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 63 Milli Re Annual Report 2020 Russia Russian economy is primarily dependent on oil and natural gas exports, which make roughly 40% of the federal budget. The significant decrease in crude oil prices as well as in the demand for refined products due to restrictive measures taken to suppress the spread of Covid‑19, ultimately caused a fall in country’s financial income and a further weakening of the Rubles against hard currencies in 2020. Hence in April 2020, Russia made an agreement with its Organization of Petroleum Exporting Countries (OPEC) and non‑OPEC allies for 10 million barrel per day production cut in order to stabilize the oil price. Deterioration of economic activity, lockdowns and other measures taken by the government to prevent virus spread have led to a decline in both premiums and claims of the Russian insurance market. In addition to this, depreciation of Rubles against hard currencies fast forwarded the drastic fall in premium income by almost 22% in the first 3 quarters of 2020 compared to the same period of the previous year. The market premium income was EUR 12.2 billion as at September 2020 compared to EUR 15.7 billion of the same period of 2019. In parallel with the reduced premium level, paid claims also declined by 19% compared to 2019 in consequence of the Covid‑19 restrictions. Similar to the previous years, Non‑Life insurance generating 74% of premiums of the overall market premiums, made the most significant contribution to Russian insurance market in 2020 In May 2020, a major industrial disaster occurred at the vicinity of Norilsk, where a fuel storage tank at Norilsk‑Taimyr Energy’s Thermal Power Plant failed and almost 21,000 tons of diesel oil flooded out, affecting an immediate area of 18 hectares, the nearby Daldykan River, a tributary of the Ambarnaya River and contaminating an area of 350 square kilometers. Being the second largest oil spill in the Country’s history, the incident has been declared as a state of emergency. The environmental damage is estimated to cost around EUR 1.7 billion by the Russian Environmental Regulator although insured loss amount is yet to be determined. It is anticipated that various liability lines will cause a burden on the insurance market as a result of this loss. There have not been any other any significant risk losses in 2020 in Russia, which is a non‑Cat market. However, reinsurance costs of Russian insurers increased owing to both depreciation of Rubles and stricter terms and conditions prevailing in the market. Unlike the previous renewals, loss affected programs have seen rate increases of 10% to 20%, while rates for loss free programs either remained stable or reduced slightly in January 2021 renewals. International Portfolio 2020 Results In order to diversify the portfolio in line with its profit‑oriented and sustainable growth approach, Milli Re started to play a more active role in international reinsurance markets in 2006. International portfolio of the Company consists of business written from emerging markets, Singapore Branch Office business, Pools (FAIR/ECO/TRP), Turkish Republic of Northern Cyprus business, as well as business accepted from developed markets. A significant portion of the international portfolio is made up of emerging markets business from countries that fall under the scope of FAIR Reinsurance Pool, which has been managed by Milli Re since its establishment in 1974. Additionally, having started its operations in 2008, Milli Re Singapore Branch continues to work efficiently in the Far East, a region which represents significant potential. In 2020, Milli Re maintained its position as a preferred business partner by providing reinsurance capacity to 123 companies in nearly 50 countries in the emerging markets. Milli Re continue to support its existing business partners within the scope of its overseas activities by prioritizing long‑term business relationships based on solid foundations and rapidly responding to the changing market conditions, as well as taking the necessary steps to increase profitability with portfolio diversity by acquiring new businesses in line with its risk appetite.