MILLI RE 2020 ANNUAL REPORT

Financial Status Risks and Assessment of the Governing Body Unconsolidated Financial Statements Together with Independent Auditors’ Report Thereon Consolidated Financial Statements Together with Independent Auditors’ Report Thereon Milli Re Annual Report 2020 15 In Europe, while the Brexit process has been completed at the end of the year, with an agreement setting the legal framework for the future EU-UK trade relationship, economic, social and regulatory uncertainties between United Kingdom and the European Union were not completely resolved. Yet, when considered with the impacts of the pandemic, these uncertainties continue to pose a risk for the global outlook. OECD envisions that this situation will cause substantial contraction both in the United Kingdom and the Euro Zone over the next three-year period. As it was the case all over the world, in the first half of the year, lockdown and restriction measures taken as a result of the Covid-19 pandemic brought social and economic life to a near standstill in Turkey as well. Making a strong start to 2020, in parallel with the global trends, Turkish economy lost momentum with the pandemic. GDP, which attained 4.5% annual growth in the first quarter according to the data adjusted for seasonal and calendar effects, recorded a sharp contraction of 10.3% in the second quarter of the year. However, with the impact of the measures taken in the second half of the year, 6.3% and 5.9% growth has been achieved in the third and fourth quarters respectively. By the end of the year, GDP grew by 1.8%. Maintaining a supportive stance in the first half of 2020, as of fourth quarter, Central Bank of the Republic of Turkey (CBRT) tightened its stabilization policies even further as a response to the upward risks in inflation. One one hand, it increased the policy interest rate from 8.25% to 10.25% in September, to 15% in November and to 17% in December; on the other hand, in line with the simplified monetary policy, it terminated the reserve requirement system which was based on real credit growth and showed sectoral differentiation. According to the year-end figures published by the Insurance Association of Turkey, the total premium production of Turkish insurance industry is TL 82.6 billion in 2020, increasing by 19% in nominal and 4% in real terms compared to the previous year. In 2020, as a result of the expansion in loan volume as well as the increase in housing sales driven by low-interest rate mortgage loans which came into effect in June, share of Life Insurance in the total premium production increased to 17.5% from 2019 level of 16%. Generating 82.5% of the total premium production, Non-Life Insurance achieved 18% growth in nominal terms and the real growth was around 3%. While the majority of the Turkish insurance industry premium production originates from Land Vehicles Liability and Land Vehicles lines, as a result of the factors such as car sales remaining at low levels in comparison to previous years with the impact of the pandemic as well as the ongoing price cap, the premium production of the lines saw a slight increase of 11% in nominal terms. As a consequence of the production that contracted by 3% in real terms, the total share of these two lines in Non-Life Insurance premium declined to 46% from 49%, which also constrained the premium development of Non-Life segment. On the other hand, by taking an important step, Turkish insurance industry players’ decision to pay out for pandemic related medical expenses on ex-gratia basis, as well as the higher public awareness induced by the pandemic, promoted the positive perception towards Health Insurance. With the contribution of higher demand for Private Health and Complementary Health Insurance, the line of business achieved 21% nominal and 5% real premium growth. Having 16% share in industry premium production, Fire and Natural Disasters insurance grew by 9% in real terms with the help of the increased level of house sales, significant portion of the renewed policies for commercial and industrial risks having insured amounts and premiums indexed to foreign exchange or inflation, higher public sentiment in the aftermath of the earthquakes in 2020 and also the new earthquake tariff. Leaving behind the fifth costliest year on record for the industry, global insurance and reinsurance markets encountered around USD 82 billion of natural catastrophe losses in 2020. While catastrophe events severely impacted many developing countries with very low levels of insurance penetration, great portion of the losses were driven by secondary perils such as