MILLI RE 2023 ANNUAL REPORT

TURKISH REINSURANCE MARKET AND MİLLİ RE IN 2023 PROVIDING CAPACITY TO 18 COMPANIES THAT UTILIZE PROPORTIONAL REINSURANCE COVERAGE, MİLLİ RE LEADS REINSURANCE TREATIES OF 14 COMPANIES. 2023 went down in the records as a low-frequency year in terms of risk/ loss across the world, but as a high- frequency one in terms of catastrophe losses. The critical turning point that global warming has arrived at increased the potential of strong hurricanes and typhoons in connection with overheating in oceans, and led to extreme weather events around the globe. Furthermore, the wildfires in Canada, Hawaii and Southern Europe affected broad areas. In 2023 during which insured losses once again surpassed the USD 100 billion mark in global reinsurance markets, one of the severest and most destructive damages of 2023 worldwide has been the Kahramanmaraş Earthquake in our country. The earthquakes that measured 7.7 and 7.6 respectively on the Richter scale and centered in Pazarcık and Elbistan districts of Kahramanmaraş on 06 February 2023 were felt across a broad geography covering the Southeast Anatolia, East Anatolia, Central Anatolia and Mediterranean Regions. Having affected approximately 14 million people, the earthquake struck Hatay, Osmaniye, Adıyaman, Diyarbakır, Şanlıurfa, Gaziantep, Kilis, Adana, Malatya and Elâzığ as well as Kahramanmaraş. This tragic earthquake in our country once more bared the importance of insurance, risk transfer and earthquake coverage, and in line with the insurance costs that increased due to the inflation, companies needed a higher amount of reinsurance coverage as compared to 2023, taking into consideration the earthquake risk as well. Another important factor that led to this need has been two different scenario analyses used in reviewing the modeling. The effect earthquake damages have on reinsurers, their increased need for capacity, and reinsurers’ risk appetites considerably pushed up the reinsurance costs that have been rising over the last two years, and caused hardships in the finalization of the placements of reinsurance treaties. Some companies were able to complete their placements by creating hybrid models involving alternative reinsurance treaties, whereas some others converted their existing proportional treaties to excess-of-loss treaties as they were unable to complete their proportional treaty placements. As opposed to previous years, January 2024 renewals have been extremely challenging and costly for proportional and non-proportional reinsurance treaties alike. In January 2024 renewals during which our sectoral leadership was sustained in proportional treaties as Milli Re, major modifications were made to treaty terms, primarily in relation to branches with high damage frequency to provide the capacity the industry needs. Retention level ratios were increased and number of limits was decreased in Fire and Machinery Breakdown/Electronic Equipments branches that present relatively high loss/premium ratios as compared to other branches; as such, retention ratios could be increased for insurers. Demands for increasing the earthquake event limits that constitute the highest cost item in proportional treaties for insurers remained unfulfilled, and the demanded earthquake capacity was provided through non-proportional treaties. Commission rates on earthquake premiums that make up a substantial portion of cessions to proportional treaties was decreased from 20% to 15%. A market-wide change was not made to commissions in relation to other branches, and results were evaluated on the basis of each company, revising as necessary on branch basis. Failure to secure adequate premium production for fire and allied perils over the years and covering fire risk damages with earthquake premiums has become unsustainable in view of the Kahramanmaraş Earthquake that took place and the expected Marmara Earthquake. Although fire treaties have become relatively more balanced owing to increased fire/allied perils premiums 52 MİLLİ RE