Annual report

2015 ARMEEC INSURANCE JSC – ALWAYS WITH YOU!

Armeec Insurance Jsc is a Bulgarian insurance company and part of the largest Bulgarian holding Chimimport. Incorporated 19 years ago, the company is already an established brand on the Bulgarian insurance market, reporting a growth in the premium income for the thirteenth consecutive year.

Armeec Insurance Jsc ranked first on the nonlife insurance market with market share of 13.2 per cent and the collected premiums amounting to more than BGN 207 million, representing a growth of 9.5 per cent over the previous year.

Since May 2011, the company has been a recognized leader in Motor Casco insurance and occupies a leading position also in Travel Assistance Abroad insurance. According to official data, the company achieved growth in collected revenue in almost all types of business.

The company employs more than 630 employees in 53 agencies and over 60 own representative offices throughout the country. The distribution of the insurance products is also carried out by 300 insurance brokers and 1,100 insurance agents.

Armeec Insurance Jsc has a longterm credit rating iBBB positive perspective, issued by the Bulgarian Credit Rating Agency, and maintains a stable reinsurance program with leading global reinsurers.

For a fifth consecutive year Armeec Insurance Jsc is included in the SeeNews’ list of the top insurance companies in Southeast Europe, taking 20th position in 2015. In November 2015 the company was awarded “Best Insurer in for 2015” by Finance Awards.

2 3 2 3 4 5 4 5 CONTENTS

1. MESSAGE TO THE SHAREHOLDERS

2. BULGARIA IN 2015 - Business overview - Insurance market

3. ARMEEC IN 2015 - About the company - Brief history - Shareholders and share capital - Management team - Insurance business - Reinsurance program - Membership and credit rating - Staff - Achievements Market position Insurance results Key financial data Activity overview Future development

4. FINANCIAL STATEMENTS Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows

5. INDEPENDENT AUDITOR’S REPORT

6. DISTRIBUTION AND BRANCH NETWORK

7. ZK ITIL ARMEEC

6 7 6 7 Message to shareholders

Dear shareholders,

Permit us to express our gratitude that once again, during 2015, you have continued to support the activities of the “Armeec” insurance company. During the the last 19 years of presence on this specific market our company has been able to cope with a number of challenges which have only served to make as more resilient and flexible.

We extend our gratitude to those clients and partners of ours, who have thought the best of us and who continue to show confidence in our abilities. It is now the thirteenth consecutive year durning which we have been able to register growth in premium incomes and – indeed – the company has achieved many successes which will, doubtless, make a lasting imprint on our future develop-ment. In a highly competitive environment we have kept our leading position on the general insurance market with a share of 13.2% and a nearly 6% increase when compared to the levels reached during the same period of the preceeding year.

Armeec has obtained an international recognition and indeed, its was classified as the "Best general insurance company in Bulgaria for 2015" at the World Finance Global Insurance Awards - 2015. For the fifth consecutive year the company has found its place among the top 100 insurance companies based in Southeastern Europe. In 2015 Armeec became the first insurer on the contemporary Bulgarian general insurance market which topped the 200 million Lev premium income for one single calendar year.

Such excellent results can only be possible thanks to the work of each and everyone of our employees; their high level of professionalism, responsibility and care for our customers and their satisfaction from the services we have been able to provide.

On the eve of the 20th anniversary of the Armeec insurance company we must say that the year 2016 will bring us to face an exceptionally dynamic and challenging period; a period of changes. The new Insurance Code wil come into force and with it the principles laid down in the Directive “Solvency II”. The new Insurance Code will bring a change in the currently acting insurance contractual law which will give us the opportunity to review our insurance products and supplement them with new coverages and improved terms and conditions. We believe that following our success formula and approaching everything we do with respect, pride and inspiration we will keep our shareholders, our current and future customers and partners fully satisfied with the services we offer. From the Management of Armeec Insurance Jsc

8 9 8 9 Bulgaria in 2015

Business Overview

In 2015 the global economic growth reached 3.3 per cent. For the last 7 years no such growth rate has been observed – since the beginning of the economic crisis. Net exports, reflecting the higher growth of exports than that of import of goods and services, have made a fundamental contribution to economic growth. Both, the private consumption and gross formation of share capital, have been an important contributor to growth as well. During the fourth quarter of 2015, short term conjuncture indicators mostly showed positive trends for the development of the economy. The expected recovery of demand of goods and services, keeping oil prices down, positive attitudes of households and companies, and high production capacity utilisation provided greater access to employment opportunities and supported entity’s investment activity.

The annual inflation rate was negative in 2015 and amounted to minus 0.9 per cent at the year end as a result of the continuing reduction in the international oil prices.

In 2015, the nominal pace of growth in export had increased by 5.9 per cent while the import posted a growth by 1.1 per cent on a year to year basis. It is expected that exports and imports of goods will continue to grow in real terms in the first half of 2016 compared to the first half of 2015, with export growth outpacing import growth. The dynamics of exports in real terms will be in line with expectations for a rising trend in foreign demand for Bulgarian goods, while imports in real terms will reflect the projected increase in consumption and larger private foreign investment inflows.

In 2015 the flow of direct foreign investments to the country amounted to EUR 1,575.1 million (3.5% of GDP) compared to EUR 1,289.1 million (3.1% of GDP) in 2013.

In 2015, the households’ savings rate remained high. The employment continued to increase slightly in 2015, with an increase in most sectors of the economy for the year as a whole. Income from salaries of households increased, but at low rate for most of 2015 compared to 2014. For the fourth quarter of 2015, the labour productivity increased by 2.5% in comparison to the same period of the previous year.

In 2015 the situation in the labour market on a global economic scale improved slightly. The unemployment rate decreased, reaching 8.7% at the end of 2015. As a result, the scale of long duration unemployed (more than one year) reached 5.6% of workforce.

The amount of the gross external debt amounted to EUR 34.09 billion (77.2 per cent of GDP) in December 2015.

Sources: BNB and NSI

10 11 10 11 Insurance market

In 2015 the GDP of the Eurozone marked a growth of 1.9 per cent. The Eastern European countries achieved a relatively In 2015 the premium income from Accident insurance scored a considerable growth (18.2 per cent), with the same trend being higher growth, in terms of percentage, while in the countries in the Eurozone this growth fluctuated around 1.5 per cent. In observed with Financial Risks insurance (about 60 per cent). The total premium income from the latter amounted to BGN Bulgaria, GDP grew by 3 per cent in 2015, reaching BGN 86.3 billion. 23,741 thousand, formed by Guarantee insurance, Credit insurance and Miscellaneous financial losses insurance.

At the same time, the growth in the insurance sector outpaced the growth in GDP of the country: the growth in premium In 2015 there were no catastrophic events in Bulgaria, similar to those that had occurred in the summer of 2014. The growth income was 8.9 per cent, formed by a growth in non-life insurance of 8.9 per cent and a growth in life insurance of 8.6 per cent, in the amount of claims paid under non-life insurances was 4 per cent in 2015, or BGN 873 million compared to BGN 838 respectively. Irrespective of the development of the insurance market at a faster pace, the insurance penetration in Bulgaria million a year earlier. This growth relates to the fact that at the beginning of 2015 the insurers still continued to pay claims in is slightly more than 2 per cent, way below the European Union average of about 8 per cent. connection with the catastrophic events which had occurred in 2014. The sound development of the risk in 2015 had an effect on the financial ratios of the insurers as well; most of the insurers closed the year by reporting positive financial results with a At the end of 2015 the insurance companies domiciled in Bulgaria numbered 30 non-life insurers, 14 life insurers, 1 life total profit of BGN 54 million reported by the non-life insurance market as a whole. insurance cooperative and 1 reinsurer. Beyond them, there are several branches of EU insurers registered in the country. Many EU insurance companies carry out insurance activities in the territory of Bulgaria as well, under conditions of freedom At the end of the reporting period the assets of the non-life insurance companies amounted to BGN 2,365 million or an to provide services. increase by almost 10 per cent on an annual basis as compared to 2014. The investments made by non life insurance companies rose by 11 per cent on an annual basis, reaching BGN 1,460 million at the end of 2015. The gross premium income earned by the non-life insurance companies operating in Bulgaria amounted to BGN 1,573 million or an 8.9 per cent growth on an annual basis. Factors making the positive results and data about the Bulgarian insurance market possible include the absence of major natural disasters and catastrophic events, as also the fact that the non life insurance market is undergoing a process of intensive development in view of the low levels of insurance penetration. Globally, the average increase in premium income in non-life insurance is 2.5 per cent for 2015 compared to 2.8 per cent a year earlier. In advanced economies the increase was by 1.7 per cent in 2015 compared to 2 per cent in 2014. The developed western European countries are faced with Premium income of the non-life insurance market 2011-2015, BGN’000 a growth slowdown, despite of the moderate increase in tariff numbers in Germany, France and the UK. In Italy, there is

1 800 000 a decline in premium income due to the shrinkage in demand for Motor insurances. At the same time, the Spanish and 138 718 Portuguese markets in 2015 had started to improve since they reported their lowest levels. Among the larger markets, Japan, 1 600 000 10 861 the Netherlands, South Korea and Spain reported a higher growth as well. 84 792 1 400 000

1 200 000

1 000 000 1 364 905 1 338 680 1 423 472 1 434 333 1 573 051 800 000

600 000

400 000

200 000

0

-12 297 - 26 225 - 200 000 2011 2012 2013 2014 2015

In 2015 the dominant share of Motor insurance within the non-life insurance companies’ portfolio was retained: 68.2 per cent of premium income for the market was generated by Motor Casco insurance and the compulsory Motor third party liability insurance, with a growth of 10.8 per cent on an annual basis for Casco insurance and 6.6 per cent for Motor third party liability insurance, respectively. The factors that need to be considered regarding this growth include the gradual upgrading of vehicle fleet and the recovery of the lease market for motor vehicles. In general, in 2015 there had been no fluctuations in the insurers’ Motor insurance tariffs.

The premium income from property insurances went up by 10 per cent, but this increase was not sufficient to change the relatively small share of property insurance in non-life insurance market. It is still within the range of 18 per cent, way below the level reported by the developed insurance markets of the European Union.

12 13 12 13 About the company Management team Armeec Jsc has a two-tier management system consisting of Supervisory Board and Management Board.

SUPERVISORY BOARD BRIEF HISTORY Chairman: Chimimport AD, represented by Nikola Mishev

Members: prof. Nansen Behar April 1996 Armeec Insurance Jsc was established with in the structure of the Ministry of Defence. Central Cooperative Bank AD, represented by Georgi Konstantinov, Sava June 1998 Armeec Insurance Jsc was licensed to carry out insurance activities in the field of general insurance Stoynov, Georgi Kostov and Tihomir Atanasov pursuant to licence no 7, issued by the National Insurance Council.

July 2002 Chimimport AD acquired 91.92 per cent of the company capital. The Ministry of Defence and the MANAGEMENT BOARD trade companies from its system retained 8.08 per cent of the share capital. Chairman: Alexander Kerezov October 2007 Armeec Insurance Jsc assigned its first credit rating by the Bulgarian Credit rating Agency (BCRA). Members: Valentin Dimov, Tsvetanka Krumova, Galin Gorchev April 2008 Armeec Insurance Jsc sent notification to the Financial Supervision Commission of its intention to provide insurance services on the territory of the EU. Representatives July 2011 Armeec Insurance Jsc is the first company which owns the naming rights of the sports and Executive Director: Tsvetanka Krumova entertainment facility Arena Armeec through a general sponsorship agreement. Procurator: Ivo Kamenov December 2012 Armeec Insurance Jsc ranked first on the Bulgarian non-life insurance market with a market share of 12.8 per cent. Insurance Business April 2014 Armeec Insurance Jsc has acquired 100 percent of the capital of the OJSC Itil Armeec. Armeec Insurance Jsc is licensed to perform insurance activities on the territory of Bulgaria and the European Union. The December 2015 Armeec Insurance Jsc is the first insurer in the modern Bulgarian non-life insurance business company offers all types of insurance products and services in all lines of non- life insurance business - motor, property, aviation, crossing the border of BGN 200,000,000.00 of premium income for one year. marine and transport insurance, rail vehicles insurance, construction, crop and livestock, tourist and personal insurances, liability insurances, financial and commercial risks insurance.

Shareholders and share capital Armeec Insurance Jsc operates through a branch network consisting of 53 agencies and over 60 representative offices throughout the country. The distribution of the insurance products is also carried out by 300 insurance brokers and 1,100 As of December 2015 the paid-up capital of Armeec Insurance Jsc amounted to BGN 33,019 thousand. The following are the insurance agents. main shareholders of the company:

Management team Reinsurance program Armeec Jsc has a two-tier management system consisting of Supervisory Board and Management Board. In order to ensure maximum protection of interests of Armeec Insurance Jsc and its customers, the company has developed a reinsurance program, which purpose is to ensure stability of the company portfolio and to meet the needs of all its clients Company Number of % in case of unfavourable developments. The program has been prepared on the grounds of a thorough risk and insurance shares – technical parameters analysis, as also in view of the results achieved and the forecasts for the future development of the company. CCB Group EAD 280 713 85.02 Niko Commerce EOOD 7 146 2.16 Armeec Insurance Jsc has established business relations with reinsurance companies holding all ratings required by international standards. Our risks are shared by companies, such as Swiss re; MS Frontier Reinsurance Ltd; Hannover Re; Invest Capital AD 6 920 2.10 Partner Re; Deutsche Ruckversicherung AG; Endurance Speciality Insurance Re; AIG; Allianz, Catlin”; Amlin, and other world- Chimimport AD 29 655 8.98 renowned reinsurers. The relationships built by the company with its partners are based on fair and transparent long-lasting Other minority shareholders 5 756 1.75 cooperation.

Membership and credit rating

Armeec Insurance Jsc is a member of Bulgarian and international organizations, such as: Association of Bulgarian Insurers,

14 15 14 15 National Bureau of Bulgarian Motor Insurers, Bulgarian Chamber of Commerce and Industry, Sofia Chamber of Commerce and Industry, Bulgarian-Russian Chamber of Commerce and Industry, Bulgarian National Insurance Nuclear Pool. Market position

In November 2015 the Bulgarian Credit Rating Agency confirmed the long-term rating of Armeec Insurance Jsc of iBBB- (stable perspective). In 2015 Armeec Insurance JSC generated premium income amounting to BGN 207,790 thousand and with a growth of 9.5 per cent over the previous year ranked first in the non-life insurance market with a market share of 13.2 per cent.

Staff Premium income of the non-life insurance companies - 2015

As at 31 December 2015 the number of employees totalled 636, incl. the Headquarters Office: 404 employees and the COMPANY Premium income (BGN’000) Armeec 207 790 Agencies around the country: 232 employees. Out of them, 346 are women and 290 are men. The analysis of the age structure Bulstrad 192 313 of personnel shows that the majority of employees are aged up to 40 years: 348. The analysis by level and type of education Lev Ins 162 875 shows that the majority of employees have a higher degree: 459 employees, or 72.2 per cent of the total staff number. In terms DZI 158 067 of length of service within the company: 356 employees have more than 5 years of service. Allianz 157 075 In 2015 the optimization of the company’s organizational structure went on with a view to increase the share of direct sales Bul Ins 113 820 Euroins 118 365 and sales efficiency through intermediaries. The company continued its work for strengthening the employees’ loyalty and Victoria 77 766 identification with the company by conducting trainings, workshops and individual work. OZK – Insurance 77 762 Generali 74 994 Energia 66 866 Achievements Uniqa 62 629 Other (share below 1 per cent) 100 278 The premium income of Armeec Insurance JSC has been growing steadily for the last thirteen years. The results achieved are backed up by distinctions and prizes of national and international character. • In November 2015 Armeec Insurance JSC was awarded “Best Non-life Insurance Company in Bulgaria for 2015” by World Finance Global Insurance Awards 2015.

• For a fifth consecutive year Armeec Insurance Jsc is included in the ranking of top insurance companies in Southeast In 2015 for the thirteenth consecutive year the company reported a growth in the premium income. At the same time, in 2015 Europe of SeeNews Agency. In 2015 the company was ranked twentieth. Armeec Insurance JSC became the first insurer that has crossed the psychological barrier of an annual premium income of • In November 2014 Armeec Insurance JSC was awarded “Best Insurer in Bulgaria for 2014” from World Finance Global BGN 200,000,000.00. Insurance Awards 2014. The company preserved its good results of a leader in Motor insurance in Bulgaria with a total premium income from this • In the Insurer of the Year competition, organized by the Bulgarian Association of Insurance Brokers (BAIB) Armeec type of insurance amounting to almost BGN 171,275 thousand. Again this year Armeec Insurance JSC is the insurer reporting Insurance JSC was honoured as: the largest market share in Motor CASCO insurance - 23.4 per cent. The positive results of this type of business have been achieved thanks to the proper organization of the company’s claims liquidation process, including its adequate reaction to the –Insurer of the Year (2015) Non-life insurance; catastrophic events, which had occurred in 2014, such as hailstorms and floods. In 2015 the share of Motor CASCO insurance –The most dynamically growing company (2014); in the portfolio of Armeec Insurance JSC was 54.5 per cent, balanced by other classes of insurance also reporting growth in premium income in 2015. Marine and transport insurance businesses are indicators of this, as well as property insurance. –The insurer offering the best products in Motor insurance (2013); Accident and Travel Assistance insurance businesses also scored a growth, where Armeec Insurance JSC has traditionally –The most correct insurer in the payment of claims for property damages (2012); been the leader.

–The insurer offering the best products in Non-life insurance (2011), in a survey. It is the development of sales business lines, the moderate risk assumption policy and the balance of the insurance portfolio, • At The International Financial Exhibition Banks Investments Money Armeec Insurance JSC were awarded for the best combined with the application of risk mitigation techniques, which has enabled Armeec Insurance JSC to close the year with product in Non-life insurance category: a positive financial result amounting to BGN 9,990 thousand.

–The combined insurance cover Travel Assistance Abroad and Trip Cancellation (2009)

–The combined insurance cover Motor Casco and Casco Extended Guarantee (2008)

–Protected Home insurance (2006)

– Armeec Insurance Jsc was announced most correct insurer on the Bulgarian insurance market in 2008 in a survey carried out among insurance brokers, insurance agents and consumers of insurance services.

16 17 16 17 Market share of Armeec Insurance JSC by major business lines as of 31 December 2015 Premium income of Armeec Insurance JSC for the period 2011-2015 in BGN’000

250 000

10 894 200 000 19 484 89,5% 10,5% 76,6% 23,4% 75,9% 24,1% 9 158 6 521 6 464 150 000 207 790 Accident Motor Casco Aviation 196 896 177 412 170 891 100 000 161 733

50 000 93,6% 6,4% 95,2% 4,8% 90,1% 10,9%

0

2011 2012 2013 2014 2015 Cargo Property Motor TPL

Portfolio structure of Armeec Insurance JSC as at 31 December 2015

CREDITS - 0,51% 93,6% 6,4% 80% 20% 77% 23% GUARANTEES - 0,11% GENERAL PUBLIC LIABILITY INSURANCE - 1,15% MISCELLANEOUS FINANCIAL LOSSES - 1,67% PUBLIC LIABILITY INSURANCE TRAVEL ASSISTANCE - 1.91% Liability Financial Risks Travel Assistance RELATED TO OWNERSHIP AND USE OF SEA VESSELS - 0,02% ACCIDENT - 1,79% PUBLIC LIABILITY INSURANCE RELATED TO OWNERSHIP AND USE OF AIRCRAFT - 1,19%

Insurance results

Against the background of processes of gradual recovery of the economy in 2015 and taking into account the favourable VEHICLES FOR ROAD TRANSPORT development of insurance risk throughout the year, Armeec Insurance JSC managed to preserve and strengthen its leading (OTHER THAN TRACK-BASED position on the Bulgarian non-life insurance market. The company ended the year as a leader in the Bulgarian Motor VEHICLES) - 54,38%

insurance market, reporting a growth in premium income of more than BGN 10 million in 2015 compared to 2014. PUBLIC LIABILITY INSURANCE RELATED TO OWNERSHIP AND USE OF MOTOR VEHICLES - 28,28%

In 2015 Armeec Insurance JSC achieved premium income amounting to BGN 207,790,849 and realized a growth of 6 per cent in its premium income compared to a year earlier. The border of premium income amounting to BGN 200 million earned by one company was crossed for the first time in Bulgaria. A number of amendments to the General Terms and Conditions and

Tariffs of various insurances were made over the year so that Armeec Insurance JSC can respond in an ambitious way to the OTHER PROPERTY expectations of its clients. DAMAGES - 1,04% FIRE AND NATURAL DISASTERS - 5,77% AIRCRAFTS - 0,95% SEA VESSELS - 0,70% CARGO IN TRANSIT - 0,53%

18 19 18 19 In Motor Casco insurance Armeec Insurance JSC added BGN 7.3 million to its premium income for 2014 and again became Premium income of Armeec Inshurance JSC by types of business (2014-2015) a leader with income amounting to BGN 113.0 million and a market share of 23.4 per cent. At 31 December 2014 At 31 December 2015 Premium Income from Motor Casco Premium Income from Motor TPL Type of insurance (BGN million) (BGN million) BGN share (%) BGN share (%) Accident 3 368 800 1,71% 3 725 432 1,79% Sickness 0 0,00% 0 0,00% Casco 105 743 623 53,71% 112 999 137 54,38% Rail vehicles 0 0,00% 0 0,00% Casco Public liability insurance Motor Vehicles Casco Aircrafts 2 549 471 1,29% 1 976 379 0,95% Casco Sea vessels 1 109 942 0,56% 1 447 429 0,70% Cargo in transit 847 544 0,43% 1 101 907 0,53% Fire and natural disasters 11 008 725 5,59% 11 987 137 5,77% In the other type of motor insurance - Public liability insurance in relation to the ownership and use of motor vehicles, Armeec Property damage 1 930 513 0,98% 2 153 456 1,04% Insurance JSC registered an insignificant decline of 1.2 per cent as compared to 2014 and a premium income amounting to almost BGN 58.8 million. Liability Motor vehicles 60 198 295 30,57% 58 760 215 28,28% Over the year Property insurances comprised a share of 4.8 per cent in the company’s portfolio. The premium income Public liability insurance Aircrafts 2 429 554 1,23% 2 467 712 1,19% generated from this business line amounted to BGN 14.1 million or a growth of 9.5 per cent as compared to 2014. Public liability insurance Sea vessels 16 756 0,01% 34 218 0,02% Premium Income from Property Insurance Premium Income from Marine Insurance General public liability 2 525 987 1,28% 2 391 160 1,15% (BGN million) (BGN million) Credits and leasing 868 951 0,44% 1 065 949 0,51% Guarantee insurance 228 392 0,12% 226 167 0,11% Miscellaneous financial losses 275 672 0,14% 3 479 758 1,67% Legal costs 0 0,00% 0 0,00%

Property Marine Travel assistance 3 793 666 1,93% 3 974 793 1,91% insurance Total: 196 895 889 100,00% 207 790 849 100%

In 2015 Armeec Insurance JSC improved its positions in marine insurance business. The company scored a growth in premium income by 35 per cent compared with a year earlier.

Premium Income from Travel Assistance Premium Income from Personal Accident Insurance (BGN million) (BGN million)

Travel Accident assistance

Armeec Insurance JSC ranked first in Travel Assistance insurance with a premium income exceeding BGN 3.9 million and a market share of 23 per cent, and in Accident insurance the premiums earned amounted to BGN 3.7 million.

20 21 20 21 Claims paid by Armeec Inshurance JSC by types of business (2014-2015)

2014 2015 Type of insurance claims paid share claims paid share Accident 789 154 0.7% 1 560 590 1,34% incl.” Public transport accident” 13 712 0.0% 5 795 0,00% Sickness 0 0.0% 0 0,00% Casco 79 398 875 71.1% 84 538 036 72,51% Rail vehicles 0 0.0% 0 0,00% Casco Aircrafts 3 696 100 3.3% 520 259 0,45% Casco Sea vessels 160 494 0.1% 290 268 0,25% Cargo in transit 223 731 0.2% 403 253 0,35% Fire and natural disasters 3 749 919 3.4% 2 707 938 2,32% Property damage 2 241 912 2.0% 1 410 640 1,21% Liability Motor vehicles 19 054 502 17.1% 22 915 669 19,66% incl. Motor third party liability insurance 18 572 225 16.6% 22 323 521 19,15% incl. Green Card 271 236 0.2% 335 457 0,29% incl. Border third party liability insurance 146 546 0.1% 211 786 0,18% incl. Carrier third party liability insurance 64 496 0.1% 44 904 0,04% Public liability insurance Aircrafts 5 862 0.0% 3 146 0,00% Public liability insurance Sea vessels 0 0.0% 4 350 0,00% General public liability 1 089 926 1.0% 505 039 0,43% Credits and leasing 54 779 0.0% 12 923 0,01% Guarantee insurance 0 0.0% 0 0,00% Miscellaneous financial losses 18 637 0.0% 11 388 0,01% Legal costs 0 0.0% 0 0,00% Travel assistance 1 184 119 1.1% 1 703 587 1,46% Total: 111 668 011 100.0% 116 587 085 100.0%

22 23 22 23 Key financial data Business overview The own funds of Armeec Insurance JSC as at 31 December 2015 amounted to BGN 59,693 thousand and the solvency limit The year of 2015 was a good year for the non-life insurers in Bulgaria. There were no catastrophic events causing massive amounted to BGN 25,886 thousand (in accordance with Article 20 of the Ordinance on the Own Funds and Solvency Margin damages to assets. The relatively stable processes of post-crisis recovery of the economy enabled the companies operating of Insurers, Reinsurers and Health Insurance Companies). in this sector to optimize their businesses and to put more emphasis on making their activities compliant with the new requirements imposed by Directive 2009/138/ЕС. Over the year, representatives of Armeec Insurance JSC participated Armeec Insurance JSC is the owner of the Russian insurance company Itil Armeec and the commercial company Armeec actively in the meetings organised by the Association of Bulgarian Insurers and the Financial Supervision Commission (FSC) Leasing. Also, it holds shares in Bulgaria On Air. The total amount of the companies held is BGN 12,997 thousand. Therefore, to discuss legislative amendments relating to the new regulatory requirements towards the insurance business imposed by the own funds of the company, less non-current intangible assets and participations in other entities, amount to BGN 44,524 the European Union. The national regulatory authority, FSC, considered it appropriate to combine the transposition of Directive thousand, i.е. they cover the statutory solvency limit. The cover ratio of statutory solvency limit by own funds is 172 per cent. 2009/138/ЕС with a reform of the legal framework of the insurance contract; as a result, a completely new Code of Insurance The guarantee capital of the company amounts to BGN 8,629 thousand and its own-fund cover ratio is 516 per cent. was approved in the end of 2015. In this context and prior to the approval of the new law, in 2015 Armeec Insurance JSC started its preparation for making the company’s activity compliant with the new quantitative requirements, the new developments Armeec Insurance JSC ended the year of 2015 with a profit amounting to BGN 9,990 thousand. The positive result is due in the management system and the new reporting and disclosure rules. Apart from this, a process of reviewing and refining primarily to the achieved good result in Motor Third Party Liability insurance and profitability of investments. terms and conditions of the products being offered was initiated in order to synchronise them with the changing legislation.

The positive result reported by Armeec Insurance JSC in 2015 improves the equity position of the company. The company’s In 2015 Armeec Insurance JSC was awarded “The Best Non-life Insurance Company in Bulgaria” by World Finance Global assets guarantee the liabilities assumed under insurance contracts and together with the reinsurance program ensure its Insurance Awards 2015. For a fifth consecutive year the company is included in the See Top 100. Thanks to its good results, financial stability. the company took 20th position among the top insurance companies in Southeast Europe. Armeec Insurance JSC took the respected first position in the seventh issue of the ranking for „Most preferred brand“ for 2015 of the Bulgarian user in the The long-term assets of the company as at 31 December 2015 amount to BGN 53,836 thousand. Free cash is investment in the category „Insurance companies and brokers“. Through the management of the Naming rights held over the Multifunctional subsidiaries Armeec Leasing EOOD, ОАО STRAHOVAYA COMPANIA ITIL ARMEEC and Bulgaria On Air OOD. The company’s Sports Hall Arena Armeec Sofia, the promotion of the Armeec brand continued in 2015 as well. Communication with public financial assets (such as shares, government securities, corporate bonds, and deposits placed with banks) amounted to BGN in the Hall was improved significantly, through the organisation of a great number of promotional and advertising activities. 129,841 thousand as at 31 December 2015. Armeec Insurance JSC continued its work on socially responsible campaigns and in 2015, continuing their Patriotism The total insurance reserves of Armeec Insurance JSC set aside as at 31 December 2015 amount to BGN 258,053 thousand. campaign, many projects relating to emblematic dates from the Bulgarian history were implemented with the assistance of Out of them, an unearned premium reserve amounting to BGN 84,289 thousand, outstanding payments reserve amounting the newspapers Trud and 24 hours. to BGN 149,751 thousand, unexpired risk reserve amounting to BGN 5,138 thousand, reserve for bonuses and discounts The idea behind the project is for us to take a look back at our history, traditions and the lessons in patriotism current amounting to BGN 2,359 thousand, reserve under article 8a of Ordinance nr. 27 amounting to BGN 1,815 thousand, reserve generations either have not read or have forgotten. The company won the first place for its Patriotism campaign in favour of under article 11a of Ordinance nr. 27 amounting to BGN 13 880 thousand, and an equalization reserve amounting to BGN the Bulgarian society and strengthening the good image of the insurance industry for 2015, organized at the initiative of the 821 thousand. The reinsurer’s share in insurance reserves amount to BGN 17 726 thousand. The gross amount of insurance Association of Bulgarian Insurers (ABI) and the Bulgarian Association of Insurance Brokers (BAIB). and technical reserves is fully collateralised by investments in highly liquid assets in compliance with the requirements of the regulatory authorities. The total claims paid by Armeec Insurance JSC in 2015 amount to BGN 116,687,071. In 2015 the Within the campaign “Bringing Back the Saker Falcon to Bulgaria!”, voliers were constructed at the Wildlife Rescue Centre in company realized net and gross loss ratio of 45.6 per cent and 63.7 per cent, respectively. the town of Stara Zagora in 2015, fully financed under the project, and the young falcons hatched in the centre were released. Traditionally over the year, the company continued to support various sports initiatives: - For a fourth consecutive year, Armeec Insurance JSC insured the participants in the National Tournament Ariana Amateur League; Key financial indicators - The partnership with the most successful Bulgarian motorcyclist Martin Choi continued in 2015 as well; INDICATORS OF ARMEEC INSURANCE JSC 2011 2012 2013 2014 2015 - The alpinist from the town of – Atanas Skatov MD continued the implementation of his project for climbing the GROSS PREMIUM INCOME IN TBGN 161 733 170 891 177 412 196 896 207 790 seven highest mountain peaks on the continent. In 2015, with the support of Armeec, Skatov climbed the eight highest mountain peaks on Earth – Manaslu – 8,165 meters. MARKET SHARE 11,87% 12,79% 12,46% 13,70% 13,21% At the end of 2015, the Executive Director of Armeec Insurance JSC, Tsvetanka Krumova, won the audience online vote award ANNUAL GROWTH OF PREMIUM INCOME 4,16% 5,66% 3,82% 10,98% 5,53% for “Manager of the Year” 2015; the contest was organized for the 8th consecutive year by “Manager” magazine. ANNUAL GROWTH OF NON-LIFE INSURANCE MARKET -0,90% -1,90% 6,54% 0,76% 9,67% OPERATING PROFIT / LOSS IN TBGN 936 1 035 497 -10755 10 015 Future Development NET OPERATING PROFIT / LOSS IN TBGN 899 205 443 -10879 9990 The future development of Armeec Insurance JSC is directed towards strengthening the company’s position as a leader in the insurance market through balanced allocation of the lines of business subscribed within the portfolio and refining TOTAL ASSETS IN TBGN 222 033 257 062 284 159 306 480 360 878 the insurance risk related activities. The work on improving the operating activity continues through the introduction of new NET ASSETS (EQUITY) 41 415 58 524 60 658 50 097 59 693 technology and information systems, and staff training. In 2016 the first statements and reports prepared under the new regime introduced by Directive 2009/138/ЕС and the new Code of Insurance are to be issued. SHARE (MAIN) CAPITAL IN TBGN 15 019 15 019 33 019 33 019 33 019 The company will continue to develop its branch network, taking into account the economic characterises of the regions; it PREMIUM INCOME AFTER REINSURANCE IN TBGN 142 812 155 562 162 710 180 233 162 778 will promote the direct sales and will improve the efficiency of its work with brokers with the aim to attract new business. The TECHNICAL RESULT IN TBGN 577 -8 759 -3 757 -16018 9 468 company envisages to create regional operations and to actively participate in the social and cultural life of local communities. Joint projects will be implemented also with the newly acquired company from the Russian Federation – Itil Armeec, aiming NET LOSS RATIO 53% 59% 53% 57% 46% at increasing the competitiveness of both companies and sharing good practices. Joint projects will be implemented also with the newly acquired company from the Russian Federation – Itil Armeec, aiming at increasing the competitiveness of both companies and sharing good practices. Implementation of joint projects and partnership with the companies from Chimimport Holding will ensure greater synergies and competitive advantages in the future operations of Armeec Insurance JSC.

24 25 24 25 26 27 26 27 Statement of Financial Position Statement of Financial Position (continued) 31 December 31 December Equity, insurance reserves and liabilities Notes 2015 2014 Statement of Financial Position BGN’000 BGN’000 31 December 31 December Equity Assets Notes 2015 2014 Share capital 18.1 33 019 33 019 BGN’000 BGN’000 Other reserves 18.2 46 547 46 547 Non-current assets Revaluation reserve 18.3 (18 984) (18 590) Intangible assets 5 2 172 3 407 Retained earnings (889) (10 879) Property, plant and equipment 6 7 401 6 959 Total equity 59 693 50 097 Investments in subsidiaries 7 12 637 12 637 Investment property 9 28 396 28 297 Insurance reserves 19 258 052 234 551 Long-term financial assets 10 360 360 Related parties receivables 35 2 870 10 560 Liabilities Non-current assets 53 836 62 220 Non-current liabilities Current assets Retirement benefit liabilities and other payables to 20.2 245 228 Financial assets held for trading 12 82 879 85 963 personnel Financial assets available for sale 13 3 016 3 361 Deferred tax liabilities 11 458 383 Receivables on insurance and reinsurance contracts 14 62 178 63 059 Non-current liabilities 703 611 Inventories 15 1 389 1 490 Reinsurance assets 19 72 726 15 366 Current liabilities Retirement benefit liabilities and other payables to Income tax receivable 125 125 20.2 1 849 1 760 personnel Related party receivables 35 25 950 17 873 Finance lease liabilities 8.1 9 19 Trade and other receivables 16 9 915 10 460 Liabilities on insurance and reinsurance contracts 21 36 908 15 721 Cash and cash equivalents 17 48 864 46 563 Short-term payables to related parties 35 140 61 Current assets 307 042 244 260 Trade and other liabilities 22 3 524 3 660 Total assets 360 878 306 480 Current liabilities 42 430 3 660 Total liabilities 43 133 21 832

Total equity, insurance reserves and liabilities 360 878 306 480

Prepared by: ...... Executive Director: ...... Prepared by: ...... Executive Director: ...... Yulia Staneva Yulia Staneva Tsvetanka Krumova Tsvetanka Krumova

Date: 15 March 2016 Procurator: ...... Date: 15 March 2016 Procurator: ...... Ivo Kamenov Ivo Kamenov

Certified according to Auditor’s Report dated 31 March 2016 Certified according to Auditor’s Report dated 31 March 2016

Marii Apostolov Marii Apostolov Registered auditor in charge Milena Mladenova Registered auditor in charge Milena Mladenova of the audit Registered auditor in of the audit Registered auditor in Managing Partner charge of the audit Managing Partner charge of the audit

Grant Thornton Ltd. Grant Thornton Ltd. Specialised Audit Firm Specialised Audit Firm

28 29 28 29 Statement of profit or loss and other comprehensive income for the Statement of changes in equity for the year ended at 31 December year ended 31 December All amounts are stated in Share capital Other Revaluation Uncovered loss Total BGN’000 reserves reserve 31 December 31 December equity Equity, insurance reserves and liabilities Notes 2015 2014 BGN’000 BGN’000 Balance at 1 January 2015 33 019 46 104 (18 908) (10 879) 50 097 Premium income 23 207 791 196 896 Premiums ceded to reinsurers 24 (45 013) (16 663) Profit for the year - - - 9 990 9 990 Premium income, net 162 778 180 233 Other comprehensive loss - - (394) - (394) Insurance amounts and indemnities 25 (116 587) (111 618) Total comprehensive income for the (394) (10 879) (10 561) Income from amounts and indemnities from reinsurers 6 824 37 526 year - - Insurance amounts and indemnities, net (109 763) (74 092)

Change in insurance reserves, net 26 (23 502) (33 641) Balance at 31 December 2015 33 019 46 547 (18 984) (889) 59 693 Other insurance and reinsurance expenses, net 27 16 658 (53 982) Operating profit 46 171 18 518 Prepared by: ...... Executive Director: ...... Yulia Staneva Administrative expenses 28 (14 630) (13 417) Tsvetanka Krumova Costs of personnel 20.1 (21 691) (20 848) Date: 15 March 2016 Procurator: ...... Other expenses 29 (816) (1 115) Ivo Kamenov Other income 30 642 545 Certified according to Auditor’s Report dated 31 March 2016 Gain on investment property 9 99 1 105

Net (loss) / gain on financial assets held for trading Н 31 1 294 3 116 Marii Apostolov Finance costs 32 (219) (247) Registered auditor in charge Milena Mladenova of the audit Finance income 32 1 753 1 588 Registered auditor in Managing Partner charge of the audit Profit / (Loss) before taxes 10 015 (10 755) Grant Thornton Ltd. Income tax expense 33 (25) (124) Specialised Audit Firm Profit / (Loss) for the year 9 990 (10 879)

Other comprehensive (loss)/ income: Financial assets available for sale: - (loss)/profit from the current year (344) 354 Income tax relating to components of other comprehensive (50) (36) income Other comprehensive (loss)/ income for the year, net of 394 318 taxes Other comprehensive income / (loss) for the year 9 596 10 561

Prepared by: ...... Executive Director: ...... Yulia Staneva Tsvetanka Krumova

Date: 15 March 2016 Procurator: ...... Ivo Kamenov Certified according to Auditor’s Report dated 31 March 2016

Marii Apostolov Registered auditor in charge Milena Mladenova of the audit Registered auditor in Managing Partner charge of the audit

Grant Thornton Ltd. Specialised Audit Firm

30 31 30 31 Statement of changes in equity for the year ended at 31 December Statement of cash flows for the year ended 31 December

All amounts are stated in Share capital Other Revaluation Retained Total 31 December 31 December BGN’000 reserves reserve earnings/ equity Notes 2015 2014 (uncovered loss) BGN’000 BGN’000 Operating activity Balance at 1 January 2014 33 019 46 104 (18 908) 443 60 658 Cash receipts from insurance contracts 199 838 191 337 Loss for the year - - - (10 879) (10 879) Cash receipts from reinsurance contracts 5 538 27 169

Other comprehensive loss - - 318 - 318 Cash paid under insurance contracts (137 149) (111 669) Cash paid under reinsurance contracts (10 598) (10 638) Total comprehensive loss for the 318 (10 879) (10 561) year - - Cash paid to suppliers (28 714) (10 313) Profit distribution to reserves - 443 - (443) - Cash paid to employees and social security institutions (22 947) (20 848) Income tax paid (1 780) (1 457) Balance at 31 December 2014 33 019 46 547 (18 590) (10 879) 50 097 Other taxes paid (3 147) (3 585) Other cash flows from operating activity 3 603 (50 308) Net cash flow from operating activity 4 644 9 688 Investing activity Prepared by: ...... Executive Director: ...... Acquisition of property, plant and equipment (1 036) (370) Yulia Staneva Tsvetanka Krumova Acquisition of intangible assets (26) (121)

Date: 15 March 2016 Procurator: ...... Acquisition of financial assets held for trading (1 271) (798) Ivo Kamenov Net cash flow from investing activity (2 333) (1 289) Financing activity Payments on finance lease (10) (34) Certified according to Auditor’s Report dated 31 March 2016 Interest payments - (1)

Net cash flow from financing activity (10) (35) Net change in cash and cash equivalents 2 301 8 364 Marii Apostolov Registered auditor in charge Milena Mladenova Cash and cash equivalents, beginning of year 46 563 38 199 of the audit Registered auditor in Managing Partner charge of the audit Cash and cash equivalents, end of year 17 48 864 46 563 Grant Thornton Ltd. Specialised Audit Firm

Prepared by: ...... Executive Director: ...... Yulia Staneva Tsvetanka Krumova

Date: 15 March 2016 Procurator: ...... Ivo Kamenov

Certified according to Auditor’s Report dated 31 March 2016

Marii Apostolov Registered auditor in charge Milena Mladenova of the audit Registered auditor in Managing Partner charge of the audit

Grant Thornton Ltd. Specialised Audit Firm

32 33 32 33 Grant Thornton Ltd. Report on other legal requirements – Annual Separate Management Report for the year ended 31 26 Cherni Vrah Blvd., 1421 Sofia December 2015 4 Paraskeva Nikolau Str., 9000 Varna We have reviewed the Annual Separate Management Report for the year ended 31 December 2015 of Armeec Insurance T (+3592) 987 28 79, (+35952) 69 55 44 Jsc, which is not a part of the separate financial statements. The historical financial information presented in the Annual F (+3592) 980 48 24, (+35952) 69 55 33 Separate Management Report corresponds, in its material aspects, to the financial information presented in the separate E [email protected] financial statements for the year ended 31 December 2015, prepared in accordance with the International Financial Reporting W www.gtbulgaria.com Standards, as endorsed by the EU, and the Bulgarian law. Management is responsible for the preparation of the Annual INDEPENDENT AUDITORS’ REPORT Separate Management Report.

To the owners of Armeec Insurance Jsc Sofia

Report on the separate financial statements Marii Apostolov Milena Mladenova Registered auditor in Registered auditor in charge of the audit We have audited the accompanying separate financial statements of Armeec Insurance Jsc, which comprise the statement charge of the audit Managing Partner of financial position as of 31 December 2015, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Grant Thornton Ltd. Specialised Audit Firm Management's responsibility for the separate financial statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance 31 March 2016 with International Financial Reporting Standards, as endorsed by the European Union (EU), and the Bulgarian law, and for Sofia City such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the separate financial statements give a true and fair view of the financial position of Armeec Insurance Jsc as of 31 December 2015, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, as endorsed by the EU, and the Bulgarian law.

34 35 34 35 36 37 36 37 Distribution and branch network Plovdiv, 2А, Mendeleev Str., Phone: +359 32/ 62 31 98 Stara Zagora, 59 Hadzhi Dimitar Asenov Str., Phone: +359 42/ 62 01 97 Haskovo, 124 Bulgaria Blvd, fl. 1, office 11, Phone: +359 38/ 66 61 26

Policies for all non-life insurance products can be contracted at the offices of Armeec Insurance Jsc of 31 December AGENCIES OF ARMEEC INSURANCE JSC 2015. The company operates through a branch network consisting of 53 agencies and over than 60 representative Bansko, 79 Pirin Str., Phone: +359 749/ 8 37 04 offices throughout the country. The distribution of the insurance products is also carried out by 300 insurance brokers Blagoevgrad, 7 Bratya Kitanovi Str., Phone: +359 73/ 88 01 37 and 1,100 insurance agents. , 1 Konstantin Fotinov Str., Phone: +359 56/ 84 28 29 Varna, 35 Radko Dimitriev Str., Phone: +359 52/ 63 07 75 Varna, 3 General Parensov Str., Phone: +359 52/ 60 35 73; 60 37 26 Silistra , 42 Nikola Gabrovski Str., Phone: +359 62/ 60 02 38 Vidin Vidin, 48 Tsar Simeon Veliki Str., Phone: +359 94/ 60 04 34 Ruse Dulovo Lom Isperih Vratsa, 7 Krastyu Balgariyata Str., Phone: +359 92/ 66 04 96 Gabrovo, 54 Bryanska Str., Phone: +359 66/ 80 48 97 Targovishte Gotse Delchev, 4 Georgi S. Rakovski Str., Phone: +359 751/ 6 09 64 Troian Montana Gorna Oryahovtsa Dobrich, 7 Ekzarh Yosif Str., Phone: +359 58/60 25 64 Berkovitsa Shumen Varna Vratsa Dupnitsa, 21A, Str., Phone: +359 701/ 5 11 51 Lovech Provadia Mezdra Omurtag Kazanlak, 43 Aleksandar Batenberg Blvd., offices 1 and 2; Phone: +359 431/ 6 39 61 Veliko Tarnovo Svoge Kardzhali, 47 Republikanska Str., Phone: +359 361/ 6 58 17 Botevgrad Pleven Gabrovo Lovech, 8 Dimitar Pashkov Str., Phone: +359 68/ 60 19 00 Bankia Sliven Sofia Pirdop Aytos Montana, 18 Graf Ignatiev Str., Phone: +359 96/ 30 43 05 Karlovo Kazanlak Pernik Pazardzhik, 1 Konstantin Velichkov Str., Phone: +359 34/ 44 04 74 Panagyurishte Bourgas Stara Zagora Pazardzhik, 18 Al. Stamboliyski Blvd., Phone: +359 34/ 44 30 90 Kyustendil Samokov Pazardzhik Chirpan Pernik, Yuriy Gagarin Str., bl. 7, Phone: +359 76/ 67 20 90 Dupnitsa Plovdiv Pernik, Krakra Str., bl. 61, Phone: +359 76/ 60 11 00 Blagoevgrad Asenovgrad Dimitrovgrad Petrich, 6 Capt. Nikola Parapanov Str., Phone: +359 878/ 308 630 Velingrad Peshtera Haskovo Razlog Pleven, 7 Danail Popov Str., Phone: +359 64/ 83 05 31 Bansko Svilengrad Plovdiv, 2А, Mendeleev Str., Phone: +359 32/ 62 24 02; 63 30 61 Gotse Delchev Kardzhali Plovdiv, 2 Tsaribrod Str. /Dzhumayata/ Phone: +359 32/ 63 85 65 Smolyan Petrich Plovdiv, 2 Samara Str., Phone: +359 32/ 94 19 09 Razgrad, 36 Beli Lom Str., fl.1, ap. 1, Phone: +359 84/ 66 06 38 Ruse, 10 Sveta Troitsa Sq., Phone: +359 82/ 83 43 77, 83 46 40 Samokov, 4 Iskar Blvd., Phone: +359 722/ 6 61 94 HEADQUARTERS OFFICE Silistra, 3 Georgi S. Rakovski Str., Phone: +359 86/ 82 16 75 Sofia, 2 Stefan Karadzha Str., Phone: +359 2/ 8 119 100 Sliven, 11 Tsar Osvoboditel Blvd., Phone: +359 44/ 66 29 62 Smolyan, 1 Dimitar Blagoev Str., Phone: +359 301/ 6 39 37 Sofia, 20 Frederic Joliot Curie Str., Phone: +359 700 1 39 39 Sofia, 21 General Gurko Str., Phone: +359 2/ 981 11 12; 981 55 54 Sofia, 425 Slivnitsa Blvd., Phone: +359 2/ 44 77 888 Sofia, Lozenets Housing Estate, 71 James Boucher Blvd., fl.2, Phone: +359 2/ 866 25 96 Sofia, 8D Byalo pole Str., Phone: +359 2/ 90 37 484 Sofia, 9-11 Hadzhi Dimitar Str., Phone: +359 2/ 986 77 84; 986 77 85 Sofia, Sofia Airport, Terminal 2, Phone: +359 2/ 945 91 42 Sofia, 134 Aleksandar Stamboliyski Blvd., Phone: +359 2/ 421 96 93 Sofia, 87 Tsarigradsko shose Blvd., Phone: +359 2/ 967 62 75 Sofia, Iztok, 17 Frederic Joliot Curie Str., bl. 156-2, Phone: +359 2/ 870 30 88 Sofia, 71 Vitosha Blvd., entrance 1, fl.2, Phone: +359 2/ 951 62 55 CLAIMS REGISTRATION CENTRES Sofia, Mladost 1 Housing Estate, 14B Andrey Saharov Blvd., Phone: +359 2/ 974 43 36 Sofia, 20 Frederic Joliot Curie Str., Phone: +359 700 1 39 39 Sofia, 93B Simeonovsko shose Blvd., entrance А, fl.5, Phone: +359 2/ 962 90 53 Sofia, 425 Slivnitsa Blvd., Phone: +359 2/ 44 77 883 Sofia, Ovcha Kupel, 5-7 Mesechinka, fl.2, office 2, Phone: +359 2/ 489 45 02 Sofia, 8D Byalo pole Str., Phone: +359 2/ 90 37 484 Sofia, 31 Gotse Delchev Blvd., bl.76, Phone: +359 2/ 859 83 41 Blagoevgrad, 1 Alexander von Humboldt Str., Phone: +359 73/ 83 16 30 Sofia, 2 Dragan Tsankov Blvd., Phone: +359 2/ 963 50 32 Burgas, Slaveykov area, Bl. 161, entr. A, ground floor, Phone: +359 56/ 84 67 42 Sofia, Sveta Troitsa Housing Estate, bl. 173, entr. E, Phone: +359 2/ 862 60 11 Varna, 279A Vladislav Varnenchik Blvd., Phone: +359 52/ 73 30 55 Sofia, 201A Bratya Bakson Blvd., Phone: +359 2/ 850 16 54 Veliko Tarnovo, 24 Filip Totyu Str., Phone: +359 62/ 52 02 21 Sofia, 109 Bulgaria Blvd., Business Centre Vertigo, Phone: +359 2/ 434 10 40 Gabrovo, 54 Bryanska Str., Phone: +359 66/ 80 48 98 Sofia, 34 Han Asparuh Str., Phone: +359 2/ 989 06 13 Gotse Delchev, 2B Gotse Delchev, Phone: +359 751/ 21 11 27 Stara Zagora, 7 Metodi Kusev Str., Phone: +359 42/ 62 33 03; 62 03 33 Dobrich, 47, 3-ti Mart Blvd., Phone: +359 58/ 60 02 97 Stara Zagora, 58 General Gurko Str., fl.2, Phone: +359 42/ 60 13 44 Kazanlak, 43 Al. Batenberg Str., 2nd floor, office 3, Phone: +359 431/ 6 29 73 Targovishte, 2 Str., Phone: +359 601/ 6 16 06 Lovech, 81 Bulgaria Blvd., Phone: +359 68/ 60 01 03 Haskovo, 26 Saedinenie Blvd., Phone: +359 38/ 62 25 84; 66 54 51 Pernik, 1 Yuriy Gagarin Str., Industrial area, Phone: +359 76/ 67 03 31 Shumen, 10 Patleyna Str., Phone:+359 54/ 88 41 02 Pleven, Druzhba 1, Toyota Service Centre, Phone: +359 64/ 82 40 70 Yambol, 44 Strahil Voyvoda Str., fl. 4, office 1, Phone: +359 46/ 66 11 6

38 39 38 39 40 41 40 41 Itil Armeec Insurance Company Membership OAD ZK Itil Armeec is a member of the Russian Association of Motor Insurers, the All-Russian Insurers’ Association, the About Us National Insurance Industry Association, the Tatarstan Insurers’ Association, the Chamber of Commerce and Industry of the Republic of Tatarstan, the Far-Eastern Inter-Regional Self-Regulating Association of Professional Arbitration Managers and the self-regulating organization Guild of the Arbitration Managers of Tatarstan. 1994 the Insurance Company is entered into the Financial Organizations Register under the name Zarechenskaya. In 1995 it is renamed to Open Type Joint Stock Company Insurance Company Itil (OAD). Licenses OAD ZK Itil Armeec holds licenses OS No. 1858-03, SI No. 1858, SL No. 1858 issued by the Central Bank of the Russian 2003 Itli becomes one of the first insurance companies in the Republic of Tatarstan to be granted a license to sell Federation, as renewed in 2015 allowing it to sell the following types of insurance: Accident and Illness Insurance; Medical obligatory motor third-party liability insurance (OSAGO). Insurance; Ground Vehicle Insurance (except rail); Aircraft Insurance; Vessel Insurance; Cargo Insurance; Property Insurance for Entities (except vehicles and agricultural equipment); Property Insurance for Individuals; Motor Third Party Liability 2012 the National Ratings Agency gives Open Type Joint Stock Company Insurance Company Itil an individual reliability Insurance for owners of motor vehicles; Third Party Liability Insurance for owners of aircraft; Third Party Liability Insurance rating of BBB for the first time in its history. for damages caused by faulty goods, works, and services; Liability Insurance for damages and losses suffered by third parties; Financial Risk Insurance. 2014 Open Type Joint Stock Company Insurance Company Itil is renamed to Open Type Joint Stock Company Insurance Company Itil Armeec. Reinsurance

Shareholders The main reinsurance carriers used by OAD ZK Itil Armeec in 2015 are: As of December 31, 2015 OAD ZK Itil Armeec’s authorized capital was EUR 1 882 000. The Company is wholly owned by 1. OOD SK TIT, reinsurance license number 1182, reliability rating А (High Level of Reliability); ZAD Armeec. 2. OAD Transsiberian Reinsurance Corporation, reinsurance license number, 1522, reliability rating А+ (Very High Level of Management Reliability); 3. Closed Type Joint Stock Company (ZAD/ZAO) United Insurance Company, reinsurance license No. 2346, reliability rating Director General А+ (Very High Level of Reliability); Elena Vasilievna Todorova 4. AD NASKO, reinsurance license No. 3116, reliability rating А+ (Very High Level of Reliability);

5. OOD Insurance and Reinsurance Company Unity, reinsurance license No. 1643, reliability rating А++ (Highest Possible Level Board of Directors: of Reliability); Valeriy Valerievich Martinenko Elena Vasilievna Todorova Tsvetanka Donkova Krumova Market Environment and Positions of OAD ZK Itil Armeec Dmitriy Yurievich Trutnev In 2015 the Gross Domestic Product of the Russian Federation declined by 3.7 % whereas the country’s industrial production dropped by 4.5 %. The prices of oil and decreased due to fluctuations in the exchange rate of the Ruble. According to official data inflation reached 12.9 % in 2015. The real income of the people decreased causing a 15.3 % shrink in retail. In 2015 new Rating car sales slipped for a third straight year reaching 35.7 %. In light of this, the decrease in premiums for voluntary insurance In December of 2013 the ratings agency Expers RA gave OAD ZK Itil Armeec an individual reliability rating of В++, Reasonable products seems logical. The largest drop (EUR -0.39 Billion) was registered for Casualty and Collision Insurance of ground Level of Reliability. The trend, as determined by the rating, is upward meaning that in the midterm the probability of change vehicles (except rail), followed by Accident Insurance (EUR -0.18 Billion) and Property Insurance for entities (EUR -0.15 Billion). in the Company’s rating is equal to the probability of it remaining the same. The 3.6 % growth in the insurance market (to EUR 12.85 Billion) was mostly due to the increase of the base tariffs for Motor Third Party Liability Insurance (OSAGO). The growth rate as compared to 2014 shrunk by 5.6 percentage points. The market’s mega-regulator, the Central Bank of the Russian Federation (CBRF) increased the base tariffs for MTPL (OSAGO) The Company’s rating is positively influenced by its high current liquidity index (116.7 % as of 30. 09. 2013), the low net claims in April of 2015. This caused the total number of MTPL insurance agreements to go down by 7.8 % but lead to an increase in ratio (43.7 % over the course of the first three quarters of 2013) and the combined claims ratio (90.7 % during the first three premium revenues. The average price of an MTPL policy went up by 57 %. As a result, in 2015 the total premium revenue from quarters of 2013). Other robust performance indicators include the Insurer’s actual solvency margin which is considerably MTPL insurance increased by EUR 0.85 Billion EUR although the insurance market grew by just EUR 0.45 Billion. higher than the required minimum and the low commission fees offered by the company. In an environment marked by an economic slowdown, the market concentration processes continued to evolve in the late 2015. The country’s top 20 insurers or IC (Insurance Companies) commanded 77.5 % of the market (an increase by 5 percent). In February of 2015 the ratings agency Expers RA confirmed OAD ZK Itil Armeec’s individual reliability rating of В++, Reasonable One of the main factors driving this process was the increased control over the quality of the assets held by insurance Level of Reliability and upgraded the Company’s status from developing to stable. The ratings agency also stated that it companies exercised by the Central Bank of the Russian Federation (including by revoking licenses). The combined effect expects that Company’s rating will remain unchanged. of the market situation and the increased control lead to the extinction of 72 insurance companies in 2015 leaving a total of 344 still in operation. In February of 2016 the individual reliability rating of В++, Reasonable Level of Reliability was confirmed as well as the stable Irrespective of the dynamics of the Russian economy, the ratio between the different types of insurance products included forecast. in the Company’s portfolio remained well balanced and it retained its positive development outlook. Unlike most Eastern European insurers, Itil Armeec’s portfolio is not dominated heavily by auto insurance.

42 43 42 43 Auto insurance forms the largest portion of ZK Itil Armeec’s insurance portfolio. Motor third party liability insurance (OSAGO) accounts for 73.7% and generates EUR 11.9 Million in premium revenues. In 2015 Casco insurance premium revenues came to EUR 2.3 Million and accounted for 14.4 % of the Company’s portfolio. Other priority products include property insurance, personal insurance, insurance of construction and installation works and voluntary medical insurance.

Russian Insurance Market, 2015 AO SK Itil Armeec, 2015 /Billion Euro / /Billion Euro / Total Premium : EUR 12.85 Total Premium: EUR 16.10

Financial and Financial and Motor Third Party Entrepreneurial Entrepreneurial Liability Insurance Risks Risks (ОСАГО) Property 0,28 0,00 2,74 2,35 0,00% 2,17% 21,36% 18,31% Motor Third Party Liability Accident Liability Insurance 0,16 0,84 (ОСАГО) 1,01% 5,20% 11,86 CASCO 73,67% Liability 2,35 0,63 Accident 18,29% 4,92% 1,24 Medical CASCO 9,67% Insurance 2,32 0,27 14,40% Medical 1,65% Insurance 1,62 12,60%

Life Insurance 1,63 Property 12,67% 0,65 4,07% According to the Central Bank of the Russian Federation, in 2015 ZK Itil Armeec was ranked 77th among all Russian insurance Operations Overview companies with its capital of EUR 16 036 075 and market share of 0.13 %. In terms of MTPL insurance premium revenue the Company is ranked 24th whereas in terms of Casco revenue it is 54th. The Company reinforced its market-leading positions In 2015 ZK Itil Armeec achieved a significant premium revenue growth despite the complicated market environment and in the Republic of Tatarstan where it is ranked fourth in terms of subscribed business and commands a market share of the poor macroeconomic indicators. The growth in subscribed business was coupled with high levels of liquidity in line with approximately 5 %. the requirements set by the regulator (CBRF). The Company achieved high degree of security and reliability with regard to the assets included in its investment portfolio 91.9 % of which merited a rating of A++ RAEX and/or equivalent ratings by In 2015 ZK Itil Armeec’s premium revenues grew by 37.3 % compared to 2014 which is a very good result considering the Fitch, Moody’s and S&P. At the same time over 90 % of these assets are highly liquid. In 2015 the Company streamlined its average growth of the market was 3.6 %. The Company closed 2015 with steady growth and positive financial results. administrative and acquisition costs bringing them to below 35 % whereas the industry average is 43.5 %. ZK Itil Armeec Premium Revenue during the 2010 - 2015 Period (in EUR) ZK Itil Armeec continued to be a permanent fixture in many charitable projects. It was the main insurance carrier and sponsor

18 000 000 € of the Russian basketball championship for the disabled. The company supported financially various charitable concerts and gave away policies under the Ray of Hope Program. Ray of Hope is a charitable campaign run in conjunction with various 16 000 000 € 16 036 075 € charitable foundations across Russia. As part of the Program, ZK Itil Armeec helped the construction of the first children’s hospice in the Republic of Tatarstan, an initiative sponsored by President Rustam Minnikhanov. The company funded the 14 000 000 € purchase of medical equipment for the Republican Children’s Hospital and also donated funds to purchase a minibus, toys 11 680 500 € and furniture for orphanages. 12 000 000 €

10 000 000 € Future Development

8 000 000 € The future development of ZK Itil Armeec is geared toward increasing the volumes of subscribed business at a balanced 6 173 762 € assumption of risk on the Russian insurance marked as it offers significant growth opportunities and has considerable 6 000 000 € potential given the low insurance penetration into the GDP and the overall economy of the country. At the same time the 4 150 000 € 3 850 000 € Company has the ambition to reinforce and expand its branch network and distribution channels. As part of the Armeec 4 000 000 € 2 512 500 € Insurance Group, ZK Itil Armeec will intensify its integration into the accounting and risk management infrastructure of its Mother Company, ZAD Armeec, including with regard to the new rules put in place pursuant to Directive 2009/138/ЕС. 2 000 000 €

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2010 2011 2012 2013 2014 2015

44 45 44 45 Branch Network The regional branch network of ZK Itil Armeec includes 20 offices in 10 cities across Russia. The Republic of Tatarstan is the company’s target region for development. The largest concentration of representative offices is found in the city of Kazan. They include 1 central office, 1 branch office, and 5 area offices. There are company offices in three more cities in Tatarstan namely Naberezhnye Chelny, Nizhnekamsk, and Chistopol. Samara Province is the second most important region for the Company in terms of premium revenue. It has two branch offices here. Next comes Nizhegorodskaya Province with one branch office in Nizhny Novgorod. The branch office in Krasnodar which opened its doors for the first time in June of 2014 also shows promising results. In 2012 the Company opened one central office and three area offices in Moscow. In 2013 its Saint Petersburg office opened for business.

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