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 80 MİLLİ RE ANNUAL REPORT 2021 RISK MANAGEMENT PRACTICES 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. Non-Financial Risks Operational Environment Risk This risk is defined as the risk of negative impact of external factors (political, economic, pandemic-related, demographic etc.) of the Company’s operating environment, on the operational ability of the Company. Qualitative methods are used to measure this risk. The underwriting portfolio is monitored on country basis to see if there are any business acceptances from countries that are defined as “unapproved” due to political or economic conditions and also credit ratings of countries, generating the highest share of estimated premium income in respect of developing market acceptances are analyzed. Strategy Risk This risk arises due to the inefficient managerial and organizational structure of the Company, inability of the management to determine and/or develop effective strategies or non-disclosure and/or lack of implementation of these strategies, erroneous business decisions, and improper application of decisions or noncompliance with the changing market dynamics. Qualitative methods are used to measure the level of this risk. On the basis of “Self-Assessment Methodology”, “Questionnaire” and/or “Interview” methods are used to determine the impact and probability level of the risk as “High”, “Acceptable” or “Low”. Model Risk This risk expresses the probability of loss that may occur if the models that the Company uses within risk measurement processes are inappropriately designed or not properly implemented. In measurement and assessment process of Model Risk, “Questionnaire” and/or “Interview” methods are used on the basis of “Self-Assessment Methodology”, to determine the impact and probability level of the risk as “High”, “Acceptable” or “Low”.