May 2010, ISTANBUL

TURKISH CATASTROPHE

INSURANCE POOL

RECENT DEVELOPMENTS AND

CAT MANAGEMENT PHILOPHY IN TCIP

MAJOR CHANGE IN TURKISH CATASTROPHE INSURANCE POOL

Inforce since 18th of August 2012 flexible framework enabling improvements on

product and structure Improve awareness and sign of state support Increased check points in utility services Additional natural perils to be included in case

of market shortage Able to provide reinsurance support for natural

perils Treasury to act as the last resort by providing

reinsurance support Able to establish alternative distribution channel Government aid being subject to having TCIP

policy Other articles on cat response, scientific

research, international coordination Stronger coordination with and support from

public offices

CARG %1

CARG %7,5 %28

%30

Improved penetration from 4% to 35% Increased public awareness for earthquake and

insurance Centralized marketing activities and brand

management Kept pricing at affordable level

LESSONS

Operational capacity is as important as financial capacity

Outdated operational manuals Procedures must be simple and lean Application of sum insured or indemnity limits Necessity for collaboration between;

Industries companies and public offices cities-countries

Lack of; adjusting capacity technology Field knowledge

LESSONS

Less loss of lives in the countries with stringent building codes (Chile and New Zealand)

Multiple events are not unusual (1999 Turkey and 2011 New Zealand)

Secondary risk causing severe damages (tsunami, liquefaction)

Modeling has it’s limitation Underestimated scenarios

Economic Political Demographic

Ambiguity on expectations from insurance industry

Importance of strong construction industry

NEW ERA IN CAT MANAGEMENT

o 12.01.10  7.0 Haiti Earthqauke

o 27.02.10  8.8 Chile Earthquake

o 04.09.10 7.1 New Zealand

Earthquake

o 11.01.11 Australian Flood

o 11.03.11  8.9 Japan Earthquake

o 22.02.11 6.3 New Zealand

Earthquake

OPERATIONAL CAPACITY

AS IMPORTANT AS FINANCIALo 23.09.2011 Van Earthquake

o 09.11.2011 Van Earthquake

o 2012 Kütahya Earthquake

EXPERIENCE GAINED IN TURKISH EARTHQUAKES

LESSONS

Unavailability of construction capacity in the region

Public confusion on claim adjustment due to Government’s damage assessment activities.

Public prosecutors and mortgage holders' discretion on the claim payments.

Low sum insured on the policies Physiological trauma causing people to leaving

the city, Confusion on address information Lack of engineering knowledge of the

professional claim adjusters Lack of coordination with insurance companies

LESSONS

When to start claim adjusting; after rescue operations or aftershocks

How important to have continuous observation on damage development of on the field because of after shocks

Appointing adjusters to the building not to the policies

How important to have standard, simple and transparent adjustment

To have fixed construction cost tables for claim adjusters

Adjusting of common areas of the buildings Difficulties in logistics and housing of the claim

adjusters Claim adjsuters reluctance on leaving in the

earthquake area. Public offices, such as Municipality and Land

Register Offices, being un-operational due to physical damage or loss of lives

SURVIVAL IN CATASTROPHES

TO EXCELL IN:

DESIGNING CLAIM PAYMENT CAPACITY

Diversify the Market More capacity from financial markets (credit

lines, bonds etc) Diversify the Tools

Alternative solutions (cat bond, structured deals, swaps etc)

Diversify the Regions Spread through all regions

Diversify the Currency Policy, construction industry, reinsurance

program Diversify the Payback conditions Ensure solvency of the system

CAT FINANCE

201120102009200820072006200520042003200220012000 2012

RISK ASSESMENT

Increased risk perception causing higher loss estimates

Ever increasing claim protection needs Increased sensivity on removing burden on

national budget TCIP’s leading role in Turkish Insurance market

2013

CLAIM PROTECTION NEEDS

Rapid growth in number of policies Accumulation sensivity in Istanbul Region Currency flactuations Global Trends Vendor Modelling assumptions Comfort zone of TCIP Solvency II Rating Agency criterias

2 20 20 20 36 80 80 100

150

175

200

225

250

500

511 76

0

585

565

775 84

0

840 1,

150

1,25

0

1,32

5 1,55

0

1,57

5

1.95

0

2,65

0

TRANSACTION SCHEMATIC

450 MIO

310CAT BOND

PERMITTED INVESTMENTS YIELD

+ INTEREST SPREAD OREXTENTION PERIOD

PERMITTED INVESTMENTS

YIELD

U.S TREASURY MONEY MARKET

FUNDS OR CASH

PREMIUM PAYMENT DEPOSIT ACCOUNT

REIN

SURA

NCE

AG

REEM

ENT

PREM

IUM

PA

YMEN

TS A

ND

AD

DIT

ION

AL

PREM

IUM

ISSU

ERPA

YMEN

TS

400 MIO PROCEE

DS

INITIAL PERMITTED INVESTMENTS

400 MIO PROCEEDS

REPAYMENT AMOUNT

FUNDED INITIALLY WITH 190 DAYS OFINTEREST SPREAD AMOUNT CALCULATED

ON THE ORIGINAL PRINCIPAL AMOUNT

SECURITY INTEREST

CLASS ACOLLATERAL

ACCOUNT

• Rapid growth pushes TCIP to buy addittional capacity• Great interest for diversifiers• High capacity demand is prone to surcharge in reinsurance

premium• Cat Country capacity available in the market is exhausting• TCIP takes higher portion of the capacity in the market• Domestic property insurance companies are getting difficulty in

raising capacity• Earthquake exposure leaves not much capacity for other natural

perils

3 BILLION EURO

EXAMPLE OF CALCULATION LOCATIONS’ IERREWS GROUND MOTION DATA

STATE OF THE ART TECHNOLOGY IN FINANCIAL INSTUREMENT

• High quality of information/data for Investors• Transparent• Reliable• On-line• Unprocessed/row data from field• Sponsored by TCIP• Established and operated by Kandilli Observatory• 70 seismograph station established to measure

ground motion activities in Istanbul • 70 seismograph measuring effects of any

earthquake occurrence to individual station • Providing necessary data for calculating agency• Providing on line data through web site as

earthquakes occur • Availability of Historical data • Not only data but also availability of tools for

calculation• Independent maintenance

KARADENIZ EARTHQUAKE, ML 4.5 PEAK GROUND ACCELERATION AT THE CALCULATION LOCATIONS

LIKELY EVENT SCENARIO FOR TURKISH POOL

Claim files approx 5.000 – 10.000, resources:3124 Standard TCIP Group3 Additional ES Claim Call Center1 Additional ES Call Center3 Claim

Claim files approx 10.000 – 25.000, resources:4024 Standard TCIP Group3 Additional ES Claim Call Center8 Additional ES Call Center3 Claim 1 Human Resources1 Adc

Project is underway

YELLOW SCENARIO BLUE SCENARIO RED SCENARIO

KUTAHYA EARTHQUAKE

De-centrilized operationOne Claim Adjuster Office was appointed for all claims.Adjuster Office performed all claim operationAdjuster Office dealt with insuredsApproval and payment done by TCIP

VAN EARTHQUAKE

Centrilized operationPolicy production continued during aftershocks; mass increase of policies issued after earthquakesStarting adjustment without claim notification: all policies (not claims) given to claim adjusters for assesmentUsed as an opportunity for field experience: 300 Claim Adjsuters being approached only 100 was able to get orderInexperienced adjusters being appointed to approx 10 senior adjustersAppointed Claim Committe and Adjuster Consultancy Committe for assisting claim operation

OPERATIONAL MODELS

TCIP CAT MANAGEMENT STRUCTURE

CAT RESPONSE PLANCAT RESPONSE PLAN LOSS ASSESMENT/CLAIM MANAGEMENT

LOSS ASSESMENT/CLAIM MANAGEMENT

• Critical Discussion Point: Response plans/Emergency Plans without enough resources

• Individual corporate/public planning based on same resources is illusionary capacity

• 3 Pillars in TCIP’s Philosophy:1. Ensure having robust platform 2. Develop committed capacity3. Implement scenario based Cat

Response Plan• Investing in Cat Management, especially

for low frequency/high severity events, may commercially be unfeasible for predictable future

• Not-investing in Cat Management, in case of occurrence, may socially and economically be fatal

MAIN APPLICATION DASK

OPERATION MANAGEMENT RESOURCE MANAGEMENT

CLAIM APPLICATION DASK ACCOUNTING/PAYMENT OFFICE

CLAIM APPLICATIONADJUSTING

OFFICESDASK

CENTER

GEO-APPLICATION CLAIM APPLICATIONADJUSTING

OFFICESDASK

CENTER

EXISTING METODOLO

GY

LOSS ADJUSTME

NT TOOL

CLAIM CATEGORIZ

ATION

ADJUSTING OFFICES

DASK CENTER

GEO-APPLICATION CLAIM APPLICATIONDASK

CENTERCALL CENTER

OPEX

GEO-APPLICATIONOPEX

CENTEREXISTING

METODOLOGYCALL CENTER

OPEX

GEO-APPLICATIONELER LOSS

ESTIMATION TOOLOPEX

CENTERDASK

CENTER

HEAT MAP OF THE CAT MANAGEMENT

• Study/analyze each activity in the event chain:• Effective methodology• Robust Platform/application• Enough resources/human capacity

• Excel on: • Modeling/pre-event• Estimation/post-event• Develop desktop application for early

loss assessment• Develop simple, standard claim adjusting

methodology• Develop tools to control

construction/claim cost• Segment your expertise:• Must provide engineering service to

structural damages• Distribute Roles/responsibilities before

the event (as possible)

CHANGE DETECTION ANDFINANCIAL LOSS ASSESMENT

TOOLWEB BASED CLAIM ASSESMENT TOOL CLAIM OPERATION PLATFORM

• Developing tool for standard claim assessment

• Control/monitor unit cost of construction

• Transparent, simple adjusting tool

•

DEVELOPING PROJECTS

• Developing desktop application for early loss assessment

• To use for resource planning• Monitoring geographic penetration

of the portfolio• Monitoring and recording of the

field/loss development following aftershocks

• To assist claim managers/adjusters in valuation

• Supporting whole event-chain before-during-after earthquake

• Enabling using contingency capacity • Allowing multi layer hierarchy

CAT RESPONSE PLAN

RISK-BUILDING DAMAGE SEVERITY/FREQUENCY

HEAVY DAMAGELIGHT DAMAGE

BIG /LIGHT BIG /HEAVY

SMALL/HEAVYSMALL/LIGHT

•LOW EXPERTISE•LIMITED OPERATION•ORDINARY SCENARIO

•HIGH EXPERTISE•LIMITED OPERATION•ORDINARY SCENARIO

•HIGH EXPERTISE•HUGE OPERATION•EXTREME SCENARIO•CONTINGENCY CAPACITY

•LOW EXPERTISE•HUGE OPERATIN•EXTREME SCENARIO•CONTINGENCY CAPACITY

• Different levels of expertise and resources needed for different scenarios

• More operational capacity needed as the event gets bigger

• More expertise need for structural damages, regardless of number of buildings

• Characteristics of the event may get worse due to subsequent events/aftershocks

• The plan should allow to change the scenarios during operation

• Timing of field deployment is critical sooner/later to be in the field for operation

• Early field assessment is critical in planning

• Realistic and regular role playing activities are life saving

T°T¹

T²

CAT MANAGEMENT PLATFORM

Agreed with Accenture (global management consulting, technology services company) to do two month analysis to provide road map and to manage the project

Agreed with Istanbul Technical University to develop heavy damage analysis

methodology To develop claim categorization

methodology To develop training the trainers program

Agreed to develop standard adjustment tool Agreed to develop Change Detection, Modeling

and Estimation tool for TCIP Protocol signed with Boğaziçi University to

develop modelling and financial assesment capability of TCIP

CLAIM MANAGEMENT

Developed contingency call center capacity; 40 agents

Protocol signed with Ankara University to train engineers

Approx 100 Claim Adjusters have been used in Van Earthquakes to cause to gain field experience

Two Pilot Operation methodology applied in Van and Kutahya Earthquakes

Training to Professional Claim Adjusters Developed E-learning Platform Pilot geo-coding project has been performed

for the city of Yalova Pilot to be run with GFZ German Research

Centre for Geosciencesf or street view project Have become the sponsor to Global

Earthquake Model Foundation in Pavia, Italy

PIONEERING USAGE OF NATIONAL

ADRESS CODES IN TURKEY

WHAT HAS BEEN DONE

LESS DOCUMENTATION NEEDED ENTEGRATION ACHIEVED WITH PUBLIC OFFICES CLEARENCE ACHIVED ON SCOPE OF COVER BUILDING BASED CLAIM ADJUSTMENT

May 2010, ISTANBUL

TURKISH CATASTROPHE

INSURANCE POOL

RECENT DEVELOPMENTS AND

CAT MANAGEMENT PHILOPHY IN TCIP