MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 72 / Financial Status Distinguished Shareholders, We respectfully present the balance sheet, income statement, profit distribution statement, statement of changes in equity, and the cash flow statement showing the results achieved in 2018, marking the Company’s 90 th year of operation, for the assessment and approval of the Esteemed Assembly. These documents are prepared in line with the provisions of applicable legislation and the principles and guidelines set out by the Republic of Turkey Ministry of Treasury and Finance. After 2017, a year in which global economy showed a strong performance, 2018 began with a positive outlook, however global economic activity started to lose momentum in the second quarter, and the economic slowdown remained effective in the third quarter as well. This situation arose from the simultaneous deceleration in both developed and emerging countries’ growth rates. According to The World Economic Outlook Report published by IMF in January 2019, global growth for 2018 is estimated at 3.7%. The ongoing slowdown in Euro Zone growth rate became more apparent, while looking at the emerging markets, growth rates declined in Asia and Eastern Europe US tax policies, Fed interest rate decisions, geopolitical risks in the Middle East region as well as the stagnation in energy price increases stood out as the main factors behind the weakening in global growth. The ongoing US-China trade war during 2018, restored sanctions on Iran, protests in France against the economic conditions, Italy’s budget crisis with the EU, as well as the ambiguity caused by the possibility of no-deal Brexit were among the prominent developments of 2018. Gradual monetary tightening trend of advanced countries’ central banks continued during 2018. As expected, Fed closed the year with four interest rate hikes, while European Central Bank announced to end its asset purchase programme in December. Advanced economy unemployment rates reaching to record low levels, inflation rates being in line with the targets, financial risks of low interest rate environment, as well as willingness to expand the scope of policy tools encouraged central banks to start adapting monetary normalization. As a result of the slowdown in global economic growth, instability in the financial markets and the increased economic uncertainty, central banks in developed countries faced unfavourable conditions in respect of their monetary policy decisions. On the other hand, looking at the political and financial environment, Turkey had a very fast-paced and unsteady agenda for 2018. Operation Olive Branch, 24 June Presidential and Parliamentary Elections, downgrading in both Turkey’s sovereign and banking system credit ratings, CBT’s decision to increase inflation rates as well as the announcement of the new economic programme were the developments which set the course for the financial markets in 2018. With the support of global demand, Turkish economy started off the year 2018 with strong performance and substantial levels of economic progress was recorded in the first two quarters, as evidenced by the continued positive differentiation relative to other emerging market economies. However, this positive outlook was impacted negatively in the second half of the year and a rapid adverse change was observed. A very limited growth, remaining only at 1.8%, was recorded in the third quarter of the year. With the impact of the depreciation of Turkish lira, inflation rate climbed up to high levels. On the other hand, economic stabilization to some extent was sustained as a result of the positive movement in export figures. The normalization in Turkey’s international relations in addition to rapid decline in oil prices allowed the economy to gain strength while weakening in overall demand in the last quarter of the year supported the declining trend in inflation. The consumer inflation was registered as 20.3% at the end of 2018. In 2018, the total economic cost of the natural catastrophes reached USD 160 billion. Even though this aforementioned amount is significantly lower than the USD 350 billion loss amount recorded in 2017, it was still well above the average of the past 30 years’ historical losses. USD 80 billion of the total loss amount caused by natural disasters of 2018 is expected to be borne by the insurance industry. In 2018, majority of the global insured losses emanated from the catastrophes occurring in USA. In addition to the economic loss caused by the tropical hurricane season, USA witnessed a series of catastrophic wildfire events. Extratropical Cyclone Friederike, which occurred as a result of the heavy weather conditions prevailing in Europe and affected Netherlands, Germany, Belgium and United Kingdom in January, was the costliest natural disaster recorded in the first half of 2018. Moreover, Typhoon REPORT BY THE BOARD OF DIRECTORS