General Manager's Message

In 2007, the insurance industry was characterized by the ongoing interest of foreign investors in this industry. As a result of the continued penetration of foreigners into the industry through acquisitions or shareholding, at present eight of the top ten insurers accountable for the highest premium production in non-life branches are companies with foreign shareholders. In other words, 80% of the insurance industry in Turkey started to be controlled by foreign companies.

With its financial strength, long-standing history and solid infrastructure, Milli Re continued to be a preferred and reliable national reinsurer.

The industry's technical profitability floats at low levels...
Although major losses did not occur in 2007, low technical profitability was again an issue for the industry. While the intense competition in prices have some effect on the premium volume, it shows its real impact on technical profitability ratios as a result of premiums derived written at non-technical prices which prove to be insufficient to cover the losses.

This is most evident in the motor own damage insurance representing nearly 40% of the portfolio in the industry and inflicted by a fierce competition. This coupled with unfair practices in the motor TPL insurance and the adversities in the health insurance are the main reasons of the low technical profitability in 2007.

Remodeling of the legal infrastructure for the Turkish insurance industry signifies the most striking headline of 2007.
2007 was a year of remodeling in the legal infrastructure for the Turkish insurance industry. The Insurance Bill has been passed and enacted by the Turkish Parliament on
3 June 2007.

Immediately after the enactment of the bill pending since 1994, a number of regulations covering new stipulations were published.

The law imposes highly advanced implementations in line with the EU's Solvency II directive, which are aimed at the strengthening of financial structures of insurance companies.

These new implementations will play a critical role in the emergence of a much healthier insurance industry in Turkey in the period coming.

Milli Re: A strong, long-standing and robust company
Milli Re sustained its successful performance in 2007.

In an industry predominantly populated by companies with foreign shareholders, Milli Re continued to be a preferred and trusted national reinsurer based on its financial strength, long-standing history and solid infrastructure. In the transformation process facing the industry, Milli Re achieved an extremely difficult goal, preserving and further reinforcing its place among the most preferable reinsurers also by international groups for their portfolios in Turkey.

In brief, two very important conclusions can be drawn from the 2007 activities of our company:

• Foreign companies in Turkey continue to cooperate increasingly with Milli Re;
• In addition to realizing the targeted penetration to emerging countries, Milli Re has become a part of the international reinsurers panel and has also succeeded in writing business from the Western markets.

Having started the operations of Singapore Branch officially in 2007, Milli Re aims to intensify its activities in the Asia-Pacific countries, thus writing more business from these markets.

B++: a significant expression of our strength
Milli Re, in 2007, was assigned B++ (Stable) financial strength rating on the international scale by A.M. Best. In view of the rating methodology in which the country risk ratings constitute the ceiling, this rating earned, which is above Turkey's country risk rating, is extremely significant. It points at the company's sound standing in the local market and also confirms its solid equity structure and financial position.

I would like to strongly emphasize the fact that our B++ rating is equivalent to a BBB and even to an A rating on S&P's rating scale according to the assessments of certain analysts. While many companies in our country are rated on the basis of national scale, Milli Re stands out with the rating assigned on international scale.

Apart from the emerging markets, Milli Re cooperated in 2007 with some established Lloyd's syndicates and enjoyed the honor of being a reinsurance company that is recognized also by developed markets. On the other hand, our company also entered the reinsurer panel of many international brokers and began considering the proposals received from developed markets. This is a source of pride not only for our Company and our colleagues but also for our country.

Singapore Branch commenced activities.
Milli Re's Singapore Branch was officially opened in 2007.

Our goal is to intensify our activities in the Asia-Pacific countries in 2008 and to write more business from these markets. Organized as a branch, our Singapore operation represents a concrete step of our strategy to become an international reinsurance company, with its team of 6 competent employees and its infrastructure equipped with cutting-edge technology.

For a more profitable and more productive portfolio composition
In 2007, Milli Re changed its underwriting guidelines in order to attain a more profitable and more productive composition of its portfolio. Some treaties were cancelled in the motor and health branches that posted technical loss, and a selective risk acceptance policy was put in place more predominantly, targeting the creation of a more profitable portfolio.

In 2007, Milli Re registered a total premium production of TRY 838 million, 95% of which is generated from the local market.

91% of the total premium amount was retained. With this high retention ratio, Milli Re ranks among the world's top 60 reinsurance companies.

Up 50% year-on, Milli Re's operating profit in the reporting period stood at TRY 72.7 million. This figure represents a notable increase in profit as it has been achieved in a year in which additional reserves were set aside to strengthen the company's financial structure in accordance with the new law enforced.

Currently fulfilling 30% of the Turkish insurance industry's need for reinsurance coverage on its own, Milli Re will concentrate on positioning itself in the international market as from 2008.

Shareholders' equity-technical reserve-net premiums relation
Having reached TRY 707 million at year-end 2007, total shareholders' equity represents a year-on rise by 31.7%.

Our company has secured a very healthy structure in terms of the relation between shareholders' equity, technical reserve and net premium. We have matched the world's best level of shareholders' equity to retained premiums and to reserve ratios.

An asset size over USD 1 billion
In, 2007 Milli Re's asset size exceeded USD 1 billion for the first time.

In a foreseeable future...
Milli Re, in a foreseeable future,
• will sustain its relations with Turkish companies, with foreign shareholders in order to maintain and further improve a healthy business portfolio in Turkey;
• will continue its overseas operations on a growing basis.
At present, premiums written from overseas markets has a 5% share in our total premium. 2008 target is to increase this ratio to above 10%.

Since its inception in 1929, Milli Re has been furnishing the Turkish insurance industry with growing added value.

I would like to express my gratitude to all the ceding companies for their support and confidence. Milli Re's successful journey will continue. Currently fulfilling 30% of the Turkish insurance industry's need for reinsurance coverage on its own, our company will concentrate on building itself a solid place in the international market as from 2008. Standing for power and confidence in Turkey, Milli Re will take its place in the global market drawing on these qualities.

I extend my sincerest thanks to our entire team for their committed work and efforts.

Cahit Nomer
Director and General Manager