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) The main objective of the “Regulative Framework on the Risk Management Activities, Risk Management Policies and Implementation Procedures and Principles of the Risk Management” is to determine the risk measurement, assessment, and control procedures and maintain consistency between the Company’s asset quality and limitations allowed by the insurance standards together with the Company’s risk tolerance of the accepted risk level assumed in return for a specific consideration. In this respect, instruments that are related to risk transfer, such as; insurance risk selection, risk quality follow-up by providing accurate and complete information, effective monitoring of level of claims by using risk portfolio claim frequency, treaties, facultative reinsurance contracts and coinsurance agreements, and risk management instruments, such as; risk limitations, are used in achieving the related objective. Reinsurance risk is measured by quantitative methods and kept under pre-specified limits based on the “Limit over Acceptable Reinsurance Risk and Maximum Custody Share Limit” updated and approved annually by the Board of Directors. Reinsurance risk is monitored regularly according to criteria described in the “Limit over Acceptable Reinsurance Risk and Maximum Custody Share Limit” policy and results are analysed by the Risk Committee and reported to the Board of Directors. Action plan is determined by the Board of Directors in the case of having exposure higher than acceptable level of risk and probability. Sensitivity to insurance risk Insurance risks do not generally have significant unrecoverable losses in the course of ordinary transactions, except for risks associated with earthquake and other catastrophic risks. Therefore, there is a high sensitivity to earthquake and catastrophic risks. The case of potential claims’ arising from earthquake and other catastrophic risks exceeding the maximum limit of the excess of loss agreements, such risks are treated as the primary insurance risks and are managed based on the precautionary principle. Maximum limit of excess of loss agreements is determined based on the worst case scenario on the possibility of an earthquake in terms of its severity and any potential losses incurred in accordance with the generally accepted international earthquake models. Insurance risk concentrations The Company’s gross and net insurance risk concentrations (net of reinsurer share) in terms of insurance branches are summarized as below: Branches December 31, 2018 Gross total claims liability (*) Reinsurance share of total claims liability Net total claims liability Fire and natural disasters 353.012.333 (18.286.412) 334.725.921 General Damages 200.443.380 (1.846.348) 198.597.032 Land vehicles liability (MTPL) 57.945.642 (93.924) 57.851.718 General liabilities 39.721.164 (6.326.317) 33.394.847 Sea Vehicles 27.673.744 (2.473.593) 25.200.151 Marine 26.701.708 (4.124.212) 22.577.496 Land vehicles 23.653.534 (350.208) 23.303.326 Casualty 23.022.278 (492.327) 22.529.951 Life 6.619.434 (650.526) 5.968.908 Health 5.380.428 - 5.380.428 Fidelity Guarantees 700.880 (10) 700.870 Financial losses 528.783 - 528.783 Air Vehicless 380.319 - 380.319 Sea Vehicles Liability 128.186 - 128.186 Credit 62.076 - 62.076 Legal protection 456 - 456 Total 765.974.345 (34.643.877) 731.330.468 Millî Reasürans Annual Report 2018 124 / Unconsolidated Financial Statements and Independent Auditors’ Report