MILLIRE_2019_Annual Report

Milli Re Annual Report 2019 81 Activities and Major Developments Related to Activities 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 General Information Financial Rights Provided to the Members of the Governing Body and Senior Executives Research & Development Activities In addition to the daily calculated VaR, following tests are applied: • Backtesting • Stress Tests • Scenario Analysis These tests are used to support the VaR method in calculating the loss in portfolio value due to unexpected and extraordinary circumstances and intend to test the accuracy of the measurement results and monitor the sensitivity of the portfolio to changes in the basic risk factors by creating different scenarios. Market risk limits are set out in “Application Principles in Respect of Risk Limits”, while limits and application principles in respect of investment portfolio are set out in “Derivatives Policy”, “Macro Asset Investment Policy”, “Investment Policy” and “Alternative Investment Plan” of the relevant year. Mentioned limits are checked regularly. b) Structural Interest Rate Risk This risk expresses the negative impact on balance sheet assets and liabilities which are not subject to trading, due to possible changes in interest rates. Receivables from reinsurance operations and payables arising from reinsurance operations are discounted by using LIBOR rates in respect of related currencies and maturities and these figures go into the financial statements, accordingly they are subject to structural interest rate risk. Upward and downward shocks are applied to LIBOR rates that are used in discounting process every three months and possible changes in values of receivables and payables are calculated. c) Liquidity Risk This risk denotes the imbalance between the Company’s cash outflows and inflows in terms of maturity and volume. This risk is measured using quantitative methods, and any liquidity deficit is observed via maturity analysis of assets and liabilities in the balance sheet. Moreover, level of liquid assets covering liabilities is monitored by using the liquidity ratio and assessed within the defined limit. d) Capital Investment Risk This risk expresses the loss that may arise in the value of capital investments or dividend income due to general market conditions, legislative amendments and/or to the problems in managerial or financial structure of the invested companies. Market values of the equities followed-up under financial assets held for trading account are evaluated on the basis of Borsa İstanbul (BİST) data, whereas available-for-sale financial assets are evaluated according to their fair values. Subsidiaries and affiliates are evaluated according to equity method. e) Real Estate Investment Risk This risk expresses the negative impact on assets which are sensitive to real estate prices, due to adverse movements or excessive volatilities in real estate prices or the sale of the real estates under actual value. Real Estate Investment Risk is monitored in accordance with valuation reports which are to be prepared in accordance with the related provisions of the legislation and taking into consideration the Company’s requirements and investment policies. Besides, by applying a defined downward stress on the expertise values, loss amount that may arise in the value of real estates and shareholders’ equity is monitored.