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) Risk tolerance is determined by Board of Directors by considering the Groups long-term strategies, equity resources, potential returns and economical expectations, and it is presented by risk limitations. Authorization limitations during policy issuing include authorizations for risk acceptances granted based on geographical regions in relation to unacceptable special risks or pre-approved acceptable special risks, insurance coverage to agencies, district offices, technical offices, assistant general managers and top management in the policy issuance period and authorizations for claim payment granted to district offices, claim management administration, automobile claims administration and Claim Committee established by the managing director and assistant managing director in the claim payment period. Whatsoever, risk acceptance is based on technical income expectations under the precautionary principle. In determining insurance coverage, policy terms and fee, these expectations are based accordingly. It is essential that all the authorized personnel in charge of executing policy issuance transactions, which is the initial phase of insurance process, should ensure to gather or provide all the accurate and complete information to issue policies in order to obtain evidence on the acceptable risks that the Group can tolerate from the related insurance transactions. On the other hand, decision to be made on risk acceptance will be possible by transferring the coverage to the reinsurers and/or coinsurers and considering the terms of the insurance policy. In order to avoid destructive losses over Group’s financial structure, company transfers the exceeding portion of risks assumed over the Group’s risk tolerance and equity resources through treaties, facultative reinsurance contracts and coinsurance agreements to reinsurance and coinsurance companies. Insurance coverage and policy terms of reinsurance are determined by assessing the nature of each insurance branch 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 Group’s gross and net insurance risk concentrations (after reinsurance) 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 Land Vehicles Liability 1.019.615.451 (171.591.278) 848.024.173 Land Vehicles 846.284.750 (17.468.973) 828.815.777 Fire and Natural Disasters 711.809.536 (126.285.294) 585.524.242 Health 565.574.715 (32.170.327) 533.404.388 General Damages 427.442.407 (79.219.640) 348.222.767 General Liability 150.961.531 (66.244.727) 84.716.804 Sea Vehiles 71.428.970 (20.696.660) 50.732.310 Casualty 54.389.627 (7.190.014) 47.199.613 Marine 75.791.257 (31.462.960) 44.328.297 Air Vehicles 77.958.925 (67.604.041) 10.354.884 Life 6.619.434 (650.525) 5.968.909 Financial Losses 3.740.744 (1.822.917) 1.917.827 Fidelity Guarantees 739.320 (10) 739.310 Air Vehicles Liability 50.877.464 (50.452.669) 424.795 Credits 1.667.314 (1.529.761) 137.553 Sea Vehiles Liability 128.186 - 128.186 Legal Protection 100.198 - 100.198 Total 4.065.129.829 (674.389.796) 3.390.740.033 Millî Reasürans Annual Report 2018 Consolidated Financial Statements and Independent Auditors’ Report / 205