MILLIRE_2019_Annual Report

215 Milli Re Annual Report 2019 Activities and Major Developments Related to Activities Financial Status Risks and Assessment of the Governing Body Unconsolidated Financial Statements Together with Independent Auditors’ Report Thereon Consolidated Financial Statements Together with Independent Auditors’ Report Thereon General Information Financial Rights Provided to the Members of the Governing Body and Senior Executives Research & Development Activities Millî Reasürans Türk Anonim Şirketi NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2019 (Convenience Translation of Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note 2.1.1) (Currency: Turkish Lira (TL)) Subsidiary of the Company, Anadolu Sigorta, has determined gross provision for unexpired risks through multiplying exceeding portion with gross UPR and net provision for unexpired risks amount through multiplying such exceeding part with net UPR if the discounted final claim/premium ratio, calculated based on year of casualty and through including indirect reinsurance contracts, is over 85%. December 31, 2019 December 31, 2018 Gross URR Net URR Gross URR Net URR RSH - Taken over 29.193.639 29.193.639 34.426.354 21.859.726 TKU Pool - Taken over 10.603.298 10.603.298 50.237.586 31.800.761 Total 39.796.937 39.796.937 84.663.940 53.660.487 With the Circular 2017/7 announced by Republic of Turkey Ministry of Tresuary and Finance regarding “the discount of net cash flow from outstanding claim files”. Since the discount of “Land Vehicle Liability” and “General Liability” branches has become compulsory, according to the Article 1 of the circular, this is considered as a change of accounting policies and financial statements have been retrospectively restated. Companies are able to discount net cash flow from outstanding claim files according to the methods outlined by the circular. According to the related test, as at the reporting date, the Group has provided net unexpired risk reserves amounting to TL 73.827.230 in the accompanying consolidated financial statements (December 31, 2018: TL 69.220.581). In order to ensure the elimination of misleading impact, caused by the amended outstanding claims reserve calculation method, on unexpired risk reserve, outstanding claims reserve of previous period is also calculated by the new method and amount, calculated based on aforementioned new method, is used in unexpired risk reserves account as the provision for carry-over outstanding claims reserve. 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 357.827.967 (December 31, 2018: TL 276.734.089). As of December 31, 2019, the Group has deducted TL 9.650.545 (December 31, 2018: TL 5.834.920) from equalization provision in consequence of realized earthquake losses.