Azerbaijan Life Insurance & Bancassurance Market Highlights Tatiana Savelyeva Azerbaijan International Insurance Forum July 3, 2015

About Qala Life Insurance “Qala Life” is one of the first Life Insurance companies of Azerbaijan which received the license for life insurance operations, including compulsory life insurance. Currently – one of the three life insurers. Only life insurance, no non-life operations in the group Products include compulsory life insurance and voluntary life insurance (corporate endowment, credit life insurance, group and personal term life). “AzRe” is the founder of “Qala Həyat” Insurance Company. “AzRe Reinsurance” OJSC, being the first and the only reinsurer in Azerbaijan, has one of the largest authorized capital among insurance organizations in the country. Combined capital for AzRe and Qala Həyat constitutes over 47,5 mln AZN, 7,5 mln AZN of which is for Qala Həyat. Gross written premium in 2014 was 25,16 mln AZN, including 7,13 mln AZN for compulsory insurance. Growth against 2013 was 2,5 times, and 14,2% for compulsory line. 2

Bancassurance at Qala Life 3 Consumer credit life insurance 7 banks, 4 of which already use online point-of-sale system Life insurance for card holders, auto credit life insurance – not commonly offered at the market Mortgage life insurance 20 banks, 15 of which already use online point-of-sale system Credit life only, developing products for bancassurance channel not linked to credits Life risks only

Major players in Life / Bancassurance market in Azerbaijan 3 life insurance companies 25 non-life insurance companies 45 Commercial banks 157 Non-banking credit organizations, incl. 104 credit unions State pension fund 4

Life insurance market in Azerbaijan Gross Premiums Written in dynamics vs 2013 Claims Paid in dynamics vs 2013 Source: Azerbaijan Insurers Association 5

Life insurance market in Azerbaijan Gross Premiums Written in 2014 Dynamics 2014 vs 2013 Source: Azerbaijan Insurers Association 6

Compulsory Life Insurance for Employees Voluntary Endowment Life Insurance Voluntary individual insurance (including bancassurance, critical Illness, etc.) Group life insurance Life insurance products in Azerbaijan 84 % 7

Voluntary Endowment Life Insurance Benefits for EmployeeBenefits for Employer Tax relief:  Income tax*: 14% (for salary up to 2500 AZN) Income tax : 25% (for salary exceeding 2500 AZN)  Social Insurance payment**: 3%  (optional) Social Insurance payment: 22% Tax relief: Social Insurance payment**: 22% Annual interestBonus and loyalty program, team motivation Additional benefits:  Death : 100% payment of sum insured  Disability : 0 to 100% payment of sum insured Social guarantees for employees and families *Tax Code of Azerbaijan Republic – Article ; Article 116 **Law of Azerbaijan Republic on Social Insurance – Article 15  How it works: part of monthly salary is paid to the life insurance savings account. At the end of contract (min 3 years) the insurance company pays to the client the Sum Insured (total amount of all monthly payments + investment income + tax savings).  Part of monthly salary used to pay life insurance premiums is not taxable. 8

Life insurance for consumer loans Non-life insurance for auto loans (motor hull, MTPL) Non-life insurance for mortgage loans Bancassurance products in Azerbaijan Life insurance for mortgage loans ?Life insurance for motor loans? ?? ?Life insurance for credit cards? ?? ?Not credit-linked life insurance? ?? 9

Factors that shape credit market Consumer loans Auto loans Strong state regulation Temporary discontinue of issue loans in early 2014, later limit on amount of loans, Temporary discontinue of issue loans in early 2014, later limit on amount of loans, Requirement for Min down payment amount increased greatly Requirement for Min down payment amount increased greatly Discontinue of all POS loans at the end of 2013 Discontinue of all POS loans at the end of 2013 Estimated penetration of life insurance is close to 0% Estimated penetration of life insurance is about 50% 10

Development State-Provided and Regulated Funds 10,5 % or higher 4 % & 8 % Availability for Clients Complexity of Process Loan Interest Description State Private Banks Provided Funds Max Loan Amount 50K AZN Term of Loan Longer Shorter Private ∞ ∞ Market Domination Sellers Market Buyers Market Mortgages in Azerbaijan Penetration of life insurance is 100% Source: Azerbaijan Mortgage Fund under Central Bank of Azerbaijan Republic (AMF) Source: Azerbaijan Mortgage Fund under Central Bank of Azerbaijan Republic (AMF) 11

Insurance rates – regulated by Ministry of Finance since January 1, 2015 Point-of-sale electronic systems for bank branches Historically level of commissions is low considered to neighbor markets, but growing Competition by price became impossible Competition on the side of commissions Competition by service Banks consider life insurance more as a risk protection rather than source of commission income Refuse to sell life insurance for products with low risk for the bank (e.g. motor loans where liquidity of the pledge is high) Banks are not keen on selling not credit-linked products Life insurance penetration for motor loans is close to 0% Key features of local life bancassurance market 12

Product possibilities for bancassurance Fraud for card holders Travel Insurance Investment insurance Property for individuals (boxed) Title insurance for mortgages Involuntary Loss of Emloyment 13

Develop service for the banks: online point-of-sale systems, point-of-sale underwriting, tele-underwriting Target client segmentation – tailored products for mass, affluent, high net worth segments Training: tailor-designed training programs for bank sales employees, sales incentive programs penetration in consumer loans, penetration in auto loans Offer life protection for credit card holders Develop deposit-linked insurance products (one step further – insurance products not linked to banking products) Develop new covers for existing segments (CI, loss of employment, etc.) Bundle life covers with non-life new risks (GAP, travel insurance, surgery benefits, etc.) Products Cooperation with banks Future possibilities for life bancassurance 14

Tbilisi pr-ti 1058, Bakı, AZ 1122, Azərbaycan, tel/faks: , Thank you Tatiana Savelyeva Member of the Management Board, Head of Underwriting and reinsurance department “Qala Life” Insurance Company OJSC Phone/Fax: ( ) , ext.110 Mob: ( )