MILLI RE 2020 ANNUAL REPORT

Millî Reasürans Türk Anonim Şirketi (Currency: Turkish Lira (TL)) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 (Convenience Translation of Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note 2.1.1) Anadolu Sigorta has established rules on sharing of premium and damage with respect to Compulsory Financial Liability Insurance regarding Medical Malpractice in accordance with the Communique on Making Amendments on the Communique on Procedures and Principles regarding Corporate Contribution in Compulsory Financial Liability Insurance related to Medical Malpractice (2010/1), which has entered into force through being published on Official Gazette dated October 7, 2017 and numbered 30203. It was decided that Güneş Sigorta A.Ş., which has a license for General Liability Insurance, shall carry out transactions regarding aforementioned allocation. In this scope, premium and damage amounts, which are associated with policies, issued as of October 1, 2017, are commenced to be allocated amount insurance companies in the framework of principles, determined by Ministry of Treasury and Finance Anadolu Sigorta has issued accounting records based on premium, damage and commission amounts, which were transferred to/ from the pool proportionally in scope of the monthly receipts, which are finally submitted by Güneş Sigorta A.Ş upon the respective amendment in the legislation and moreover, it has ensured that amounts, whose receipts have not been submitted yet, are included in the financial statements through carrying our related studies. Salvage and subrogation income which will be deducted in the calculation of ACML stated by the Under secretariat should be based on collected amount (collected amount includes interest income over salvage and subrogation income, expertise, consultant and lawsuit expenses). Collections are taken into account according to their collection period. According to the letter dated January 12, 2012 and numbered B.02.1.HZN.0.10.03.01/854 sent by Republic of Turkey Ministry of Treasury and Finance to the Company, determination of final claims for the last business year used in IBNR calculation has been changed as at December 31, 2011. Accordingly, the final premium amount earned for the last business year is determined by considering premium development factors since premiums may be accrued in the following years under the terms of the agreements. Based on the calculated final premium amount of the last business year, unearned premium reserves and earned premiums are determined. Aforementioned earned premium amount is multiplied by the average of claim/premium ratio of the previous years to determine final claims amount of the last business year. IBNR is calculated by subtracting the paid and reported claims of the last business year from the final claims amount determined by the aforementioned method. In addition, IBNR amounts reported by sedan companies are taken into consideration and in order to prevent duplicate provision; paid claims, outstanding claims reserve and premiums of reported claims are excluded from the data set used in the calculation of IBNR. The Company determined final IBNR amount by adding reported IBNR amounts to IBNR amounts calculated from the data prepared in accordance with the principals mentioned above. In accordance with December 5, 2014 dated and 2014/16 numbered “Circular for Outstanding Claims Reserve” of Republic of Turkey Ministry of Treasury and Finance, ACML calculation should be on main branch. However, as at December 31, 2012, the Company has calculated ACML reserve for General Losses main branch as two separate subbranches namely agriculture and non-agriculture branches. Because, Agriculture and Engineering subbranches under General Losses main branch have different characteristics in conversion process of outstanding losses to paid losses, IBNR calculation of General Losses branch produces unreliable and improper results. The Company applied to Republic of Turkey Ministry of Treasury and Finance on January 17, 2013 with letter numbered 300, so as to receive permission to calculate IBNR reserve for General Losses branch as agriculture and non-agriculture subbranches separately. Republic of Turkey Ministry of Treasury and Finance has given permission the Company in order to calculate IBNR reserve for General Losses within two subbranches with the letter dated January 28, 2013 and numbered 24179134. As of December 31, 2020, and 2019, the Company recognised the amount that arose due to change in calculation method for IBNR on General Losses branch. With the Circular 2017/7 announced by the Republic of Turkey Ministry of Treasury and Finance regarding “the discount of net cash flow from outstanding claim files”. Since the discount of “Land Vehicle Liability” and “General Liability” branches have become compulsory, according to the Article 1 of the circular, this is considered as a change of accounting policies and financial statements have been retrospectively restated. Companies are able to discount net cash flow from outstanding claim files according to the methods outlined by the circular. As of the reporting date, as a result of actuarial chain ladder method; Milli Reasürans except Singapore branch recorded 100% of additional negative IBNR amounting to 296.857.614 (31 December 2019: TL 196.418.267 negative IBNR). As of the reporting date, TL 32.287.960 (31 December 2019: TL 27.469.420) of IBNR provision is recorded for Singapore branch. In accordance with “Circular Related to Information on Calculation of Incurred But Not Reported Claims Reserve” and dated November 26, 2011, companies may decrease their outstanding claims reserve balances based on the winning ratio of the sub-branches calculated from the last five years claims. Winning ratio used for decreasing in outstanding claims reserves could not exceed 25% (15% for the new sub-branches which do not have five year data). The company did not make any discounts regarding the claim files as of 31 December 2020 (31 December 2019: TL 240.658.639). 2.26 Mathematical reserves In accordance with the Communiqué on Technical Reserves, companies operating in life and non-life insurance branches are obliged to allocate adequate mathematical reserves based on actuarial basis to meet liabilities against policyholders and beneficiaries for long-term life, health and personal Casualty insurance contracts. Actuarial mathematical reserves, according to formulas and basis in approved technical basis of tariffs for over one year-length life insurance, are calculated by determining the difference between present value of liabilities that the Company meets in future and current value of premiums paid by policyholder in future (prospective method). Mathematical reserves are recorded based on the data sent by ceding companies. Activities and Major Developments Related to Activities General Information Financial Rights Provided to the Members of the Governing Body and Senior Executives Research & Development Activities Milli Re Annual Report 2020 198