MILLIRE 2021 ANNUAL REPORT

FINANCIAL STATUS 49 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 TURKISH REINSURANCE MARKET AND MİLLİ RE While coverage and exceptions regarding communicable diseases and cyber risks were on top of the global agenda in 2021 renewals, more fundamental topics such as capacity, risk appetite, liabilities and pricing gained the foreground in 2022 renewals. Climate change and consequent increase in the frequency and severity of natural catastrophe losses particularly from secondary perils, hikes in core inflation and social inflation and reinsurers’ demands for continuation of ongoing price increases in various regions and lines were among the key factors in renewals. Reinsurers’ client, program and line specific approaches as regards to capacity and pricing continued even more strongly in 2022 renewals. Quotation processes were lengthy and there was a smaller number of reinsurers willing to quote, all combined leading to delays in renewals. Written lines usually remained at the levels of signed shares in the previous renewal as opposed to expiring written line capacity. Inflationary pressures on a global level, low investment returns, and the impact of natural catastrophes worldwide on reinsurers’ results caused many reinsurers to reduce their capacity allocated to certain regions and programs they deem unsatisfactory in terms of pricing and conditions and in some cases to complete withdrawal from some programs. With declined technical margins due to ongoing competitive pressures and increased claim costs reflecting currency fluctuations and inflation, Turkish reinsurance market was adversely affected by these developments. Significant capacity reductions or withdrawals by some key reinsurers in the placement of some programs which were considered underperforming led to lengthening of the renewal process and placement difficulties in spite of certain revisions in terms and conditions in favor of reinsurers. Renewals could be completed by filling the placement gaps with the existing reinsurers. Although the losses resulting from severe floods and forest fires in Turkey throughout 2021 did not have a significant impact on reinsurance treaties, they served to increase the focus on natural catastrophe exposures, especially for perils linked to climate change. This development, coupled with the decreased appetite of global reinsurers, the impact of risk losses which continue to increase in frequency and severity and uncertainties relating to the economy and exchange rates, put significant pressure on placements, prices and conditions in 2022 renewals. Premium ceded to proportional reinsurance treaties in 2022 is anticipated to grow by more than 30% across the market in TL terms, in line with economy and industry dynamics; however, this growth translates to contraction in Euro terms, given the depreciated local currency. Treaty capacities and event limits across the market were determined in accordance with individual portfolio structures, movement in exposures and growth prospects. Total event limits under proportional reinsurance treaties for the whole market declined slightly - despite the inclusion of a number of newly established insurers - mainly reflecting the impact of the currency movement on exposures. 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. While commissions in some underperforming treaties were revised in favor of reinsurers, additional deductibles aiming to reduce the loss burden on treaties were implemented across the market in Machinery Breakdown treaties, which have been producing deteriorating results for some time. Deductibles for hydroelectric and wind power plants that saw marked increases in loss frequency and severity in recent years were also adjusted in order to alleviate losses ceded to treaties. The pressure of exchange