructure projects planned in 2009 in order to provide more rapid and higher quality services, and to minimize operating costs in the nonhealth branches, were implemented in 2010. Closely monitoring developments in the sector, the Company started providing services to its policyholders with its new software system in November 2010. The new system will allow Yapı Kredi Sigorta to maintain its competitive edge and extend its market leading position in the health branch to non-health branches. Another important agenda item for the Company in 2010 was the bancassurance project carried out jointly with Yapı Kredi Bank to enable the issue of home and motor own damage policies at bank branches. The infrastructure works were completed in 2010 and the first phase of the project launch in 2011; YKB branches will soon start to issue motor own damage policies. In 2010, as a result of the growth in the real economy and the expansion in credit market as well as efforts to increase the effectiveness of the bank sales channel, premium production through the bank channel increased by 31.5% over the previous year. In order to increase operational efficiency and customer satisfaction in the agencies sales channel, the Company restructured agency support teams and launched a comprehensive, effective and extensive award and commission program for agencies. The “Come On and Choose Your Colors” campaign, developed in 2010 and planned for launch in early 2011, will ensure the sustainability of this effort. Business process improvement initiatives to strengthen long term productivity, increase financial returns and raise customer satisfaction continued in 2010; the Company also successfully implemented projects geared toward the bank channel, agencies channel, operational processes and the call center. Yapı Kredi Sigorta started to reap the benefits of these projects in 2010 as productivity and operational efficiency surged. The Company aims to achieve further improvements in long term productivity and efficiency in the coming period with its ongoing initiatives. Yapı Kredi Sigorta has organized a number of campaigns to expand its policyholder portfolio and to make a difference for its existing policyholders. To this end, the “Bundan İyisi Can Sağlığı” (Health for Life) and “Nazar Boncuğu” (Evil Eye Charm) marketing campaigns resulted in a larger customer base for the Company’s individual health products. In the non-health branches, promotional campaigns around the products “Kasko” (Motor Own Damage) and “Yuvam” (My Home) boosted the market penetration of these products and generated strong results for the Company. In the face of price competition which had an adverse effect on the profitability of the Turkish insurance sector, Yapı Kredi Sigorta adhered to its actuarial pricing policy and as a result met its profitability targets to a large extent. The Company achieved its production objective and reached its underwriting profit goal thanks to marketing campaigns aimed at production channels and customers, a strategic focus on customer satisfaction and productivity enhancement, and innovative improvements to its systems infrastructure. In 2010, Yapı Kredi Sigorta once again collaborated with a panel comprising the world’s major reinsurers including Everest Re, Mapfre Re and Scor, and led by Munich Re, one of the largest reinsurers worldwide. In addition, the Company also entered into an excess of loss reinsurance agreement, covering natural disasters and earthquakes, with some of the world’s most prominent reinsurance companies, including Lloyd’s. In 2011, Yapı Kredi Sigorta plans to take appropriate actions as required by the dynamism of the sector, to increase customer satisfaction and profit-centered operations through its innovative approach, and strengthen its position among the top five companies in the sector while further improving its profitability. 16 Introduction Social Responsibility and Support for the Arts Since its beginnings in 1997, the Yapı Kredi Sigorta Afife Theatre Awards have evolved from the recognition of individual artistic accomplishment to become an expression of esteem for the arts and artists. Yapı Kredi Sigorta Afife Theater Awards As part of its efforts to support culture and the arts, Yapı Kredi Sigorta launched the Yapı Kredi Sigorta Afife Theatre Awards in 1996 under the artistic guidance of renowned Turkish actor Haldun Dormen. The awards program aims to foster interest in the theatrical arts and to support theatrical artists. Named after Afife Jale, the first Muslim Turkish woman to appear on stage as a professional actress, the program’s first awards were given in April 1997. Since then, the program has grown and further developed, making the Yapı Kredi Sigorta Afife Theatre Awards a source of recognition that is held in high esteem among the Turkish theatrical community. The awards today are hallmark of respect for the arts as a whole and are far more than simply recognition of personal success. The 14th annual Yapı Kredi Sigorta Awards ceremony was held on April 26, 2010. Awards were given to candidates in 14 categories and a number of other awards were presented, including: the Muhsin Ertuğrul Special Award went to Gencay Gürün; the Nisa Serezli Aşkıner Special Award to Toron Karacaoğlu; the Cevat Fehmi Başkut Special Award to Cüneyt Çalışkur; “Next Generation in Theater” Special Award to Onur Özaydın and Ahmet Varlı for their TiyatroperestHayvanat Bahçesi Masalı; and the Yapı Kredi Sigorta Special Award to Yılmaz Öğüt. Because of the spectacular annual awards ceremony, the meticulous professionalism involved in the selection process, and its support to theatrical arts in Turkey, the Yapı Kredi Sigorta Afife Theatre Awards are widely considered to be one of the most prestigious artistic awards in Turkey. Voluntary Work / Hand in Hand with Darüşşafaka In early 2009, Yapı Kredi Sigorta initiated efforts to establish a group of employee volunteers within the Company, with the help and collaboration of Yapı Kredi Bank. The objective of the project “Yapı Kredi Sigorta Volunteers Hand in Hand with Darüşşafaka” was to help the orphans under the care of Darüşşafaka Educational Institutions. These orphans, around 80% of whom come from the remote corners of Anatolia, are given opportunities to participate in Istanbul’s social life which helps them to socialize and enhances their personal development. To this end, in 2010, Yapı Kredi Sigorta organized: a picnic in Yapı Kredi Bağlarbaşı Grove; visits to the Rahmi Koç Museum, Sadberk Hanım Museum, Miniatürk and Turkuazoo; “ Seashore Cleaning Training” with the cooperation of TURMEPA. In addition, the Company provided support and advisory to the “Genç Başarı Kulübü” (Youth Success Club) project in the school. Yapı Kredi Sigorta Volunteers plan to hold many more such events in 2011 with the children of Darüşşafaka, with whom they had the chance to attend a play in a local theater in 2010. Yapı Kredi Sigorta 2010 Annual Report 17 Technical Results Yapı Kredi Sigorta posted underwriting profit of TRY 46,548 thousand in 2010 and an underwriting profit ratio of 6%. In 2010, Yapı Kredi Sigorta ranked fifth in the nonlife insurance sector with premium production of TRY 758,182 thousand, and retained its leadership position in the health branch. Technical Ratios by Year 2006 2007 2008 2009 2010 Premium (TRY Thousand) 585,459 628,143 631,536 607,977 758,182 Claims (TRY Thousand) 372,652 399,120 428,866 449,331 497,267 71 66 67 75 72 11,645 19,528 47,898 (22,696) 46,548 2 3 8 (4) 6 In an intensely competitive environment in 2010, Yapı Kredi Sigorta’s claims increased to TRY 497,267 thousand, and its loss ratio decreased by 3 percentage points from the previous year, to 72%. Loss Ratio (%) Yapı Kredi Sigorta posted underwriting profit of TRY 46,548 thousand in 2010 and an underwriting profit ratio of 6%. Total Premium Revenue (TRY Thousand) Underwriting Profit (TRY Thousand) Underwriting Profit Ratio (%) 2010 2009 Underwriting Profit (TRY Thousand) 758,182 2009 607,977 2008 631,536 2008 2007 628,143 2007 2006 585,459 2006 Loss Ratio (%) 2010 72 2009 75 2008 67 2007 66 2006 71 46,548 2010 (22,696) 47,898 19,528 11,645 18 Introduction Technical Results Developments in Premium Production and Portfolio Shares Based on the New Branch Structure An examination of the increases in premium production in 2010 clearly shows that in those branches with a share in the portfolio above 1%, the largest increases were recorded in general liability (93%) and motor own damage (48%). Under the new branch structure, the health branch generated TRY 337,430 thousand in premiums and its share in the portfolio reached 45%. Despite strong competition in the health branch putting pressure on the sector’s profitability, Yapı Kredi Sigorta maintained its market leading position and posted the second highest profit figure in this branch. An overview of the portfolio distribution shows that the health branch is followed by the motor own damage branch with a 19% share, and by the fire and catastrophe branch with a 14% share. The Company’s 2010 premium production, loss ratio and underwriting profit data under the new branch structure are shown below. Premium Production and Portfolio Shares by Branches Premium Production 2010 Branch (TRY thousand) Change (%) Share in the Portfolio (%) 16,346 24.2 2.2 Health 337,430 18.6 44.5 Motor Own Damage 147,683 48.1 19.5 965 (26.9) 0.1 Sea Vehicles 2,573 (49.6) 0.3 Marine 11,105 14.7 1.5 13.7 Casualty Air Vehicles Fire and Catastrophe 103,562 14.0 General Damages 55,243 27.3 7.3 Land Vehicles Liability 61,903 26.4 8.2 Air Vehicles Liability 0.7 0.1 93.1 2.5 1,685 108.2 0.2 758,182 24.7 100.0 Legal Protection Total Loss Ratio by Branches (%) Other* 17 34 Casualty Distribution of Total Premium Production by Branches (TRY thousand) 408 19,279 General Liability 87 General Liability 81 General Damages 106 Land Vehicles Liability Fire and Catastrophe 16 87 Motor Own damage 81 Health Health 45% Motor Own Damage 19% Fire and Catastrophe 14% Land Vehicles Liability 8% General Damages 7% General Liability 3% Casualty 2% Other 2% Underwriting Profit by Branches (TRY thousand) 6.751 Other* 10.192 Casualty 4.689 General Liability 5.667 General Damages Land Vehicles Liability (16.753) 20.343 Fire and Catastrophe Motor Own damage (5.212) Health * Air Vehicles, Air Vehicles Liability, Marine, Sea Vehicles, Legal Protection. 20.871 Yapı Kredi Sigorta 2010 Annual Report 19 CASUALTY INSURANCE HEALTH INSURANCE MOTOR OWN DAMAGE INSURANCE Premium production in the casualty branch rose by 24% over the previous year, to TRY 16,346 thousand. Of this total amount, TRY 2,445 thousand was transferred to reinsurers while TRY 13,901 thousand was retained by the Company, resulting in a retention ratio of 85%. Yapı Kredi Sigorta’s health insurance premium production in 2010 increased by 19% over the previous year to TRY 337,430 thousand; of this amount, TRY 202 million originated from individual policies and with TRY 135 million from corporate policies. The health branch’s share in the portfolio for 2010 fell by two percentage points to 45%. In the individual health branch, the number of policyholders increased by 13%, to 167 thousand as of year-end 2010, up from 148 thousand in the prior year. The corporate health branch, which counted 100 thousand policyholders in 2009, experienced a 10% decrease in 2010, ending the year with 90 thousand policyholders. Compared to the previous year, the Company realized a 48% increase in premium production in 2010, to TRY 147,683 thousand. Of this total, TRY 971 thousand was transferred to reinsurers and the retention amount was TRY 146,712 thousand, resulting in a retention ratio of 99%. Total compensation amounted to TRY 6,389 thousand. Of this total, TRY 2,592 thousand was made as payments with TRY 3,797 thousand in outstanding loss claims. The loss ratio for the year 2010 stood at 34%. The casualty branch ended the year with an underwriting profit of TRY 10,192 thousand and an underwriting profit ratio of 62%. Casualty Branch Premium Revenue (TRY thousand) Health Branch Premium Revenue (TRY thousand) 16,346 2010 2009 13,165 11,729 2008 2007 9,637 2009 10,449 2008 4,860 2008 15 2008 2009 2010 99,728 114,024 2007 133,187 2006 134,427 Motor Own Damage Branch Underwriting Profit (TRY thousand) 20,871 2010 (17,646) 29,153 19,776 10,999 2010 (5,212) 2009 (28,298) 2008 (1,729) 2007 2006 3,168 (10,743) Motor Own Damage Branch Loss Ratio (%) 81 2009 2008 7 229,211 Health Branch Loss Ratio (%) 34 2009 288,505 2006 Casualty Branch Loss Ratio (%) 2010 2008 2007 4,625 2006 2009 2008 9,595 2007 284,572 267,046 147,683 2010 2009 Health Branch Underwriting Profit (TRY thousand) 10,192 2010 337,430 2006 Casualty Branch Underwriting Profit (TRY thousand) The motor own damage insurance branch ended 2010 with TRY 5,212 thousand of underwriting loss and an underwriting loss ratio of 4%. Motor Own Damage Branch Premium Revenue (TRY thousand) 2010 2007 11,121 2006 In the health insurance branch, total compensation amounted to TRY 257,519 thousand, of which TRY 253,928 thousand was made as payments with TRY 3,592 thousand in outstanding loss claims. The year 2010 ended with a loss ratio of 81%. Total compensation amounted to TRY 143,213 thousand, of which TRY 113,111 thousand was made as payments, with TRY 30,102 thousand in outstanding loss claims. The loss ratio for 2010 was 87%. 90 79 2010 87 2009 87 2008 2007 11 2007 76 2007 2006 11 2006 77 2006 73 75 95 20 Introduction Technical Results AIR VEHICLES INSURANCE SEA VEHICLES INSURANCE MARINE INSURANCE In 2010, premium production decreased by 27% over the previous year to TRY 965 thousand. This total amount was transferred to reinsurers. Compared to the previous year, premium production decreased by 50%, to TRY 2,573 thousand, in 2010. Of this total amount, TRY 2,292 thousand was transferred to reinsurers and TRY 282 thousand was retained by the Company, resulting in a retention ratio of 11%. Compared to the previous year, premium production increased by 15%, to TRY 11,105 thousand, in 2010. Of this total, TRY 4,647 thousand was transferred to reinsurers and TRY 6,458 thousand was retained by the Company, resulting in a retention ratio of 58%. Total compensation amounted to TRY 44 thousand. Of this, TRY 34 thousand was made in payments with TRY 10 thousand in outstanding loss claims. The loss ratio for the year 2010 stood at (48)%. The branch closed the year with TRY 742 thousand underwriting profit and an underwriting profit ratio of 77%. Total compensation reached TRY 3,573 thousand. Of this, TRY 1,768 thousand was made in payments with TRY 1,805 thousand in outstanding loss claims. In 2010, the loss ratio stood at 22%. The sea vehicles insurance branch ended 2010 with TRY 187 thousand in underwriting profit, resulting in an underwriting profit ratio of 7%. Air Vehicles Branch Premium Revenue (TRY thousand) 965 2010 896 2008 104 2007 860 2006 2006 Air Vehicles Branch Underwriting Profit (TRY thousand) 2009 (742) 2008 2007 24 2007 (1) 2010 10 2007 2006 1,342 (1) 27 252 2007 166 2006 1,450 3,170 922 2,039 Marine Branch Loss Ratio (%) 22 2010 56 (29) 42 2009 78 18 2009 2008 (51) 41 4,170 2010 326 2008 2006 12,118 Marine Branch Underwriting Profit (TRY thousand) 187 2007 10,968 2006 2009 99 2008 12,336 2007 Sea Vehicles Branch Loss Ratio (%) (48) 2009 1,570 2006 Air Vehicles Branch Loss Ratio (%) 9,683 2009 2008 2009 21 2010 2,200 2010 2008 2006 5,103 Sea Vehicles Branch Underwriting Profit (TRY thousand) 742 2010 11,105 2010 2009 2008 The marine insurance branch ended 2010 with TRY 4,170 thousand in underwriting profit, resulting in an underwriting profit ratio of 38%. Marine Branch Premium Revenue (TRY thousand) 2,573 2010 1,319 2009 2007 Sea Vehicles Branch Premium Revenue (TRY thousand) Total compensation amounted to TRY 2,457 thousand, of which TRY 3,041 thousand was made in payments and TRY (584) thousand consisted of outstanding loss claims. The loss ratio stood at (29)%. 2008 2007 2006 29 38 58 Yapı Kredi Sigorta 2010 Annual Report 21 FIRE AND CATASTROPHE INSURANCE GENERAL DAMAGES INSURANCE LAND VEHICLES LIABILITY INSURANCE In 2010, premium production increased by 14% over the previous year to TRY 103,562 thousand. Of this total amount, TRY 63,561 thousand was transferred to reinsurers and about TRY 40 million was retained by the Company, resulting in a retention ratio of 39%. Premium production in 2010 experienced a 27% increase over the previous year, to TRY 55,243 thousand. Of this total, TRY 42,335 thousand was transferred to reinsurers and TRY 12,908 thousand was retained by the Company, resulting in a retention ratio of 23%. In 2010, premium production increased by 26% over the previous year, to TRY 61,903 thousand. Of that total amount, TRY 4,089 thousand was transferred to reinsurers and TRY 57,813 thousand was retained by the Company, resulting in a retention ratio of 93%. Total compensation amounted to TRY 38,822 thousand, of which TRY 21,436 thousand was made in payments, with TRY 17,385 thousand in outstanding loss claims. The loss ratio for 2010 stood at 16%. Total compensation reached TRY 64,614 thousand, of which TRY 23,639 thousand was made in payments, with TRY 40,975 thousand in outstanding loss claims. The loss ratio for 2010 was 81%. The fire and catastrophe insurance branch ended 2010 with TRY 20,343 thousand in underwriting profit, with an underwriting profit ratio of 20%. The general damages insurance branch ended 2010 with TRY 5,667 thousand in underwriting profit, resulting in an underwriting profit ratio of 10%. Fire and Catastrophe Branch Premium Revenue (TRY thousand) General Damages Branch Premium Revenue (TRY thousand) 103,562 2010 90,839 2009 92,520 2008 2007 91,532 2007 89,309 20,343 10,635 2009 2007 (2,873) 2006 Fire and Catastrophe Branch Loss Ratio (%) 2010 16 2008 2007 2006 5,667 6,265 5,924 5,423 2,363 General Damages Branch Loss Ratio (%) 81 2010 36 2009 2006 General Damages Branch Underwriting Profit (TRY thousand) 2007 3,189 2006 33,646 2008 58 2009 27 63 2008 39 41 2007 2006 35 2010 2007 2009 13,172 2008 Land Vehicles Liability Branch Premium Revenue (TRY thousand) 2008 40,640 2010 The land vehicles liability insurance branch ended 2010 with an underwriting loss of TRY 16,753 thousand and an underwriting loss ratio of 27%. 2009 45,572 2006 Fire and Catastrophe Branch Underwriting Profit (TRY thousand) 2010 43,383 2009 2008 2006 55,243 2010 Total compensation reached TRY 91,954 thousand, of which TRY 34,711 thousand was made in payments, with TRY 57,243 in outstanding loss claims. The 2010 loss ratio was 106%. 61,903 48,954 53,890 61,678 65,630 Land Vehicles Liability Branch Underwriting Profit (TRY thousand) 2010 (16,753) 2009 (6,991) 2008 (13,293) 2007 (12,983) 2006 (2,537) Land Vehicles Liability Branch Loss Ratio (%) 106 2010 2009 72 81 2008 86 2007 56 2006 71 22 Introduction Technical Results GENERAL LIABILITY INSURANCE LEGAL PROTECTION INSURANCE Premium production increased by 93% over the previous year, to TRY 19,279 thousand. Of this, TRY 9,722 thousand was transferred to reinsurers and TRY 9,558 thousand was retained by the Company, resulting in a retention ratio of 50%. In 2010, premium production increased 108% over the previous year, to TRY 1,685 thousand. Legal protection insurance had a retention ratio of 100%. Total compensation reached TRY 33,952 thousand, of which TRY 2,040 thousand was made in payments, with TRY 31,912 thousand in outstanding loss claims. The loss ratio for the year 2010 was 87%. The general liability insurance branch ended 2010 with TRY 4,689 thousand in underwriting profit, and an underwriting profit ratio of 24%. General Liability Branch Premium Revenue (TRY thousand) 19,279 2010 Total compensation reached TRY 8,313 thousand, of which TRY 3,192 thousand was made in payments, with TRY 5,121 thousand in outstanding loss claims. The 2010 loss ratio was 0.54%. The legal protection insurance branch ended the year with TRY 1,654 thousand in underwriting profit, resulting in an underwriting profit ratio of 98%. Legal Protection Branch Premium Revenue (TRY thousand) 1,685 2010 2009 9,982 2009 2008 9,154 2008 617 2007 9,576 2007 631 8,041 2006 4,689 2010 959 Legal Protection Branch Underwriting Profit (TRY thousand) 1,654 2010 896 2009 2008 881 2008 2007 922 2007 2006 724 2006 General Liability Branch Underwriting Profit (TRY thousand) 2009 809 696 2006 General Liability Branch Loss Ratio (%) 87 2010 65 2009 747 569 621 Legal Protection Branch Loss Ratio (%) 0.54 2010 2009 (0.35) 2008 76 2008 2007 75 2007 0.14 2006 0.44 2006 35 0.38 PART II MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 24 Management and Corporate Governance Practices Board of Directors Tayfun BAYAZIT Chairman of the Board After having received a BS degree in Mechanical Engineering (1980) and an MBA from Columbia University, New York, (Finance and International Business - 1983), Tayfun Bayazıt started his banking career at Citibank in 1983. He subsequently worked in senior executive positions within Çukurova Group for 13 consecutive years, including Yapı Kredi (Senior Executive Vice President and Executive Committee Member), Interbank (CEO) and Banque de Commerce et de Placements S.A. Switzerland (President and CEO). In 1999, he was appointed as the Vice Chairman of Doğan Holding and an Executive Director of Dışbank. He assumed the CEO position at Dışbank in 2001 and was appointed as the Chairman of the Board of Directors at the 2003 Annual Shareholders’ Meeting. He became the CEO and Board Member of Fortis Turkey after the acquisition of the majority shares of Dışbank in July 2005. In the 2006 Annual Shareholders’ Meeting, he was appointed as Chairman of the Board of Directors of Fortis Bank A.Ş. He was appointed as the CEO of Yapı Kredi and of the Bank’s holding company (Koç Financial Services, KFS) in the beginning of 2007. Two years later, he was elected as the Chairman of Yapı Kredi and in 2010 he also started to serve as Chairman of Koç Financial Services. Being the President of Banking and Insurance Group at Koç Holding, Bayazıt also serves as Chairman of Yapı Kredi Insurance, Yapı Kredi Pension, Yapı Kredi Koray Real Estate Investment Trust, Yapı Kredi Bank Nederland, Yapı Kredi Bank Azerbaijan and Yapı Kredi Bank Moscow as well as Vice Chairman of Banque et de Placements. Alessandro Maria DECIO Vice Chairman A graduate from the Department of Economics, Commerciale L. Bocconi University, Alessandro Maria Decio holds an MA from INSEAD (the European Institute for Business Administration) and worked as a research assistant for six months at Commerciale L. Bocconi University. Starting his finance career at IMI International, Decio held the post of Vice President until 1991. Subsequently, he was employed by Morgan Stanley International as an associate and afterwards by McKinsey until 1994 with the same position. Decio joined the European Bank for Reconstruction and Development (EBRD) at the end of 1994 and left in 2000 as a Director. In June 2000, he joined UniCredit Group as the Head of Foreign Banks Strategy, Mergers, Acquisitions, Planning and Control Group and in October 2002 was appointed Chief Operating Officer (COO) for Zagrebacka Banka (within UniCredit Group). He served as COO at Bulbank, another UniCredit Group company between 2003 and 2005 and later at UniCredit Group’s Integration Project as Manager. Decio was appointed Manager of UniCredit Group’s Germany Integration Project at the beginning of 2006, before going on to serve as UniCredit Group Deputy Head of Integration Office from July 2006 to July 2007. Appointed as Executive Director of Yapı Kredi on April 26, 2007, he also became the Chief Operating Officer of the Bank on July 1, 2007. On January 30, 2009, Decio was appointed as the Deputy CEO of Yapı Kredi. Decio also serves as Executive Director and Deputy CEO of Koç Financial Services, Vice Chairman of Yapı Kredi Asset Management, Yapı Kredi Invest, Yapı Kredi Leasing, Yapı Kredi Factoring, Yapı Kredi Insurance, Yapı Kredi Pension, Yapı Kredi Bank Nederland, Yapı Kredi Bank Azerbaijan, Yapı Kredi Bank Moscow and Yapı Kredi Cultural Activities, Arts and Publishing. Decio is a member of Board of Directors of Yapı Kredi Koray Real Estate Investment Trust. Ahmet Fadıl ASHABOĞLU Board Member After graduating from the Alman Lisesi (German High School) in Istanbul and Tufts University, Department of Mechanical Engineering, in the USA, Ahmet F. Ashaboğlu received an MS from Massachusetts Institute of Technology (MIT), Department of Mechanical Engineering and began his career as a research assistant at MIT in Cambridge in 1994. He worked as Associate Director of US Treasury Bond Trading at UBS Warburg, New York and then as Head Trader of FX Options at UBS Warburg, Philadelphia in 1998 and 1999. He served as a consultant at McKinsey&Company between 1999 and 2003 in New York. Joining Koç Holding as the Finance Group Coordinator after his return to Turkey in 2003, Ashaboğlu has been the CFO (Chief Financial Officer) of Koç Holding since January 2006. Ashaboğlu has been a member of the Board of Directors of Yapı Kredi since September 28, 2005. Ashaboğlu is also a member of Board of Directors of Koç Financial Services, Yapı Kredi Insurance and Yapı Kredi Pension. Hüseyin Faik AÇIKALIN Board Member After earning a BS degree in Business Administration from Middle East Technical University, Faik Açıkalın began his banking career in 1987 as a Management Trainee at Interbank. He subsequently worked in various positions including internal auditor, relationship manager, branch manager and marketing manager at Interbank, Marmarabank, Kentbank, Finansbank and Demirbank. In May 1998, he joined Dışbank as Executive Vice President. Later that year, he was appointed Chief Operating Officer (COO) responsible for the coordination and communication between the Board of Directors and business units. He also assumed the position as a member of the Credit Committee. In June 1999, Açıkalın was appointed as Deputy CEO and member of the Board of Directors. In December 2000, he became CEO of Dışbank. Following the acquisition of the majority shares of Dışbank by Fortis in July 2005, he continued to serve as CEO of the Bank when it was renamed Fortisbank and was appointed member of the Fortis Global Management Committee and Fortis Global Retail Management Team. In October 2007, he resigned from his duties at Fortis and became CEO at Turkey’s largest newsprint media holding company, Doğan Gazetecilik. In April 2009, Açıkalın was appointed Executive Director of Yapı Kredi and was also appointed Chairman of the Executive Committee in April 2009. Having started to serve also as CEO of the Bank’s holding company (KFS) in 2010, Açıkalın has been CEO of Yapı Kredi since May 2009. Açıkalın also serves as Chairman of Yapı Kredi Asset Management, Yapı Kredi Invest, Yapı Kredi Leasing, Yapı Kredi Factoring and a member of Board of Directors of Yapı Kredi Insurance, Yapı Kredi Pension, Yapı Kredi Bank Nederland, Yapı Kredi Bank Azerbaijan and Yapı Kredi Bank Moscow. Marco CRAVARIO Board MEMBER Following his graduation from the Economics Department at the University of Turin in 1991, Marco Cravario attended top-level financial education programmes at the London School of Economics and INSEAD. He started his career as an auditor at Ernst & Young first in Turin (Italy) and then in Prague (Czech Republic). In 1996, he moved to Ernst & Young Corporate Finance in Milan (Italy), serving as a Director. In 2001, Cravario joined UniCredit Group to head the New Europe Division Mergers and Acquisitions unit. Subsequently, he held a number of managerial positions in the Group, including planning and control, organisation, business development, also gaining some commercial experience in the retail network. In 2006, Cravario assumed the position of CFO and Executive Board Member at UniCredit Tiriac Bank in Romania. Cravario has been Executive Vice President and CFO at Yapı Kredi since January 2008 and a member of the Executive Committee since February 2009. Cravario is also a member of Board of Directors of Yapı Kredi Leasing, Yapı Kredi Factoring, Yapı Kredi Insurance, Yapı Kredi Pension and Yapı Kredi Bank Azerbaijan. Associate Professor S. Giray VELİOĞLU Board Member/General Manager Associate Professor S. Giray Velioğlu graduated from Robert College, Department of Civil Engineering in 1971. After obtaining a master’s degree in Civil Engineering from Boğaziçi University in 1973, he went on to earn a doctorate in Environmental Engineering from the University of Illinois, Champaign-Urbana in 1976. Later in 1976, Dr. Velioğlu started his career at Middle East Technical University, Department of Environmental Engineering as faculty member. From 1977 to 1982, he held a position in the Department of Civil Engineering at Boğaziçi University. Dr. Velioğlu was a faculty member at Yarmouk University in Jordan between 1982 and 1986, at the Jordan University of Science and Technology from 1986 to 1987, and in the Civil Engineering Department at King Fahd University of Petroleum and Minerals, Saudi Arabia. After a 13-year academic career, Dr. Velioğlu joined Yapı Kredi Sigorta* as Risk Engineering Manager in 1989. On March 1, 1997, he was appointed General Manager of Yapı Kredi Emeklilik**. Since May 1, 2009, Dr. Velioğlu has served as General Manager of Yapı Kredi Sigorta and Executive Director of Yapı Kredi Emeklilik. (*) The name of the Company, which was established in 1943, was changed from Halk Sigorta, to Yapı Kredi Sigorta A.Ş. in 2000. (**) The name of the Company, which was established in 1991, was changed from Halk Yaşam Sigorta to Yapı Kredi Yaşam in October 2000 and to Yapı Kredi Emeklilik in December 2002. Yapı Kredi Sigorta 2010 Annual Report Auditors Adil G. ÖZTOPRAK Adil G. Öztoprak graduated from Ankara University, Faculty of Political Sciences, Department of Finance and Economy in 1966. From 1966 to 1975, he served on the Audit Board of the Turkish Ministry of Finance and then as the Assistant General Manager of Budgeting and Financial Control. Since 1976, Mr. Öztoprak has served as Financial Coordinator and General Manager in various companies. From 1993 to 2000, he took office as partner at Başaran Nas Yeminli Mali Müşavirlik A.Ş. (PriceWaterhouseCoopers). In addition, Mr. Öztoprak has been an independent sworn financial consultant since 2000. Abdullah GEÇER Abdullah Geçer graduated from Middle East Technical University, Department of Economics in 1996; subsequently, in 2002, he received an MBA from Nottingham University. From 1996 to 2000, Mr. Geçer held the position of Assistant Certified Bank Auditor at the Undersecretariat of Treasury. He then served as Certified Bank Auditor in the Banking Regulation and Supervision Agency (BRSA) from 2000 to 2007. In 2007, Mr. Geçer became Chief Certified Bank Auditor at BRSA, and the same year he was appointed Coordinator of the Auditing Group at Koç Holding A.Ş. 25 26 Management and Corporate Governance Practices Senior Management Associate Professor S. Giray VELİOĞLU General Manager Associate Professor S. Giray Velioğlu graduated from Robert College, Department of Civil Engineering in 1971. After obtaining a master’s degree in Civil Engineering from Boğaziçi University in 1973, he went on to earn a doctorate in Environmental Engineering from the University of Illinois, Champaign-Urbana in 1976. Later in 1976, Dr. Velioğlu started his career at Middle East Technical University, Department of Environmental Engineering as faculty member. From 1977 to 1982, he held a position in the Department of Civil Engineering at Boğaziçi University. Dr. Velioğlu was a faculty member at Yarmouk University in Jordan between 1982 and 1986, at the Jordan University of Science and Technology from 1986 to 1987, and in the Civil Engineering Department at King Fahd University of Petroleum and Minerals, Saudi Arabia. After a 13-year academic career, Dr. Velioğlu joined Yapı Kredi Sigorta* as Risk Engineering Manager in 1989. On March 1, 1997, he was appointed General Manager of Yapı Kredi Emeklilik**. Since May 1, 2009, Dr. Velioğlu has served as General Manager of Yapı Kredi Sigorta and Executive Director of Yapı Kredi Emeklilik. Manager, Technical Departments and subsequently as Assistant General Manager, Technical Departments and Sales between 2004 and 2009 at Yapı Kredi Sigorta. Since 2009, Mr. Gölpınar has served as Assistant General Manager, Sales. Banu DARCAN Assistant General Manager Corporate Health Sales, Health Product Management, Health Underwriting, Call Center, Health Claims and Health Services Yıldırım TÜRE Assistant General Manager Istanbul Region, Kadıköy Region, Bakırköy Region, Bursa Region, Aegean Region, Central Anatolian Region, Southern Region, Mediterranean Region, Agencies, Agency Support, Brokers and Corporate Sales Banu Darcan graduated from Istanbul Technical University, Faculty of Business Administration, Department of Industrial Engineering in 1989. She began her career as Assistant Specialist at Halk Yaşam A.Ş. in 1990, and joined Yapı Kredi Sigorta as Group Head in 2001. Ms. Darcan has served as Assistant General Manager, Health Insurance at Yapı Kredi Sigorta since June 2004. Coşkun GÖLPINAR Assistant General Manager Bank Sales Management, Health Sales Management, Marketing and Bancassurance, Business Development Coşkun Gölpınar graduated from Yıldız Technical University, Department of Architecture. He began his career in 1984 at Koçtaş as an architect, and in 1986, he moved to Akbank, where he served in the same capacity. Mr. Gölpınar joined Yapı Kredi Sigorta in 1987 in the company’s Risk Engineering Department, and served as Group Head in Technical Departments. From 1996 to 2004, he worked as Assistant General İlkay ÖZEL Assistant General Manager Agencies Finance, Treasury Management, Financial Reporting and Accounting, Planning and Control, Human Resources and Organization İlkay Özel graduated from Marmara University, Faculty of Economics and Administrative Sciences, Department of Economics in 1994. She worked as Senior Auditor for Deloitte and Touche from 1994 to 1997, as Financial Control Manager at Finansbank and Finansbank Holland between 1997 and 2001. Ms. Özel served as Planning and Control Group Head at Yapı Kredi Bank from 2001 to 2006 as well as Human Resources Practices and Planning Group Head at the same bank. Since April 1, 2009, Ms. Özel has held the position of Assistant General Manager, Financial Group and Human Resources and Organization. Yıldırım Türe graduated from Çukurova University, Business Administration Department in 1989. His professional career started in the Southern Regional Office of Yapı Kredi Sigorta and subsequently he served as Manager at Internal Audit, Finance, Bursa Region and Aegean Region. On June 1, 2001, Mr. Türe was appointed Group Head in charge of Regions; on July 9, 2009, he was promoted to Assistant General Manager, Agencies and Regions. Nasaş Alüminyum. Mr. Fenercioğlu started work in the Fire Underwriting Department of Yapı Kredi Sigorta on July 17, 1989 and transferred to the Reinsurance Department on February 1, 1994. Mr. Fenercioğlu has served as Consultant in the Reinsurance Department since September 1, 2005; he was appointed Assistant General Manager, Non-Health Underwriting (Acting) on July 9, 2009. Melike DEMİREL Assistant General Manager (Acting) Non-Auto Claims, Auto Claims, Subrogation, Strategy and Systems Research and Development, Sales Support, and Non-Health Actuary Melike Demirel graduated from Boğaziçi University, Industrial Engineering Department in 1990. Her professional career began at Yapı Kredi Sigorta in the Major Clients and Marketing Department in 1991. Ms. Demirel transferred to the Non-Auto Claims Department on June 1, 1992. She was appointed Manager of Non-Auto Claims on January 1, 1998. Ms. Demirel has served as Assistant General Manager, Non-Health Claims and Strategy Development since July 9, 2009. Volkan TERZİOĞLU Assistant General Manager (Acting) Software Development, Special Projects, Unit Relations, Systems and Network Management and Customer Help Desk Volkan Terzioğlu graduated from Yıldız Technical University, Department of Computer Engineering in 1988. He started his professional career in 1991 as Specialist Programmer at AGF Garanti Sigorta. On April 1, 1992, Mr. Terzioğlu began work at Yapı Kredi Emeklilik’s Information Technology Department, and, served as Group Head of Information Technology at Yapı Kredi Emeklilik from December 1, 2004. Mr. Terzioğlu was appointed Acting Assistant General Manager, Information Technologies on July 9, 2009. Selim FENERCİOĞLU Assistant General Manager (Acting) Motor Underwriting, Fire Underwriting and Risk Engineering, Marine Underwriting, Special Risks and Liability Underwriting, Engineering Underwriting and Reinsurance Selim Fenercioğlu graduated from Istanbul Erkek Lisesi, and then Boğaziçi University, Department of Business Administration in 1986. He began his professional career in 1986 as Internal Auditor at (*) The name of the Company, which was established in 1943, was changed from Halk Sigorta, to Yapı Kredi Sigorta A.Ş. in 2000. (**) The name of the Company, which was established in 1991, was changed from Halk Yaşam Sigorta to Yapı Kredi Yaşam in October 2000 and to Yapı Kredi Emeklilik in December 2002. Yapı Kredi Sigorta 2010 Annual Report Internal Audit Levent ÖZER Internal Audit Manager Levent Özer graduated from Istanbul University, Department of Economics in 2000. Between 2004 and 2005, he completed a certification program in accounting at the Baruch College of The City University of New York. Mr. Özer worked at Ernst & Young as a Senior Auditor from 2000 to 2003. He joined Yapı Kredi Sigorta in September 2005 to work in the Financial Affairs and Planning and Control departments. Since May 2008, Mr. Özer has served as the Internal Audit Manager of the Company. Serdal GAZCILAR Internal Control and Risk Management Officer Serdal Gazcılar graduated from Mimar Sinan University, Department of Statistics in 1995. He began his professional career by joining Yapı Kredi Sigorta’s Fire Underwriting Department in 1996. Mr. Gazcılar then worked for the Marketing Department between 1998 and 2000, and as Expert Auditor for the Internal Audit Department from 2000 to 2008. He has worked in the Internal Control Department since January 2009, where he also acts as the Company’s MASAK (Financial Crimes Investigation Board) Compliance Officer. Since July 2009, Mr. Gazcılar is also responsible for Risk Management operations in addition to Internal Control operations. No duration has been specified for his term of office. 27 28 Management and Corporate Governance Practices Organizational Chart Board of Directors Internal Audit Levent Özer General Manager S. Giray Velioğlu Internal Control and Risk Management Serdal Gazcılar Management Office Ülkü Adalı Assistant General Manager Sales Coşkun Gölpınar Health and Bank Sales Group Head Yılmaz Vatansever Bank Sales Management Alper Tunga Araman Central-1 Region Nihat Başıbüyük Central-2 Region Çetin Şılar Marketing and Bancassurance Group Management Tolga Okan Tezbaşaran Marketing and Bancassurance Serap Esma Ağca Assistant General Manager Agencies and Regions Yıldırım Türe Assistant General Manager Non-Health Underwriting E. Selim Fenercioğlu (Acting) Health Insurance Assistant General Manager Banu Darcan Istanbul Region M. Murat Beköz Non-Health Underwriting Group Head V. Aykut Alp Çelebi Corporate Sales (Health) and Product Management Group Head Ayşe Türkölmez Kadıköy Region Petek Özsevim (Acting) Motor Underwriting Mehmet Tümer Corporate Sales – Health Business Development Bakırköy Region Gonca Akbudak Karacagil (Acting) Fire Underwriting and Risk Engineering Kadir Burnaz Product Management– Health Corporate Communications(5) Agency Support Marine Underwriting Özlem Gülek Solmaz (Acting) Kadıköy Region Oğuz Sağızlı Health Underwriting and Call Center Group Head Tevfik Ekmen Ankara Region Tolga Arslan Bursa Region Funda Baybalı (Acting) Special Risks and Liability Underwriting Alper Tan Health Underwriting Uğur Yılmaz Adana Region Aegean Region Ruhsan Gezgin Engineering Underwriting Barış Vardar Call Center Zümrüt Kulaksız Antalya Region Central Anatolian Region A. Korkut Güner Bursa Region Southern Region Adnan M. Sığın İzmir Region Health Sales Ejder Akbaba Mediterranean Region Feza Gürel (Acting) Renewal Desk Gülçin Dülger Central 1 Region Güven Güngör İstanbul Region Central-2 Region Şenol Dedeakayoğulları Bursa Region Kadıköy Region Arzu Vatansever Yücegönül Central Anatolian Region Bursa Region Özcan Baştor (Acting) İzmir Region Aegean Region Barış Koçyiğit Antalya Region Birnar Nermin Gültekin Central Anatolian Region Barış Gündoğdu (Acting) Adana Region Agencies M. Cengiz Cantekin Brokers and Corporate Sales Aslıhan Öğüt Reinsurance Nevra Demiral Health Claims Group Head F. Dilek İzbudak Health Claims Müge Sarıbayraktar Health Services Zafer Unar Yapı Kredi Sigorta 2010 Annual Report Assistant General Manager Non-Health Claims and Strategy Development Melike Demirel (Acting) Non-Health Claims Group Head Necmettin Yılmaz Assistant General Manager Information Technologies Volkan Terzioğlu (Acting) Assistant General Manager Financial Group & Human Resources and Organizations İlkay Özel Software Group Head Hüseyin Akay Human Resources and Training Group Head Non-Auto Claims Musa Alphan Bahar (Acting) Software Development Human Resources and Organizations(2) Auto Claims Sengül Yıldız (Acting) Special Projects Saliha Çevik Öksüzoğlu Training(3) Ayhan Güçlü Subrogation Gamze Bulur Strategy Development and Sales Support Group Head Kenan Akter Strategy and Systems Research and Development Atilla Karayiğit Sales Support Belkıs Tezbaşaran Non-Health Actuary Banu Aksoylu Legal Affairs (1) Gülay Akalay (Acting) Actuary S. Belkıs Erşen Unit Relations 29 Finance and Treasury Group Head Emel Bek Systems and Network Management Özgür Uysal Agencies Finance Group L. Emre Keçecioğlu (Acting) Help Desk Faik Korhan Ürgüp Treasury Management İlkim Soysal Planning, Control, Financial Reporting and Accounting Department Group Head Mehmet Yetgin Financial Reporting and Accounting M. Teoman Çelen Planning and Control Administrative Affairs and Cost Management Group Management (4) M. Uğur Kavuşturan Administrative Affairs and Cost Management (4) M. Özgür Gökalp (1) is a joint services department with YKE and reports to Umur Çullu as the Assistant General Manager. (2) is a joint services department with YKE and reports to Seda Tunoğlu Kaymak as the Department Manager, Serkan Bayramoğlu as the Group Head, and to İlkay Özel as the Assistant General Manager. (3) is a joint services department with YKE and reports to Serkan Bayramoğlu as the Group Head and to S. Bülent Eriş as the Assistant General Manager. (4) is a joint services department with YKE and reports to Umur Çullu as the Assistant General Manager. (5) is a joint services department with YKE and reports to Füsun Dedehayır Ulukan as the Department Head and to S. Bülent Eriş as the Assistant General Manager 30 Management and Corporate Governance Practices Headquarters and Regional Management Group Heads Ayşe Türkölmez Head of Corporate Sales (Health) and Product Management Group Fatma Dilek İzbudak Head of Health Claims Group Vehbi Aykut Alp Çelebi Head of Non-Health Underwriting Group Necmettin Yılmaz Head of Non-Health Claims Group Mehmet Uğur Kavuşturan Head of Administrative Affairs and Cost Management Group Emel Bek Head of Finance and Treasury Group Tevfik Ekmen Head of Health Underwriting and Call Center Group Yusuf Kenan Akter Head of Strategy Development and Sales Support Group Tolga Okan Tezbaşaran Head of Marketing, Bancassurance and Business Development Group Hüseyin Akay Head of Software Group Mehmet Yetgin Head of Planning, Control, Financial Reporting and Accounting Group Yılmaz Vatansever Head of Health and Bank Sales Group Department Managers Alper Tan Special Risks and Liability Underwriting Manager Alper Tunga Araman Bank Sales Manager Aslıhan Öğüt Brokers and Corporate Sales Manager Atilla Karayiğit Strategy and Systems Research Development Manager Ayhan Güçlü Training Manager Banu Aksoylu Non-Health Actuary Assistant Manager Barış Vardar Engineering Underwriting Manager Belkıs Tezbaşaran Sales Support Assistant Manager Faik Korhan Ürgüp Help Desk Assistant Manager Gamze Bulur Subrogation Assistant Manager Gülay Akalay Legal Affairs Assistant Manager (Acting) İlkim Soysal Treasury Assistant Manager Kadir Burnaz Fire Underwriting and Risk Engineering Manager Levent Özer Internal Audit Assistant Manager Lutfi Emre Keçecioğlu Agencies Finance Assistant Manager (Acting Manager) Mehmet Cengiz Cantekin Agencies Manager Mehmet Tümer Motor Underwriting Manager Müge Dürdane Sarıbayraktar Health Claims Manager Musa Alphan Bahar Non-Auto Claims Assistant Manager (Acting Manager) Mustafa Özgür Gökalp Administrative Affairs and Cost Management Manager Mustafa Teoman Çelen Financial Reporting and Accounting Manager Nevra Demiral Reinsurance Manager Özgür Uysal Systems and Network Manager Özlem Gülek Solmaz Marine Underwriting Manager (Acting Manager) Saliha Çevik Öksüzoğlu Special Projects Manager Sengül Yıldız Auto Claims Assistant Manager (Acting Manager) Serap Esma Ağca Marketing and Bancassurance Manager Uğur Yılmaz Health Underwriting Manager Zafer Unar Health Services Assistant Manager Zümrüt Kulaksız Call Center Assistant Manager Regional Managers Adnan Mehmet Sığın Southern Region Manager Ahmet Korkut Güner Central Anatolian Region Manager Ejder Akbaba Marmara Region Health Sales Manager Feza Gürel Mediterranean Region Manager (Acting) Funda Baybalı Bursa Region Manager (Acting Region Manager) Gonca Akbudak Karacagil Bakırköy Region Assistant Manager (Acting Region Manager) Mehmet Murat Beköz Istanbul Region Manager Petek Özsevim Kadıköy Region Assistant Manager (Acting Region Manager) Ruhsan Gezgin Aegean Region Manager Yapı Kredi Sigorta 2010 Annual Report Terms of Office and Professional Experience of Auditors Adil G. ÖZTOPRAK Auditor Adil G. Öztoprak graduated from Ankara University, Faculty of Political Sciences, Department of Finance and Economy in 1966. From 1966 to 1975, he served on the Audit Board of the Turkish Ministry of Finance and then as the Assistant General Manager of Budgeting and Financial Control. Since 1976, Mr. Öztoprak has served as Financial Coordinator and General Manager in various companies. From 1993 to 2000, he took office as partner at Başaran Nas Yeminli Mali Müşavirlik A.Ş. (PriceWaterhouseCoopers). In addition, Mr. Öztoprak has been an independent sworn financial consultant since 2000. Abdullah GEÇER Auditor Abdullah Geçer graduated from Middle East Technical University, Department of Economics in 1996; subsequently, in 2002, he received an MBA from Nottingham University. From 1996 to 2000, Mr. Geçer held the position of Assistant Certified Bank Auditor at the Undersecretariat of Treasury. He then served as Certified Bank Auditor in the Banking Regulation and Supervision Agency (BRSA) from 2000 to 2007. In 2007, Mr. Geçer became Chief Certified Bank Auditor at BRSA, and the same year he was appointed Coordinator of the Auditing Group at Koç Holding A.Ş. The auditors will remain in office until the General Assembly Meeting to be held for the evaluation of the Company’s accounts and activities in 2010. Information about the General Assembly Meetings Information regarding the attendance of Board Members at related meetings held during the period. The Board of Directors met 28 times in 2010. Twenty-one meetings were held after the election of Board Members at the General Assembly Meeting on March 23, 2010. The Board Members fully attended all the meetings. 31 32 Management and Corporate Governance Practices Summary Board of Directors Report Submitted to the General Assembly Dear Shareholders, We hereby submit for your assessment, the 2010 balance sheet and profit/loss accounts of the Company, which has completed its 67th year in the sector. Based on the figures for 2010, Yapı Kredi Sigorta recorded total premium production of TRY 758 million, of which, TRY 337 million originated from the health branch, with TRY 421 million from non-health branches. These results placed Yapı Kredi Sigorta in a leadership position in the health branch of the non-life insurance sector, with a 20% market share; in addition, the Company has a 4% market share and ranks ninth in the nonhealth branches. The progress of the Company’s market share in non-life branches over the last five years is presented below: Yapı Kredi Sigorta Market Share (%) 2006 2007 2008 2009 2010 7.1 6.5 6.2 5.7 6.3 Yapı Kredi Sigorta has 905 employees. In 2010, the number of the Company’s agents increased to 993, contracted institutions rose to 2,198 and contracted service stations increased to 764. The Company’s financial investments in 2010 were directed toward risk-free and high-yield investment instruments including government bonds, treasury bills, foreign exchange accounts and Turkish Lira deposit accounts. In non-health branches, in order to offer customers more rapid and higher quality services, minimize operating costs, maintain a competitive edge and extend the leadership position in the health branch to non-health branches, the Company implemented a new software system as of November 1, 2010. In 2010, Yapı Kredi Sigorta continued business process improvement initiatives to determine ways to increase productivity, improve financial returns, and raise customer service quality. The Company also successfully implemented improvement projects via the bank channel and agencies channel, and those geared toward operational and call center processes. These projects yielded positive results during the year. In 2011, the Company targets achieving more extensive and long term improvements in productivity and operational efficiency. Yapı Kredi Sigorta has implemented a variety of marketing campaigns in order to expand its customer base and strengthen its market leading position. The “Bundan İyisi Can Sağlığı” (Health for Life) and “Nazar Boncuğu” (Evil Eye Charm) promotional campaigns helped the Company reach a wider customer base for its individual health products. In non-health branches, the Company organized campaigns around the products “KOBİ İşimin” (My SME Business), “Kasko” (Motor Own Damage) and “Yuvam” (My Home) with the objectives of increasing market penetration and generating competitive advantages. In the face of irrational competitive pricing policies which had an adverse impact on the profitability of the insurance sector, the Yapı Kredi Sigorta did not abandon its actuary based price policies and closed the year 2010 with underwriting profit. Yapı Kredi Sigorta 2010 Annual Report Branch Casualty Premium Production 2010 (TRY thousand) 33 Share in the Portfolio (%) 16,346 2.2 Health 337,430 44.5 Motor Own Insurance 147,683 19.4 Air Vehicles Sea Vehicles Marine Fire and Catastrophe 965 0.1 2,573 0.3 11,105 1.5 103,562 13.7 General Damages 55,243 7.3 Land Vehicles Liability 61,903 8.2 408 0.1 General Liability 19,279 2.5 Legal Protection 1,685 0.2 758,182 100.0 Air Vehicles Liability Total The highlights of the Balance Sheet and Profit and Loss Statement, presented for your examination, are as follows: The Company reported underwriting profit of TRY 46,547,641 with TRY 55,661,252 and TRY 79,087,453 carried forward from investment income and general expenses, respectively. The profit/loss account balance consists of net investment income of TRY 13,751,407 and net investment expense of TRY 6,078,696. Expenses from other activities, including reserves, earnings from deferred taxes, and other income and expenses, amount to TRY 6,544,196. Net investment income added to underwriting profit, as well as other operational costs, amount to a gross profit of TRY 47,676,157. When TRY 5,127,086 in taxes is deducted from gross profit, the Company posted an after-tax profit of TRY 42,549,071. Respectfully yours, The Board of Directors 34 Management and Corporate Governance Practices Overview of Activities of the Company in Its Respective Risk Group Yapı Kredi Group Companies, their ultimate shareholders and the companies controlled by those ultimate shareholders, are defined as related companies in the financial statements. The details and explanations relating to the Company’s activities in its respective risk group in 2010 can be found in disclosure number 45 of the financial statement in the Annual Report. Yapı Kredi Sigorta 2010 Annual Report 35 Information on Human Resources Practices Application and Recruitment Management Yapı Kredi Sigorta seeks to fill job vacancies that arise owing to the creation of approved new or additional positions, or the death, resignation, transfer or promotion of an employee, based on its strategy and targets, by recruiting candidates who possess skills and abilities compatible with the Company’s mission, vision, values, policies, targets and corporate culture. Applications reaching the Company via a variety of sources (postal mail, email, corporate website, personal application, Company employees or consulting companies) are collected in the applications pool, and those applicants who hold the necessary abilities and capabilities required for the respective position are short-listed into the related pool of candidates. Yapı Kredi Sigorta pays meticulous attention to recruiting the right people for the right positions, and to this end, it conducts one-on-one, as well as group interviews with the candidates and administers testing as necessary. At the final stage, the suitable candidates are offered a job, and, if they accept, they are welcomed to the Yapı Kredi Sigorta family. Candidates who are not found suitable for the related position are also informed of the decision. Newly recruited employees are supported via orientation and on-the-job training so that they can better acclimate themselves to their jobs and the Company. Performance Management The Company places great emphasis on performance management in pursuit of continuously improving the operational performance of the organizational structure, systems and employees. Training Management Having adopted continuous development and work values as key principles, Yapı Kredi Sigorta dedicates great effort to improving its employees’ suitability for their jobs and enhancing their abilities. In order to obtain information about the development of its human resources, enable employees to integrate within the Company, and reach corporate targets, Yapı Kredi Sigorta conducts various assessments and systematically produces the required information within the framework of the Performance Management System. The investment starts with the orientation programs and on-the-job training given to employees upon their recruitment. It is further fine-tuned based on the Company’s strategies and targets, as well as customer complaints, and the results from the Training Requirement Analysis Survey and the Performance Management System; this investment is continued via the implementation of the annual training plans. Career Management Yapı Kredi Sigorta believes that expanding employees’ abilities and responsibilities within the framework of their current positions is equally important as promotions for sustainable personal development. On-the-job assessment of the employees’ ability levels enables the identification of areas that need improvement, and the channeling of the employees into positions where they can succeed. When doing this, the Company considers and evaluates the performance and/or abilities of the employees not only based on their current positions, but also for higher positions. The effectiveness of the training activities is evaluated based on a systematic approach, and the Company takes carefully calculated steps in order to ensure continuous development of its human capital. Salary Management Yapı Kredi Sigorta’s salary operations are carried out based on the Salary Management System, which is defined in line with other systems used within the Company. The salary of newly recruited employees is determined in the framework of the Company’s general policies, and according to the job definition, as well as the employee’s skills, experience and education. In case of a position change, the salary operation is carried out based on the predefined principles. 36 Management and Corporate Governance Practices Corporate Governance Principles Compliance Report 1. Statement of Compliance with Corporate Governance Principles It was decided by the Board of Directors of Yapı Kredi Sigorta to accept in principle the “Corporate Governance Principles” published by the Capital Markets Board (CMB) with the BOD decision number 60, dated December 23, 2003. During the fiscal year between January 1, 2010 and December 31, 2010, the Company has not performed any application which is contrary to the principles included in the “Corporate Governance Principles” published by the Capital Markets Board. PART I - SHAREHOLDERS 2. Shareholders Relations Unit A Shareholder Relations Unit has been set up pursuant to the Board of Directors decision number 60, dated December 23, 2003. Head of Planning, Control and Treasury Group, Emel Bek (emel.bek@ yksigorta.com.tr - +90 212 336 08 42) and Financial Affairs Manager, M. Teoman Çelen (tcelen@yksigorta. com.tr - +90 212 336 08 41) are responsible for this unit. Shareholders had no information requests from the Company during the reporting period. In brief, the duties and responsibilities of the Investor Relations Unit consist of the following, and similar, activities: • Ensure that shareholders are able to exercise their rights as shareholders and to manage communications between shareholders and the Board of Directors; • Ensure that records pertaining to shareholders are maintained in ways that are valid, reliable, and timely; • Respond to shareholders’ written requests for information on all matters about the Company that are subject to public disclosure and are not in the nature of commercial secrets; • Ensure that general assembly meetings are held in accordance with current laws and regulations and within the provisions of the Articles of Incorporation; • Prepare the minutes of general assembly meetings and have them registered and announced; send documents to appropriate public authorities; • Supervise and monitor all issues related to public disclosures in accordance with the requirements of law and the Company’s public disclosure policy. 3. Shareholders’ Exercise of Their Right to Obtain Information The Company’s corporate website, www.yksigorta. com.tr, is used to announce periodic financial statements, annual reports, special circumstance announcements disclosures and general assembly meeting minutes to all shareholders. Additionally, regarding the Capital Markets Board communiqué numbered VIII/54, shareholders are informed via public announcements that are provided to the media through the Istanbul Stock Exchange. The Company’s corporate website, www.yksigorta. com.tr, is used to announce developments which may affect the use of rights of stock ownership. Shareholders had no information requests from the Company during the reporting period. As there is not any arrangement regarding the request for the private auditor appointment in the Articles of Association, there has not been any private auditor appointment requests during the year. 4. Information about General Assembly Meetings The Company’s Annual General Assembly Meeting was held on March 23, 2010, and was attended by the legally prescribed quorum. Invitations to attend the meetings were sent to shareholders by registered mail, and invitations were published in two separate newspapers. There is no specified period of time during which registered shareholders’ shares must make an entry in the shareholders’ register in order to take part in the general assembly meeting. The Company’s Articles of Association contain no provisions requiring decisions of a highly important nature, such as buying, selling or leasing substantial amounts of assets and property, to be taken at a general assembly meeting. Minutes of the general assembly meeting are published for shareholders to examine on the corporate website. To facilitate shareholders’ participation in General Assembly Meetings, the meetings are announced via the Istanbul Stock Exchange and the media. The annual report, balance sheet, profit/loss statement, and Statutory Auditors’ report, as well as the date and agenda of the General Assembly Meeting are published for shareholders to examine. 5. Voting Rights and Minority Rights None of the Company’s shares are subject to special voting rights. Minority shareholding interests are not represented in management. There are no companies in which there are reciprocal shareholding interests. The Company’s Articles of Association contain no provisions governing the accumulated voting method. 6. Dividend Payment Policy and Timing The profit distribution policy for the year 2011 and beyond is published on the Company website, www. yksigorta.com.tr, for the information of shareholders. 7. Transferring Shares The Company’s Articles of Association contain no provisions restricting the transfer of shareholding interests. PART II - PUBLIC DISCLOSURE AND TRANSPARENCY 8. Company Disclosure Policy Information regarding the disclosure policy approved by the Board of Directors can be found on the Company website, www.yksigorta.com.tr. 9. Special Circumstance Announcements The Company made 22 special circumstance announcements in 2010, pursuant to CMB regulations. No special circumstance announcements were made on foreign stock exchanges since the Company’s shares are not quoted on such exchanges. 10. Company Website and its Content For many years, the Company’s website, www. yksigorta.com.tr, has been used for making public announcements. The website contains information regarding shareholder and management structures, annual reports, financial statements and reports, and special circumstance announcements and forms to submit inquiries to the Company. 11. Disclosure of Non-Corporate Ultimate Shareholder(s) Who Have a Controlling Interest There are no non-corporate ultimate shareholders with which the Company has an indirect or reciprocal shareholding interest. Yapı Kredi Sigorta 2010 Annual Report 12. Public Disclosure of Those who May Have Access to Insider Information The management members list includes members of the management and audit units of Yapı Kredi Sigorta A.Ş., as well as individuals who directly or indirectly access insider information regarding the Company in a regular fashion; in addition, those who have the authority to make administrative decisions that influence the Company’s future development and commercial objectives are on this list. The Company’s management members list is presented below. İlkay Özel Assistant General Manager The list of individuals with access to insider information is prepared and maintained according to the applicable laws and regulations. Volkan Terzioğlu Assistant General Manager (Acting) Yıldırım Türe Assistant General Manager Emin Selim Fenercioğlu Assistant General Manager (Acting) Melike Demirel Assistant General Manager (Acting) 37 and requests are regularly queried and suggestions are entertained at the workplace. In addition, the corporate intranet is open to all employees and serves as a continuous channel of communication between employees and the Human Resources Department. The Company maintains a working environment in which rules and practices are clearly shared with all personnel. Any complaint from personnel is resolved by the Human Resources Department, keeping the best interests of both the Company and its employees in mind at all times. In dealing with any complaint, the management of the appropriate unit is involved as well, and every effort is made to understand the source of the problem and to prevent its recurrence. PART III - STAKEHOLDERS YAPI KREDİ SİGORTA A.Ş. MANAGEMENT MEMBERS LIST Members of the Board of Directors Tayfun Bayazıt Chairman of the Board of Directors Alessandro Maria Decio Vice Chairman of the Board of Directors Marco Cravario Member Ahmet Fadıl Ashaboğlu Member Hüseyin Faik Açıkalın Member Associate Professor S. Giray Velioğlu Member and General Manager Senior Management (General Managers and Assistant General Managers) Associate Professor S. Giray Velioğlu General Manager Banu Darcan Assistant General Manager Coşkun Gölpınar Assistant General Manager 13. Keeping Stakeholders Informed Company employees are kept informed about Company activities by the General Manager and relevant Assistant General Managers as circumstances dictate. Publicly disclosed information is also made available to employees and other stakeholders via the corporate website. 14. Stakeholder Participation in Management The Company is a joint-stock company and is managed by its legally-prescribed organs. Issues that require these organs to make decisions are first examined and assessed by the appropriate management levels, and then submitted to the appropriate decision-making organ for its approval. Suggestions and ideas submitted by stakeholders are also assessed and taken into consideration in this decision-making process as well. 15. Human Resources Policy The declared objective of the Human Resources Department is to conduct modern human resources practices based on success so as to recruit qualified personnel and employ them in the most productive way in line with the Company’s goals and strategies. Employees who are members of the Human Resources team play an active role in conducting relations with other Company personnel. Visits are made to operational units, and employees’ needs 16. Relations with Customers and Suppliers Detailed information about all Company products is available on the Company website, as is complete information about all special and general offers. The website also contains a mechanism whereby users may direct questions, suggestions, and complaints to the Company. The email address, yksigorta@yksigorta. com.tr, is also available for the same purpose. Thanks to the Customer Relations Center, it is possible to gain access to information by means of a single phone call and obtain full details about products and policies and resolve any problems. Complaints directed to the Company are handled through the Customer Complaint Tracking System. Activities at the center are reported to senior management on a monthly basis and the situation at the center is monitored at the highest levels. A customer who enters into a health insurance policy agreement has the unconditional right to cancel it within one month’s time from the policy’s issue date. 17. Social Responsibility Since the commissioning of the statue “Akdeniz” (The Mediterranean), widely regarded as an important work in the history of Turkish sculpture, as well as the de facto symbol of the Company, Yapı Kredi Sigorta’s other efforts to foster the arts and artists include the Afife Theatre Awards, where winners in 14 main categories and five special categories were announced at the 14th annual awards program in 2010. 38 Management and Corporate Governance Practices Corporate Governance Principles Compliance Report PART IV -THE BOARD OF DIRECTORS 18. Structure and Formation of the Board of Directors and Independent Members The Board of Directors consists of Tayfun Bayazıt (Chairman), Alessandro Maria Decio (Vice Chairman), Ahmet Fadıl Ashaboğlu (Member), Hüseyin Faik Açıkalın (Member), Marco Cravario (Member) and Associate Professor Sezai Giray Velioğlu (MemberGeneral Manager). There are no independent members on the Board. There are no specific rules or restrictions pertaining to Members of the Board of Directors undertaking other duties outside the Company. 19. Qualifications of Board Members The Company’s Board of Directors consists of members who satisfy the levels of knowledge and skills stipulated in the CMB’s corporate governance principles, and who possess specific experience, background and qualifications that are not specifically mentioned in the Company’s Articles of Association. 20. Mission, Vision, and Strategic Goals of the Company Yapı Kredi Sigorta’s Vision To be an enduring and pioneering insurance trademark that is preferred by everyone in the Turkish insurance sector; to possess the experience and financial strength that makes it a reference point in the international insurance business. Yapı Kredi Sigorta’s Mission To possess the advanced technical and sales infrastructure capable of immediately responding to all the insurance needs of Turkish society, and in this way, to number among the companies providing the best service in the sector by ensuring unconditional customer satisfaction. Yapı Kredi Sigorta’s corporate mission and vision have been publicly disclosed by both the Board of Directors and the Company’s senior management through interviews, discussions, and publications appearing in the written and audiovisual media. The Company’s senior management periodically identifies, reviews, and revises Yapı Kredi Sigorta’s long, medium, and short-term strategic objectives. After these have been approved by the Board of Directors, the action plans needed to accomplish them are developed by management. During its regular monthly meetings, the members of the Board of Directors review the Company’s activities and performance as well as the degree to which short-term objectives have been met. Every six months, the degree to which medium and long-term objectives have been met is also reviewed, any instances of under-performance are scrutinized, and the measures that need to be taken are identified. In situations where targets are exceeded, they are reviewed and adjusted as necessary. 21. Risk Management and Internal Control Mechanisms The Company’s Internal Audit Department and Internal Control and Risk Management Department report directly to the Board of Directors; they are responsible for all activities in the areas of risk management and internal control, and issue reports on their activities within the framework of the annual business plan. 22. Authorities and Responsibilities of Board Members and Executives The authorities and responsibilities of the Board of Directors are spelled out in detail in article 16 of the Company’s Articles of Association. 23. Operating Principles of the Board of Directors During the reporting period, the Board convened 28 times. There is a secretariat, whose duty is to keep Board Members informed, and maintain communication with and among them. This office also notifies members of meeting agendas prior to the meeting. Board members must be physically present at meetings. Decisions taken at board meetings are recorded in the Company’s decision register. 24. Prohibition on Doing Business or Competing with the Company During the reporting period, members of the Board of Directors engaged in no transactions with the Company, and they complied with the prohibition on competing with the Company. 25. Rules of Ethics Yapı Kredi Sigorta adheres to the principle of providing maximum satisfaction to its shareholders by managing its insured risks in the best possible way and to its policyholders by fulfilling, at the highest possible level, the levels of compensation and service they expect from its commitments toward them. The Company has earned an outstanding reputation for itself in the sector as an honest and principled insurer that does not compromise its business principles. It strives continually to build on that reputation. Numerous interactive communications channels are available to permit shareholders and policyholders to make their opinions clear to the Company and to provide them with information. Ensuring access to information is considered a high priority for every employee of the Company. Yapı Kredi Sigorta is mindful of the rules and laws to which it is subject, and respects the rights and liberties of individuals. It pursues its activities honestly and openly, stressing the immense importance of confidentiality, the concept upon which our sector was founded. The Company’s employees are bound to protect the reputation of Yapı Kredi Sigorta in all situations. They are also bound by the principles of the Company in all their actions. Employees are prohibited from adopting an inappropriate stance or engaging in any activity that is contrary to law or social order. 26. Numbers, Structures, and Independence of Committees within the Board of Directors Members Marco Cravario and Ahmet Fadıl Ashaboğlu were elected by the Board of Directors to be responsible for the audit committee. 27. Financial Rights Provided to the Board of Directors During the Ordinary General Assembly Meeting held on March 23, 2010, it was decided that Members of the Company’s Board of Directors are not to be paid an honorarium. During the reporting period, the Company made no loans or extended any credit to any board member or manager; did not extend the terms or improve the conditions of any existing loans or credit already provided to them; did not extend credit under the rubric of personal loan or surety to them through any third party. Yapı Kredi Sigorta 2010 Annual Report 39 Statutory Auditors’ Report STATUTORY AUDITORS’ REPORT To the attention of Yapı Kredi Sigorta General Assembly, We hereby submit the audit results of the Company for the fiscal year 2010 for your attention: 1. We found out that, based on the Turkish Commercial Code and other relevant regulations, a. The mandatory books and accounts were kept in line with the applicable laws, b. The documents, which certify the accounts, were kept properly, and c. The decisions regarding the Company management were duly kept in the minutes book. 2. In our opinion, given the condition and status of the Company, the enclosed financial statements, issued as of December 31, 2010, based on insurance laws and regulations as well as other accounting principles and standards, accurately and truly reflect the results of business activities during the same period. In conclusion, we hereby recommend that the business activities summarized in the Board of Director’s report, the financial statements prepared in accordance with insurance laws and other regulations, and the recommendations of the Board of Directors about the results of the period be approved, and that the members of the Board of Directors be released of their fiduciary responsibilities. Istanbul, February 25, 2011 With regards, Auditor Abdullah GEÇER Auditor Adil G. ÖZTOPRAK 40 Management and Corporate Governance Practices Information about Internal Audit Activities Internal audit activities at Yapı Kredi Sigorta are carried out by the Internal Audit Unit. As of end-2010, the Unit includes one director and two experts, reporting directly to the Board of Directors. Audits are conducted based on an annual audit plan, which is created in line with a risk-based approach and is subject to the approval of the Board of Directors. The Internal Audit Unit makes general audits, process audits and follow-up audits and in addition to these, it also conducts investigations. It reports quarterly on important events that occurred and audit activities that were performed during the reporting period. The reports are submitted to the attention of the Board of Directors through the Audit Committee, which includes Board Members as well. The Internal Audit Unit’s activities are directed toward two main goals: controlling whether the administrative and financial aspects of the insurance operations carried out by Yapı Kredi Sigorta A.Ş. headquarters and regional offices comply with the related laws and regulations as well as the Company’s procedures; and identifying the areas that are subject to risks, and making recommendations as to how to avoid those risks, based on its observations of the capacity and efficiency of the internal control system and business processes. PART III OVERVIEW OF FINANCIAL INFORMATION AND RISK MANAGEMENT Yapı Kredi Sigorta 2010 Annual Report Annual Report Compliance Statement to be presented to the General Assembly Yapı Kredi Sigorta A.Ş. 2010 Annual Report Compliance Statement The Company’s 2010 Annual Report has been prepared in conformity with the principles and procedures outlined in the Regulation on the Financial Structure of Insurance, Reinsurance and Pension Companies, published in the Official Gazette dated August 7, 2007 and numbered 26606. Tayfun BAYAZIT Chairman İlkay ÖZEL Assistant General Manager Doç. Dr. S. Giray VELİOĞLU General Manager Mehmet YETGİN Group Head M. Teoman ÇELEN Manager 43 Yapı Kredi Sigorta Anonim Şirketi Independent auditors’ report as of December 31, 2010 To the Board of Directors of Yapı Kredi Sigorta Anonim Şirketi. 1. We have audited the accompanying unconsolidated balance sheet of Yapı Kredi Sigorta Anonim Şirketi (“the Company”) and its subsidiary as of 31 December 2010 and the related unconsolidated statement of income, statement of changes in equity, cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes Company Management’s responsibility for the financial statements 2. The Company management is responsible for the preparation and fair presentation of these financial statements in accordance with the prevailing accounting principles and standards set out as per the insurance legislation. This responsibility includes designing, implementing and maintaining internal systems relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility 3. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with the regulations regarding auditing principles set by insurance legislation. Those standards require that the ethical principles are complied with and that the audit is planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatement. 4. Our audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The independent audit procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessment, the independent auditors consider internal systems relevant to the entity. However our purpose is not expressing an opinion on the effectiveness of the entity’s internal control, but to consider the relation of the financial statements prepared by the Company management and the internal systems in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Yapı Kredi Sigorta Anonim Şirketi and its subsidiaries as of December 31, 2010 and its financial performance and its cash flows for the year then ended in accordance with the prevailing accounting principles and standards (Note 2) set out as per the insurance legislation. Other matter 7. The unconsolidated financial statements of the Company prepared in accordance with the accounting principles and standards as set out in the insurance law were audited by another independent audit firm, who expressed an unqualified opinion in their report dated March 1, 2010. Additional paragraph for convenience translation to English 8. As of December 31, 2010, the accounting principles described in Note 2 to the accompanying unconsolidated financial statements differ from International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. The effects of differences between accounting principles and standards described in Note 2 and IFRS have not been quantified in the accompanying unconsolidated financial statements. Accordingly, the accompanying financial statements are not intended to present the financial position and results of operations of the Company in accordance with IFRS. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of Ernst & Young Global Limited Şeyda Oltulu, SMMM Engagement Partner February 25, 2011 Istanbul, Turkey Yapı Kredi Sigorta 2010 Annual Report 45 CONVENIENCE TRANSLATION OF THE COMPANY’S REPRESENTATION ON THE UNCONSOLIDATED FINANCIAL STATEMENT PREPARED AS OF 31 DECEMBER 2010 We confirm that the accompanying unconsolidated financial statements and notes to these unconsolidated financial statements as of 31 December 2010 are prepared in accordance with the accounting principles and standards as set out in the insurance legislation and in conformity with the related regulations and the company’s accounting records. Yapı Kredi Sigorta A.Ş. Istanbul, 25 February 2011 Doç. Dr. S. Giray VELİOĞLU General Manager İlkay ÖZEL Assistant General Manager Abdullah GEÇER A. Giray ÖZTOPRAK Auditor Auditor Mehmet YETGİN Company Manager M. Teoman ÇELEN Manager B. Sema ERŞEN Actuary Registry No: 20 46 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) IA12345B12345678C12345678910D123456789E1234567F1234G12345678I- ASSETS Current Assets Cash and Cash Equivalents Cash Cheques Received Banks Cheques Given and Payment Orders (-) Other Cash and Cash Equivalents Financial Assets and Financial Investments at Insurees’ Risk Available for Sale Investments Held to Maturity Investments Trading Investments Loans Provision for Loans (-) Financial Assets at Insuree’s Risk Company’s Shares Provision for impairment of financial assets (-) Receivables from Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Deferred Expenses and Income Accruals Deferred Expenses Accrued Interest and Rent Income Deferred Income Other Deferred Expenses and Income Accrualsf Other Current Assets Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Job Advances Advances to Personnel Count Shortages Other Current Assets Provision for Other Current Assets (-) Total Current Assets Note 2.12 2.12 2.12 and 47.1 11.1 2.8 and 11.1 2.8 and 11.1 2.8, 11.1 and 12.1 12.1 12.1 12.1 12.1 12.1 12.1 45 47.1 2.18 Audited 31 December 2010 Audited 31 December 2009 290,659,637 1,300 237,878,001 52,780,336 157,502,393 153,484,496 4,017,897 216,340,442 278,543,027 (66,332,861) 3,120,360 3,569,305 (2,559,389) 433,661 2,289 423,079 8,293 - 156,379,779 3,702 127,477,212 28,898,865 188,582,158 184,906,397 3,675,761 181,455,858 232,732,365 (55,878,972) 3,094,123 75,511 3,747,568 (2,314,737) 59,435 2,167 57,268 - 6,243,867 9,447 6,192,087 86,825 (44,492) 49,842,753 49,842,753 3,224,294 314,274 2,836,775 801 72,444 724,247,047 2,858,807 25,280 2,791,194 86,825 (44,492) 40,620,092 40,620,092 3,311,007 248,713 3,055,673 6,621 573,267,136 The accompanying notes form an integral part of these unconsolidated financial statements. Yapı Kredi Sigorta 2010 Annual Report 47 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 Audited 31 December 2009 148,249,982 148,249,982 10,311,452 5,373,700 6,286,450 16,333,035 101,661 7,261,834 (25,045,228) 9,161,285 12,733,628 (3,661,798) 89,455 26,562 26,562 10,067,009 10,067,009 177,816,290 902,063,337 148,249,982 148,249,982 18,024,569 5,141,566 16,628,517 16,142,938 143,695 7,033,348 (27,065,495) 5,040,384 5,303,112 (3,098,772) 2,836,044 1,500,972 1,500,972 6,771,263 6,771,263 179,587,170 752,854,306 Audited IIA12345678910B123456789C1234567D12345678910E12345678910F1234567G123H12345678II- ASSETS Non-Current Assets Receivables from Main Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Financial Assets Investment Securities Subsidiaries Subsidiaries Capital Commitments (-) Equity Investments Equity Investments Capital Commitments (-) Joint-Ventures Joint-Ventures Capital Commitments (-) Financial Assets and Financial Investments at Insurees’ Risk Other Financial Assets Provision for impairment of financial assets (-) Tangible Assets Investment Properties Provision for Diminution in Value of Investment Property (-) Property for Operational Usage Machinery and Equipment Furniture and Fixtures Motor Vehicles Other Tangible Assets (including leasehold improvements) Leased Assets Accumulated Depreciation (-) Advances Given for Tangible Assets(including construction in progress) Intangible Assets Rights Goodwill Start-up Costs Research and Development Expenses Other Intangible Assets Accumulated Amortization (-) Advances Given for Intangible Assets Deferred Expenses and Income Accruals Deferred Expenses Income Accruals Other Deferred Expenses and Income Accruals Other Non-Current Assets Effective Foreign Currency Accounts Foreign Currency Accounts Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Other Non-Current Assets Other Non-Current Assets Depreciation (-) Provision for Diminution in Value of Other Non-Current Assets (-) Total Non-Current Assets TOTAL ASSETS (I+II) Note 11.4 and 45.2 2.5 and 2.6 7 6 6 6 6 2.7, 8 8 8 8 2.18, 21 and 35 The accompanying notes form an integral part of these unconsolidated financial statements. 48 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Audited LIABILITIES IIIA12345678B123456C123456D123E1234567F1234567G123H123I123III- Note Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Short Term Installments of Long Term Borrowings Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Main Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Associates Due to Subsidiaries Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables (-) Insurance Technical Provisions Unearned Premium Reserve-Net Unexpired Risks Reserve-Net Life Mathematical Reserve-Net Outstanding Claim Provision-Net Bonus and Rebate Provision-Net Provision for Life Policies at Insuree’s Risk-Net Other Technical Reserves-Net Taxes and Other Fiscal Liabilities Taxes and Funds Payable Social Security Withholdings Payable Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Other Taxes and Fiscal Liabilities Corporate Tax Provision and Other Fiscal Liabilities Prepaid Corporate Tax and Other Fiscal Liabilities (-) Other Taxes and Fiscal Liabilities Provision Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Provision for Expense Accruals Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Current Liabilities Deferred Tax Liabilities Count Overages Other Current Liabilities Total Current Liabilities 2,22 2,22 19 4 19 and 47.1 47.1 19 and 47.1 2.24, 4 and 17 2.24, 4 and 17 2.24, 4 and 17 47.1 2.18 and 35 2.18 47.1 2.19 and 22 23 47.1 31 December 2010 89,565,935 24,617,774 23,671,757 41,276,404 1,353,397 484 20,261 1,332,652 9,374,161 59 9,374,102 426,826,735 315,976,310 324,756 110,525,669 14,062,691 5,329,896 991,906 5,420,249 (687,617) 3,008,257 561,971 561,971 17,770,127 11,090,510 6,679,617 2,020,786 2,020,786 561,535,803 The accompanying notes form an integral part of these unconsolidated financial statements. Audited 31 December 2009 289 (289) 70,888,034 19,729,964 14,096,193 72,505 36,989,372 760,695 484 760,211 10,718,522 59 10,718,463 347,017,134 253,107,465 6,996,416 76,661,572 10,251,681 8,275,047 4,821,478 886,188 1,778,833 (1,188,363) 1,976,911 15,702,819 12,286,882 3,415,937 1,554,540 1,554,540 454,916,791 Yapı Kredi Sigorta 2010 Annual Report 49 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 Audited 31 December 2009 6,481,612 6,481,612 3,833,314 3,833,314 10,314,926 3,726,882 3,726,882 4,221,050 4,221,050 7,947,932 Audited LIABILITIES IVA1234567B123456C123456D123E1234567F123G12H123I12IV- Note Non-Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Subsidiaries Due to Equity Investments Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables Insurance Technical Provisions Unearned Premium Reserve-Net Unexpired Risks Reserve-Net Life Mathematical Reserve-Net Outstanding Claim Provision-Net Bonus and Rebate Provision-Net Provision for Life Policies at Insuree’s Risk-Net Other Technical Reserves-Net Other Liabilities and Related Provisions Other Payables Overdue, Deferred or Restructured Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Non-Current Liabilities Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities 2.24, 4, 17 and 47.1 2.19 and 22 The accompanying notes form an integral part of these unconsolidated financial statements 50 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) SHAREHOLDERS’ EQUITY Note VA1234B12345C123456D1E1F123V- Shareholders’ Equity Share Capital Nominal Capital Unpaid Capital (-) Adjustments to Share Capital Adjustments to Share Capital (-) Capital Reserves Share Premium Profit from Stock Abrogation Sales Profits to be Added to the Capital Foreign Currency Translation Differences Other Capital Reserves Profit Reserves Legal Reserves Statutory Reserves Extraordinary Reserves Special Funds (Reserves) Valuation of Financial Assets Other Profit Reserves Retained Earnings Retained Earnings Accumulated Deficit (-) Previous Years’ Losses Net Profit for the Period Net Profit for the Period Net Loss for the Period (-) Profit for he period-not subject to distribution Total Shareholders’ Equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (III+IV+V) 2.13 and 15 15 15 15 15 15 Audited 31 December 2010 Audited 31 December 2009 198,495,352 80,000,000 118,495,352 9,350,548 9,350,548 83,070,096 5,600,553 49,304,509 6,173,768 21,991,266 8,677,836 8,677,836 (11,930,295) (11,930,295) 42,549,071 38,650,317 3,898,754 330,212,608 198,495,352 80,000,000 118,495,352 9,350,548 9,350,548 85,396,142 5,600,553 49,304,509 8,499,814 21,991,266 8,677,836 8,677,836 (11,930,295) (11,930,295) 289,989,583 902,063,337 752,854,306 The accompanying notes form an integral part of these unconsolidated financial statements. Yapı Kredi Sigorta 2010 Annual Report 51 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statement Of Income for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) I-TECHNICAL PART Note A11.1- 1.2- 1.3- 233.13.2B11.1- 1.2- 22.12.234CD11.1- 1.2- 1.3- 234E11.1- 1.2- 22.12.233.13.244.14.256789FG1234567H1234I- Non-Life Technical Income Earned Premiums-(Net of Reinsurer’s Share) Written Premiums-(Net of Reinsurer’s Share) 1.1.1-Gross Written Premium (+) 1.1.2-Reinsurer’s Share of Gross Written Premium (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.2.1-Unearned Premiums Reserve (-) 1.2.2-Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.3.1-Unexpired Risks Reserve (-) 1.3.2-Reinsurer’s Share of Unexpired Risks Reserve (+) Investment Income Transferred from Non-Technical Part Other Technical Income-(Net of Reinsurer’s Share) Other Gross Technical Income (+) Reinsurer’s Share of Other Gross Technical Income (-) Non-Life Technical Expense Incurred Losses-(Net of Reinsurer’s Share) Paid Claims-(Net of Reinsurer’s Share) 1.1.1-Gross Paid Claims (-) 1.1.2-Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Returned Reserve) (+/-) 1.2.1-Outstanding Claims Provision (-) 1.2.2-Reinsurer’s Share of Outstanding Claims Provision (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provision (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Net Technical Income-Non-Life (A-B) Life Technical Income Earned Premiums-(Net of Reinsurer’s Share) Written Premiums-(Net of Reinsurer’s Share) 1.1.1-Gross Written Premiums (+) 1.1.2-Reinsurer’s Share of Gross Written Premiums (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1-Unearned Premiums Reserve (-) 1.2.2-Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.3.1.-Unexpired Risks Reserve (-) 1.3.2.-Reinsurer’s Share of Unexpired Risks Reserve (+) Life Investment Income Unrealised Investment Income Other Technical Income-(Net of Reinsurer’s Share) Life Technical Expense Incurred Losses-(Net of Reinsurer’s Share) Paid Claims (Net of Reinsurer’s Share) 1.1.1-Gross Paid Claims (-) 1.1.2-Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1-Outstanding Claim Provisions (-) 1.2.2-Reinsurer’s Share of Outstanding Claim Provisions (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provisions (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Life Mathematical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Life Mathematical Reserves (-) Reinsurer’s Share of Life Mathematical Reserves (+) Change in Provision for Policies at Life Insurees’ Risk (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Provision for Life Policies at Insuree’s Risk (-) Reinsurer’s Share of Provision for Life Policies at Insuree’s Risk (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Investment Expenses (-) Unrealised Investment Expense (-) Investment Income Transferred to Non-Life Technical Part (-) Net Technical Income-Non-Life (D-E) Pension Funds Technical Income Fund Management Income Management Expense Charge Entrance Fee Income Management Expense Charge in case of Suspension Special Service Expense Charge Capital Allowance Value Increase Income Other Technical Income Pension Funds Technical Expense Fund Management Expense (-) Capital Allowance Value Decrease Expense (-) Operating Expenses (-) Other Technical Expenses (-) Net Technical Income-Pension Funds (G-H) 2.21 and 24 24 10 and 24 47.5 10 47.5 10 47.5 10 47.5 31 and 32 Audited Audited 01.01.2010-31.12.2010 627,176,877 566,487,506 622,684,691 758,182,493 (135,497,802) (62,868,845) (63,670,269) 801,424 6,671,660 6,671,660 55,661,252 5,028,119 5,028,119 (580,629,236) (439,782,046) (413,609,701) (456,303,982) 42,694,281 (26,172,345) (40,962,806) 14,790,461 (2,754,730) (138,092,460) 46,547,641 - 01.01.2009-31.12.2009 483,120,199 441,451,956 466,304,280 607,976,823 (141,672,543) (17,936,471) (6,153,800) (11,782,671) (6,915,853) (6,915,853) 38,745,037 2,923,206 2,923,206 (505,816,599) (387,397,607) (379,375,696) (445,135,215) 65,759,519 (8,021,911) (4,195,854) (3,826,057) (1,824,436) (116,594,556) (22,696,400) - The accompanying notes form an integral part of these unconsolidated financial statements. 52 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statement Of Income for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) II-NON-TECHNICAL PART Note CFIJK- L- M- N- Net Technical Income-Non-Life (A-B) Net Technical Income-Life (D-E) Net Technical Income-Pension Funds (G-H) Total Net Technical Income (C+F+I) Investment Income 1-Income from Financial Investments 2-Income from Sales of Financial Investments 3-Valuation of Financial Investments 4-Foreign Exchange Gains 5-Income from Associates 6-Income from Equity Subsidiaries and Joint-Ventures 7-Income from Land and Buildings 8-Income from Derivatives 9-Other Investments 10-Investment Income Transferred from Life Technical Part Investment Expense (-) 1-Investment Management Expenses (Interest incl.) (-) 2-Diminution in Value of Investments (-) 3-Loss from Realization of Financial Investments (-) 4-Investment Income Transferred to Non-Life Technical Part (-) 5-Loss from Derivatives (-) 6-Foreign Exchange Losses (-) 7-Depreciation Expenses (-) 8-Other Investment Expenses (-) Income and Expenses from Other Operations and Extraordinary Operations (+/-) 1-Provisions (+/-) 2-Rediscounts (+/-) 3-Special Insurance Account (+/-) 4-Inflation Adjustment (+/-) 5-Deferred Tax Assets (+/-) 6-Deferred Tax Liabilities Expenses (-) 7-Other Income 8-Other Expenses (-) 9-Prior Year’s Income 10-Prior Year’s Expenses (-) Net Profit/(Loss) for the Period 1-Profit/(Loss) for the Period 2-Corporate Tax Provision and Other Fiscal Liabilities (-) 3-Net Profit/(Loss) for the Period 26 26 and 45 6.1 47.5 47.5 47.1 35 and 47.5 Audited 01.01.2010-31.12.2010 46,547,641 46,547,641 69,412,660 27,606,419 262,691 7,362,964 3,585,045 26,492,624 4,102,917 (61,739,948) (2,272) (55,661,252) (4,133,592) (1,942,832) (6,544,196) (9,732,277) 41,698 2,767,431 710,125 (331,173) 42,549,071 47,676,157 (5,127,086) 42,549,071 The accompanying notes form an integral part of these unconsolidated financial statements. Audited 01.01.2009-31.12.2009 (22,696,400) (22,696,400) 51,354,369 27,149,886 1,910,963 10,828,278 2,866,588 7,007,884 1,590,770 (43,464,449) (3,079) (81,320) (38,745,037) (2,873,474) (1,761,539) 4,655,018 (699,578) 1,803,024 4,565,365 270,983 (1,284,776) (11,930,295) (10,151,462) (1,778,833) (11,930,295) Yapı Kredi Sigorta 2010 Annual Report 53 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statements Of Cash Flows for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Note A123456789101112B123456789C1234567DEFG- CASH GENERATED FROM MAIN OPERATIONS Cash flows from insurance operations Cash flows from reinsurance operations Cash flows from private pension funds operations Cash outflows from insurance operations (-) Cash outflows from reinsurance operations (-) Cash outflows from private pension funds operations (-) Net Cash from main operations (A1+A2+A3-A4-A5-A6) Interest payment (-) Income tax payment (-) Other cash inflows Other cash outflows (-) Net cash provided by main operations CASH FLOWS FROM INVESTING OPERATIONS Sale of tangible assets Tangible assets purchases (-) Financial assets purchases (-) Sales of financial assets Interest received Dividends received Other cash inflows Other cash outflows (-) Net Cash from investing activities CASH FLOWS FROM FINANCING OPERATIONS Issue of shares Cash inflows due to the borrowings Leasing payments (-) Dividends paid (-) Other cash inflows Other cash outflows (-) Net cash used in financing activities EFFECT OF EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period (E+F) 6.3 45 Audited 01.01.2010-31.12.2010 Audited 01.01.2009-31.12.2009 668,056,998 67,295,532 (531,578,508) (125,994,743) 77,779,279 20,261 (73,151,312) 4,648,228 617,749,483 93,944,943 (513,934,561) (146,566,225) 51,193,640 (87,748,772) (36,555,132) 11,265,038 (6,215,581) (167,044,863) 203,503,681 27,026,277 26,492,624 519,027 95,546,203 45,213 (2,361,644) (69,210,372) 91,884,613 30,116,434 6,994,867 676,986 58,146,097 - (10,739,894) (10,739,894) (437,173) 99,757,258 156,024,114 255,781,372 (6,886) 10,844,185 145,179,929 156,024,114 38 2.12 The accompanying notes form an integral part of these unconsolidated financial statements. BCDEFGHIJII- A- BCDEFGHIJIII- IA- 80,000,000 - (2,326,046) 6,173,768 118,495,352 - 5,600,553 Legal Reserves 2,207,340 3,393,213 5,600,553 5,600,553 49,304,509 Statutory Reserves 18,421,558 (17,869) 30,900,820 49,304,509 49,304,509 The accompanying notes form an integral part of these unconsolidated financial statements. Capital Increase (A1 + A2)) 1- Cash 2- From Internal Resources Own Shares of the Company Gain and Losses Not Included in the Income Statement (Note 15) Value Increase in the Assets Foreign Currency Translation Differences Other Income and Losses Inflation Adjustments Net Profit for the Period (Note 37) Dividends Paid (Note 38 and 45) Transfer Balances at the period end (31/12/2010) (I+A+B+C+D+E+F+G+H+I+J) Balances at the prior period end (31/12/2008) Capital Increase (A1 + A2)) 1- Cash 2- From Internal Resources Own Shares of the Company Gain and Losses Not Included in the Income Statement (Note 15) Value Increase in the Assets Foreign Currency Translation Differences Other Income and Losses Inflation Adjustments Net Profit for the Period (Note 37) Dividends Paid (Note 38 and 45) Transfer Balances at the period end (31/12/2009) (I+A+B+C+D+E+F+G+H+I+J) Balances at the prior period end (31/12/2009) Statements of changes in Shareholders’ Equity-Audited (*) Financial Inflation Foreign Own Shares Assets Fair Adjustment Currency of the Value to the Share Translation Capital Company (-) Reserve Capital Differences 80,000,000 3,093,553 118,495,352 5,406,261 80,000,000 8,499,814 118,495,352 80,000,000 8,499,814 118,495,352 31,341,814 Other Reserves and Retained Profit 21,991,266 9,350,548 31,341,814 31,341,814 (2,326,046) 42,549,071 330,212,608 Retained Earnings Total 8,677,836 307,271,380 5,406,261 (17,869) - (11,930,295) - (10,739,894) 8,677,836 289,989,583 8,677,836 289,989,583 42,549,071 (11,930,295) (11,930,295) 42,549,071 (3,252,459) Net Profit/ (Loss) for the Period 54,384,475 (11,930,295) (10,739,894) (43,644,581) (11,930,295) (11,930,295) 54 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statement Of Changes In Shareholders’ Equity for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Yapı Kredi Sigorta 2010 Annual Report 55 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1. General information 1.1 Name of the parent company: As of 31 December 2009 and 2010, the immediate parent of Yapı Kredi Sigorta A.Ş. (“the Company”) is Yapı ve Kredi Bankası A.Ş. and the ultimate parents are Koç Holding A.Ş. and Unicredit S.P.A 1.2 Legal residence of the Company, its legal structure, the country of incorporation and the address of it’s registered office: The Company was established on 24 December 1943. The headquarters of the Company is in Istanbul and it operates as a joint stock company at the address “Yapı Kredi Plaza A Blok Büyükdere Cad. 34330 Levent-İstanbul”. The Company has “Istanbul”, “Middle Anatolia”, “Marmara”, “South”, “Agean”, “Mediterranean,” Bakırköy” and “Kadıköy” regional offices. 1.3 Nature of operations: The Company mainly operates in fire, marine, accident, personal accident, engineering, agriculture, health, life insurance and pension branches. 1.4 Explanation of the activities and characteristics of main operations of the corporation: Disclosed in Notes 1.2 and 1.3. 1.5 Average number of employees during the period by category: Top and middle management Other personnel Total 1 January31 December 2010 42 861 903 1 January31 December 2009 44 825 869 1.6 Total salaries and benefits paid to the members of the Board of Directors, General Manager, General Coordinator, Assistant General Managers and other executive management during the current period: 1 January31 December 2010 1 January31 December 2009 2,262,116 554,590 153,793 3,105,855 632,942 119,626 2,970,499 3,858,423 Long Term Benefits Provided to Top and Middle Management Provision for employment termination benefits - 108,612 Total - 108,612 2,970,499 3,967,035 170,636 164,984 Short Term Benefits Provided to Top and Middle Management Salary and other short term payments Bonuses Company pension plan Total Total Benefits Provided to Top and Middle Management Provision in Balance Sheet 1.7 Criteria set for the allocation of investment income and operating expenses (personnel, management, research and development, marketing and sales, outsourcing utilities and services and other operating expenses) in the financial statements: All the income that is generated by the Company investment of assets backing non-life technical reserve is transferred from non-technical to technical part. Other investment income is classified under non-technical part. The Company allocates general expenses transferred to technical part to branches based on the weighted average of the number of policies, amount of premium and number of claim notifications in last three years. 1.8 Whether financial statements include only one firm or company of firms: The financial statements include the accounts of one company (Yapı Kredi Sigorta A.Ş.). The unconsolidated financial statements including Yapı Kredi Emeklilik A.Ş., the subsidiary of the Company, will also be published separately. 1.9 Name and other identification information of the reporting firm and changes in this information since the previous balance sheet date: Name and other identification information of the Company are disclosed in Notes 1.1, 1.2 and 1.3 and there are no changes in this information since the previous balance sheet date. 56 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1.10 Events occurred after the balance sheet date: Unconsolidated financial statements for the period 1 January-31 December 2010 have been approved by the Board of Directors on 25 February 2011. The events occurred after the balance sheet date are explained in Note 46. 2. Summary of significant accounting policies Basis of preparation In accordance with the Capital Market Law part (VII.) article (a) of clause 50, insurance companies are subject to their specific legislation in respect of establishment, audit, supervision, accounting, financial statements and financial reporting standards. Therefore, the Company prepares its unconsolidated financial statements in accordance with the Insurance Law numbered 5684 and the regulations issued for insurance and reinsurance companies by the Undersecretariat of Treasury (“The Treasury”). The financial statements are prepared in accordance with the Insurance Chart of Accounts included in the communiqué issued by the Treasury regarding the Insurance Chart of Accounts and Prospects, published in the Official Gazette (No:25686) dated 30 December 2004 (Insurance Accounting System Communiqué No.1). Content and the format of the financial statements prepared and explanations and notes thereof are determined in accordance with the Communiqué on Presentation of Financial Statements published in the Official Gazette numbered 26851 dated 18 April 2008. According to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies” issued on 14 July 2007 and effective from 1 January 2008, except for the communiqués which may be issued by the Treasury, operations of insurance companies shall be accounted for in accordance with the Turkish Accounting Standards (“TMS”) and the Turkish Financial Reporting Standards (“TFRS”) as issued by the Turkish Accounting Standards Board (“TMSK”) and other regulations, communiqués and explanations issued by the Treasury regarding accounting and financial reporting issues. With reference to the notice of the Treasury No. 9 dated 18 February 2008, “TMS 1-Financial Statements and Presentation”, “TMS 27-Unconsolidated and Separate Financial Statements”, “TFRS 1-Transition to TFRS” and “TFRS 4-Insurance Contracts” have been scoped out of this application. In addition, the companies are obliged to comply with the Communiqué on the Preparation of the Consolidated Financial Statement of Insurance and Reinsurance Companies and Pension Companies” (“Consolidation Communiqué”) dated 31 December 2008 and published in official gazette numbered 27097 effective from 31 March 2009. Unconsolidated financial statements were prepared on a TRY and historical cost basis, being adjusted for inflation until 31 December 2004, other than the financial assets and liabilities which are measured at their fair values. It was announced with the article of the Treasury numbered 19387, dated 4 April 2005, insurance companies are required to restate their financial statements as of 31 December 2004 in accordance with “Financial Reporting in Hyperinflationary Economies” included in the regulations of Capital Markets Board (‘‘CMB’’) Communiqué XI No.25 (which came into force as published in the Official Gazette No:25290 dated 15 January 2003). In line with the decree of CMB dated 17 March 2005, the Treasury also announced that inflation accounting is not required effective from 1 January 2005. Based on the above mentioned notification of the Treasury, the Company has restated its financial statements as of 31 December 2004 in accordance with the regulations regarding “Financial Reporting in Hyperinflationary Economies” and not continued to apply standard No. 29 “Financial Reporting in Hyperinflationary Economies” issued by TMSK. The Company calculated insurance technical reserve and accounted for in the Unconsolidated financial statements in accordance with the “Regulation Regarding the Technical Reserves of Insurance, Reinsurance and Pension Companies and the Assets to which These Reserves are Invested” dated 1 January 2008 and related legislations issued in accordance with Insurance Law numbered 5684. Accounting policies and measurement principles that are used in the preparation of the unconsolidated financial statements are explained in the notes from 2.4 to 2.24 below. Changes in Turkish Financial Reporting Standards: The accounting policies adopted in the preparation of unconsolidated financial statements are outlined below, except the new standards and interpretations were consistent with the previous year. Company, period of beginning on 1 January 2010, implemented the following new and revised interpretations of TFRS. • • • • • TFRS 17, “Distribution of non-cash assets to owners” TMS 39, “Financial Instruments: Recognition and Measurement” (Revised)-Appropriate protected instruments. TFRS 2 (revised) “Company cash-settled share-based payment transactions” Re-issued TFRS 3 Business Combinations and IAS 27 Unconsolidated and Separate Financial Statements (Revised) TFRS Improvements, May 2008-all changes are published in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations standard after sales business continues to hold non-controlling shares in the subsidiary and the partnership where all the assets and liabilities held for sale except for clarifying changes to provisions concerning the classification as held on December 31, 2009 is valid for the period ended. • TFRS Improvements, April 2009 The Company management point of view that applying the standards and interpretations above will not materially affect the unconsolidated financial statements in the future periods. Yapı Kredi Sigorta 2010 Annual Report 57 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Scope of TFRS improvements, published in April 2009 whether made changes to the Company’s accounting policies, financial condition and performance standards are as follows: • • • • • • • • • • • • TFRS 2 “Share based payment” TFRS 5 “Measurement of non-current assets (or disposal companys) classified as held-for-sale” FRS 8 “Operating segments” TMS 1 “Presentation of financial statements” TFRS 7 “Financial Instruments-Disclosures” TMS 17 “Leases” TMS 18 “Revenue” TMS 36 “Impairment of Assets” TMS 38 “Intangible assets” “ TMS 39 “Financial Instruments: Recognition and Measurement”-Accounts accepted as protected from financial risk. TFRS 9 “Reassessment of Embedded Derivatives” TFRS 16 Hedges of the net investment in foreign operation The Company does not expect to have an impact on the financial position or performance changes Changes and interpretations in the standards that are not yet effective and have not been adopted early by the Company: TFRS 19 Extinguishing Financial Liabilities with Equity Instruments Effective for annual periods beginning on or after 1 July 2010. TFRS 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability consideration pain in accordance with paragraph 41 of TMS 39 Financial Instruments; Recognition and Measurement. The equity instruments issued at measured at their fair value, unless this cannot be reliably measured, in which case they are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. TFRS 14 Prepayments of a Minimum Funding Requirement (Amendment) Effective for annual periods beginning on or after 1 January 2011. TFRS 14 provides guidance on assessing the recoverable amount of net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is applied retrospectively to the beginning of the earliest period presented in the first financial statements in which the entity applied the original interpretation. TFRS 9 Financial Instruments Effective for annual periods beginning on or after 1 January 2013. The first phase of TFRS 9 Financial Instruments addresses the classification and measurement of financial assets. Early application is permitted. This standard has not been ratified yet by the European Union. The Company evaluates the regulation of financial status or whether there is an impact on the performance. TFRS 32 Financial Instruments: Presentation-Classification of Rights Issues (Amendment) Effective for annual periods beginning on or after 1 February 2010. The amendment will provide relief to entities that issue rights(fixed in a currency other than their functional currency), from treating the rights as derivatives with fair value changes recorded in profit or loss. Rights issued in foreign currencies that were previously accounted for as derivatives will now be classified as equity instruments. Application of the change will result in the reversal of profits or losses previously recognized, as application of the change will be retrospective. In addition, the impact on previously reported results would be a reclassification in equity. TMS 24 Related Party Disclosures (Re-Edit) Effective for annual periods beginning on or after 1 January 2011. The definition of a related party has been clarified to simplify the identification of related party relationship, particularly in relation to significant influence and joint control. A partial exemption from the disclosures has been included for government-related entities. Early application is permitted, and early application should be made retrospectively. Entities will need to consider the revised definition of related parties to ensure all the relevant information is still being captured. The Company does not expect to have an impact on the correction of financial status or performance. In May 2010, resolve inconsistencies and to clarify statements, TMSK published the third frame arrangement. Changes have been determined for the various effective dates of July 1, 2010 and after the effective date of early periods beginning. Early implementation is permitted. TFRS 1 International Financial Reporting Standards are valid for annual accounting periods from January 1, 2011 onwards. The amendment clarifies the evaluation of accounting policy changes following the publication of financial statements in accordance with the TMS 34 Interim Financial Reporting Standard for the year in which the TFRS comes into effect. For the first time, the amendment gives practitioners the right to utilize the realistic value as an approximate value determined according to events prior to the publication of the TFRS financial statements. The amendment also expands the scope of the approximate cost used for tangible fixed assets or intangible fixed assets, so as to include activities whose ratio is subject to regulation. 58 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) TFRS 3 Business Combinations (revised) Effective for annual periods beginning on or after 1 July 2010. The amendments to TFRS 7 Financial Instruments: Disclosures, TMS 32 Financial Instruments: Presentation and TMS 39 Financial Instruments: Recognition and Measurement, that eliminate the exemptions for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3(as revised 2008). The amendment limits the scope of the measurement choices that only the components of non-controlling interest that are present ownership interests that entitle their holders to a proportionate share of the entity’s net assets, in the event of liquidation, shall be measured either at fair value or at the present ownership instruments proportionate share of the acquiree’s identifiable net assets net assets. TFRS 7 Financial Instruments: Effective for annual periods beginning on or after1 July 2010. The amendment emphasis the interaction between quantitative and qualitative disclosures and the nature and the extent of risks associated with financial instruments. TMS 1 Presentation of Financial Statements Effective for annual periods beginning on or after 1 January 2010. The amendment clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. TMS 27 Consolidated and Separate Financial Statements The amendment clarifies that the consequential amendments from IAS 27 made to TMS 21 the effect of changes in Foreign Exchange Rates, IAS 28 investments in Associates and IAS 31 Interests in Joint Ventures apply prospectively for annual periods beginning on or after 1 July 2009 or earlier when IAS 27 is applied earlier. TMS 34 Interim Reporting Effective for annual periods beginning on or after 1 January 2011. The amendment provides guidance to illustrate how to apply disclosure principles in TMS34 TFRS 13 Customer Loyalty Programmes Effective for annual periods beginning on or after 1 January 2011. The amendment clarifies that when the fair value of award credits is measured based on the value of the awards for which they could be reemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.. TFRS 7 Financial Instruments: Explanations of comprehensive analysis of off-balance sheet transactions(Amendment) Effective for annual periods beginning on or after 1 January 2011.The purpose of change, provide better understanding for readers of financial statements about assets transfer operations (such as securitization)-including possible risk stay on transferring party-. Amendment also provides requirements of additional explanation about situation in which disproportionate transfer of financial assets at the end of the fiscal year. These changes all largely compatible with the requirements of disclosure of IFRS and U.S GAAP (U.S. Generally Accepted Accounting Principles). The Company does not expect to have an impact on changes in financial position or performance. 2.1 Comparative Information In the financial statements dated December 31, 2010 and 2009 amount of provision for unused vacations are classified under Other Short Term Liabilities account. In accordance with “J-Subrogation and Salvage Revenue Accounting Records Article “ of the circular dated October 18, 2010 and numbered 2010/16 published by Undersecretary of the Treasury, because the potential subrogation and salvage deduction from outstanding claims reserve is not included in existing legislation, amount calculated as of December 31, 2010 transferred to current year by reclassification and followed in “Provisions No Longer Required”. Company classified the salvage and subrogation receivables and administrative and legal subrogation follow up receivables, in accordance with the draft circulars regarding subrogation and salvage revenue as of 31 December 2009, accounted to relevant account in order to be consistent with the representation of current period. 2.2 Consolidation Yapı Kredi Emeklilik A.Ş., the subsidiary of the Company, which is in the scope of “TMS 27-Consolidated and Separate” is not fully consolidated and measured at the historical cost in the financial statements as of 31 December 2009 (Notes 2, 11.4 and 45.2). Company will prepare consolidated financial statements of Yapı Kredi Emeklilik A.Ş., a subsidiary of the Company’s. The consolidated financial statements of the Company as of the date of 31 December 2009, was published on 1 March 2010. Yapı Kredi Sigorta 2010 Annual Report 59 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.3 Segment reporting Operating segments are settled compatible with the segments on information reported to the chief operating decision-maker. Chief operating decision-maker of the Company is responsible for the uses of resources and evaluation of the performance of the segments. General Manager, who makes the strategic decisions, is determined as the chief operating decision-maker. Details related to the segment reporting are disclosed in the Note 5. 2.4 Foreign currency translation The functional currency of the Company is TRY. Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity. Foreign exchange differences arising from the translation of non monetary financial assets and liabilities are considered as part of the fair value changes and those differences are accounted for in the accounts in which the fair value changes are accounted for. 2.5 Property and equipment Property and equipment are carried at cost less accumulated depreciation. Land is not subject to depreciation due to its infinite years of useful life. Depreciation is calculated using the straight-line method based on the useful lives of properties. The depreciation periods estimated considering useful lives of tangible assets are as follows: Property for Operational Usage (Buildings) Furniture and fixtures Machinery and equipment Motor vehicles Other tangible assets 50 years 3-15 years 10-20 years 5 years 5 years If there are indicators of impairment on tangible assets, a review is made in order to determine possible impairment and as a result of the review, if an asset’s carrying amount is greater than its estimated recoverable amount, the asset’s carrying amount is written down immediately to its recoverable amount by accounting for a provision for impairment. Gains and losses on disposals of property and equipment are included in other operational income and expenses accounts (Note 6). 2.6 Investment properties The buildings of the Company held for the purpose of receiving rent or an increase in value or both instead of being used in the operations of the Company or being sold within the normal business course are classified as investment properties. The investment properties are carried at acquisition cost by deducting the accumulated depreciation. Investment properties are amortised by the straight-line method over their estimated useful lives. If there are indicators of impairment on investment properties, a review is made in order to determine possible impairment and as a result of this review, if the property’s carrying amount is greater than its estimated recoverable amount, the property’s carrying amount is written down immediately to its recoverable amount by accounting for an impairment provision. The recoverable amount is the higher of the future cash inflows from the existing use of the investment property and the fair value of the property after cost of sale. The Company have an impairment booking for its investment properties as of 31 December 2010 amount of TRY 11,925 (31 December 2009: TRY 11,925) (Note 7). The depreciation period of investment properties is 50 years. 2.7 Intangible assets Intangible assets consist of the acquired information systems, franchise rights and software. Intangible assets are carried at acquisition cost and amortised by the straightline method over their estimated useful lives after their acquisition date. If impairment exists, carrying amount is written down immediately to its recoverable amount (Note 8). 60 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The amortisation periods of intangible assets are: Software License 3 years 15 years 2.8 Financial assets The Company classifies and accounts for its financial assets as “Financial assets at fair value through profit or loss” (Held-for-trading financial assets), “Available-for-sale financial assets” and “Loans and receivables (Receivables from main operations)”. Receivables from main operating activities that receivables arising from insurance contracts and in spite of all receivables arising TMS 39 out of scope to hold the insurance contracts, since did not applied to TFRS 4, as a facultative company of receivables arising from the insurance contract are classified as financial assets in the financial statements and company applies TMS 39 principles of the measurement. Purchases and sales of the financial assets are recognised and derecognised based on “Settlement date”. The classification of the financial assets is determined by the Company management at inception by considering the purpose for which the financial assets are acquired. Financial assets at fair value through profit or loss (Held-for-trading financial assets): Financial assets at fair value through profit or loss consist of financial instruments that are acquired principally for the purpose of generating a profit from short-term fluctuations in prices or other parameters or formed as a part of a portfolio of financial assets that are managed together for the purpose of short-term profit taking, and classified as financial assets designated at fair value through profit or loss at inception since they are managed and their performance is evaluated on fair value basis, regardless of purpose for acquisition. Financial assets at fair value through profit or loss are accounted for at fair value at inception and are measured at fair value after initial recognition. It is concluded that the fair value cannot be reliably measured if the price that provides a basis for fair value is not set in active market conditions and “amortised cost value” that is calculated using the effective interest method is assumed as fair value. Gains or losses generated as a result of the valuation are recognised in the income statement. The valuation gains and losses on financial assets at fair value through profit or loss are classified in investment income and investment losses, respectively. Loans and Receivables together with Policy Loans (Receivables from Main Operations): Loans and receivables are financial assets which are generated by providing money or service to the debtor. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Fees and other charges paid related to assets obtained as guarantee for the above mentioned receivables are not deemed as transaction costs and they are recognised as expense in the income statement. The Company accounts for an impairment provision for its receivables based on Management’s evaluation and estimations according to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies” issued on 14 July 2007 and effective from 1 January 2008. This provision is classified as “provision for due from insurance operations” on the balance sheet. Management sets its estimations within the risk policies and the prudency principle by considering the overall position of is receivable portfolio, financial and non-financial data regarding its insurees and its intermediaries and the general economic developments. In addition to provision for receivables from insurance operations, the Company, the above-mentioned “Receivables from insurance operations” is not in the provision for doubtful debts taking into account value and quality of receivable and make provision as administrative and legal proceeding provision. In the financial statements as of December 31, 2010 the Company, according to principles of Treasury circulars dated January 14, 2011 and September 20, 2010 numbered 2010/16 and 2011/1 underlying claim of subrogation receivable over the 6 months from the date of payment (Due from insurance company) and 4 months (the actual claims and other legal entities), booked receivable provision in addition to this amounts. In addition to the amounts for the first time that the circular No. 2010/16 dated 20 September 2010 the parties agreed to assets connected with the method mentioned in reserve to claims of recourse for amounts of optional unallocated reserved for additional provision. Provision for doubtful receivables is deducted from the related year’s income. Recoveries of amounts previously provided for are treated as a reduction from provisions for overdue receivables for the period and recorded in the “Provision Expense” account. Such receivables are written off only after all necessary legal proceedings have been completed (Note 12). Yapı Kredi Sigorta 2010 Annual Report 61 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Available-for-sale financial assets: Available-for-sale financial assets are composed of the financial assets except for the “Loans and receivables together with Policy Loans” and “Financial assets at fair value through profit or loss”. Available-for-sale financial assets are subsequently measured at fair value after their recognition. It is considered that the fair value can not be reliably measured if the price that provides a basis for fair value is not set in active market conditions and “amortised cost value” that is calculated using the effective interest method is used as fair value. Equity securities classified as available-for-sale are carried at fair values if they have quoted market prices in active markets and/or if their fair value can be reliably measured. The equity securities that do not have a quoted market price in an active market, and if their fair value cannot be reliably measured are carried at cost less the provision for impairment. “Unrealised gains and losses” arising from the change in the fair value of available-for-sale financial assets is accounted for under “Valuation of Financial Assets” account in the shareholders’ equity and not reflected in the income statement until the financial asset is sold, disposed or derecognised. The unrealised gains and losses arising from the change in the fair value is removed from shareholders’ equity and recognised in the income statement when the financial assets mature or are derecognised. The Company assesses at each balance sheet date whether there is objective evidence that an available-for-sale financial asset is impaired. In the case of equity investments classified as available-for-sale financial assets, such as, a significant or prolonged decline in the fair value of the security below its cost is considered as impairment. If any objective evidence for impairment exists for available-for-sale financial assets, the difference between the acquisition cost and current fair value is deducted from shareholders’ equity and recognised in the income statement. The impairment losses on available-for-sale equity instruments previously recognised in the profit or loss cannot be reversed through profit or loss. In such condition that there’s not a risk of collection in the financial assets classified under available-for-sale financial assets, the Company does not account for a provision for impairment considering the short-term market fluctuations (Note 11). 2.9 Impairment of Assets The details about the impairment of assets are explained in the notes in which the accounting policies of the relevant assets are explained. Mortgages or guarantees on assets are explained in Note 43, provisions for overdue receivables and provisions for receivables which are not overdue are explained in Note 12.1, and provision and rediscount expense for the period are explained in Note 47.5. 2.10 Derivative Financial Instruments None (31 December 2009: None). 2.11 Offsetting Financial Instruments Financial assets and liabilities are offset only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or when the acquisition of the asset and the settlement of the liability take place simultaneously. 62 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.12 Cash and Cash Equivalents Cash and cash equivalents include cash in hand, demand deposits held at banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Cash and cash equivalents included in the statement of cash flows are as follows: 31 December 2010 237,878,001 52,780,336 1,300 (856,361) 31 December 2009 127,477,212 28,898,865 3,702 (355,665) Total cash and cash equivalents 289,803,276 156,024,114 Time deposit excess of 3 months (34,021,904) - Cash and cash equivalents basis on cash flow 255,781,372 156,024,114 31 December 2010 31 December 2009 1,974,832 1,830,136 8,130,660 455,726 3,804,968 8,586,386 232,307,366 909,306 117,969,660 565,501 233,216,672 118,535,161 856,361 355,665 237,878,001 127,477,212 Banks Other cash and cash equivalents (Credit card collections) Cash Less-Interest accrual The details of deposits held at banks are as follows: Foreign deposits -time deposits -demand deposits TRY deposits -time deposits -demand deposits Interest accrual Total As of 31 December 2010, the Company has no restricted time and demand deposits in favor of the Treasury (31 December 2009: None). Weighted average interest rates time deposits TRY USD EUR 31 December 2010 (%) 8.59 0.60 0.50 31 December 2009 (%) 9.46 0.65 0.65 Yapı Kredi Sigorta 2010 Annual Report 63 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Details of foreign currency denominated demand and time deposits are as follows: EUR USD CHF GBP DKK 31 December 2010 Foreign Currency Time Demand Time 373,000 313,908 764,323 783,000 448,567 1,210,509 179,480 80,525 22,013 - Total 1,974,832 EUR USD CHF GBP DKK 31 December 2009 Foreign Currency Time Demand Time 2,300,000 59,304 4,968,690 2,100,000 146,619 3,161,970 53,616 9,791 19,825 - Total 8,130,660 TRY Demand 643,229 693,485 295,029 192,342 6,051 1,830,136 TRY Demand 128,114 220,765 77,701 23,392 5,754 455,726 2.13 Share capital The composition of the Company’s share capital at 31 December 2009 and 31 December 2010 is as follows: Name of shareholders Yapı ve Kredi Bankası A.Ş. Public offering Other Total 31 December 2010 Share Amount 53.10% 42,480,000 33.69% 26,951,880 13.21% 10,568,120 100.00% 80,000,000 31 December 2009 Share Amount 53.10% 42,480,000 33.69% 26,951,880 13.21% 10,568,120 100.00% 80,000,000 As of 31 December 2009, no privileges are granted to the preference shares representing the share capital. (31 December 2009: None). Authorized capital of the Company is TRY 250,000,000 as of 31 December 2010 and 2009. Other information about the Company’s share capital is explained in Note 15. 2.14 Insurance and investment contracts-classifications The insurance contracts are those contracts that transfer insurance risk. The insurance contracts protect the insured against the adverse economic consequences of loss event under the terms and conditions stipulated in the insurance policy. The main contracts produced by the Company are within non-life branches mainly in fire, marine, accident, engineering and health. The highest written premium is within the health branch. The insurance agreements written in health branch consist of guarantees for the claims regarding the insuree’s identification, diagnosis, and treatment. Fire insurance policies cover mainly fire and theft guarantees for household and business premises, as well as additional guarantees such as indemnity, rent deficiency, glass, and loss of profit. Marine insurance (hull, motor or air transport vehicles) covers goods in transit. The Company also writes engineering policies with engineering, assembly, machinery breakdown, electronic equipment, loss of profit coverage, and policies in accident branch including comprehensive insurance for motor vehicles, traffic, third party liability, and breach of trust guarantees. Furthermore, there are agriculture insurance contracts produced by Tarım Sigortaları Havuz İşletmesi A.Ş. (“TARSİM”) and compulsory earthquake insurance contracts produced by Doğal Afet Sigortaları Kurumu (“DASK”). The basis of calculation of insurance technical income and insurance liabilities arising from insurance contracts is explained Notes 2.21 and 2.24. 64 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Reinsurance agreements Reinsurance agreements are those agreements between the Company and reinsurance companies providing insurance coverage to the Company regarding losses which may occur in one or more underlying insurance contracts signed by the Company. The Company has excess of loss, proportional surplus treaty and proportional quota share reinsurance agreements in the branches that the Company operates. Ceded premiums arising from excess of loss agreements are accounted for on an accrual basis during the related period. Premiums, claims and technical reserves which are ceded in accordance with other reinsurance agreements are accounted for on the same basis with the income and liabilities arising from related insurance contracts. The Company has facultative reinsurance agreements. The Company has not proportional quota share agreements as of 31 December, 2010. However, The Company has proportional quota share agreements in casco and traffic branches at 31 December 2009. These quota share agreements are the agreements that the liability of the reinsurer ceases when the reinsurance agreements are expired even though the liability of the Company arising from the insurance contracts continues to exist and these quota share reinsurance agreements are made on the basis of ceding of written premiums and paid claims during the period of reinsurance agreements for the Company on 31 January 2010 be renewed after considering the financial statements dated December 31, 2009 an additional provision amounting to TRY 10,251,681 allocated pursuant to the reinsurance agreement. Treasury circular No. 2010/22 dated 26 November 2010 stated that application of the Company has become mandatory for all sectors at the end of December 31, 2010. 2.15 Insurance contracts and investment contracts with discretionary participation features None (31 December 2009: None). 2.16 Investment contracts without discretionary participation features None (31 December 2009: None). 2.17 Borrowings None (31 December 2009: None). 2.18 Taxes on Income Corporate Tax Corporation tax for 2009 is payable at a rate of 20%. (2009: 20%). Tax rate is applied on the tax base by adjusting for certain disallowable expenses, exempt income and investment and other allowances. No further tax is payable unless the profit is distributed. Dividends paid to non-resident corporations, which have a place of business in Turkey, or resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered as a profit distribution thus does not incur withholding tax and no stoppage is applied. Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their corporate income. Advance Tax is declared by 14th of the second month following and payable by the 17th of the second month following each calendar quarter end. Advance Tax paid by corporations is credited against the annual Corporation Tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government. The affiliate shares stocked for minimum 2 years and the 75% of the profit obtained from the property sales are considered as tax exemptions in such condition that the amount is added onto capital as prestated in Corporate Tax Law or the amount is kept in equity for 5 years. According to Turkish tax legislation, financial losses on the returns can be offset against period income for up to 5 years. However, financial losses cannot be offset against previous years’ profits. There is no such application for the reconciliation of payable taxes with the tax authority. Corporate tax returns are submitted to the related tax office by the 25th day of the 4th month following the month when the accounting period ends. In tax reviews authorized bodies can review the accounting records for the past five years and if errors are detected, tax amounts may change due to tax assessment. Yapı Kredi Sigorta 2010 Annual Report 65 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are determined using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised (Note 21). 2.19 Employee benefits The Company accounts for its liability related to employment termination and vacation benefits according to “Turkish Accounting Standards Regarding Employee Benefits” (“TMS 19”) and classifies in balance sheet under the account, respectively, “Provision of Employment Termination Benefits” and “Long Term Other Payables and Expense Accruals”. According to the Turkish Labour Law, the Company is required to pay termination benefits to each employee whose jobs are terminated except for the reasons such as resignation, retirement and attitudes determined in Labour Law. The provision for employment termination benefits is calculated over present value of the possible liability in scope with the Labour Law by considering determined actuarial estimates (Note 22). The Company also makes payments to monthly pension contribution as contributions paid by staff within the company retirement plan and recognize as expense in personnel expenses amount of which corresponds to their share. 2.20 Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured over expenditures expected to be required to settle the obligation by considering the risks and uncertainties related to the obligation at the balance sheet date. When the provision is measured by using the estimated cash outflows that are required to settle the obligation, the carrying value of the provision is equal to present value of the related cash outflows. Where some or all of the expenditure required settling a provision is expected to be reimbursed by another party, the reimbursement shall be recognised as an asset if and only it is virtually certain that reimbursement will be received and the reimbursement can be reliably estimated. Liabilities that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity are classified as contingent liabilities and not included in the financial statements (Note 23). 2.21 Accounting for revenues Written premiums Written premiums represent premiums on policies written during the year, net of cancellations. As disclosed in Note 2.24, premium income is recognised in the financial statements on accrual basis by allocating the unearned premium reserve over written risk premiums. Reinsurance Commissions Commission income related to the ceded premiums to reinsurance companies are accrued within the period and classified in technical part under operating expenses in the income statement. As disclosed in Note 2.24, reinsurance commission income is recognised in the financial statements on accrual basis by allocating the deferred commission income over commissions received. 66 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Salvage and subrogation income As of 31 December 2009, in line with the declaration dated 18 January 2005 and numbered B.02.1.HM.O.SGM.0.3.1.1 of the Treasury, the Company recognises salvage and subrogation receivables only from insurance companies, and from individuals with whom the Company has agreed on payment terms. In addition, the Company books a doubtful receivables provision for salvage and subrogation receivables under legal follow-up. In the financial statements as of December 31, 2010 the Company, according to principles of Treasury circulars dated January 14, 2011 and September 20, 2010 numbered 2010/16 and 2011/1 underlying claim of subrogation receivable over the 6 months from the date of payment ( Due from insurance company) and 4 months (the actual claims and other legal entities). In the financial statements as of December 31, 2010, according to dated January 14, 2011 September 20, 2010 and 2010/16 and 2011/1 numbered circulars of Treasury the Company books provision to the subrogation receivables according to the claim over the 6 months from the date of payment (insurance due from related parties) and 4 months (the actual claims and other legal entities); in addition to that, the Circular No. 2010/16 dated 20 September 2010 for the first time for the receivables that are not reconciled with the confirmation, the additional provision is booked. As of December 31, 2010 net amount of the subrogation receivables is TRY 6,515,800 (31 December 2009: TRY 3,843,184) (Note: 12). Interest income Interest income is recognised by using the effective interest rate method on an accrual basis. Dividend income Dividend income is recognised as an income in the unconsolidated financial statement when the right to receive the payment is established. 2.22 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lesser are classified as financial leases while other leases are classified as operational leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. The liability to lessor is classified as the leasing payables in the balance sheet. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost except for capitalised portion is charged to the income statement. The payment of the operational lease is charged to the income statement on a straight-line basis over the lease period (The incentives received or to be received from the lessor and payments made to intermediaries to acquire the lease contract are also charged to the income statement on a straight-line basis over the lease period). The Company currently undue operating leases liability is TRY 1,005,901 as of December 31, 2010. 2.23 Dividend Distribution Listed companies perform dividend distributions as envisaged by Turkish Capital Market Board as explained below: In accordance with the CMB Communiqué IV No:27 Clause:5 and other several decisions of CMB, in case of dividend distribution the rate of first dividend could not be less than 20% of remaining distributable profit after deducting the prior year losses if any. Depending on the decisions taken by General Assemblies, publicly traded joint stock companies are free to distribute dividends in cash, in share certificates, in partial distribution within cash or share certificates while retaining a portion within the company or retain as a whole with distributing neither cash nor stocks. As required by CMB decision numbered 7/242 dated February 25, 2005; amount of distributable profit, calculated from net distributable profit in accordance with CMB regulations related to minimum dividend distribution requirements shall be fully distributed, wherein the amount could be compensated by net distributable profit per statutory books, otherwise full amount of net distributable profit per statutory books will be distributed. No profit distribution shall be made in the case of net loss in either statutory books or the financial statements prepared in accordance with CMB regulations. In accordance with the Capital Market Board decision dated January 27, 2010, concerning with distribution of dividends for publicly traded joint stock companies, it was decided that no minimum dividend distribution requirement will be applied for publicly traded joint stock companies. Inflation adjustments to issued capital and historical amount of extraordinary reserves can be used as an internal source of capital increase, dividend distribution in cash or the net off from prior period losses. In case of usage of inflation adjustment to issued capital in dividend distribution in cash, it is subject to corporation tax. Yapı Kredi Sigorta 2010 Annual Report 67 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.24 Technical reserves Unearned premium reserve An unearned premium reserve is calculated on a daily basis for all policies in force as of 31 December 2009 for unearned portions of premiums written, except for marine and earthquake premiums issued before 14 June 2007. During the calculation of unearned portion of premiums written on a daily basis, it is supposed that the policies start at 12.00 noon and finish at 12.00 noon again. Within the framework of the “Regulation Regarding the Technical Reserves of Insurance, Reinsurance and Pension Companies and the Assets to which These Reserves Are Invested” (“Regulation on Technical Reserves”) issued in Official Gazette No: 26606 dated 27 August 2007, unearned premium reserve and the reinsurers’ share of the unearned premium reserve of the policies issued after 1 January 2008, are calculated as the unearned portion of the premiums and ceded premiums to reinsurers without deducting commissions or any other deductions, on an accrual and gross basis. As for the policies written before 1 January 2008 with to premium accrued during 2008, the unearned premium reserve is calculated by deducting commissions from premiums. For transportation policies with an uncertain end date, unearned premium reserve is calculated as 50% of the premiums written in the last three months (Note 17). Deferred commission expense and income Within the framework of the Circular numbered 2007/25 and dated 28 December 2007 published by Treasury, the unearned portion of commissions paid to agencies for the written premiums and commissions received from reinsurers for the ceded premium after 1 January 2008, are recorded as in deferred expenses and deferred income, respectively on the balance sheet, and as operating expenses on a net basis in the income statement (Note 17). Unexpired risks reserve Within the framework of Regulation on Technical Reserves, effective from 1 January 2008, insurance companies are required to account for an unexpired risk reserve against the probability that future losses incurred from in force policies may exceed the unearned premium reserve accounted for the related policies considering expected loss ratios. Expected loss ratio is calculated by dividing the current year incurred losses to current year earned premiums. If the loss ratio for a branch is higher than 95%, the unexpired risk reserve for that branch is calculated by multiplying the ratio in excess of 95% with the unearned premium reserve for the related branch. The Company has calculated and accounted for net unexpired risk reserve amounting of TRY 324,756 at 31 December 2010 (31 December 2009: TRY 6,996,416) (Note 17). Outstanding claims reserve The Company recognizes outstanding claims reserve for the claims which are accrued but not paid yet in the current period or previous periods and for claims incurred but not reported. Outstanding claim reserves are determined based on reports of experts or assessments of policyholders and experts. (December 31, 2009-Outstanding claims reserve of expert reports or expert evaluations of the insured is determined in accordance with the reserve for outstanding claims in the calculations, if any, recourse and other revenue items are considered to have been deducted.) In accordance with Technical Provisions Regulation, starting from September 30, 2010, a compensation fee; which is realized by using actuarial chain ladder methods but not reported and of which the application bases are specified by the Undersecretaries of Treasury is calculated by the end of the fiscal period. These are Standard Chain, Damage/Premium, Cape Cod, Frequency/Force and Munich Chain methods. The difference between the accrued and detected suspended claims reserve and the selected actuarial chain ladder method is the claim fee, which is realized but not reported. In order to test the incurred but not reported amounts, different calculation is performed. In this calculation, the amounts covers the last twelve months as gross are taken. The claims occur before these dates and are reported after these dates are accepted as incurred but not reported. In the calculation of the incurred but not reported amounts, the claims incurred before these dates and reported after these dates in the last five or more years and the subrogation are calculated that the amount deducted the salvage and other income collections related to these incurred but not reported amounts is divided by the premium production in the related years is calculated by multiplying the weighted average and premium production in the twelve month before the current period. According to these calculation, the Company books the net outstanding claims reserve amounting to TRY 110,525,669 (December 31, 2009-TRY 76,661,572) (December 31, 2009-Outstanding claims reserve adequacy amounting to TRY 3,343,988, actuarial ladder chain method TRY 4,677,585, estimated subrogation and salvage income accruals TRY 7,691,751). Actuarial chain ladder method calculations made on the gross amounts, the Company reaches the net amount considering the reinsurance agreements in force or related insurance agreement. 68 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) After the test, the amount of the selected actuarial reserves in the chain ladder method, as compared with the sum of the branches, and which amount the industry in each related this method is larger than the amounts incurred but not reported reserves are reflected in the financial statements. As at 31 December 2010 amounting to TRY 26,023,587 for life and non-life branches calculated for claim incurred but not reported. Furthermore, in the branches that the huge claims are picked by the actuary, adequacy difference is calculated in the following year for the huge claims picked. A huge claims to elimination is calculated in accordance with Treasury Circular No. 2010/16 dated 18 October 2010 issued by the “F-Huge Claims Agent”. Great claim elimination is committed for Motor Vehicles, Traffic, Fire and Natural Disasters, General Liability branches. In accordance with “J-Subrogation and Salvage Revenue Accounting Records Article “ of the circular dated October 18, 2010 and numbered 2010/16 published by Undersecretary of the Treasury, because the potential subrogation and salvage deduction from outstanding claims reserve is not included in existing legislation, amount calculated as of December 31, 2010 transferred to current year by reclassification and followed in “Provisions No Longer Required”. The Company uses standard actuarial chain ladder method for all branches. The Company includes the incurred but not reported claim fees as of balance sheet date, the revenue accrues such as recourse, salvage and etc., which will be deducted from accrued suspense claim fee, the suspense damage provision adequacy difference, and the difference between the amount calculated by the actuarial chain ladder method and the suspense damage provision in its calculation of outstanding claims reserve as of December 31, 2009. Equalization reserve In accordance with the Regulation on Technical Reserves, effective from 1 January 2008, insurance companies are required to record an equalization reserve for the insurance contracts including earthquake and credit coverage, in order to cover the catastrophic risks and in order to equalize the fluctuations within the claim ratios that may occur during the following accounting periods. Such reserve is calculated over 12% of net earthquake and credit premiums corresponding to each year. In the calculation of the net premium, the amounts paid for the non-proportional reinsurance agreements are regarded as ceded premiums. The Company has accounted for an equalization reserve for non-health branches amounting to TRY 6,481,612 (31 December 2009: TRY 3,726,882) (Notes 17 and 47.1). 3. Critical accounting estimates and judgments Preparation of financial statements requires the use of estimations and assumptions which may affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of income and expenses during the financial period. Estimations and assumptions are evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under current circumstances. Although the estimations and assumptions are based on the best knowledge of the management for existing events and operations, they may differ from the actual results. The estimation of the ultimate liability for technical expenses that can be incurred for the existing insurance contracts is the one of the most critical accounting estimates of the Company. Estimation of the insurance liabilities, by nature, includes the evaluation of several uncertainties. Estimates used in mainly, insurance and indemnity reserves for outstanding claims, life mathematical equivalents, other financial assets at fair value calculation of technical reserves, provision for severance payments, provisions for impairment of assets associated with the calculation of deferred tax assets are described in detail, and apart from the footnotes of financial significant impact on the amounts as reflected in comments that may be realized and the balance between the predictions based on existing or future sources of important assumptions and assessments made by considering the following: Provision for employment termination benefits: Company, calculated the value of employment termination benefits using the actuarial assumptions and reflected in enclosed financial statements and records. As of 31 December 2010, employment termination liabilities is TRY 4,395,285 (31 December 2009: TRY 4,221,050). Provision for doubtful receivables: The Company sets doubtful provision for receivables in legal follow-up from agencies and insurers amounting to TRY 2,559,389 (December 31, 2009-TRY 2,314,737) in the financial statements as of December 31, 2010. Furthermore, the Company sets provision amounting to TRY 1,751,387 (December 31, 2009-TRY 1,224,763) for the receivables that are no in legal follow-up but the Company thinks that these receivables can not be collected. Subrogation Receivables: Company, recorded net subrogation receivables for on an accrual basis as of 31 December 2010 subrogation claims in lawsuits and execution phase and not agreed person subrogation receivables after doubtful receivables provision TRY 6,515,800 (31 December 2009: TRY 3,843,184). Yapı Kredi Sigorta 2010 Annual Report 69 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Outstanding Claims Reserve: During the calculation of the reserve of outstanding claims, not only use estimates reserves but also referred to many experts and the consultant opinion as conclusive evidence. Outstanding benefit for certain amounts of reserve take a long time to reach the final shape. Therefore, the actuarial calculation of outstanding benefit reserve by claims chain ladder method also amounts are based on experience of past years claim development amount. In this calculation, the development of claims paid in the past, the average amount of compensation per claim claims to in the past and the expected number of loss/premium ratio is taken into account. Technical Reserves in accordance with the Regulation, as of September 30, 2010, by the end of the accounting period determined by the undersecretariat actuarial basis of the implementation chain ladder methods, benefit cost is calculated using the incurred but not reported. Outstanding claims reserve determined and accrued on account reserve the difference between with selected actuarial chain ladder method, benefit cost for incurred but not reported. After the test, the amount of the selected actuarial chain ladder method compared with the sum of the branches, and which of them is larger, the amounts incurred but not reported reserves of each branch are reflected in the financial statements. Furthermore, in the branches that the huge claims are picked by the actuary, adequacy difference is calculated in the following year for the huge claims picked. A huge claim to elimination is calculated in accordance with Treasury Circular No. 2010/16 dated 18 October 2010 issued by the “F-Huge Claim Agent”(Box Plot). Big claim elimination is committed for Motor Vehicles, Traffic, Fire and Natural Disasters, General Liability branches The Company’s outstanding claim reserve as of 31 December 2010 is a net amount of TRY 110,525,669 (31 December 2009: TRY 76,661,572). Deferred Tax: Deferred tax, taking into consideration the balance sheet liability method, assets and liabilities for financial reporting assets and liabilities and the tax effects of temporary differences between tax bases are recognized by taking into consideration. Various estimates and judgments used in the calculation of deferred tax assets. Company, as of 31 December 2010 amount of 10,067,009 TRY (31 December 2009: TRY 6,771,263) net deferred tax assets calculated and reflected to the records. 4. Management of insurance and financial risk Insurance risk The risk under any one insurance contact is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of the insurance contracts, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and reserving, the principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of insurance liabilities. The Company determines its insurance underwriting strategy based on the type of insurance risk accepted and the claims incurred. The Company manages the aforementioned risks by its overall underwriting strategy and via reinsurance agreements, which the Company is a party to. The concentration of insurance risk (maximum insured loss) under each branch is summarised below (excluding health branch): Land vehicles liability Fire General losses General liability Land vehicles Transportation Accident Air vehicles liability Water vehicle Air vehicles Legal protection Loans Total 31 December 2010 526,082,542,589 55,298,915,197 28,670,806,466 10,943,462,784 6,209,512,929 5,444,042,064 7,919,801,458 2,500,075,250 388,140,861 441,023,793 439,953,500 644,338,276,891 31 December 2009 364,605,767,045 46,191,597,047 22,540,161,551 4,888,416,149 4,540,845,359 3,525,472,332 3,193,100,136 2,254,281,200 764,843,559 616,194,574 221,599,000 656,877 453,342,934,829 70 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Sensitivity Analysis Financial risk The Company is exposed to financial risk through its financial assets, reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of the financial risk are market risk (including foreign exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), liquidity risk and credit risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential negative effects on the Company’s financial performance. The Company does not use derivative financial instruments to hedge certain risk exposures. Risk management is carried out by management under policies approved by the Board of Directors. (a) Market Risk i. Cash flow and market interest rate risk The Company is exposed to interest rate risk through its variable rate financial assets and liabilities. The Company’s variable rate financial assets expose the Company to interest rate risk If market interest rates of variable rate financial assets had been changed by 1% on 31 December 2009, holding all other variables constant, net assets would have been higher/lower by TRY 331,801 (31 December 2009: TRY 902,194). ii. Foreign currency risk The Company is exposed to foreign exchange risk through the impact of rate changes at the translation of Turkish Lira pertaining to foreign currency denominated assets and liabilities. These risks are monitored and limited by the analysis of the foreign currency position. As of December 31, 2010, had EUR strengthened/weakened by 10% against TRY with all other variables held constant, net assets would have been higher/lower by TRY 1,486,299 (31 December 2009: TRY 257,473), as a result of foreign exchange gains/losses on the translation of Euro denominated assets and liabilities. As of December 31, 2010, had USD strengthened/weakened by 10% against TRY with all other variables held constant, net assets would have been higher/lower by TRY 605,923 (31 December 2009: TRY 253,870). Since the Company has no available-for-sale equities denominated in foreign currency as at 31 December 2009 and 2008, foreign currency changes will not have an effect on the “Valuation of financial assets” account under shareholders’ equity. Foreign currency denominated assets and liabilities of the Company is disclosed in related notes. iii. Price risk The Company’s financial assets expose the Company to price risk. The Company is not exposed to commodity price risk. The Company’s common stock investments assets have been stated at market value as of 31 December 2010. If market price of common stocks had been changed by 5% holding all other variables constant, net assets would have been higher/lower by TRY 12,021 (31 December 2009: TRY 7.185). The Company’s available-for-sale financial assets with fixed interest rate have been stated at market value as of 31 December 2010. If market price had been changed by 1% holding all other variables constant, impact on the “Valuation of financial assets” account under shareholders’ equity would have been equal to TRY 2,377,951 (31 December 2009: TRY 4,391,541). Sensitivity analysis related to market risk explained above reflects the effects before tax. Yapı Kredi Sigorta 2010 Annual Report 71 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) (b) Credit Risk Ownership of financial assets involves the risk that counterparties may be unable to meet the terms of their agreements. The Company’s exposure to credit risk arises mainly from cash and cash equivalents and deposits in banks, financial assets, reinsurer’s share of insurance liabilities, amounts due from reinsurers, premium receivables from policyholders and intermediaries. The Company management deems these risks as total credit risk to the counterparty. The Company monitors the credit risk of financial assets and receivables from insurance operations (including reinsurance receivables) by limiting the aggregate risk to any individual counterpart and covered by collaterals. Other explanations in relation to these receivables are included in Note 12. The Company’s financial assets except for loans and receivables which are subject to credit risk are generally composed of domestic government bonds and time and demand deposits kept in banks and other financial institutions in Turkey and such receivables are not deemed to have high credit risk. (c) Liquidity risk The Company uses its available cash resources to pay claims arising from insurance contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Management sets limits on the minimum portion of funds available to meet such claims. The table below analyses the Company’s financial liabilities and insurance liabilities into relevant maturity companys based on the expected remaining period at the balance sheet or contractual maturity date. The amounts disclosed in table are the undiscounted cash flows except for payables to insurance and reinsurance companies: Contractual cash flows Up to 3 months 1 to 5 31 December 2010 3 months to 1 year years Total Payables from insurance and reinsurance companies 3,852,188 5,868,289 9,720,477 3,852,188 5,868,289 - 9,720,477 Over 5 years 24,897 6,481,612 6,506,509 Total 110,525,669 324,756 6,481,612 117,332,037 Contractual cash flows 3 months 1 to 5 to 1 year years 7,824,362 72,505 - Total 9,828,620 72,505 Expected cash flows 31 December 2010 Outstanding claim reserves-net (*) Unexpired risks reserve-net Equalization reserve-net Up to 3 months 49,187,897 2,318 49,190,215 3 months to 1 year 34,183,216 14,571 34,197,787 Up to 3 months 2,004,258 31 December 2009 Payables from insurance and reinsurance companies Premium reserves 2,004,258 1 to 5 years 27,154,556 282,970 27,437,526 7,896,867 - 9,901,125 Over 5 years 1,322 3,726,882 3,728,204 Total 253,107,465 76,661,572 6,996,416 3,726,882 340,492,335 Expected cash flows 31 December 2009 Unearned premium reserves-net (*) Outstanding claim reserves-net (*) Unexpired risks reserve-net Equalization reserve-net Up to 3 months 13,130,393 33,720,153 362,951 47,213,497 3 months to 1 year 238,430,972 20,811,128 6,590,727 265,832,827 1 to 5 years 1,544,778 22,130,291 42,738 23,717,807 (*) The Company expects to make payment of outstanding claims under legal follow-up in a period more than one year. Unearned premium reserves calculated on the long-term policies are shown as long-term in the table above. All of the outstanding claim reserves and unearned premium reserves are classified as short-term in the balance sheet. Company foresees to meet the liabilities of the Company mentioned above with the asset in the financial assets and cash and cash equivalents. 72 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Fair value of the financial assets Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists. The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies As of December 31, 2010 and 2009, all financial assets are 1st level of financial assets designated at fair value. The following methods and assumptions were used to estimate the fair value of the financial instruments for which it is practicable to estimate fair value: Financial assets The fair values of balances denominated in foreign currencies, which are translated at period end exchange rates, are considered to approximate carrying values. The fair values of certain financial assets carried at amortised cost, including cash and cash equivalents are considered to approximate their respective carrying values carried at amortised cost due to their short-term nature. The fair value of premiums receivable along with related provision for overdue receivables is considered to approximate respective carrying values carried at amortised cost. The cost of the financial assets that are not quoted in an active market, less impairment if any, are considered to approximate carrying value. Financial liabilities The fair values of liabilities on main operations and other financial liabilities are considered to approximate to their respective carrying values. Capital management The Company’s objectives when managing the capital are: - - - to comply with the capital requirements required by Treasury, to safeguard the Company’s ability to continue as a going concern so that it can continue to provide returns for shareholders, to price the insurance agreements in proportion to the risks and to yield return to shareholders As of the preparation date of the financial statements, the minimum required shareholders’ equity of the Company at 31 December 2010 is calculated as TRY 230,682,666 within the framework of the related regulations on capital adequacy (31 December 2009: TRY 168,435,398). (*) According to regulation article 10, measurement and assessment of capital adequacy of Insurance and Reinsurance and Pension Companies companys prepares twice a year in June and December. 5. Segment information Information related to the operational reporting made by the Company to the chief operating decision-maker in the accordance with the “TFRS 8-Operating Segments” is disclosed in this part. Numerical limits in “TFRS 8-Operating Segments” is also considered as the reporting to the chief operating decision-maker in the determination of segments and segments those constitute more than 10% of premium production and net technical income are determined as a separate operating segment. The Company’s production channels are composed of agency sales and direct sales and there are no policyholders that constitutes 10% of total premium production. The Company operates in Turkey. The Company mainly generates income from premiums on policies. Operating segments determined by the Company management as of 31 December 2010 and 2009 is as below: Non-Health Insurance Non-Health or elementary insurance mainly consists on Land Vehicles (Casco), Land vehicles liability (Traffic), Fire, transportation, engineering and other industries’ production. Premium production of non-health branches mainly carried out through brokers and banks as insurance risks are usually held within the borders of Turkey. Especially fire, casco and traffic branch insurance policies is arranged annually. For products with a concentration of high-risk domestic and foreign reinsurance companies held concurrently with the discretionary policy is necessary transfers are made with reinsurance contracts. Yapı Kredi Sigorta 2010 Annual Report 73 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Health Insurance Health insurance provides guarantees for sickness or expenses incurred due to injuries and indemnities if applicable and on the ground of general and special conditions if any during the policy period. Geographical area that the guarantee is given is disclosed on the policy. The Company considers the reporting to the chief operating decision-maker according to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies”, and in accordance with TMS and TFRS as issued by TMSK and other regulations, communiqués and explanations issued by the Treasury regarding accounting and financial reporting issues. The Company does not distribute the assets to the branches, considers them together. Segment results for the year ended at 31 December 2010 TECHNICAL INCOME 1-Earned Premiums-(Net of Reinsurance Share) 1.1-Written Premiums-(Net of Reinsurance Share) 1.2-Change in Unearned Premiums Reserve 1.3-Unexpired Risks Reserve 2-Other Technical Income-(Net of Reinsurance Share) TECHNICAL EXPENSE 1-Incurred Losses-(Net of Reinsurance Share) 1.1-Paid Claims-(Net of Reinsurance Share) 1.2-Change in Outstanding Claims (Net of Reinsurance Share and Returned Reserve) (+/-) 2-Other Technical Expense Investment income Personnel expenses General expenses Depreciation expense Provision expense, net Tax Investment expense Other Net Profit/(Loss) Health 312,097,808 309,120,866 333,368,763 (24,247,897) 2,976,942 Non-Health 285,215,440 257,366,640 289,315,928 (38,620,948) 6,671,660 27,848,800 Undistributed - Total 597,313,248 566,487,506 622,684,691 (62,868,845) 6,671,660 30,825,742 (271,118,139) (247,410,573) (248,001,509) (256,221,263) (192,371,473) (165,608,192) - (527,339,402) (439,782,046) (413,609,701) 590,936 (23,707,566) (26,763,281) (63,849,790) - (26,172,345) (87,557,356) 40,979,669 28,994,177 - 69,973,846 - - 69,412,660 (61,831,820) (17,255,329) (1,942,832) (9,732,277) (5,127,086) (4,135,864) 3,187,773 69,412,660 (61,831,820) (17,255,329) (1,942,832) (9,732,277) (5,127,086) (4,135,864) 3,187,773 40,979,669 28,994,177 (27,424,775) 42,549,071 74 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Segment results for the year ended at 31 December 2009 TECHNICAL INCOME 1-Earned Premiums-(Net of Reinsurance Share) 1.1-Written Premiums-(Net of Reinsurance Share) 1.2-Change in Unearned Premiums Reserve 1.3-Unexpired Risks Reserve 2-Other Technical Income-(Net of Reinsurance Share) TECHNICAL EXPENSE 1-Incurred Losses-(Net of Reinsurance Share) 1.1-Paid Claims-(Net of Reinsurance Share) 1.2-Change in Outstanding Claims (Net of Reinsurance Share and Returned Reserve) (+/-) 2-Other Technical Expense Health 283,430,686 281,178,223 280,516,861 661,362 2,252,463 Non-Health 191,898,683 160,273,733 185,787,419 (18,597,833) (6,915,853) 31,624,950 Undistributed - Total 475,329,369 441,451,956 466,304,280 (17,936,471) (6,915,853) 33,877,413 (275,053,922) (251,511,033) (251,807,643) (189,410,895) (135,886,574) (127,568,053) - 464,464,817 (387,397,607) (379,375,696) 296,610 (23,542,889) (8,318,521) (53,524,321) - (8,021,911) (77,067,210) 8,376,764 2,487,788 - 10,864,552 - - 51,354,369 (56,709,238) (15,596,751) (1,761,539) (699,578) (1,778,833) (2,957,873) 5,354,596 51,354,369 (56,709,238) (15,596,751) (1,761,539) (699,578) (1,778,833) (2,957,873) 5,354,596 8,376,764 2,487,788 (22,794,847) (11,930,295) Investment income Personnel expenses General expenses Depreciation expense Provision expense, net Tax Investment expense Other Net Profit/(Loss) 6. Property and equipment 6.1 Depreciation and amortisation expenses for the period: TRY 1,942,832 (1 January-31 December 2009: TRY 1,761,539). 6.1.1 Depreciation expenses: TRY 1,379,806 (1 January-31 December 2009: TRY 1,386,455). 6.1.2 Amortisation expenses: TRY 563,026 (1 January-31 December 2009: TRY 375,084). 6.2 Changes in depreciation calculation methods and effect of such changes on depreciation expenses for the year: None (1 January-31 December 2009: None). Yapı Kredi Sigorta 2010 Annual Report 75 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 6.3 Movements of property and equipment in the current period: 6.3.1 Cost of property and equipment purchased: TRY 1,531,654 (1 January-31 December 2009: TRY 1,167,968). 6.3.2 Cost of property and equipment sold or used as scrap: TRY 11,265,038 (1 January-31 December 2009: TRY 9,716,577). 6.3.3 Revaluation increases in the current period: 6.3.3.1 Cost of fixed assets (+): None (1 January-31 December 2009: TRY 857,407). 6.3.3.2 Accumulated depreciation (-): None (1January-31 December 2009: None). 6.3.4 Nature, amount, beginning and ending dates of construction-in-progress: (*): TRY 89,455 (31 December 2009: TRY 395,573). (*) Data processing automation project starting in December 2010 and planned to be completed in 2011 is followed under other financial assets. Movement table of tangible assets is as follows: 1 January 2010 Additions Transfers Disposals 31 December 2010 16,628,517 16,142,938 143,695 7,033,348 5,965 976,787 316,768 33,713 (33,713) (10,348,032) (786,690) (75,747) (54,569) 6,286,450 16,333,035 101,661 7,261,834 Total cost 39,948,498 1,299,520 - (11,265,038) 29,982,980 Accumulated depreciation: Properties for operational usage Furniture and fixtures Motor vehicles Other tangible assets (4,758,044) (14,121,204) (90,469) (6,225,488) (127,402) (730,303) (20,332) (391,026) (10,114) 10,114 2,509,173 765,158 75,747 49,995 (2,376,273) (14,086,349) (45,168) (6,556,405) (25,195,205) (1,269,063) - 3,400,073 (23,064,195) Cost: Properties for operational usage Furniture and fixtures Motor vehicles Other tangible assets Total accumulated depreciation Net book value 14,753,293 - 6,918,785 76 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 2009 Additions Disposals Impairment 31 December 2009 Cost: Property for operational usage Furniture and fixtures Motor vehicles Other tangible assets 15,771,110 24,629,064 251,792 6,987,734 958,876 209,092 (9,445,002) (108,097) (163,478) 857,407 - 16,628,517 16,142,938 143,695 7,033,348 Total cost 47,639,700 1,167,968 (9,716,577) 857,407 39,948,498 (4,442,408) (22,966,075) (165,643) (5,904,608) (315,636) (493,356) (16,690) (451,544) 9,338,227 91,864 130,664 - (4,758,044) (14,121,204) (90,469) (6,225,488) (33,478,734) (1,277,226) 9,560,755 - (25,195,205) Accumulated depreciation: Property for operational usage Furniture and fixtures Motor vehicles Other tangible assets Total accumulated depreciation Net book value 14,160,966 14,753,293 In circumstances where the fair value of the tangible assets is lower than the inflation adjusted costs, impairment is accounted for these differences. The Company has accounted for impairment amounting to TRY 227,336 for the property for operational usage as of 31 December 2010 (31 December 2009: TRY 227,336). The mortgage on the properties for operational usage in favour of Treasury amounts to TRY 3,328,729 (31 December 2009: TRY 4,669,626) (Note 43). The details of the tangibles assets obtained from financial leasing agreements as a lessee is follows: Cost-capitalised leasing agreements Accumulated depreciation Net book value 31 December 2010 4,203,591 (4,171,662) 31 December 2009 4,203,591 (3,852,536) 31,929 351,055 7. Investment properties Cost: Buildings Accumulated depreciation: Buildings Net book value 1 January 2010 Additions Disposals 31 December 2010 5,141,566 232,134 - 5,373,700 5,141,566 232,134 - 5,373,700 (1,870,290) (110,743) - (1,981,033) (1,870,290) (110,743) - (1,981,033) 3,271,276 (121,391) 3,392,667 Yapı Kredi Sigorta 2010 Annual Report 77 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 2009 Addition Impairment 31 December 2009 5,153,491 - (11,925) 5,141,566 5,153,491 - (11,925) 5,141,566 (1,761,061) (109,229) - (1,870,290) (1,761,061) (109,229) - (1,870,290) - 3,271,276 Cost: Buildings Accumulated depreciation: Buildings Net book value 3,392,430 The fair value of investment properties of the Company is determined by the independent, professionally qualified valuation companies. In the circumstances where the fair value of the investment properties is lower than the costs adjusted for inflation, the differences are accounted for in provision for impairment. As of 31 December 20 10 impairment provision amounting to TRY 11,925 is accounted for investment properties. (31 December2009: TRY 11,925). The fair value of investment properties of the Company are determined by valuation companies as at the year 2009 as TRY 11,096,524 (31 December 2009: TRY 10,670,000). The Company has a total monthly rent income from these investment properties amounting to TRY 48,540 (1 January-31 December 2009: TRY 55,331) Investment properties amounting to TRY 1,703,850 (31 December 2009: TRY 3,921,598) mortgaged over their costs in favour of the Treasury (Note 43). 8. Intangible assets 1 January 2010 Disposals Transfer 31 December 2010 5,303,112 2,836,044 4,594,472 89,455 2,836,044 (2,836,044) 12,733,628 89,455 8,139,156 4,683,927 - 12,823,083 Accumulated amortisation: Other (3,098,772) (563,026) - (3,661,798) Net book value 5,040,384 4,120,901 1 January 2009 Addition Disposals 31 December 2009 4,848,912 2,440,471 739,476 395,573 (285,276) - 5,303,112 2,836,044 7,289,383 1,135,049 (285,276) 8,139,156 Accumulated amortisation: Other (2,723,688) (375,084) - (3,098,772) Net book value 4,565,695 Cost: Other Advances given for intangible assets Cost: Other Advances given for intangible assets (*) Other intangible assets consist of computer software and licenses. 9,161,285 5,040,384 78 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 9. Investments in associates The Company has no investments in associates accounted for by the equity accounting method. (31 December 2009: None). 10. Reinsurance assets Reinsurance share of outstanding claim reserve (Note 17) Reinsurance share of unearned premium reserve (Note 17) Reinsurance companies’ current account-net Reinsurance income/(expenses) Reinsurers share in paid claims Commissions received from reinsurance companies (gross) Postponement of the commissions that received from reinsurers Ceded premiums (Note 24) Reinsurance share of change in unearned premiums reserve(Note 17) Reinsurance share of change in outstanding claim reserve Effect of reinsurance agreement change (*)(Note 47.1) 31 December 2010 75,715,728 55,804,385 (20,551,397) 31 December 2009 59,031,894 55,002,961 (11,002,070) 1 January31 December 2010 1 January31 December 2009 42,694,281 26,986,609 65,759,519 28,083,155 1,188,987 (135,497,802) 801,424 14,790,461 - 2,871,053 (141,672,543) (11,782,671) (3,826,057) (10,251,681) Information about reinsurance agreements are disclosed in Note 2.14. (*) The total effect of the increase in the net technical insurance reserves due to decrease in the related reinsurance share is calculated as as of 31 December 2009 and the reserve accounted for regarding decline has been presented in the other technical reserves on the balance sheet. 11. Financial Assets 11.1 Financial assets are summarised below by measurement category in the table below: Blocked Available-for-sale financial assets Government bonds (*) Common stocks (**) Held-for-trading financial assets Investment funds Total Total Total 76,324,131 - 76,759,317 401,048 153,083,448 401,048 - 4,017,897 4,017,897 76,324,131 81,178,262 157,502,393 Blocked Available-for-sale financial assets Government bonds (*) Common stocks (**) Held-for-trading financial assets Investment funds 31 December 2010 Free 31 December 2009 Free Total 103,110,617 - 81,491,450 304,330 184,602,067 304,330 - 3,675,761 3,675,761 103,110,617 85,471,541 188,582,158 (*) The interest rates of the government bonds in the available-for-sale portfolio vary between 7.19% and 16.04% (31 December 2009: 7.23%-27.50%). (**)TRY 240,414 of the shares is listed on the stock market (31 December 2009: TRY 143,696), TRY 160,634 of the shares is not listed on the stock market (31 December 2009: TRY 160,634). Yapı Kredi Sigorta 2010 Annual Report 79 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Loans and receivables (Note 12) 31 December 2010 216,340,442 31 December 2009 181,455,858 216,340,442 181,455,858 Total The Company does not have any available for sale financial asset denominated in foreign currency as of 31 December 2010 (31 December 2009: None). 11.2 Marketable securities issued during the year other than share certificates: None (31 December 2009: None). 11.3 Debt securities issued during the year None (31 December 2009: None). 11.4 Market value of marketable securities and financial assets carried at cost and carrying value of marketable securities and financial assets shown at market value: Marketable securities Government bonds Investment funds Common stocks 31 December 2010 Cost Fair Value 139,524,674 153,083,448 3,661,481 4,017,897 187,425 401,048 143,373,580 157,502,393 160,186,204 188,582,158 Inflation Adjusted Cost 148,249,982 31 December 2010 Carrying Value 148,249,982 Fair Value - 148,249,982 148,249,982 Inflation Adjusted Cost 148,249,982 31 December 2009 Carrying Value 148,249,982 148,249,982 148,249,982 Non-current financial assets Yapı Kredi Emeklilik A.Ş. Yapı Kredi Emeklilik A.Ş. 31 December 2009 Cost Fair Value 156,336,433 184,602,067 3,670,454 3,675,761 179,317 304,330 - Fair Value - 11.5 Marketable securities under “Marketable Securities and Investment Securities” account company and issued by the company’s shareholders, investments or subsidiaries and the issuers: None (31 December 2009: None). 11.6 Revaluation of property and equipment in the last three years: None (31 December 2009: None). The difference between amortized cost and fair value of available for sale financial assets is presented net of applicable taxes under shareholders’ equity. - 80 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 11.7-11.9 Other information about financial assets The realised fair value changes and interest income from available-for-sale financial assets amounting to TRY 20.553.396 (31 December 2009: TRY 25.336.083) are accounted for under investment income in the income statement. At the end of the period, the unrealised fair value changes amounting to TRY 6.173.768 (31 December 2009: TRY 8.499.814) are classified in the shareholders’ equity (Note 15). The maturity analysis of financial assets is as follows: 31 December 2010 6 month1 year 43,497,960 - Government bonds Investment funds Common stocks No stated maturity 4,017,897 401,048 0-3 month 24,105,180 - 3-6 month 2,734,732 - Total 4,418,945 24,105,180 2,734,732 Government bonds Investment funds Common stocks No stated maturity 3,675,761 304,330 0-3 month 17,305,295 - 31 December 2009 3-6 6 monthmonth 1 year 84,766,100 25,994,620 - 3,980,091 17,305,295 Total 84,766,100 43,497,960 25,994,620 1-3 year 81,719,667 - More than 3 years 1,025,909 - Total 153,083,448 4,017,897 401,048 81,719,667 1,025,909 157,502,393 1-3 year 55,486,160 - More than 3 years 1,049,892 - Total 184,602,067 3,675,761 304,330 55,486,160 1,049,892 188,582,158 12. Loans and Receivables 12.1 Classification of the receivables as receivables from main customers, receivables from interested parties, receivables for the advance payment (short-term and long-term prepayment) and the others: 31 December 2010 104,453,098 102,943,348 6,565,107 213,961,553 31 December 2009 88,015,276 85,331,197 4,731,683 178,078,156 68,150,779 3,120,360 - 58,401,777 3,094,123 75,511 285,232,692 239,649,567 (64,581,474) (2,559,389) (1,751,387) (54,654,208) (2,314,738) (1,224,763) Provision for overdue and non overdue receivables (68,892,250) (58,193,709) Receivables from main operations-net 216,340,442 181,455,858 Receivables from intermediaries Receivables from policyholders Receivables for salvage and claim recovery-gross Due from insurance operations Doubtful receivables from main operations Receivables from insurance and reinsurance companies Premium reserves Due from main operations-gross Provision for claim recovery receivables under legal follow-up (***) Provision for doubtful receivables from main operations Provision for receivables from policyholders and intermediaries (*) Yapı Kredi Sigorta 2010 Annual Report 81 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The details of claim recovery and salvage receivables are as follows: 31 December 2010 71,146,581 (19,661,820) 31 December 2009 59,385,891 (21,609,488) Receivables for salvage and claim recovery-net 51,484,761 37,776,403 Provision for salvage and claim recovery under follow-up Provision for salvage and claim recovery under follow-up-reinsurance share (**) (64,581,474) 19,612,513 (54,654,208) 20,720,989 (44,968,961) (33,933,219) 6,515,800 3,843,184 Receivables for salvage and claim recovery-gross (including doubtful receivables) Receivables for salvage and claim recovery reinsurance share (**) Provision for salvage and claim recovery-net Total (*) (**) (***) Disclosed under provision for doubtful receivables from main operations in the balance sheet. Disclosed under provision for due from insurance operations in the balance sheet. In accordance with the draft circulars regarding subrogation and salvage receivables as of December 31, 2009 together with subrogation receivables in administrative and legal follow up amounts are made re-classification by the company to the related accounts. 12.2 Due from/due to shareholders, investments and subsidiaries: Balances and transactions with the related parties are disclosed in Note 45. 12.3 Total mortgages and collateral obtained for receivables: The details of mortgages and collaterals received are as follows: USD 31 December 2010 EUR TRY Total Mortgages and collateral obtained Pledges Letter of guarantees Public borrowing notes Guarantees and collaterals obtained from companies 108,320 - 2,108 - 44,593,450 12,241,911 787,990 155,622 44,593,450 12,352,339 787,990 155,622 Total 108,320 2,108 57,778,973 57,889,401 31 December 2010 EUR TRY Total USD Mortgages and collateral obtained Pledges Letter of guarantees Public borrowing notes Guarantees and collaterals obtained from companies 109,261 - 2,222 - 42,260,055 8,626,016 859,873 177,587 42,260,055 8,737,499 859,873 177,587 Total 109,261 2,222 51,923,531 52,035,014 82 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 12.4 Receivables and payables denominated in foreign currencies having no foreign exchange rate guarantees, assets in foreign currencies and conversion rates: Foreign currency type 31 December 2010 Foreign currency amount Exchange rate Amount TRY Loans and Receivables Foreign currency denominated premium receivables EUR USD CHF GBP SEK JPY AUD DKK 9,070,789 10,631,270 138,689 19,846 16,656 492,167 23 (11,647) 2.0491 1.5460 1.6438 2.3886 0.2261 0.0189 1.5685 0.2748 18,586,954 16,435,943 227,977 47,404 3,766 9,302 36 (3,201) 35,308,181 Foreign currency denominated commission payables EUR USD CHF GBP DKK JPY SEK AUD 885,964 1,079,949 12,763 2,649 14,085 9,300 83 5 2.0491 1.5460 1.6438 2.3886 0.2748 0.0189 0.2261 1.5685 1,815,429 1,669,601 20,980 6,327 3,871 176 19 8 3,516,411 Foreign currency type 31 December 2009 Foreign currency amount Exchange rate Amount TRY Loans and Receivables Foreign currency denominated premium receivables EUR USD CHF GBP SEK JPY CAD DKK 5,181,435 6,199,830 141,611 34,760 31,650 185,310 32 (12,484) 2.1603 1.5057 1.4492 2.3892 0.2082 0.0163 1.4368 0.2902 11,193,454 9,335,084 205,223 83,049 6,590 3,021 46 (3,623) 20,822,844 Foreign currency denominated commission payables EUR USD CHF GBP DKK JPY SEK CAD 617,714 887,808 30,611 6,138 14,778 16,292 521 5 2.1603 1.5057 1.4492 2.3892 0.2902 0.0163 0.2082 1.4368 1,334,448 1,336,773 44,361 14,665 4,289 266 108 7 2,734,917 Yapı Kredi Sigorta 2010 Annual Report 83 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 12.5-12.7 Other information about loans and receivables: The aging of due from insurance operations is as follows: 31 December 2010 65,959,838 97,871,084 36,593,405 5,797,618 3,092,703 31 December 2009 47,477,466 90,476,896 31,612,117 5,828,777 - 209,314,648 175,395,256 71,146,581 (1,918,202) 59,385,892 (2,048,783) 278,543,027 232,732,365 Opening balance-1 January Additions during the period Release of provision during the period 2010 1,224,763 697,078 (170,454) 2009 1,299,878 1,422 (161,546) Closing balance-31 December 1,751,387 1,224,763 Opening balance-1 January Additions during the period (*) Release of provision during the period 2010 33,933,219 12,576,570 (1,540,828) 2009 24,853,146 11,259,046 (2,178,973) Closing balance-31 December 44,968,961 33,933,219 Overdue Up to 3 months 3 to 6 months 6 months to 1 year Over 1 year Claim recovery and salvage receivables (gross) Rediscount on receivables Total The movement of provision for receivables from policyholders and intermediaries is as follows: The movement of provision for doubtful net claim recovery and salvage receivables is as follows: (*) According to dated January 14, 2011 September 20, 2010 and 2010/16 and 2011/1 numbered circulars of Treasury the Company books provision to the subrogation receivables according to the claim over the 6 months from the date of payment (insurance due from related parties) and 4 months (the actual claims and other legal entities) amounting to TRY 2,920,383 TRY in the additions in the current period and the additional provision is booked amounting to TRY 1,662,055 for the remaining amount of individual subrogation receivables that are not yet settled. The movement of provision for doubtful receivables from main operations is as follows: Opening balance-1 January Additions during the period Closing balance-31 December 2010 2,314,737 244,652 2009 48,600,009 8,368,937 2,559,389 56,968,946 84 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The aging of the overdue but not impaired receivables from policyholders and agencies are as follows: Up to 3 months 3 to 6 months 6 months to 1 year Over 1 year Total 31 December 2010 55,424,042 7,745,365 1,832,325 958,106 31 December 2009 43,721,980 2,173,332 829,813 752,341 65,959,838 47,477,466 31 December 2010 20,964,223 7,491,231 553,803 31 December 2009 21,159,146 6,025,401 572,268 29,009,257 27,756,815 The details of the guarantees received for the receivables stated above are follows: Mortgages Letter of guarantees Public borrowing notes Total 13. Derivative financial instruments None (31 December 2009: None). 14. Cash and cash equivalents Cash and cash equivalents that are included the statement of cash flows for the year ended 31 December 2010 and 2009 are shown in Note 2.12. 15. Share capital Other Capital Reserves: In accordance with the Corporate Tax Law article 5.1.e, 75% of the profit obtained from the sales of the properties of the company is considered as tax exempt in such condition that the amount is kept in capital reserves under liabilities for 5 years. The profit assumed as tax exemption cannot be transferred to any account except for the capital account or retrieved from the company. In accordance with the notification of the Treasury numbered 2008/41, dated 27 October 2008, the Company accounted TRY 3,711,141 total investment sales income calculated according to the TMS regulations, generated from the sales of the building realised in 2008 is recognised in the statement of income calculated according to TMS regulations. The Company classified TRY 3,898,754 which consists of 75% of investment sales income, amounting to TRY 5,198,339, generated from the sales of the building realised in 2010 and calculated using the book values as determined by Tax Procedural Law, in “Profit not Subject to Distribution” included in “Net Profit for the Period” account company under shareholders’ equity and this amount is transferred to account “Other Capital Reserves” in 2011. Profit reserves as of December 31, 2010 and 2009 in the shareholders’ equity accounts express earthquake claims reserves come up in the balance sheet as of December 31, 2006 and revenue obtained from this account and revenue fallowed until the date of 14 June 2007. Legal Reserves: Retained earnings as per the statutory financial statements, other than legal reserve requirements, are available for distribution subject to the legal reserve requirement referred to below. The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code. The Turkish Commercial Code stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the company’s paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. Under the Turkish Commercial Code, the legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital. Yapı Kredi Sigorta 2010 Annual Report 85 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The movement of legal reserves in the period is as follows: Opening balance-1 January Reserves accounted in dividend payment 2010 5,600,553 - 2009 2,207,340 3,393,213 Closing balance-31 December 5,600,553 5,600,553 Valuation of Financial Assets: The unrealised gains and losses that result from the changes in the fair values of available-for-sale financial assets are directly recognized in the shareholders’ equity as “Valuation of Financial Assets”. The movement of valuation of financial assets in the period is as follows: 2010 8,499,814 (4,210,803) 842,161 1,303,245 (260,649) 6,173,768 Opening balance-1 January (net of tax effect) Outflows due to matured or sold financial assets Tax effect of redempted asset Fair value change Tax effect of fair value change (Note 35) Closing balance-31 December 2009 3,093,553 (62,276) 12,455 6,820,102 (1,364,020) 8,499,814 The Company has 8,000,000,000 units of shares all fully paid (31 December 2009: 8,000,000,000 units). Movement of common stocks at opening balance and closing balance is as follows: Paid in capital Total Paid in capital Total 1 January2010 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 1 January2009 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 Issued capital Unit Nominal TRY - - Issued capital Unit Nominal TRY - Amortised Nominal Unit Amortised Nominal Unit - - 16. Other reserves and equity component of discretionary participation feature Information about other reserves classified in share capital is explained in Note 15. - TRY - TRY - 31 December 2010 Nominal Unit TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 31 December 2010 Nominal Unit (*) TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 86 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17. Insurance liabilities and reinsurance assets 17.1 Guarantees to be provided and guarantees provided for life and non-life branches: Required guarantee amount to be provided for non-life branches Guarantees provided for non-life branches (*) 31 December 2010 72,288,237 76,894,222 31 December 2009 56,145,133 102,855,054 (*) In accordance with the article 4 of Communiqué regarding “The Financial Structure of Insurance, and Reinsurance and Pension Companies”, published in the Official Gazette (No: 26606) dated 7 August 2007 in accordance with the adaptation to the Insurance Law, the insurance and pension fund companies operating in personal accident and life branches should be provided guarantees that equals to one third of required capital amount in each capital adequacy calculation period. 17.2 Number of life policies, the number and mathematical reserve amount of the life policies that enter and exit during the year and current status: None (31 December 2009: None). 17.3 Guarantee amount to be provided for non-life branch: Disclosed in Note 4. Unit prices of pension funds and savings founded by the Company: None (31 December 2009: None). 17.4 Units and amounts of share certificates in portfolio and in circulation: None (31 December 2009: None). 17.5 Units and amounts of share certificates in portfolio and in circulation: None (31 December 2009: None). 17.6 Numbers and portfolio amounts of the individual and group pension funds’ participants (entered, left, cancelled during the period and the current participants: None (1 January-31 December 2009: None). 17.7 Valuation methods of profit share calculation for life insurance: None (1 January-31 December 2009: None). 17.8 Number of units and individual/company allocation of gross/net contribution amounts of the private pension fund participants during the period: None (1 January-31 December 2009: None). 17.9 Number of units and individual/company allocation of gross/net contribution amounts of the private pension fund participants transferred from another company during the period: None (1 January-31 December 2009: None). 17.10 Number of units and individual/company allocation of gross/net contribution amounts of the private pension fund participants transferred from the life insurance portfolio to the private pension fund portfolio during the period: None (31 December 2009: None). 17.11 Number of units and individual/company allocation of gross/net contribution amounts of the private pension fund participants that left the Company and transferred to another company or that left the Company but did not transfer to another company: None (1 January-31 December 2009: None). 17.12 Number of units, gross/net premiums and individual/company allocation for life policyholders that joined the portfolio during the period: None (1 January-31 December 2009: None). 17.13 Number of units, gross/net premiums and individual/company allocation of mathematical reserves for life policyholders that left the portfolio during the period: None (1 January-31 December 2009: None). 17.14 Profit share allocation rate to the life policyholders: None (1 January-31 December 2009: None). Yapı Kredi Sigorta 2010 Annual Report 87 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17.15-17.19-Other required information about liabilities from insurance agreements: Outstanding claims reserve: Opening balance-1 January Paid claims Increase -Outstanding claims of current period -Prior years’ outstanding claims Gross 114,472,327 (39,859,073) 78,557,616 79,047,523 (489,907) 31 December 2010 Reinsurance share (53,431,747) 15,289,198 (28,388,928) (34,674,360) 6,285,432 Net 61,040,580 (24,569,875) 50,168,688 44,373,163 5,795,525 Closing balance 153,170,870 (66,531,477) 86,639,393 Claims incurred but not reported (*) Total 33,070,527 186,241,397 (9,184,251) (75,715,728) 23,886,276 110,525,669 Opening balance-1 January Paid claims Increase -Outstanding claims of current period -Prior years’ outstanding claims Gross 108,190,172 (37,424,394) 43,706,549 55,492,095 (11,785,546) 31 December 2009 Reinsurance share (52,894,074) 11,100,285 (11,637,958) (25,369,515) 13,731,557 Net 55,296,098 (26,324,109) 32,068,591 30,122,580 1,946,011 Closing balance 114,472,327 (53,431,747) 61,040,580 22,702,802 3,425,876 4,677,585 (9,585,124) (7,411,632) (81,888) 1,893,373 15,291,170 3,343,988 4,677,585 (7,691,751) 135,693,466 (59,031,894) 76,661,572 Gross 308,110,425 63,670,270 31 December 2010 Reinsurance share (55,002,961) (801,424) Net 253,107,465 62,868,845 371,780,695 (55,804,385) 315,976,310 Opening balance-1 January Net change Gross 301,956,626 6,153,800 31 December 2009 Reinsurance share (66,785,632) 11,782,671 Net 235,170,994 17,936,471 Closing balance 308,110,426 (55,002,961) 253,107,465 Claims incurred but not reported (*) Outstanding claims adequacy reserve (*) Chain ladder reserve (*) Expected salvage and claim recovery income accrual (*) Total (*) The related reserves are calculated on a gross and net basis and recorded in the financial statements. Unearned premium reserve: Opening balance-1 January Net change Closing balance As of 31 December 2010, deferred commission income and deferred commission expenses are TRY 10,929,569TRY (31 December 2009: TRY 12,118,556) and TRY 45,716,218 (31 December 2009: TRY 37,971,078), respectively, and recorded in deferred income and expense accruals account on balance sheet. 88 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Unexpired risk reserve (*): Gross 6,996,416 (6,671,660) 31 December 2010 Reinsurance Share - Net 6,996,416 (6,671,660) 324,756 - 324,756 Opening balance-1 January Net change Gross 80,563 6,915,853 31 December2009 Reinsurance share - Net 80,563 6,915,853 Closing change-31 December 6,996,416 - 6,996,416 Opening balance-1 January Net change Gross 3,726,882 2,754,730 31 December 2010 Reinsurance share - Net 3,726,882 2,754,730 Closing change-31 December 6,481,612 - 6,481,612 Opening balance-1 January Net change Gross 1,902,446 1,824,436 2009 Reinsurance share - Net 1,902,446 1,824,436 3,726,882 - 3,726,882 Foreign currency amount 3,538,770 2,662,534 5,447 11,423 555 3,256 5,764 31 December 2010 currency rate (*) 2.0590 1.5535 2.4011 0.31389 1.6544 1.05275 0.2762 Amount TRY 7,286,328 4,136,246 13,078 3,585 918 3,428 1,592 Opening balance-1 January Net change Closing balance-31 December Equalization reserve (*): Closing change-31 December (*) The reserves calculated in terms of net value as described in note 2.24. Foreign currency denominated items in claims reserve are as follows: Type EUR USD GBP FRF CHF DEM DKK 11,445,175 Type EUR USD GBP FRF CHF Foreign currency amount 2,433,395 654,789 2,071 11,423 713 31 December 2009 currency rate (*) 2.1707 1.5130 2.4017 0.3309 1.4585 Amount TRY 5,282,171 990,696 4,974 3,780 1,040 6,282,661 The Company prepares the claim development table by considering net paid claims in accordance with the Regulation on Technical Reserves. Elimination of huge claim Outstanding claims before 2004 Indirect outstanding claims Gross IBNR Reinsurance share (reserves included) Net outstanding claim amount P/L Outstanding claim amounts Claims paid Accident year Payment made in the year of the accident 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 3,194,908 (250,144,217) 234,384,474 12,943,131 1,675,377 2,067,748 809,024 939,037 520,334 6,128,862 (334,046,398) 309,334,451 25,305,248 4,057,418 3,721,297 (3,698,268) 1,455,113 - 8,017,948 (363,229,911) 344,347,774 19,452,657 3,493,325 2,213,107 1,733,994 - 6,420,045 (377,318,432) 366,662,780 14,542,725 1,290,516 1,242,456 - 1 January 2004 1 January 20051 January 20061 January 200731 December 2004 31 December 2005 31 December 2006 31 December 2007 Claim development table as of 31 December 2010: 9,050,090 (403,611,433) 401,900,488 9,770,667 990,368 - 1 January 200831 December 2008 9,872,262 (421,237,306) 427,363,813 3,745,755 - 2,551,651,726 85,760,184 11,507,004 9,244,609 (1,155,250) 2,394,150 520,334 Total Net Paid 58,954,192 110,525,669 110,525,669 (75,715,728) 4,668,253 33,070,527 12,104,169 34,760,142 101,638,307 (408,703,754) (2,558,584,451) 467,657,946 - 1 January 20091 January 201031 December 2009 31 December 2010 Yapı Kredi Sigorta 2010 Annual Report Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 89 5,384,752 (207,375,655) 191,900,370 15,447,493 1,597,258 230,314 1,051,856 1,313,264 1,219,852 3,812,567 (248,999,432) 234,143,379 13,009,372 1,739,948 2,131,459 849,248 938,593 - 1 January 2004 1 January 200531 December 2004 31 December 2005 6,501,863 (332,479,459) 309,340,299 25,376,045 4,076,662 3,874,031 (3,685,715) - 1 January 200631 December 2006 11,030,764 (361,381,163) 345,373,576 20,372,220 3,652,457 3,013,674 - 1 January 200731 December 2007 6,949,189 (375,879,406) 366,787,446 14,677,263 1,363,885 - 1 January 200831 December 2008 11,597,490 (400,332,459) 402,132,345 9,797,604 - 50,087,314 (377,228,496) 427,315,811 - 1 January 20091 January 201031 December 2009 31 December 2010 76,661,573 76,661,572 (59,031,893) 4,217,115 22,702,802 3,425,876 (9,585,125) 4,677,585 6,078,086 8,813,188 95,363,938 (2,303,676,071) 2,276,993,226 98,679,997 12,430,211 9,249,478 (1,784,611) 2,251,857 1,219,852 Total Net Paid Paid In accordance with the Regulation on Technical Reserves, since the outstanding claim reserve per branch in the current period is less than the amount calculated by chain ladder method issued by Treasury, the Company has accounted for net additional outstanding claim reserve in total amounting to TRY 23.886.276. Elimination of huge claim Outstanding claims before 2003 Indirect outstanding claims Gross IBNR Adequacy Estimated subrogation Actuarial method of chain Reinsurance share (reserves included) Net outstanding claim amount P/L Outstanding claim amounts Claims paid Accident year Payment made in the year of the accident 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later Claim development table as of 31 December 2009: 90 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Yapı Kredi Sigorta 2010 Annual Report 91 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 18. Investment contract liabilities None (31 December 2009: None). 19. Trade and other payables and deferred income Other main operations payables (Note 47.1) Reinsurance payables Payables from insurance operations Deferred commission income (Note 17) Other liabilities (Note 47.1) Other deferred income Total 31 December 2010 41,276,404 23,671,757 24,617,774 10,929,569 9,374,102 160,941 110,030,547 31 December 2009 36,989,372 14,096,193 19,729,964 12,118,556 10,718,463 168,326 93,820,874 31 December 2010 Exchange rate (*) 1.5535 0.3138 2.4011 Amount TRY 215,671 11,270 7,429 Related party transactions are disclosed in Note 45. Payables denominated in foreign currencies are as follows: Foreign currency type USD FRF GBP Foreign currency amount 138,829 35,915 3,094 234,370 Foreign currency type USD FRF GBP Foreign currency amount 138,829 35,915 3,094 31 December 2009 Exchange rate (*) 1.5130 0.3309 2.4017 Amount TRY 210,048 11,885 7,431 229,364 20. Borrowings None (31 December 2009: None). 92 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 21. Deferred income tax Deferred income tax was calculated for the temporary differences in the balance sheet items arising due to measurement in financial statements and measurement in accordance with Tax Law. The enacted tax rate used for the calculation of deferred income taxes on temporary differences that are expected to be realised in the following periods under the liability method is 20%. As of 31 December 2010 and 2009 the temporary differences giving rise to deferred income tax assets and deferred income tax liabilities with using appropriate tax rates are as follows: Cumulative temporary differences 31 December 2010 31 December 2009 Deferred income tax assets Provision for premium and commission for employee Provision for employment termination benefits Provision for lawsuits Provision for receivables from intermediaries and policyholders Provision for unused vacations Unexpired risks reserve Fixed asset depreciation difference Provisions for not received invoices Provisions of effect of renewal of reinsurance agreements (Note 47.1) Chain ladder reserve Deferral of asistance premiums Equalization reserve Subrogation provisions Other Deferred income tax assets/(liabilities) 31 December 2010 31 December 2009 7,914,665 4,395,285 3,008,257 3,618,578 4,221,050 1,976,911 1,582,933 879,057 601,651 723,716 844,210 395,382 1,751,387 2,020,786 324,755 715,688 552,114 19,927,576 2,887,052 4,746,503 4,582,439 47,710 1,224,763 1,554,540 6,996,416 24,451 10,251,681 4,677,585 2,145,094 498,852 350,277 404,157 64,951 143,138 110,423 3,985,515 577,410 949,301 916,488 9,542 244,953 310,908 1,399,283 4,890 2,050,336 935,517 429,019 99,770 52,874,217 37,189,921 10,574,843 7,437,984 Equalization reserve Rediscount on receivables Fixed asset depreciation differences Provision for other income (2,536,442) (1,630,078) (1,305,870) (1,754,934) (262,153) (1,094,593) (507,288) (326,016) (261,174) (350,987) (52,431) (218,919) Total deferred income tax liabilities (2,539,173) (3,333,603) (507,834) (666,721) 10,067,009 6,771,263 Total deferred income tax assets Deferred income tax liabilities Net deferred income tax assets (Note 35) The movement of deferred income tax is as follows: Opening balance-1 January Deferred tax income Closing balance-31 December (Note 35) 2010 6,771,263 3,295,746 2009 3,538,699 3,232,564 10,067,009 6,771,263 Yapı Kredi Sigorta 2010 Annual Report 93 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 22. Retirement Benefit Obligations Provision for employment termination benefits-Short term Provision for employment termination benefits-Long term 31 December 2010 561,971 3,833,314 31 December 2009 4,221,050 4,395,285 4,221,050 Under Turkish Labour Law, the Company is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). After the changes made on 23 May 2002 in the legislation, some process of transition clauses related to the length of service before retirement have been omitted. The amount payable consists of one month’s salary limited to a maximum of TRY 2,517.01 (31 December 2009: TRY 2,365.16) for each year of service at 31 December 2010. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the future probable obligations arising from the retirement of the employees. Before the date of December 31, 2010, the provision for employment termination benefits is TRY 400,945 and termination provision is TRY 161,026 for the personnel who are definitely noticed that are dismissed. TMS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: Discount rate per annum (%) Turnover rate for estimating the probability of retirement (%) 31 December 2010 4.66 94.71 31 December 2009 5.92 94.94 The principal assumption is that the maximum liability will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. As the maximum liability is revised semi-annually, the maximum amount of TRY 2,623.23 (1 January 2010: TRY 2,427.04) which is effective from 1 January 2011, has been taken into consideration in calculating the provision for employment termination benefits. Movement in the provision for employment termination benefits in the current period is as follows: Opening balance-1 January Paid during the period (Note 33) Charge for the period 2010 4,221,050 (1,248,943) 1,423,178 2009 3,893,175 (1,158,641) 1,486,516 Closing balance-31 December 4,395,285 4,221,050 94 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 23. Provisions for Other Liabilities and Charges Commitments and contingent liabilities not recognised as liabilities are disclosed in Note 43. Guarantees and pledges received are disclosed in Note 12.3. The details of provisions that are classified under provisions for expense accruals in balance sheet are as follows: Personnel bonus provision Provision for marketing and general administrative expenses 31 December 2010 6,127,503 552,114 31 December 2009 2,904,078 511,859 6,679,617 3,415,937 24. Net Insurance Premium Revenue The distribution of premium income is as follows: Sickness\Health Land vehicles Land vehicles liability Accident Fire and natural disasters General losses Transportation General liability Other Gross 337,430,078 147,683,262 61,902,739 16,346,018 103,561,926 55,243,330 11,105,191 19,279,183 5,630,766 Total premium income 758,182,493 Sickness\Health Land vehicles Land vehicles liability Accident Fire and natural disasters General losses Transportation General liability Other Gross 284,571,739 99,728,087 48,954,371 13,165,201 90,839,359 43,383,082 9,683,478 9,982,051 7,669,455 Total premium income 607,976,823 1 January-31 December 2010 Reinsurance share (4,061,315) (971,219) (4,089,379) (2,445,414) (63,561,038) (42,335,305) (4,647,297) (9,721,564) (3,665,271) (135,497,802) 1 January-31 December 2009 Reinsurance share (4,054,878) (13,300,455) (7,529,318) (2,362,560) (60,851,664) (34,620,153) (5,313,845) (7,225,061) (6,414,609) (141,672,543) Net 333,368,763 146,712,043 57,813,360 13,900,604 40,000,888 12,908,025 6,457,894 9,557,619 1,965,495 622,684,691 Net 280,516,861 86,427,632 41,425,053 10,802,641 29,987,695 8,762,929 4,369,633 2,756,990 1,254,846 466,304,280 Yapı Kredi Sigorta 2010 Annual Report 95 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 25. Fee Income Income related with pension operations are disclosed in Notes 2.21 and 2.25. 26. Investment Income Available-for-sale financial assets Interest income Dividend income Net sales income Cash and cash equivalents Interest income Total 1 January31 December 2010 1 January31 December 2009 20,290,705 26,492,624 262,691 23,425,120 7,007,884 1,910,963 14,678,678 14,553,044 61,724,698 46,897,011 1 January31 December 2010 138,092,460 - 1 January31 December 2009 116,594,556 - 138,092,460 116,594,556 27. Net Realised Gains on Financial Assets Information about realised gain/loss on available-for-sale financial assets is disclosed in Notes 11 and 15. 28. Net Fair Value Gains on Assets at Fair Value Through Income Income gain from investment fund TRY 352,803 as of 31 December 2010 (31 December 2009: TRY 458,734). 29. Insurance Benefits and Claims Disclosed in Note 17. 30.Investment Contract Benefits None (31 December 2009: None). 31. Other Expenses by Destination Operating expenses classified under technical part ( Note 32) Operating expenses classified under non-technical part-life Total (Note 32) 96 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 32. Expenses by nature Details of the operating expenses in the income statement are as below: Commission expenses Personnel expenses (Note 33) Office expenses Outsource expenses Advertising and marketing expenses Rent expenses Transportation expenses Communication expenses Maintenance and repair expenses Other operating expenses Reinsurance commission income Other technical expense Total 1 January31 December 2010 83,390,647 61,831,820 3,979,653 4,641,646 3,369,312 2,363,718 1,008,258 704,201 77,048 1,111,797 (25,797,622) 1,411,982 1 January31 December 2009 65,828,154 56,709,238 4,153,888 3,510,664 3,425,696 2,342,644 685,017 667,592 113,507 697,743 (30,954,208) 9,414,621 138,092,460 116,594,556 1 January31 December 2010 29,863,686 9,347,885 6,032,148 6,109,377 1,248,943 107,686 128,264 8,993,831 1 January31 December 2009 27,916,806 8,931,995 5,503,513 4,819,434 1,158,641 420,993 150,995 7,806,861 61,831,820 56,709,238 33. Employee Benefit Expense Salary payments Bonus payment Social security deductions Sales personnel expense Employment termination benefits (Note 22) Unused vacation benefit Notification benefit Other Total (Note 32) Total salaries and benefits paid to the members of the Board of Directors, General Manager, General Coordinator, Assistant General Manager and other executive management are explained in Note 1.6. The Company does not have any shared-based payments. (1 January-31 December 2009: None). 34. Financial Costs 34.1 Total financial expenses for the period: None (1 January-31 December 2009: None). 34.1.1 34.1.2 34.1.3 Expenses related to production cost: None (1 January-31 December 2009: None). Expenses related to tangibles: None (1 January-31 December 2009: None). Directly recorded as expense: None (1 January-31 December 2009: None) 34.2 Financial expenses related to shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): None (31 December 2009: None). 34.3 Sales to/purchases from shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): Related party transactions and balances are disclosed in Note 45. Yapı Kredi Sigorta 2010 Annual Report 97 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 34.4 Interest, rent or other charges received from or paid to shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): Related party transactions and balances are disclosed in Note 45. 35. Income taxes Tax income and expense recognised in the income statement for the year ended 31 December 2010 and 2009 are summarised below: 1 January31 December 2010 293,163 (5,420,249) 1 January31 December 2009 (1,778,833) (528,314) 3,295,746 1,332,801 3,232,564 (2,359,654) 2,786,532 31 December 2010 5,420,249 (2,836,775) 31 December 2009 1,778,833 (3,055,673) Total 2,583,474 (1,276,840) Deferred income tax asset Deferred income tax liability 10,574,843 (507,834) 7,437,984 (666,721) Deferred income tax asset, net (Note 21) 10,067,009 6,771,263 31 December 2010 47,676,156 2,767,431 44,908,725 20% (8,981,745) (494,723) 745,376 6,078,274 293,163 31 December 2009 (10,151,462) 4,565,365 (14,716,827) 20% 2,943,365 (1,561,141) 1,404,308 - (2,359,655) 2,786,532 Prior year’s excess of corporate tax provision Corporate tax for the current period Tax expense classified in equity on available-for-sale financial assets (Note 15) (*) Deferred tax income Total tax (expense)/income (*) Classified under deferred income tax asset account in the income statement. Tax Prepaid taxes (-) Profit before income tax Minus: Deferred tax income Profit before current and deferred income tax Enacted tax rate Tax calculated by enacted tax rate Expenses not allowable for tax purposes The effect of temporary differences of not calculated tax asset on deferred tax Income not subject to tax Provision of excess of previous period corporate tax Tax charge for the period 98 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 36. Net Foreign Exchange Gains Investment income, net Technical income, net General administrative expenses Total 1 January31 December 2010 9,896,412 (17,760,374) 7,315,415 1 January31 December 2009 23,656,238 (32,720,009) 9,056,885 (548,547) (6,886) 1 January31 December 2010 42,549,071 8,000,000,000 0.53 1 January31 December2009 (11,930,295) 8,000,000,000 (0.15) 37. Earnings per share Earnings per share is calculated by dividing net profit for the period into weighted average unit share of the Company. Net profit for the period Weighted average number of shares with face value of Kr 1 per share Earning per share (Kr) 38. Dividends per sharew Distribution of profit for the year ended 31 December 2010 with a decision of the Board of Directors or the General Assembly are not taken yet. The Company Management Board meeting held on 2 March 2010, distribution of profit for the year 2009 closed with a loss so is not to be presented to the approval of the General Assembly. The General Assembly approved this decision on March 23, 2010. 39. Cash generated from operations Disclosed in the statement of cash flows. 40.Convertible bond None (31 December 2009: None). 41. Redeemable preference shares None (31 December 2009: None). 42. Risks Outstanding claims litigations against the Company (*) Lawsuits against the Company for refund of premiums Labour litigations against the Company Other lawsuits against the Company Total 31 December 2010 47,468,456 1,032,120 495,481 1,090,858 31 December 2009 42,146,629 896,630 452,209 628,072 50,086,915 44,123,540 (*) Related item is accounted for in outstanding claim reserve and the movement table of outstanding claim reserve is disclosed in Note 17. Related reserve’s net amount is TRY 27,374,406 (31 December 2009: TRY 18,432,125) Yapı Kredi Sigorta 2010 Annual Report 99 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 43. Commitments The amount of guarantees and pledges and foreign currency details are as follows: 31 December 2010 Letter of guarantee USD 15,460 Euro - TRY 4,616,931 Total 4,632,391 Total 15,460 - 4,616,931 4,632,391 Letter of guarantee USD 15,057 Total 15,057 31 December 2009 TRY 5,829,827 Total 5,844,884 5,829,827 5,844,884 31 December 2010 76,413,241 3,328,729 1,703,850 31 December 2009 102,987,219 4,669,626 3,921,598 81,445,820 111,578,443 Mortgages or restrictions on assets: Marketable securities portfolio (*) Property for Operational Usage (Note 6) Investment properties (Note 7) Total (*) Marketable securities amounting to TRY 76,264,249 (31 December 2009: TRY 102,855,054) are blocked in favour of the Treasury and TRY 148,992 TRY (31 December 2009: TRY 132,165) in favour of TARSİM. 44. Business combinations None (31 December 2009: None). 100 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 45. Related-party transactions Yapı Kredi Company Companies, Yapı Kredi Company Companies’ shareholders and the companies under control of the shareholders are considered as related parties in these financial statements. 31 December 2010 31 December 2009 277,300,121 154,112,695 277,300,121 154,112,695 29,281,609 1,323,989 263,372 262,875 94,246 122,130 23,526 97,601 74,236 22,273 16,144 5,635 378 31,599,007 24,464,131 1,125,749 259,070 227,284 117,961 96,471 81,588 77,844 62,871 16,699 13,612 6,188 5,278 - a) Deposits and financial assets Yapı ve Kredi Bankası A.Ş. Total b) Trade receivables Yapı ve Kredi Bankası A.Ş. Yapı Kredi Emeklilik A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. Yapı Kredi Leasing Yapı Kredi Kültür Sanat Tic. A.Ş. Yapı Kredi Faktoring A.Ş. Agrosan Kimya San.veTic.A.Ş. Setur Servis Turistik A.Ş. Yapı Kredi Portföy Yönetimi A.Ş. Unicredit (San) Menkul Değerler A.Ş. Kredi Kayıt Bürosu A.Ş. Türkiye Eğitim Gönüllüleri Vakfı Yapı Kredi Yatırım Ortaklığı A.Ş. Koç Finansal Hizmetler A.Ş. Ford Otomotiv YKS Tesis Yönetim Hizmetleri A.Ş. 10.993 Total 26,554,746 Yapı Kredi Sigorta 2010 Annual Report 101 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 31 December 2009 c) Trade Payables Yapı ve Kredi Bankası A.Ş. 2,256,105 3,494,448 Total 2,256,105 3,494,448 484,321 632,563 342,486 86,696 28,829 26,626 19,976 26,626 8,260 11,648 35,329 33,192 32,612 14,590 33,192 7,869 - 1,291,689 618,504 e) Other receivables Yapı Kredi Factoring A.Ş. YKS Tesis Yönetim Hizmetleri A.Ş. 423,079 8,293 57,268 - Total 431,372 57,268 f) Rent income Yapı Kredi Emeklilik A.Ş. Yapı ve Kredi Bankası A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. 153,653 112,163 11,261 119,610 106,593 26,100 Total 277,077 252,303 g) Rent expense Yapı ve Kredi Bankası A.Ş. Yapı Kredi Emeklilik A.Ş. 1,088,023 687,201 1,233,110 528,741 Total 1,775,224 1,761,851 h) Interest income Yapı ve Kredi Bankası A.Ş. 23,058,888 22,109,369 Total 23,058,888 22,109,369 i) Interest expense Yapı Kredi Leasing A.Ş. 289 1,796 Total 289 1,796 d) Other payables Zer Merkezi Hizmetler A.Ş. Koç Sistem A.Ş. Koçnet Haberleşme Teknolojileri ve Setur Servis Turistik A.Ş. Otokoç A.Ş. YKS Tesis Yönetim Hizmetleri A.Ş. Opet Petrolcülük A.Ş. Otokoç A.Ş. Koç Holding A.Ş. Yapı Kredi Bankası A.Ş. Total 102 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January31 December 2010 1 January31 December 2009 61,070,426 3,036,970 47,711,925 2,223,921 890,205 508,227 296,026 239,997 197,377 3,817 128,218 144,998 122,527 41,156 43,148 24,012 805,444 320,172 24,208 10,178 307,749 15,799 362,729 7,886 5,411 531,903 457,274 248,839 208,488 166,521 133,460 116,479 87,669 21,335 12,376 10,556 972,664 231,857 598,998 10,218 41,731 13,047 665,333 18,599 6,363 68,606,680 54,489,556 k) Commission expense and insurance premiums Yapı ve Kredi Bankası A.Ş. Yapı Kredi Leasing A.Ş. Yapı Kredi Emeklilik A.Ş. 14,305,765 1,832,793 - 11,456,818 1,873,440 79,054 Total 16,138,558 13,409,312 l) Commissions income Yapı Kredi Emeklilik A.Ş. 8,767 5,160 Total 8,767 5,160 m) Other income Yapı Kredi Emeklilik A.Ş. 237,515 91,674 Total 237,515 91,674 n) Other expense Yapı Kredi Emeklilik A.Ş. 40,406 38,600 Total 40,406 38,600 j) Written premiums Yapı ve Kredi Bankası A.Ş. Yapı Kredi Emeklilik A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. Yapı Kredi Leasing A.Ş. Yapı Kredi Kültür Sanat Tic. A.Ş. Yapı Kredi Faktoring A.Ş. Yapı Kredi Portföy Yönetimi A.Ş. Yapı Kredi Moscow T.Eğitim Gönüllüleri Vakfı Unicretid (San) Menkul Değerler A.Ş. Kredi Kayıt Bürosu Yapı Kredi Koray GYO A.Ş. Yapı Kredi Yatırım Ort. A.Ş. Koç Finansal Hizmetler A.Ş. Setair Hava Taşımacılığı ve Hizm. A.Ş. Setur Servis Turistik A.Ş. RMK Marine Gemi Yapım San. A.Ş. Agrosan Kimya Sanayi ve Tic. A.Ş Aygaz A.Ş. Bankalararası Kart Merkezi Koç Holding Otokoç A.Ş. Tümteks Tekstil ve Gıda San. Tic. Total Yapı Kredi Sigorta 2010 Annual Report 103 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January31 December 2010 1 January31 December 2009 o) Dividends received Yapı Kredi Emeklilik A.Ş. Other 26,480,569 12,055 6,994,867 13,017 Total 26,492,624 7,007,884 p) Dividends paid Yapı ve Kredi Bankası A.Ş. Yapı Kredi Factoring A.Ş. Yapı Kredi Yatırım A.Ş. Other - 5,702,885 853,659 565,098 3,618,252 Total - 10,739,894 The Company has written premiums amounting to TRY 111,408,768 (1 January-31 December 2009: TRY 84,717,684) by the intermediary of Yapı ve Kredi Bankası A.Ş. during the period. 45.1 Doubtful receivables from shareholders, investments, subsidiaries: None (31 December 2009: None). 45.2 Breakdown of investments and subsidiaries having an indirect shareholding and management relationship with the Company, participation rates and amounts of these investments and subsidiaries; profit/loss, net profit/loss in the latest financials, the period of these financials and the opinion type of the independent audit report if the company is independently audited: Financial Assets 31 December 2010 Yapı Kredi Emeklilik A.Ş. (%) Independent Restated Cost Financial Book Value Audit opinion Statement period 99.99 148,249,982 148,249,982 Unqualified 31.12.2010 (%) Independent Restated Cost Financial Book Value Audit opinion Statement period 99.99 148,249,982 148,249,982 Unqualified 31.12.2009 Total Asset Total liabilities Net sales Net profit/ (loss) 2,603,432,660 2,472,114,037 101,564,056 22,589,031 31 December 2009 Yapı Kredi Emeklilik A.Ş. Total Asset Total liabilities Net sales Net profit/ (loss) 2,105,869,098 1,970,653,055 86,975,157 20,163,300 45.3 Bonus shares obtained through internally funded capital increases of equity investments and subsidiaries: None (31 December 2009: None). 45.4 Rights on immovable and their value: None (31 December 2009: None). 45.5 Guarantees, commitments and securities given for shareholders, investments and subsidiaries: None (31 December 2009: None). 45.6 Liabilities from distribution of dividends to shareholders: TRY 484 (December 31, 2009: TRY 484). 46. Events after the balance sheet date: None (31 December 2009: None). 104 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 47. Other 47.1 Details of “Other” items in the balance sheet which exceed 20% of its respective account company or 5% of total assets: a) Other receivables from related parties Receivables from related parties b) Other cash and cash equivalents: Credit card collections c) Other receivables: Receivables from compulsory earthquake insurance policies Other d) Other payables from main operations: Payables to contracted institutions Other e) Other payables to related parties: Zer A.Ş. Koç Sistem A.Ş. Yapı ve Kredi Bankası A.Ş. Other f) Other payables: Payables to intermediaries Payables to suppliers Personnel health insurance Other g) Other technical reserves-Short term: Effect of ratio change in reinsurance agreements (Note 10) 31 December 2010 31 December 2009 8,293 - 8,293 - 52,780,336 28,898,865 52,780,336 28,898,865 2,318,583 3,873,504 1,895,781 895,413 6,192,087 2,791,194 39,082,328 2,194,076 36,059,896 929,476 41,276,404 36,989,372 484,321 632,563 11,648 204,120 342,486 86,696 24,392 306,637 1,332,652 760,211 4,068,581 2,786,773 1,664,201 854,547 6,258,800 2,260,639 1,437,466 761,558 9,374,102 10,718,463 - 10,251,681 10,251,681 Yapı Kredi Sigorta 2010 Annual Report 105 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) h) Other taxes and fiscal liabilities: Provision for court cases i) Other non-current technical reserves-Long term: Equalization reserve j) Other non-current deferred income and expense accruals Short term: Unused vacation provision 31 December 2010 31 December 2009 3,008,257 1,976,911 3,008,257 1,976,911 6,481,612 3,726,882 6,481,612 3,726,882 2,020,786 1,554,540 2,020,786 1,554,540 In the consolidated financial statements dated December 31, 2010 and 2009 amount of provision for unused vacations are classified under Other Short Term Liabilities account. k) Other receivables and profits: Personnel bonus not distributed in the previous year Other 481,279 228,846 106,737 164,246 710,125 270,983 47.2 Due from and due to personnel classified in “Other receivables” and “Other short-term or long-term payables” that exceed 1% of total assets: None (31 December 2009: None). 47.3 Receivables from salvage and subrogation followed under off-balance sheet item: None (31 December 2009: TRY 2,500,673). 47.4 Income and expenses related to prior periods and the amounts and sources of expenses and losses: None (31 December 2009: None). 47.5 Information that the Treasury requires to be presented: Provision and rediscount expense/(income) for the period: 1 January31 December 2010 1 January31 December 2009 62,868,845 26,172,345 (6,671,660) 2,754,730 (7,745,140) 1,188,987 17,936,471 8,021,911 6,915,853 1,824,436 314,078 (7,320,357) (2,871,052) 5,127,086 (2,767,431) 1,778,833 (4,565,365) Rediscount on receivables income/(expense) Reserve for net claim recovery receivables under legal follow-up Potential subrogation (The opposite balance as 2009) Provision for receivables from policyholders and intermediaries Other expense accruals (unused vacation) Provision for employment termination benefit Provision for doubtful receivables from main operations Other provisions (41,698) (9,927,266) (1,803,024) (2,489,042) 7,691,751 526,624 466,246 174,235 244,652 628,769 (75,115) 91,708 327,875 (61,336) 416,446 Provision Account 9,732,277 699,578 Technical provisions: Unearned premium reserves, net Outstanding claim reserve, net Unexpired risks reserve Other technical reserves (Equalization reserve) Effect of non-renewal of reinsurance agreements Deferred commission expenses Deferred commission income Tax provisions: Tax provision Deferred tax provision Provision expenses: 106 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Unconsolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Note I. 1.1. 1.2 A 1.3. 1.4 1.5. B 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. II. 2.1. 2.2. 2.3. 2.4. 2.5. III 3.1. 3.2. 3.3. 3.4. IV. 4.1. 4.2. 4.3 4.4. DISTRIBUTION OF PROFIT FOR THE PERIOD PROFIT FOR THE PERIOD TAXES PAYABLE AND LEGAL LIABILITIES 1.2.1. Corporation tax (Income tax) 1.2.2. Income tax deduction 1.2.3. Other taxes and legal liabilities NET PROFIT FOR THE PERIOD (1.1-1.2) PREVIOUS YEARS’ LOSSES (-) FIRST LEGAL RESERVE LEGAL RESERVES KEPT IN THE COMPANY (-) NET DISTRIBUTABLE PROFIT FOR THE PERIOD [ (A-(1.3 + 1.4 + 1.5) ] FIRST DIVIDEND TO SHAREHOLDERS (-) 1.6.1. To common shareholders 1.6.2. To preferred shareholders 1.6.3 To owners of participating redeemed shares 1.6.4 To owners of profit-sharing securities 1.6.5 To owners of profit and loss sharing securities DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO FOUNDERS (-) DIVIDENDS TO BOARD OF DIRECTORS (-) SECOND DIVIDENDS TO SHAREHOLDERS (-) To common shareholders 1.10.2. To preferred shareholders 1.10.3. To owners of participating redeemed shares 1.10.4. To owners of profit-sharing securities 1.10.5. To owners of profit and loss sharing securities SECOND LEGAL RESERVE (-) STATUTORY RESERVES (-) EXTRAORDINARY RESERVES OTHER RESERVES SPECIAL FUNDS DISTRIBUTION FROM RESERVES DISTRIBUTED RESERVES SECOND LEGAL RESERVE (-) DIVIDENDS TO SHAREHOLDERS (-) 2.3.1. To common shareholders 2.3.2 To preferred shareholders 2.3.3. To owners of participating redeemed shares 2.3.4 To owners of profit-sharing securities 2.3.5 To owners of profit and loss sharing securities DIVIDENDS TO EMPLOYEES (-) DIVIDENDS TO BOARD OF DIRECTORS (-) PROFIT PER SHARE TO COMMON SHAREHOLDERS TO COMMON SHAREHOLDERS (%) TO PREFERRED SHAREHOLDERS TO PREFERRED SHAREHOLDERS (%) DIVIDENDS PER SHARE TO COMMON SHAREHOLDERS TO COMMON SHAREHOLDERS (%) TO PREFERRED SHAREHOLDERS TO PREFERRED SHAREHOLDERS (%) - - 31 December 2010 Current Period 31 December 2009 Previous Period 47,676,157 (5,127,086) (5,127,086) 42,549,071 - (10,151,462) (1,778,833) (1,778,833) (11,930,295) - General Assembly is the responsible body for profit distribution and General Assembly was not held as of the preparation date of the financial statements. Since the statement of profit distribution for the year 2010 is not prepared by the Board of Directors yet, only net profit for the period is disclosed in the statement of profit distribution. - - ANNUAL ACTIVITY REPORT COMPLIANCE OPINION We have been engaged to audit the annual report of Yapı Kredi Sigorta Anonim Şirketi (“the Company”) as of 31 December 2010, which will be submitted to the General Assembly. This annual report is the responsibility of the Company’s management. Our responsibility, as independent auditors, is to express an opinion on the annual report regarding whether the financial information presented therein is consistent with the independently audited financial statements and explanatory notes. We conducted our audit in accordance with the principles and procedures regarding the preparation and issue of annual reports set out by the regulations in conformity with the Insurance Law No. 5684. Those regulations require that we plan and perform the audit to obtain reasonable assurance as to whether the financial information presented in the annual report is consistent with the independently audited financial statements and explanatory notes. We believe that our audit provides a reasonable and sufficient basis for our compliance opinion. In our opinion, in accordance with procedures and principles identified by regulations in force as per the Insurance Law No. 5684, the financial information included in the accompanying annual report, is consistent, in all material respects, with the financial situation of Yapı Kredi Sigorta Anonim Şirketi as of 31 December 2010, includes the Summary Board of Directors’ Report and our independent audit opinion, and is in conformity with the information presented in independently audited financial statements and explanatory notes. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of Ernst & Young Global Limited Şeyda Oltulu. SMMM Partner 4 March 2011 Istanbul, Turkey 108 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) IA12345B12345678C12345678910D123456789E1234567F1234G12345678I- ASSETS Current Assets Cash and Cash Equivalents Cash Cheques Received Banks Cheques Given and Payment Orders (-) Other Cash and Cash Equivalents Financial Assets and Financial Investments at Insurees’ Risk Available for Sale Investments Held to Maturity Investments Trading Investments Loans Provision for Loans (-) Financial Assets at Insuree’s Risk Company’s Shares Provision for impairment of financial assets (-) Receivables from Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Deferred Expenses and Income Accruals Deferred Expenses Accrued Interest and Rent Income Deferred Income Other Deferred Expenses and Income Accrualsf Other Current Assets Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Job Advances Advances to Personnel Count Shortages Other Current Assets Provision for Other Current Assets (-) Total Current Assets Note 2.12 2.12 2.12 and 47.1 11.1 2.8 and 11.1 2.8 and 11.1 2.8, 11.1 and 12.1 12.1 12.1 12.1 12.1 12.1 12.1 45 47.1 2.18 Audited 31 December 2010 Audited 31 December 2009 290,659,637 1,300 237,878,001 52,780,336 157,502,393 153,484,496 4,017,897 216,340,442 278,543,027 (66,332,861) 3,120,360 3,569,305 (2,559,389) 433,661 2,289 423,079 8,293 6,243,867 9,447 6,192,087 86,825 (44,492) 49,842,753 49,842,753 3,224,294 314,274 2,836,775 801 72,444 724,247,047 156,379,779 3,702 127,477,212 28,898,865 188,582,158 184,906,397 3,675,761 181,455,858 232,732,365 (55,878,972) 3,094,123 75,511 3,747,568 (2,314,737) 59,435 2,167 57,268 2,858,807 25,280 2,791,194 86,825 (44,492) 40,620,092 40,620,092 3,311,007 248,713 3,055,673 6,621 573,267,136 The accompanying notes form an integral part of these unconsolidated financial statements. Yapı Kredi Sigorta 2010 Annual Report 109 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 Audited 31 December 2009 148,249,982 148,249,982 10,311,452 5,373,700 6,286,450 16,333,035 101,661 7,261,834 (25,045,228) 9,161,285 12,733,628 (3,661,798) 89,455 26,562 26,562 10,067,009 10,067,009 177,816,290 902,063,337 148,249,982 148,249,982 18,024,569 5,141,566 16,628,517 16,142,938 143,695 7,033,348 (27,065,495) 5,040,384 5,303,112 (3,098,772) 2,836,044 1,500,972 1,500,972 6,771,263 6,771,263 179,587,170 752,854,306 Audited IIA12345678910B123456789C1234567D12345678910E12345678910F1234567G123H12345678II- ASSETS Non-Current Assets Receivables from Main Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Financial Assets Investment Securities Subsidiaries Subsidiaries Capital Commitments (-) Equity Investments Equity Investments Capital Commitments (-) Joint-Ventures Joint-Ventures Capital Commitments (-) Financial Assets and Financial Investments at Insurees’ Risk Other Financial Assets Provision for impairment of financial assets (-) Tangible Assets Investment Properties Provision for Diminution in Value of Investment Property (-) Property for Operational Usage Machinery and Equipment Furniture and Fixtures Motor Vehicles Other Tangible Assets (including leasehold improvements) Leased Assets Accumulated Depreciation (-) Advances Given for Tangible Assets(including construction in progress) Intangible Assets Rights Goodwill Start-up Costs Research and Development Expenses Other Intangible Assets Accumulated Amortization (-) Advances Given for Intangible Assets Deferred Expenses and Income Accruals Deferred Expenses Income Accruals Other Deferred Expenses and Income Accruals Other Non-Current Assets Effective Foreign Currency Accounts Foreign Currency Accounts Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Other Non-Current Assets Other Non-Current Assets Depreciation (-) Provision for Diminution in Value of Other Non-Current Assets (-) Total Non-Current Assets TOTAL ASSETS (I+II) Note 11.4 and 45.2 2.5 and 2.6 7 6 6 6 6 2.7 and 8 8 8 8 2.18, 21 and 35 The accompanying notes form an integral part of these unconsolidated financial statements. 110 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Audited LIABILITIES IIIA12345678B123456C123456D123E1234567F1234567G123H123I123III- Note Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Short Term Installments of Long Term Borrowings Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Main Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Associates Due to Subsidiaries Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables (-) Insurance Technical Provisions Unearned Premium Reserve-Net Unexpired Risks Reserve-Net Life Mathematical Reserve-Net Outstanding Claim Provision-Net Bonus and Rebate Provision-Net Provision for Life Policies at Insuree’s Risk-Net Other Technical Reserves-Net Taxes and Other Fiscal Liabilities Taxes and Funds Payable Social Security Withholdings Payable Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Other Taxes and Fiscal Liabilities Corporate Tax Provision and Other Fiscal Liabilities Prepaid Corporate Tax and Other Fiscal Liabilities (-) Other Taxes and Fiscal Liabilities Provision Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Provision for Expense Accruals Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Current Liabilities Deferred Tax Liabilities Count Overages Other Current Liabilities Total Current Liabilities 2.22 2.22 19 4 19 and 47.1 47.1 19 and 47.1 2.24, 4 and 17 2.24, 4 and 17 02.24, 4 and 17 47.1 2.18 and 35 2.18 47.1 2.19 and 22 23 47.1 31 December 2010 89,565,935 24,617,774 23,671,757 41,276,404 1,353,397 484 20,261 1,332,652 9,374,161 59 9,374,102 426,826,735 315,976,310 324,756 110,525,669 14,062,691 5,329,896 991,906 5,420,249 (687,617) 3,008,257 561,971 561,971 17,770,127 11,090,510 6,679,617 2,020,786 2,020,786 561,535,803 The accompanying notes form an integral part of these unconsolidated financial statements. Audited 31 December 2009 289 (289) 70,888,034 19,729,964 14,096,193 72,505 36,989,372 760,695 484 760,211 10,718,522 59 10,718,463 347,017,134 253,107,465 6,996,416 76,661,572 10,251,681 8,275,047 4,821,478 886,188 1,778,833 (1,188,363) 1,976,911 15,702,819 12,286,882 3,415,937 1,554,540 1,554,540 454,916,791 Yapı Kredi Sigorta 2010 Annual Report 111 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 Audited 31 December 2009 6,481,612 6,481,612 3,833,314 3,833,314 10,314,926 3,726,882 3,726,882 4,221,050 4,221,050 7,947,932 Audited LIABILITIES IVA1234567B123456C123456D123E1234567F123G12H123I12IV- Note Non-Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Subsidiaries Due to Equity Investments Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables Insurance Technical Provisions Unearned Premium Reserve-Net Unexpired Risks Reserve-Net Life Mathematical Reserve-Net Outstanding Claim Provision-Net Bonus and Rebate Provision-Net Provision for Life Policies at Insuree’s Risk-Net Other Technical Reserves-Net Other Liabilities and Related Provisions Other Payables Overdue, Deferred or Restructured Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Non-Current Liabilities Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities 2.24, 4, 17 and 47.1 2.19 and 22 The accompanying notes form an integral part of these unconsolidated financial statements 112 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Balance Sheet at 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) SHAREHOLDERS’ EQUITY Note VA1234B12345C123456D1E1F123V- Shareholders’ Equity Share Capital Nominal Capital Unpaid Capital (-) Adjustments to Share Capital Adjustments to Share Capital (-) Capital Reserves Share Premium Profit from Stock Abrogation Sales Profits to be Added to the Capital Foreign Currency Translation Differences Other Capital Reserves Profit Reserves Legal Reserves Statutory Reserves Extraordinary Reserves Special Funds (Reserves) Valuation of Financial Assets Other Profit Reserves Retained Earnings Retained Earnings Accumulated Deficit (-) Previous Years’ Losses Net Profit for the Period Net Profit for the Period Net Loss for the Period (-) Profit for he period-not subject to distribution Total Shareholders’ Equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (III+IV+V) 2.13 and 15 15 15 15 15 15 Audited 31 December 2010 Audited 31 December 2009 198,495,352 80,000,000 118,495,352 9,350,548 9,350,548 83,070,096 5,600,553 49,304,509 6,173,768 21,991,266 8,677,836 8,677,836 (11,930,295) (11,930,295) 42,549,071 38,650,317 3,898,754 330,212,608 198,495,352 80,000,000 118,495,352 9,350,548 9,350,548 85,396,142 5,600,553 49,304,509 8,499,814 21,991,266 8,677,836 8,677,836 (11,930,295) (11,930,295) 289,989,583 902,063,337 752,854,306 The accompanying notes form an integral part of these unconsolidated financial statements. Yapı Kredi Sigorta 2010 Annual Report 113 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statement Of Income for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) I-TECHNICAL PART Note A11.1- 1.2- 1.3- 233.13.2B11.1- 1.2- 22.12.234CD11.1- 1.2- 1.3- 234E11.1- 1.2- 22.12.233.13.244.14.256789FG1234567H1234I- Non-Life Technical Income Earned Premiums-(Net of Reinsurer’s Share) Written Premiums-(Net of Reinsurer’s Share) 1.1.1-Gross Written Premium (+) 1.1.2-Reinsurer’s Share of Gross Written Premium (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.2.1-Unearned Premiums Reserve (-) 1.2.2-Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.3.1-Unexpired Risks Reserve (-) 1.3.2-Reinsurer’s Share of Unexpired Risks Reserve (+) Investment Income Transferred from Non-Technical Part Other Technical Income-(Net of Reinsurer’s Share) Other Gross Technical Income (+) Reinsurer’s Share of Other Gross Technical Income (-) Non-Life Technical Expense Incurred Losses-(Net of Reinsurer’s Share) Paid Claims-(Net of Reinsurer’s Share) 1.1.1-Gross Paid Claims (-) 1.1.2-Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Returned Reserve) (+/-) 1.2.1-Outstanding Claims Provision (-) 1.2.2-Reinsurer’s Share of Outstanding Claims Provision (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provision (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Net Technical Income-Non-Life (A-B) Life Technical Income Earned Premiums-(Net of Reinsurer’s Share) Written Premiums-(Net of Reinsurer’s Share) 1.1.1-Gross Written Premiums (+) 1.1.2-Reinsurer’s Share of Gross Written Premiums (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1-Unearned Premiums Reserve (-) 1.2.2-Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.3.1.-Unexpired Risks Reserve (-) 1.3.2.-Reinsurer’s Share of Unexpired Risks Reserve (+) Life Investment Income Unrealised Investment Income Other Technical Income-(Net of Reinsurer’s Share) Life Technical Expense Incurred Losses-(Net of Reinsurer’s Share) Paid Claims (Net of Reinsurer’s Share) 1.1.1-Gross Paid Claims (-) 1.1.2-Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1-Outstanding Claim Provisions (-) 1.2.2-Reinsurer’s Share of Outstanding Claim Provisions (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provisions (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Life Mathematical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Life Mathematical Reserves (-) Reinsurer’s Share of Life Mathematical Reserves (+) Change in Provision for Policies at Life Insurees’ Risk (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Provision for Life Policies at Insuree’s Risk (-) Reinsurer’s Share of Provision for Life Policies at Insuree’s Risk (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Investment Expenses (-) Unrealised Investment Expense (-) Investment Income Transferred to Non-Life Technical Part (-) Net Technical Income-Non-Life (D-E) Pension Funds Technical Income Fund Management Income Management Expense Charge Entrance Fee Income Management Expense Charge in case of Suspension Special Service Expense Charge Capital Allowance Value Increase Income Other Technical Income Pension Funds Technical Expense Fund Management Expense (-) Capital Allowance Value Decrease Expense (-) Operating Expenses (-) Other Technical Expenses (-) Net Technical Income-Pension Funds (G-H) 2.21 and 24 24 10 and 24 47.5 10 47.5 10 47.5 10 47,5 31 and 32 Audited Audited 01.01.2010-31.12.2010 627,176,877 566,487,506 622,684,691 758,182,493 (135,497,802) (62,868,845) (63,670,269) 801,424 6,671,660 6,671,660 55,661,252 5,028,119 5,028,119 (580,629,236) (439,782,046) (413,609,701) (456,303,982) 42,694,281 (26,172,345) (40,962,806) 14,790,461 (2,754,730) (138,092,460) 46,547,641 - 01.01.2009-31.12.2009 483,120,199 441,451,956 466,304,280 607,976,823 (141,672,543) (17,936,471) (6,153,800) (11,782,671) (6,915,853) (6,915,853) 38,745,037 2,923,206 2,923,206 (505,816,599) (387,397,607) (379,375,696) (445,135,215) 65,759,519 (8,021,911) (4,195,854) (3,826,057) (1,824,436) (116,594,556) (22,696,400) - The accompanying notes form an integral part of these unconsolidated financial statements. 114 Unconsolidated Financial Information and Risk Management Assessment Yapı Kredi Sigorta A.Ş. Convenience Translation of the Unconsolidated Statement Of Income for the Period 1 January-31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) II-NON-TECHNICAL PART Note CFIJK- L- M- N- Net Technical Income-Non-Life (A-B) Net Technical Income-Life (D-E) Net Technical Income-Pension Funds (G-H) Total Net Technical Income (C+F+I) Investment Income 1-Income from Financial Investments 2-Income from Sales of Financial Investments 3-Valuation of Financial Investments 4-Foreign Exchange Gains 5-Income from Associates 6-Income from Equity Subsidiaries and Joint-Ventures 7-Income from Land and Buildings 8-Income from Derivatives 9-Other Investments 10-Investment Income Transferred from Life Technical Part Investment Expense (-) 1-Investment Management Expenses (Interest incl.) (-) 2-Diminution in Value of Investments (-) 3-Loss from Realization of Financial Investments (-) 4-Investment Income Transferred to Non-Life Technical Part (-) 5-Loss from Derivatives (-) 6-Foreign Exchange Losses (-) 7-Depreciation Expenses (-) 8-Other Investment Expenses (-) Income and Expenses from Other Operations and Extraordinary Operations (+/-) 1-Provisions (+/-) 2-Rediscounts (+/-) 3-Special Insurance Account (+/-) 4-Inflation Adjustment (+/-) 5-Deferred Tax Assets (+/-) 6-Deferred Tax Liabilities Expenses (-) 7-Other Income 8-Other Expenses (-) 9-Prior Year’s Income 10-Prior Year’s Expenses (-) Net Profit/(Loss) for the Period 1-Profit/(Loss) for the Period 2-Corporate Tax Provision and Other Fiscal Liabilities (-) 3-Net Profit/(Loss) for the Period 26 26 and 45 6.1 47.5 47.5 47.1 35 and 47.5 Audited 01,01,2010-31,12,2010 46,547,641 46,547,641 69,412,660 27,606,419 262,691 7,362,964 3,585,045 26,492,624 4,102,917 (61,739,948) (2,272) (55,661,252) (4,133,592) (1,942,832) (6,544,196) (9,732,277) 41,698 2,767,431 710,125 (331,173) 42,549,071 47,676,157 (5,127,086) 42,549,071 The accompanying notes form an integral part of these unconsolidated financial statements. Audited 01,01,2009-31,12,2009 (22,696,400) (22,696,400) 51,354,369 27,149,886 1,910,963 10,828,278 2,866,588 7,007,884 1,590,770 (43,464,449) (3,079) (81,320) (38,745,037) (2,873,474) (1,761,539) 4,655,018 (699,578) 1,803,024 4,565,365 270,983 (1,284,776) (11,930,295) (10,151,462) (1,778,833) (11,930,295) Yapı Kredi Sigorta 2010 Annual Report 115 PROFIT DISTRIBUTION Dear Shareholders, We propose the allocation of profit for the year 2010 to be made in conformity with the provisions of Article 37 of the Articles of Association as follows: Yapı Kredi Sigorta A.Ş. Profit Distribution Statement 2010 (TRY) 1. Paid-in/ Issued Capital 2. Total Legal Reserves (Based on Legal Books) Privileges in profit distribution as per Articles of Association: 3. 4. 5. 6. 7. 8 9. 10. 11. Consolidated, based on the Insurance Legislation 49,060,821.67 10,419,852.14 38,640,969.53 0.00 1,530,938.79 37,110,030.74 177,228.50 37,287,259.24 7,457,451.85 7,457,451.85 0.00 7,457,451.85 0.00 0.00 0.00 14,942,548.15 1,840,000.00 0.00 3,898,754.41 8,971,276.33 80,000,000.00 5,600,553.07 None Unconsolidated, based on legal books 47,676,156.65 5,127,086.11 42,549,070.54 11,930,294.79 1,530,938.79 29,087,836.96 0.00 29,087,836.96 Profit for the Period Taxes Payable (-) Net Profit for the Period (=) Prior Years’ Losses (-) 1st Legal Reserves (-) NET DISTRIBUTABLE PROFIT (=) Donations (+) Net Distributable Profit Including Donations Used in the Calculation of 1st Dividend 1st Dividend to Shareholders -Cash -Bonus Shares -Total 12. Dividend to Shareholders with Preferred Shares 13. Dividend to Members of Board of Directors, Employees, etc. 14. Dividend to Shareholders who Possess Redeemed Shares 15. 2nd Dividend to Shareholders 16. 2nd Legal Reserves 17. Statutory Reserves 18. Special Reserves * 3,898,754.41 19. EXTRAORDINARY RESERVES 949,082.55 20. Other Resources Accepted as Distributable -Retained Earnings 0.00 0.00 -Extraordinary Reserves 0.00 0.00 -Other Distributable Reserves in Accordance with Related Laws and Articles of Association 0.00 0.00 * It equals 75% of the profit from real estate sales, as per Corporate Tax Law No. 5520, Article 5.e. According to the Company’s consolidated results as of end-2010, the net profit that corresponds to the parent company is TRY 38,640,969.53 TRY; however according to unconsolidated results based on legal books, the net period for the profit is 42,549,070.54. We hereby propose a total of TRY 22,400,000.00 to be distributed on March 28, 2011 as 1st and 2nd Dividend to Shareholders, pursuant to Capital Markets Board’s Communiqué Serial: IV, No: 27, dated November 13, 2001. Board of Directors 116 Unconsolidated Financial Information and Risk Management Assessment Overview of Financial Status, Profitability and Payment of Compensation 2009 2010 Premium Distribution Fire And Catastrophe Marine Sea Vehicles Land Vehicles Liability Motor Own Damage Air Vehicles Liability Air Vehicles General Damages Casualty Credit General Liability Health Legal Protection Premiums 90,839,359 9,683,478 5,103,114 48,954,371 99,728,087 404,845 1,319,269 43,383,082 13,165,201 32,844 9,982,051 284,571,739 809,383 Retention Ratio 33.0% 45.1% 8.5% 84.6% 86.7% (0.1%) 0.7% 20.2% 82.1% 0.0% 27.6% 98.6% 100.0% Premiums 103,561,926 11,105,191 2,573,218 61,902,739 147,683,262 407,565 964,520 55,243,330 16,346,018 0 19,279,183 337,430,078 1,685,463 Retention Ratio 38.6% 58.2% 10.9% 93.4% 99.3% (0.2%) (0.1%) 23.4% 85.0% 0.0% 49.6% 98.8% 100.0% Total 607,976,823 76.7% 758,182,493 82.1% Paid Loss 34,441,475 4,100,795 485,704 36,007,369 90,080,588 0 357,964 19,741,789 1,380,508 0 1,390,647 257,147,801 575 Retention Ratio 36.6% 35.2% 26.0% 88.2% 83.2% 0.0% 1.7% 26.2% 65.2% 0.0% 43.3% 97.9% 100.0% Paid Loss 21,436,432 3,041,355 1,767,760 34,711,125 113,111,203 0 34,066 23,638,868 2,591,616 0 2,040,477 253,927,888 3,192 Retention Ratio 45.3% 56.2% 9.5% 98.4% 99.3% 0.0% 1.4% 24.4% 30.8% 0.0% 45.3% 97.7% 100.0% 445,135,215 85.2% 456,303,982 90.6% 2009 10,634,781 1,450,072 326,336 (6,990,633) (28,297,922) 1,455 (742,173) 6,264,942 10,448,556 (807) 959,257 (17,646,047) 895,783 2010 20,342,570 4,170,318 187,351 (16,753,179) (5,211,599) (3,294) 742,440 5,666,886 10,192,462 (877) 4,689,057 20,871,406 1,654,102 (22,696,400) 46,547,641 2009 Loss Distribution Fire And Catastrophe Marine Sea Vehicles Land Vehicles Liability Motor Own Damage Air Vehicles Liability Air Vehicles General Damages Casualty Credit General Liability Health Legal Protection Total Underwriting Profit Fire And Catastrophe Marine Sea Vehicles Land Vehicles Liability Motor Own Damage Air Vehicles Liability Air Vehicles General Damages Casualty Credit General Liability Health Legal Protection Total 2010 Yapı Kredi Sigorta 2010 Annual Report 117 Information on Risk Management Based on Risk Types In order to achieve sustainable profitability in its field of activity, the Company has devised a risk management strategy, based on internal systems which evaluate and manage activities and related risks in a systematic fashion, and comprising all regional directorates and units. The Company has also espoused the Risk Management policies of its parent company, Koç Finansal Hizmetler. In the framework of these policies, the Internal Control and Risk Management Department defines, measures, monitors, controls and reports on risks that the Company is subject to. In addition, Internal Control and Risk Management Department acts as the compliance department in the implementation of Law No. 5549 on Prevention of Laundering Proceeds of Crime and other related regulations. Risk types that might affect the Company are as follows. 1. Insurance Risk The risk in insurance agreements is in the fact that the probability of the occurrence of the event, which constitutes the subject matter of the insurance, and the amount of damage it will cause are unknown. Due to the nature of insurance contracts, this risk is accidental and therefore cannot be predicted precisely. The Company’s basic risk in a policy portfolio, where the probability theory is applied to pricing and reserve allocation methods, is the possibility that the amount of claims and damages paid are above the registered value of the insurance reserves. The Company determines its underwriting strategy based on the type of presumed insurance risks and the claims incurred. These risks are managed in accordance with the Company’s underwriting strategy as well as the reinsurance agreements the Company entered into in all insurance branches. 2. Financial Risks a. Market Risk Market risk is the possibility of making a loss in onand off-balance sheet positions due to such risks as interest rate risk, share position risk and exchange rate risk, which occur as a result of the changes in interest rates, exchange rates and share prices in a fluctuating financial market. In other words, it is the negative impacts, which arise due to changing interest rates (including borrowing interval), exchange rates, share prices and commodity prices or price levels in general, on the Company’s performance in achieving its targets and protecting its capital and earnings. Market risk elements such as interest rate risk and exchange rate risk are periodically measured and reported at Yapı Kredi Sigorta. The portfolio, which is arranged in line with the limits approved by the Board of Directors, is controlled daily, weekly and monthly, including the maximum loss scenarios estimated to occur within a given confidence interval and a timeframe defined under normal market conditions. b. Liquidity Risk Liquidity risk corresponds to cash flow problems in fulfilling contractual liabilities due to maturity mismatch or market constriction. In meeting risks resulting from such financial and insurance liabilities, the Company relies on its financial assets as well as its cash and securities available in its current asset account. To this end, the liquidity risk is observed and controlled daily, weekly and monthly based on the currencies used. 3. Credit Risk Credit risk is the possibility that parties, which enter into agreements with the Company, fully or partially fail to fulfill their obligations under those agreements. In that context, the Company’s total credit risks mainly include insurance operations such as its activities in financial markets, acquisitions made for its operations as well as the receivables from reinsurance companies, policyholders and agencies. Yapı Kredi Sigorta follows up and limits the credit risk on its financial assets and receivables from insurance activities (including reinsurance receivables) by requiring collaterals and implementing certain procedures in selection of its counter parties. In the choice of companies with which a reassurance relationship is to be established, evaluations by such rating agencies as Standard&Poor’s and AM Best are taken into consideration and agency collaterals are monitored monthly. 4. Operational Risk Operational risk is defined as risk of loss inflicted by errors, transgressions, deficiencies or damages owing to internal processes, personnel or systems, as well as external events. The Company acts in accordance with principles and policies outlined in the directive prepared by Koç Finansal Hizmetler Operational Risk Management. Each month, data which has inflicted operational loss is collected and analyzed department by department. This information is gathered to serve as raw data to be used in measurement and scenario analysis models in “Risk Based Capital Adequacy” calculations which will be required by Solvency II that shall come into effect in the future. In addition, in order to comply with the Solvency II practice which will be launched in the European Union in 2012, the Undersecratariat of Treasury has established a Solvency II Expertise Committee in 2010. The Company voluntarily joined the subcommittees under the Solvency II Expertise Committee and participated in the Quantitative Impact Study 4. On the other hand, in order to calculate capital adequacy according to methods outlined in Basel II standards, Yapı Kredi Bank and its subsidiaries continued to collect information from their database of the last four years, that has caused or could cause operational loss, so as to be consolidated to the Yapı Kredi Bank. 118 Unconsolidated Financial Information and Risk Management Assessment Summary Financial Results for the Five-Year Period Including the Report Period Financial Highlights Total Premium Production Total Underwriting Profit Total Assets Paid-in Capital Shareholders’ Equity Profit Before Tax Net Profit 2006 585,458,771 11,645,048 569,155,490 80,000,000 223,705,983 19,896,558 19,463,854 Summary Financial Results Shareholders’ Equity Cash and Financial Assets Total Assets Total Short Term Liabilities Total Long-Term Liabilities 31 December 2010 330,212,608 448,162,030 902,063,337 561,535,803 10,314,926 Written Premiums (Net) Earned Premiums (Net) Incurred Losses (Net) Investment Income Transferred from Non-Technical Section Unexpired Risks Reserve Change in Other Technical Reserves (Net) Other Technical Income (Net) Operating Expenses Technical Division Balance 622,684,691 566,487,506 (439,782,046) 55,661,252 6,671,660 (2,754,730) 5,028,119 (138,092,460) 46,547,641 Investment Income Investment Expenses Other Income (Expenses) Current Tax and Other Legal Liabilities Current Profit after Tax Key Ratios (%) Underwriting Profit /Premium Production Profit before Tax /Total Assets Profit before Tax /Shareholders’ Equity Premium Production /Total Assets Shareholders’ Equity /Total Assets 2007 628,142,639 19,527,767 650,521,783 80,000,000 253,598,079 35,948,192 25,356,896 69,412,660 (61,739,948) (6,544,196) (5,127,086) 42,549,071 2009 (3.7) (1.3) (3.5) 80.8 38.5 2010 6.1 5.3 14.4 84.0 36.6 2008 631,535,814 47,897,719 736,856,699 80,000,000 307,271,380 66,862,022 54,384,475 2009 607,976,823 (22,696,400) 752,854,306 80,000,000 289,989,583 (10,151,462) (11,930,295) 2010 758,182,493 46,547,641 902,063,337 80,000,000 330,212,608 47,676,157 42,549,071 Yapı Kredi Sigorta 2010 Annual Report 119 Premium Distribution Fire and Catastrophe Marine Sea Vehicles Land Vehicles Liability Motor Own Damage Air Vehicles Liability Air Vehicles General Damages Casualty Credit General Liability Health Legal Protection 31 December 09 Premium Ratio % 90,839,359 14.9 9,683,478 1.7 5,103,114 0.8 48,954,371 8.1 99,728,087 16.4 404,845 0.1 1,319,269 0.2 43,383,082 7.1 13,165,201 2.2 32,844 0.0 9,982,051 1.6 284,571,739 46.8 809,383 0.1 Total 607,976,823 Loss Distribution Fire and Catastrophe Marine Sea Vehicles Land Vehicles Liability Motor Own Damage Air Vehicles Liability Air Vehicles General Damages Casualty Credit General Liability Health Legal Protection Total 100.0 31 December 09 Paid Loss Ratio % 34,441,475 7.8 4,100,795 0.9 485,704 0.1 36,007,369 8.1 90,080,588 20.2 0 0.0 357,964 0.1 19,741,789 4.4 1,380,508 0.3 0 0.0 1,390,647 0.3 257,147,801 57.8 575 0.0 445,135,215 100.0 31 December 10 Premium Ratio % 103,561,926 13.7 11,105,191 1.5 2,573,218 0.3 61,902,739 8.2 147,683,262 19.4 407,565 0.1 964,520 0.1 55,243,330 7.3 16,346,018 2.2 0 0.0 19,279,183 2.5 337,430,078 44.5 1,685,463 0.2 758,182,493 100.0 31 December 10 Paid Loss Ratio % 21,436,432 4.7 3,041,355 0.7 1,767,760 0.4 34,711,125 7.6 113,111,203 24.8 0 0.0 34,066 0.0 23,638,868 5.2 2,591,616 0.6 0 0.0 2,040,477 0.4 253,927,888 55.6 3,192 0.0 456,303,982 100.0 PART IV CONSOLIDATED FINANCIAL INFORMATION (Convenience translation of independent auditors’ report originally issued in Turkish) Yapı Kredi Sigorta Anonim Şirketi Independent auditors’ report as of December 31, 2010 To the Board of Directors of Yapı Kredi Sigorta Anonim Şirketi. 1. We have audited the accompanying consolidated balance sheet of Yapı Kredi Sigorta Anonim Şirketi (“the Company”) and its subsidiary as of 31 December 2010 and the related consolidated statement of income, statement of changes in equity, cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes Company Management’s responsibility for the financial statements 2. The Company management is responsible for the preparation and fair presentation of these financial statements in accordance with the prevailing accounting principles and standards set out as per the insurance legislation. This responsibility includes designing, implementing and maintaining internal systems relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility 3. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with the regulations regarding auditing principles set by insurance legislation. Those standards require that the ethical principles are complied with and that the audit is planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatement. 4. Our audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The independent audit procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessment, the independent auditors consider internal systems relevant to the entity. However our purpose is not expressing an opinion on the effectiveness of the entity’s internal control, but to consider the relation of the financial statements prepared by the Group management and the internal systems in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Yapı Kredi Sigorta Anonim Şirketi and its subsidiaries as of December 31, 2010 and its financial performance and its cash flows for the year then ended in accordance with the prevailing accounting principles and standards (Note 2) set out as per the insurance legislation. Other matter 7. The consolidated financial statements of the Group prepared in accordance with the accounting principles and standards as set out in the insurance law were audited by another independent audit firm, who expressed an unqualified opinion in their report dated March 1, 2010. Additional paragraph for convenience translation to English: 8. As of December 31, 2010, the accounting principles described in Note 2 to the accompanying consolidated financial statements differ from International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. The effects of differences between accounting principles and standards described in Note 2 and IFRS have not been quantified in the accompanying consolidated financial statements. Accordingly, the accompanying financial statements are not intended to present the financial position and results of operations of the Company in accordance with IFRS. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of Ernst &, Young Global Limited Şeyda Oltulu, SMMM Engagement Partner 2 March 2011 Istanbul, Turkey 124 Consolidated Financial Information CONVENIENCE TRANSLATION OF THE COMPANY’S REPRESENTATION ON THE CONSOLIDATED FINANCIAL STATEMENT PREPARED AS OF 31 DECEMBER 2010 We confirm that the accompanying consolidated financial statements and notes to these consolidated financial statements as of 31 December 2010 are prepared in accordance with the accounting principles and standards as set out in the insurance legislation and in conformity with the related regulations and the company’s accounting records. Yapı Kredi Sigorta A.Ş. Istanbul, 2 March 2011 Doç. Dr. S. Giray VELİOĞLU General Manager Abdullah GEÇER Auditor İlkay ÖZEL Assistant General Manager Mehmet YETGİN Group Manager A. Giray ÖZTOPRAK Auditor M. Teoman ÇELEN Manager B. Sema ERŞEN Actuary Registry No: 20 Yapı Kredi Sigorta 2010 Annual Report 125 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Balance Sheet as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) ASSETS Note IA12345B12345678C12345678910D123456789E1234567F1234G12345678I- Current Assets Cash and Cash Equivalents Cash Cheques Received Banks Cheques Given and Payment Orders (-) Other Cash and Cash Equivalents Financial Assets and Financial Investments at Insurees’ Risk Available for Sale Investments Held to Maturity Investments Trading Investments Loans Provision for Loans (-) Financial Assets at Insuree’s Risk Company’s Shares Provision for impairment of financial assets (-) Receivables from Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Deferred Expenses and Income Accruals Deferred Expenses Accrued Interest and Rent Income Deferred Income Other Deferred Expenses and Income Accruals Other Current Assets Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Job Advances Advances to Personnel Count Shortages Other Current Assets Provision for Other Current Assets (-) Total Current Assets 2.12 2.12 2.12 and 47.1 2.8 and 11.1 2.8 and 11.1 2.8 and 11.1 2.8 and 12.1 12.1 12.1 12.1 12.1 12.1 12.1 and 47.1 12.1 12.1 47.1 47.1 2.25 and 47.1 2.18 47.1 The accompanying notes form an integral part of these consolidated financial statements. Audited 31 December 2010 Audited 31 December 2009 389,133,254 1,300 305,424,902 83,707,052 750,422,564 237,634,390 29,503,423 483,284,751 2,096,047,797 278,555,998 (66,332,861) 3,120,360 7,750,457 1,871,943,927 3,569,305 (2,559,389) 42,349 2,289 31,767 8,293 6,263,641 29,221 6,192,087 86,825 (44,492) 54,812,543 52,717,541 2,095,002 3,415,761 314,274 2,836,775 802 72,444 191,466 3,300,137,909 238,213,399 4,219 182,595,827 55,613,353 793,341,289 273,767,810 24,032,341 495,541,138 1,570,097,392 233,260,476 (55,878,972) 3,094,123 75,511 11,236,161 1,376,877,262 3,747,568 (2,314,737) 2,168 2,168 2,878,580 45,054 2,791,193 86,825 (44,492) 44,096,884 41,659,432 2,437,452 3,329,272 248,713 3,055,673 6,621 18,265 2,651,958,984 126 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Balance Sheet as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) IIA- B- C- D- E- F- G- H- II- 1234567891012345678912345671234567891012345678910123456712312345678- ASSETS Non-Current Assets Receivables from Main Operations Due from Insurance Operations Provision for Due from Insurance Operations (-) Due from Reinsurance Operations Provision for Due from Reinsurance Operations (-) Premium Reserves Loans to Insurees Provision for Loans to Insurees (-) Due from Private Pension Fund Operations Doubtful Receivables from Main Operations Provision for Doubtful Receivables from Main Operations (-) Due from Related Parties Due from Shareholders Due from Subsidiaries Due from Equity Investments Due from Joint-Ventures Due from Personnel Due from Other Related Parties Rediscount on Due from Related Parties (-) Doubtful Receivables from Related Parties Provision for Doubtful Receivables from Related Parties (-) Other Receivables Leasing Receivables Unearned Leasing Interest Income (-) Deposits and Guarantees Given Other Receivables Rediscount on Other Receivables (-) Other Doubtful Receivables Provision for Other Doubtful Receivables (-) Financial Assets Investment Securities Subsidiaries Subsidiaries Capital Commitments (-) Equity Investments Equity Investments Capital Commitments (-) Joint-Ventures Joint-Ventures Capital Commitments (-) Financial Assets and Financial Investments at Insurees’ Risk Other Financial Assets Provision for impairment of financial assets (-) Tangible Assets Investment Properties Provision for Diminution in Value of Investment Property (-) Property for Operational Usage Machinery and Equipment Furniture and Fixtures Motor Vehicles Other Tangible Assets (including leasehold improvements) Leased Assets Accumulated Depreciation (-) Advances Given for Tangible Assets(including construction in progress) Intangible Assets Rights Goodwill Start-up Costs Research and Development Expenses Other Intangible Assets Accumulated Amortization (-) Advances Given for Intangible Assets Deferred Expenses and Income Accruals Deferred Expenses Income Accruals Other Deferred Expenses and Income Accruals Other Non-Current Assets Effective Foreign Currency Accounts Foreign Currency Accounts Prepaid Office Supplies Prepaid Taxes and Funds Deferred Tax Assets Other Non-Current Assets Other Non-Current Assets Depreciation (-) Provision for Diminution in Value of Other Non-Current Assets (-) Total Non-Current Assets Note 2.8 and 45.2 45,2 45,2 2.5 and 2.6 7 6 6 6 6 6 6 2.7, 8 8 8 8 8 2.25 and 47.1 21 and 35 TOTAL ASSETS (I+II) The accompanying notes form an integral part of these consolidated financial statements. Audited Audited 31 December 2010 31 December 2009 631,834 6,939,956 (6,308,122) 26,991,920 5,783,494 22,225,745 8,240,293 19,624,441 177,013 17,113,025 (46,172,091) 10,705,614 4,011,077 12,733,628 (6,128,546) 89,455 3,878,263 1,442,513 2,435,750 11,112,823 11,112,823 53,320,454 631,834 6,939,956 (6,308,122) 34,485,326 5,550,539 32,398,107 6,598,287 19,338,397 219,047 16,718,901 504,512 (46,842,464) 6,938,194 3,484,396 5,303,112 (4,685,358) 2,836,044 5,040,261 2,613,695 2,426,566 8,528,726 8,528,726 55,624,341 3,353,458,363 2,707,583,325 Yapı Kredi Sigorta 2010 Annual Report 127 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Balance Sheet as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) IIIA12345678B123456C123456D123E1234567F1234567G123H123I123III- LIABILITIES Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Short Term Installments of Long Term Borrowings Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Main Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Associates Due to Subsidiaries Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables (-) Insurance Technical Provisions Unearned Premium Reserve - Net Unexpired Risks Reserve - Net Life Mathematical Reserve - Net Outstanding Claim Provision - Net Bonus and Rebate Provision - Net Provision for Life Policies at Insuree’s Risk – Net Other Technical Reserves - Net Taxes and Other Fiscal Liabilities Taxes and Funds Payable Social Security Withholdings Payable Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Other Taxes and Fiscal Liabilities Corporate Tax Provision and Other Fiscal Liabilities Prepaid Corporate Tax and Other Fiscal Liabilities (-) Other Taxes and Fiscal Liabilities Provision Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Provision for Expense Accruals Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Current Liabilities Deferred Tax Liabilities Count Overages Other Current Liabilities Total Current Liabilities Note 2.22 2.22 19 19 4 19 and 47.1 19 and 47.1 47.1 19 and 47.1 2.24 and 17 2.24, 4 and 17 2.24, 4 and 17 47.1 2.18 and 35 2,18 47.1 22 2.24 2.20 and 23 47.1 The accompanying notes form an integral part of these consolidated financial statements. Audited 31 December 2010 Audited 31 December 2009 1,983,777,767 24,617,774 24,601,085 1,893,282,504 41,276,404 1,353,397 484 20,261 1,332,652 12,906,715 59 12,906,656 445,258,297 324,510,965 324,756 120,272,576 150,000 19,954,525 8,582,194 1,820,502 11,211,935 (4,834,774) 3,174,668 561,971 561,971 22,727,604 11,090,510 11,637,094 2,647,147 2,647,147 2,489,187,423 289 (289) 1,465,193,398 19,729,964 14,339,481 72,504 1,394,062,077 36,989,372 779,437 484 18,742 760,211 12,961,003 59 12,960,944 360,093,955 257,377,868 7,129,778 85,174,628 10,411,681 12,478,470 7,868,662 1,654,493 8,667,701 (7,689,297) 1,976,911 20,574,800 12,286,882 8,287,918 199,002 199,002 1,872,280,065 128 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Balance Sheet as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) IVA1234567B123456C123456D123E1234567F123G12H123I12IV- LIABILITIES Non-Current Liabilities Financial Liabilities Due to Credit Institutions Leasing Payables Deferred Leasing Costs (-) Issued Debt Securities Other Issued Debt Securities Value Differences of Other Issued Debt Securities (-) Other Financial Payables (Liabilities) Payables from Operations Payables from Insurance Operations Payables from Reinsurance Operations Premium Deposits Payables from Private Pension Operations Payables from Other Operations Rediscount on Payables from Other Operations (-) Due to Related Parties Due to Shareholders Due to Subsidiaries Due to Equity Investments Due to Joint-Ventures Due to Personnel Due to Other Related Parties Other Payables Deposits and Guarantees Received Other Payables Rediscount on Other Payables Insurance Technical Provisions Unearned Premium Reserve - Net Unexpired Risks Reserve - Net Life Mathematical Reserve - Net Outstanding Claim Reserve - Net Bonus and Rebate Provision - Net Provision for Life Policies at Insuree’s Risk - Net Other Technical Reserves - Net Other Liabilities and Related Provisions Other Payables Overdue, Deferred or Restructured Taxes and Other Fiscal Liabilities Other Payables and Expense Accruals Provisions for Other Risks Provision for Employment Termination Benefits Provision for Social Aid Fund Asset Shortage Deferred Income and Expense Accruals Deferred Income Expenses Accruals Other Deferred Income and Expense Accruals Other Non-Current Liabilities Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities Note Audited 31 December 2010 Audited 31 December 2009 537,083,005 496,382,238 751,671 39,949,096 7,874,640 7,874,640 6,032,045 6,032,045 550,989,690 1,065 (1,065) 540,891,533 512,507,045 1,031,544 2.22 2.22 2.24 2.24, 4 and 17 4 and 17 2.24 and 47.1 2.19 and 47.1 2.19 and 22 2.25 and 47.1 The accompanying notes form an integral part of these consolidated financial statements. 27,352,944 2,052,651 2,052,651 7,193,835 7,193,835 8,209,597 8,209,597 558,347,616 Yapı Kredi Sigorta 2010 Annual Report 129 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Balance Sheet as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) VA1234B12345C123456D1E1F123GV- SHAREHOLDERS’ EQUITY Shareholders’ Equity Share Capital Nominal Capital Unpaid Capital (-) Adjustments to Share Capital Adjustments to Share Capital (-) Capital Reserves Share Premium Profit from Stock Abrogation Sales Profits to be Added to the Capital Foreign Currency Translation Differences Other Capital Reserves Profit Reserves Legal Reserves Statutory Reserves Extraordinary Reserves Special Funds (Reserves) Valuation of Financial Assets Other Profit Reserves Retained Earnings Retained Earnings Accumulated Deficit (-) Previous Years’ Losses Net Profit for the Period Net Profit for the Period Net Loss for the Period (-) Profit for he period-not subject to distribution Minority Interest Total Shareholders’ Equity Note Audited 31 December 2010 Audited 31 December 2009 198,495,352 80,000,000 118,495,352 28,162,329 18,811,781 9,350,548 91,403,899 10,293,377 49,633,371 9,485,885 21,991,266 (24,592,427) (24,592,427) (18,925,162) (18,925,162) 38,640,970 34,742,216 3,898,754 96,289 313,281,250 198,495,352 80,000,000 118,495,352 28,162,329 18,811,781 9,350,548 100,048,459 6,927,682 59,331,119 11,798,392 21,991,266 (51,072,996) (51,072,996) 1,223,353 1,223,353 99,147 276,955,644 3,353,458,363 2,707,583,325 2.13 and 15 15 15 15 15 15 15 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (III+IV+V) The accompanying notes form an integral part of these consolidated financial statements. 130 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Statement Of Income for the Period 1 January - 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) I- TECHNICAL PART Note A11.11.21.3233.13.2B11.11.222.12.234CD11.11.21.3234E11.11.222.12.233.13.244.14.256789FG1234567H1234I- Non-Life Technical Income Earned Premiums - (Net of Reinsurer’s Share) Written Premiums - (Net of Reinsurer’s Share) 1.1.1- Gross Written Premium (+) 1.1.2- Reinsurer’s Share of Gross Written Premium (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.2.1- Unearned Premiums Reserve (-) 1.2.2- Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) 1.3.1- Unexpired Risks Reserve (-) 1.3.2- Reinsurer’s Share of Unexpired Risks Reserve (+) Investment Income Transferred from Non-Technical Part Other Technical Income - (Net of Reinsurer’s Share) Other Gross Technical Income (+) Reinsurer’s Share of Other Gross Technical Income (-) Non-Life Technical Expense Incurred Losses - (Net of Reinsurer’s Share) Paid Claims – (Net of Reinsurer’s Share) 1.1.1- Gross Paid Claims (-) 1.1.2- Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Returned Reserve) (+/-) 1.2.1- Outstanding Claims Provision (-) 1.2.2- Reinsurer’s Share of Outstanding Claims Provision (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provision (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Net Technical Income- Non-Life (A - B) Life Technical Income Earned Premiums – (Net of Reinsurer’s Share) Written Premiums – (Net of Reinsurer’s Share) 1.1.1- Gross Written Premiums (+) 1.1.2- Reinsurer’s Share of Gross Written Premiums (-) Change in Unearned Premiums Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1- Unearned Premiums Reserve (-) 1.2.2- Reinsurer’s Share of Unearned Premiums Reserve (+) Change in Unexpired Risks Reserve (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.3.1.- Unexpired Risks Reserve (-) 1.3.2.- Reinsurer’s Share of Unexpired Risks Reserve (+) Life Investment Income Unrealised Investment Income Other Technical Income - (Net of Reinsurer’s Share) Life Technical Expense Incurred Losses - (Net of Reinsurer’s Share) Paid Claims (Net of Reinsurer’s Share) 1.1.1- Gross Paid Claims (-) 1.1.2- Reinsurer’s Share of Gross Paid Claims (+) Change in Outstanding Claims (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) 1.2.1- Outstanding Claim Reserve (-) 1.2.2- Reinsurer’s Share of Outstanding Claim Reserve (+) Change in Bonus and Rebate Provision (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Bonus and Rebate Provisions (-) Reinsurer’s Share of Bonus and Rebate Provisions (+) Change in Life Mathematical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Life Mathematical Reserves (-) Reinsurer’s Share of Life Mathematical Reserves (+) Change in Provision for Policies at Life Insurees’ Risk (Net of Reinsurer’s Share and Reserves Carried Forward)(+/-) Provision for Life Policies at Insuree’s Risk (-) Reinsurer’s Share of Provision for Life Policies at Insuree’s Risk (+) Change in Other Technical Reserves (Net of Reinsurer’s Share and Reserves Carried Forward) (+/-) Operating Expenses (-) Investment Expenses (-) Unrealised Investment Expense (-) Investment Income Transferred to Non-Life Technical Part (-) Net Technical Income- Non-Life (D -E) Pension Funds Technical Income Fund Management Income Management Expense Charge Entrance Fee Income Management Expense Charge in case of Suspension Special Service Expense Charge Capital Allowance Value Increase Income Other Technical Income Pension Funds Technical Expense Fund Management Expense (-) Capital Allowance Value Decrease Expense (-) Operating Expenses (-) Other Technical Expenses (-) Net Technical Income - Pension Funds (G - H) 2.21 47.5 10 47,5 31 and 32 2.21 47.5 47.1 and 47.5 31 31 47.1 The accompanying notes form an integral part of these consolidated financial statements. Audited Audited 01.01.2010 - 31.12.2010 603,468,055 564,465,934 620,210,934 755,741,837 (135,530,903) (62,550,022) (63,351,446) 801,424 6,805,022 6,805,022 33,974,002 5,028,119 5,028,119 (580,111,765) (439,639,075) (413,632,565) (456,330,161) 42,697,596 (26,006,510) (40,796,605) 14,790,095 (2,842,926) (137,629,764) 23,356,290 135,477,206 96,711,028 101,294,103 109,653,515 (8,359,412) (4,583,075) (5,038,501) 455,426 38,642,340 123,838 (128,394,896) (105,886,725) (104,487,039) (105,814,565) 1,327,526 (1,399,686) (1,748,013) 348,327 279,871 279,871 16,212,855 16,212,855 (3,878,260) (35,122,637) 7,082,310 63,300,352 31,450,395 20,477,341 9,183,635 8,280 2,180,701 (54,049,254) (7,862,599) (41,653,337) (4,533,318) 9,251,098 01.01.2009 - 31.12.2009 480,836,805 439,102,858 463,953,063 605,659,035 (141,705,972) (17,800,990) (6,024,021) (11,776,969) (7,049,215) (7,049,215) 38,745,037 2,988,910 2,988,910 (505,393,039) (387,581,848) (379,400,671) (445,160,190) 65,759,519 (8,181,177) (4,353,322) (3,827,855) (1,824,436) (115,986,755) (24,556,234) 135,441,834 86,418,696 86,834,286 92,209,467 (5,375,181) (415,590) (152,691) (262,899) 48,848,521 174,617 (129,350,452) (133,204,153) (132,036,878) (134,733,380) 2,696,502 (1,167,275) (1,070,554) (96,721) 177,023 177,023 37,001,723 37,001,723 (3,697,912) (29,627,133) 6,091,382 53,534,916 22,691,819 18,924,078 11,914,901 4,118 (54,193,127) (5,672,955) (44,193,157) (4,327,015) (658,211) Yapı Kredi Sigorta 2010 Annual Report 131 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Statement Of Income for the Period 1 January - 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) II- NON-TECHNICAL PART Note CFIJK12345678910L12345678M12345678910N123- 4- Net Technical Income-Non-Life (A-B) Net Technical Income-Life (D-E) Net Technical Income-Pension Funds (G-H) Total Net Technical Income (C+F+I) Investment Income Income from Financial Investments Income from Sales of Financial Investments Valuation of Financial Investments Foreign Exchange Gains Income from Associates Income from Equity Subsidiaries and Joint-Ventures Income from Land and Buildings Income from Derivatives Other Investments Investment Income Transferred from Life Technical Part Investment Expense (-) Investment Management Expenses (Interest incl.) (-) Diminution in Value of Investments (-) Loss from Realization of Financial Investments (-) Investment Income Transferred to Non-Life Technical Part (-) Loss from Derivatives (-) Foreign Exchange Losses (-) Depreciation Expenses (-) Other Investment Expenses (-) Income and Expenses from Other Operations and Extraordinary Operations (+/-) Provisions (+/-) Rediscounts (+/-) Special Insurance Account (+/-) Inflation Adjustment (+/-) Deferred Tax Assets (+/-) Deferred Tax Liabilities Expenses (-) Other Income Other Expenses (-) Prior Year’s Income Prior Year’s Expenses (-) Net Profit/(Loss) for the Period Profit/(Loss) for the Period Corporate Tax Provision and Other Fiscal Liabilities (-) Net Profit/(Loss) for the Period - Parent’s Share - Minority Interest Inflation Adjustment 6.1 47.5 47.5 35, 47.5 47.1 35 and 47.5 37 Audited 01.01.2010 31.12.2010 23,356,290 7,082,310 9,251,098 39,689,698 60,824,202 39,553,735 1,408,362 11,778,777 3,845,701 12,055 4,225,572 (43,347,466) (227,548) (839,435) (33,974,002) (4,133,592) (4,172,889) (8,085,146) (10,855,026) 41,698 2,059,169 1,000,186 (331,173) 38,657,533 49,081,288 (10,423,755) 38,657,533 38,640,970 16,563 - The accompanying notes form an integral part of these consolidated financial statements. Audited 01.01.2009 31.12.2009 (24,556,234) 6,091,382 (658,211) (19,123,063) 68,747,988 40,495,179 4,990,851 18,370,796 3,405,640 13,017 1,472,505 (46,095,840) (221,595) (81,320) (425,136) (38,745,037) (2,873,474) (3,749,278) 6,376,754 (1,390,504) 1,803,024 6,308,414 940,596 (1,284,776) 1,238,138 9,905,839 (8,667,701) 1,238,138 1,223,353 14,785 - 132 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Statements Of Cash Flows for the Period 1 January - 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Note A123456789101112B123456789C1234567DEFG- CASH GENERATED FROM MAIN OPERATIONS Cash flows from insurance operations Cash flows from reinsurance operations Cash flows from private pension funds operations Cash outflows from insurance operations (-) Cash outflows from reinsurance operations (-) Cash outflows from private pension funds operations (-) Net Cash from main operations (A1+A2+A3-A4-A5-A6) Interest payment (-) Income tax payment (-) Other cash inflows Other cash outflows (-) Net cash provided by main operations CASH FLOWS FROM INVESTING OPERATIONS Sale of tangible assets Tangible assets purchases (-) Financial assets purchases (-) Sales of financial assets Interest received Dividends received Other cash inflows Other cash outflows (-) Net Cash from investing activities CASH FLOWS FROM FINANCING OPERATIONS Issue of shares Cash inflows due to the borrowings Leasing payments (-) Dividends paid (-) Other cash inflows Other cash outflows (-) Net cash used in financing activities EFFECT OF EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period (E+F) Audited 01.01.2010 -31.12.2010 Audited 01.01.2009 - 31.12.2009 791,115,882 67,295,532 560,343,226 (685,404,441) (125,994,743) (550,424,863) 56,930,593 (4,036,687) 1,303,698 (76,585,023) (22,387,419) 686,941,242 93,944,943 476,047,563 (628,715,584) (146,566,225) (474,608,275) 7,043,664 (6,412,572) 513,251 (89,387,676) (88,243,333) 11,265,038 (8,270,415) (330,558,094) 402,295,581 53,342,474 12,055 890,289 3,586,144 132,563,072 317,074 (4,913,473) (144,219,119) 204,670,383 53,328,785 1,854,935 (643,652) 110,394,933 (19,431) (19,431) (176,516) 109,979,704 215,261,612 325,241,316 (10,745,027) (10,745,027) 532,166 11,938,739 203,322,873 215,261,612 2.12 The accompanying notes form an integral part of these consolidated financial statements. Inflation Adjustments Net Profit for the Period (Note 37) Dividends Paid (Note 38) Transfer Balances at the period end (31/12/2010) (I+A+B+C+D+E+F+G+H+I+J) H- I- J- II- 2- From Internal Resources G- 1- Cash Other Income and Losses Capital Increase (A1 + A2)) A- F- Balances at the prior period end (31/12/2009) I- Foreign Currency Translation Differences Balances at the period end (31/12/2009) (I+A+B+C+D+E+F+G+H+I+J) II- E- Transfer J- Value Increase in the Assets Dividends Paid (Note 38) I- D- Net Profit for the Period (Note 37) H- Gain and Losses Not Included in the Income Statement (Note 15) Inflation Adjustments G- C- - Other Income and Losses F- Own Shares of the Company - Foreign Currency Translation Differences E- B- - Value Increase in the Assets D- 80,000,000 - - - - - - - - - 80,000,000 80,000,000 - - - - - - - - Gain and Losses Not Included in the Income Statement (Note 15) C- - - 2- From Internal Resources Own Shares of the Company - 1- Cash B- - Capital Increase (A1 + A2)) A- 80,000,000 Balances at the prior period end (31/12/2008) I- Capital - - - - - - - - - - - - - - - - - - - - - - - - - - - - Own Shares of the Company (-) 9,485,885 - - - - - - - (2,312,507) - - - - 11,798,392 11,798,392 - - - - - - - 8,141,734 - - - - 3,656,658 Financial Assets Fair Value Reserve 118,495,352 - - - - - - - - - - - - 118,495,352 118,495,352 - - - - - - - - - - - - 118,495,352 Inflation Adjustment to the Share Capital - - - - - - - - - - - - - - - - - - - - - - - - - - - - Foreign Currency Translation Differences 10,293,377 3,365,695 - - - - - - - - - - - 6,927,682 6,927,682 4,720,342 - - - - - - - - - - - 2,207,340 Legal Reserves 49,633,371 (9,697,748) - - - - - - - - - - - 59,331,119 59,331,119 40,927,430 - - - (17,869) - - - - - - - 18,421,558 50,153,595 - - - - - - - - - - - - 50,153,595 50,153,595 9,350,548 - - - - - - - - - - - 40,803,047 Other Reserves and Profit/ Statutory Retained Reserves Profit 38,640,970 (1,223,353) - 38,640,970 - - - - - - - - - 1,223,353 1,223,353 (63,544,802) (10,739,894) 1,223,353 - - - - - - - - - 74,284,696 Net (Loss) for the Period Statements of changes in Shareholders’ Equity - Audited (*) (43,517,589) 7,555,407 - - - - - - - - - - - (51,072,996) (51,072,996) 8,546,482 - - - - - - - - - - - (59,619,478) Retained Earnings 313,184,961 1 - 38,640,970 - - - - (2,312,507) - - - - 276,856,497 276,856,497 - (10,739,894) 1,223,353 - (17,869) - - 8,141,734 - - - - 278,249,173 Equity holders of the parent 96,289 - (19,431) 16,563 - - - - 10 - - - - 99,147 99,147 - (5,133) 14,785 - - - - 2,007 - - - - 87,488 Minority Interest Total 313,281,250 1 (19,431) 38,657,533 - - - - (2,312,497) - - - - 276,955,644 276,955,644 - (10,745,027) 1,238,138 - (17,869) - - 8,143,741 - - - - 278,336,661 Yapı Kredi Sigorta 2010 Annual Report 133 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Consolidated Statement Of Changes In Shareholders’ Equity for the Period 1 January - 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 134 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1. General information 1.1 Name of the parent company: As of 31 December 2009 and 2010, the immediate parent of Yapı Kredi Sigorta A.Ş. (“The Company”) is Yapı ve Kredi Bankası A.Ş. and the ultimate parents are Koç Holding A.Ş. and Unicredit S.P.A.. The consolidated financial statements as of 31 December 2009 and 2010 include the accounts of Yapı Kredi Sigorta A.Ş., the parent company and its subsidiary Yapı Kredi Emeklilik A.Ş. (“The Subsidiary”) (collectively referred as “the Group”). 1.2 Legal residence of the Company, its legal structure, the country of incorporation and the address of it’s registered office: The Company was established on 24 December 1943. The headquarters of the Company is in Istanbul and it operates as a joint stock company at the address “Yapı Kredi Plaza A Blok Büyükdere Cad. 34330 Levent-İstanbul”. The Company has “Istanbul”, “Middle Anatolia”, “Marmara”, “South”, “Agean”, “Mediterranean,” Bakırköy” and “Kadıköy” regional offices. 1.3 Nature of operations: The Group mainly operates in fire, transportation, accident, personal accident, machine assembly, agriculture, health, life insurance and pension branches. 1.4 Explanation of the activities and characteristics of main operations of the corporation: Disclosed in Notes 1.2 and 1.3. 1.5 Average number of employees during the period by category: Top and middle management Other personnel Total 1 January 31 December 2010 68 1,658 1,726 1 January 31 December 2009 72 1,647 1,719 1.6 Total salaries and benefits paid to the members of the Board of Directors, General Manager, General Coordinator, Assistant General Managers and other executive management during the current period: 1 January 31 December 2010 1 January 31 December 2009 Short Term Benefits Provided to Top and Middle Management Salary and other short term payments Bonus Group pension plan 3,305,751 614,652 177,790 4,764,516 652,314 305,264 Total 4,098,193 5,722,094 Long Term Benefits Provided to Top and Middle Management Provision for employment termination benefits - 164,984 Total - 164,984 4,098,193 5,887,078 Total Benefits Provided to Top and Middle Management 1.7 Criteria set for the allocation of investment income and operating expenses (personnel, management, research and development, marketing and sales, outsourcing utilities and services and other operating expenses) in the financial statements: All the income that is generated by the Group investment of assets backing non-life and life technical reserves, is transferred from non-technical to technical part. Other investment income is classified under non-technical part. The Group allocates general expenses transferred to technical part to branches based on the weighted average of the number of policies, amount of premium and number of claim notifications in last three years for non-life branches. For life and pension funds branches the Group distributed operating expenses transferred to technical part initially to pension and insurance parts by considering the weighted average of number of private pension agreements, and number of policies issued in the last three years period. The expenses allocated to insurance part are distributed to life and non-life parts by considering the weighted average of number of policies issued, gross written premium amount and number of notified claims in the last three years. . Yapı Kredi Sigorta 2010 Annual Report 135 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1.8 Whether financial statements include only one firm or group of firms: The financial statements include the accounts of the Company and its subsidiary, Yapı Kredi Emeklilik A.Ş.. Detailed information of the Subsidiary is explained below: • Legal residence of the Company, its legal structure, the country of incorporation and the address of its registered office: The Subsidiary is registered in Istanbul and the registered address of the Company’s headquarters is Büyükdere Cad. Yapı Kredi Plaza A Blok 34330 Levent / Istanbul. • Nature of operations: The main operation of the Subsidiary is to act in private pension fund system and, as a result of this activity, to prepare private pension contracts, to fulfil all transactions defined in the laws and regulations related with pension funds, and also to issue all kinds of group and individual life and personal accident policies in Turkey and foreign countries and to perform all related reinsurance transactions. The title of the Subsidiary, which was Yapı Kredi Yaşam Sigorta A.Ş. has changed as Yapı Kredi Emeklilik A.Ş. on 30 December 2002. The articles of association of the Subsidiary have been changed by the written approval No: 81316 dated 20 December 2002 of the Undersecreteriat of Treasury and the initial authorization No: 10919 dated 20 December 2002 of the Ministry of Trade and Industry. With this change, the Subsidiary has been entitled to act in private pension fund system, to issue private pension fund contracts and to fulfill all transactions defined in the laws and regulations related with pension funds. 1.9 Name and other identification information of the reporting firm and changes in this information since the previous balance sheet date: Name and other identification information of the Company are disclosed in Notes 1.1, 1.2 and 1.3 and there are no changes in this information since the previous balance sheet date. 1.10 Events occurred after the balance sheet date: Consolidated financial statements for the period 1 January - 31 December 2010 have been approved by the Board of Directors on 2 March 2011. The events occurred after the balance sheet date are explained in Note 46. 2. Summary of significant accounting policies 2.1 Basis of preparation In accordance with the Capital Market Law part (VII.) article (a) of clause 50, insurance companies are subject to their specific legislation in respect of establishment, audit, supervision, accounting, financial statements and financial reporting standards. Therefore, the Group prepares its consolidated financial statements in accordance with the Insurance Law numbered 5684 and the regulations issued for insurance and reinsurance companies by the Undersecretariat of Treasury (“the Treasury”). The consolidated financial statements are prepared in accordance with the Insurance Chart of Accounts included in the communiqué issued by the Treasury regarding the Insurance Chart of Accounts and Prospects, published in the Official Gazette (No:25686) dated 30 December 2004 (Insurance Accounting System Communiqué No.1). Content and the format of the consolidated financial statements prepared and explanations and notes thereof are determined in accordance with the Communiqué on Presentation of Financial Statements published in the Official Gazette numbered 26851 dated 18 April 2008. According to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies” issued on 14 July 2007 and effective from 1 January 2008, except for the communiqués which may be issued by the Treasury, operations of insurance companies shall be accounted for in accordance with the Turkish Accounting Standards (“TMS”) and the Turkish Financial Reporting Standards (“TFRS”) as issued by the Turkish Accounting Standards Board (“TMSK”) and other regulations, communiqués and explanations issued by the Treasury regarding accounting and financial reporting issues. With reference to the notice of the Treasury No. 9 dated 18 February 2008, “TMS 1- Financial Statements and Presentation”, “TMS 27- Consolidated and Separate Financial Statements”, “TFRS 1 - Transition to TFRS” and “TFRS 4- Insurance Contracts” have been scoped out of this application. In addition, the companies are obliged to comply with the Communiqué on the Preparation of the Consolidated Financial Statement of Insurance and Reinsurance Companies and Pension Companies” (“Consolidation Communiqué”) dated 31 December 2008 and published in official gazette numbered 27097 effective from 31 March 2009. Consolidated financial statements were prepared on a TRY and historical cost basis, being adjusted for inflation until 31 December 2004, other than the financial assets and liabilities which are measured at their fair values. It was announced with the article of the Treasury numbered 19387, dated 4 April 2005, insurance companies are required to restate their financial statements as of 31 December 2004 in accordance with “Financial Reporting in Hyperinflationary Economies” included in the regulations of Capital Markets Board (‘‘CMB’’) Communiqué XI No.25 (which came into force as published in the Official Gazette No:25290 dated 15 January 2003). In line with the decree of CMB dated 17 March 2005, the Treasury also announced that inflation accounting is not required effective from 1 January 2005. Based on the above mentioned notification of the Treasury, the Group has restated its financial statements as of 31 December 2004 in accordance with the regulations regarding “Financial Reporting in Hyperinflationary Economies” and not continued to apply standard No. 29 “Financial Reporting in Hyperinflationary Economies” issued by TMSK. 136 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The Group calculated insurance technical reserves and accounted for in the consolidated financial statements in accordance with the “Regulation Regarding the Technical Reserves of Insurance, Reinsurance and Pension Companies and the Assets to which These Reserves are Invested” dated 1 January 2008 and related legislations issued in accordance with Insurance Law numbered 5684. Accounting policies and measurement principles that are used in the preparation of the consolidated financial statements are explained in the notes from 2.3 to 2.25 below. Changes in Turkish Financial Reporting Standards: The accounting policies adopted in the preparation of consolidated financial statements are outlined below, except the new standards and interpretations were consistent with the previous year. Group, period of beginning on 1 January 2010, implemented the following new and revised interpretations of TFRS. • • • • • TFRYK 17, “Distribution of non-cash assets to owners” TMS 39, “Financial Instruments: Recognition and Measurement” (Revised) - Appropriate protected instruments. TFRS 2 (revised) “Group cash-settled share-based payment transactions” Re-issued TFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements (Revised) TFRS Improvements, May 2008 - all changes are published in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations standard after sales business continues to hold non-controlling shares in the subsidiary and the partnership where all the assets and liabilities held for sale except for clarifying changes to provisions concerning the classification as held on December 31, 2009 is valid for the period ended. • TFRS Improvements, April 2009 There is no impact of these standards and interpretations on the consolidated financial statements or operations. Scope of TFRS improvements, published in April 2009 whether made changes to the Group’s accounting policies, financial condition and performance standards are as follows: • • • • • • • • • • • • TFRS 2 “Share based payment” TFRS 5 “Measurement of non-current assets (or disposal groups) classified as held-for-sale” FRS 8 “Operating segments” TMS 1 “Presentation of financial statements” TFRS 7 “Financial Instruments - Disclosures” TMS 17 “Leases” TMS 18 “Revenue” TMS 36 “Impairment of Assets” TMS 38 “Intangible assets” TMS 39 “Financial Instruments: Recognition and Measurement” – Accounts accepted as protected from financial risk. TFRS 9 “Reassessment of Embedded Derivatives” TFRS 16 “Hedges of the net investment in foreign operation” The Group does not expect to have an impact on the financial position or performance changes. Yapı Kredi Sigorta 2010 Annual Report 137 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Changes and interpretations in the standards that are not yet effective and have not been adopted early by the Group: TFRS 19 Extinguishing Financial Liabilities with Equity Instruments Effective for annual periods beginning on or after 1 July 2010. TFRS 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability consideration pain in accordance with paragraph 41 of TMS 39 Financial Instruments; Recognition and Measurement. The equity instruments issued at measured at their fair value, unless this cannot be reliably measured, in which case they are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. TFRS 14 Prepayments of a Minimum Funding Requirement (Amendment) Effective for annual periods beginning on or after 1 January 2011. TFRS 14 provides guidance on assessing the recoverable amount of net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is applied retrospectively to the beginning of the earliest period presented in the first financial statements in which the entity applied the original interpretation. TFRS 9 Financial Instruments Effective for annual periods beginning on or after 1 January 2013. The first phase of TFRS 9 Financial Instruments addresses the classification and measurement of financial assets. Early application is permitted. This standard has not been ratified yet by the European Union. Group evaluates the regulation of financial status or whether there is an impact on the performance. TFRS 32 Financial Instruments: Presentation- Classification of Rights Issues (Amendment) Effective for annual periods beginning on or after 1 February 2010. The amendment will provide relief to entities that issue rights(fixed in a currency other than their functional currency), from treating the rights as derivatives with fair value changes recorded in profit or loss. Rights issued in foreign currencies that were previously accounted for as derivatives will now be classified as equity instruments. Application of the change will result in the reversal of profits or losses previously recognized, as application of the change will be retrospective. In addition, the impact on previously reported results would be a reclassification in equity. TMS 24 Related Party Disclosures (Re-Edit) Effective for annual periods beginning on or after 1 January 2011. The definition of a related party has been clarified to simplify the identification of related party relationship, particularly in relation to significant influence and joint control. A partial exemption from the disclosures has been included for government –related entities. Early application is permitted, and early application should be made retrospectively. Entities will need to consider the revised definition of related parties to ensure all the relevant information is still being captured. The Group does not expect to have an impact on the correction of financial status or performance. In May 2010, resolve inconsistencies and to clarify statements, TMSK published the third frame arrangement. Changes have been determined for the various effective dates of July 1, 2010 and after the effective date of early periods beginning. Early implementation is permitted. TFRS 3 Business Combinations (revised) Effective for annual periods beginning on or after 1 July 2010. The amendments to TFRS 7 Financial Instruments: Disclosures, TMS 32 Financial Instruments: Presentation and TMS 39Financial Instruments: Recognition and Measurement, that eliminate the exemptions for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3(as revised 2008).The amendment limits the scope of the measurement choices that only the components of non-controlling interest that are present ownership interests that entitle their holders to a proportionate share of the entity’s net assets, in the event of liquidation, shall be measured either at fair value or at the present ownership instruments proportionate share of the acquiree’s identifiable net assets net assets. TFRS 7 Financial Instruments: Effective for annual periods beginning on or after 1 July 2010. The amendment emphasis the interaction between quantitative and qualitative disclosures and the nature and the extent of risks associated with financial instruments. TMS 1 Presentation of Financial Statements, Effective for annual periods beginning on or after 1 January 2010. The amendment clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. TMS 27 Consolidated and Separate Financial Statements, The amendment clarifies that the consequential amendments from IAS 27 made to TMS 21 the effect of changes in Foreign Exchange Rates, IAS 28 investments in Associates and IAS 31 Interests in Joint Ventures apply prospectively for annual periods beginning on or after 1 July 2009 or earlier when IAS 27 is applied earlier. 138 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) TMS 34 Interim Reporting, Effective for annual periods beginning on or after 1 January 2011. The amendment provides guidance to illustrate how to apply disclosure principles in TMS34 . TFRS 13 Customer Loyalty Programmes, Effective for annual periods beginning on or after 1 January 2011. The amendment clarifies that when the fair value of award credits is measured based on the value of the awards for which they could be reemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account. TFRS 7 Financial Instruments: Explanations of comprehensive analysis of off-balance sheet transactions (Amendment) Effective for annual periods beginning on or after 1 January 2011. The purpose of change, provide better understanding for readers of financial statements about assets transfer operations (such as securitization)- including possible risk stay on transferring party-. Amendment also provides requirements of additional explanation about situation in which disproportionate transfer of financial assets at the end of the fiscal year .These changes all largely compatible with the requirements of disclosure of IFRS and U.S GAAP(U.S. Generally Accepted Accounting Principles). The Group does not expect to have an impact on changes in financial position or performance. 2.1 Comparative Information In the consolidated financial statements dated December 31, 2010 and 2009 amount of provision for unused vacations are classified under Other Short Term Liabilities account. In accordance with “J- Subrogation and Salvage Revenue Accounting Records Article “ of the circular dated October 18, 2010 and numbered 2010/16 published by Undersecretary of the Treasury, because the potential subrogation and salvage deduction from outstanding claims reserve is not included in existing legislation, amount calculated as of December 31, 2010 transferred to current year by reclassification and followed in “Provisions No Longer Required”. Group classified the salvage and subrogation receivables and administrative and legal subrogation follow up receivables, in accordance with the draft circulars regarding subrogation and salvage revenue as of 31 December, 2009, accounted to relevant account in order to be consistent with the presentation of current period. 2.2 Consolidation The consolidated financial statements are prepared in accordance with the “Communiqué on the Preparation of the Consolidated Financial Statement of Insurance and Reinsurance Companies and Pension Companies” dated 31 December 2008 and published in official gazette numbered 27097 and in accordance with “TMS 27Consolidated and Separate Financial Statements”. Principles of consolidation of subsidiaries: Control is defined as the power to assign or discharge a majority of the members of the Board of Directors, either through the power to exercise more than 51% of voting rights relating to shares in the companies as a result of ownership interest owned directly and indirectly by itself, or through the preferred shares held although not having the power to exercise more than 50% of the ownership interest, or as a result of agreements by other shareholders whereby the Group exercises control over the ownership interest of the shares held by them or otherwise has the power to exercise control. Subsidiaries are consolidated on a line-by-line basis on the grounds of materiality on the basis of operating results, total asset and shareholders’ equity of the subsidiaries in accordance with “TMS 27” and the carrying value of the investment held by Yapı Kredi Sigorta and its subsidiary is eliminated against the related shareholders’ equity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Where necessary, accounting policies of the subsidiaries have been changed for the purpose of the application of uniform accounting policies across the Group. In accordance with consolidation on a line-by-line basis, 100% of the assets, liabilities, income, expense and off-balance sheet accounts of the subsidiaries are combined with the assets, liabilities, income, expense and off-balance sheet accounts of the parent. The carrying value of the investment in subsidiaries held by Group is eliminated against the Subsidiaries’ related equity. Intercompany transactions and balances between the subsidiaries included in the scope of consolidation are eliminated during the consolidation. The minority shareholders’ share in the net income for the period of the subsidiary is deducted from income for the period of the subsidiary, in order to calculate the net income of the Group. Minority interest is disclosed separately classified in the consolidated balance sheets from the liabilities and share of the shareholders included in the Group. Minority interest is disclosed separately in the income of the Group. Yapı Kredi Sigorta 2010 Annual Report 139 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Name and legal residence of the Subsidiary, nature of its operations and proportion of ownership, effective interest, total assets, total equity, net sales and net income are as follows: 31 December 2010 Proportion of ownership interest (%) Indexed Cost Book Value Independent audit report 99.93 148,249,982 148,249,982 Unqualified Yapı Kredi Emeklilik A.Ş. Proportion of ownership interest (%) Indexed Cost Book Value 99.93 148,249,982 148,249,982 Yapı Kredi Emeklilik A.Ş. Financial Statement Period Total Asset Net Liability Net Sales Net Profit 31,12,2010 2,603,432,660 2,472,114,037 101,564,056 22,589,031 Total Asset Net Liability Net Sales Net Profit 31,12,2009 2,105,869,098 1,970,653,055 86,975,157 20,163,300 31 December 2009 Financial Independent Statement audit report Period Unqualified 2.3 Segment reporting Operating segments are settled compatible with the segments on information reported to the chief operating decision-maker. Chief operating decision-maker of the Group is responsible for the uses of resources and evaluation of the performance of the segments. General manager who makes the strategic decisions, is determined as the chief operating decision-maker. Details of to the segment reporting are disclosed in the Note 5. 2.4 Foreign currency translation The functional currency of the Group is TRY. Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity. Foreign exchange differences arising from the translation of non monetary financial assets and liabilities are considered as part of the fair value changes and those differences are accounted for in the accounts in which the fair value changes are accounted for. 2.5 Property and equipment Property and equipment are carried at cost less accumulated depreciation. Land is not subject to depreciation due to its infinite years of useful life. Depreciation is calculated using the straight-line method based on the useful lives of properties. The depreciation periods estimated considering useful lives of tangible assets are as follows: Property for Operational Usage (Buildings) Furniture and fixtures Machinery and equipment Motor vehicles Special costs Other tangible assets Leasehold improvements 50 year 3-15 year 10-20 year 5 year 5 year 5 year 5 year If there are indicators of impairment on tangible assets, a review is made in order to determine possible impairment and as a result of the review, if an asset’s carrying amount is greater than its estimated recoverable amount, the asset’s carrying amount is written down immediately to its recoverable amount by accounting for a provision for impairment. Gains and losses on disposals of property and equipment are included in other operational income and expenses accounts (Note 6). As of 31 December 2010 the group recognized provision for asset impairment amount to TRY 474,214 (31 December 2009: TRY 11,925) (Note 6). 140 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.6 Investment properties The buildings of the Group held for the purpose of receiving rent or an increase in value or both instead of being used in the operations of the Group or being sold within the normal business course are classified as investment properties. The investment properties are carried at acquisition cost by deducting the accumulated depreciation. Investment properties are amortised by the straight-line method over their estimated useful lives. If there are indicators of impairment on investment properties, a review is made in order to determine possible impairment and as a result of this review, if the property’s carrying amount is greater than its estimated recoverable amount, the property’s carrying amount is written down immediately to its recoverable amount by accounting for an impairment provision. The recoverable amount is the higher of the future cash inflows from the existing use of the investment property and the fair value of the property after cost of sale. The Group have an impairment booking for its investment properties as of 31 December 2010 amount of TRY 11,925 (31 December 2009: TRY 11,925) (Note 7). The depreciation period of investment properties is 50 years. 2.7 Intangible assets Intangible assets consist of the acquired information systems, franchise rights and software. Intangible assets are carried at acquisition cost and amortised by the straightline method over their estimated useful lives after their acquisition date. If impairment exists, carrying amount is written down immediately to its recoverable amount (Note 8). The amortisation periods of intangible assets as of balance sheet dates are as follows: Software License 3 - 5 years 15 years 2.8 Financial Assets The Group classifies and accounts for its financial assets as “Financial assets at fair value through profit or loss” (Held-for-trading financial assets), “Available-for-sale financial assets” and “Loans and receivables (Receivables from main operations)”. Receivables from main operations are the receivables (except for policy loans) arising from insurance agreements and they are classified as financial assets in financial statements. The measurement principles of TMS 39 are used for these receivables. Receivables from main operating activities that receivables arising from insurance contracts and in spite of all receivables arising TMS 39 out of scope to hold the insurance contracts, since did not applied to TFRS 4, as a facultative group of receivables arising from the insurance contract are classified as financial assets in the financial statements and group applies TMS 39 principles of the measurement. Purchases and sales of the financial assets are recognised and derecognised based on “Settlement date”. The classification of the financial assets is determined by the Group management at inception by considering the purpose for which the financial assets are acquired. Financial assets at fair value through profit or loss (Held-for-trading financial assets): Financial assets at fair value through profit or loss consist of financial instruments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin, formed as a part of a portfolio of financial assets that are managed together for which there is evidence of short-term profit taking, and classified as financial assets designated at fair value through profit or loss at inception since they are managed and their performance is evaluated on fair value basis. Financial assets at fair value through profit or loss are accounted for at their fair value at inception and after initial recognition, financial assets are measured at their fair values. It is concluded that the fair value cannot be reliably measured if the price that provides a basis for fair value is not set in active market conditions and amortised value that is calculated using the effective interest method is used as fair value. Gains or losses generated as a result of valuation are recognised in the income statement. The valuation gains and losses on financial assets at fair value through profit or loss are classified in Investment Income and Investment Losses, respectively. (Note11) In addition, changes in fair value of the marketable securities within the portfolio of life policyholders are classified in investment income and expense under the Life Branch Technical Income and Expenses. Furthermore changes in fair value of the financial assets at fair value through profit or loss within the portfolio of life policyholders are also included in the mathematical reserve and profit share calculations and as a result the increases/ decreases in the technical reserves are accounted for in the change in mathematical reserves account under the Life Branch Technical Income and Expenses (Note 11). Loans and Receivables together with Policy Loans (Receivables from Main Operations): Loans and receivables are financial assets which are generated by providing money or service to the debtor. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Fees and other charges paid related to assets obtained as guarantee for the above mentioned receivables are not deemed as transaction costs and they are recognised as expense in the income statement. Yapı Kredi Sigorta 2010 Annual Report 141 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The Group accounts for an impairment provision for its receivables based on Management’s evaluation and estimations according to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies” issued on 14 July 2007 and effective from 1 January 2008. This provision is classified as “provision for due from insurance operations” on the balance sheet. Management sets its estimations within the risk policies and the prudency principle by considering the overall position of is receivable portfolio, financial and non-financial data regarding its insurees and its intermediaries and the general economic developments. In addition to provision for receivables from insurance operations, the Group, the above-mentioned “Receivables from insurance operations” is not in the provision for doubtful debts taking into account value and quality of receivable and book provision as administrative and legal proceeding provision. The group stage of the lawsuits and execution of records doubtful receivables provision for subrogation claims. These provisions, respectively, classified in the balance sheet under “Provision for Doubtful Receivables from operating activities” and” receivables for insurance operations” accounts. In the consolidated financial statements as of December 31, 2010 the Group, according to principles of Treasury circulars dated January 14, 2011 and September 20, 2010 numbered 2010/16 and 2011 / 1 underlying claim of subrogation receivable over the 6 months from the date of payment ( Due from insurance company) and 4 months (the actual claims and other legal entities), booked receivable provision in addition to this amounts. In addition to the amounts for the first time that the circular No. 2010/16 dated 20 September 2010 the parties agreed to assets connected with the method mentioned in reserve to claims of recourse for amounts of discretionary leave is reserved for additional provision. Increase in the provision for doubtful receivables is deducted from the related year’s income. Recoveries of amounts previously provided for are treated as a reduction from provisions for overdue receivables for the period and recorded in the “Provision Expense” account. Such receivables are written off only after all necessary legal proceedings have been completed (Note 12). Policy loans are the loan provided to the insurees for the time interval (the time interval for policy loan is minimum three years related to the General Conditions of Life Insurance) determined by the technical principal cause related to the tariffs of life insurance. Policy loans are accounted from their fair value in the balance sheet and followed from their values determined by applying interest on, by considering impairment provision if any. Since 100% cash guarantees are received for policy loans, Group does not account any impairment for its policy loans. Interest income from policy loans and the foreign currency gains and losses are also taken into account in the mathematical reserve and profit share calculations and are classified in the investment income and expenses account under the Life Branch Technical Income and Expense in the income statement. Loans derived from interest income and foreign exchange gains / losses and dividend corresponds to the tariff decisions of the mathematical calculations, and this provision is taken into account the increase or decrease in the income statement Revenues and Expenses of Life Branch Technical is monitored under the main account group change in mathematics of technical reserve. Available-for-sale financial assets: Available-for-sale financial assets are composed of the financial assets except for the “Loans and receivables together with Policy Loans” and “Financial assets at fair value through profit or loss”. Available-for-sale financial assets are subsequently carried at fair value after their recognition. It is considered that the fair value can not be reliably measured if the price that provides a basis for fair value is not set in active market conditions and amortised value that is calculated using the effective interest method is used as fair value. Equity securities classified as available-for-sale are carried at fair values if they have quoted market prices in active markets and/or if their fair value can be reliably measured. The equity securities that do not have a quoted market price in an active market, and if their fair value cannot be reliably measured are carried at cost less the provision for impairment. “Unrealised gains and losses” arising from the change in the fair value of available-for-sale financial assets is accounted for under “Valuation of Financial Assets” account in the shareholders’ equity and not reflected in the income statement until the financial asset is sold, disposed or derecognised. The unrealised gains and losses arising from the change in the fair value is removed from shareholders’ equity and recognised in the income statement when the financial assets mature or are derecognised. The Group assesses at each balance sheet date whether there is objective evidence that an available-for-sale financial asset is impaired. In the case of equity investments classified as available-for-sale financial assets, such as, a significant or prolonged decline in the fair value of the security below its cost is considered as impairment. If any objective evidence for impairment exists for available-for-sale financial assets, the difference between the acquisition cost and current fair value is deducted from shareholders’ equity and recognised in the income statement. The impairment losses on available-for-sale equity instruments previously recognised in the profit or loss cannot be reversed through profit or loss. In such condition that there’s not a risk of collection in the financial assets classified under available-for-sale financial assets, the Group does not account for a provision for impairment considering the short-term market fluctuations (Note 11). 142 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The share of the portfolio of the policyholders in unrealised losses, arising from the change in the fair value of available-for-sale financial assets in an amount of TRY 32,526,080 TRY (31 December 2009: 23,325,661 TRY), composing 95% of total unrealised losses is classified under the long term “other technical reserves” on the balance sheet. The interest income and foreign exchange gains and losses of available-for-sale financial assets which are in the portfolio at policyholders’ risk is calculated with the effective interest rate method and are traced under “Life Branch Investment Income” account. The portion of these gains that is included in the calculation of mathematical reserves is traced in “Changes in mathematical technical provisions” account in the life technical income or expenses (Notes 17 and 47.1). 2.9 Impairment of Assets The details about the impairment of assets are explained in the notes in which the accounting policies of the relevant assets are explained. Mortgages or guarantees on assets are explained in Note 43, provisions for overdue receivables and provisions for receivables which are not overdue are explained in Note 12.1, and provision and rediscount expense for the period are explained in Note 47.5. 2.10 Derivative Financial Instruments None (31 December 2009: None). 2.11 Offsetting Financial Instruments Financial assets and liabilities are offset only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or when the acquisition of the asset and the settlement of the liability take place simultaneously. 2.12 Cash and Cash Equivalents Cash and cash equivalents include cash in hand, demand deposits held at banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Cash and cash equivalents included in the statement of cash flows are as follows: Banks Other cash and cash equivalents (Credit card collections) Cash Less - Restricted cash Group’s portfolio Less - Interest accrual Time deposit excess of 3 months Total cash and cash equivalents 31 December 2010 305,424,902 83,707,052 1,300 (*) (28,874,250) (995,784) (34,021,904) 31 December 2009 182,595,827 55,613,353 4,219 (22,482,360) (469,427) - 325,241,316 215,261,612 (*) Time deposits which are blocked in favour of the Treasury are included in other cash outflows from main operations in the statement of cash flows. Yapı Kredi Sigorta 2010 Annual Report 143 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Details of the bank deposits of the Group are as follows: Foreign currency denominated bank deposits - time deposits - demand deposits TRY denominated bank deposits - time deposits - demand deposits Interest accrual Total 31 December 2010 31 December 2009 3,058,455 2,229,613 10,788,220 815,240 5,288,068 11,603,460 292,372,727 6,769,746 165,212,411 5,310,529 299,142,473 170,522,940 995,784 469,427 305,424,902 182,595,827 As of 31 December 2010, the Group’s time deposits amounting to TRY 2,874,250 (31 December 2009: TRY 22,482,360) is blocked in favour of the Treasury (Note 43). Weighted average interest rates time deposits TRY USD EUR 31 December 2010 (%) 8.48 1.74 0.50 31 December 2009 (%) 9.55 1.52 0.65 Details of foreign currency denominated demand and time deposits are as follows: EUR USD CHF GBP DKK 31 December 2010 Foreign Currency Time Demand Time 373,000 327,964 764,314 1,483,921 677,748 2,294,132 189,433 80,525 22,013 - Total 3,058,455 USD EUR CHF GBP DKK 31 December 2009 Foreign Currency Time Demand Time 3,865,794 321,507 5,820,726 2,300,000 97,136 4,968,690 63,592 9,791 19,825 - Total 10,789,416 TRY Demand 672,031 1,047,800 311,389 192,342 6,051 2,229,613 TRY Demand 484,094 209,842 92,158 23,392 5,754 815,240 144 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.13 Share capital The composition of the Company’s share capital at 31 December 2009 and 31 December 2010 is as follows: Name of shareholders Yapı ve Kredi Bankası A.Ş. Public offering Other Total 31 December 2010 Share Amount %53.10 42,480,000 %33.69 26,951,880 %13.21 10,568,120 %100.00 80,000,000 31 December 2009 Share Amount %53.10 42,480,000 %33.69 26,951,880 %13.21 10,568,120 %100.00 80,000,000 As of 31 December 2009, no privileges are granted to the preference shares representing the share capital. (31 December 2009: None). Authorized capital of the Company is TRY 250,000,000 as of 31 December 2010 and 2009. Other information about the Company’s share capital is explained in Note 15. 2.14 Insurance and investment contracts - classifications The insurance contracts are those contracts that transfer insurance risk. The insurance contracts protect the insured against the adverse economic consequences of loss event under the terms and conditions stipulated in the insurance policy. Private pension contracts are not considered as insurance contracts in this context and are accounted for in accordance with the relevant regulation (Notes 2.21 and 2.25). The accounting principles for the calculation of technical reserves due to insurance and reinsurance agreements are disclosed in Note 2.24. The insurance contracts produced by the Group are mainly in fire, marine, accident, engineering and health in non-life branches and group and personal life, and personal accident agreements which are classified under the groups of risk and saving policies in life branches. The highest written premium of the Group is within the health branch. Non-life insurance contracts The insurance agreements written in health branch consist of guarantees for the claims regarding the insuree’s identification, diagnosis, and treatment. Fire insurance policies cover mainly fire and theft guarantees for household and business premises, as well as additional guarantees such as indemnity, rent deficiency, glass, and loss of profit. Marine insurance (hull, motor or air transport vehicles) covers goods in transit. The Group also writes engineering policies with engineering, assembly, machinery breakdown, electronic equipment, loss of profit coverage, and policies in accident branch including comprehensive insurance for motor vehicles, traffic, third party liability, and breach of trust guarantees. Furthermore, there are agriculture insurance contracts produced by Tarım Sigortaları Havuz İşletmesi A.Ş. (“TARSİM”) and compulsory earthquake insurance contracts produced by Doğal Afet Sigortaları Kurumu (“DASK”). The basis of calculation of insurance technical income and insurance liabilities arising from insurance contracts is explained Notes 2.21 and 2.24. Life insurance contracts i) Risk Policies: Annual Life Annual Life Insurance provides guarantee against the risks that the policyholder may encounter for a year. This insurance covers all risks that the policyholder can be exposed to by providing natural death coverage along with the additional coverage such as accidental death, disability, critical disease, accidental death in public transportation during the policy term. Annual life contracts do no provide surrender and policy loan rights, have not any paid up value, and can be issued for Groups and Individuals. The age limit is between 18 and 65, premium amount changes according to the risk assessment based on age, sex and health risk assessment. Yapı Kredi Sigorta 2010 Annual Report 145 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Credit Life Credit Life Insurance, provides guarantee against the risks that the policyholder may encounter (death) throughout the period the credit is used. In the event of such a negative situation the credit debt is paid by the credit life insurance and therefore the debtor and the family of the credit holder are financially protected. Credit Life Insurance products are risk products that do not have any paid up value. The age limit is between 18 and 70 (the period and age cannot exceed 70) premium amount changes according to the risk assessment based on age, sex and health risk assessment. Insurance guarantees can be arranged as fixed or diminishing and premium payments are made at the beginning of the insurance. This product is sold only through the branches of Yapı ve Kredi Bankası A.Ş. Personal Accident Insurance Personal Accident Insurance provides assurance against the risks insured may face within the specified period of time. This insurance, accidental death, accidental permanent disability, death, car accident, work accident and died as a result of an accident such as mass specific vehicles by providing additional guarantees, the risks of accidents that can happen to the insured during the policy term is guaranteed. Accident products can be sold individually. Age limit is between 18-65 years of age in general, premiums do not change according to age, gender and health-related risk assessment. Premium payment terms vary depending on the products. ii) Saving Policies: Saving Life Insurance Saving Life insurance products are investment policies of minimum 10 years. The savings at the end of a minimum period of 10 years are paid to the policyholder. These insurances cover death risks as well as additional risk such as disability, critical disease, accidental death, and accidental death in public transportation. Guaranteed amounts are determined as multiple amounts of the monthly insurance premium. The age limit is usually between 18 and 65, and the premium amounts changes according to the risk assessment based on age, sex and health risk assessment. If the return on saving policies exceeds the technical interest guaranteed, the policyholders benefit from the profit share. In accordance with the insurance regulation in force, the Group classifies and accounts for all saving policies as insurance contracts. iii) Annuity Products: The Group offers lifelong annuity products and annuity products with guaranteed periods for beneficiary clients willing to receive payments periodically instead of a bulk compensatory payment. The annual income calculation for lifelong products are made by considering the real age and for annuity products with guaranteed periods, the insurance period is taken into account during the calculation as there is no probability of life or death. Reinsurance agreements Reinsurance agreements are those agreements between the Group and reinsurance companies providing insurance coverage to the Group regarding losses which may occur in one or more underlying insurance contracts signed by the Group. The Group has excess of loss, proportional surplus treaty and proportional quota share reinsurance agreements in the branches that the Group operates. Ceded premiums arising from excess of loss agreements are accounted for on an accrual basis during the related period. Premiums, claims and technical reserves which are ceded in accordance with other reinsurance agreements are accounted for on the same basis with the income and liabilities arising from related insurance contracts. The Group’s reinsurance agreements for certain risks for the insurance contract are facultative basis. As of December 31, 2010 there are no proportional quota-share agreements. As of December 31, 2009 in the branches of traffic and automobile insurance contracts of the Group arising from agreements proportional annual quotashare - despite continued responsibility of liability in terms of reinsurance agreements with reinsurers at the end of the end of the reinsurance agreement and the transfer of the premium during the post on the basis of paid claims and the reinsurance agreements related agreements, agreements for the Group on 31 January 2010 be renewed after considering the financial statements dated December 31, 2009 an additional reserve amounting to TRY 10,251,681 allocated pursuant to the reinsurance agreement. Treasury circular No. 2010/22 dated 26 November 2010 stated that application of the Group has become mandatory for all sectors at the end of December 31, 2010. The Group transfers partly the risks taken such as death, disability, accidental death/ disability, critical illness, accidental death in public transportation to reinsurance companies. The Group has reinsurance agreements for the life policies differentiated on product basis which are generally surplus, quota share/surplus and excess of loss structured. As for the catastrophic claims, the Group adopted a structure with USD 40,000,000 capacity formed of three layers. The Group eliminates the risks in personal accident branch by the excess of loss reinsurance agreements. 2.15 Insurance contracts and investment contracts with discretionary participation features None (31 December 2009: None). 146 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.16 Investment contracts without discretionary participation features None (31 December 2009: None). 2.17 Borrowings None (31 December 2009: None). 2.18 Taxes on Income Corporate Tax The Corporate tax law does not allow preparing a tax declaration on the consolidated financial statements of the parent company. Therefore, tax provisions in the consolidated financial statements, are calculated separately for the companies subject to the consolidation. Corporation tax for 2009 is payable at a rate of 20%. (2009: 20%). Tax rate is applied on the tax base by adjusting for certain disallowable expenses, exempt income and investment and other allowances. No further tax is payable unless the profit is distributed. Dividends paid to non-resident corporations, which have a place of business in Turkey, or resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered as a profit distribution thus does not incur withholding tax and no stoppage is applied. Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their corporate income. Advance Tax is declared by 14th of the second month following and payable by the 17th of the second month following each calendar quarter end. Advance Tax paid by corporations is credited against the annual Corporation Tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government. The affiliate shares stocked for minimum 2 years and the 75% of the profit obtained from the property sales are considered as tax exemptions in such condition that the amount is added onto capital as prestated in Corporate Tax Law or the amount is kept in equity for 5 years. According to Turkish tax legislation, financial losses on the returns can be offset against period income for up to 5 years. However, financial losses cannot be offset against previous years’ profits. There is no such application for the reconciliation of payable taxes with the tax authority. Corporate tax returns are submitted to the related tax office by the 25th day of the 4th month following the month when the accounting period ends. In tax reviews authorized bodies can review the accounting records for the past five years and if errors are detected, tax amounts may change due to tax assessment. Deferred income tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised (Note 21). 2.19 Employee benefits The Group accounts for its liability related to employment termination and vacation benefits according to “Turkish Accounting Standards Regarding Employee Benefits” (“TMS 19”) and classifies in balance sheet under the account “Provision of Employment Termination Benefits” and “Long Term Other Payables and Expense Accruals”. According to the Turkish Labour Law, the Group is required to pay termination benefits to each employee whose jobs are terminated except for the reasons such as resignation, retirement and attitudes determined in Labour Law. The provision for employment termination benefits is calculated over present value of the possible liability in scope with the Labour Law by considering determined actuarial estimates (Note 22). The Group also makes payments to monthly pension contribution as contributions paid by staff within the group retirement plan and recognize as expense in personnel expenses amount of which corresponds to their share. Group, must pay contributions behalf of employees to the Social Security Authority in amounts that determined by law. Except group’s contributions have been paying out, they have not make another payment to the employee or authority. These contributions are expensed when they are accrued. Yapı Kredi Sigorta 2010 Annual Report 147 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.20 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured over expenditures expected to be required to settle the obligation by considering the risks and uncertainties related to the obligation at the balance sheet date. When the provision is measured by using the estimated cash outflows that are required to settle the obligation, the carrying value of the provision is equal to present value of the related cash outflows. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised as an asset if and only it is virtually certain that reimbursement will be received and the reimbursement can be reliably estimated. Liabilities that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity are classified as contingent liabilities and not included in the financial statements (Note 23). 2.21 Accounting for revenues Written premiums Written premiums represent premiums on policies written during the year, net of cancellations. As disclosed in Note 2.24, premium income is recognised in the financial statements on accrual basis by allocating the unearned premium provision over written risk premiums. The premium written for life insurance policies with maturities over one year consists of income accrued for payments with maturities within the current year. The premium written for policies with maturities less than one year covers the total premium of the relevant period. As a Group policy, in circumstances where the premiums related with the life branch are not collected, if no response is received after the termination of the notification period, the policy is cancelled within the period prescribed and the cancellation is accounted for in the records of the Group. Reinsurance Commissions Commission income related to the ceded premiums to reinsurance companies are accrued within the period and classified in technical part under operating expenses in the income statement. As disclosed in Note 2.24, reinsurance commission income is recognised in the financial statements on accrual basis by allocating the deferred commission income over commissions received. Salvage and subrogation income As of 31 December 2009, in line with the declaration dated 18 January 2005 and numbered B.02.1.HM.O.SGM.0.3.1.1 of the Treasury, the Group recognises salvage and subrogation receivables only from insurance companies, and from individuals with whom the Group has agreed on payment terms. In addition, the Group books a doubtful receivables provision for salvage and subrogation receivables under legal follow-up. In the consolidated financial statements as of December 31, 2010 the Group, according to principles of Treasury circulars dated January 14, 2011 and September 20, 2010 numbered 2010/16 and 2011 / 1 underlying claim of subrogation receivable over the 6 months from the date of payment ( Due from insurance company) and 4 months (the actual claims and other legal entities). In the consolidated financial statements as of December 31, 2010, according to dated January 14, 2011, September 20, 2010 and 2010/16 and 2011 / 1 numbered circulars of Treasury the Group books provision to the subrogation receivables according to the claim over the 6 months from the date of payment (insurance due from related parties) and 4 months (the actual claims and other legal entities); in addition to that, the Circular No. 2010/16 dated 20 September 2010 for the first time for the receivables that are not confirmed for collection, the additional provision is booked. As of December 31, 2010 net amount of the subrogation receivables is TRY 6,515,800 (31 December 2009: TRY 3,843,184) (Note: 12). Interest income Interest income is recognised by using the effective interest rate method on an accrual basis.The information about the accounting of the income from life policyholder’s portfolio is disclosed in Note 2.8. Dividend income Dividend income is recognised as an income in the financial statement when the right to receive the payment is established. 148 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Income from Pension Operations The entrance fee income account includes the accrued balance when the participants enter the private pension system for the first time or when they open a new private pension account, not exceeding the monthly minimum wage (half of monthly amount for contracts issued after 9 August 2008,) at the date the private pension agreement is signed. In the Group’s private pension plans, half of the entrance fee is collected within the first year of the contract and is recorded as income. The collection of the other half is deferred till the date the participants leave the private pension system or make a demand for transfer to another company within 10 years (5 years for contracts issued after 9 August 2008).For contracts issued in TRY before 9 August 2008, if the participant leaves the system before 10 years, the other deferred half of the entrance fee is collected by increasing the amount with the inflation rate and recorded as income. For new contracts issued after 9 August 2008, if the participant leaves the system before 5 years the deferred other half of the entrance fee is collected from the participant without being increased with the inflation rate and is recorded as income. On the other hand, for contracts issued before 9 August 2008, based on the entrance fee amount collected at the beginning, the Group contributes a continuity (loyalty) award, amounting to the deferred portion of the entrance fee which is fixed for foreign currency denominated contracts and the deferred portion of the entrance fee increased with the inflation for TRY contracts, to the private pension account of the participants on the condition that the participants hold their private pension account in the Group for 10 years without interruption. For contracts issued after 9 August 2008; the entrance fee received is transferred to the account of the participants, by increasing the amount with the inflation rate for contracts in TRY, on the condition that the participants hold their private pension account in the Group until retirement. 2.22 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lesser are classified as financial leases while other leases are classified as operational leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. The liability to lessor is classified as the leasing payables in the balance sheet. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost except for capitalised portion is charged to the income statement. The payment of the operational lease is charged to the income statement on a straight-line basis over the lease period (The incentives received or to be received from the lessor and payments made to intermediaries to acquire the lease contract are also charged to the income statement on a straight-line basis over the lease period). The Group currently undue operating leases liability is TRY 1,005,901 as of December 31, 2010. 2.23 Dividend Distribution Listed companies perform dividend distributions as envisaged by Turkish Capital Market Board as explained below: In accordance with the CMB Communiqué IV No:27 Clause:5 and other several decisions of CMB, in case of dividend distribution the rate of first dividend could not be less than 20% of remaining distributable profit after deducting the prior year losses if any. Depending on the decisions taken by General Assemblies, publicly traded joint stock companies are free to distribute dividends in cash, in share certificates, in partial distribution within cash or share certificates while retaining a portion within the company or retain as a whole with distributing neither cash nor stocks. As required by CMB decision numbered 7/242 dated February 25, 2005; amount of distributable profit, calculated from net distributable profit in accordance with CMB regulations related to minimum dividend distribution requirements shall be fully distributed, wherein the amount could be compensated by net distributable profit per statutory books, otherwise full amount of net distributable profit per statutory books will be distributed. No profit distribution shall be made in the case of net loss in either statutory books or the financial statements prepared in accordance with CMB regulations. In accordance with the Capital Market Board decision dated January 27, 2010, concerning with distribution of dividends for publicly traded joint stock companies, it was decided that no minimum dividend distribution requirement will be applied for publicly traded joint stock companies. Inflation adjustments to issued capital and historical amount of extraordinary reserves can be used as an internal source of capital increase, dividend distribution in cash or the net off from prior period losses. In case of usage of inflation adjustment to issued capital in dividend distribution in cash, it is subject to corporation tax. Yapı Kredi Sigorta 2010 Annual Report 149 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.24 Technical reserves Unearned premium reserve An unearned premium reserve is calculated on a daily basis for all policies in force as of 31 December 2009 for unearned portions of premiums written, except for transportation and earthquake premiums issued before 14 June 2007. During the calculation of unearned portion of premiums written on a daily basis, it is supposed that the policies start at 12.00 noon and finish at 12.00 noon again. Within the framework of the “Regulation Regarding the Technical Reserves of Insurance, Reinsurance and Pension Companies and the Assets to which These Reserves Are Invested” (“Regulation on Technical Reserves”) issued in Official Gazette No: 26606 dated 27 August 2007, unearned premium reserve and the reinsurers’ share of the unearned premium reserve of the policies issued after 1 January 2008, are calculated as the unearned portion of the premiums and ceded premiums to reinsurers without deducting commissions or any other deductions, on an accrual and gross basis. As for the policies written before 1 January 2008 with to premium accrued during 2008, the unearned premium reserve is calculated by deducting commissions from premiums. For marine policies with an uncertain end date, unearned premium reserve is calculated as 50% of the premiums written in the last three months (Note 17). The Group accounted for unearned premium reserve calculated on a daily basis for all policies in force except the policies for which mathematical reserve for the unearned portions of premiums written without deducting commissions or any other expenses. In this context, unearned premium reserve has been calculated for the premiums corresponding to annual insurance guarantee amounts of policies renewed annually and with maturities over one year. The Group calculated unearned premium reserve via adding annual premiums of valid life insurance policies and accumulation of life insurance over a period of one year, and deducting the expenses in the framework of “Industry-Specific Declaration about the Changes on the Regulation of Technical Reserves Assets Invested by Insurance and Reinsurance Companies and Pension Funds” numbered 2010/29 and dated September 20, 2010. During the calculation of unearned portion of premiums written on a daily basis, it is supposed that the policies start at 12.00 noon and finish at 12.00 noon again (Note 17). Deferred commission expense and income Within the framework of the Circular numbered 2007/25 and dated 28 December 2007 published by Treasury, the unearned portion of commissions paid to agencies for the written premiums and commissions received from reinsurers for the ceded premium after 1 January 2008, are recorded as in deferred expenses and deferred income, respectively on the balance sheet, and as operating expenses on a net basis in the income statement. Income and expenses from private pension agreements (including commissions) are disclosed in Notes 2.21 and 2.25 (Note 17). Furthermore, as of December 31,2010 the Group is not subject the guarantee premiums costs of the policies that have mathematical reserves as deferred income account within the framework of the “Industry-Specific Declaration about the Changes on the Regulation of Technical Reserves Assets Invested by Insurance and Reinsurance Companies and Pension Funds” numbered 2010/29 and dated September 20, 2010 . As of December 31, 2010 the Group calculated insurance expenditure amounting to TRY 624,981 (31 December 2009: None). Unexpired risks reserve Within the framework of Regulation on Technical Reserves, effective from 1 January 2008, insurance companies are required to account for an unexpired risk reserve against the probability that future losses incurred from in force policies may exceed the unearned premium reserve accounted for the related policies considering expected loss ratios. Expected loss ratio is calculated by dividing the current year incurred losses to current year earned premiums. If the loss ratio for a branch is higher than 95%, the unexpired risk reserve for that branch is calculated by multiplying the ratio in excess of 95% with the unearned premium reserve for the related branch. The Group has calculated and accounted for net unexpired risk reserve amounting of TRY 324,756 as of 31 December 2010 (Note 17) (31 December 2009: TRY 7,129,778). 150 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Outstanding claims reserve The Group recognizes outstanding claims reserve for the claims which are accrued but not paid yet in the current period or previous periods and for claims incurred but not reported. Outstanding claim reserves are determined based on reports of experts or assessments of policyholders and experts. (December 31, 2009 - Outstanding claims reserve of expert reports or expert evaluations of the insured is determined in accordance with the reserve for outstanding claims in the calculations, if any, recourse and other revenue items are considered to have been deducted.) In accordance with Technical Provisions Regulation, starting from September 30, 2010, a compensation fee; which is realized by using actuarial chain ladder methods but not reported and of which the application bases are specified by the Undersecretaries of Treasury is calculated by the end of the fiscal period. These are Standard Chain, Damage/Premium, Cape Cod, Frequency/Force and Munich Chain methods. The difference between the accrued and detected suspended claims reserve and the selected actuarial chain ladder method is the claim fee, which is realized but not reported. In order to test the incurred but not reported amounts, different calculation is performed. In this calculation, the amounts covers the last twelve months as gross are taken. The claims occur before these dates and are reported after these dates are accepted as incurred but not reported. In the calculation of the incurred but not reported amounts, the claims incurred before these dates and reported after these dates in the last five or more years and the subrogation are calculated that the amount deducted the salvage and other income collections related to these incurred but not reported amounts is divided by the premium production in the related years is calculated by multiplying the weighted average and premium production in the twelve month before the current period. According to these calculation, the Group books the net outstanding claims reserve amounting to TRY 120,272,576 (December 31, 2009 – TRY 76,662,486) (December 31, 2009- Outstanding claims reserve adequacy amounting to TRY 3,616,310, actuarial ladder chain method TRY 4,829,486, estimated subrogation and salvage income accruals TRY 7,691,751). Actuarial chain ladder method calculations made on the gross amounts, the Group reaches the net amount considering the reinsurance agreements in force or related insurance agreement. After the test, the amount of the selected actuarial reserves in the chain ladder method, as compared with the sum of the branches, and which amount the industry in each related this method is larger than the amounts incurred but not reported reserves are reflected in the financial statements. As at 31 December 2010 amounting to TRY 26,023,587 for life and non-life branches calculated for claim incurred but not reported. Furthermore, in the branches that the huge claims are picked by the actuary, adequacy difference is calculated in the following year for the huge claims picked. A huge claims to elimination is calculated in accordance with Treasury Circular No. 2010/16 dated 18 October 2010 issued by the “F- Huge Claims Agent”. Great claim elimination is committed for Motor Vehicles, Traffic, Fire and Natural Disasters, General Liability branches. In accordance with “J- Subrogation and Salvage Revenue Accounting Records Article “ of the circular dated October 18, 2010 and numbered 2010/16 published by Undersecretary of the Treasury, because the potential subrogation and salvage deduction from outstanding claims reserve is not included in existing legislation, amount calculated as of December 31, 2010 transferred to current year by reclassification and followed in “Provisions No Longer Required”. The Group uses standard actuarial chain ladder method for all branches. The Group includes the incurred but not reported claim fees as of balance sheet date, the revenue accrues such as recourse, salvage and etc., which will be deducted from accrued suspense claim fee, the suspense damage provision adequacy difference, and the difference between the amount calculated by the actuarial chain ladder method and the suspense damage provision in its calculation of outstanding claims reserve as of December 31, 2009. In life branch, outstanding claim reserve amount for incurred but not reported is calculated on the basis of guarantee amounts within the framework of Circular numbered 2010/14 “Calculation of outstanding IBNR reserves at Life Branch” and Article No.7 of Circular “Technical Reserves and Assets for Investing Reserves of Insurance, Reinsurance and Pension Funds Companies” published by Treasury numbered 2010/14. In this direction, the Group takes into account the IBNR amount for the last 5 years, compensations and total guarantees. The annual average of the guarantees that calculated for each policy, weighted according to their risks, and the outstanding IBNR reserves of life branch is calculated by dividing the total of guarantees into amount of guarantees of last 5 years as stated above and multiplying this ratio and the average of 12 months of current period’s guarantee amounts. As of December 31, 2010 the Group made reserve on the financial statements about life branch IBNR amounting to TRY 2,137,311 (31 December 2009: TRY 790,392) as net outstanding claims reserves (Note 17). In Personal Accident Branch, the Group calculated outstanding claim reserve for IBNR via the technique that stated at Article No:6 of “Technical Reserves and Assets for Investing Reserves of Insurance, Reinsurance and Pension Funds Companies” due to the low number of claim (19 claims in 7 years). In this calculation, the figures of end of accounting periods that covers last 12 months were taken into as gross. Claims that occurred before but reported after these dates are considered as IBNR claims amount. While the calculation of the IBNR claims reserves, the Group takes into considerations weighted averages of the amounts outstanding IBNR reserves of past 5 years and more; deducted the withdrawal, salvage and similar gains, and dividing the related each year’s written premiums. The current years IBNR amount is calculated by multiplying the weighted average that found as stated above and total of 12 months before the current period. In this framework The Group made reserve amounting to 4,113 TRY (31 December 2009: TRY 914) for personal accident branch.(31 December 2009: The Group made reserve for outstanding claims adequacy amounting to TRY 272,322, and actuarial chain ladder method was TRY 151,901) Yapı Kredi Sigorta 2010 Annual Report 151 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Equalization reserve In accordance with the Regulation on Technical Reserves, effective from 1 January 2008, insurance companies are required to record an equalization reserve for the insurance contracts including earthquake and credit coverage, in order to cover the catastrophic risks and in order to equalize the fluctuations within the claim ratios that may occur during the following accounting periods. Such reserve is calculated over 12% of net earthquake and credit premiums corresponding to each year. In the calculation of the net premium, the amounts paid for the non-proportional reinsurance agreements are regarded as ceded premiums. The Group has accounted for an equalization reserve for non-health branches amounting to 6,481,612 TRY (31 December 2009: 3,726,882 TRY) (Notes 17 and 47.1). Based on the explanation numbered 2009/9 regarding “Application of Regulation on the Technical Reserves”, starting from 1 January 2009, the life and pension companies are required to record an equalization reserve for the insurance contracts including earthquake and credit coverage in life and accident branches. In addition, the calculation technique of the equalization reserves determined by the Undersecretariat of Treasury by Regulation numbered “Regulation for the Amendment on Regulations about Technical Reserves and Assets for Investing Reserves of Insurance, Reinsurance and Pension Funds Companies” 27655 and dated July 28, 2010. According to the related Regulation’s Article No.9 and fifth paragraph entitled as “Equalization Reserves”, Insurance companies can use their own statistical data for calculation of the equalization reserves amount for the life policies that have guaranty of death, but if the entity that has not own statistical data, has to made reserves as equalization reserve via considering 11% of the amount of life indemnity (also include costs share) as earthquake premium and 12% of the same amount as equalization reserve. As of December 31, 2010 the Group made reserve for life branch amounting to TRY 941.255 (31 December 2009: TRY 300,401) and for personal accident branch amounting to TRY 149 (31 December 2009: None) (Note 17). Bonus Provisions If The Group’s apply practice of bonuses and discounts case according to Insurance Law, according to 16th Article Group must be allocated according to the technical results of the current year bonuses and discounts reserve the insured persons or beneficiaries consist of the amounts allocated for bonuses and discounts as of 31 December 2010 TRY 751,671 (31 December 2009: TRY 1,031,544) made of the total allocated reserve bonuses and discounts. Life Mathematical and Profit Share Reserves Mathematical reserves for a contract in force in each tariff is calculated separately according to the technical principles and the following: (i) and (ii) of this paragraph has been committed with the reserves described in the actuarial mathematics reserve obtained by directing investment income allocated to the dividend equivalents is the sum insured. i) The actuarial mathematical reserves, with the insurance premiums received from registrants for the risks assumed by companies with cash values is the difference between the obligations of beneficiaries. Actuarial mathematical reserves, for a long-term life insurance is divided on the basis of tariffs and technical basics of the formula specified. Actuarial mathematical reserves, will perform in the future liabilities of the insurer in advance by the Insured to the value of the difference between the present value of future premiums payable in the form of presence (prospective method) is calculated. However, the policyholder pays premiums result of reserves in actuarial mathematical undertaken by the insurer with the value of the difference between the value of the calculation results in the form of Hazard (retrospective method) or by the Undersecretariat adopted by the generally accepted actuarial methods in calculating the total sum not be less than the sum of reserves in the actuarial mathematics. Actuarial mathematics reserve is calculated as a negative value if this is considered to be zero. Accumulation premiums for life insurance actuarial mathematics taken in reserve, the accumulation of contributions is the sum of the parts. Actuarial mathematics accrue or be charged according to the reserves of the tariff be calculated based on the specifications. ii) Reserves for dividend companies committed to providing beneficiaries with their obligations pursuant to contracts with the insurance reserves registrants deposited income assets, dividend approved the technical basics of technical interest income calculated in accordance with the dividend distribution system shall be limited to the guaranteed portion, including With that amount consists of the past years accumulated dividend equivalents. (Note 17). 152 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 2.25 Private Pension Operations The total amount of pension investment funds established by the Group within the private pension system including the participants’ investments are accounted for as gross amounts within the financial statements under due from private pension fund operations and payables from private pension operations. As of 31 December 2010, the Group has twelve pension funds. (31 December 2009: Eleven) Private pension system receivables consist of capital advances made to pension investment funds, receivables from funds for fund operating deductions and receivables from Takasbank, the custodian. Fund operating deductions account comprises of daily deductions made by the Group for the expenses arising from fund management services that have not been collected on the same day. Advances allocated to pension investment funds established by the Group are recorded as capital advances made to pension investment funds. In addition to payables to participants’ account mentioned in the paragraph above, private pension system payables also include payables to private pension intermediaries and temporary participants’ accounts. Temporary participants account includes the contributions from pension investment fund participants that have not been invested yet by the Group. This account also includes the proceeds from the sale of participation shares less entrance fee deduction and similar charges, if any, in case the participant leaves the system or transfers his/her saving to other private pension companies. Fund management charge, which is charged in return for the fund management services, representation and other services provided to pension funds, is recorded as income in the Group’s accounts and is shared between the Group and the funds’ portfolio manager according to the ratios specified in the agreement signed between the parties. The total charge is recorded to the Group’s technical income as fund management revenue and the part of charge which belongs to the funds’ portfolio manager thereof, is recorded in the Group’s technical expense accounts. Commission expenses incurred for pension fund operations are accounted for under operating expenses for pension funds account balance. The Group, defers the commissions paid for issuing the private pension contracts in the context of TMS 18 “Revenue” and TMS 39 “Financial Instruments: Recognition and Measurement” with the condition of not exceeding the total guaranteed income from these contracts and by considering the expected period of time to secure this income. As of 31 December 2010 the Group has calculated deferred commission expense amounting to TRY 4,530,752 (31 December 2009: 4,864,018 TRY) and accounted for TRY 2,095,002 TRY (31 December 2009: 2,437,452 TRY) of this amount under other current deferred income and expense accruals, and the remaining amount of TRY 2,435,750 TRY (31 December 2009: 2,426,566 TRY) under other non-current deferred income and expense accruals (Note 47.1). The change in deferred commission expense based on private pension agreements is accounted for in the income statement under the operating expenses Management expense deduction, which is deducted as 8% at most, from contributions made to participants’ private pension accounts, is accounted for under the management expense deductions account. The entrance fee income account includes the accrued balance when the participants enter the private pension system for the first time or when they open a new private pension account, not exceeding the monthly minimum wage at the date the private pension agreement is signed. In the Group’s private pension plans, half of the entrance fee is collected within the first year of the contract and is recorded as income. The collection of the other half is deferred till the date the participants leave the private pension system or make a demand for transfer to another company within 10 years. Nonetheless, based on the entrance fee amount collected at the beginning, the Group contributes a continuity (loyalty) award (for TRY contracts, the deferred portion of the entrance fee is increased with the inflation rate), amounting to the deferred portion of the entrance fee, to the private pension account of the participants on the condition that the participants hold their private pension account in the Group for 10 years without interruption. The Group has calculated a provision amounting to TRY 8,209,597 for its liability regarding the loyalty bonus on contractual basis and accounted for this provision in the financial statements under other non-current liabilities as of 31 December 2009. In order to calculate this provision, the Group has developed a model to measure the probability of participants to keep their private pension account in the Group for 10 years and accounts for the probable amount in the financial statements by discounting it to present value. The change in this financial liability is recorded in other technical expenses under the expenses from private pension operations account in the income statement. For contracts issued after 9 August 2008, loyalty bonus is given when the participants are entitled to pension therefore the calculation of this provision for contracts issued after this date is made over the probability of the participants to keep their pension accounts in the Group until the date of their eligibility to pension. The return on capital advances injected to newly established pension funds, representing the positive fair value change in the newly established pension funds, are recorded to income as interest on capital advances given to pension funds. Yapı Kredi Sigorta 2010 Annual Report 153 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 3. Critical accounting estimates and judgments Preparation of financial statements requires the use of estimations and assumptions which may affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of income and expenses during the financial period. Estimations and assumptions are evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under current circumstances. Although the estimations and assumptions are based on the best knowledge of the management for existing events and operations, they may differ from the actual results. The estimation of the ultimate liability for technical expenses that can be incurred for the existing insurance contracts is the one of the most critical accounting estimates of the Group. Estimation of the insurance liabilities, by nature, includes the evaluation of several uncertainties. Estimates used in mainly, insurance and indemnity reserves for outstanding claims, life mathematical equivalents, other financial assets at fair value calculation of technical reserves, reserve for severance payments, provisions for impairment of assets associated with the calculation of deferred tax assets are described in detail, and apart from the footnotes of financial significant impact on the amounts as reflected in comments that may be realized and the balance between the predictions based on existing or future sources of important assumptions and assessments made by considering the following: Provision for employment termination benefits Group, calculated the value of employment termination benefits using the actuarial assumptions and reflected in enclosed financial statements and records. As of 31 December 2010, employment termination liability is TRY 8,436,611(31 December 2009: TRY 7,193,835). Provision for doubtful receivables The Group sets doubtful provision for receivables in legal follow-up from agencies and insurers amounting to TRY 2,559,389 (December 31, 2009 – TRY 2,314,737) in the financial statements as of December 31, 2010. Furthermore, the Group sets provision amounting to TRY 1,751,387 (December 31, 2009 – TRY 1.224,763) for the receivables that are no in legal follow-up but the Group thinks that these receivables can not be collected. Subrogation Receivables Group records net subrogation receivables amounting to TRY 6,515,800 (December 31, 2009 – TRY 3,843,184) for subrogation receivables under litigation process on accrual basis and individual subrogation receivables, that are not confirmed, after doubtful receivables (deducted reinsurance share) as of December 31, 2010. Outstanding Claims Reserve: During the calculation of the outstanding claims reserve, not only use estimates reserves but also referred to many experts and the consultant opinion as conclusive evidence. Outstanding for certain amounts of reserve take a long time to reach the final shape. Therefore, the actuarial calculation of outstanding claim reserve by claims chain ladder method also amounts are based on experience of past years claim development amount. In this calculation, the development of claims paid in the past, the average amount of compensation per claim claims to in the past and the expected number of loss / premium ratio is taken into account. Technical Reserves in accordance with the Regulation, as of September 30, 2010, by the end of the accounting period determined by the Undersecretariat actuarial basis of the implementation chain ladder methods, benefit cost is calculated using the incurred but not reported. Outstanding claims reserve determined and accrued on account reserve the difference between with selected actuarial chain ladder method, benefit cost for incurred but not reported. After the test, the amount of the selected actuarial chain ladder method compared with the sum of the branches, and which of them is larger, the amounts incurred but not reported reserves of each branch are reflected in the financial statements. Furthermore, in the branches that the huge claims are picked by the actuary, adequacy difference is calculated in the following year for the huge claims picked. Moreover, in the branches that is occurred big separation of the claim by actuary, for the separated huge claims adequacy calculation done in the next year. A huge claim to elimination is calculated in accordance with Treasury Circular No. 2010/16 dated 18 October 2010 issued by the “F-Huge Claim Agent”(Box Plot). Big claim elimination is committed for Motor Vehicles, Traffic, Fire and Natural Disasters, General Liability branches. As the years, the total margin is calculated on the basis of calculation for each policy the risks of collateral related to all the guarantees within the framework of the annual weighted average values. Reserve for Outstanding Claims Incurred but not reported on the life branch the last 5 years before the accounting period, the sum of the costs of claim incurred but not reported as specified above, 5 year guarantee obtained by dividing the ratio of total current account before the 12-month period is calculated by multiplying the average total amount of guarantee. Group’s outstanding claims reserve as of 31 December 2010 is a net amount of TRY 120,272,576 (31 December 2009: TRY 85,174,628 TRY). Deferred Tax: Deferred tax, taking into consideration the balance sheet liability method, assets and liabilities for financial reporting assets and liabilities and the tax effects of temporary differences between tax bases are recognized by taking into consideration. Various estimates and judgments used in the calculation of deferred tax assets. The Group, as of 31 December 2010 amount of TRY 11,112,823 (31 December 2009: TRY 8,528,726) net deferred tax assets calculated and reflected to the records. 154 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 4. Management of insurance and financial risk Insurance risk The risk under any one insurance contact is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of the insurance contracts, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and reserving, the principal risk that the Group faces under its insurance contracts is that the actual claims and claim payments exceed the carrying amount of insurance liabilities. The Group determines its insurance underwriting strategy based on the type of insurance risk accepted and the claims incurred. The Group manages the aforementioned risks by its overall underwriting strategy and via reinsurance agreements, which the Group is a party to. In risk acceptance policies of life and personal accident branches, the following components are considered: - - - - In individual insurance, health declarations and reports under consideration of policyholder’s age and insurance coverage, In group insurance, health declarations and reports based on the number of person in group and if the policyholder’s is voluntary or not, In pricing, the information about charging sur-premium based on the health condition of the policyholder’s, addition of condition to be added to the contract or the deduction or the rejection of the coverage, In high coverage, in additions to the health documents, the documents about the financial position of the insuree. The concentration of insurance risk (maximum insured loss) under each branch is summarised below (excluding health branch): Land vehicles liability Fire General losses Life General liability Transportation Accident Land vehicles Air vehicles liability Marine Air vehicles Legal protection Loans Total 31 December 2010 526,082,542,589 55,298,915,197 28,670,806,466 13,388,377,078 10,943,462,784 5,444,042,064 10,044,680,569 6,209,512,929 2,500,075,250 388,140,861 441,023,793 439,953,500 - 31 December 2009 364,605,767,045 46,191,597,047 22,540,161,551 10,322,392,357 4,888,416,149 3,525,472,332 4,882,894,930 4,540,845,359 2,254,281,200 764,843,559 616,194,574 221,599,000 656,877 659,851,533,080 465,355,121,980 The risks that the Group is exposed to due to the pricing strategies are as follows: Mortality Risk: The Group is subject to mortality risk if the actual death claims are higher than expected death rates in the mortality tables used in pricing the policies. The Group uses the appropriate mortality table for each product. Also the tariffs are updated according to the loss ratio of each product. Group uses the CSO 53-58 and CSO 80 mortality table while pricing the life insurance agreements. Technical Interest Rate Risk: In saving life products, the policyholder’s are guaranteed an income that is equal to “technical interest rate” at a minimum. Group is subject to the technical interest rate risk if the market interest rate is lower than the guaranteed interest rate. With the tariff change in 2000, technical interest rate has been restricted with the inflation rate. Yapı Kredi Sigorta 2010 Annual Report 155 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Sensitivity Analysis Financial risk Group is exposed to financial risk through its financial assets, reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of the financial risk are market risk (including foreign exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), liquidity risk and credit risk. Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential negative effects on the Group’s financial performance. The Group does not use derivative financial instruments to hedge certain risk exposures. Risk management is carried out by management under policies approved by the Board of Directors. (a) Market Risk i. Cash flow and market interest rate risk The Group is exposed to interest rate risk through its variable rate financial assets and liabilities. The risk is managed by balancing the assets and liabilities sensitive against interest rate. The variable rate financial assets expose the Group to interest rate risk. If market interest rates of variable rate financial assets had been changed by 1% on 31 December 2010, holding all other variables constant, net assets would have been higher/lower by TRY 424,245 (31 December 2009: TRY 1,006,400). ii. Foreign currency risk The Group is exposed to foreign exchange risk through the impact of rate changes at the translation of Turkish Lira pertaining to foreign currency denominated assets and liabilities. These risks are followed by the analysis of the foreign currency position. As of December 31, 2010, had Euro strengthened/weakened by 10% against TRY with all other variables held constant, net assets would have been higher/lower by TRY 1,624,449 (31 December 2009: TRY 564,340), as a result of foreign exchange gains/losses on the translation of Euro denominated assets and liabilities. As of December 31, 2010, if USD had strengthened/weakened by 10% against TRY with all other variables held constant, net assets would have been higher/lower by TRY 1,225,020 (31 December 2009: TRY 995,808), as a result of foreign exchange gains/losses on the translation of USD denominated receivables and payables. As the Group does not have any available for sale share as of 31 December 2010, the change in foreign Exchange rates will have an effect on the “Valuation of Financial Assets” account classified under the Group’s shareholders’ equity accounts by TRY 131,009. Foreign currency denominated assets and liabilities of the Group is disclosed in related notes. iii. Price risk The Group’s financial assets expose the Group to price risk. The Group is not exposed to commodity price risk. The Group’s common stock investments assets have been stated at market value as of 31 December 2010. If market price of common stocks had been changed by 5% holding all other variables constant, net assets would have been higher/lower by TRY 12,021(31 December 2009: TRY 7,185). The Group’s available-for-sale financial assets with fixed interest rate have been stated at market value as of 31 December 2010. If market price had been changed by 1% holding all other variables constant, impact on the “Valuation of financial assets” account under shareholders’ equity would have been equal to TRY 2.456.206 (31 December 2009: TRY 4,415,079). The Group’s “Financial assets at fair value through profit or loss” (Held for trading) financial assets have been stated at market value as of 31 December 2010. If market price had been changed by 1% holding all other variables constant, net assets would have been higher/lower by TRY 236,668 (31 December 2009: TRY 187,783). The analysis on price risk explained above reflects the effects on before income tax. 156 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) (b) Credit Risk Ownership of financial assets involves the risk that counterparties may be unable to meet the terms of their agreements. The Group’s exposure to credit risk arises mainly from cash and cash equivalents and deposits in banks, financial assets, reinsurer’s share of insurance liabilities, amounts due from reinsurers, premium receivables from policyholders and intermediaries. The Group management deems these risks as total credit risk to the counterparty. The Group monitors the credit risk of financial assets and receivables from insurance operations (including reinsurance receivables) by limiting the aggregate risk to any individual counterpart and covered by collaterals. Other explanations in relation to these receivables are included in Note 12. The Group’s financial assets except for loans and receivables which are subject to credit risk are generally composed of domestic government bonds and time and demand deposits kept in banks and other financial institutions in Turkey and such receivables are not deemed to have high credit risk. (c) Liquidity risk The Group uses its available cash resources to pay claims arising from insurance contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Management sets limits on the minimum portion of funds available to meet such claims. The table below analyses the Group’s financial liabilities and insurance liabilities into relevant maturity groups based on the expected remaining period at the balance sheet or contractual maturity date. The amounts disclosed in table are the undiscounted cash flows except for payables to insurance and reinsurance companies: Contractual cash flows 31 December 2010 Up to 3 months 3 months to 1 year 1 to 5 years Total Payables from insurance and reinsurance companies 3,852,188 6,797,618 10,649,806 3,852,188 6,797,618 - 10,649,806 Yapı Kredi Sigorta 2010 Annual Report 157 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 Life mathematical reserve - net (***) Unexpired risks reserve -net Outstanding claim reserve - net (*) Equalization reserve - net Up to 3 months 13,525,826 2,318 56,514,381 - 3 months to 1 year 87,176,801 14,571 34,997,270 - Expected cash flows 1 to 5 years 276,893,365 282,970 28,760,925 - Over 5 years 118,786,246 24,897 7,423,016 Total 496,382,238 324,756 120,272,576 7,423,016 70,042,525 122,188,642 305,937,260 126,234,159 624,402,586 Contractual cash flows 3 months to 1 year 1 to 5 years 8,067,650 72,504 - Total 10,071,908 72,504 31 December 2009 Payables from insurance and reinsurance companies Premium reserves 31 December 2009 Life mathematical reserve - net (***) Outstanding claim reserve - net (*) Unexpired risks reserve -net Equalization reserve - net (**) Bonus and rebate provision Up to 3 months 2,004,258 2,004,258 8,140,154 - 10,144,412 Up to 3 months 30,780,727 38,420,786 362,951 - 3 months to 1 year 75,574,760 22,612,795 6,724,089 - Expected cash flows 1 to 5 years 279,777,075 23,126,341 42,738 - Over 5 years 126,374,483 1,014,706 4,027,283 1,031,544 Total 512,507,045 85,174,628 7,129,778 4,027,283 1,031,544 69,564,464 104,911,644 302,946,154 132,448,016 609,870,278 (*) The Group foresees that the payment of litigated outstanding claims will be partly made within one year. The total of the outstanding claims reserve and unearned premium reserve is classified in the non-current liabilities in the balance sheet. (**) It is classified as long-term technical reserves in the balance sheet. Group plans to use its financial assets and cash and cash equivalents to meet such liabilities explained above. (***) The Group foresees that the payment of life mathematical reserves will be partly made within one year. The total of the life mathematical reserve is classified in the non-current liabilities in the balance sheet. Group foresees to meet the liabilities of the Group mentioned above with the asset in the financial assets and cash and cash equivalents. Fair value of the financial assets Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists. The estimated fair values of financial instruments have been determined by the Group using available market information and appropriate valuation methodologies As of December 31, 2010 and 2009, all financial assets are 1st level of financial assets designated at fair value. The following methods and assumptions were used to estimate the fair value of the financial instruments for which it is practicable to estimate fair value: Financial assets The fair values of balances denominated in foreign currencies, which are translated at period end exchange rates, are considered to approximate carrying values. The fair values of certain financial assets carried at amortised cost, including cash and cash equivalents are considered to approximate their respective carrying values carried at amortised cost due to their short-term nature. The fair value of premiums receivable along with related provision for overdue receivables is considered to approximate respective carrying values carried at amortised cost. The cost of the financial assets that are not quoted in an active market, less impairment if any, are considered to approximate carrying value. Financial liabilities The fair values of liabilities on main operations and other financial liabilities are considered to approximate to their respective carrying values. 158 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Capital management The Group’s objectives when managing the capital are: - - - to comply with the capital requirements required by Treasury, to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders, to price the insurance agreements in proportion to the risks and to yield return to shareholders As of the preparation date of the financial statements, the minimum required shareholders’ equity of the Group and its Subsidiary at 31 December 2009 is calculated separately as 230,682,666 TRY (31 December 2009: 168,435,398 TRY) and 44,902,529 TRY (31 December 2009: 40,580,873 TRY) (*) within the framework of the related regulations on capital adequacy. (*) According to regulation article 10, “Measurement and assessment of capital adequacy of Insurance and Reinsurance and Pension Companies” it is prepared twice a year in June and December. 5. Segment information Information related to the operational reporting made by the Group to the chief operating decision-maker in the accordance with the “TFRS 8 - Operating Segments” is disclosed in this part. Numerical limits in “TFRS 8 - Operating Segments” is also considered as the reporting to the chief operating decision-maker in the determination of segments and segments those constitute more than 10% of premium production and net technical income are determined as a separate operating segment. The Group’s production channels are composed of agency sales and direct sales and there are no policyholders that constitute 10% of total premium production. The Group operates in Turkey. The Group mainly generates income from premiums on policies. The income from investment of the premiums written also generates a significant income. In pension funds, fund management charge, which is charged in return for the fund management services, representation and other services provided to pension funds, is recorded as income in the Group’s accounts and is shared between the Subsidiary and the funds’ portfolio manager according to the ratios specified in the agreement signed between the parties. The total charge is recorded to the Group’s technical income. Operating segments determined by the Group management as of December 31, 2010 and 2009 is as below: Non-Health Insurance Non-Health or elementary insurance mainly consists on Land Vehicles (Casco), Land vehicles liability (Traffic), Fire, transportation, engineering and other industries’ production. Premium production of non-health branches mainly carried out through brokers and banks as insurance risks are usually held within the borders of Turkey. Especially fire, casco and traffic branch insurance policies are arranged annually. For products with a concentration of high-risk domestic and foreign reinsurance companies held concurrently with the discretionary policy is necessary transfers are made with reinsurance contracts. Health Insurance Health insurance provides guarantees for sickness or expenses incurred due to injuries and indemnities if applicable and on the ground of general and special conditions if any during the policy period. Geographical area that the guarantee is given is disclosed on the policy. Life Insurance Life insurance provides guarantee against the risks that the policyholder may encounter (death) throughout the period within the clauses and conditions defined in the insurance contract or the risks that the policyholder may survive throughout the defined period within the insurance contract, or both risks together. Pension Funds Saving and Investment System Pension funds is individual saving system on the ground of voluntary participation and defined contributions, so as to increase welfare of the individuals by providing an additional income after their retirement by investing their pension oriented savings. Group considers the reporting to the chief operating decision-maker according to the “Regulation on Financial Reporting of Insurance and Reinsurance Companies and Pension Companies”, and in accordance with TMS and TFRS as issued by TMSK and other regulations, communiqués and explanations issued by the Treasury regarding accounting and financial reporting issues. Group does not distribute the assets of non-life part to the branches, considers them together. Net Profit/(Loss) Investment income Personnel expenses General expenses Depreciation expense Provision expense, net Tax Investment expense Other Private Pension Technical Income Private Pension Technical Expense TECHNICAL EXPENSE 1- Incurred Losses - (Net of Reinsurance Share) 1.1- Paid Claims - (Net of Reinsurance Share) 1.2- Change in Outstanding Claims (Net of Reinsurance Share and Returned Reserve) (+/-) 2- Change in Bonus and Rebate Provision 3- Change in Life Mathematical Reserves 4- Other Technical Expense TECHNICAL INCOME 1- Earned Premiums - (Net of Reinsurance Share) 1.1- Written Premiums - (Net of Reinsurance Share) 1.2- Change in Unearned Premiums Reserve 1.3 - Unexpired Risks Reserve 2- Life Investment Income i 3- Other Technical Income - (Net of Reinsurance Share) Segment results for the year ended at 31 December 2010 40,979,669 29,390,901 - 29,390,901 40,979,669 - - (26,597,446) (63,937,989) 590,936 (23,707,566) - (256,166,490) (192,228,501) (165,631,056) Non-Health 285,557,391 257,708,591 289,542,022 (38,638,452) 6,805,021 27,848,800 (271,118,139) (247,410,573) (248,001,509) Health 312,097,808 309,120,866 333,368,763 (24,247,897) 2,976,942 12,603,140 19,765,275 (43,718,150) - 36,556,015 - (1,399,686) 279,871 16,212,855 (12,722,704) (102,116,703) (105,886,725) (104,487,039) Life 138,672,718 96,756,013 101,337,963 (4,581,950) 38,642,340 3,274,365 41,709,920 79,807 - 41,630,113 63,300,351 (21,670,238) - - Private Pension - (59,545,528) 68,414,177 (61,831,820) (38,245,521) (4,172,889) (10,855,026) (10,423,755) (5,200,575) 2,769,880 - - - - Undistributed - (26,480,569) (27,346,483) 2,408,509 865,914 - (2,408,509) - - - Adjustments among segments (2,408,509) (2,408,509) (2,743,710) 335,201 - 38,657,533 60,832,969 (103,141,461) (37,299,800) (4,172,889) (10,855,026) (10,423,755) (5,200,575) 2,769,880 146,148,190 63,300,351 (21,670,238) (27,406,196) 279,871 16,212,855 (100,368,259) (629,401,332) (545,525,799) (518,119,604) Total 733,919,408 661,176,961 721,505,038 (67,133,098) 6,805,021 38,642,340 34,100,106 Yapı Kredi Sigorta 2010 Annual Report 159 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Net Profit/(Loss) Investment income Personnel expenses General expenses Depreciation expense Provision expense, net Tax Investment expense Other Private Pension Technical Income Private Pension Technical Expense TECHNICAL EXPENSE 1- Incurred Losses - (Net of Reinsurance Share) 1.1- Paid Claims - (Net of Reinsurance Share) 1.2- Change in Outstanding Claims (Net of Reinsurance Share and Returned Reserve) (+/-) 2- Change in Bonus and Rebate Provision 3- Change in Life Mathematical Reserves 4- Other Technical Expense TECHNICAL INCOME 1- Earned Premiums - (Net of Reinsurance Share) 1.1- Written Premiums - (Net of Reinsurance Share)) 1.2 Change in Unearned Premiums Reserve 1.3 - Unexpired Risks Reserve 2- Life Investment Income 3- Other Technical Income - (Net of Reinsurance Share) Segment results for the year ended at 31 December 2009 8,441,385 (45,064,740) - (45,064,740) 8,441,385 - - (8,477,787) (100,818,939) 296,610 (23,542,889) - (236,888,670) (136,069,731) (127,591,944) Non-Health 191,823,931 160,198,981 185,849,191 (18,600,995) (7,049,215) 31,624,950 (275,055,005) (251,512,116) (251,808,726) Health 283,496,390 281,178,223 280,516,861 661,362 2,318,167 34,289,197 26,514,368 (23,908,909) - 31,683,737 - (1,167,275) (123,377) 37,001,723 (8,747,264) (105,073,072) (133,204,154) (132,036,879) Life 136,756,808 86,503,458 86,913,346 (409,888) 48,848,521 1,404,829 19,088,018 (17,542,043) - 36,630,061 53,534,916 (16,904,855) - - Private Pension - (8,520,854) 49,881,819 (56,709,238) 7,948,316 (3,749,278) (1,390,504) (8,253,254) (3,601,525) 7,352,810 - - - - Undistributed - (6,894,867) (7,643,218) 2,359,106 648,351 - (2,359,106) - - - Adjustments among segments (2,359,106) (2,359,106) (2,492,048) 132,942 - 1,238,138 68,752,969 (95,801,084) 8,596,667 (3,749,278) (1,390,504) (8,253,254) (3,601,525) 7,352,810 29,431,336 53,534,916 (16,904,855) (9,348,452) (123,377) 37,001,723 (133,109,092) (617,016,746) (520,786,001) (511,437,549) Total 609,718,023 525,521,556 550,787,345 (18,216,579) (7,049,215) 48,848,521 35,347,946 160 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Yapı Kredi Sigorta 2010 Annual Report 161 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 6. Property and equipment 6.1 Depreciation and amortisation expenses for the period: TRY 4,172,889 (31 December 2009: TRY 3,749,278). 6.1.1 Depreciation expenses: TRY 2,729,701 (31 December 2009: TRY 2,864,732). 6.1.2 Amortisation expenses: TRY 1,443,188 (31 December 2009: TRY 884,546). 6.2 Changes in depreciation calculation methods and effect of such changes on depreciation expenses for the year: None (31 December 2009: None). 6.3 Movements of property and equipment in the current period: 6.3.1 Cost of property and equipment purchased: TRY 3,586,487 (31 December 2009: TRY 1,926,069). 6.3.2 Cost of property and equipment sold or used as scrap: TRY 11,265,038 (31 December 2009: TRY 9,922,732). 6.3.3 Revaluation increases in the current period: 6.3.3.1 Cost of fixed assets (+): None (31 December 2009: TRY 866,752). 6.3.3.2 Accumulated depreciation (-): None (31 December 2009: None). 6.3.4 Nature, amount, beginning and ending dates of construction-in-progress: (*): TRY 89,455 (31 December 2009: TRY 395,573). (*) Data processing automation project starting in December 2010 and planned to be completed in 2011 is followed under other financial assets. Movement table of tangible assets is as follows: 1 January 2010 Additions Transfers Impairment Disposals 31 December 2010 Cost: Properties for operational usage Machinery and equipment Furniture and fixtures Motor vehicles Other tangible assets Leased assets 32,398,107 6,598,287 19,338,397 219,047 16,718,901 504,512 134,219 1,137,494 1,072,734 482,406 - 504,512 33,712 (33,712) (504,512) 41,451 - (10,348,032) (786,690) (75,746) (54,570) - 22,225,745 8,240,293 19,624,441 177,013 17,113,025 - Total 75,777,251 2,826,852 - 41,451 (11,265,038) 67,380,516 (6,689,182) (5,381,651) (16,721,316) (117,668) (15,596,641) (456,387) (450,420) (800,255) (835,457) (33,770) (491,483) - (456,387) (10,114) 10,114 456,387 - 2,509,173 765,158 75,747 49,995 - (4,630,429) (6,638,293) (16,791,615) (85,805) (16,028,015) - (44,962,845) (2,611,385) - 3,400,073 (44,174,157) 30,814,406 215,477 - (7,864,965) 23,206,359 Accumulated depreciation: Properties for operational usage Machinery and equipment Furniture and fixtures Motor vehicles Other tangible assets Leased assets Total Net book value 41,451 162 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 2009 Additions Transfers Impairment Disposals 31 December 2009 Cost: Properties for operational usage Machinery and equipment Furniture and fixtures Motor vehicles Other tangible assets Leased assets 31,327,239 5,466,554 27,791,188 528,648 16,497,156 1,296,377 204,116 343,441 993,289 385,223 - 791,865 (791,865) 866,752 - (3,573) (9,446,080) (309,601) (163,478) - 32,398,107 6,598,287 19,338,397 219,047 16,718,901 504,512 Total 82,907,162 1,926,069 - 866,752 (9,922,732) 75,777,251 Accumulated depreciation: Properties for operational usage Machinery and equipment Furniture and fixtures Motor vehicles Other tangible assets Leased assets (6,046,444) (4,358,679) (25,439,852) (367,151) (15,093,063) (655,738) (642,738) (697,642) (619,716) (36,157) (634,241) (126,128) (325,479) 325,479 - 149 9,338,252 285,640 130,663 - (6,689,182) (5,381,651) (16,721,316) (117,668) (15,596,641) (456,387) Total (51,960,927) (2,756,622) - - 9,754,704 (44,962,845) Net book value 30,946,235 30,814,406 In circumstances where the fair value of the tangible assets is lower than the inflation adjusted costs, impairment is accounted for these differences. The Group has accounted for impairment amounting to TRY 474,214 for the property for operational usage as of 31 December 2010 (31 December 2009: TRY 227,336). The mortgage on the properties for operational usage in favour of Treasury amounts to TRY 3,328,729 (31 December 2009: TRY 5,356,015) (Note 43). The details of the tangibles assets obtained from financial leasing agreements as a lessee is follows: Cost - capitalised leasing agreements Accumulated depreciation Net book value 31 December 2010 4,203,591 (4,171,662) 31 December 2009 4,708,103 (4,308,923) 31,929 399,180 Yapı Kredi Sigorta 2010 Annual Report 163 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 7. Investment properties Cost: Buildings Accumulated depreciation: Buildings Net book value Cost: Buildings Accumulated amortisation: Buildings Net book value 1 January 2010 Additions Disposals 31 December 2010 5,550,539 232,955 - 5,783,494 5,550,539 232,955 - 5,783,494 (1,879,619) (118,314) - (1,997,933) (1,879,619) (118,314) - (1,997,933) 3,670,920 114,641 3,785,561 1 January 2009 Additions Impairment 31 December 2009 5,562,464 - (11,925) 5,550,539 5,562,464 - (11,925) 5,550,539 (1,771,509) (108,110) (1,879,619) (1,771,509) (108,110) (1,879,619) 3,790,955 3,670,920 The fair value of investment properties of the Group is determined by the independent, professionally qualified valuation companies. In the circumstances where the fair value of the investment properties is lower than the costs adjusted for inflation, the differences are accounted for in provision for impairment. Impairment provision amounting to TRY 11,925 TRY is accounted for investment properties as of 31 December 2010. (31 December2009: TRY 11,925). The fair value of investment properties of the Group are determined by valuation companies as at the year 2009 as TRY 11,096,524 (31 December 2009: TRY 10,670,000). The Group obtained the expertise report dated December 31, 2010 for these properties amounting to TRY 2,205,000 (31 December 2009 -2,000,000 TRY). Subsidiary has rental income from mentioned investment properties totally per month TRY 9,700 in 2010. (31 December 2009-9,600). The Group has a total monthly rent income from these investment properties amounting to TRY 48,540 (1 January - 31 December 2009: TRY 45,363). Investment properties amounting to TRY 1,703,850 (31 December 2009: TRY 3,235,209) mortgaged over their costs in favour of the Treasury (Note 43). 164 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 8. Intangible assets Cost: Rights Other intangible assets * Advances given for intangible assets Accumulated amortisation: Rights Other intangible assets Net book value Cost: Rights Other intangible assets (*) Advances given for intangible assets Accumulated amortisation: Rights Other intangible assets Net book value (*) Other intangible assets consist of computer software and licenses. 1 January 2010 Additions Disposals 31 December 2010 3,484,396 5,303,112 2,836,044 526,681 7,430,516 89,455 (2,836,044) 4,011,077 12,733,628 89,455 11,623,552 8,046,652 (2,836,044) 16,834,160 (1,586,586) (3,098,772) (880,162) (563,026) - (2,466,748) (3,661,798) (4,685,358) (1,443,188) - (6,128,546) 6,938,194 6,603,464 (2,836,044) 10,705,614 1 January 2009 Additions Disposals 31 December 2009 1,893,962 4,848,912 2,440,471 1,590,434 739,476 395,573 (285,276) - 3,484,396 5,303,112 2,836,044 9,183,345 2,725,483 (285,276) 11,623,552 (1,077,124) (2,723,688) (509,462) (375,084) - (1,586,586) (3,098,772) (3,800,812) (884,546) - (4,685,358) 5,382,533 1,840,937 (285,276) 6,938,194 Yapı Kredi Sigorta 2010 Annual Report 165 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 9. Investments in associates The Group has no investments in associates accounted for by the equity accounting method. (31 December 2009: None). 10. Reinsurance assets Reinsurance share of outstanding claim reserve (Note 17) Reinsurance share of unearned premium reserve (Note 17) Reinsurance companies’ current account - net 31 December 2010 77,150,771 56,265,513 (21,480,726) 31 December 2009 60,118,976 55,008,663 (11,245,358) 1 January 31 December 2010 1 January 31 December 2009 44,025,122 30,137,136 1,188,987 (143,890,315) 1,256,850 (15,138,422) - 68,456,021 29,313,367 2,871,053 (147,081,153) (12,039,868) (3,924,576) (10,251,681) Reinsurance income/ (expenses) Reinsurers share of claims paid Commissions received from reinsurance companies (gross) Postponement of the commissions that received from reinsurers Ceded premiums (Note 24) Reinsurance share of change in unearned premiums reserve Reinsurance share of change in outstanding claim reserve Effect of reinsurance agreement change (*) Information about reinsurance agreements are disclosed in Note 2.14. (*) The total effect of the increase in the net technical insurance reserve due to decrease in the related reinsurance share is calculated as of 31 December 2009 and the reserve accounted for regarding decline has been presented in the other technical reserves on the balance sheet. 11. Financial Assets 11.1 Financial assets are summarised below by measurement category in the table below: Financial assets at policyholders’ risk Blocked Free Available-for-sale financial assets Eurobond and government Bonds denominated in Common stocks Government bonds denominated in Turkish Lira Common stocks Held-for-trading financial assets Government bonds denominated in Turkish Lira Investment funds Total Total 31 December 2010 Group’s portfolio Blocked Free Total Total 278,832,236 - 1,303,550 278,832,236 1,303,550 - - - 278,832,236 1,303,550 72,442,847 - 1,825,296 - 74,268,143 - 147,942,293 - 89,291,049 401,048 237,233,342 401,048 311,501,485 401,048 351,275,083 3,128,846 354,403,929 147,942,293 89,692,097 237,634,390 592,038,319 13,904,471 54,507,185 3,616,770 1,721,328 17,521,241 56,228,513 4,311,549 - 19,451,477 5,740,397 23,763,026 5,740,397 41,284,267 61,968,910 68,411,656 5,338,098 73,749,754 4,311,549 25,191,874 29,503,423 103,253,177 419,686,739 8,466,944 428,153,683 152,253,842 114,883,971 267,137,813 695,291,496 (*) TRY 1,265,284 of the shares is listed on the stock market, TRY 160,633 of the shares is not listed on the stock market. 166 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31,12,2009 Financial assets at policyholders’ risk Blocked Free Available-for-sale financial assets Government bonds denominated in Turkish Lira Eurobond and government Bonds denominated in Foreign currency Common stocks (*) Held-for-trading financial assets Investment funds Government bonds denominated in Turkish Lira Total Total Blocked Group’s portfolio Free Total Total 50,591,871 22,315,733 72,907,604 187,738,853 85,724,627 273,463,480 346,371,084 294,015,040 - - 294,015,040 - - 304,330 304,330 294,015,040 304,330 344,606,911 22,315,733 366,922,644 187,738,853 86,028,957 273,767,810 640,690,454 49,704,090 1,646,405 51,350,495 - 5,218,211 5,218,211 56,568,706 18,691,364 9,343,659 28,035,023 3,884,682 14,929,448 18,814,130 46,849,153 68,395,454 10,990,064 79,385,518 3,884,682 20,147,659 24,032,341 103,417,859 413,002,365 33,305,797 446,308,162 191,623,535 106,176,616 297,800,151 744,108,313 (*) TRY 143,696 of the shares is listed on the stock market, TRY 160.634 of the shares is not listed on the stock market. In addition to the financial assets described above, as of 31 December 2010, amongst the financial investments at policyholders’ risk the Group has a time deposit account amounting to TRY 55,131,068 (31 December 2009: TRY 49,232,976 ) and all respective amount is blocked. (31 December 2009: TRY 47,642,852) and the total financial assets at policyholders’ risk amounts to TRY 483,284,751 (31 December 2009: TRY 495,541,138.The weighted average interest rates of the time deposits denominated in TRY, USD and EUR at policyholders’ risk are 9.10%, 2.98% and 2.84% (31 December 2009: TRY 9.28%, USD 2.44%, EURO 2.50%) respectively, they have maturities less than 3 months. The interest rates of the available-for-sale financial assets vary between 7.75% and 19.46% (31 December 2009: 7.23% and 27.5%). The interest rates of Eurobonds are between 3.62% and 11.56% (31 December 2009: 4.64% and 14.74%). The interest rate of the held-for- trading financial assets vary between 7.57% and 8.22% (31 December 2009: 7.36% and 18.88%). Loans and receivables (Note 12) Total 31 December 2010 2,097,370,090 31 December 2009 1,570,097,392 2,097,370,090 1,570,097,392 The Group does not have foreign currency available for sale financial assets (31 December 2009: None). 11.2 Marketable securities issued during the year other than share certificates: None (31 December 2009: None). 11.3 Debt securities issued during the year None (31 December 2009: None). Yapı Kredi Sigorta 2010 Annual Report 167 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 11.4 Market value of marketable securities and financial assets carried at cost and carrying value of marketable securities and financial assets shown at market value: Marketable securities Eurobond and government bonds denominated in foreign currency Government bonds denominated in Turkish Lira Investment funds Corporate bonds Common stocks 31 December 2010 Inflation Adjusted Cost Book Value 242,040,730 278,832,236 250,077,745 352,785,752 53,259,126 61,968,910 1,261,721 1,303,550 187,425 401,048 410,597,373 542,208,048 31 December2009 Inflation Adjusted Cost Book Value 272,227,754 294,015,040 351,687,269 393,220,237 44,112,116 56,568,706 179,317 304,330 668,206,456 744,108,313 11.5 Marketable securities under “Marketable Securities and Investment Securities” account group and issued by the company’s shareholders, investments or subsidiaries and the issuers: None (31 December 2009: None). 11.6 Revaluation of property and equipment in the last three years: None (31 December 2009: None). 11.7 - 11.9 Other information about financial assets Interest income from available for sale financial assets and realized fair value differences is TRY 54,790,573 (31 December 2009: TRY 65,266,287) and accounted in the investment income in profit and loss statement. The unrealised fair value changes during the period are amounting to TRY 15,038,555 (31 December 2009: TRY 44,044,428) and TRY 2,907,314 (31 December 2009: TRY 10,312,568) are classified in account “Valuation of financial assets” in the shareholders’ equity, TRY 2,133 (31 December 2009: TRY 7,568) are classified in “Minority interest” in the shareholders’ equity, TRY 12,129,108 (31 December 2009: TRY 33,724,292) are classified in the other long term technical reserves (Note 17). The interest income and fair value changes during the current period from held-for-trading financial assets are TRY 11,618,126 (31 December 2009: TRY 22,296,574) and are classified under investment income in the income statement. The maturity analysis of financial assets is as follows: 31 December 2009 3-6 6 months 1 to 3 months to 1 year years 25,887,169 49,271,358 146,464,769 No stated maturity - 0-3 months 38,144,403 61,968,910 401,048 - 1,120,730 - 9,201,658 - 62,369,958 39,265,133 35,088,827 Government bond denominated in Turkish Lira Eurobond and government bonds denominated in foreign currency Investment funds Common stock No stated maturity - 0-3 months 88,217,515 56,568,706 304,330 21,194,807 - 15,325,119 - 6,733,808 - Total 56,873,036 109,412,322 116,849,284 89,820,922 Government bond denominated in Turkish Lira Eurobond and government bonds denominated in foreign currency Investment funds Common stock Corporate bond Total More than 3 years 93,018,053 Total 352,785,752 255,531,719 - 278,832,236 61,968,910 401,048 1,303,550 50,574,908 159,442,898 348,549,772 695,291,496 1,303,550 12,978,129 - 31 December 2009 3-6 6 months 1 to 3 months to 1 year years 101,524,165 83,087,114 101,653,842 More than 3 years 18,737,601 Total 393,220,237 11,352,108 - 239,409,198 - 294,015,040 56,568,706 304,330 113,005,950 258,146,799 744,108,313 168 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 12. Loans and Receivables 12.1 Classification of the receivables as receivables from main customers, receivables from interested parties, receivables for the advance payment (short-term and long-term prepayment) and the others: 31 December 2010 104,453,098 102,956,319 6,565,107 31 December 2009 88,015,276 85,859,308 59,385,892 213,974,524 233,260,476 68,150,779 3,120,360 7,750,457 1,871,943,927 3,747,568 3,094,123 75,511 11,236,161 1,376,877,262 2,164,940,047 1,628,291,101 (64,581,474) (2,559,389) (1,751,387) (54,654,208) (2,314,737) (1,224,763) (68,892,250) (58,193,708) 2,096,047,797 1,570,097,393 31 December 2010 71,146,581 (19,661,820) 31 December 2009 59,385,891 (21,609,488) Receivables for salvage and claim recovery - net 51,484,761 37,776,403 Provision for salvage and claim recovery under follow-up Provision for salvage and claim recovery under follow-up - reinsurance share (**) (64,581,474) 19,612,513 (54,654,208) 20,720,989 (44,968,961) (33,933,219) 6,515,800 3,843,184 Receivables from intermediaries Receivables from policyholders Receivables for salvage and claim recovery - gross Due from insurance operations Doubtful receivables from main operations Receivables from insurance and reinsurance companies Deposits from insurance and reinsurance companies Policy loans Receivables from private pension operations Due from main operations - gross Provision for claim recovery receivables under legal follow-up (*) Provision for doubtful receivables from main operations Provision for receivables from policyholders and intermediaries (*) Provision for overdue and non overdue receivables Receivables from main operations - net The details of claim recovery and salvage receivables are as follows: Receivables for salvage and claim recovery - gross (including doubtful receivables) Receivables for salvage and claim recovery reinsurance share (**) Provision for salvage and claim recovery - net Total (*) (**) (***) Disclosed under provision for doubtful receivables from main operations in the balance sheet. Disclosed under provision for due from insurance operations in the balance sheet. In accordance with the draft circulars regarding subrogation and salvage receivables as of December 31, 2009 together with subrogation receivables in administrative and legal follow up amounts are made re-classification by the group to the related accounts. 12.2 Due from / due to shareholders, investments and subsidiaries: Balances and transactions with the related parties are disclosed in Note 45. Yapı Kredi Sigorta 2010 Annual Report 169 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 12.3 Total mortgages and collateral obtained for receivables: The details of mortgages and collaterals received are as follows: USD 31 December 2010 EUR TRY Total Mortgages and collateral obtained Pledges Letter of guarantees Public borrowing notes Guarantees and collaterals obtained from companies Cash 108,629 85,184 - 2,108 34,580 - 44,872,700 14,245,111 787,990 262,967 57,980 44,872,700 14,355,848 787,990 382,731 57,980 Total 193,813 36,688 60,226,748 60,457,249 31 December 2009 EUR TRY Total USD Mortgages and collateral obtained Pledges Letter of guarantees Public borrowing notes Guarantees and collaterals obtained from companies Cash 109,562 113,785 - 2,222 27,036 - 42,540,305 9,962,216 859,873 270,587 57,980 42,540,305 10,074,000 859,873 411,408 57,980 Total 223,347 29,258 53,690,961 53,943,566 12.4 Receivables and payables denominated in foreign currencies having no foreign exchange rate guarantees, assets in foreign currencies and conversion rates: Loans and Receivables Foreign currency denominated premium receivables Foreign currency type USD EUR GBP CHF SEK JPY DKK AUD 31 December 2010 Foreign currency amount Exchange rate 10,994,144 1.5460 9,096,489 2.0491 19,846 2.3886 138,689 1.6438 16,656 0.2262 492,167 0.0189 (11,647) 0.2749 23 1.5685 Amount TRY 16,996,946 18,639,616 47,404 227,977 3,767 9,312 (3,202) 36 35,921,856 Foreign currency denominated commission payables Euro USD CHF GBP DKK JPY SEK AUD 885,964 1,079,949 12,763 2,649 14,085 9,300 83 5 2.0491 1.5460 1.6438 2.3886 0.2748 0.0189 0.2261 1.5685 1,815,429 1,669,601 20,980 6,327 3,871 176 19 8 3,516,411 170 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Loans to Insurees Foreign Currency type USD EUR Original Amount 4,226,077 551,926 Foreign Currency type Loans and Receivables Foreign currency premiums receivables and receivables from policyholders USD EUR CHF GBP SEK DKK JPY CAD 31 December 2010 Exchange rate 1.5460 2.0491 31 December 2009 Original Amount Exchange rate 6,578,985 5,205,707 141,611 34,760 31,650 (12,484) 185,310 32 1.5057 2.1603 1.4492 2.3892 0.2082 0.2902 0.0163 1.4368 Amount TRY 6,533,515 1,130,951 7,664,466 Amount TRY 9,905,978 11,245,889 205,223 83,049 6,590 (3,623) 3,021 46 21,446,173 Commission debt in foreign currency USD EUR CHF GBP DKK JPY SEK CAD 887,808 617,714 30,611 6,138 14,778 16,292 521 5 1.5057 2.1603 1.4492 2.3892 0.29024 0.0163 0.20822 1.4368 1,336,773 1,334,448 44,361 14,665 4,289 266 108 7 2,734,917 Loans to Insurees USD EUR 6,090,865 737,588 1,5057 2,1603 9,171,015 1,593,411 10,764,426 Yapı Kredi Sigorta 2010 Annual Report 171 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 12.5 - 12.7 Other information about loans and receivables: The aging of due from insurance operations is as follows: 31 December 2010 65,973,488 97,115,762 36,997,920 6,147,746 3,092,703 31 December 2009 48,468,934 90,647,195 31,795,566 5,011,672 - 209,327,619 175,923,367 71,146,581 (1,918,202) 59,385,891 (2,048,783) 278,555,998 233,260,475 Opening balance - 1 January Additions during the period Release of provision during the period 2010 1,224,763 697,078 (170,454) 2009 1,299,878 86,431 (161,546) Closing balance - 31 December 1,751,387 1,224,763 Opening balance - 1 January Additions during the period Release of provision during the period 2010 33,933,219 12,576,570 (1,540,828) 2009 24,853,146 11,259,046 (2,178,973) Closing balance - 31 December 44,968,961 33,933,219 2010 2,314,737 244,652 2009 48,600,009 8,368,937 2,559,389 56,968,946 Overdue Up to 3 months 3 to 6 months 6 months to 1 year Over 1 year Subrogation receivables (gross) Rediscount on receivables Total The movement of provision for receivables from policyholders and intermediaries is as follows: The movement of provision for doubtful net subrogation receivables is as follows: The movement of provision for doubtful receivables from main operations is as follows: Opening balance - 1 January Additions during the period Closing balance - 31 December 172 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The aging of the overdue but not impaired receivables from policyholders and agencies are as follows: Up to 3 months 3 to 6 months 6 months to 1 year Over 1 year Total 31 December 2010 55,477,328 8,035,177 2,148,598 1,112,859 31 December 2009 43,786,874 2,526,276 1,214,982 940,802 66,773,962 48,468,934 31 December 2010 20,964,223 7,491,231 553,803 31 December 2009 21,159,146 6,025,401 572,268 29,009,257 27,756,815 The details of the guarantees received for the receivables stated above are follows: Mortgages Letter of guarantees Public borrowing notes Total 13. Derivative financial instruments None (31 December 2009: None). 14. Cash and cash equivalents Cash and cash equivalents that are included the statement of cash flows for the year ended 31 December 2010 and 2009 are shown in Note 2.12. 15. Share capital Other Capital Reserves: In accordance with the Corporate Tax Law article 5.1.e, 75% of the profit obtained from the sales of the properties of the Group is considered as tax exempt in such condition that the amount is kept in capital reserves under liabilities for 5 years. The profit assumed as tax exemption cannot be transferred to any account except for the capital account or retrieved from the Group. In accordance with the notification of the Treasury numbered 2008/41, dated 27 October 2008, the Group accounted TRY 3,711,141 TRY total investment sales income calculated according to the TMS regulations, generated from the sales of the building realised in 2008 is recognised in the statement of income calculated according to TMS regulations. The Group classified TRY 3,898,754 which consists of 75% of investment sales income, amounting to TRY 5,198,339, generated from the sales of the building realised in 2010 and calculated using the book values as determined by Tax Procedural Law, in “Profit not Subject to Distribution” included in “Net Profit for the Period” account group under shareholders’ equity and this amount is transferred to account “Other Capital Reserves” in 2011. Other profit reserves as of December 31, 2010 and 2009 in the shareholders’ equity accounts express earthquake Claims Reserves come up in the balance sheet as of December 31, 2006 and revenue obtained from this account and revenue followed until the date of 14 June 2007. Legal Reserves: Retained earnings as per the statutory financial statements, other than legal reserve requirements, are available for distribution subject to the legal reserve requirement referred to below. The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code. The Turkish Commercial Code stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the Group’s paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. Under the Turkish Commercial Code, the legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital. Yapı Kredi Sigorta 2010 Annual Report 173 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The movement of legal reserves in the period is as follows: Opening balance - 1 January Reserves accounted in dividend payment Closing balance - 31 December 2010 6,927,682 3,365,695 2009 2,207,340 4,720,342 10,293,377 6,927,682 Valuation of Financial Assets: The unrealised gains and losses that result from the changes in the fair values of available-for-sale financial assets are directly recognized in the shareholders’ equity as “Valuation of Financial Assets”. The movement of valuation of financial assets in the period is as follows: Opening balance - 1 January (net of tax effect) Fair value increase Outflows due to matured or sold financial assets Tax effect of fair value change (Note 35) 2010 11,798,392 2,909,447 (5,800,081) 578,127 2009 3,656,658 10,320,136 (161,643) (2,016,759) Net change (2,312,507) 8,141,734 Closing balance - 31 December 9,485,885 11,798,392 The Group has 8,000,000,000 units of shares all fully paid (31 December 2009: 8,000,000,000 units). Movement of common stocks at opening balance and closing balance is as follows: Paid in capital Total Paid in capital Total 1 January2010 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 Unit - Amortised Nominal TRY - - - - Issued capital Unit Nominal TRY - Unit - Amortised Nominal TRY - - - 80,000,000 1 January2010 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 Issued capital Unit Nominal TRY - 80,000,000 - - 31 December 2010 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 31 December 2009 Unit Nominal TRY 8,000,000,000 80,000,000 8,000,000,000 80,000,000 Other Reserves: As of December 31, 2010 and 2009, TRY 18,811,781 which is classified under the Sales Profit Addition to the Capital account, is related with the sale of Group’s subsidiary in 2007 and the profit from the sale of subsidiary which has been accounted for in the equity accounts of the Group as of 31 December 2007. 16. Other reserves and equity component of discretionary participation feature Information about other reserves classified in share capital is explained in Note 15. 174 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17. Insurance liabilities and reinsurance assets 17.1 Guarantees to be provided and guarantees provided for life and non-life branches: 31 December 2010 Non-Life 72,458,832 77,121,090 Required guarantee amount to be provided (*) Guarantees provided Life 508,352,975 541,021,498 Required guarantee amount to be provided (*) Guarantees provided 31 December 2009 Life Non-Life 509,030,269 56,313,517 543,248,974 103,086,223 (*) In accordance with the article 4 of Communiqué regarding “The Financial Structure of Insurance, and Reinsurance and Pension Companies”, published in the Official Gazette (No: 26606) dated 7 August 2007 in accordance with the adaptation to the Insurance Law, the insurance and pension fund companies operating in personal accident and life branches should be provided guarantees that equals to one third of required capital amount in each capital adequacy calculation period. The same regulation, in accordance with Article 7, the Group as at 30 July 2010 for the amount of collateral remaining nominal value of TRY 9,750,000 has been blocked in favor of Treasury securities. 17.2 Number of life policies, the number and mathematical reserve amount of the life policies that enter and exit during the year and current status: Transferred from previous period Number of Policies 797,014 31 December 2010 Mathematical reserve 512,507,045 Increase in mathematical reserves Saving policies Non-saving policies Entered during the period 9 717,319 717,328 53,726,153 38,057 23,325,866 77,090,076 Saving policies Non-saving policies Exit during the period (9,506) (353,022) (362,528) (92,219,091) (995,792) (93,214,883) Grand total 1,151,814 496,382,238 Transferred from previous period Increase in mathematical reserves Non-saving policies Increase in current period Saving policies Non-saving policies Decrease in current period Grand Total 31 December 2009 Number of Policies Mathematical reserve 709,769 549,508,768 344,733 344,733 72,465,868 14,093,954 86,559,822 (11,161) (246,327) (257,488) (122,857,237) (704,308) (123,561,545) 797,014 512,507,045 Yapı Kredi Sigorta 2010 Annual Report 175 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17.3 Guarantee amount to be provided for non-life branch: Disclosed in Note 4. 17.4 Unit prices of pension funds and savings founded by the Group: Pension Funds Yapı Kredi Emeklilik A.Ş. Gelir Amaçlı Kamu Borçlanma Araçları Emeklilik Yatırım Fonu-YEK Yapı Kredi Emeklilik A.Ş. Para Piyasası Likit Kamu Emeklilik Yatırım Fonu-YEP Yapı Kredi Emeklilik A.Ş. Gelir Amaçlı Kamu Dış Borçlanma Araçları Emeklilik Yatırım Fonu-YGD Yapı Kredi Emeklilik A.Ş. Büyüme Amaçlı Hisse Senedi Emeklilik Yatırım Fonu-YEH Yapı Kredi Emeklilik A.Ş. Esnek Emeklilik Yatırım Fonu-YEE Yapı Kredi Emeklilik A.Ş. Gelir Amaçlı Uluslararası Karma Emeklilik Yatırım Fonu-YEU Yapı Kredi Emeklilik A.Ş. Esnek (Döviz) Grup Emeklilik Yatırım Fonu-YEY Yapı Kredi Emeklilik A.Ş. Esnek (Türk Lirası) Grup Emeklilik Yatırım Fonu- YTL Yapı Kredi Emeklilik A.Ş. Para Piyasası Emanet Likit Karma Emeklilik Yatırım Fonu-YEL Yapı Kredi Emeklilik A.Ş. Gelir Amaçlı Kamu Dış Borçlanma Araçları Emeklilik Yatırım Fonu (Euro)-YGE Yapı Kredi Emeklilik A.Ş. Gelir Amaçlı Kamu Borçlanma Grup Tahvil Bono Fonu-YEB Yapı Kredi Emeklilik A.S. Büyüme Amaçlı Esnek Emeklilik Yatırım Fonu-YEN 31 December 2010 0,036420 0,026240 0,021655 0,053707 0,039430 0,013075 0,015428 0,035633 0,020542 0,012991 0,015146 0,010414 31 December 2009 0,033640 0,024890 0,019594 0,042144 0,035365 0,013051 0,014347 0,031285 0,019674 0,013258 0,013842 - (*) Was issued on August 31, 2010, it is publicly traded as of January 3, 2011. 17.5 Units and amounts of share certificates in portfolio and in circulation: Share certificates in circulation Share certificates in portfolio Share certificates in circulation Share certificates in portfolio 31 December 2010 Unit Amount 57,968,957,639 1,860,834,605 31 December 2009 Unit Amount 48,623,894,789 1,366,293,701 - - 176 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Numbers and portfolio amounts of the individual and group pension funds’ participants (entered, left, cancelled during the period and the current participants): Individual Group Entered during the period Individual Group Cancelled during the period Individual Group Actual 31 December 2010 Number Assets under of Contracts Management 35,712 161,890,903 20,638 33,474,398 56,350 195,365,301 28,170 161,666,868 17,607 54,453,773 45,777 216,120,641 240,185 1,440,738,614 72,537 420,095,991 312,722 1,860,834,605 Individual Group Entered during the period Individual Group Cancelled during the period Individual Group Actual 31 December 2009 Number Assets under of Contracts Management 43,152 109,340,586 20,384 24,217,459 63,536 133,558,045 40,170 171,581,782 7,467 29,696,725 47,637 201,278,507 234,369 1,076,607,206 67,779 289,686,495 302,148 1,366,293,701 17.7 Valuation methods of profit share calculation for life insurance: Investment Type Government Bonds/Treasury Bills Eurobonds Repo and Deposits in TRY/Foreign Currency Investment Fund Common Stock Valuation Method Market Value/Internal rate of return Internal rate of return Daily simple interest method Unit price values announced Weighted average value of IMKB 2nd session of the last 5 days 17.8 Number of units and individual/group allocation of gross/net contribution amounts of the private pension fund participants during the period: Individual Group Total Individual Group Total Number of Agreements 35,712 20,638 1 January - 31 December 2010 Gross Contribution Amount 162,421,398 32,467,407 Net Contribution Amount 159,490,472 32,273,946 56,350 194,888,805 191,764,418 Number of Agreements 43,152 20,384 1 January - 31 December 2009 Gross Contribution Amount 108,064,653 22,768,312 Net Contribution Amount 105,500,213 22,595,140 63,536 130,832,965 128,095,353 Yapı Kredi Sigorta 2010 Annual Report 177 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17.9 Number of units and individual/group allocation of gross/net contribution amounts of the private pension fund participants transferred from another company during the period: 1 January- 31 December 2010 Number of Agreements Gross Contribution Amount Net Contribution Amount Group 112 2,164,794 2,161,011 Individual 225 3,359,552 3,359,183 Total Group Individual 337 5,524,346 5,520,194 Gross Number of Agreements 706 128 1 January - 31 December 2009 Net Contribution Amount 3,342,184 1,777,383 Contribution Amount 3,341,821 1,773,667 834 5,119,567 5,115,488 Total 17.10 Number of units and individual/group allocation of gross/net contribution amounts of the private pension fund participants transferred from the life insurance portfolio to the private pension fund portfolio during the period: None (31 December 2009: None). 17.11 Number of units and individual/group allocation of gross/net contribution amounts of the private pension fund participants that left the Group and transferred to another company or that left the Group but did not transfer to another company: Individual Group Number of Agreements 28,170 17,607 1 January - 31 December 2010 Gross Contribution Amount 139,333,931 44,632,374 Net Contribution Amount 131,309,573 44,360,822 45,777 183,966,305 175,670,395 Gross Number of Agreements 40,170 7,467 1 January- 31 December 2009 Net Contribution Amount 155,110,079 23,943,908 Contribution Amount 145,838,084 23,723,210 47,637 179,053,987 169,561,294 Total Individual Group Total 17.12 Number of units, gross/net premiums and individual/group allocation for life policyholders that joined the portfolio during the period: The Group does not have new saving life policyholder that joined the portfolio during the year (31 December 2009:None). 17.13 Number of units, gross/net premiums and individual/group allocation of mathematical reserves for life policyholders that left the portfolio during the period: 1 January - 31 December 2010 Number of Agreements (*) Gross Premium Net Premium Mathematical Reserve Individual 9,365 3,475,861 2,400,419 89,094,790 Group 141 81,247 72,450 3,124,301 Total 9,506 Individual Group Number of Agreements (*) 10,693 468 Total (**) 11,161 3,557,108 2,472,869 92,219,091 1 January - 31 December 2009 Gross Premium Net Premium 4,510,533 2,903,102 80,910 68,589 Mathematical Reserve 105,819,808 17,037,429 4,591,443 (*) Only saving policies have been taken into account. (**) USD and EUR policies are converted into TRY to TCMB Exchange rate as of 31 December 2010 and 2009 2,971,691 122,857,237 178 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 17.14 Profit share allocation rate to the life policyholders TRY USD EUR 1 January 31 December 2010 10,55% 7,17% 5,03% 1 January 31 December 2009 16,94% 7,12% 6,43% 2010 512,507,045 41,568,800 38,642,340 (92,219,091) (4,337,502) (4,351,403) (3,410,019) 7,982,068 2009 549,508,768 52,219,217 48,848,521 (122,185,569) (5,305,151) (5,349,753) (2,843,892) (2,385,096) 496,382,238 512,507,045 31 December 2010 Foreign Currency Rate (*) 1.5467 2.0510 Amount TRY 223,760,299 50,065,950 17.15 - 17.19 - Other required information about liabilities from insurance agreements: Life mathematical reserves Opening balance - 1 January Premiums from saving policies Investment income Surrender and maturity payments Risk premiums Commission expense Loadings Change in mathematical reserves of non-saving policies Closing balance - 31 December Life mathematical reserves denominated in foreign currency are as follows: Currency USD EUR Foreign Currency Amount 144,672,198 24,409,914 273,826,249 Currency USD EUR Foreign Currency Amount 163,224,493 24,734,704 31 December 2009 Foreign Currency Rate (*) 1.5063 2.1630 Amount TRY 245,866,531 53,492,458 299,358,989 (*) Since the foreign exchange rates used are different for the products, average rates are disclosed. Yapı Kredi Sigorta 2010 Annual Report 179 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Outstanding claims reserve: Opening balance - 1 January Paid claims Increase - Outstanding claims of current period - Prior years’ outstanding claims Gross 122,070,258 (47,351,978) 86,827,253 83,885,719 2,941,534 31 December 2010 Reinsurance share (53,732,151) 15,589,602 (29,162,230) (35,447,662) 6,285,432 Net 68,338,107 (31,762,376) 57,665,023 48,438,057 9,226,966 Closing balance 161,545,533 (67,304,779) 94,240,754 35,873,459 4,355 (9,845,759) (233) 26,027,700 4,122 Total 197,423,347 (77,150,771) 120,272,576 Opening balance - 1 January Paid claims Increase - Outstanding claims of current period - Prior years’ outstanding claims Gross 114,784,812 (43,540,933) 50,826,379 59,686,325 (8,859,946) 31 December 2009 Reinsurance share (53,392,643) 11,590,003 (11,929,511) (25,574,787) 13,645,276 Net 61,392,169 (31,950,930) 38,896,868 34,111,538 4,785,330 Closing balance 122,070,258 (53,732,151) 68,338,107 23,985,364 3,993,620 (9,585,124) 4,829,486 (7,902,888) (377,310) 1,893,373 - 16,082,476 3,616,310 (7,691,751) 4,829,486 145,293,604 (60,118,976) 85,174,628 31 December 2010 Reinsurance share (55,008,665) (1,256,849) Net 257,377,866 67,133,099 Claims incurred but not reported (*) Outstanding claims adequacy reserve (*) Claims incurred but not reported (*) Outstanding claims adequacy reserve (*) Expected salvage and claim recovery income accrual (*) Chain ladder reserve (*) Total (*) The related provisions are calculated on a gross and net basis and recorded in the consolidated financial statements. Unearned premium reserve: Opening balance - 1 January Net change Gross 312,386,531 68,389,948 Closing balance - 31 December 380,776,479 Opening balance - 1 January Net change Gross 306,209,819 6,176,712 Closing balance - 31 December 312,386,531 (56,265,514) 31 December 2009 Reinsurance share (67,048,531) 12,039,868 (55,008,663) 324,510,965 Net 239,161,288 18,216,580 257,377,868 As of 31 December 2010, deferred commission income and deferred commission expenses are TRY 10,751,862 (31 December 2009: TRY 12,118,556) and TRY 47,204,254 (31 December 2009: TRY 37,971,078), respectively, and recorded in deferred income and expense accruals account on balance sheet. 180 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Unexpired risk reserve (*): Gross 7,129,778 (6,805,022) 31 December 2010 Reinsurance Share - Net 7,129,778 (6,805,022) 324,756 - 324,756 Gross share 80,563 7,049,215 31 December2009 Reinsurance - Net 80,563 7,049,215 7,129,778 - 7,129,778 Opening balance - 1 January Net change Gross 4,027,283 3,395,733 31 December 2010 Reinsurance Share - Net 4,027,283 3,395,733 Closing balance - 31 December 7,423,016 Opening balance - 1 January Net change Gross 1,902,446 2,124,837 2009 Reinsurance Share - Net 1,902,446 2,124,837 Closing balance - 31 December 4,027,283 - 4,027,283 Foreign Type Amount 3,544,724 2,996,665 5,447 11,423 555 3,256 5,764 31 December 2010 Currency Rate (*) 2.0521 1.5468 2.4010 0.3138 1.6541 1.05275 0.2762 Currency Amount TRY 7,274,128 4,635,241 13,078 3,585 918 3,428 1,592 Opening balance - 1 January Net change Closing balance - 31 December Opening balance - 1 January Net change Closing balance - 31 December Equalization reserve (*): 7,423,016 (*) Since the foreign exchange rates used are different for the products, average rates are disclosed. Foreign currency denominated items in claims provision are as follows: EUR USD GBP FRF CHF DEM DKK 11,931,970 Yapı Kredi Sigorta 2010 Annual Report 181 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) EUR USD GBP FRF CHF Foreign Type Amount 2,439,349 843,153 2,071 11,423 713 31 December 2009 Currency Rate (*) 2.1707 1.5114 2.4017 0.3309 1.4585 Currency Amount TRY 5,295,095 1,274,341 4,974 3,780 1,040 6,579,230 (*) Since the foreign exchange rates used are different for the products, average rates are disclosed. Bonus and rebates reserves: Gross 1,031,544 (279,873) 2010 Reinsurance Share - Net 1,031,544 (279,873) 751.671 - 751.671 Opening balance - 1 January Net change Gross 1,208,567 (177,023) 2009 Reinsurance Share - Net 1,208,567 (177,023) Closing balance - 31 December 1,031,544 - 1,031,544 Opening balance - 1 January Net change Closing balance - 31 December Other long term technical reserves: Equalization reserve and the unrealised profit and losses which do not belong to the Group due to changes in the fair values of the available for sale financial assets are classified in “Other long term technical reserves” (Notes 2.8 and 47.1). Other long-term technical reserves for the period are as follows: Opening balance - 1 January Increase in fair value Outflows due to financial assets sold or matured 2010 23,325,661 12,129,108 (2,928,689) 2009 (7,373,385) 33,724,292 (3,025,246) Closing balance - 31 December 32,526,080 23,325,661 333,517,294 Total net paid claim 616,602,553 588,913,851 20,111,596 3,534,240 2,229,776 1,813,090 - 1 January 200631 December 2006 480,762,193 463,258,959 14,901,590 1,349,440 1,252,204 - 1 January 200731 December 2007 526,089,659 514,962,681 10,083,155 1,043,823 - 1 January 200831 December 2008 312,520,672 13,651,745 1,972,274 2,272,207 896,046 942,601 - 260,618,705 15,659,478 1,825,029 285,399 1,185,919 1,328,197 1,223,483 282,126,210 Accident year Payment made in the year of the accident 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later Total net paid claim 454,899,823 424,539,167 25,798,217 4,319,599 3,915,242 (3,672,402) - 1 January 200631 December 2006 617,689,420 589,939,653 21,031,159 3,693,372 3,025,236 - 1 January 200731 December 2007 479,804,700 463,383,625 15,036,128 1,384,947 - 1 January 200831 December 2008 525,260,359 515,194,538 10,065,821 - 1 January 200931 December 2009 563,256,016 559,103,895 4,152,121 - 1 January 200931 December 2009 555,978,931 555,978,931 - 1 January 201031 December 2010 568,334,413 568,334,413 - 1 January 201031 December 2010 3,248,714,98 3,122,175,291 101,242,548 13,195,221 9,498,084 (1,590,437) 2,270,798 1,223,483 Total Net Paid Paid 3,544,213,592 3,432,598,885 88,561,388 12,135,561 9,452,986 (1,016,041) 2,458,269 522,548 Total Net Paid Paid In accordance with the Regulation on Technical Reserves, since the outstanding claim provision per branch in the current period is less than the amount calculated by chain ladder method issued by Treasury, the Group has accounted for net additional outstanding claim provision in total amounting to TRY 23,886,276. 332,255,545 1 January 200531 December 2005 1 January 2004 31 December 2004 The Group prepares the claim development table by considering net paid claims in accordance with the Regulation on Technical Reserves. Claim development table as of 31 December 2009: 424,533,319 25,727,420 4,300,355 3,762,508 (3,684,955) 1,512,817 - 313,491,767 13,585,504 1,907,703 2,208,496 855,824 945,452 522,548 Accident year Payment made in the year of the accident 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 456,151,464 1 January 200531 December 2005 1 January 2004 31 December 2004 Claim development table as of 31 December 2010: The Group prepares the claim development table by considering net paid claims in accordance with the Regulation on Technical Reserves. 182 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Yapı Kredi Sigorta 2010 Annual Report 183 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 18. Investment contract liabilities None (31 December 2009: None). 19. Trade and other payables and deferred income Payables from pension operations Other main operations payables (Note 47.1) Payables from insurance operations Reinsurance payables Deferred commission income Other liabilities (Note 47.1) Other deferred income Total 31 December 2010 1,893,282,503 41,276,404 25,547,103 23,671,757 10,929,569 12,906,656 160,941 31 December 2009 1,394,062,077 36,989,372 19,729,964 14,339,481 12,118,556 12,960,944 168,326 2,007,774,933 1,490,368,720 Related party transactions are disclosed in Note 45. Payables denominated in foreign currencies are as follows: Foreign currency type EUR USD FRF GBP Foreign currency amount 10,590 502,116 35,915 3,094 31 December 2010 Exchange rate (*) 2.0491 1.5481 0.3139 2.4011 Amount TRY 21,700 777,313 11,270 7,429 817,712 Foreign currency type USD EUR FRF GBP Foreign currency amount 303,060 5,974 35,915 3,094 31 December 2009 Exchange rate (*) 1.5090 2.1604 0.3309 2.4017 Amount TRY 457,331 12,906 11,885 7,431 489,553 (*) Since the foreign exchange rates used are different for the products, average rates are disclosed. 20. Borrowings None (31 December 2009: None). 184 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 21. Deferred income tax Deferred income tax was calculated for the temporary differences in the balance sheet items arising due to measurement in financial statements and measurement in accordance with Tax Law. The enacted tax rate used for the calculation of deferred income taxes on temporary differences that are expected to be realised in the following periods under the liability method is 20%. . As of 31 December 2010 and 2009 the temporary differences giving rise to deferred income tax assets and deferred income tax liabilities with using appropriate tax rates are as follows: Cumulative temporary differences 31 December 2010 31 December 2009 Deferred income tax assets / (liabilities) 31 December 2010 31 December 2009 Deferred income tax assets Financial liability due to pension agreements Provision for premium and commission for employee Provision for employment termination benefits Provision for lawsuits Provision for receivables from intermediaries and policyholders Provision for unused vacations Unexpired risks reserve Fixed asset depreciation difference Provisions for not received invoices Provisions of effect of renewal of reinsurance agreements (Note 47.1) Chain ladder provision Deferral of asistance premiums Expense Accruals Subrogation provisions Equalization reserve Other 6,032,045 7,914,665 8,436,611 3,008,257 1,751,387 2,647,147 324,756 715,688 552,115 19,927,576 2,887,052 3,398,105 4,582,439 4,746,503 433,458 8,209,597 6,830,953 7,193,835 2,175,912 1,224,763 2,052,651 7,129,778 10,251,681 4,829,486 2,145,094 2,709,985 1,206,411 1,582,933 1,687,320 601,651 350,277 529,429 64,951 143,138 110,423 3,985,515 577,410 679,621 916,488 949,301 86,692 1,641,919 1,366,191 1,438,767 435,182 244,953 410,530 1,425,956 2,050,336 965,897 429,019 541,997 Total deferred income tax assets 67,357,802 54,753,735 13,471,560 10,950,747 (4,530,752) (4,864,016) (906,150) (972,803) (3,093,686) (2,536,442) (2,731) (1,630,078) (3,080,034) (1,305,870) (1,754,934) (10,644) (1,094,593) (618,737) (507,288) (546) (326,016) (616,007) (261,174) (350,987) (2,129) (218,919) (11,793,689) (12,110,091) (2,358,737) (2,422,021) 55,564,113 42,643,644 11,112,823 8,528,726 Deferred income tax liabilities Deferred acquisition costs for pension contracts Net difference between the carrying values and tax base values of tangible assets Equalization reserve Rediscount on receivables Provision for other income Eurobond valuation difference Total deferred income tax liabilities Net deferred income tax assets (Note 35) Yapı Kredi Sigorta 2010 Annual Report 185 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) The movement of deferred income tax is as follows: Opening balance - 1 January Deferred tax income Deferred income tax assets booked in equity due to increase in value of available-for-sale financial assets (Eurobond and government bond) Closing balance - 31 December (Note 35) 2010 8,528,726 2,614,593 2009 4,277,889 4,561,168 (30,496) (310,331) 11,112,823 8,528,726 31 December 2010 8,436,611 31 December 2009 7,193,835 8,436,611 7,193,835 22. Retirement Benefit Obligations Provision for employment termination benefits Under Turkish Labour Law, the Group is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). After the changes made on 23 May 2002 in the legislation, some process of transition clauses related to the length of service before retirement have been omitted. The amount payable consists of one month’s salary limited to a maximum of TRY 2,517.01 (31 December 2009: TRY 2,365.16) for each year of service at 31 December 2010. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the future probable obligations arising from the retirement of the employees. For the employees who have been notified before the date of December 31, 2010, the provision for employment termination benefits is TRY 400,945 and notice provision is TRY 161,026 and classified with in short term liabilities. TMS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: Discount rate per annum (%) Turnover rate for estimating the probability of retirement (%) 31 December 2010 4.66 94.71 31 December 2009 5.92 94.93 The principal assumption is that the maximum liability will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. As the maximum liability is revised semi-annually, the maximum amount of TRY 2,623.23 (1 January 2010: TRY 2,427.04) which is effective from 1 January 2011, has been taken into consideration in calculating the provision for employment termination benefits. 186 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Movement in the provision for employment termination benefits in the current period is as follows: Opening balance - 1 January Paid during the period (Note 33) Charge for the period Closing balance - 31 December Provision for employment termination benefits – Short term Provision for employment termination benefits – Long term 2010 7,193,835 (1,943,025) 3,185,801 8,436,611 2009 6,188,273 (1,841,157) 2,846,719 7,193,835 31 December 2010 561,971 7,874,640 31 December 2009 7,193,835 8,436,611 7,193,835 31 December 2010 8,280,355 552,114 883,000 1,921,625 11,637,094 31 December 2009 6,116,453 511,859 1,659,606 8,287,918 23. Provisions for Other Liabilities and Charges Commitments and contingent liabilities not recognised as liabilities are disclosed in Note 43. Guarantees and pledges received are disclosed in Note 12.3. The details of provisions that are classified under provisions for expense accruals in balance sheet are as follows: Personnel bonus provision Provision for marketing and general administrative expenses Sales staff bonus accrual Other 24. Net Insurance Premium Revenue The distribution of premium income is as follows: Sickness\Health Life Land vehicles Fire and natural disasters General losses Land vehicles liability General liability Accident Transportation Other Gross 334,791,119 109,653,515 147,683,262 103,561,926 55,182,439 61,902,739 19,279,183 16,605,212 11,105,191 5,630,766 Total premium income 865,395,352 1 January- 31 December2010 Reinsurance (4,061,315) (8,359,412) (971,219) (63,561,038) (42,335,305) (4,089,379) (9,721,564) (2,478,515) (4,647,297) (3,665,271) (143,890,315) Net 330,729,804 101,294,103 146,712,043 40,000,888 12,847,134 57,813,360 9,557,619 14,126,697 6,457,894 1,965,495 721,505,037 Yapı Kredi Sigorta 2010 Annual Report 187 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Sickness\Health Life Land vehicles Land vehicles liability Fire and natural disasters Accident General losses Transportation General liability Other Gross 282,237,809 92,209,467 99,728,087 48,954,385 90,838,478 13,247,222 43,318,070 9,683,478 9,982,051 7,669,455 Total premium income 697,868,502 1 January- 31 December 2009 Reinsurance (4,054,878) (5,375,181) (13,300,455) (7,529,318) (60,851,664) (2,395,989) (34,620,153) (5,313,845) (7,225,061) (6,414,609) (147,081,153) Net 278,182,931 86,834,286 86,427,632 41,425,067 29,986,814 10,851,233 8,697,917 4,369,633 2,756,990 1,254,846 550,787,349 25. Fee Income Income related with pension operations are disclosed in Notes 2.21 and 2.25. 26. Investment Income 1 January- 31 December 2010 The Group’s share Policyholder’s share Available-for-sale financial assets Interest income Net sales income Dividend income Cash and cash equivalents Interest income Held-for-trading financial assets Interest income Valuation and net sales income Foreign exchange income/(expense) Total 30,504,542 262,691 12,055 24,023,340 - 18,307,333 3,587,064 1,425,156 1,410,484 188,215 6,528,896 1,900,787 2,602,253 52,110,476 38,642,340 1 January- 31 December 2009 The Group’s share Policyholder’s share Available-for-sale financial assets Interest income Cash and cash equivalents Interest income Dividend income Net sales income Held-for-trading financial assets Interest income Valuation and net sales income Foreign exchange income/(expense) Total 35,296,212 28,059,112 19,902,122 13,017 1,910,963 4,246,563 - 2,775,871 3,478,916 438,274 13,440,453 2,142,600 959,793 63,815,375 48,848,521 188 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 27. Net Realised Gains on Financial Assets Information about realised gain/loss on available-for-sale financial assets is disclosed in Notes 11 and 15. 28. Net Fair Value Gains on Assets at Fair Value Through Income Information about net fair value gains on assets at fair value through income is disclosed in Note 11. 29. Insurance Benefits and Claims Disclosed in Note 17. 30. Investment Contract Benefits None (31 December 2009: None). 31. Other Expenses by Destination Operating expenses classified under technical part - non-life Operating expenses classified under technical part - private pension Operating expenses classified under technical part - life Total (Note 32) 1 January 31 December 2010 137,629,764 41,653,337 35,122,637 1 January 31 December 2009 115,986,755 44,193,157 29,627,133 214,405,738 189,807,045 1 January31 December 2010 103,141,461 83,393,361 9,274,321 8,844,444 7,130,742 5,032,460 13,820,195 3,151,739 1,984,793 2,758,489 112,088 2,964,546 333,266 (3,150,527) (25,797,622) 1,411,982 1 January 31 December 2009 95,801,084 65,828,154 6,904,886 5,349,753 7,460,782 4,918,914 12,699,049 2,860,553 2,097,535 3,213,792 192,182 692,762 2,503,804 (1,230,212) (30,954,208) 11,467,915 214,405,738 189,807,045 32. Expenses by nature Details of the operating expenses in the income statement is as below: Personnel expenses (Note 33) Commission expenses - Non-life Commission expenses - Pension Commission expenses - Life Office expenses Advertising and marketing expenses Outsource expenses Rent expenses Communication Expenses Transportation expenses Maintenance and repair expenses Other operating expenses Deferred acquisition costs for pension contracts Production commission revenue (life) Reinsurance commission income Other technical (income)/expense Total Yapı Kredi Sigorta 2010 Annual Report 189 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 33. Employee Benefit Expense Salary payments Bonus payment Sales personnel expense Social security deductions Employment termination benefits Notification benefit Unused vacation benefit Other Total (Note 32) 1 January 31 December 2010 53,102,086 23,467,070 6,109,377 11,257,692 1,943,025 283,585 129,249 6,849,377 1 January 31 December 2009 49,640,016 22,756,862 4,819,434 10,347,541 1,841,157 304,776 432,907 5,658,391 103,141,461 95,801,084 Total salaries and benefits paid to the members of the Board of Directors, General Manager, General Coordinator, Assistant General Manager and other executive management are explained in Note 1.6. The Group does not have any shared-based payments. (31 December 2009: None). 34. Financial Costs 34.1 Total financial expenses for the period: None (31 December 2009: None). 34.1.1 34.1.2 34.1.3 Expenses related to production cost: None (31 December 2009: None). Expenses related to tangibles: None (31 December 2009: None). Directly recorded as expense: None (31 December 2009: None) 34.2 Financial expenses related to shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): None (31 December 2009: None). 34.3 Sales to/purchases from shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): Related party transactions and balances are disclosed in Note 45. 34.4 Interest, rent or other charges received from or paid to shareholders, subsidiaries and investments (any amount exceeding 20% of total will be illustrated separately): Related party transactions and balances are disclosed in Note 45. 35. Income taxes Tax income and expense recognised in the income statement for the year ended 31 December 2010 and 2009 are summarised below: Reversal of prior year’s corporate tax provision booked in excess Corporate tax for the current period Tax expense classified in equity on available-for-sale financial assets (Note 15) (*) Deferred tax income Total tax (*) Classified under deferred income tax asset account in the income statement. 1 January 31 December 2010 788,180 (11,211,935) (555,423) 2,614,593 1 January 31 December 2009 40,408 (8,667,701) 1,706,838 4,561,168 (8,364,586) (2,359,287) 190 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 11,211,935 (6,983,932) 31 December 2009 8,667,701 (10,744,970) Total 4,228,003 (2,077,269) Deferred income tax asset Deferred income tax liability 13,471,560 (2,358,737) 10,950,747 (2,422,021) Deferred income tax asset, net (Note 21) 11,112,823 8,528,726 31 December 2010 49,081,288 (2,059,169) 47,022,119 20% (9,404,424) (1,275,879) 782,161 788,180 745,376 31 December 2009 9,905,839 (6,308,414) 3,597,425 20% (719,485) (4,063,421) 2,423,619 - (8,364,586) (2,359,287) Tax Prepaid taxes (-) The reconciliation between the expected and the actual taxation charge is as follows: Profit before income tax Minus: Deferred tax income Profit before current and deferred income tax Enacted tax rate Tax calculated by enacted tax rate Expenses not allowable for tax purposes Income not subject to tax Provision of excess of previous period corporate tax The effect of temporary differences of not calculated tax asset on deferred tax Tax charge for the period Yapı Kredi Sigorta 2010 Annual Report 191 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 36. Net Foreign Exchange Gains Investment income, net Technical income, net General administrative expenses Total 1 January 31 December 2010 9,896,412 (17,760,374) 7,576,071 1 January 31 December 2009 24,195,290 (32,720,009) 9,056,885 (287,891) 532,166 37. Earnings per share Earnings per share is calculated by dividing net profit for the period into weighted average unit share of the Group. Net profit for the period Weighted average number of shares with face value of Kr 1 per share Earning per share (Kr) 1 January 31 December 2010 38,657,533 8,000,000,000 0.4832 1 January 31 December 2009 1,238,138 8,000,000,000 0.015 38. Dividends per share Distribution of profit for the year ended 31 December 2010 with a decision of the Board of Directors or the General Assembly are not taken yet. The Group Management Board meeting held on 2 March 2010, distribution of profit for the year 2009 closed with a loss so is not to be presented to the approval of the General Assembly. The General Assembly approved this decision on March 23, 2010. (December 31, 2009: The Group Management Board meeting held on 12 March 2009, profit for the year 2008 amounting to TRY 10,739,894 as part of the April 15, 2009 cash distribution to shareholders from the date of the decision was taken. Dividend rate was 0.1342 Kr per share dividend amount.) then a subsidiary of the General Assembly approved in March of 2010 the dividend was TRY 19,431. (December 31, 2009: subsidiary, with the approval of the General Assembly of 2008, profits amounted to TRY 5,133 in cash to shareholders as of March 31, 2009). 39. Cash generated from operations Disclosed in the statement of cash flows. 40. Bond convertible to shares None (31 December 2009: None). 41. Redeemable preference shares None (31 December 2009: None). 192 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 42. Contingencies Outstanding claims litigations against the Group (*) Lawsuits against the Group for refund of premiums Labour litigations against the Group Other lawsuits against the Group 31 December 2010 48,042,648 1,032,120 661,892 1,090,858 31 December 2009 42,685,004 896,630 651,210 628,072 50,827,518 44,860,916 Total (*) Related item is accounted for in outstanding claim reserve and the movement table of outstanding claim provision is disclosed in Note 17. Related provision’s net amount is TRY 26,619,907(31 December 2009: TRY 18,432,125) 43. Commitments The amount of guarantees and pledges and foreign currency details are as follows: Letter of guarantee USD 15,460 Total 15,460 31 December 2010 Euro TRY 4,644,658 - Letter of guarantee USD 15,057 Total 15,057 Total 4,660,118 4,644,658 4,660,118 31 December 2009 TRY 5,986,973 5,986,973 Total 6,002,030 6,002,030 Mortgages or restrictions on assets: Marketable securities portfolio (*) Property for operational usage (Note 6) Investment properties (Note 7) Banks Policyholders’ portfolio (Note 11) Group’s portfolio (Notes 2.12 and 14) Total 31 December 2010 572,029,691 3,328,729 1,703,850 31 December 2009 604,502,501 5,356,015 3,235,209 55,131,068 28,874,250 47,642,852 22,482,360 661,067,588 683,218,937 (*) As of 31 December 2009, marketable securities amounting to TRY 556,528,439 (31 December 2009: TRY 604,370,336) are blocked in favour of the Treasury and 148,992 (31 December 2009: TRY 132,165) in favour of TARSİM. Yapı Kredi Sigorta 2010 Annual Report 193 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 44. Business combinations None (31 December 2009: None). 45. Related-party transactions Yapı Kredi Group Companies, Yapı Kredi Group Companies’ shareholders and the companies under control of the shareholders are considered as related parties in these financial statements. a) Deposits and financial assets Yapı ve Kredi Bankası A.Ş. Total 31 December 2010 31 December 2009 339,647,606 243,166,980 339,647,606 243,166,980 31 December 2010 31 December 2009 b) Trade receivables Yapı ve Kredi Bankası A.Ş. Setur Servis Turistik A.Ş. Yapı Kredi Yatırım Ortaklığı A.Ş. Yapı Kredi Kültür Sanat Tic. A.Ş. Yapı Kredi Faktoring A.Ş. Kredi Kayıt Bürosu A.Ş. Bankalararası Kart Merkezi Türkiye Eğitim Gönüllüleri Vakfı Yapı Kredi Leasing Unicredit (San) Menkul Değerler A.Ş. Agrosan Kimya San.veTic.A.Ş. Ford Otomotiv YKS Tesis Yönetim Hizmetleri A.Ş. Yapı Kredi Portföy Yönetimi A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. Koç Finansal Hizmetler A.Ş. 29,473,834 5,635 94,246 122,130 22,273 16,144 262,875 74,236 23,526 378 10,993 97,601 263,332 - 24,725,971 81,588 6,188 117,961 96,471 16,699 13,612 227,284 62,871 77,844 259,070 5,278 Total 30,467,203 25,690,837 194 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 31 December 2009 c) Trade Payables Yapı ve Kredi Bankası A.Ş. 3,144,563 3,494,448 Total 3,144,563 3,494,448 d) Due to insurance and pension operations Yapı ve Kredi Bankası A.Ş. 888,458 476,790 Total 888,458 476,790 e) Other payables Zer Merkezi Hizmetler A.Ş. Koç Sistem A.Ş. Setur Servis Turistik A.Ş. YKS Tesis Yönetim Hizmetleri A.Ş. Yapı Kredi Bankası A.Ş. KoçNet Haberleşme Teknolojileri ve İletişim Hizmetleri. A.Ş. Otokoç A.Ş. Koç Holding A.Ş. Opet Petrolcülük A.Ş. 809,674 632,563 28,829 12,818 11,648 79,466 26,626 8,260 19,976 667,052 86,696 35,329 60,999 65,730 33,192 7,869 14,590 1,629,860 971,457 Total 31 December 2010 31 December 2009 f) Other receivables Yapı Kredi Factoring A.Ş. YKS Tesis Yönetim Hizmetleri A.Ş. 8,293 6,166 - Total 8,293 6,166 Yapı Kredi Sigorta 2010 Annual Report 195 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 31 December 2010 1 January 31 December 2009 112,163 11,261 106,593 26,100 Total 123,424 132,693 h) Rent expense Yapı ve Kredi Bankası A.Ş. 1,416,420 1,330,916 Total 1,416,420 1,330,916 i) Interest income Yapı ve Kredi Bankası A.Ş. 24,716,476 23,961,974 24,716,476 23,961,974 j) Interest expense Yapı Kredi Leasing A.Ş. 289 1,796 Total 289 1,796 g) Rent income Yapı ve Kredi Bankası A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. Total 196 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 31 December 2010 1 January 31 December 2009 62,101,238 805,444 362,729 24,208 910,539 521,179 245,375 320,172 197,377 3,817 307,749 41,156 15,799 43,148 7,886 10,178 24,012 122,527 128,218 296,026 144,998 5,411 49,349,177 972,664 665,333 598,998 569,913 482,092 219,433 231,857 166,521 41,731 21,335 12,376 10,218 10,556 87,669 133,460 248,839 116,479 6,363 Total 66,638,916 53,976,660 l) Commission expense and insurance premiums Yapı ve Kredi Bankası A.Ş. Yapı Kredi Leasing A.Ş. Yapı Kredi Portföy A.Ş. Yapı Kredi Yatırım A.Ş. 30,972,627 1,832,793 7,950,134 87,786 21,137,843 1,873,440 5,803,579 87,248 40,843,340 28,902,110 k) Written premiums Yapı ve Kredi Bankası A.Ş. Setair Hava Taşımacılığı ve Hizm. A.Ş. Koç Holding A.Ş. RMK Marine Gemi Yapım San. A.Ş. Yapı Kredi Yatırım Menkul Değerler A.Ş. Yapı Kredi Leasing A.Ş. Yapı Kredi Faktoring A.Ş. Setur Servis Turistik A.Ş. Yapı Kredi Portföy Yönetimi A.Ş. Yapı Kredi Moscow Aygaz A.Ş. Yapı Kredi Koray GYO A.Ş. Bankalararası Kart Merkezi Yapı Kredi Yatırım Ort. A.Ş. Otokoç A.Ş. Agrosan Kimya Sanayi ve Ticaret A.Ş. Koç Finansal Hizmetler A.Ş. Koç Leasing A.Ş. YKS Tesis Yönetim Hizm. A.Ş. Sanal Merkez Ticaret A.Ş. Kredi Kayıt Bürosu A.Ş. T.Eğitim Gönüllüleri Vakfı Yapı Kredi Kültür Sanat Yayıncılık San. ve Tic. A.Ş. Unicredit (San) Menkul Değ. A.Ş. Tümteks Tekstil ve Gıda Sanayi Tic. Ltd Total Yapı Kredi Sigorta 2010 Annual Report 197 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 1 January 31 December 2010 1 January 31 December 2009 m) Other expenses Zer Merkezi Hizmetler A.Ş. YKS Tesis Yönetim Hizm. A.Ş. Otokoç Otomotiv Tic.ve San. A.Ş. 2,067,222 1,130,513 753,461 1,925,800 745,899 677,484 Total 3,951,196 3,349,183 9,623 9,622 186 5,702,885 856,201 567,640 3,618,301 Total 19,431 10,745,027 o) Dividends received Other 12,055 13,017 Total 12,055 13,017 n) Dividends paid Yapı ve Kredi Bankası A.Ş. Yapı Kredi Factoring A.Ş. Yapı Kredi Yatırım A.Ş. Other The Group has written premiums amounting to TRY 125,066,385 (31 December 2009: TRY 131,202,198) by the intermediary of Yapı ve Kredi Bankası A.Ş. during the period. 45.1 Doubtful receivables from shareholders, investments, subsidiaries: None (31 December 2009: None). 45.2 Breakdown of investments and subsidiaries having an indirect shareholding and management relationship with the Group, participation rates and amounts of these investments and subsidiaries; profit/loss, net profit/loss in the latest financials, the period of these financials and the opinion type of the independent audit report if the company is independently audited: Financial Assets Çimsataş A.Ş. Emeklilik Gözetim Merkezi Çukurova Çelik End. A.Ş. Çimsataş A.Ş. Emeklilik Gözetim Merkezi Çukurova Çelik End. A.Ş. (%) 0.01 7.69 0.17 (%) 0.01 7.69 0.17 Restated Cost 368,613 263,221 6,308,122 6,939,956 Book Value 368,613 263,221 631,834 Restated Cost 368,613 263,221 6,308,122 Book Value 368,613 263,221 - 6,939,956 631,834 Independent audit opinion - 31 December 2010 Financial statement Total period Asset 30.09.2010 31.12.2010 7,336,205 30.09.2010 - Independent audit opinion - 31 December 2009 Financial statement Total period Asset 31.12.2009 298,833,739 31.12.2009 6,097,858 31.12.2009 2,401,845,085 Total liabilities 3,034,258 - Net sales 4,938,578 - Net profit/ (loss) 22,372 - Total Net liabilities sales 19,926,990 49,585,921 1,818,553 5,215,935 184,170,469 - Net profit/ (loss) (8,838,798) 39,539 (491,163) 198 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 45.3 Bonus shares obtained through internally funded capital increases of equity investments and subsidiaries: None (31 December 2009: None). 45.4 Rights on immovable and their value: None (31 December 2009: None). 45.5 Guarantees, commitments and securities given for shareholders, investments and subsidiaries: None (31 December 2009: None). 46. Subsequent events after the balance sheet date: None (31 December 2009: The employment termination benefits ceiling has increased to TRY 2,423.88 effective from 1 January 2010.). 47. Other 47.1 Details of “Other” items in the balance sheet which exceed 20% of its respective account group or 5% of total assets: p) Other cash and cash equivalents: Credit card collections Bank payment document Other r) Other receivables: Receivables due from related parties 31 December 2010 31 December 2009 83,617,229 62,562 27,261 55,511,687 88,724 12,942 83,707,052 55,613,353 31 December 2010 31 December 2009 8,293 - 8,293 - Yapı Kredi Sigorta 2010 Annual Report 199 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 31 December 2010 31 December 2009 2,318,583 3,873,504 1,895,781 895,412 6,192,087 2,791,193 1,859,893,915 7,873,053 3,036,269 940,690 200,000 1,365,310,672 8,340,532 2,243,029 983,029 - Receivables from pension operations: 1,871,943,927 1,376,877,262 Payables to participants Participants’ transitory account Payables to intermediaries Participants of withdrawal account Other 1,860,834,605 29,198,521 660,553 1,829,624 759,200 1,366,293,701 23,827,560 674,058 2,705,867 560,891 1,893,282,503 1,394,062,077 66,678 124,788 191,466 16,728 1,537 18,265 2,095,002 2,095,002 2,437,452 2,437,452 2,435,750 2,435,750 2,426,566 2,426,566 39,082,328 2,194,076 41,276,404 36,059,896 929,476 36,989,372 484,321 632,484 11,648 204,199 1,332,652 342,486 86,696 24,392 306,637 760,211 s) Other Receivables: Mandatory earthquake insurance receivables Other t) Receivables and payables from pension operations : Receivables from custody institutions Receivables from participants (entrance fee) Fund management expense fee Sales orders Advance payment of pension funds Payables from pension operations: u) Other current assets Receivables from suppliers Other v) Other Deferred Expenses and Income Accruals – short term: Deferred pension branch production expense (Note 2.25) w) Other non-current deferred income and expense accruals-Long term: Deferred acquisition costs for pension contracts (Note 2.25) x) Other payables from main operations: Payables to contracted institutions Other y) Due to other related parties Zer A.Ş. Koç Sistem A.Ş. Yapı ve Kredi Bankası A.Ş. Other 200 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) z) Other payables: Payables to intermediaries Payables to suppliers Personnel health insurance Other aa) Other short-term technical reserves: Effect of rate change of reinsurance agreements Provision expense for financial asset bb) Provisions for other tax and liabilities Provision for lawsuit against company cc) Other non-current technical reserves: Equalization reserve Other technical reserves (*) 31 December 2010 31 December 2009 4,571,366 5,271,235 1,664,201 1,399,854 6,258,800 4,276,752 1,437,466 987,926 12,906,656 12,960,944 150,000 10,251,681 160,000 150,000 10,411,681 3,174,668 1,976,911 3,174,668 1,976,911 7,423,016 32,526,080 4,027,283 23,325,661 39,949,096 27,352,944 (*) Other technical provisions consist of unrealised gains and losses not belonging to the Group due to changes in the market values of available for sale financial assets. dd) Other non-current deferred income and expense accruals: Unused vacation provision ee) Other long-term liabilities: Financial liability (loyalty bonus) due to pension contracts (Note 2.25) 31 December 2010 2,647,147 31 December 2009 2,052,651 2,647,147 2,052,651 6,032,045 8,209,597 6,032,045 8,209,597 Yapı Kredi Sigorta 2010 Annual Report 201 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) ff) Change in other technical reserves (Life branch): IGP Pool Profit sharing provision expense Equalization reserve Provision expense for financial assets Incorporation fee Reinsurance foreign exchange expense Union membership dues Other gg) Other technical expenses (Pension branch): Credit commission expense Loyalty bonus expense EGM. E-BEAS. Expenses paid to Takasbank Other hh) Other expenses and losses: Personnel bonus not distributed in the previous year Other 1 January 31 December 2010 1 January 31 December 2009 1,647,452 1,229,065 640,854 (10,000) 126,240 33,599 112,043 99,007 1,302,845 1,478,848 300,401 160,000 114,764 103,054 117,703 120,297 3,878,260 3,697,912 3,329,723 342,699 478,872 382,024 2,320,435 1,009,640 306,793 464,832 225,315 4,533,318 4,327,015 481,279 518,907 106,737 833,859 1,000,186 940,596 47.2 Due from and due to personnel classified in “Other receivables” and “Other short-term or long-term payables” that exceed 1% of total assets: None (31 December 2009: None). 47.3 Receivables from salvage and subrogation followed under off-balance sheet item: None (31 December 2009: TRY 2,500,673). 47.4 Income and expenses related to prior periods and the amounts and sources of expenses and losses: None (31 December 2009: None). 202 Consolidated Financial Information Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) 47.5 Information that the Treasury requires to be presented: Provision and rediscount expense for the period: Technical Provisions: Unearned premium reserves-net Effect of renewal of reinsurance agreements Outstanding claim provision-net Unexpired risks reserve Other technical reserves -life Other technical reserves -non-life Deferred commission expenses Deferred commission income Life mathematical reserve Tax provisions: Tax provision Deferred tax provision Other provisions Payable and receivable Discount income/(expense) Potential subrogation (The opposite balance as 2009) Provision for receivables from policyholders and intermediaries Provision for other liabilities and expenses Provision for Employment Termination Benefits Doubtful Receivables from Main Operations Other provisions 1 January 31 December 2010 1 January31 December 2009 67,133,097 27,406,196 (6,671,660) 3,878,260 2,842,926 (7,745,140) 1,188,987 (16,212,855) 18,216,580 314,078 9,348,452 7,049,215 3,697,912 1,824,436 (6,296,984) (2,871,053) 37,001,723 10,423,755 (2,059,169) 8,667,701 (6,308,414) (41,698) 7,691,751 526,625 594,497 1,242,776 224,651 554,727 (1,803,024) (75,115) 61,647 1,005,562 (61,336) 459,746 Yapı Kredi Sigorta 2010 Annual Report 203 Yapı Kredi Sigorta A.Ş. Convenience Translation of the Notes to the Consolidated Financial Statements as of 31 December 2010 (Amounts expressed in Turkish Lira [“TRY”] unless otherwise indicated.) Note I. 1.1. 1.2. A 1.3. 1.4. 1.5. B 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12. 1.13. 1.14. 1.15. II. 2.1. 2.2. 2.3. 2.4. 2.5. III. 3.1. 3.2. 3.3. 3.4. IV. 4.1. 4.2. 4.3. 4.4. DISTRIBUTION OF PROFIT FOR THE PERIOD PROFIT FOR THE PERIOD TAXES PAYABLE AND LEGAL LIABILITIES 1.2.1. Corporation tax (Income tax) 1.2.2. Income tax deduction 1.2.3. Other taxes and legal liabilities NET PROFIT FOR THE PERIOD (1.1 - 1.2) PREVIOUS YEARS’ LOSSES (-) FIRST LEGAL RESERVE LEGAL RESERVES KEPT IN THE COMPANY (-) NET DISTRIBUTABLE PROFIT FOR THE PERIOD [ (A - (1.3 + 1.4 + 1.5) ] FIRST DIVIDEND TO SHAREHOLDERS (-) 1.6.1. To common shareholders 1.6.2. To preferred shareholders 1.6.3. To owners of participating redeemed shares 1.6.4. To owners of profit-sharing securities 1.6.5. To owners of profit and loss sharing securities DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO FOUNDERS (-) DIVIDENDS TO BOARD OF DIRECTORS (-) SECOND DIVIDENDS TO SHAREHOLDERS (-) 1.10.1. To common shareholders 1.10.2. To preferred shareholders 1.10.3. To owners of participating redeemed shares 1.10.4. To owners of profit-sharing securities 1.10.5. To owners of profit and loss sharing securities SECOND LEGAL RESERVE (-) STATUTORY RESERVES (-) EXTRAORDINARY RESERVES OTHER RESERVES SPECIAL FUNDS DISTRIBUTION FROM RESERVES DISTRIBUTED RESERVES SECOND LEGAL RESERVE (-) DIVIDENDS TO SHAREHOLDERS (-) 2.3.1. To common shareholders 2.3.2. To preferred shareholders 2.3.3. To owners of participating redeemed shares 2.3.4. To owners of profit-sharing securities 2.3.5. To owners of profit and loss sharing securities DIVIDENDS TO EMPLOYEES (-) DIVIDENDS TO BOARD OF DIRECTORS (-) PROFIT PER SHARE TO COMMON SHAREHOLDERS TO COMMON SHAREHOLDERS (%) TO PREFERRED SHAREHOLDERS TO PREFERRED SHAREHOLDERS (%) DIVIDENDS PER SHARE TO COMMON SHAREHOLDERS TO COMMON SHAREHOLDERS (%) TO PREFERRED SHAREHOLDERS TO PREFERRED SHAREHOLDERS (%) 31 December 2010 Current Period 31 December 2009 Previous Period 49,060,822 (10,419,852) (10,419,852) 38,640,970 - 9,886,308 (8,662,955) (8,662,955) 1,223,353 - General Assembly is the responsible body for profit distribution and General Assembly was not held as of the preparation date of the financial statements. Since the statement of profit distribution for the year 2010 is not prepared by the Board of Directors yet, only net profit for the period is disclosed in the statement of profit distribution. 204 Consolidated Financial Information Information Regarding Consolidated Partnerships Yapı Kredi Emeklilik (Yapı Kredi Pension) Yapı Kredi Emeklilik, which carries on business activities in the fields of private pension and life insurance, offers services utilizing different products designed for individual and corporate demands. In addition to its “Akıllı Adım Private Pension Plans”, the Company also offers risk products in the life insurance market. One of the leading companies in the Private Pension System, Yapı Kredi Emeklilik preserved its position in the market in 2010, in terms of both the fund size and the number of contracts. In the Private Pension System, where 13 companies in total are operating, the Company is in third place in terms of the size of the funds managed with a market share of 15.46%, and in fourth place in terms of the number of contracts with a market share of 12.32%. As of end-2010, Yapı Kredi Emeklilik has a market share of 5.03% and holds the sixth place in the life insurance branch, with a life insurance premium production of TRY 109.7 million and mathematical reserves of TRY 496.38 million. 99.93% of Yapı Kredi Emeklilik is owned by its parent company, Yapı Kredi Sigorta. Yapı Kredi Emeklilik posted a net profit of TRY 22,589,031 in 2010. The Company has eight regional offices in Turkey, ten branches, and 54 provincial representatives in 33 provinces. Its 133 agencies create a wide network of sales and service, and there are 820 administrative and sales staff in the Yapı Kredi Emeklilik organization. In addition, 868 Yapı Kredi Bank branches act as agencies to serve Yapı Kredi Emeklilik customers. Developments in 2010… • In 2010, in the personal accident branch, two new products were introduced to the market, namely My Child’s Education Insurance (“Çocuğum Okusun Eğitim Güvencesi”) and Multi-Protection Accident Insurance (“Multi Koruma Kaza Sigortası”). In the life insurance branch, on the other hand, the products Credit Card Payment Insurance (“Kredi Kartı Ödeme Güvencesi”), Commercial Credit Insurance (“Ticari Kredi Güvencesi”) and Credit Payment Insurance (“Kredi Ödeme Güvencesi”) were launched. • The Gaziantep Branch officially commenced operations in October 2010, under the umbrella of Yapı Kredi Emeklilik’s Southern Region. • The Company was designated one of the “Superbrands of Turkey” by Superbrands International, and was also featured in the book “Superbrands of Turkey 2010”. • The Company completed its systemic integration with Yapı Kredi Bank and launched the “Dataset” (“Veriseti”) project, allowing products sales via Yapı Kredi Bank monitors. Yapı Kredi Sigorta 2010 Annual Report 205 Information for Shareholders General At each General Assembly Meeting, the Chairman and Members of the Board of Directors are elected. Accordingly, their term of office is the duration between two General Assembly Meetings. The risk group that the Company falls under is explained in the 45th footnote of the Income Statement. Stock Exchange Yapı Kredi Sigorta’s shares are traded on the Istanbul Stock Exchange (ISE) in the national market under the symbol YKSGR. Information about the Company’s shares is published on the economics pages of daily newspapers and on the Internet portals of brokerage houses. Investor Relations Copies of Yapı Kredi Sigorta’s annual reports and other information about the Company may be obtained from the following address as well as from the corporate website at www.yksigorta.com.tr. Yapı Kredi Sigorta Investor Relations (Emel Bek - M. Teoman Çelen) Yapı Kredi Plaza A Blok, Büyükdere Caddesi Levent, 34330 Istanbul, Turkey Annual Ordinary General Assembly Meeting Annual Ordinary General Assembly Meeting of Yapı Kredi Sigorta will be held on Tuesday, March 22, 2011 at 14:45 at the address of Yapı Kredi Plaza D Blok Conference Room, Levent/Istanbul, Turkey Independent Auditor Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi Büyükdere Caddesi Beytem Plaza Kat: 9/0 80220 Şişli/Istanbul, Turkey Tel: +90 (212) 315 30 00 Fax: +90 (212) 230 82 91 Tax Certification DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. Sun Plaza Maslak Mah. Bilim Sok. No: 5 Şişli/Istanbul, Turkey 34398 Niyazi Çömez Tel: +90 (212) 366 60 00 Fax: +90 (212) 366 60 10 206 Consolidated Financial Information YKSGR Share Performance in 2010 According to its year-end balance sheet, Yapı Kredi Sigorta’s paid-in capital amounts to TRY 80 million and its registered capital is TRY 250 million. The following chart shows the performance of Yapı Kredi Sigorta’s shares in 2010, in comparison with the ISE general index. The lowest price per share during the year was TRY 9.20 and the highest TRY 16.70. The average trading price for the year 2010 was TRY 11.97. Share price quarterly lows and highs are presented below. Low 10.60 9.20 9.40 12.95 01.01.2010 - 31.03.2010 01.04.2010 - 30.06.2010 01.07.2010 - 30.09.2010 01.10.2010 - 31.12.2010 80.000 High 13.80 12.70 13.20 16.70 18 16 70.000 14 12 60.000 10 8 50.000 IMKB 6 YKSGR December November October September August July June May April March February 4 January 40.000 Information Regarding Subsidiaries Yapı Kredi Emeklilik figures among the leading, pioneering companies of the life insurance and private pension sectors as of December 2010. In the Private Pension System, where 13 companies are active, Yapı Kredi Emeklilik is in third place in terms of the size of the funds managed with a market share of 15.46%, and in fourth place in terms of the number of contracts with a market share of 12.32%. Yapı Kredi Sigorta 2010 Annual Report 207 Directory Head Office Yapı Kredi Plaza A Blok Büyükdere Cad. Levent 34330 Istanbul, Turkey Tel: +90 (212) 336 06 06 Fax: +90 (212) 336 08 08 E-mail: yksigorta@yksigorta.com.tr Internet Address: www.yksigorta.com.tr Call Center: +90 (212) 336 09 09 Mediterranean Regional Office Sinan Mah. Recep Peker Cad. Antalya 2000 İş Merkezi No: 22 Kat: 4. 07100 Antalya, Turkey Tel: +90 (242) 310 39 39 Fax: +90 (242) 314 11 05 Aegean Regional Office Halit Ziya Bulvarı No: 74 Alsancak 35210 Izmir, Turkey Tel: +90 (232) 498 64 64 Fax: +90 (232) 498 64 00 Southern Regional Office Ziya Paşa Bulvarı No: 74 01130 Adana, Turkey Tel: +90 (322) 455 57 57 Fax: +90 (322) 453 13 52 Central Anatolia Regional Office Mithatpaşa Cad. No: 43/E Kızılay 06420 Ankara, Turkey Tel: +90 (312) 458 60 60 Fax: +90 (312) 458 60 00 Marmara-1 Regional Office Atatürk Cad. No: 25 Kat: 4 16010 Bursa, Turkey Tel: +90 (224) 294 59 59 Fax: +90 (224) 280 90 33 Istanbul Regional Office Yapı Kredi Plaza A Blok Büyükdere Cad. Levent 34330 Istanbul, Turkey Tel: +90 (212) 336 06 06 Fax: +90 (212) 336 84 93 Bakırköy Representative Office G. Ali Rıza Gürcan Cad. Metropol Center No: 31 K: 8 Büro No: 33 Merter 34150 Istanbul, Turkey Tel: +90 (212) 481 01 03 Fax: +90 (212) 481 05 04 Kadıköy Representative Office Şemsettin Günaltay Cad. No: 213 Erenköy 34738 Istanbul, Turkey Tel: +90 (216) 363 36 96 Fax: +90 (216) 363 53 77 Yap› Kredi Sigorta A.Ş. Head Office Yapı Kredi Plaza A Blok Büyükdere Caddesi Levent 34330 Istanbul-TURKEY Tel: +90 (212) 336 06 06 Fax: +90 (212) 336 08 08 Call Center: +90 (212) 336 09 09 www.yksigorta.com.tr