MILLIRE 2021 ANNUAL REPORT

FINANCIAL STATUS 47 MİLLİ RE ANNUAL REPORT 2021 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 pressure on premium from residential risks, premiums related commercial and industrial risks outgrew the sector’s average despite the economic volatilities, price-focused competition, and the relative stagnation in investments, given the fact that most policies for such risks are consistently renewed and most of the policies and respective premiums are either in hard currency or indexed to inflation. Natural Catastrophe Perils component of this line declined from 34% to 32% in 2021 with a 26.2% nominal increase annually; 3.88% growth in Compulsory Earthquake insurance translating into 23.7% shrinkage in real terms was the main factor pulling down the real increase in other natural disaster premiums and reducing its share within total premium. General Damages comprises of Engineering, Agriculture, Theft and Plate Glass Insurances and approximately 95% of the premium income in this line originates from Engineering and State Subsidized Agricultural Insurances. Engineering premium had increased by 52% in the previous year reflecting several large investments and energy projects fronted by the sector. In 2021 although this factor specific to 2020 on the construction side ceased to exist, Engineering was able to show 31.3% growth, particularly with the momentum contributed by above-inflation increase in Machinery Breakdown and Electronic Equipment premiums, where policies and respective premiums are mostly in hard currency and reflected exchange rate effect. This growth corresponds to some contraction in real terms. On the other hand, increase in the awareness and prevalence of agricultural insurances due to losses caused by climate change and the incentives for policyholders led to 46.4% growth in the premium production and brought the share of Agriculture in General Damages from 50.6% to 53.5%. The share of Marine, consisting of Hull (Sea Vehicles and Sea Vehicles Liability) and Cargo, in Non-Life increased from 2.8% to 3.4% as the result of 58.8% robust growth over 2021. Cargo premiums went up by 53.2% due to increased trade volume and currency movements, whereas Sea Vehicle Liability premium grew by 53.1%. As most of the policies and respective premiums in Hull insurance are in hard currency and because of the increased activity in Hull Construction industry, there was 70.3% growth in this segment which elevated the volume of Hull premium in Marine to 35%. Despite the pandemic and economic conditions, General Liability achieved 46.7% growth in premium income as compared to 2020 and increased its share in Non‐Life premium from 3% to 4%. General Liability comprises of 14 sub-branches and 93% of the total premium emanate from General Third Party Liability, Employers’ Liability, Professional Indemnity and Product Liability. Defying the competitive conditions, General Liability outgrew the inflation and was among the top growing lines in the sector. Liability insurance is expected to continue to evolve in the upcoming period in conjunction with the growing tendency to resort to litigation by individuals and institutions and the increase in claims Deriving more than 90% of its total premium income on Personal Accident, Accident grew 9.2% nominally in line with the individual loan volume and interest rates; remaining below the inflation, the premium level pulled down the share of the branch in Non-Life premium to 2.8%. Although the market share is currently very small, it is expected that the positive trend in financial insurances such as Surety and Credit, which grew over 40% in 2021, will continue to develop in line with the economic conjuncture IN THE PERIOD AHEAD, EXCHANGE RATE MOVEMENTS, AND THE GROWTH IN EXPORTS AND THE ECONOMY WILL LIKELY HAVE AN IMPORTANT EFFECT ON THE PERFORMANCE OF THE INSURANCE INDUSTRY.