MILLI RE 2020 ANNUAL REPORT

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 52 Milli Re Annual Report 2020 The impact of Covid‑19, which unexpectedly changed the world agenda in 2020, was felt intensely in insurance and reinsurance industry like many other sectors. Especially in mature insurance markets, lines such as Life and Health, which were directly affected by the pandemic, as well as Organization / Event Cancellation, Contingent Business Interruption, Directors and Officers Liability Insurance and similar covers have faced high loss payments due to the negative impact of the economic recession and quarantine measures on industrial production, trade, services. It is still unclear how the insured claims due to the pandemic will evolve in relation with the uncertainty regarding the course of the global economy and especially the losses regarding loss of profit policies. In addition to claims related to Covid-19, insurance and reinsurance markets faced significant losses from natural catastrophes in 2020. Combined with the low profitability environment and the decline in investment revenues in recent years, the pressure created by the losses on balance sheets forced many reinsurers to make rate increases and restrict terms and conditions in order to compensate for the adverse circumstances in January 2021 renewals. Although Turkish insurance market was marginally affected by pandemic claims, exclusions on contagious diseases and cyber risks have been implemented in the reinsurance agreements in virtually all lines of business in 2021 renewals in line with the global practice. Catastrophes such as the January 24 Earthquake affecting Elazığ and surrounding provinces in 2020, flood and hail events in Ankara, Burdur, Bursa and the Black Sea during the summer and Izmir Earthquake that took place on October 30 were events that have contributed to insurance awareness in the society, but with limited insured loss levels they did not have significant impact in reinsurance renewals. With the effect of the pandemic on economy and as the result of the dynamics of the industry, there was modest growth in premium income from proportional treaties in Turkish Lira terms. Despite a notable decline in claims in the first half of 2020 due to lockdowns, loss levels started to increase as the restrictions were lifted in the second half-year. Treaty capacities and event limits across the market were determined in relation with individual portfolio structures, movement in exposures and growth prospects on company and/or treaty basis. Commissions and other treaty conditions were reviewed and/or revised depending on the performance and requirements of individual treaties, bouquets and lines vis‑à‑vis market conditions. Weakened TL led to a relative decline in treaty premiums in Euro terms against Euro denominated treaty limits. This deterioration in treaty balances resulted in reduced appetite of a number of global reinsurers and difficulties in the placement of a few proportional treaties. Additionally, an increased “client‑based” approach was observed in the reinsurance market. Milli Re provides capacity to 21 companies that utilized proportional treaties, leading 16 bouquets and having a 27% market share in 2021. Most companies operating in the Turkish insurance market continued to protect their risk portfolios by proportional treaties. Milli Re participates in the programs of 5 of the 7 companies that solely utilize excess of loss agreements to cover their risk portfolios. Premium income ceded to proportional agreements which Milli Re participates is expected to grow by 25% in 2021. While some of this increase emanates from new clients and increased shares in existing treaties, it is also anticipated that economic developments, market dynamics and the possible effect of exchange rate and inflation movements will reflect on proportional treaty premiums especially in Property and Marine. The dominance of Property in proportional bouquet income increased slightly in relation with limited growth in Engineering reflecting the slowdown in investments and stagnation in construction industry and Non-Motor Accident, as this line is largely driven by Personal Accident policies which are adversely affected by the pandemic. The split of proportional treaty premium across the market is as follows: Property 59%, Engineering 21%, Marine 12% and Non‑Motor Accident 8%. Coverage provided by catastrophe excess of loss programs moved in line with the changes in natural catastrophe exposures in Euro, reflecting to some extent organic market growth, but also the effect of fluctuation in TL as the currency of nearly all programs in the market is Euro. There was generally Turkish Reinsurance Market and Milli Re