MILLI_RE_ANNUAL REPORT 2022

Queensland and New South Wales floods were also the costliest natural disaster on record for the Australia insurance industry. Decreasing by 17%, total of traditional and alternative capital declined to USD 560 billion from 2021 year-end figure of USD 675 billion by the end of September 2022. Although reinsurers reported positive underwriting results in general with the support of favorable rate environment despite the high level of natural catastrophe losses like Hurricane Ian; prevailing financial market conditions such as increasing bond yields and the downward trend in equity markets exerted pressure on investment portfolios. As a result, traditional capital shrunk by USD 112 billion to USD 467 billion during the first nine months of the year. On the other hand, declining by only USD 3 billion, alternative capital was USD 93 billion by the close of the third quarter 2022. Characterized as the most challenging renewal session witnessed in a decade, especially for the property catastrophe business, January 2023 renewals marked a turning point for the industry in many aspects. With many macroeconomic challenges such as the record levels of high inflation, rising interest rates, striking exchange rate movements introducing great uncertainty to global markets on top of the rising concerns about climate change and heightened frequency and severity of secondary peril losses, reinsurers were persistent on the necessity of significant price corrections. As this led to lengthy negotiations, January 2023 renewals were completed with substantial delays, firm order terms being issued only in late December or even in early January in some cases. For property catastrophe business, risk-adjusted rate increases exceeded 35% on average, which marked the biggest year-on- year increase recorded at January 1 st renewals since 1992. With inflationary pressures on sums insured and claim costs, program attachments came under great scrutiny and many buyers had to raise retention levels in order to secure desired levels of limit. Apart from terms, negotiations were mainly shaped around program conditions and many reinsurers insisted on scope of cover clarifications. Moving away from all risk covers, some provided capacity only on named-peril basis; while others opted for introducing exclusions for certain risks, in parallel to their retrocession covers becoming more restricted as well. Moreover, reinsurance capacity continued to be scarce for aggregate and per risk covers, with many programs facing shortfalls on placements or not being renewed at all. Looking at January 2023 renewals, the changing market dynamics had deeper repercussions for the retrocession market. Although buyers who were early and conveyed their position clearly managed to complete the process in a relatively orderly manner, many players described January 1 renewals as the toughest and the most challenging of the last couple of decades. With the substantial erosion in reinsurer returns and profit margins, coupled with the reduction in alternative capital allocated to retrocession given the trapped collateral amount from Hurricane Ian, retrocession supply was constrained. As it has been the case previously, increases in the cost of retrocession outpaced the upward movements in reinsurance pricing and risk-adjusted Global Reinsurance Market and Milli Re RISK-ADJUSTED RETROCESSION CATASTROPHE EXCESS OF LOSS RATES ESCALATED BY AROUND 50% ON AVERAGE AT JANUARY RENEWALS. 50% 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 62 MİLLİ RE 2022 ANNUAL REPORT