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Türkiye Vakıflar Bankası Türk Anonim Ortaklığı
and Its Financial Subsidiaries Consolidated Financial Report as at and
For the Year Ended 31 December 2013
(Currency: Thousands of Turkish Lira (“TL”))
Convenience Translation of the Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Section 3 Note I
Insurance operations of the Group
Written Premiums:
Written premiums represent premiums on policies written during the year net of taxes and premiums of the cancelled policies
produced in previous years. Written premiums, net off ceded are recorded under other operating income in the accompanying consolidated statement
of income.
Reserve for unearned premiums:
Reserve for unearned premiums represents the proportions of the premiums written in a period that relate to the
period of risk subsequent to the balance sheet date, without deductions of commission or any other expense. Reserve for unearned premiums is
calculated for all contracts except for the insurance contracts for which the Group provides mathematical reserve. Reserve for unearned premiums is
also calculated for the annual premiums of the annullay renewed long-term insurance contracts. Reserve for unearned premiums is presented under
“insurance technical provisions” in the accompanying consolidated financial statements.
Reserve for outstanding claims:
Reserve for outstanding claims is provided for the outstanding claims, which incurred and reported but not yet settled in
current or previous years based on reported balances or estimetes when actual balances are not exactly known and incurred but not yet reported claims
(“IBNR”). IBNR and subrogation and salvage reimbursements are recognized as the highest of the amount calculated based on historical data and results
of actuarial chain ladder method. Reserve for outstanding claims is presented under “insurance technical provisions” in the accompanying consolidated
financial statements.
Mathematical provisions:
Mathematical provisions are the provisions recorded against the liabilities of the Group to the beneficiaries of long-term life
and individual accident policies based on actuarial assumptions. Mathematical provisions consist of actuarial mathematical provisions savings and profit
sharing reserves.
Actuarial mathematical provisions are calculated as the difference between the net present values of premiums written in return of the risk covered
by the Group and the liabilities to policyholders for long-term insurance contracts based on the basis of actuarial mortality assumptions as approved by
the Republic of Turkey Prime Ministry Undersecretariat of Treasury, which are applicable for Turkish insurance companies. Mathematical provision also
includes the saving portion of the provisions for saving life product.
Profit sharing reserves are the reserves provided against income obtained from asset backing saving life insurance contracts. These contracts entitle
the beneficiaries of those contracts to a minimum guaranteed crediting rate per annum or, when higher, a bonus rate declared by the Group from the
eligible surplus available to date.
Mathematical provisions are presented under “insurance technical provisions” in the accompanying consolidated financial statements.
Deferred acquisition cost and deferred commission income:
Commissions given to the intermediaries and other acquisition costs that vary with and are
related to securing new contracts and renewing existing insurance contracts are capitalized as deferred acquisition cost. Deferred acquisition costs are
amortized on a straight-line basis over the life of the contracts. Commission income obtained from the premiums ceded to reinsurance firms are also
deferred and amortized on a straight-line basis over the life of the contracts.
Liability adequacy test:
At each reporting date, a liability adequacy test is performed, to ensure the adequacy of unearned premiums net of related
deferred acquisition costs. In performing this test, current best estimates of future contractual cash flows, claims handling and policy administration
expenses are used. Any inadequacy is immediately charged to the statement of income by establishing an unexpired risk provision under “insurance
technical provisions” in the accompanying consolidated financial statements.
If the result of the test is that a loss is required to be recognised, the first step is to reduce any intangible item arising from business combinations
related to insurance. If there is still a loss remaining, then the deferred acquisition cost is reduced to the extent that expense loadings are considered
not recoverable. Finally, if there is a still remaining amount of loss, this should be booked as an addition to the reserve for premium deficiency.
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