MILLI REASURANS ANNUAL REPORT 2018

Millî Reasürans Türk Anonim Şirketi NOTES TO THE CONSOLIDATED 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) 2.28 Equalization reserves In accordance with the Communiqué on Technical Reserves put into effect starting from January 1, 2008, the companies should provide equalization provision in credit insurance and earthquake branches to equalize the fluctuations in future possible claims and for catastrophic risks. Equalization provision, started to be provided in 2008, is calculated as 12% of net written premiums in credit insurance and earthquake branches. In the calculation of net premiums, fees paid for non-proportional reinsurance agreements are considered as premiums ceded to the reinsurance firms. The companies should provide equalization provision up to reaching 150% of the highest premium amount written in a year within the last five years. In case where claims incurred, the amounts below exemption limits as stated in the contracts and the share of the reinsurance firms cannot be deducted from equalization provisions. Claims payments are deducted from first year’s equalization provisions by first in first out method. With the Communiqué released on July 28, 2010 and numbered 27655 “Communiqué on Amendments to Communiqué on Technical Reserves for Insurance, Reinsurance and Pension Companies and the Related Assets That Should Be Invested Against Those Technical Reserves”, ceded premiums of earthquake and credit for non-proportional reinsurance contracts covered multiple branches should be calculated according to percentage of premiums of those branches within the total premiums unless the Company is determined any other methods. Share of earthquake and credit premium of written premiums for non-proportional reinsurance contracts is based on share of earthquake and credit premiums of proportional reinsurance contracts. In accordance with the Communiqué on Technical Reserves, the Company considers 11% of net death premium (including damage payments) as earthquake premium and 12% of that amount is calculated as equalization provision since the Company not having sufficient data for calculation. After five financial years, in case that provision amount is less than previous year amount depending on written premiums, the difference is recognized in other profit reserves under equity. This amount recorded in equity can either be kept under reserves or can also be used in capital increase or paying claims. Equalization provisions are presented under “other technical reserves” within long term liabilities in the accompanying consolidated financial statements. As at the reporting date, the Group has recognized equalization provision amounting to TL 276.734.089 (December 31, 2017: TL 211.872.440). As of December 31, 2018, the Group has deducted TL 5.834.920 (December 31, 2017: TL 4.070.305) from equalization provision in consequence of realized earthquake losses. 2.29 Related parties Parties are considered related to the Company if; (a) Directly, or indirectly through one or more intermediaries, the party: -- Controls, is controlled by, or is under common control with the Company (this includes parent, subsidiaries and fellow subsidiaries); -- Has an interest in the Company that gives it significant influence over the Company; or -- Has joint control over the Company; (b) The party is an associate of the Company; (c) The party is a joint venture in which the Company is a venturer; (d) The party is member of the key management personnel of the Company and its parent; (e) The party is a close member of the family of any individual referred to in (a) or (d); (f) The party is an entity that is controlled or significantly influenced by, or for which significant voting power in such entity resides with directly or indirectly, any individual referred to in (d) or (g) The party is a post-employment benefit plan for the benefit of employees of the Company, or of any entity that is a related party of the Company. A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. A number of transactions are entered into with related parties in the normal course of business. Millî Reasürans Annual Report 2018 198 / Consolidated Financial Statements and Independent Auditors’ Report