MILLIRE 2021 ANNUAL REPORT

ACTIVITIES AND MAJOR DEVELOPMENTS RELATED TO ACTIVITIES GENERAL INFORMATION FINANCIAL RIGHTS PROVIDED TO THE MEMBERS OF THE GOVERNING BODY AND SENIOR EXECUTIVES RESEARCH & DEVELOPMENT ACTIVITIES 56 MİLLİ RE ANNUAL REPORT 2021 GLOBAL REINSURANCE MARKET AND MİLLİ RE MIDDLE EAST The Middle East Region experienced a strong economic recovery in the second half of 2021, bringing output back to its pre-pandemic level in some economies. Economic performance has been uneven across the Region because of differences in the severity and effects of the pandemic. Region’s economies which contracted by 3.8% in 2020, is expected to grow by 2.8% in 2021 and 4.4% in 2022. However, further impact of Covid-19 pandemic, social unrest, high debt in some economies, and geopolitical conflicts could undermine economic activity in the Region. Furthermore, the increasing frequency of natural disasters linked to climate change threatens the Middle East, as well. Middle East insurance markets have seen robust growth over the last decade. However, the rate of growth has slowed down in the last 18 months primarily due to the impact of Covid-19 and substantial fall in energy prices, attributable largely to the global economic slowdown from lockdown measures and lower demand for oil. The top three markets of the Region in 2021 in terms of gross written premium are Saudi Arabia, UAE and Qatar. 2021 has been a very challenging year for many insurance companies in Saudi Arabia, which is the largest insurance market in the Region. The net profits generated by 28 insurance companies stood at USD 241 million in the first nine months of 2021, a 49% plunge from the corresponding period of 2020. Profits plummeted even though the overall gross written premiums of the 28 companies increased by 7.7% to USD 8.5 billion in the first nine months of this year, compared with the corresponding period of last year. In UAE, the second largest insurance market in the Region, managed to post a 5.3% increase in gross premiums to USD 4.02 billion in the first half year of 2021. The profits of insurance companies in UAE jumped by 16% to USD 300 million in the first half-year of 2021 compared to the corresponding half of 2020, despite a deteriorating loss ratio that rose to 61% in the first half- year of 2021 from 56% in the same period of 2020. The third quarter 2021 results depict a growing pressure on the underwriting performance of the GCC insurance market. The average net combined ratio has increased to 98.1%, nearing the pre-pandemic levels (98.4%). The efforts to strengthen capital continue in the Region and in parallel the merger pipeline in the Region remains very active with some mergers close to completion in addition to a number of successful M&A deals materialized during 2021. The insurance markets in the Middle East develop continuously but remain heavily reliant on compulsory lines of business due to low penetration in respect of other lines. While motor and health account for the majority of premiums, majority of non-motor property and casualty premiums are ceded to local or international reinsurers. Cession rates are even higher in more volatile lines such as energy, engineering, fire and marine. The Middle East markets continue to face significant challenges, including stock and real estate market volatility; developments in the regulatory landscape; geopolitical tensions; inflationary pressures, supply chain disruptions and currency depreciation for many of the non- GCC economies. These strains have had repercussions for the insurance industry of the Region and will continue to create uncertainty and volatility in the operating environment over the short to medium term. Middle East reinsurance market has long suffered from weak pricing, driven by ample supply, creating challenging operating conditions for the reinsurers of the Region. The available reinsurance capacity in the Region comes from many sources, namely global reinsurers, regionally domiciled players, as well as reinsurance groups from Africa and Asia. Being low cat exposed, the Region has been attracting reinsurance capacity mainly as a result of the diversification benefit it offers. Nevertheless, unable to generate sufficient returns, some regional and international players have withdrawn from the market in the recent years. Despite these developments capacity remains plentiful, mainly provided by international reinsurers. THE INSURANCE MARKETS IN THE MIDDLE EAST DEVELOP CONTINUOUSLY BUT REMAIN HEAVILY RELIANT ON COMPULSORY LINES OF BUSINESS DUE TO LOW PENETRATION IN RESPECT OF OTHER LINES.