MILLI REASURANS ANNUAL REPORT 2018

Millî Reasürans Türk Anonim Şirketi NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018 (Currency: Turkish Lira (TL)) (Convenience Translation of Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note 2.1.1) 2.25 Outstanding claims reserve Claims are recorded in the year in which they occur, based on reported claims or on the basis of estimates when not reported. Outstanding claims reserve represents the estimate of the total reported costs of notified claims on an individual case basis at the reporting date as well as the corresponding handling costs. In accordance with the “Communiqué on Technical Reserves for Insurance, Reinsurance and Pension Companies and the Related Assets That Should Be Invested Against Those Technical Reserves” (“Communiqué on Technical Reserves”) which was issued in 27655 numbered and July 28, 2010 dated Official Gazette according to the Communiqué on Technical Reserves, all expenses related to the claim files including calculated or expected expertise, consultant, lawsuit and communication expenses in the calculation of outstanding claims reserve. In these calculations salvage and subrogation income are not considered. Except for the life branch, outstanding claims reserve consists of claims are recorded in the year in which they occur, based on reported claims and the difference between the result of the actuarial chain ladder method whose content and application criteria stated by Republic of Turkey Ministry of Treasury and Finance and reported but not settled claims are considered as incurred but not reported (“IBNR”) claims. Actuarial chain ladder method may be differentiated by Republic of Turkey Ministry of Treasury and Finance for reinsurance companies due to their special conditions. December 5, 2014 dated “Circular regarding Outstanding Claims Reserve (2014/16)” and 2010/12 numbered “Circular regarding actuarial chain ladder method”of Republic of Turkey Ministry of Treasury is abolished except Article 9 and 10. According to circular that explains ACML measurement method, insurance and reinsurance companies calculate ACML with six different methods as “Standard Chain, Damage/Premium, Cape Cod, Frequency/Intense, Munich Chain and Bornhuetter-Ferguson”. The methods selected for each branch is provided in the following section. The Company has not perform big claim elimination by Box Plox method. Branches December 31, 2018 December 31, 2017 Fire and Natural Disasters Standard Chain Standard Chain General Damages (*) Standard Chain Standard Chain General Liabilities Standard Chain Standard Chain Land Vehicles Liabilities Standard Chain Standard Chain Marine Standard Chain Standard Chain Sea Vehicles Standard Chain Standard Chain Land Vehicles Standard Chain Standard Chain Casualty Standard Chain Standard Chain Health Standard Chain Standard Chain Air Vehicles Standard Chain Standard Chain Legal Protection Standard Chain Standard Chain Sea Vehicles Liability Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) Air Vehicles Liability Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) Fidelity Guarantees Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) Financial Losses Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) Credit Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) Life Sector Average (Insurance Association of Turkey 09/2018) Sector Average (Insurance Association of Turkey 09/2017) (*) Two separate calculation have been made as agriculture and non agriculture sub branches. The Company, as a reinsurance company, selects data, adjustments, applicable methods and development factors by itself over the data obtained from insurance companies on a branch basis via actuarial methods. According to the article 11 clause 5 of “Circular on Actuarial Report for Non-Life Insurance Branch” dated November 6, 2008, selections and results should be assess in detail in actuarial report by the actuary. Millî Reasürans Annual Report 2018 Unconsolidated Financial Statements and Independent Auditors’ Report / 115