AKSİGORTA A.Ş. — Annual Report 2017

Feb 12, 2018

AKSİGORTA ANONİM ŞİRKETİ

FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 TOGETHER WITH INDEPENDENT AUDITOR'S REPORT

Key audit matter	How our audit addressed the key audit matter
Estimates used in calculation of outstanding claim provision and Liability Adequacy Test ("LAT")	We engaged our actuarial specialists to assist us in performing the audit procedures in this area, which include among others:
As explained in Notes 2.17 and 16, the Company has significant gross insurance liabilities of TL 3,076,775,204, representing 75% of the Company's total equity and liabilities as of 31 December 2017. Concerning the estimation of the outstanding claim provision which is amounting to gross TL 334,992,601 arising from claims accounted under insurance contracts as of 31 December 2017, the Company uses actuarial methods. The choice of selected methods and development factors for each accident year for each class of business depends on the best estimate of the Company. The Company's LAT is a key test performed in order to ensure that insurance contract liabilities, net of deferred acquisition costs, are adequate in the context of expected future cash outflows. In performing these tests, current best estimates of contractual cashflows, claim handling and administrative expenses are used. Any deficiency is immediately charged to profit or loss initially by writing off Deferred Acquisition Costs and subsequently establishing a provision for losses arising from LAT. This is an area that involves significant judgement based on actuarial techniques over uncertain future outcomes, therefore we considered it a key audit matter for our audit.	Consideration of the appropriateness of $\overline{a}$ assumptions used in the calculation of outstanding claim provision, namely Incurred But Not Reported reserves. Consideration of the appropriateness of ÷ assumptions for reserve projection calculations of LAT. We assessed the Company's validation of certain methods and development factors considered higher risk by the Company as a result of complexity and/or magnitude. For the assumption setting process, we assessed the experience analyses performed by the Company. Our assessment also included challenging, as necessary, specified economic and actuarial assumptions considering management's rationale for the actuarial judgements applied along with comparison to applicable industry experiences. We considered the appropriateness of actuarial judgements used in the actuarial methods, which may vary depending on the each class of business, and also the compliance of the methods with the applicable financial reporting standards. Furthermore, we performed audit procedures regarding the completeness and the accuracy of the input data used in calculation of the insurance contract liabilities. We tested the validity of management's LAT which is a key test performed to check that liabilities are adequate as compared to the expected future cashflow obligations.
	We also assessed the adequacy of disclosures regarding these liabilities in the financial statements to make sure that they were in accordance with the disclosure requirements of IFRS.

FINANCIAL STATEMENTS FOR THE PERIOD JANUARY 1 - DECEMBER 31, 2017

TABLE OF CONTENTS	PAGE
STATEMENT OF FINANCIAL POSITION	1
STATEMENT OF INCOME	2
STATEMENT OF COMPREHENSIVE INCOME	3
STATEMENT OF CHANGES IN EQUITY	4
STATEMENT OF CASH FLOWS	5
NOTES TO THE FINANCIAL STATEMENTS 6-60

STATEMENT OF FINANCIAL POSITION FOR THE PERIOD JANUARY 1 - DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

		Audited	Audited
Assets	Note	December 31, 2017	December 31, 2016
Total current assets		4,021,130,993	2,686,967,389
Cash and cash equivalents	9	1,352,046,487	451,153,119
Securities pledged under repurchase agreements	9	-	30,045,425
Financial assets, Debt securities:
- Available for sale at company's risk	8	516,646,617	863,687,512
- Available for sale at insurees' risk	8	2,514,414	2,530,185
Premium receivables	10	479,527,221	362,764,354
Due from reinsurers	10	27,969,645	24,180,701
Reinsurance share of insurance liabilities	11	1,472,428,865	833,986,834
Deferred acquisition costs	12	119,453,993	74,244,366
Other current assets	13	50,543,751	44,374,893
Total non-current assets		99,045,920	89,245,109
Tangible assets		26,197,351	28,001,832
Investment properties	6	80,126	80,126
Intangible assets	7	46,544,719	41,176,250
Financial assets, Equity securities:
- Available for sale	8	346,211	220,889
Deferred income tax assets	22	22,913,921	19,558,809
Other non-current assets	13	2,963,592	207,203
Total assets		4,120,176,913	2,776,212,498
Equity and liabilities
Total current liabilities		3,542,089,107	2,342,739,837
Insurance liabilities	16	3,079,404,852	2,044,598,155
Payables to reinsurers	18	332,355,206	173,134,624
Obligations under repurchase agreements		-	30,031,438
Provisions for other liabilities and charges	17	36,798,073	36,839,062
Trade and other payables	18	84,809,994	58,136,558
Current income tax liabilities	22	8,720,982	-
Total non-current liabilities		6,172,934	6,335,367
Provision for retirement benefit obligation	19	6,172,934	6,335,367
Total equity		571,914,872	427,137,294
Shareholders' equity	14	306,000,000	306,000,000
Legal and other reserves	14	95,403,929	178,468,101
Actuarial loss arising from employee benefit	14	(3,242,827)	(3,472,406)
Hedging reserve	14	17,618,782	16,816,074
Available-for-sale investments fund	14	(14,469)	(7,203,046)
Retained earnings/(accumulated deficit)		156,149,457	(63,471,429)
Total equity and liabilities		4,120,176,913	2,776,212,498

STATEMENT OF INCOME FOR THE PERIOD JANUARY 1 - DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

		Audited	Audited
		January 1 -	January 1 -
Statement Of Income	Note	December 31, 2017	December 31, 2016
Insurance premium revenue	5, 20	2,159,202,122	1,731,109,333
Insurance premium ceded to reinsurers	5, 20	(917,666,523)	(704,819,317)
Net insurance premium revenue	5, 20	1,241,535,599	1,026,290,016
Investment income	23	165,600,813	107,429,420
Commission income Other operating income	24 25	159,767,647 4,937,640	120,341,279 4,624,574
Net income		1,571,841,699	1,258,685,289
Insurance claims	21	(1,611,650,415)	(1,100,481,327)
Insurance claims recovered from reinsurers	21	761,763,760	431,348,583
Net insurance claims	5, 21	(849,886,655)	(669,132,744)
Commission expense	24	(366,355,537)	(314,327,196)
Expenses for marketing and administration	26	(154,386,322)	(143,940,956)
Other operating expenses	25	(38,924,304)	(50,154,987)
Insurance claims and expenses		(1,409,552,818)	(1,177,555,883)
Results of operating activities		162,288,881	81,129,406
Foreign exchange gain / (loss), net	27	8,973,165	7,087,373
Profit before tax		171,262,046	88,216,779
Income tax expense	22	(34,705,332)	(17,666,299)
Profit for the year		136,556,714	70,550,480
Earnings per share	15	0.0045	0.0023

STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD JANUARY 1 - DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

		Audited	Audited
		January 1 -	January 1 -
Statement of comprehensive income	Note	December 31, 2017	December 31, 2016
Profit for the year		136,556,714	70,550,480
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Change in available-for-sale financial assets
fund, net off deferred tax	14	7,188,577	(1,257,055)
Cash flow hedging, net off deferred tax	14	802,708	7,021,623
Net other comprehensive income to be reclassified to profit or loss in subsequent
periods		7,991,285	5,764,568
Other comprehensive income not being reclassified to profit or loss in subsequent periods:
Actuarial loss, net of deferred tax	14	229,579	272,037
Net other comprehensive income not being reclassified to profit or loss in subsequent periods		229,579	272,037
Other comprehensive income, net of tax		8,220,864	6,036,605
Total comprehensive income for the year,
net of tax		144,777,578	76,587,085

STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD JANUARY 1 - DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

r 3 1, 20 16 De be cem					Au dit ed
	No te	Sh ita l ar e c ap	Av ail ab le- for le -sa inv fun ds est nt me	Le l r ga ese rv es	Ac ria l lo tua ss isi fr ar ng om loy be fit em p ee ne	Ca sh flo w he dg ing	Re tai d ne ing ea rn s	To tal
31 20 15 Ba lan at D mb ces ece er ,	10	30 6, 00 0, 00 0	( 94 99 1) 5, 5,	17 8, 46 8, 10 1	( 3, 74 4, 44 3)	9, 79 4, 45 1	( 13 4, 02 1, 90 9)	35 0, 0, 20 9 55
Pro fit for th e y ear		-	-	-	-	-	70 55 0, 48 0 ,	70 55 0, 48 0 ,
Tr sfe an r		-	-	-	-	-	-	-
Ot her reh siv e i co mp en nc om e		-	( 1, 25 05 5) 7,	-	27 2, 03 7	02 1, 62 3 7,	-	6, 03 6, 60 5
To tal reh siv e i co mp en nc om e	10	-	( 1, 25 7, 05 5)	-	27 2, 03 7	7, 02 1, 62 3	70 55 0, 48 0 ,	76 58 7, 08 5 ,
Ba lan D mb 31 20 16 at ces ece er ,	10	30 6, 00 0, 00 0	( 6) 7, 20 3, 04	17 8, 46 8, 10 1	( 6) 3, 47 2, 40	16 81 6, 07 4 ,	( 9) 63 47 1, 42 ,	42 7, 13 7, 29 4
De be r 3 1, 20 17 cem								Au dit ed
	No te	Sh ita l ar e c ap	Av ail for ab le- le -sa inv fun ds est nt me	Le l r ga ese rv es	Ac ria tua l lo ss isi fr ar ng om loy be fit em p ee ne	Ca flo sh w he dg ing	tai Re d ne ing ea rn s	To tal
Ba lan D mb 31 20 16 at ces ece er ,	10	30 6, 00 0, 00 0	( 7, 20 3, 04 6)	17 8, 46 8, 10 1	( 3, 47 2, 40 6)	16 81 6, 07 4 ,	( 63 47 1, 42 9) ,	42 7, 13 7, 29 4
fit for th Pro e y ear		-	-	-	-	-	13 6, 55 6, 71 4	13 6, 55 6, 71 4
Tr sfe an r		-	-	( 83 06 4, 17 2) ,	-	-	83 06 4, 172 ,	-
Ot her reh siv e i co mp en nc om e		-	7, 18 8, 57 7	-	22 9, 57 9	80 2, 70 8	-	8, 22 0, 86 4
To tal reh siv e i co mp en nc om e	10	-	7, 18 8, 57 7	( 83 06 4, 17 2) ,	22 9, 57 9	80 2, 70 8	21 9, 62 0, 88 6	14 4, 77 7, 57 8
Ba lan D mb 31 20 17 at ces ece er ,	10	30 6, 00 0, 00 0	( 14 46 9) ,	95 40 3, 92 9 ,	( 3, 24 2, 82 7)	17 61 8, 78 2 ,	15 6, 14 9, 45 7	57 1, 91 4, 87 2

STATEMENT OF CASH FLOWS FOR THE YEAR PERIOD JANUARY 1 - DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

		January 1 -
Note	December 31, 2017	December 31, 2016
	1,859,641,735	1,299,088,958
	(1,414,616,130)	(1,267,801,599)
	(35,451,265)	(11,855,334)
	(10,692,190)	(16,974,341)
	398,882,150	2,457,684
		(22,449,275)
		(311,928,743)
		109,231,315
		4,260,456
		(220,886,247)
	-	-
	-	-
	868,426,113	(218,428,563)
	332,076,914	550,505,477
		332,076,914
	6, 7 9	January 1 - (21,728,313) 348,529,383 138,381,119 4,361,774 469,543,963 1,200,503,027

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

1. General Information

Aksigorta Anonim Şirketi ("the Company") is a subsidiary of Hacı Ömer Sabancı Holding A.Ş. and Ageas Insurance International N.V. as of December 31, 2017. 38.02% (December 31, 2016: 38.02%) of the Company is issued in Borsa İstanbul ("BİST") (Note 2.3).

Agreement about the sale of 50% of 18,965,880,200 units of Aksigorta A.Ş. shares with TL 189,658,802 nominal value that belong to H.Ö. Sabancı Holding ("Holding") portfolio was signed with Ageas Insurance International N.V. at 18 February 2011. At the date of 29 July 2011, 9,482,940,100 units of Aksigorta A.Ş. shares that correspond to 50% of the Holding' s portfolio have been transferred to Ageas Insurance International N.V. with the sale price (excluding the corrections) of USD 220,029,000. According to the joint administration agreement that signed with Ageas Insurance International N.V. at 18 February 2011, Holding's previous administrative controls over Aksigorta A.Ş. are going to remain equally with Ageas Insurance International N.V.

The Company is a corporation, which was established in accordance with the requirements of Turkish Commercial Code and registered in Turkey as at 25 April 1960. The Company is located at Poligon Cad. Buyaka 2 Sitesi No:8 Kule:1 Kat:0-6 Ümraniye 34771, İstanbul.

The Company's main operations include insurance activities based on non-life insurance branches, including primarily fire, marine, accident, personal accident, engineering, agriculture and health.

Average numbers of employees during the period by category are as follows:

	December 31, 2017	December 31, 2016
Top and middle management	103	111
Other personel	518	493
Total	621	604

Remuneration and fringe benefits provided to top management such as; chairman and members of the board of directors, managing director and assistant managing directors amount to TL 5,637,631 in total for January 1 - December 31, 2017 (January 1 - December 31, 2016: TL 5,218,318).

Financial statements include only one company (Aksigorta A.Ş.) and the Company does not have any subsidiaries or affiliates as of December 31, 2017 (December 31, 2016: None).

The Company's financial statements as of December 31, 2017 are approved and authorized for issuance as of February 12, 2018 by the Board of Directors.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies

2.1 Basis of preparation

The financial statements at December 31, 2017 have been prepared in accordance with International Financial Reporting Standard as defined by IAS 1. The financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at December 31, 2017 and any public announcement made by the company during the period.

The Company maintains its books of account and prepares its statutory financial statements in Turkish Lira ("TL") in accordance with the Insurance Law numbered 5684 and the regulations issued for insurance and reinsurance companies by the Undersecretariat of Treasury which is also the functional currency of the Company. These financial statements are based on the statutory records, with adjustments and reclassifications, for the purpose of fair presentation in accordance with IFRS.

The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise its judgements in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to financial statements are disclosed Note 3.

Comparative information and restatement of prior period financial statements

The Company's statement of financial position as of December 31, 2017 is presented in comparison with its statement of financial position as of December 31, 2016; statement of comprehensive income, statement of changes in equity and statement of cash flows for the period between January 1 - December 31, 2017 are presented in comparison with its statement of comprehensive income, statement of changes in equity and statement cash flows for the period between January 1 - December 31, 2016.

2.2 Adoption of New and Revised Standards

The new standards, amendments and interpretations

The accounting policies adopted in preparation of the financial statements as at December 31, 2017 are consistent with those of the previous financial year, except for the adoption of new and amended IFRS and IFRIC interpretations effective as of January 1, 2017. The effects of these standards and interpretations on the Company's financial position and performance have been disclosed in the related paragraphs.

i) Standards, amendments and interpretations applicable as at 31 December 2017

Amendments to IAS 7, 'Statement of cash flows'; on disclosure initiative effective from annual periods beginning on or after 1 January 2017. These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB's Disclosure Initiative, which continues to explore how financial statement disclosure can be improved.

Amendments IAS 12, 'Income Taxes'; effective from annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. It also clarify certain other aspects of accounting for deferred tax assets.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

Annual improvements 2014 - 2016; effective from annual periods beginning on or after 1 January 2017:

IFRS 12,'Disclosure of interests in other entities' regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017.

• IFRS 12, 'Disclosure of interests in other entities'; regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017. This amendment clarifies that the disclosures requirement of IFRS 12 are applicable to interest in entities classified as held for sale except for summarized financial information.

ii) Standards, amendments and interpretations effective after 1 January 2018:

IFRS 9, 'Financial instruments'; effective from annual periods beginning on or after 1 January 2018. This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model.

IFRS 15, 'Revenue from contracts with customers'; effective from annual periods beginning on or after 1 January 2018. IFRS 15, 'Revenue from contracts with customers' is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally.

Amendment to IFRS 15, 'Revenue from contracts with customers', effective from annual periods beginning on or after 1 January 2018. These amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance. The IASB has also included additional practical expedients related to transition to the new revenue standard.

Amendments to IFRS 4, 'Insurance contracts' regarding the implementation of IFRS 9, 'Financial Instruments'; effective from annual periods beginning on or after 1 January 2018. These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will:

• give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued; and
• give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments standard IAS 39.

Amendment to IAS 40, 'Investment property' relating to transfers of investment property; effective from annual periods beginning on or after 1 January 2018. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

ii) Standards, amendments and interpretations effective after 1 January 2018 (Continued)

Amendments to IFRS 2, 'Share based payments' on clarifying how to account for certain types of share-based payment transactions; effective from annual periods beginning on or after 1 January 2018. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority.

Annual improvements 2014-2016; effective from annual periods beginning on or after 1 January 2018. These amendments impact 2 standards:

• IFRS 1, 'First time adoption of IFRS', regarding the deletion of short-term exemptions for firsttime adopters regarding IFRS 7, IAS 19 and IFRS 10,
• IAS 28, 'Investments in associates and joint venture' regarding measuring an associate or joint venture at fair value.

IFRIC 22, 'Foreign currency transactions and advance consideration'; effective from annual periods beginning on or after 1 January 2018. This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice.

Amendment to IFRS 9, 'Financial instruments'; effective from annual periods beginning on or after 1 January 2019. This amendment confirm that when a financial liability measured at amortised cost is modified without this resulting in de-recognition, a gain or loss should be recognised immediately in profit or loss. The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. This means that the difference cannot be spread over the remaining life of the instrument which may be a change in practice from IAS 39.

Amendment to IAS 28, 'Investments in associates and joint venture'; effective from annual periods beginning on or after 1 January 2019. These amendments clarify that companies account for long-term interests in associate or joint venture to which the equity method is not applied using IFRS 9.

IFRS 16, 'Leases'; effective from annual periods beginning on or after 1 January 2019, this standard replaces the current guidance in IAS 17 and is a farreaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a 'right of use asset' for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

ii) Standards, amendments and interpretations effective after 1 January 2018 (Continued)

IFRIC 23, 'Uncertainty over income tax treatments'; effective from annual periods beginning on or after 1 January 2019. This IFRIC clarifies how the recognition and measurement requirements of IAS 12 'Income taxes', are applied where there is uncertainty over income tax treatments. The IFRS IC had clarified previously that IAS 12, not IAS 37 'Provisions, contingent liabilities and contingent assets', applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.

IFRS 17, 'Insurance contracts'; effective from annual periods beginning on or after 1 January 2021. This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features.

Company will evaluate the effects of changes above to their operations and implement these changes as of expiry date. Research about the effects of implementation of standards and comments above to the Company's financial statements for the upcoming period is still proceeding.

2.3 Consolidation

The Company has no subsidiaries or joint ventures within the scope of consolidation in accordance with "IFRS 10- Consolidated Financial Statements" as of December 31, 2017 (December 31, 2016: None).

2.4 Segment Reporting

Reporting segments are determined to conform to the reporting made to the Company's chief operating decision maker. The chief operating decision maker is responsible for making decisions about resources to be allocated to the segment and assess its performance. Details related to the segment reporting are disclosed in the Note 5.

2.5 Foreign currency translation

The functional currency of the Company is TL. Foreign currency transactions are translated into the 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.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated to Turkish Lira at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.5 Foreign currency translation (Continued)

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.

Foreign currency assets and liabilities are converted by using period end exchange rates of Central Bank of the Republic of Turkey's bid rates. For the conversion of liabilities the exchange rate stated at the contract is used.

The Central Bank of the Republic of Turkey exchange rates used in the conversion is as follows:

	December 31, 2017		December 31, 2016
	US Dollar / TL	EUR / TL	US Dollar / TL	Euro / TL
Bid Rates	3,7719	4,5155	3,5192	3,7099
Ask Rates	3,7843	4,5305	3,5308	3,7222

2.6 Tangible Assets

All property and equipment are carried at cost less accumulated depreciation. Since lands have infinite life, they are not depreciated. Depreciation is calculated using the straight-line method over the estimated useful life of the tangible assets. For assets that are not ready for use or sale, such assets are depreciated, on the same basis used for other fixed assets, when they are ready to use.

Estimated useful life, residual value, and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

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.

Assets acquired under finance lease are depreciated as the same basis as tangible assets or, where shorter, the term of the relevant lease.

Gain or loss arising on the disposal or retirement of an item of tangible assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized to profit or loss.

Depreciation periods for tangible assets are presented in the table below:

Useful Life

Properties 40 - 50 years Furniture and fixtures 10 years Leasehold Improvements 5 - 10 years

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.7 Investment properties

The buildings and lands 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 does not have an impairment booking for its investment properties as of December 31, 2017.

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the period of retirement or disposal.

Transfers are made to or from investment property only, when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Company accounts for such property in accordance with the policy applied to "Tangible Assets" up to the date of change in use. Real estates held under finance lease are classified as investment properties. The depreciation period of investment properties is 50 years. Lands is not depreciated.

2.8 Intangible assets

Intangible assets acquired

Intangible assets acquired are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives. Estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred from the date of acquisition to the date to bring the specific software in use. These costs are amortized over their estimated useful lives (1 to 10 years).

Costs associated with developing or maintaining computer software programmes are recognized as expense as incurred. Costs that are directly associated with the development of identifiable and unique software products that are controlled by the Company and will probably provide more economic benefits than costs in one year are recognized as intangible assets. Costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognized as assets are amortized over their estimated useful lives.

Useful life:

	2017	2016
Rights	5 years	5 years

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.9 Financial assets

The Company classifies and accounts for its financial assets as, "Available-for-sale financial assets" and "Loans and receivables (Premium receivables)". Premium receivables are the receivables arising from insurance agreements and they are classified as financial assets in financial statements.

Regular purchases and sales of financial assets are recognised on the "settlement date". The classification of these financial assets depends on the purpose for which they were acquired and the Company's management determines the classification of its financial assets at initial recognition.

Loans and receivables (Premium receivables):

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 cost. 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 a provision for its receivables based on evaluations and estimations of the management. The mentioned provision is deducted from "Premium receivables" on the statement of financial position. The Company sets its estimations in accordance with the risk policies and the principle of prudence by considering the structure of current receivable portfolio, financial structure of policyholders and intermediaries, non-financial data and economical conditions.

Available-for-sale financial assets

Investments other than "financial assets at fair value through profit or loss", and "loans and receivables" are described as available-for-sale financial assets.

Available-for-sale financial assets are subsequently measured at fair value after their recognition. It is considered 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 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 statement of financial position 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.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.10 Reclassification of financial assets

Financial assets other than loans and receivables are permitted to be reclassified out of the held-fortrading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near-term. In addition, the Company may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale

categories if the Company has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

2.11 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.

2.12 Related party

Parties are considered related to the Company if;

• (a) A person or a close member of that person's family is related to a reporting entity if that person:
• (i) has control or joint control over the reporting entity;
• (ii) has significant influence over the reporting entity; or
• (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
• (b) An entity is related to a reporting entity if any of the following conditions applies:
• (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
• (iii) Both entities are joint ventures of the same third party.
• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
• (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
• (vi) The entity is controlled or jointly controlled by a person identified in (a).
• (vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.

In the financial statements and related notes dated December 31, 2017 and 2016, the Company management, groups associated to H.Ö. Sabancı Holding and Ageas Insurance International N.V. are defined as related parties.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.13 Offsetting Financial Instruments

Financial assets and liabilities are offset only when there is a legally enforceable right to offset the recognised amounts, there is an intention to settle on a net basis, or when the acquisition of the asset and the settlement the liability take place simultaneously.

2.14 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments, which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value (Note 9).

	December 31, 2017	December 31, 2016
Banks	966,463,093	270,379,281
Credit Card Receivables	385,583,394	210,819,263
Less: Interest accrual	(3,036,758)	(257,966)
Total Cash and Cash Equivalents	1,349,009,729	480,940,578

Cash and cash equivalents included in the statements of cash flows are as follows:

2.15 Share capital

As of December 31, 2017, the Company's nominal capital is TL 306,000,000 (December 31, 2016: TL 306,000,000). Share capital is represented by 30,600,000,000 of equity shares having a nominal amount of TL 0,01 each.

The share capital structure of the Company is as follows:

	December 31, 2017		December 31, 2016
				Share
Name of shareholders	Share	Share amount	Share	amount
H. Ömer Sabancı Holding A.Ş.	36.00	110,160,000	36.00	110,160,000
Ageas Insurance International NV	36.00	110,160,000		36.00 110,160,000
Publicly quoted shares	28.00	85,680,000	28.00	85,680,000
Total	100.00	306,000,000	100.00	306,000,000

Agreement about the sale of 50% of 18,965,880,200 units of Aksigorta A.Ş. shares with nominal value of TL 189,658,802 that belong to H.Ö. Sabancı Holding ("Holding") portfolio, was signed with Ageas Insurance International N.V. at 18 February 2011. 9,482,940,100 units of Aksigorta A.Ş. shares that correspond to 50% of the Holding' s portfolio has been trasferred to Ageas Insurance International N.V. on 29 July 2011 with a sale price of USD 220,029,000 except for adjustments to sale price.

The Company has accepted the registered capital system set out in accordance with the provisions of Law No: 2499 and applied the system as of June 15, 2000 upon the permission no: 67/1039 granted by the Capital Markets Board. As of December 31, 2017, the Company's registered share capital is TL 500,000,000 (December 31, 2016: TL 500,000,000).

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.16 Insurance and investment contracts

Insurance contracts are contracts under which, in exchange for a premium, the insurer assumes the obligation to compensate a loss caused by the materialization of the danger (risk) having the consequence of harming the interest, measurable by money, of the concerned person or make payment or to fulfill other performances linked to the lifetime of one or several persons or upon the occurrence of some events in the course of their life.

The insurer can take out reinsurance, under conditions as it thinks appropriate, in respect of the interest it had covered.

Insurance contracts are accounted when the insurance risk is transferred, and classified as an insurance contract as of the maturity date and/or amortization of the all contractual rights and liabilities.

The main contracts produced by the Company are mainly in non-life branches such as motor own damage, motor third party liability, fire, marine, accident, engineering, health and agriculture insurance agreements.

The fire insurance agreements are classified as industrial and individual. The policyholder is insured for the physical losses and claims due to the risks such as fire, earthquake, bursting, flood. The policyholder is insured for losses caused by the complete or partial interruption of the operations as a result of an event covered by the insurance contract with loss of profit coverage. Casualty insurance contracts (Liability, Personal Accident and Motor) have two main purposes. These contracts protect the insured against the risk of damage of assets and against the risk of causing harm to third parties.

Marine insurance contracts contain insurance of transportation (vessels, or vehicles on land or air) and water vehicles (the payment for the claims occurred in sea, river and island vehicles). Engineering insurance contracts are subdivided into two groups. The contracts covering permanently installed risks for an indefinite period, and the contracts covering temporary, non-recurring risks. The first group consists of insurance protection against sudden and unforeseen damages or losses of the machines, mechanical equipment, plants and electronic equipments. The second group provides installation and construction insurance of which coverage is naturally limited with the guarantee period of installation and construction. Liability insurance contracts provide claims due to the air crafts, water crafts and land vehicles liability. Furthermore, the Company has major production of the animal life and publicly supported agriculture insurances which are included in general loss insurance contracts. Health insurance contracts are the contracts that pay benefits an insured who becomes ill or injured, provided that documentation is offered to confirm the illness or injury.

Unearned Premium Reserve

An unearned premium reserve is calculated on a daily basis for all policies in force as of the balance sheet date for unearned portions of premiums written, except for marine premiums. 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. In accordance with the Regulation on Technical Reserves, unearned premium reserve and the reinsurers' share of the unearned premium reserve for policies issued after 1 January 2008, are calculated and accounted as the deferred portion of the accrued premiums related to the policies in force and ceded premiums to reinsurers without deducting commissions or any other deduction, on a daily and gross basis. The Company has continued to deduct the commissions from the premiums for the calculation of unearned premium reserve regarding the policies issued before 1 January 2008. For marine policies with an uncertain end date, unearned premium reserve is calculated as 50% of the premiums written in the last three months.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.16 Insurance and investment contracts (Continued)

Deferred Commission Expense and Income

Unearned portion of commissions paid to agencies for the written premiums and commissions received from reinsurers for the ceded premiums are recorded as in deferred acquisition costs on the statement of financial position, and as expenses for the acquisition of insurance contracts on a net basis in the income statement.

Liability Adequacy Test

At each end of the reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC assets. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, from the assets backingsuch liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). Long-term insurance contracts with fixed terms are measured based on assumptions set out at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities. Any DAC written off as a result of this test cannot subsequently be reinstated. At each statement of financial position date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities. In performing these tests, current best estimates of future cash flows are used. The adequacy of the unearned premium liability is assessed by considering the portion of the estimated value of claims and expenses, likely to arise after the end of the reporting period from existing contracts, that exceeds the provision for unearned premiums after deduction of any acquisition costs. Any deficiency is immediately charged to profit or loss. The assessment, whether a deficiency exists is made at the Company level since all insurance products are regarded as being managed together and there are no constraints on the ability to use assets held in relation to each line of business to meet any of the associated liabilities. For the purpose of calculating the additional provision, the Company does not take into account the investment return expected to be earned by investments held. The Company accounts additional reserves for the branches that the combined loss ratio calculated is higher than 100%.

Outstanding claims provision

Claims are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include settlement costs and arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Company. Outstanding claims are estimated using the input of assessments for individual cases reported and statistical analyses. The expected ultimate cost of claims is also affected by external factors such as court decisions.

Claims are payable on a claims-occurrence basis. The Company is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. There are several variables that affect the amount and timing of cash flows from these contracts. These mainly relate to the inherent risks of the business activities carried out by individual contract holders and the risk management procedures they adopted.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

Outstanding claims provision (Continued)

For the estimation of the ultimate liability arising from claims made under insurance contracts, the Company uses Bornhuetter Ferguson ("BF"), Chain-Ladder and Frequency and Severity methods. The method for MTPL is based on frequency and severity method, for the rest of the branches are selected by applying weighted average incurred ultimate results of Chain-Ladder method and incurred or average of paid and incurred ultimate results of Bornhuetter Ferguson method are used for the estimation of ultimate liabilities. It involves the analysis of historical claim development factors based on historical pattern and also loss ratio is considered in BF method.

The appropriate development factors are then applied to cumulative claims data for each accident year that is not yet fully developed to produce an estimated ultimate claim cost for each accident year. The choice of selected factors for each accident year of each class of business depends on the best estimate of the Company. Considering the uncertainty about the amount and timing of claims, the Company made the estimation of claims development considering starting from the year of 2003 and a tail factor is used for some branches for future developments. The Company performs the ultimate liability estimation for large claims separately which are determined as large claims by using certain statistical methods since these claims have different claim development patterns. Additionally, the ultimate liability calculations are performed on gross basis and the net amounts are determined according to historical ceding rates on each accident quarter or applicable reinsurance treaties are applied to ultimate losses for each branch. A provision is calculated and accounted for unallocated loss adjustment expenses ("ULAE") refer to general overhead expenses associated with the claims-handling process, and particularly the costs of investigating, handling, paying, and resolving claims. The estimation for ULAE is calculated using the rate of historical expenses to total claim amounts. The methods which were selected by the Company for each branch, the results of related calculations as of December 31, 2017 and 2016, the methods to calculate net of reinsurance results and the limits which are used for the big claims eliminations are disclosed in Note 16.

Reinsurance agreements

Reinsurance agreements are the agreements enforced by the Company and the reinsurer, in exchange for a certain compensation, to cede the premiums and losses which may occur in relation to one or more insurance policies produced by the Company.

The Company has excess of loss, surplus and proportional quota-share agreements in accordance with the branches in which it operates. Within the framework of excess of loss agreements, the ceded premiums are accounted for on accrual basis over the relevant period. The revenues and liabilities due to premium and claim ceded under other annual reinsurance agreements are also accounted for on the same basis.

The Company has surplus reinsurance agreement in fire, marine, engineering and other accident branches and annual proportional quota-share reinsurance agreement for motor branches. Besides, The Company has excess of loss agreements in fire, marine and engineering branches.

Motor quota-share agreement is based on the transfer of written premiums and paid claims during the period covered by the agreement, and portfolio transfer is performed for premium and outstanding claim reserves by the end of each period. For surplus agreements, which work on a run-off basis, the liability of the reinsurers continue for the underwriting year at the policy period when the claim occurred. In addition, the Company has facultative reinsurance agreements signed separately for certain risks based on certain policies.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.16 Insurance and investment contracts (Continued)

Premiums Transferred to Social Security Institution

The collection and settlement of expenses with respect to the medical care related services provided to the injured people due to the traffic accidents have been regulated by Article 98 of Road Traffic Act numbered 2918 altered by Article 59 of "The Law on Restructuring of Some Receivables and Changes in Social Security and General Insurance Law and Other Laws and Law Decrees" (the "Law") numbered 6111 and dated February 25, 2011. In this context, all the traffic accident related medical care services provided by any public or private health institution will be covered by Social Security Institution ("SSI") regardless of social security status of the injured. Besides, in accordance with the temporary Article 1 of the Law, all of the expenses with respect to the traffic accident related medical care services provided before enforcement of the Law, will also be covered by SSI.

The liability of the insurance companies with respect to the service costs to be incurred in the context of abovementioned articles has been determined in accordance with the provisions of "The Regulation on the Principles of Collection of the Costs of the Health Services Provided due to the Traffic Accidents" dated 27 August 2011 ("The Regulation"), "The Communiqué on the Principles of the Implementation of the Regulation on the Principles of Collection of the Costs of the Health Services Provided due to the Traffic Accidents" dated September 15, 2011 and numbered 2011/17 (the "Communiqué numbered 2011/17") and "The Communiqué on the Accounting of Payments to Social Security Institution ("SSI") with respect to Treatment Expenses and Introduction of New Account Codes to Insurance Account Chart" dated October 17, 2011 (the "Communiqué numbered 2011/18"), the regulation(the "Communique numbered 2012/3") making changes in "The Regulation on the Principles of Collection of the Costs of the Health Services Provided due to the Traffic Accidents" dated March 16, 2012 and numbered 2012/3 and the communique about changes related "the Principles of Collection of the Costs of the Health Services Provided due to the Traffic Accidents" dated April 30, 2012 and numbered 2012/6 (the "Communique numbered 2012/6").Within this framework, the Group is required to cede a certain amount of premiums to be determined in accordance with the Regulation and the Communiqué numbered 2011/17 to SSI in relation to policies issued as of February 25, 2011 the notice numbered 2012/3 and the communiqué numbered 2012/6 in "Compulsory Transportation", "Compulsory Traffic" and "Compulsory Motor Personal Accident" branches regarding the expenses with respect to the traffic accident related medical care services provided after enforcement of the Law. Based on the aforementioned regulations, the Company has calculated the amount of the premiums to be ceded to SSI in January 1 - December 31, 2017 account period as TL 49,964,536 (January 1 - December 31, 2016: TL 19,398,403) and an unearned premium reserve amounting to TL 24,819,657 as of December 31, 2017 (December 31, 2016: TL 7,802,076); classified under "Ceded Premiums".

However, in the Board of Directors meeting of The Association of the Insurance and Reinsurance Companies of Turkey dated September 22, 2011 and numbered 18, it was decided to appeal Council of State for the "suspense of execution" and "cancellation" of the Regulation and the Communiqué numbered 2011/17; and the cancellation of related provisions of the Law as being contradictory to the Constitution. The legal procedures are in progress as of the date of the preparation of the financial statements.

2.17 Insurance contracts and investment contracts with discretionary participation feature

None (December 31, 2017: None).

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.18 Investment contracts without discretionary participation feature

None (December 31, 2017: None).

2.19 Borrowings

None (December 31, 2017: None).

2.20 Current and deferred income tax

The Company is subject to Turkish corporate taxes. Provision is recognized in the accompanying financial statements for the estimated charge based on the Company's results for the years and periods. Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment incentives utilized. The effective tax rate used in 2017 and 2016 is 20 %.

In accordance with the regulation numbered 7061, published in Official Gazette on 5 December 2017," Law on the Amendment of Some Tax Acts and Some Other Laws", corporate tax rate for the years 2018, 2019 and 2020 has increased from 20% to 22%. Therefore, deferred tax assets and liabilities as of 31 December 2017 are calculated with 22% tax rate for the temporary differences which will be realized in 2018, 2019 and 2020, and with 20% tax for those which will be realized after 2021 and onwards.

In Turkey, advance tax returns are calculated and accrued on a quarterly basis. The advance corporate income tax rate used in 2017 and 2016 is 20 %. Losses are allowed to be carried maximum 5 years in order to deduct from the taxable profit of the following years.

In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns between the dates 1 - 25 April, following the closing of the accounting year to which they relate. Tax authorities may, however, examine such returns and the underlying accounting records and may revise assessments within 5 years.

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 statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.21 Employee benefits

The Company accounts for its liability related to employment termination and vacation benefits according to "Turkish Accounting Standards Regarding Employee Benefits" ("IAS 19") and classifies in statement of financial position under the account "Provision of Employment Termination Benefits".

According to the Turkish Labor 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 Labor Law. The provision for employment termination benefits is calculated over present value of the possible liability in scope with the Labor Law by considering determined actuarial estimates.

2.22 Provisions

Provisions are recognized when the Company has a present obligation as a result of a past event, and it is probable that the Company will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. If provision amount is measured by the cash flows estimated to settle the present obligation, its carrying amount will be equal to the present value of such cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

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 17).

2.23 Revenue recognition

Written premium

Written premiums represent premiums on policies written during the year, net of cancellations. Premium income is recognized in the financial statements on accrual basis by allocating the unearned premium provision over written premiums.

Reinsurance commissions

Commission income received in relation to ceded premiums to reinsurance companies is accrued in the related period and classified in technical part under operating expenses in the income statement. Reinsurance commission income is recognized in the financial statements on an accrual basis by allocating the deferred commission income over commissions received.

Claim recovery and salvage income

The Company recognizes the subrogation and salvage receivables, as limited to the coverage amount of the debtor insurance company, provided that the claim payment has been performed, the acquittance or the statement of payment has been received from the policyholders; and related individuals or insurance companies have been notified. A provision is recorded for those receivables which are not collected from insurance companies after six months and from individuals after four months following the payment of claim.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.23 Revenue recognition(Continued)

Dividend income

Dividend income is recognized as an income in the financial statements when the right to receive payment is established.

2.24 Interest income and expense

Interest income and expenses are accounted on an accrual basis in the related period's income statement. Interest income includes income gains from the coupons of the fixed return investment instruments and valuation of discounted government bonds based on internal rate of return method.

2.25 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 lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The liability to lesser is classified as the leasing payables in the statement of financial position. 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.

2.26 Operational lease

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). As of December 31 ,the company has paid in advance amounting to TL 9,449,411 arising from operational leases, which is accounted amounting to TL 6,703,349 in short term assets, TL 2,793,061 in long term assets. As of December 31, 2017, the Company's total contractual cash outflows are TL 54,022,476 (USD 14,322,351) with the monthly maturity between January 1, 2017 to May 5, 2024 (December 31, 2015: TL 57,567,247).

2.27 Dividend distribution

Listed companies distribute dividend in accordance with the Communiqué No. II-19,1 issued by the Capital Market Board (CMB) which is effective from February 1, 2014.

Companies distribute dividends in accordance with their dividend payment policies settled and dividend payment decision taken in general assembly and also in conformity with relevant legislations. The communiqué does not constitute a minimum dividend rate. Companies distribute dividend in accordance with the method defined in their dividend policy or articles of incorporation. In addition, dividend can be distributed by fixed or variable installments and advance dividend can be paid in accordance with profit on interim financial statements of the Company.

In accordance with the Turkish Commercial Code (TCC), unless the required reserves and the dividend for shareholders as determined in the article of association or in the dividend distribution policy of the company are set aside, no decision may be made to set aside other reserves, to transfer profits to the subsequent year or to distribute dividends to the holders of usufruct right certificates, to the members of the board of directors or to the employees; and no dividend can be distributed to these persons unless the determined dividend for shareholders is paid in cash.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

2. Summary of significant accounting policies (Continued)

2.28 Derivative financial instruments

The Company uses foreign currency swap contracts. The Company uses end of period market exchange rates and interest rates to calculate market value of foreign exchange swap contracts. During the period between January 1 - December 31, 2017, total income resulting from short-term swap contracts' market valuation has been accounted under "investment income" in the income statement. As of December 31, 2017 and 2016, the Company has no outstanding derivative financial instruments. During the period between January 1 - December 31, 2017, TL 30,328,747 total income resulting from shortterm swap contracts' realization has been booked under the income statement as an income from derivatives (January 1 - December 31, 2016: TL 5,154,463).

2.29 Hedge accounting

All foreign currency payments, collections and investments result in a foreign exchange position. The foreign currency cash flow transaction has faced the risk of exchange rate fluctuations effect the Company's financial position positively or negatively. In order to forecast the transaction made via foreign currencies that have a high possibility of realization and minimize the effect of exchange rate fluctuations on the Company's financial position, hedge accounting has been applied. Changes in the value of the hedge instrument arising from exchange rate changes has been reclassified under equity, changes except for ineffective part of exchange rate which has been reclassified under current period income statement. The gains or losses recognized under equity has been transferred to related profit/ loss accounts when the transaction is completed or the profit for the period is affected by the expected result of the transaction. Effectiveness of hedge transaction has been measured and evaluated in each reporting period.

3. Critical accounting estimates and judgements

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 statement of financial position date and reported amounts of income and expenses during the financial period. Accounting estimates and assumptions are continuously 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 one of the most critical accounting estimates. Estimation of the insurance liabilities, by nature, includes the evaluation of several uncertainties.

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk

Insurance risk

Insurance risk is the probability of risk exposure that is covered under any insurance contracts and the uncertainty of the magnitude of the claims in relation to the risk exposed. Due to the nature of insurance transactions, risks are incidental and hard to anticipate. Maximum risk that the Company bears is limited to the coverage amount specified in the insurance contract.

The Company has adopted central risk assessment policy and this policy is applied in relation to the Company's specified operations and limitations. On principle, in risk assessment, potential claims are measured based on the past experience, similar risk comparisons and risks in relation to production process. Location, geographical area, field of activity and fire and theft measures are also key issues used in the assessment of the insured risk.

The Company's gross insurance gurantees given to insurees are summarized as below:

Branch	December 31, 2017	December 31, 2016
Motor Third Party Liability	13,878,960,700,217	3,472,376,461,753
Fire	617,946,854,752	601,059,056,615
General Losses	296,542,475,228	274,658,721,235
Marine	123,073,966,676	97,024,029,381
Motor Own Damage	60,499,452,006	42,134,056,334
Health	15,408,442,900	11,939,385,616
Life	-	200,000
Other	255,516,232,285	207,325,281,515
Total	15,247,948,124,064	4,706,517,192,449

(a) Market risk

i. Cash flow and market interest rate risk

The Company is required to manage its interest rate risks due to price fluctuations in its financial instruments arising from changes in interest rates. The Company's sensitivity to interest rate risk is related to the mismatch in maturities of its assets and liabilities. Interest rate risk is managed by offsetting the assets that are affected by the interest rate fluctuations against the liabilities in same nature.

	December 31, 2017	December 31, 2016
Total	Effect on profit and profit reserves
Market interest rate increase / (decrease)
+10%	(2,227,928)	(4,344,704)
-10%	2,797,224	5,529,428

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

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 by the analysis of exchange rate position. The details of the Company's foreign currency denominated assets and liabilities as of December 31, 2017 and 2016 are disclosed below:

December 31, 2017
	Amount in Foreign
Banks (Foreign Currency)	Currency	Exchange Rate	Amount (TL)
USD	6,135,494	3.7719	23,142,470
EUR	1,420,773	4.5155	6,415,500
GBP	92,357	5.0803	469,201
CHF	95,190	3.8548	366,938
Other			3,149
Total			30,397,258
	Amount in Foreign
Receivables from Insurance Operations	Currency	Exchange Rate	Amount (TL)
USD	45,975,362	3.7719	173,414,468
EUR	10,498,749	4.5155	47,407,101
GBP	93,403	5.0803	474,515
CHF	14,379	3.8548	55,428
Other			37,491
Total			221,389,003
	Amount in Foreign
Marketable Securities	Currency	Exchange Rate	Amount (TL)
USD	15,141,844	3.7719	57,113,520
Total			57,113,520
	Amount in Foreign
Outstanding Claims Reserve	Currency	Exchange Rate	Amount (TL)
USD	(6,355,551)	3.7719	(23,972,503)
EUR	(897,954)	4.5155	(4,054,711)
Other			(3,438)
Total			(28,030,652)
Payables from Insurance Operations	Amount in Foreign Currency	Exchange Rate	Amount (TL)
USD	(35,179,329)	3.7719	(132,692,911)
EUR Other	(5,721,273)	4.5155	(25,834,408) (1,349,223)
Total			(159,876,542)
	Amount in Foreign
Off-balance sheet liabilities	Currency	Exchange Rate	Amount (TL)
USD	(14,322,351)	3.7719	(54,022,476)
Total			(54,022,476)
Net Foreign Currency Position			66,970,111

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

ii. Foreign currency risk (Continued)

December 31, 2016
	Amount in Foreign
Banks (Foreign Currency)	Currency	Exchange Rate	Amount (TL)
USD	7,685,137	3.5192	27,045,534
EUR	1,146,085	3.7099	4,251,861
GBP	109,075	4.3189	471,084
CHF	55,429	3.4454	190,975
Other			2,832
Total			31,962,286
	Amount in Foreign
Receivables from Insurance Operations	Currency	Exchange Rate	Amount (TL)
USD	24,560,886	3.5192	86,434,670
EUR	4,765,794	3.7099	17,680,619
GBP	61,864	4.3189	267,184
CHF	8,328	3.4454	28,693
Other			9,663
Total			104,420,829
	Amount in Foreign
Marketable Securities	Currency	Exchange Rate	Amount (TL)
USD	23,881,989	3.5192	84,045,496
Total			84,045,496
	Amount in Foreign
Outstanding Claims Reserve	Currency	Exchange Rate	Amount (TL)
USD	(6,397,972)	3.5192	(22,515,743)
EUR	(1,327,179)	3.7099	(4,923,701)
Other			(17,841)
Total			(27,457,285)
	Amount in Foreign
Payables from Insurance Operations	Currency	Exchange Rate	Amount (TL)
USD	(24,072,894)	3.5192	(84,717,329)
EUR	(4,457,973)	3.7099	(16,538,634)
Other			(779,161)
Total			(102,035,4)
	Amount in Foreign
Off-balance sheet liabilities	Currency	Exchange Rate	Amount (TL)
USD	(16,358,049)	3.5192	(57,567,247)
Total			(57,567,247)
Net Foreign Currency Position			33,368,955

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

ii. Foreign currency risk (Continued)

Sensitivity to foreign currency risk

The Company's sensitivity to a 10% increase/decrease in USD and Euro currencies are presented below. Sensitivity analysis only includes foreign currency denominated monetary assets outstanding at the end of period and indicates the effects of 10% changes in exchange rates. Positive value indicates an increase in profit/loss and other equity items.

	December 31, 2017		December 31, 2016
Total	USD Effect	EUR Effect	USD Effect	EUR Effect
Profit/Loss Increase	14,495,005	3,204,290	5,809,105	539,385
Profit/Loss (Decrease)	(14,495,005)	(3,204,290)	(5,809,105)	(539,385)

iii. Price risk

The Company is exposed to price risk due to its investments in fair value price of debt securities. Securities are held for strategical purposes rather than trading purposes. These investments are not actively traded by the Company.

As of the reporting date, if data used in the valuation method is increased/decreased by 10% and all variables remain fixed, since the Company's equity investments are classified as available for sale assets and if they are not disposed of or impaired, net profit/loss would not be affected.

	December 31, 2017	December 31, 2016
Total		Effect on financial assets available for sale
Price increase / (decrease)
+10%	51,916,103	86,621,770
-10%	(51,916,103)	(86,621,770)

(b) Credit Risk

Credit risk is the risk that counterparties may be unable to meet the terms of their agreements. Credit risk is managed by guarantees received and procedures applied for the selection of the counterparties. Limits and guarantees are determined based on the assessment of the respective party's financial ability and trading capacity. The Company is exposed to credit risk in Turkey because it mainly performs its operations in Turkey.

As of December 31, 2017, the Company has presented its receivables from insurance operations, guarantees received for these receivables and provision for doubtful receivables in Note 10.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

(b) Credit Risk (Continued)

Main reinsurance companies worked with as of December 31, 2017 and 2016 and their latest ratings are as follows:

2017
Reinsurance Company	Standard & Poors Note	Reinsurance Company	Standard & Poors Note
Allianz Risk Transfer	AA-	Korean Re	A
Amlin Re	A	Malaysian Re	-
Arab Re	-	Mapfre Re	A
ARIG	-	Milli Re	tr AA
Asia Capital	A-	Odyssey Re	A
XLCatlin Re	A+	Scor	AA
China Re	A	Sompo Japan	A+
Covea	A+	Toa Re	A+
Everest Re	A+	Trust Re	A
GIC	-	VIG	A+
Hannover Re	AA-	Coface	Fitch: AA
QBE	A+

Reinsurance	Standard & Poors	Reinsurance
Company	Note	Company	Standard & Poors Note
Allianz Risk Transfer	AA-	Korean Re	A
Amlin Re	A	Malaysian Re	-
Arab Re	-	Mapfre Re	A
ARIG	-	Milli Re	tr AA
Asia Capital	A-	Odyssey Re	A
XLCatlin Re	A+	Scor	AA
China Re	A+	Sompo Japan	A+
Covea	A+	Toa Re	A+
Everest Re	A+	Trust Re	A
GIC	-	VIG	A+
Hannover Re	AA-	Coface	AA
QBE	A+

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

(c) Liquidity risk

Liquidity risk is the possibility of non-performance of the Company's due liabilities. Events that give rise to funding shortages, such as; market deteriorations and decrease in credit ratings, are the main reasons of liquidity risk. The Company manages its liquidity risk through having adequate cash and cash equivalents in order to fulfill its current and possible liabilities by allocating its funds.

The maturity analysis of financial assets and liabilities as of December 31, 2017 is as follows:

De be r 3 1, 20 17 cem	Up 1 nth to mo	1 – 3 nth mo s	3 m ths 1 to on yea r	1 – 5 yea rs	5 y nd ear s a ov er	No rit atu m y	To tal
Ca sh and sh iva len ts ca equ	48 0, 43 3, 48 3	856 65 0, 46 4 ,	-	-	-	54 14, 96 2, 0	35 1, 2, 04 6, 48 7
Fin ial aila ble fo ale ets anc ass av r s	5, 44 1, 840	5, 65 26 1, 8	72 340 84 9 , ,	175 65 6, 02 4 ,	24 96 9, 28 9 ,	95 23 2, 97 6, 7	51 6, 64 6, 61 7
Inv licy ho lde rs' ris k est nts me on po	-	-	-	2, 51 4, 41 4	-	-	2, 514 41 4 ,
Re cei vab les fro in tio m ma op era ns	100 69 5, 39 6 ,	159 73 8, 66 8 ,	20 1, 42 4, 72 3	17, 66 8, 43 4	-	-	47 9, 52 7, 22 1
Du e f ins ani rom re ura nce co mp es	-	-	27 96 9, 64 5 ,	-	-	-	27 96 9, 64 5 ,
Re ins rs' sh of in e li abi litie ure are sur anc s	38 6, 02 1, 00 8	37 1, 44 8, 59 2	60 0, 806 67 0 ,	73 04 9, 52 2 ,	41 103 07 3 , ,	-	1, 47 2, 42 8, 86 5
Eq uit riti y s ecu es	-	-	-	-	-	34 6, 21 1	34 6, 21 1
Ot her set as s	-	169 99 7, 74 4 ,	-	-	-	-	169 99 7, 74 4 ,
To tal A ts sse	97 2, 59 1, 72 7	1, 56 3, 09 7, 126	90 2, 54 1, 88 7	26 8, 88 8, 39 4	66 07 2, 36 2 ,	24 8, 28 5, 70 8	4, 02 1, 47 7, 20 4
Ins lia bili tie ura nce s	69 5, 79 8, 79 7	71 9, 81 9, 164	1, 47 4, 895 51 8 ,	122 00 4, 75 5 ,	66 88 6, 61 8 ,	-	3, 07 9, 40 4, 85 2
Du ein e t o r sur ers	-	-	33 2, 35 5, 20 6	-	-	-	33 2, 35 5, 20 6
Tr ade d o the ble an r p aya s	-	-	12 1, 60 8, 06 7	-	-	-	12 1, 60 8, 06 7
To tal lia bil itie nd sh ho lde rs' uit s a are eq y	69 5, 79 8, 7 97	71 9, 81 9, 164	1, 92 8, 85 8, 79 1	122 00 4, 75 5 ,	66 88 6, 61 8 ,	-	3, 53 3, 36 8, 125
Liq uid ity /( fic it) lus de su rp	27 6, 79 2, 93 0	84 3, 27 96 2 7,	( 1, 02 6, 31 6, 90 4)	146 88 3, 63 9 ,	( 81 4, 25 6)	24 8, 28 70 8 5,	48 8, 109 07 9 ,

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

(c) Liquidity risk (Continued)

The maturity analysis of financial assets and liabilities as of December 31, 2016 is as follows:

De be r 3 1, 20 16 cem	Up 1 nth to mo	1 - 3 nth mo s	3 m ths 1 to on ye ar	1 - 5 ye ar s	5 y d o ea rs an ve r	No rit atu m y	To tal
Ca sh d c ash uiv ale nts an eq	14 1, 43 5, 48 8	29 1, 68 9, 24 8	-	-	-	18 02 8, 38 3 ,	45 1, 15 3, 119
Se itie led d u nd ha ts cur s p ge er rep urc se agr eem en	-	30 04 5, 42 5 ,	-	-	-	-	30 04 5, 42 5 ,
Fin cia l a vai lab le for le ts a an sse sa	37 8, 78 6, 36 0	59 11 06 8, 9 ,	46 03 2, 68 0 ,	142 74 1, 72 6 ,	74 67 7, 04 2 ,	105 21 0, 38 1,	51 86 3, 68 7, 2
lic ho lde rs' ris k Inv est nts me on po y	-	-	-	2, 53 0, 185	-	-	2, 53 0, 185
Re cei vab les fr ain tio om m op era ns	115 40 8, 195 ,	152 95 6, 84 4 ,	127 55 3, 42 0 ,	-	-	-	39 5, 91 8, 45 9
Du e f ins nie rom re ura nc e c om pa s	-	-	24 180 70 1 , ,	-	-	-	24 180 70 1 , ,
Re ins rs' sh of ins e l iab ilit ies ure are ura nc	136 43 0, 102 ,	177 81 1, 72 2 ,	51 9, 74 5, 01 0	-	-	-	83 3, 98 6, 83 4
uit riti Eq y s ecu es	-	-	-	-	-	22 0, 88 9	22 0, 88 9
Ot her set as s	-	11 8, 61 9, 26 0	-	-	-	-	11 8, 61 9, 26 0
To tal A ts	77 06 14 5	78 19 09 7	71 51 81 1	14 27 91 1	74 67 04 2	22 63 37 8	72 34 38 4
sse	2, 0,	2, 1,	7, 1,	5, 1,	7, ,	8, 0,	2, 0, 2,
Ob lig ati nd ha ts on s u er rep urc se agr eem en	-	30 03 1, 43 8 ,	-	-	-	-	30 03 1, 43 8 ,
Ins e l iab ilit ies ura nc	29 7, 53 0, 44 9	49 5, 81 4, 68 6	1, 25 1, 25 3, 02 0	-	-	-	2, 04 4, 59 8, 155
Du ein e t o r sur ers	-	-	20 3, 166 06 2 ,	-	-	-	20 3, 166 06 2 ,
ade d o the ble Tr an r p aya s	-	-	99 24 4, 06 7 ,	-	-	-	99 24 4, 06 7 ,
To tal lia bil itie nd sh eh old ' e ity s a ar ers qu	29 7, 53 0, 44 9	52 5, 84 6, 12 4	1, 55 3, 66 3, 14 9	-	-	-	2, 37 7, 03 9, 72 2
Li idi lus /( de fic it) ty qu su rp	47 4, 52 9, 69 6	25 6, 34 4, 97 3	( 83 6, 15 1, 33 8)	14 5, 27 1, 91 1	74 67 7, 04 2 ,	22 8, 63 0, 37 8	34 3, 30 2, 66 2

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

Fair value of the financial assets

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction in accordance with market conditions.

The Company determines the estimated fair value of its financial instruments by using the current market information and appropriate valuation methods. Additionally, ability to estimate the market values through assessing the market information requires interpretation and judgment. As a result, the estimations presented herein cannot be an indicator of the amounts obtained by the Company in a current market transaction.

Fair Value Hierarchy

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. Fair value measurements are performed in accordance with the following fair value measurement hierarchy.

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3: Inputs for the asset or liability that is not based on observable market data (that is, unobservable inputs).

	December 31, 2017	Level 1	Level 2	Level 3
Available for sale at company's risk	516,646,617	516,646,617	-	-
Available for sale at insurees' risk	2,514,414	2,514,414	-	-
Total	519,161,031	519,161,031	-	-
	December 31, 2016	Level 1	Level 2	Level 3
Available for sale at company's risk	863,687,512	863,687,512	-	-
Available for sale at insurees' risk	2,530,185	2,530,185	-	-
Total	866,217,697	866,217,697	-	-

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

4. Management of insurance and financial risk (Continued)

Capital management

The Company's objective in capital management is to safeguard the Company's ability to continue as a going concern so that it can continue and to protect shareholder and corporate partners' benefits while sustaining the most effective capital structure in order to reduce capital costs.

The Company measures its adequacy semi-annually in accordance with the Decree "Measurement and Assessment of Capital Adequacy of Insurance and Reinsurance Companies and Pension Funds" published in the Official Gazette No: 26761 on January 19, 2008. As of December 31, 2017, the Company's required capital is TL 501,881,859 (December 31, 2016: TL 354,059,655). As of December 31, 2017, the Company's capital is TL 197,923,266 higher than required capital amount. (December 31, 2016: TL 40,044,142).

5. Segment information

Information related to the operational reporting made by the Company to the chief operating decisionmaker in accordance with the "IFRS 8 - Operating Segments" is disclosed in this part.

Numerical limits in "IFRS 8 - Operating Segments" is also considered as the reporting to the chief operating decision-maker in the determination of segments and the premium production and net technical income of the segments are considered while determining a separate operating segment.

The Company has been operating in Turkey. Since the effect of the foreign operations on financial statements is extremely low, geographic segment information is not given.

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

5. Segment information (Continued)

Segment results for period January 1 - December 31, 2017 is as follows:

Jan 1 - De ber 31 201 7 uar y cem ,	Fir e	Ma rin e	Mo Ow tor n ( D) Da MO ma ge	Mo Th ird tor Pa rty Li abi lity	Ge al L ner oss es	He alt h	Ot her	Un dis trib d ute	To tal
CH CA NC OM TE NI L I E	136 984 754 , ,	20, 072 603 ,	565 724 447 , ,	291 509 783 , ,	82, 213 041 ,	75, 100 592 ,	69, 930 379 ,	-	1, 241 535 599 , ,
Ear ned Pr ium s ( Ne t of Re ins r S har e) em ure	136 ,98 4,7 54	20, 072 603 ,	565 ,72 4,4 47	291 509 ,78 3 ,	82, 213 ,04 1	75, 100 592 ,	69, 930 ,37 9	-	1,2 41, 535 599 ,
Pre miu ( Ne t of Re ins r S har e) ms ure	146 561 ,23 6 ,	20, 979 ,40 3	604 ,10 6,1 43	486 ,74 7,9 37	85, 468 ,2 58	86, 555 ,32 5	85, 379 ,94 7	-	1, 515 ,79 8,2 49
Ch e in ned ium Un Pr s R ang ear em ese rve ( Ne t of Re ins rs S har and ure es
Re Ca rrie d F ard ) (+ /-) ser ves orw	( 9, 576 ,48 2)	( 906 ,80 0)	( 38, 381 696 ) ,	( 195 ,23 8,1 54)	( 3,2 55, 217 )	( 11, 454 ,73 3)	( 15, 449 568 ) ,	-	( 274 ,2 62, 650 )
TE CH NI CA L E XP EN SE S	( 112 207 876 ) , ,	( 9, 486 412 ) ,	( 671 617 425 ) , ,	( 284 430 290 ) , ,	( 56, 287 996 ) ,	( 50, 186 285 ) ,	( 60, 631 247 ) ,	-	( 1, 244 847 531 ) , ,
tal Cla ims ( t of ins r S har e) To Ne Re ure	( 58, 167 ,0 57)	( 4,8 00, 130 )	( 499 ,0 62, 829 )	( 232 ,03 3,7 68)	( 18, 951 ,1 54)	( 3, 656 579 ) ,	( 33, 215 ,13 8)	-	( 849 ,88 6, 655 )
Cla ims Pa id ( Ne t of Re ins r S har e) ure	( 69, 870 ,30 0)	( 4, 593 ,8 68)	( 454 ,41 4,0 53)	( 160 ,24 4,3 63)	( 17, 48 1,2 56)	( 4,3 93, 647 )	( 13, 796 ,1 67)	-	( 724 ,79 3, 654 )
Ch in O din Cla ims Re uts tan ang es g ser ve									-
( t of ins r S har nd Ne Re Re ure e a ser ves
Car ried Fo rd) (+ /-) rwa	11, 703 ,24 3	( 206 ,2 62)	( 44, 648 ,77 6)	( 71, 789 ,40 5)	( 1,4 69, 898 )	737 ,0 68	( 19, 418 ,97 1)	-	( 125 ,09 3,0 01)
Co issi ( Ne t) mm ons	( 25, 314 ,88 7)	( 2,7 17, 504 )	( 99, 382 ,20 6)	( 13, 843 510 ) ,	( 21, 872 ,9 54)	( 30, 284 ,8 57)	( 13, 171 ,97 2)	-	( 206 587 ,89 0) ,
Op ting Ex era pen ses	( 24, 553 ,4 52)	( 1,3 57, 378 )	( 59, 320 ,48 2)	( 29, 673 ,78 4)	( 12, 959 ,72 4)	( 14, 392 ,32 7)	( 12, 129 ,17 5)	-	( 154 ,38 6,3 22)
Oth er O atin e / Inc Exp per g om ens es	( 4,1 72, 480 )	( 611 ,40 0)	( 13, 851 ,90 8)	( 8,8 79, 228 )	( 2, 504 ,1 64)	( 1,8 52, 522 )	( 2,1 14, 962 )	-	( 33, 986 664 ) ,
	24, 776 878 ,	10, 586 191 ,	( 105 892 978 ) , ,	7, 079 493 ,	25, 925 045 ,	24, 914 307 ,	9, 299 132 ,	-	( 3, 311 932 ) ,
Inv nt i est me nco me	-	-	-	-	-	-	-	165 600 ,81 3 ,	165 600 ,81 3 ,
For eig xch e in n e ang com e	-	-	-	-	-	-	-	8,9 73, 165	8,9 73, 165
Ta x e xpe nse	-	-	-	-	-	-	-	( 34, 705 ,33 2)	( 34, 705 ,33 2)
Ne t P rof it / ( Lo ss)	24, 776 878 ,	10, 586 191 ,	( 105 892 978 ) , ,	7, 079 493 ,	25, 925 045 ,	24, 914 307 ,	9, 299 132 ,	139 868 646 , ,	136 556 714 , ,

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

5. Segment information (Continued)

Segment results for period January 1 - December 31, 2016 is as follows:

Jan 1 - De ber 30 201 6 uar y cem ,	Fir e	rin Ma e	Mo Ow tor n Da ( MO D) ma ge	Mo Th ird tor Pa Li abi lity rty	Ge al L ner oss es	He alt h	Ot her	dis trib Un ute d	To tal
TE CH NI CA L I NC OM E	132 552 465 , ,	18, 047 979 ,	490 692 954 , ,	149 602 315 , ,	68, 597 299 ,	93, 695 291 ,	73, 101 713 ,	-	1, 026 290 016 , ,
Ear ned Pr ium s ( Ne t of Re ins r S har e) em ure	132 552 ,46 5 ,	18, 047 ,97 9	490 ,69 2,9 54	149 ,60 2,3 15	68, 597 ,29 9	93, 695 ,29 1	73, 101 ,71 3	-	1,0 26, 290 ,01 6
Pre miu ( Ne t of Re ins r S har e) ms ure Ch e in Un ned Pr ium s R ear em ese rve	130 ,97 2, 517	18, 109 ,17 2	553 ,1 57, 400	225 ,94 2,2 22	67, 444 ,70 7	54, 425 ,23 0	74, 956 ,71 8	-	1,1 25, 007 ,96 6
ang ( t of ins rs S har and Ne Re ure es
Ca rrie d F ard ) (+ /-) Re ser ves orw	1, 579 ,94 8	( 61, 193 )	( 62, 464 ,44 6)	( 76, 339 ,90 7)	1,1 52, 592	39, 270 ,06 1	( 1,8 55, 005 )	-	( 98, 717 ,9 50)
TE CH NI CA L E XP EN SE S	( 115 471 133 ) , ,	( 13, 237 980 ) ,	( 532 688 046 ) , ,	( 184 612 777 ) , ,	( 52, 024 032 ) ,	( 103 009 036 ) , ,	( 51, 547 026 ) ,	-	( 1, 052 590 030 ) , ,
To tal Cla ims ( Ne t of Re ins r S har e) ure	( 55, 078 ,62 1)	( 7,2 10, 539 )	( 378 ,03 5,8 32)	( 142 ,10 2,7 56)	( 17, 240 511 ) ,	( 41, 351 ,74 3)	( 28, 112 ,74 2)	-	( 669 ,13 2,7 44)
Cla ims Pa id ( Ne t of Re ins r S har e) ure	( 55, 464 ,17 1)	( 7,3 24, 175 )	( 360 ,71 6, 523 )	( 141 572 ,9 55) ,	( 16, 377 ,47 0)	( 64, 204 ,72 4)	( 13, 628 ,76 2)	-	( 659 ,28 8,7 80)
Ch in O din Cla ims Re uts tan ang es g ser ve									-
( Ne t of Re ins r S har nd Re ure e a ser ves
Car ried rd) (+ /-) Fo rwa	385 550 ,	113 ,63 6	( 17, 319 ,30 9)	( 529 ,80 1)	( 863 ,04 1)	22, 852 ,98 1	( 14, 483 ,98 0)	-	( 9,8 43, 964 )
Co issi ( t) Ne mm ons	( 23, 243 ,19 6)	( 2,8 90, 034 )	( 90, 840 548 ) ,	( 20, 036 ,12 9)	( 21, 171 ,34 8)	( 25, 316 ,62 3)	( 10, 488 ,03 9)	-	( 193 ,98 5,9 17)
ting Op Ex era pen ses	5) ( 30, 831 ,72	( 2,2 77, 221 )	735 ( 42, ,30 2)	15, ,63 5) ( 343	53) ( 10, 342 ,7	54) ( 32, 948 ,4	61, 866 ( 9,4 )	-	56) ( 143 ,94 0,9
Oth er O atin e / Inc Exp per g om ens es	( 6,3 17, 591 )	( 860 ,18 6)	( 21, 076 ,36 4)	( 7,1 30, 257 )	( 3,2 69, 420 )	( 3,3 92, 216 )	( 3,4 84, 379 )	-	( 45, 530 ,41 3)
	17, 081 332 ,	4, 809 999 ,	( 41, 995 092 ) ,	( 35, 010 462 ) ,	16, 573 267 ,	( 9, 313 745 ) ,	21, 554 687 ,	-	( 26, 300 014 ) ,
nt i Inv est me nco me	-	-	-	-	-	-	-	107 ,42 9,4 20	107 ,42 9,4 20
For eig xch e in n e ang com e	-	-	-	-	-	-	-	7,0 87, 373	7,0 87, 373
Ta x e xpe nse	-	-	-	-	-	-	-	( 17, 666 ,29 9)	( 17, 666 ,29 9)
rof it / ( ss) Ne t P Lo	17, 081 332 ,	4, 809 999 ,	( 41, 995 092 ) ,	( 35, 010 462 ) ,	16, 573 267 ,	( 9, 313 745 ) ,	21, 554 687 ,	96, 850 494 ,	70, 550 480 ,

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

6. Tangible assets

As of December 31, 2017 and 2016 tangible assets movement and its accumulated depreciation is as follows:

Costs:	January 1, 2017	Additions		Disposals December 31, 2017
Property for operational use	1,598,569	-	-	1,598,569
Furniture and fixtures and leased tangible assets	22,168,371	2,080,127	(291,231)	23,957,267
Other tangible assets (including leasehold improvements)	20,331,354	1,409,502	(328,604)	21,412,252
Advances for tangible assets	-	-	-	-
Total	44,098,294	3,489,629	(619,835)	46,968,088
Accumulated depreciation: (-)	January 1, 2017	Additions		Disposals December 31, 2017
Property for operational use	(505,122)	(32,067)	-	(537,189)
Furniture and fixtures and leased tangible assets	(10,064,184)	(2,843,781)	255,019	(12,652,946)
Other tangible assets	(5,527,156)	(2,214,376)	160,930	(7,580,602)
Total	(16,096,462) (5,090,224)		415,949	(20,770,737)
Net book value		28,001,832 (1,600,595)	(203,886)	26,197,351
Costs:	January 1, 2016	Additions		Disposals December 31, 2016
Property for operational use	1,598,569	-	-	1,598,569
Furniture and fixtures and leased tangible assets	16,861,760	5,391,601	(84,990)	22,168,371
Other tangible assets (including leasehold improvements)	20,034,606	312,667	(15,919)	20,331,354
Advances for tangible assets	7,376	-	(7,376)	-
Total	38,502,311	5,704,268	(108,285)	44,098,294
Accumulated depreciation: (-)	January 1, 2016	Additions		Disposals December 31, 2016
Property for operational use	(473,056)	(32,066)	-	(505,122)
Furniture and fixtures and leased tangible assets	(8,077,954)	(2,056,911)	70,681	(10,064,184)
Other tangible assets	(3,411,984)	(2,131,092)	15,920	(5,527,156)
Total	(11,962,994) (4,220,069)		86,601	(16,096,462)
Net book value	26,539,317	1,484,199	(21,684)	28,001,832

The Company has not accounted for any impairment provision for tangible fixed assets in the current period.

Total depreciation expense is TL 17,960,439 (January 1 - December 31, 2016: TL 13,690,085).

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

7. Intangible assets

Costs:	January 1, 2017	Additions	Disposals	Transfers	December 31, 2017
Rights	69,825,964	17,215,385	-	-	87,041,349
Advances given for intangible assets	1,577,347	1,023, 299	-	-	2,600,646
Total	71,403,311	18,238,684	-	-	89,641,995
Accumulated depreciation: (-)	January 1, 2017	Additions	Disposals	Transfers	December 31, 2017
Rights Total	(30,227,061) (30,227,061)	(12,870,215) (12,870,215)	- -	- -	(43,097,276) (43,097,276)
Net book value	41,176,250				46,544,719
Costs:	January 1, 2016	Additions	Disposals	Transfers	December 31, 2016
Rights	52,085,155	15,918,090	-	1,822,719	69,825,964
Advances given for intangible assets	2,666,428	826,91 7	(93,279)	(1,822,719)	1,577,347
Total	54,751,583	16,745,007	(93,279)	-	71,403,311
Accumulated depreciation: (-)	January 1, 2016	Additions	Disposals	Transfers	December 31, 2016
Rights	(20,757,045)	(9,470,016)	-	-	(30,227,061)
Total	(20,757,045)	(9,470,016)	-	-	(30,227,061)
Net book value	33,994,538				41,176,250

8. Financial assets

Available for sale debt securities:

	December 31, 2017
	Cost Value	Fair Value	Book Value
Private bonds	217,089,791	226,548,745	226,548,745
Investment Funds	189,348,522	232,976,958	232,976,958
Eurobonds	58,976,694	57,120,310	57,120,310
Government bonds	736	604	604
Total	465,415,743	516,646,617	516,646,617

	December 31, 2016
	Cost Value	Fair Value	Book Value
Government bonds	414,615,001	409,346,640	409,346,640
Investment Funds	189,073,620	210,381,106	210,381,106
Private bonds	157,224,003	159,914,268	159,914,268
Eurobonds	88,642,117	84,045,498	84,045,498
Total	849,554,741	863,687,512	863,687,512

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

8. Financial assets (Continued)

Financial assets at insurees' risk:

	December 31, 2017
	Cost Value	Fair Value	Book Value
Government bonds	2,495,766	2,514,414	2,514,414
Total	2,495,766	2,514,414	2,514,414
		December 31, 2016
	Cost Value	Fair Value	Book Value
Government bonds	2,530,185	2,530,185	2,530,185
Total	2,530,185	2,530,185	2,530,185

Equity shares under available-for-sale investments:

As of December 31, 2017, the Company has an investment in Merter BV with a 25% participation rate (December 31, 2016: 25%). Merter BV is a real estate company which has an investment in a shopping mall and office building with 50% participation rate. The Company has a final participation rate of 12,5% in the real estates. Since the Company does not have any influence in the financial and operating policy decisions of the investee, this investment is classified as available for sale financial asset and carried at its fair value. The Company has booked impairment provision for Merter BV amounting to TL 30,116,653 in its financial statements as of December 31, 2017 in accordance with the appraisal report obtained from an independent appraisal firm (December 31, 2016: TL 30,116,653).

List of the investments and fair values is as below:

	December 31, 2017
	Cost Value	Fair Value	Book Value
Equity investments
Merter BV (*)	30,116,653	-	-
Tarsim	346,211	-	346,211
Total	30,462,864	-	346,211
		December 31, 2016
	Cost Value	Fair Value	Book Value
Equity investments
Merter BV (*)	30,116,653	-	-
Tarsim	220,889	-	220,889
Total	30,337,542	-	220,889

(*) The Company has booked the impairment provision for Merter BV, one of the affiliates, amounting to TL 30.116.653 in its financial statements as of December 31, 2017 (December 31, 2016: TL 30.116.653)

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

8. Financial assets (Continued)

The foreign currency analysis of financial assets is as follows:

As at December 31, 2017, the Company has Eurobonds with the carrying value of USD 15.141.843 (Note 4, Foreign currency risk) (December 31, 2016: USD 23.881.989).

The maturity analysis of financial assets is as follows:

As at December 31, 2017 and 2016, the remaining contractual maturities of financial assets are as follows:

	No stated	0-3	3 months	1-5	More than
December 31, 2017	maturity	months	to 1 year	years	5 years	Total
Private sector bonds	-	10,703,498	72,340,849	175,655,419	24,969,289	283,669,055
Investment funds	232,976,958	-	-	-	-	232,976,958
Equity shares	-	-	-	346,211	-	346,211
Government bonds	-	-	2,514,414	604	-	2,515,018
Total	232,976,958	10,703,498	74,855,263	176,002,234	24,969,289	519,507,242
December 31, 2016
	No stated	Up to 3	3 months	1-5	More than
	maturity	months	to 1 year	years	5 years	Total
Private sector bonds	-	28.451.286	41.088.587	124.766.510	49.653.383	243.959.766
Government bonds	-	361.403.673	4.944.093	20.505.401	25.023.658	411.876.825
Equity shares	220.889	-	-	-	-	220.889
Investment funds	210.381.106	-	-	-	-	210.381.106
Total	210.601.995	389.854.959	46.032.680	145.271.911	74.677.041	866.438.586

Movement of financial assets:

As at December 31, 2017 and 2016, the movements of financial assets are as follows:

			2017
	Available for sale		Investment
	financial assets	Equity shares	funds	Life portfolio	Total
Opening balance, January 1	653,306,406	220,889	210,381,106	2,530,185	866,438,586
Purchases (+)	970,329,904	125,322	175,684,200	-	1,146,139,426
Sales (-)	(1,370,656,005)	-	(183,417,095)	(15,771)	(1,554,088,871)
Gain / (loss)	30,689,354	-	30,328,747	-	61,018,101
Closing balance, December 31	283,669,659	346,211	232,976,958	2,514,414	519,507,242
			2016
	Available for sale
	financial assets	Equity shares	Investment funds	Life portfolio	Total
Opening balance, January 1	588.745.370	8.182.140	89.334.398	7.753.280	694.015.188
Purchases (+)	123.269.747	-	121.636.427	-	244.906.174
Sales (-)	(81.945.206)	-	(15.105.491)	(5.373.114)	(102.423.811)
Gain / (loss)	23.236.495	(7.961.251)	14.515.772	150.019	29.941.035
Closing balance, December 31	653.306.406	220.889	210.381.106	2.530.185	866.438.586

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

9. Cash and cash equivalents

The details of cash and cash equivalents of the Company are as follows:

	December 31, 2017	December 31, 2016
Cash at banks	966,463,093	240,333,856
-time deposits	951,500,553	222,305,473
-demand deposits	14,962,540	18,028,383
Bank guaranteed credit card receivables
with maturity less than 3 months	385,583,394	210,819,263
	1,352,046,487	451,153,119
Securities pledge under repurchase
agreements	-	30,045,425
Total cash and cash equivalents	1,352,046,487	481,198,544

The maturities of the Company's time deposits as of December 31, 2017 are less than six months (December 31, 2016: Less than six months).

Cash and cash equivalents that are included in the statements of cash flows for the periods January 1 - December 31, 2017 and January 1 - December 31, 2016 are as follows:

	December 31, 2017	December 31, 2016
Total cash and cash equivalents	1,352,046,487	481,198,544
Interest accrual on cash at banks (-)	(3,036,758)	(257,966)
Blocked time deposits	(148,506,702)	(148,863,664)

Cash and cash equivalents per
statement of cash flow	1,200,503,027	332,076,914

Weighted average interest rates of time deposits:

	December 31, 2017	December 31, 2016
TL	7.75 - 15.95	4.50 - 13.95
USD	0.10 - 4.40	0.10 - 3.40
EUR	0.10 - 1.75	0.10 - 1.85

As at December 31, 2017 and 2016 detail of cash and cash equivalents per currency are as follows:

	December 31, 2017	December 31, 2016
Foreign currency denominated
- demand deposits	30,394,167	6,239,219
- time deposits	27,409,485	25,792,958
Turkish Lira
- demand deposits	(15,431,627)	11,789,164
- time deposits	924,091,068	226,557,940
- bank guaranteed credit card receivables
with maturity less than 3 months	385,583,394	210,819,263
Total cash and cash equivalents	1,352,046,487	481,198,544

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

10. Premium receivables and due from reinsurers

As at December 31, 2017 and 2016 premium receivables and due from reinsurers are as follows:

	December 31, 2017	December 31, 2016
Receivables from intermediaries	476,400,578	356,559,848
Receivables from reinsurance companies	27,969,645	24,180,701
Due from insurance operations	504,370,223	380,740,549
Other receivables	181,097	136,835
Receivables from reinsurance and insurance companies	504,551,320	380,877,384
Doubtful receivables from main operations - gross	29,239,482	29,731,987
Receivables from main operations - gross	533,790,802	410,609,371
Provision for receivables from insurance operations	(3,514,000)	(1,906,000)
Provision for doubtful receivables from main operations	(22,779,936)	(21,758,316 )
Total provision amount for doubtful receivables	(26,293,936)	(23,664,316)
Total premium receivables and due from reinsurers	507,496,866	386,945,055

The aging of premium receivables is as follows:

	December 31, 2017	December 31, 2016
Overdue	67,468,610	35,346,589
Up to 3 months	139,629,603	112,363,928
3 to 6 months	269,061,019	216,521,084
6 months to 1 year	34,656,947	27,889,435
Over 1 year	22,974,623	18,488,335
Receivables from insurance operations - gross	533,790,802	410,609,371
Provision for receivables from insurance operations (-)	(3,514,000)	(1,906,000)
Provisions for receivables from main operations (-)	(22,779,936)	(21,758,316)
Total provision amount for doubtful receivables	(26,293,936)	(23,664,316)
Total premium receivables and due from reinsurers	507,496,866	386,945,055

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

10. Premium receivables and due from reinsurers (Continued)

The movement of provision for doubtful receivables from insurance operations is as follows

	December 31, 2017	December 31, 2016
Opening balance - January 1	(1,906,000)	(6,876,269)
Net change for the period	(1,608,000)	4,970,269
Closing balance, December 31	(3,514,000)	(1,906,000)

The movement of provision for doubtful receivables from main operations is as follows

	December 31, 2017	December 31, 2016
Opening balance - January 1	(21,758,316)	(25,266,142)
Net change for the period	(1,021,620)	3,507,826
Closing balance, December 31	(22,779,936)	(21,758,316)

The aging of the overdue but not impaired receivables from policyholders and agencies are as follows:

	December 31, 2017	December 31, 2016
Up to 3 months	5,070,652	1,088,533
Over 3 months	33,158,476	4,526,069
Total	38,229,128	5,614,602

As at December 31, 2017 and 2016, the details of guarantees and collaterals obtained are as follows:

		December 31, 2017		December 31, 2016
Types of guarantee	Receivables	Doubtful receivables	Receivables	Doubtful receivables
Real Estate Pledges	60,311,241	2,754,202	60,440,861	3,702,202
Letters of Guarantee	37,308,334	-	36,580,915	5,000
Government Bonds and Equity
Shares	240,487	-	162,616	-
Other	464,359	-	466,859	-
Total	98,324,421	2,754,202	97,651,251	3,707,202

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

11. Reinsurance share of insurance liabilities

As at December 31, 2017 and 2016 reinsurance share of insurance liabilities are as follows:

	December 31, 2017	December 31, 2016
Reinsurance Share
Reinsurers' share of outstanding claims (Note 16)	884,582,067	446,542,113
Reinsurers' share of unearned premiums (Note 16)	587,846,798	385,729,269
Bonus and rebates provison (Note 16)	-	1,715,452
Total	1,472,428,865	833,986,834

12. Deferred acquisition costs

As at December 31, 2017 and 2016 movements of deferred acquisition costs are as follows:

December 31, 2017	December 31, 2016
	64,793,992
45,209,627	9,450,374
	74,244,366
	74,244,366 119,453,993

13. Other assets

As at December 31, 2017 and 2016 short term other assets are as follows:

	December 31, 2017	December 31, 2016
Claim recovery receivables	19,119,953	21,232,371
Receivable from Agricultural Insurance Pool	11,024,553	2,964,383
Prepaid expenses /Short	10,239,430	2,685,039
Prepaid taxes and funds	4,056,588	11,855,334
Receivable from Turkish Natural Catastrophe
Insurance Pool	3,674,862	3,413,737
Other	2,428,365	2,224,029
Total short term other assets	50,543,751	44,374,893
	December 31, 2017	December 31, 2016
Claim recovery receivables	23,391,049	26,122,486
Provision for claim recovery (-)	(4,271,096)	(4,890,115)
Claim recovery receivables under legal follow-up	72,231,867	57,358,424
Provision for net claim recovery receivables
under legal follow-up (-)	(72,231,867)	(57,358,424)
Subrogation receivables	19,119,953	21,232,371

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

13. Other assets (Continued)

As at December 31, 2017 and 2016 long term other assets are as follows:

	December 31, 2017	December 31, 2016
Prepaid expenses /Long term	2,963,592	207,203
Total long term other assets	2,963,592	207,203

14. Equity

As of December 31, 2017, the Company's total amount of nominal shares is 30,600,000,000 (December 31, 2016: 30,600,000,000) which has all been paid. The face value of the Company's common stocks is TL 0,01 each and the total nominal amount is TL 306,000,000 (December 31, 2016: TL 306,000,000).

Movement of common stocks at opening balance and closing balance is as follows:

	January 1, 2017		Issued Capital			Amortised	December 31, 2017
				Nominal		Nominal
	Unit	Nominal TL	Unit	TL	Unit	TL	Unit	Nominal TL
Paid	30,600,000,000	306,000,000	-	-	-	-	30,600,000,000	306,000,000
Total	30,600,000,000	306,000,000	-	-	-	-	30,600,000,000	306,000,000
	January 1, 2016		Issued Capital			Amortised	December 31, 2016
				Nominal		Nominal
	Unit	Nominal TL	Unit	TL	Unit	TL	Unit	Nominal TL
Paid	30,600,000,000	306,000,000	-	-	-	-	30,600,000,000	306,000,000
Total	30,600,000,000	306,000,000	-	-	-	-	30,600,000,000	306,000,000

Movement of legal reserves is as follows:

Legal Reserves	2017	2016
Opening balance, January 1	178,468,101	178,468,101
Transfers from retained earnings	(83,064,172)	-
Closing balance, December 31	95,403,929	178,468,101

Actuarial gain / (loss)

In accordance with changes regarding "IAS 19 – Employee Benefits" effective as of January 1, 2013, net-off deferred tax actuarial loss amounting to TL 4,053,534 (net off deferred tax: TL (3,242,827) resulting from retirement pay liability calculation has been accounted to extraordinary reserves under equity.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

14. Equity (Continued)

Movement of actuarial loss arising from employee benefit is as follows:

Actuarial Loss	2017
Opening balance, January 1	4,340,507	4,680,554
Change for the period	(286,973)	(340,047)
Closing balance, December 31	4,053,534	4,340,507

Available for sale investments fund:

The unrealized 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 "Available for sale investments fund". Movement of available for sale investments fund is below:

Available for sale investments fund	2017	2016
Opening balance, January 1	(7,203,046)	(5,945,992)
Increase/decrease in value recognized under the
shareholders' equity in the current period	7,188,577	(1,257,054)
Closing balance, December 31	(14,469)	(7,203,046)

Hedge Accounting

The Company recognizes the changes in value of hedged asset by the foreign currency differences under equity. As of December 31, 2017 TL 22,023,479 (net: TL 17,618,782) is recognized under equity resulting from hedge accounting (December 31, 2016: TL 21,020,093 ; net: TL 16,816,074).

December 31, 2017
		Exchange rate at the	Exchange rate at the
Amount of deposit	Currency	beginning	end	Exchange difference
14,322,351	USD	2.2342	3.7719	(22,023,479)
December 31, 2016
		Exchange rate at the	Exchange rate at the
Amount of deposit	Currency	beginning	end	Exchange difference
16,358,049	USD	2.2342	3.5192	(21,020,093)

Type risk and principle of the cash flow hedge

The Company aims to prevent the future foreign exchange risk resulting from the operational leases by hedging with the eurobond amounting to USD 15,141,843.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

15. Earning Per Share

Shareholder of the company's earnings per share calculation is as follows:

	2017	2016
Profit for the year	136,556,714	70,550,480
Weighted average number of shares with nominal
value of TL 0.01 nominal value per share	30,600,000,000	30,600,000,000
Earnings per share	0.0045	0.0023

As of December 31, 2017 capital of the Company consists of 30,600,000,000 shares with nominal value of TL 0.0045 (December 31, 2016: 30,600,000,000 shares with nominal value of TL 0.0023).

16. Insurance liabilities

Insurance liabilities as at December 31, 2017 and 2016 are as follows:

Gross	December 31, 2017	December 31, 2016
Reserve for unearned premiums	1,471,777,825	995,397,648
Outstanding claims provision	1,606,010,832	1,046,533,629
Life actuarial mathematical reserves	1,448,214	1,373,929
Life profit share provision	160,913	1,718,909
Bonus and rebates provision	7,068	152,662
Total	3,079,404,852	2,045,176,777
Reinsurance Share	December 31, 2017	December 31, 2016
Reinsurers' share of outstanding claims (Note 11)	884,582,067	447,120,735
Reinsurers' share of unerned premiums (Note 11)	587,846,798	385,729,269
Bonus and rebates provision (Note 11)	-	1,715,452
Total	1,472,428,865	834,565,456
Net	December 31, 2017	December 31, 2016
Net outstanding claims	721,428,765	599,412,894
Net unearned premiums	883,931,027	609,668,379
Life actuarial mathematical reserves	1,448,214	1,373,929
Life profit share provision	160,913	1,718,909
Bonus and rebates provision	7,068	(1,562,790)
Total	1,606,975,987	1,210,611,321

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

16. Insurance liabilities (Continued)

Movements in insurance liabilities and reinsurance assets

Outstanding Claims:

2017	Gross	Reinsurers' share	Net
Opening balance, January 1	1,045,955,010	446,542,113	599,412,897
Net change	560,055,822	438,039,954	122,015,868
Closing balance - December 31	1,606,010,832	884,582,067	721,428,765
2016	Gross	Reinsurers' share	Net
Opening balance, January 1	779,312,803	211,078,524	568,234,279
Net change	266,642,207	235,463,589	31,178,618
Closing balance - December 31	1,045,955,010	446,542,113	599,412,897
Unearned Premium Reserve:
2017	Gross	Reinsurers' share	Net
Opening balance, January 1	1,046,533,629	447,120,735	599,412,894
Net change	425,244,196	140,726,063	284,518,133
Closing balance - December 31	1,471,777,825	587,846,798	883,931,027
2016	Gross	Reinsurers' share	Net
Opening balance, January 1	830,480,271	264,328,607	566,151,664
Net change	460,651	55,944,978	(55,484,327)

Life mathematical provisions:

		2017	2016
	Number of Policies	Mathematical Reserves	Number of Policies	Mathematical Reserves
Opening balance, January 1 Addition/(leavings)	250	1,588,295	385	1,972,202
in the current period	57	20,832	(135)	(383,907)
Closing balance, December 31	307	1,609,127	250	1,588,295

Closing balance - December 31 830,940,922 320,273,585 510,667,337

Mathematical reserves amounting to TL 1,448,214 (December 31, 2016: TL 1,373,929) and reserves for the policies with financial assets at insurees' risk amounting to TL 160,912 (December 31, 2016: TL 152,659) and cancelled policies together with their mathematical reserves are included in the table above.

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

16. Insurance liabilities (Continued)

Subrogation income:

The amounts of the net salvage and subrogation income which are collected and the accrued income amounts from salvage and subrogation receivables with respect to the claims paid by the Company are as follow:

		De be r 3 1, 20 17 cem			De be r 3 1, 20 16 cem
Cl aim als re co ve ry acc ru	Gr oss	Re ins ' sh ur ers ar e	Ne t	Gr oss	Re ins ' sh ur ers ar e	Ne t
O Mo D tor wn am age	21 71 4, 47 2 ,	-	21 71 4, 47 2 ,	24 61 3, 45 0 ,	( 51 8)	24 61 2, 93 2 ,
MT PL	59 7, 07 5	( 7, 56 5)	58 9, 51 0	29 4, 88 5	-	29 4, 88 5
Fir e	1, 05 0, 61 2	( 164 32 1) ,	88 6, 29 1	49 7, 50 5	( 60 45 7) ,	43 7, 04 8
Ge al Lia bil ity ner	9, 34 5	( 5, 09 3)	4, 25 2	-	-	-
raf W r C ate t	61 3, 0	5) ( 1, 80	5 1, 80	42 29 7 ,	60 ( 29 8) ,	68 12 9 ,
Su hip ret ys	-	-	-	-	-	-
Ma rin e	11 6, 80 9	( 8, 94 7)	107 86 2 ,	1, 06 0, 03 1	( 31 5, 160 )	74 4, 87 1
Ac cid ent	180 74 5 ,	( 93 88 8) ,	86 85 7 ,	17 34 3 ,	-	17 34 3 ,
Ge al Lo ner sse s	-	-	-	6, 34 0	( 3, 62 2)	2, 71 8
To tal	23 67 2, 66 8 ,	( 28 1, 61 9)	23 39 1, 04 9 ,	26 53 1, 85 1 ,	( 40 9, 36 5)	26 12 2, 48 6 ,

		De be r 3 1, 20 17 cem			De be r 3 1, 20 16 cem
Cl aim cti lle re co ve ry co on s	Gr oss	ins ' sh Re ur ers ar e	Ne t	Gr oss	ins ' sh Re ur ers ar e	Ne t
Mo O D tor wn am age	16 9, 169 06 6 ,	( 57 2)	16 9, 16 8, 49 4	145 84 5, 05 3 ,	( 11 197 ) ,	14 5, 83 3, 85 6
MT PL	5, 4, 31 72 6	150 ( 2, )	57 4, 31 3, 6	51 145 2, 9,	( 46 7)	51 2, 8, 67 8
Fir e	2, 6, 86 0 77	( 52 3, 52 2)	2, 25 3, 33 8	2, 85 5, 63 4	( 91 3, 83 2)	1, 94 1, 80 2
Ge al Lia bil ity ner	49 4, 86 4	( 8, 85 6)	48 6, 00 8	27 130 ,	( 11 32 4) ,	15 80 6 ,
W r C raf ate t	49 49 1 ,	( 33 95 0) ,	15 54 1 ,	3, 77 5	( 2, 26 5)	1, 51 0
Su hip ret ys	22 39 2 ,	( 11 47 7) ,	10 91 5 ,	2, 52 4	( 1, 26 2)	1, 26 2
Ma rin e	2, 02 4, 03 9	68 68 ( 7, 0)	6, 35 1, 33 9	59 1, 3, 20 4	57 26 ( 4, 9)	5 1, 01 8, 93
Ac cid ent	21 02 0 ,	-	21 02 0 ,	-	-	-
l E Le ga xp en ses	11 193 ,	-	11 19 3 ,	-	-	-
Ge al Lo ner sse s	17 6, 38 9	( 87 55 5) ,	88 83 4 ,	28 2, 66 8	( 20 1, 110 )	81 55 8 ,
To tal	17 9, 06 1, 04 0	( 1, 35 5, 76 2)	17 7, 70 5, 27 8	15 3, 12 9, 13 3	( 1, 71 5, 72 6)	15 1, 41 3, 40 7

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

16. Insurance liabilities (Continued)

Claims development tables

The Company prepares the claim development table in accordance with the Regulation on Technical Reserves. As at December 31, 2017 and 2016, claim development table of the Company is as follows:

	20 10 d e lie an ar r	20 11	20 12	20 13	20 14	20 15	20 16	20 17	To tal
Cl aim liz in ed th s r ea e
cid eri od t p ac en	3, 52 165 68 0 7, ,	64 2, 28 4, 58 9	80 5, 34 9, 55 1	67 3, 01 9, 73 8	83 8, 172 102 ,	84 1, 91 3, 192	93 0, 62 1, 83 7	1, 36 6, 23 8, 87 8	9, 62 4, 76 5, 56 7
1 y la ter ear	1, 11 1, 89 9, 142	16 1, 69 6, 125	20 2, 47 5, 49 7	160 18 1, 39 9 ,	23 9, 93 7, 13 1	21 6, 69 9, 94 6	42 0, 93 4, 17 8		2, 51 3, 82 3, 41 8
s la 2 y ter ear	6, 152 6 21 21 ,	50 6 88 8, 99 ,	63 97 3, 82 1 ,	58 84 81 9, 2 ,	86 144 01 4, 2 ,	6, 76 12 30 3, 0			72 3, 77 3, 23 7
s la 3 y ter ear	51 5 182 9, 44 ,	49 87 3, 09 2 ,	54 37 1, 94 9 ,	67 30 1, 174 ,	60 6, 120 23 4 ,				67 47 4, 1, 89 4
4 y s la ter ear	155 99 6, 32 8 ,	52 87 2, 65 4 ,	51 99 8, 68 5 ,	65 88 6, 72 2 ,					32 6, 75 4, 38 9
5 y s la ter ear	14 1, 33 0, 48 4	29 56 3, 32 7 ,	47 49 8, 24 1 ,						21 8, 39 2, 05 2
6 y s la ter ear	12 8, 24 3, 72 0	26 56 9, 82 2 ,							154 81 3, 54 2 ,
7 y s la ter ear	125 06 9, 85 1 ,								12 5, 06 9, 85 1
8 y s la ter ear	88 04 1, 63 9 ,								88 04 1, 63 9 ,
9 y s la ter ear	65 08 9, 78 8 ,								65 08 9, 78 8 ,
10 la ter ye ars	40 192 08 3 , ,								40 192 08 3 , ,
11 lat ye ar er	29 98 5, 66 7 ,								29 98 5, 66 7 ,
12 lat ye ar er	53 19 07 8, 8 ,								53 19 07 8, 8 ,
13 lat ye ar er	3, 52 56 2 7,								3, 52 56 2 7,
14 lat ye ar er	1, 34 2, 27 2								1, 34 2, 27 2
To tal in d g cu rre ro ss isi fo din uts tan pr ov on r o g im cla t s a s a
De be r 3 1, 20 17 cem	5, 83 5, 63 4, 41 5	1, 05 1, 36 8, 60 5	1, 22 5, 66 7, 74 4	1, 05 1, 20 8, 61 5	1, 34 2, 73 0, 32 9	1, 18 4, 91 6, 89 8	1, 35 1, 55 6, 01 5	1, 36 6, 23 8, 87 8	14 40 9, 32 1, 49 9 ,

NOTES TO THE FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

16. Insurance liabilities (Continued)

	20 09 lie d e an ar r	20 10	20 11	20 12	20 13	20 14	20 15	20 16	To tal
Cl aim liz ed in th s r ea e
cid eri od t p ac en	76 2, 93 7, 8, 27 0	57 5, 2, 08 71 1	64 58 2, 28 4, 9	5, 55 80 34 9, 1	67 3, 01 9, 73 8	83 8, 172 102 ,	84 1, 91 3, 192	62 93 0, 1, 83 7	8, 24 1, 21 4, 99 0
1 y la ter ear	94 8, 53 4, 76 5	11 8, 87 4, 63 0	16 1, 69 6, 125	20 2, 47 5, 49 7	160 18 1, 39 9 ,	23 9, 93 13 1 7,	21 6, 69 9, 94 6		2, 04 8, 39 9, 49 3
2 y s la ter ear	18 6, 28 3, 80 5	30 39 5, 44 8 ,	88 50 8, 99 6 ,	63 97 3, 82 1 ,	84 81 9, 58 2 ,	144 01 4, 86 2 ,			59 7, 99 6, 51 4
3 y s la ter ear	16 1, 50 3, 172	21 21 3, 52 5 ,	49 87 3, 09 2 ,	54 37 1, 94 9 ,	67 30 1, 174 ,				35 4, 26 2, 91 2
4 y s la ter ear	13 1, 31 4, 84 4	24 69 1, 85 6 ,	52 87 2, 65 4 ,	51 99 8, 68 5 ,					26 0, 87 8, 03 9
5 y s la ter ear	95 11 2, 7, 41 4	64 28 37 4, 9 ,	56 29 3, 32 7 ,						5, 170 89 39 0 ,
6 y s la ter ear	100 81 6, 58 9 ,	27 42 8, 70 9 ,							12 8, 24 5, 29 8
s la 7 y ter ear	95 93 76 3 7, ,								95 93 76 3 7, ,
8 y s la ter ear	67 08 1, 21 4 ,								67 08 1, 21 4 ,
9 y s la ter ear	44 84 2, 48 0 ,								44 84 2, 48 0 ,
10 la ter ye ars	24 31 70 1 7, ,								24 31 70 1 7, ,
11 lat ye ar er	20 00 60 5 7, ,								20 00 60 5 7, ,
12 lat ye ar er	3, 62 0, 60 2								3, 62 0, 60 2
13 lat ye ar er	1, 56 3, 55 6								1, 56 3, 55 6
To tal in d g cu rre ro ss
isi fo pr ov on r

din lai tst at ou an g c ms as
De be r 3 1, 20 16 cem	4, 83 6, 54 9, 78 0	82 3, 06 4, 52 8	1, 02 4, 79 8, 78 3	1, 17 8, 16 9, 50 3	98 5, 32 1, 89 3	1, 22 2, 12 4, 09 5	1, 05 8, 61 3, 13 8	93 0, 62 1, 83 7	12 05 9, 26 3, 55 7 ,

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

16. Insurance liabilities (Continued)

Additional reserves in accordance with ultimate liability calculations:

	December 31, 2017				December 31, 2016
		Gross			Gross
		Additional	Net Additional		Additional	Net Additional
	Applied			Applied
Line of Businesses	Method	Provision	Provision	Method	Provision	Provision
Motor Third Party Liability	FS	264,561,318	264,561,317	FS	205,882,912	205,882,912
Fire	BF	14,244,613	232,438	BF	7,076,603	293,902
Health	SCL	403,593	(35,712)	SCL	333,420	(79,491)
General Loss	BF	8,453,691	346,676	BF	7,701,380	381,713
Marine	BF	1,246,697	177,922	BF	1,516,064	496,330
Motor Own Damage	SCL	(19,293,396)	(19,293,395)	BF	(10,502,218)	(10,502,218)
Other	SCL	65,376,085	24,964,556	SCL	69,578,980	32,722,050
Total		334,992,601	270,953,802		281,587,141	229,195,198

The Company actuary determined the threshold values regarding the peak claims considered as significant claims using the plot analysis. With this method the files, exceeds the determined limits considered as significant claims. The claim process of these files is different from other files. For these files, additional provision calculations were performed and added to the provisions. As of December 31, 2017 and 2016, large claim limits are as follows;

	2017		2016
Line of Businesses	Ultimate Loss	Large Claim Level	Ultimate Loss	Large Claim Level
Fire	BF	999,999	BF	999,999
General Loss	BF	999,999	BF	999,999
Marine	BF	499,999	BF	499,999
Personal Accident	BF	299,999	BF	299,999
Motor Vehicle Facultative Third Party Liability	FS	149,999	FS	149,999
Financial Losses	SCL	50,000	SCL	50,000
General Third Party Liability	SCL	200,000	SCL	200,000

In branches where significant claim determination is performed, additional provision calculations were performed for these files added to the Outstanding Claims Provisions. Additional gross amounts, as the LoBs are as follows.

	Gross Additional
Line of Businesses	Amount	Net IBNR
Facultative Public Liability	1,269,415	1,269,415
General Liability	8,075,255	2,195,610
General Losses	7,882,100	67,453
Fire and Natural Disaster	16,440,359	1,652,382
Accident	77,089	12,772
Financial Losses	1,039,728	104,510
Marine	506,756	75,907

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

17. Provisions for other liabilities and charges

The details of provisions that are classified under provisions for expense accruals in statement of financial position are as follows:

	December 31, 2017	December 31, 2016
Commission provision	13,551,374	12,708,520
Performance premium provision	7,412,368	7,460,555
Security fund provision	5,767,191	2,041,410
BITT provision	2,348,359	1,165,126
Expense accruals	1,820,496	7,847,428
Legal disputes provision	1,767,737	1,772,953
Portfolio management fee	1,491,914	1,932,960
Unused vacation provision	1,317,303	904,395
Other	1,321,331	1,005,715
Total	36,798,073	36,839,062

Commitments and contingent liabilities which are not recognised as liabilities are disclosed in Note 30 and 31.

The movement of the commission provisions are as follows:

	December 31, 2017	December 31, 2016
Opening balance, January 1	12,708,520	6,279,049
Change during the year, net	842,854	6,429,471
Total	13,551,374	12,708,520

The movement of the performance premium provision are as follows:

	December 31, 2017	December 31, 2016
Opening balance, January 1	7,460,556	4,378,053
Change during the year, net	(48,190)	3,082,503
Total	7,412,366	7,460,556

The movement of the security fund provision are as follows:

	December 31, 2017	December 31, 2016
Opening balance, January 1	2,041,410	2,005,064
Change during the year, net	3,725,781	36,346
Total	5,767,191	2,041,410

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

17. Provisions for other liabilities and charges (Continued)

The movement of the unused vacation provision are as follows:

	December 31, 2017	December 31, 2016
Opening balance, January 1	904,395	683,871
Change during the year, net	412,908	220,524
Total	1,317,303	904,395

The movement of the expense accruals are as follows:

	December 31, 2017	December 31, 2016
Opening balance, January 1	7,847,428	4,259,461
Change during the year, net	(6,026,932)	3,587,967
Total	1,820,496	7,847,428

18. Payables to reinsurers, trade and other payables

	December 31, 2017	December 31, 2016
Payables to reinsurers	308,244,281	168,866,177
Payables to SSI regarding medical expenses	24,110,925	4,268,447
Payables due to main operations	332,355,206	173,134,624
Taxes payable	32,009,499	17,872,576
Payables to Turkish Catastrophe Insurance Pool	24,947,212	21,395,892
Payables to suppliers	15,121,193	10,538,496
Payables to contracted institutions	8,522,694	6,010,520
Other	4,209,396	2,319,074
Total other short term payables	84,809,994	58,136,558
Total financial liabilities trade and other payables, deferred income	417,165,200	231,271,182

Movement of SSI regarding medical expenses is as follows:

	2017	2016
Opening Balance, 1 January	4,268,447	6,356,378
Premiums Ceded to SSI (1)	49,964,536	19,398,403
Premium payments to SSI in the current period	(30,122,058)	(21,486,334)
Closing balance, December 31	24,110,925	4,268,447

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

19. Provision for retirement benefit obligation

	December 31, 2017	December 31, 2016
Provision for employment termination benefits	6,172,934	6,335,367
Total	6,172,934	6,335,367

Under the terms of Turkish Labor Law, the Company is required to pay employment termination benefits to each employee who has qualified for such payment. Also, employees are entitled to retirement pay provisions subsequent to the completion of their retirement period by gaining a right to receive retirement payments in accordance with the amended Article 60 of the applicable Social Insurance Law No: 506 and the related Decrees No: 2422 and 4447 issued on 6 March 1981 and August 25, 1999, respectively. Some transitional provisions related to pre-retirement service term was excluded from the law since the related law was amended as of May 23, 2002.

Employee termination benefits provisions are legally not a subject of funding. The provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of employees. IAS 19 ("Employee Benefits") requires actuarial valuation methods to be developed to estimate the enterprise's obligation under defined benefit plans. Accordingly, the following actuarial assumptions were used in the calculation of the total liability:

The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as at December 31, 2017 and December 31, 2016, the provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of the employees. As of December 31, 2017, the provisions at the respective balance sheet dates have been calculated assuming an annual inflation rate of 11.92% (December 31, 2016: 8.53%) and a discount rate of 10.90% (December 31, 2016: 10.71%), resulting in a real interest rate of 3% (December 31, 2016: 2%). The anticipated rate of forfeitures is considered and estimated rate of the Company's retirement pay is also taken into account.

However, during this estimation, the employee termination benefits mentioned in subparagraph 5 of paragraph 1 of article 14 of the Labor Law numbered 1475 to be made in accordance with other conditions excluding the ages stipulated in clauses (a) and (b) of subparagraph A of paragraph one of article 60 of the Law numbered 506 or due to termination of employees on their own will after having completed the insurance period required for retirement pension (15 years) and the number of premium payment days (3600 days) have been excluded from the payments to be incurred by the Company.

As the maximum liability is updated semi-annually, the maximum amount of TL 5,001.76 effective from January 1, 2018 has been taken into consideration in calculation of provision from employment termination benefits (As of January 1, 2016, the ceiling on severance pay is TL 4.,426.16 per month). Movement of employee termination benefits provisions are presented in the statement below:

2017	2016
	6,474,170
	1,569,790
(286,974)	(340,047)
(1,154,413)	(1,368,546)
	6,335,367
	6,335,367 1,278,954 6,172,934

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

20. Net insurance premium income

The distribution of premium income is as follows:

		January 1 – December 31, 2017			January 1 – December 31, 2016
	Gross	Reinsurers' share	Net	Gross	Reinsurers' share	Net
Written premium	2,635,582,300	(1,119,778,051)	1,515,804,249	1,895,566,058	(770,556,594)	1,125,009,464
Change in unearned premium reserve	(476,380,178)	202,111,528	(274,268,650)	(164,456,725)	65,737,277	(98,719,448)
Total premium revenue	2,159,202,122	(917,666,523)	1,241,535,599	1,731,109,333	(704,819,317)	1,026,290,016
Fire	551,330,600	(404,769,364)	146,561,236	442,890,185	(311,917,669)	130,972,516
Marine	48,224,689	(27,245,286)	20,979,403	31,415,675	(13,306,503)	18,109,172
Motor Own Damage	641,095,251	(36,989,108)	604,106,143	590,851,704	(37,694,304)	553,157,400
Motor Third Party Liability	615,463,625	(128,715,688)	486,747,937	246,021,394	(20,079,173)	225,942,221
Other	266,338,443	(180,958,496)	85,379,947	184,492,338	(109,541,600)	74,950,738
General Losses	254,447,444	(168,979,186)	85,468,258	181,321,188	(113,876,481)	67,444,707
Health	258,676,248	(172,120,923)	86,555,325	218,566,094	(164,140,864)	54,425,230
Life	6,000	-	6,000	7,480	-	7,480
Total	2,635,582,300	(1,119,778,051)	1,515,804,249	1,895,566,058	(770,556,594)	1,125,009,464

21. Insurance claims and claims recovered from reinsurers

December 31, 2017

	Gross	Reinsurers' Share	Net
Paid Claims	1,053,269,947	(328,476,293)	724,793,654
Change in outstanding claims	559,477,203	(434,470,351)	125,006,852
Change in mathematical reserves	82,541	-	82,541
Bonus and rebates provison	(1,179,276)	1,182,884	3,608
Total	1,611,650,415	(761,763,760)	849,886,655

December 31, 2016

	Gross	Reinsurers' Share	Net
Paid Claims	862,459,294	(203,170,514)	659,288,780
Change in outstanding claims	237,887,033	(226,462,826)	11,424,207
Change in mathematical reserves	(383,907)	211	(383,696)
Bonus and rebates provison	518,907	(1,715,454)	(1,196,547)
Total	1,100,481,327	(431,348,583)	669,132,744

22. Taxes

As at December 31, 2017 and 2016 prepaid income taxes are netted off with the current income tax payable as stated below:

	December 31, 2017	December 31, 2016
Income taxes payable	40,115,659	-
Prepaid income taxes	(31,394,677)	-
Tax payable/(asset)	8,720,982	-

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

22. Taxes (Continued)

Deferred tax

The Company recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial statements as reported for International Accounting Standards (IAS) purposes and its statutory tax financial statements. These differences usually result in the recognition of revenue and expenses in different reporting periods for IAS.

The details of deferred tax assests and liabilities are as follows:

		Cumulative temporary differences		Deferred tax assets/ (liabilities)
	December 31, 2017	December 31, 2016	December 31, 2017	December 31, 2016
Discounting in outstanding claims	121,644,555	-	26,761,802	-
Impairment on financial assets	30,116,655	30,116,655	6,625,664	6,023,331
Claim handling	10,393,275	8,745,295	2,078,655	1,749,059
Bonus provision	7,412,368	7,460,555	1,630,721	1,492,111
Employment termination benefit	6,172,934	6,335,367	1,234,587	1,267,073
General expense provision	3,572,559	8,933,595	785,963	1,786,719
Doubtful receivable provisions	3,514,000	1,906,000	773,080	381,200
Unused vacation provision	1,317,303	904,395	289,807	180,879
Unexpired risks reserve	476,123	-	104,747	-
Fiscal loss	-	65,153,555	-	13,030,711
Claim reserves	(476,123)	20,593,495	(104,747)	4,118,699
Useful life of tangible and intangible assets	(9,849,205)	(6,504,665)	(2,166,825)	(1,300,933)
Equalization reserve	(63,940,659)	(54,229,510)	(14,066,945)	(10,845,902)
Other	(4,693,571)	8,379,310	(1,032,588)	1,675,862
Total deferred tax assets / liabilities	105,660,214	97,794,047	22,913,921	19,558,809

In accordance with the regulation numbered 7061, published in Official Gazette on 5 December 2017," Law on the Amendment of Some Tax Acts and Some Other Laws", corporate tax rate for the years 2018, 2019 and 2020 has increased from 20% to 22%. Therefore, deferred tax assets and liabilities as of 31 December 2017 are calculated with 22% tax rate for the temporary differences which will be realized in 2018, 2019 and 2020, and with 20% tax for those which will be realized after 2021 and onwards.

Actual tax expense reconciliation is as follow:

	2017	2016
Profit before deferred tax and corporate tax	171,262,046	88,216,779
Tax Rate	20%	20%
Calculated tax expense (-)	(34,252,409)	(17,643,356)
Tax rate change effect	1,875,751	-
The effect of non-deductible expenses	(2,328,674)	(22,943)
Total tax expenses	(34,705,332)	(17,666,299)

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

23. Investment Income

Investment income for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Cash and cash equivalents interest income	72,908,779	73,882,785
Available for sale interest income	62,363,287	28,392,170
Investment income from derivatives	30,328,747	5,154,465
Total	165,600,813	107,429,420

24. Commission income and expenses

Commission income and expenses for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Commissions income	159,767,647	120,341,279
Commissions expense	(366,355,537)	(314,327,196)
Commission expense, net	(206,587,890)	(193,985,917)

25. Other operating income and expenses

Other operating income for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Income from assistance services	3,821,688	3,377,042
State supported agriculture insurances commissions	723,867	499,332
Other	392,085	748,200
Total	4,937,640	4,624,574

Other operating expenses for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Provision for doubtful receivables	(15,723,303)	(13,509,666)
Donation expense	(6,985,000)	-
Security fund provision	(5,767,192)	(2,041,410)
Bank expenses	(3,036,841)	(2,815,607)
Portfolio management fee	(1,489,626)	(1,932,960)
Retirement pay provision	(1,278,953)	(1,569,790)
Disallowable expenses	(964,163)	(15,421,994)
Unused vacation provision	(688,184)	(154,261)
Other	(2,991,042)	(12,709,299)
Total	(38,924,304)	(50,154,987)

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

26. Expenses by nature

	January 1 - December 31, 2017	January 1 - December 31, 2016
Personnel expenses (*)	(75,829,468)	(67,871,300)
Depreciation expenses	(17,960,439)	(13,690,085)
Information technology expenses	(12,881,357)	(13,109,821)
Rent expenses	(9,712,100)	(8,546,734)
Assistance expenses	(9,053,051)	(16,804,034)
Meeting and training expenses	(5,226,925)	(3,696,162)
Outsourcing service expenses	(5,222,990)	(2,160,787)
Transportation expenses	(4,759,529)	(4,126,314)
Social relief expenses (*)	(3,695,946)	(3,688,606)
Advertisement expenses	(2,886,405)	(3,018,736)
Repair and maintanence	(2,459,355)	(2,500,167)
Communication expenses	(1,387,774)	(1,331,651)
Other	(3,310,983)	(3,396,559)
Total	(154,386,322)	(143,940,956)

(*) Personnel expenses for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Salary and bonus payments	(61,945,775)	(56,399,883)
Insurance payments	(10,130,654)	(8,547,062)
Other payments	(7,448,985)	(6,612,961)
Total	(79,525,414)	(71,559,906)

27. Foreign exchange gain / (loss), net

Foreign exchange gain / (loss), net for the year ended December 31, 2017 and 2016 are as follows:

	January 1 - December 31, 2017	January 1 - December 31, 2016
Foreign exchange gains (+)	111,807,006	77,269,832
Foreign exchange losses (-)	(102,833,841)	(70,182,459)
Foreign exchange gains, net	8,973,165	7,087,373

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

28. Blocked securities and bank deposits

Under Insurance Law, insurance companies are obliged to deposit investments within two months in a blocked account with a state bank in favour of Undersecretariat of Treasury. Accordingly the following guarantees have been issued to the Turkish Treasury based on the financial results:

	January 1 – December 31, 2017	January 1 –
		December 31, 2016
Blocked bank deposits	148,506,702	148,863,664
Blocked securities	2,514,027	4,824,827
Total	151,020,729	153,688,491

29. Related parties

The details of transactions between the Company and other related parties are disclosed below:

Due from /to related parties

	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	41,157,345	12,456,988
Shareholders	37,671	19,958
Total	41,195,016	12,476,946
Banks
	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	455,146,116	574,281,361
Total	455,146,116	574,281,361
Marketable securities
	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	45,670,100	15,294,313
Total	45,670,100	15,294,313
Investment funds
	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	232,967,097	158,252,836
Total	232,967,097	158,252,836
Written Premium
	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	163,873,621	150,567,543
Shareholders	3,186,378	2,637,764
Total	167,059,999	153,205,307

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

29. Related parties (Continued)

Claims Paid

	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	63,513,075	9,548,521
Shareholders	154	969
Total	63,513,229	9,549,490

Investment Income

	December 31, 2017	December 31, 2016
Shareholder's subsidiaries	55,466,309	43,782,837
Total	55,466,309	43,782,837

30. Commitments

Provision for lawsuit

Provision for lawsuit against the Company is classified under insurance liabilities and premium receivables.

As at December 31, 2017 and 2016, details of the provision for lawsuit against to the Company are as follows:

	December 31, 2017	December 31, 2016
Outstanding claims under litigation	352,548,626	304,205,081
Subrogation receivable litigations, gross	96,509,691	78,684,489
Trade receivable litigations and executions	4,123,647	3,347,861
Total	453,181,964	386,237,431

31. Contingencies

As at December 31, 2016 and 2015, total insurance risk accepted by the Company under normal courses of the insurance business is detailed in Note 4.

As of June 24, 2014, Tax Inspection Board of T.C. Ministry of Finance has launched a limited tax investigation related to the Banking and Insurance Transaction Tax for the years 2009, 2010, 2011 and 2012 and as a consequence of the tax inspection, tax of TL 1,8 million and tax penalty of TL 2,8 million for the year 2009, tax of TL 2 million and tax penalty of TL 3 million for the year 2010 , tax of TL 3 million and tax penalty of TL 4,6 million for the year 2011 and tax of TL 4,3 million and tax penalty of TL 6,4 million for the year 2012 and in total tax and tax penalty of 27,9 million related to Banking Insurance Transaction Tax were imposed to the Company. The Company has not booked any provision in the financial statements since it believes that its practice is in compliance with the regulations. On January 16, 2015, the Company filed a reconciliation request for the year 2009 and on February 20, 2015 filed a reconciliation request for the years 2010, 2011 and 2012 to the Large Taxpayers Office Commission of Reconciliation.

NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017

(Amounts expressed in Turkish Lira ("TL") unless otherwise indicated.)

32. Subsequent events

On January 17, 2018 Large Taxpayers Office Commission of Reconciliation informed the Company that the reconciliation request in relation to the tax penalty as mentioned in Note 32 for the years 2009, 2010, 2011 and 2012 was accepted. The reconciliation meeting will take place on February 15, 2018. The Company does not expect any material impact on its financials in result of this occurrence.

………………….