MILLIRE 2021 ANNUAL REPORT

FINANCIAL STATUS 53 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 Reaching Category 3 in a short period of time with wind speeds of 160 km/h and striking Indian state of Gujarat between the dates May 17 th and 19 th , Cyclone Tauktae was the first major event of 2021 North Indian Ocean cyclone season. While many cities in the region including Mumbai were affected by the storm, more than 140,000 homes were destroyed and widespread damage to agricultural fields, transportation and power lines was recorded. The total bill of the disaster is expected to be around USD 1.5 billion. Cyclone Yaas, which devastated India soon after Cyclone Tauktae between the dates May 25 th - 29 th , was another storm affecting the country in 2021. The Category 1 cyclone caused heavy damage to northern parts of the country, mainly impacting the states of Odisha and West Bengal. The disaster is anticipated to lead over USD 3 billion total economic loss, however as a consequence of the low insurance density in the region, the insured losses are expected to be limited. China was another country which was severely impacted by floods in 2021. During July 17 th to 21 st , as a result of record- breaking rainfall which is described to occur “once in a thousand years”, central province of Henan was devastated by catastrophic floods. Affecting more than 13 million people and causing extensive damage to property, agriculture and infrastructure; the total economic cost of the disaster is estimated to be around USD 25 billion. Leading to over USD 1.7 billion total insured loss amount, Henan floods are believed to be the costliest natural disaster on record for China insurance industry. On the other hand, it is still difficult to predict the ultimate impact of the Covid-19 pandemic, which undoubtedly continued to be one of the hot topics for the insurance and reinsurance industry, with total reported insured losses reaching USD 48 billion by the end of 2021. Around 40% of this amount is estimated to stand for incurred but not reported (IBNR) losses, primarily owing to loss of profit claims arising from property business. As the global economy is in the recovery phase after the shock caused by the pandemic, the profitability of the insurance industry is expected to boost in 2022 and onwards, the main contributors being the increased demand for insurance given that the pandemic has been a positive stimulant increasing the consumers’ risk awareness, as well as the prevailing rate hardening which is expected to continue moderately in the upcoming years. Despite the losses caused by major natural disasters as well as the increase in the frequency of catastrophe losses driven by secondary perils and the uncertainty around the development of Covid-19 losses, with the help of improved terms and conditions in favor of the reinsurers, total of traditional and alternative reinsurance capital rose to USD 660 billion from 2020 year-end figure of USD 650 billion by the end of June 2021. Mainly driven by retained earnings, traditional capital increased by USD 7 billion during first half of the year and reached USD 563 billion. On the other hand, growing by 3%, alternative capital was registered as USD 97 billion. Global merger and acquisition activity, which was observed to slow down in 2020 primarily as a consequence of the pandemic, started to gain momentum in 2021. Although the mega merger deal between Aon and Willis Towers Watson, which was first announced in March 2020, has been terminated in July 2021, Willis proceeded with its strategic decision to sell its reinsurance unit, Willis Re, to global insurance broker Arthur J. Gallagher for about USD 3.25 billion. Following the completion of the deal on December 1 st , Gallagher Re positioned itself as the third largest reinsurance broker globally. Another notable M&A announcement came in early November 2021 and Covea reagreed with Exor for the acquisition of Partner Re for USD 9 billion, after their first attempt which could not materialize back in May 2020, given the uncertainty in market conditions fueled by the pandemic. Moreover, Bermuda-based Third Point Reinsurance completed the acquisition of Sirius International Insurance Group on February 26 th . Following the merger, the new entity continued its operation under the name SiriusPoint Ltd. Going into 2022, M&A activity is expected to remain strong with increased interest of private equity and asset management firms in the insurance industry and willingness on companies’ side to sell off some of their assets with the aim of focusing on key business areas in order to increase profitability. SURPASSING LAST YEAR’S FIGURE OF USD 82 BILLION, GLOBAL INSURED LOSSES WENT UP TO USD 120 BILLION, MAKING IT THE SECOND COSTLIEST YEAR ON RECORD FOR THE INDUSTRY AFTER 2017.