MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 52 / Financial Status Global cat activity throughout 2017 and 2018 did not have adverse implications on the terms and conditions prevailing in the Turkish market. Sharp depreciation of the local currency especially in the second half of 2018 and the increase in interest rates, combined with the slowdown in investments and economic growth resulted with notable contraction in insurance industry. Additionally, continuation of competitive pressures led to further softening in policy pricing and conditions across the market. Within this framework there was only limited growth in treaty premiums in TL terms, whereas losses increased disproportionately given the large number of policies where sums insured were either in hard currency or indexed to inflation. Consequently there was some deterioration in loss ratios. On the other hand, against the decline in their premium income and with the ease due to the downward movement in natural catastrophe exposures in Euro terms reflecting the weakening of TL, reinsurers were keen to maintain their expiring income levels and market involvement in Turkey as much as they could during renewals. Treaty capacities and event limits were reviewed and determined on individual cedant basis, in consideration of factors such as portfolio structure, movement in exposures and growth forecasts. Commissions and other treaty conditions reflected a few changes in view of the performance and requirements of particular treaties, bouquets or lines vis-à-vis market conditions. Generally, proportional treaty renewals were more or less flat and placements were completed without much difficulty for reinsurance buyers. Milli Re maintains its prominent position in the market, leading 18 proportional bouquets with steady 27% market share. While most industry players continued to protect their risk portfolios on proportional bouquet basis for 2019, 5 insurers utilised solely excess of loss reinsurance and Milli Re participated in 3 out of 5 of these programmes. Milli Re’s premium income from proportional treaties is expected to increase by 23% in 2019, reflecting a number of new accounts added to the portfolio and the anticipation that the effect of rate of exchange and inflation on sums insured will to some extent be translated to premium income particularly in Fire and Marine treaties. While the dominance of Fire did not change in proportional bouquets, Engineering premium showed notable decline due to the slowdown in investments and stagnation in construction industry. The split of premium ceded to proportional treaties is Fire 54%, Engineering 28%, Accident 10% and Marine 8%. Catastrophe excess of loss programmes protecting insurers’ retentions in Fire and Engineering against natural catastrophe perils including earthquake, flood, windstorm and hail were largely impacted by the volatility in rates of exchange over 2018. With vast majority of excess of loss agreements being in Euro, sharp decline in premium income in Euro terms due to the depreciation of TL over the year, resulted with mindeps to remain disproportionately high not only against the premium base of the programmes but also versus reduced exposures as the attachment and limits in Euro terms moved upwards with the weakening of the local currency. In this context, mindep ratios of many programmes which were affected by increase in the exchange rate were revised downwards during the year, while structures of a number of programmes were optimised to achieve a better cost vs. reward balance. TURKISH REINSURANCE MARKET AND MİLLİ RE Providing capacity to 24 proportional bouquets during 2019 renewals, Milli Re leads 18 reinsurance contracts and holds a market share of 27%.