ANNUAL REPORT gelecek AXA HAYAT EMEKLİLİK BOARD OF DIRECTORS REPORT GİRİŞ In 2015, we have developed innovative digital solutions for our customers and new digital tools to enhance the agility of our agencies.

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ANNUAL REPORT gelecek AXA HAYAT EMEKLİLİK BOARD OF DIRECTORS REPORT GİRİŞ In 2015, we have developed innovative digital solutions for our customers and new digital tools to enhance the agility of our agencies. 4 BOARD OF DIRECTORS REPORT MESSAGE FROM THE CHAIRMAN In 2015 AXA SİGORTA has been third biggest player in the market and the leader in Motor and complementary Health Insurance despite a very challenging environment, that have profoundly impacted our business. The Insurance sector required significant legal adjustments in order: to ensure reasonable prices for customers - in line with the level of coverage offered - and freely set by companies to ensure competition, to diminish the number of cases ending up in courts which for many could be avoided easily to offer to investors a stable and predictable environment to operate in, with an enforced regulation enabling effective solvency. At the beginning of 2016, as a result of Treasury s and Government s efforts, we have seen the first adjustment in this direction. We are convinced that through consistent policies to address these three key issues, the sector will recover its attractiveness in the coming periods. The world is changing very fast, all the businesses are becoming more and more digital and customers expectations are changing. In this new environment insurance customers are expecting offer and services, combining the high quality of in person contacts and advices provided to them by our Agents network with the easiness provided by the digital means. This is why, in 2015, we have developed innovative digital solutions for our customers and new digital tools to enhance the agility of our agencies that will contribute to differentiate us from our competitors, and to maintain our high customers and distributors satisfaction scores, while remaining the best known insurance brand in Turkey, a position that we hold since Becoming our customers preferred company is something we can only achieve with the support of an outstanding team. AXA SİGORTA continues to register excellent results in terms of employee satisfaction. In 2015, it has been recognized by the Great Place to Work Awards as number 1 company in its category for the third time in a row. AXA SİGORTA has also been number one in intention to buy in 2015 and I am sure that, thanks to the professionalism and dedication of our teams, as well as the quality of our Agency network, we will continue to be the preferred company in top of mind of the customers. Protecting our customers is our calling. At AXA, 161,000 men and women provide support for 103 million customers in 59 countries, working every day to make the world a safer place. Jean-Laurent Raymond Marie Granier Chairman 5 BOARD OF DIRECTORS REPORT 2016 will see AXA SİGORTA and AXA HAYAT VE EMEKLİLİK further continue GİRİŞ its journey to continually improve its superior service to customers through enhanced links with the agents and grow profitably. 6 BOARD OF DIRECTORS REPORT MESSAGE FROM CEO & MEMBER OF BOARD 2015 was a year of transformation for AXA SİGORTA and AXA HAYAT VE EMEKLİLİK. The major change was to align the organization towards more focus on customers and operations services. Starting from 2015 both entities are following a strategy of sustainable growth with enhanced technical capabilities. In that context AXA SİGORTA closed 2015 with a market share of 11.2% and 3,1bn TL of premium. Production decreased by 0,4% as a conscious decision to reduce AXA SİGORTA exposure to the volatile motor third party liability insurance line. AXA SİGORTA committed to book 1.1 bn TL of IBNR over according to accounting principles determined by regulation and hence posted a 280m loss in This is the result of motor third party liability policies underwritten in 2015 and prior years but for which claims are only reported now as it takes several years for the claims to be declared. As far as life, savings and pension are concerned, AXA HAYAT VE EMEKLİLİK s pension asset under management increased by close to 80% in 2015, which is a strong achievement. Today around 3,5m customers are trusting AXA SİGORTA and AXA HAYAT VE EMEKLİLİK. We are relentlessly striving at improving their experience with us at all touch points (advice, sales, claims etc). We are very proud that customers are rewarding our joint efforts with our agents and our customer satisfaction score was 84% for One of our goals is to provide our customer a seamless omni-channel journey with us. In 2015 we continued to strengthen our relationship with our 2,200 agents. We further improved our digital tools for our agents and carried on delivering our trainings to support the agencies digital capabilities. We are also increasing the number of leads we provide to them. Agents acknowledge the high level of services the company is providing them and the agencies satisfaction rate was 95% in AXA SİGORTA and AXA HAYAT VE EMEKLİLİK are great places to work! We have been awarded in 2015 for the third year in a row the Best Company among the Best Employers in Turkey in the category of firms employing more than 500 employees by the Great Place to Work Institute. This result is a testimony of the quality of our human resources policies and the strong company culture of trust and achievement. Employee engagement continues to be very strong as reflected by the Employment engagement score of 92% in I am very proud to have seen all our employees and agents embrace and support the significant transformation the company went through in They were the driver of those changes and I would like to thank them for that will see AXA SİGORTA and AXA HAYAT VE EMEKLİLİK benefiting from the steps taken in 2015 and further continue its journey to continually improve its superior service to customers through enhanced links with the agents and grow profitably. Guillaume Lejeune CEO & Member of Board 7 BOARD OF DIRECTORS REPORT INTERNAL AUDIT The Internal Audit Department of our company reports directly to the Audit Committee, a subordinate organ of the Board of Management. The Internal Audit Department functions in accordance with the charters for Audit Committee and Internal Audit and in conformity with the Regulations on Internal Systems of Insurance, Reinsurance and Private Pension Companies. The Audit Committee is composed of three members, one of them is also Board member. The Committee s annual meeting agenda is set at the end of previous year and certain other executive officers of our company and experts from the external audit firm are also invited to Committee meetings to inform the Committee on specific matters. The Audit Committee held three meetings in 2015, during which the company s activities regarding internal audit, audit of pension funds, anti-fraud programme, risk management, compliance, business continuity, data privacy, progress of ongoing out of claim legal cases, developments in Motor Vehicles Compulsory Third Party Liability insurance and information technologies activities were assessed. Furthermore, the opinions of the external audit firm and the financial affairs department were presented regarding company accounts as of 2015 year. The matters discussed by the Committee were submitted by the Member Responsible of Internal Systems to the Board of Directors, and the latter s approval regarding internal audit activities and results were received. In addition, the Audit Committee carried out a self-assessment regarding the scope and execution of its own activities, as a routine yearly practice. Compliance with both the relevant legal regulations in Turkey and International Standards on Internal Auditing is considered in all the phases of internal audit planning and implementation. In this respect, an Internal Audit Charter drawn up by the Internal Audit Department, and approved by the Board of Directors, explicitly defines the duties, authorities and responsibilities of the Internal Audit Department. Accordingly, the audits are conducted in line with the mission of ensuring reasonable assurance on the compliance of the company s operations with the laws and other applicable regulations as well as corporate strategies, policies, principles and objectives, and on the adequacy of internal control, risk management, and governance systems. The audits are based on the basic approach of adding value to the activities of audited unit and the company in cooperation with the auditees. Internal Audit Department consists of two managers and three internal auditors. Four out of five members hold certified internal auditor (CIA) title and the team is supported in all respects to help professional improvement constantly. The company has all the tools in place to regularly monitor the performance criteria of the internal audit function. Results are presented to both the Audit Committee and the AXA Group. Allocation of Internal Audit capability during 2015 is as follows: 52% for audit and follow-up activities, 37% for planning and non-audit activities (awareness of fraud, reviews and investigations, supervising of AXA MBASK (Azerbaijan) audit team, pension funds audits, coordination with AXA Group / region, compliance, control and risk functions) 11% for audit team s training and development (Orientation for newcomer auditors, Pension Funds, Internal Audit in Insurance Companies, Regulation about Consumer Protection, COBIT and Information Technologies Audit, Presentation Skills in English, Occupational Health and Safety, Private Pension Operations and State Subsidy, Loss and Indemnity Operations, Role of Internal Audit in Corporate Information Security, TSEV Insurance Training, SAS Usage, Life Operations Audit, several conferences and trainings within AXA Group...) Company annual internal audit plan is developed on the basis of the risk assessment performed by the Internal Audit Department and implemented upon its approval by the Audit Committee. In the development process of the annual internal audit plan, our company s strategy and objectives, customer complaints, the results of previous audits and internal controls, and the operational risk assessments performed by the Risk Management Department were all reviewed and the risk measurements obtained through these analyses as well as Executives perceptions of risk were taken into account. 8 BOARD OF DIRECTORS REPORT INTERNAL AUDIT The scope and the objective of the audit, findings and recommendations, responsible unit and action dates are included in the audit report, and periodic reviews are performed so as to verify whether such corrective actions have been accomplished. In addition to carrying out audit assignments as scheduled in each annual audit plan, the Internal Audit Department is also responsible for conducting investigations and enquiries where needed, for improving awareness on fraud, for auditing of private pension funds and for providing consultancy to our senior management, if requested. In 2015, the Internal Audit Department performed a total of 9 audit assignments and 5 investigations/enquiries of various functions and operations of our company, including Anti Money Laundering compliance, P&C Corporate Business Production Processes, Marketing Purchases, Savings and Private Pension Plans with Employer s Contribution, Headquarters Renovation Project, Compliance to International Sanctions, Business Continuity / Crisis Management / Emergency Recovery Plan, Voluntary Businesses and Digital Strategy. Reports on audit results were issued by obtaining relevant action plans and due dates from respective process owners. The aim of internal audit is to realize continuous improvement in the control environment to ensure contribution to the achievement of company objectives through internal audit operations performed in coordination with other internal systems functions. 9 BOARD OF DIRECTORS REPORT RISK MANAGEMENT Risk management policies and procedures of AXA SİGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş. have been developed in parallel to AXA Group Risk Management Standards, to ensure monitoring, checking, and where necessary revising the risk and return structure of the company s future cash flows, and the characteristics and level of the associated activities. The purpose of these standards established by AXA Group is to ensure systematic identification, measurement, management and control of any risks the group companies may encounter with. The risk groups the companies may be exposed to are incorporated in these standards in line with their extent, characteristics, and complexities as well as experiences from previous periods. AXA SİGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş. have adopted AXA Group Risk Management standards within the framework of Risk Management Activities; the Company works in close cooperation with and regularly report to AXA Group and the affiliated AXA Mediterranean Region Risk Management teams. The primary purpose of our Risk Management operations, constituting an integral part of all our business operations in line with AXA Group Risk Management standards, is collective monitoring of financial, insurance, and operational risk exposures, as well as measuring the impacts of these exposures on significant financial indicators (profitability, company value, capital, liquidity). All these activities are conducted by the Risk Management Department within AXA SİGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş.. While performing these assessments, the Risk Management shall be held responsible particularly for implementation of AXA Risk Management standards and fulfillment of responsibilities set forth in local regulations and for meeting all requirements within this context. Roles and responsibilities of Risk Management Department, which directly reports to Risk Management Division is approved by the Board. In accordance with national and international legislation, insurance companies are required to actively manage the risks that they are exposed to, which are comparable to the nature and complexity of the activities they engage in and which can affect their ability to meet their obligations or fulfill their corporate objectives. Also they are required to establish an effective and adequate risk management system that allows them to be assessed. The system has to be integrated into the company and it is essential that the roles played by key personnel are formally identified. Insurance companies, within the framework of the necessities of legislative regulation, through a rigorous analysis process, must be able to understand the nature of the identified risks, their origin, the likelihood or need to control them and must understand also the effects that may arise from them in terms of possible losses and opportunities. In particular, the role of risk management is not to prevent risk taking by insurers and investment managers, but to selectively develop a risk-taking culture of AXA SIGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş. with the tools and metrics to help consciously select the risks that it really wants to carry. Considering these requirements, AXA SİGORTA A.Ş. and AXA HAYAT EMEKLİLİK A.Ş have established a framework of Corporate Risk Management which is a complex framework based on a set of standards, policies, procedures, committees and governance. Five key processes have been identified as relevant to this framework, fixed with a strong risk culture: a) Organization and Management: AXA SİGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş. have a Risk Governance Scheme established and structured by Risk Management policies and procedures. b) Risk Appetite Framework: The role of the Risk Management team is to make sure that senior management has approved actionable risks, understands the consequences of adverse developments in risk and has actionable plans when things start to deteriorate. This is achieved through the Risk Appetite framework, which shows the risks involved in causes, company value, capital and liquidity under different scenarios. c) Second Opinion: Risk Management is to be able to look at risk areas and identify these areas by measuring, inspecting financial risks, insurance risks and operational risks, and to be vigilant against extremes and to think about them. Risk management has processes and governance to ensure that AXA Turkey s major decision-making processes receive a systematic and independent second opinion. d) Writing Rules and Product Approval: The expiry of new products or the re-pricing / re-design of products allows the senior management to evaluate the long-term consequences of such actions and to determine the profitability objectives determined according to the risk in order to realize the strategy of AXA. The issuer passes through an appropriate decision-making process. 10 BOARD OF DIRECTORS REPORT RISK MANAGEMENT e) Internal Model (STEC - Short Term Economic Capital): can provide a concrete and powerful metric that controls and measures most of the exposed risk. The AXA STEC model is also designed as a consistent and wide-ranging risk management tool that is an important component in capital management, planning process and performance measurement process. Risk Classification In line with AXA Group standards, the risk management practices of AXA SİGORTA A.Ş. and AXA HAYAT VE EMEKLİLİK A.Ş. assess the Risk Portfolio in 3 primary groups, which are also divided into various sub-groups. I. Financial Risks This category covers the impact of interest rate, Exchange rate and real estate price variations to be caused by potential fluctuations in financial markets and various investment instruments on the company s financial indicators. These assessments allow the implementation of action plans to ensure that the potential impacts remain within the risk limits established. The Asset-Liability management on the other hand, is crucial particularly for the preservation of earnings on long term portfolios and liquidity; assessments performed in this respect guide the investment decisions taken to assure cash flows for our obligations. Furthermore, our reinsurance structure is reviewed on company basis within the scope of financial analyses activities, classified in accordance with the ratings issued by international rating agencies and the reinsurance risks are assessed with the models utilized in AXA Group standards. II. Insurance Risks These risks are grouped in two primary segments: Life and Non-Life. Within the scope of these risks which emerge in liaison with insurance agreements, the financial loss which may occur upon realization of the insured event are measured through statistical methods, which in return determines the minimum capital level the company should keep to cover these risks. These assessments are made in accordance with the internal models established in line with AXA Group standards and by the Undersecretariat of Treasury, and are reported regularly. III. Operational Risks These risks refer to the losses which may be incurred, directly or indirectly, due to external events, or inadequate or failed internal processes, personnel, and systems. The task of Risk Management unit is to identify, measure, and monitor the operational risks which may be exposed to. The risk scenarios identified on self-assessment basis are updated annually and measured at AXA Group Standard levels through use of statistical methods. The risks identified are monitored by the relevant unit and Internal Audit department and reviewed by the Operational Risk Committee. The table defining the risk groups AXA companies are exposed to, identified in line with AXA Group Risk Management standards, is as follows. 11 BOARD OF DIRECTORS REPORT Primary Risk Group Secondary Risk Group Risk Subject Financial Risks Non Life Insurance Risks Life Insurance Risks Operational Risks Market Risks Credit Risk Liquidity Risk Reserve Risk Insurance Risk Catastrophe Risk Reserve Risk
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