MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 General Information / 13 In 2018, despite the positive expectations prevailing at the beginning of the year, rising geopolitical risks as well as the proliferation of protectionist trade measures, which were heavily used as a political tool between US and China, adversely affected the global economic activity from mid-year onwards. Nevertheless, world economy maintained previous year’s 3.7% growth rate, albeit lower than the initial estimates. Euro Area preserved the same growth performance as in the previous period, nevertheless it started slowing down beginning with the third quarter. Uncertainties arising from Brexit, as well as other factors such as anti-government demonstrations in France and Italy’s budget crisis are among other issues negatively impacting markets. On the other hand, even though temporarily suspended for the negotiations, the US-China trade war picked up the pace in 2018 and had a negative impact on China’s economy, which was showing signs of recovery. Further to the developments in the global markets during the second half of the year, Turkey and some other emerging economies faced substantial currency depreciations. This situation impacted balance sheets of companies, while tightening of financial conditions and increasing resource costs disrupted the general economic activity. Policies of central banks of developed economies as well as global liquidity conditions are considered to be fundamental for Turkey and other developing countries during 2019. Based on the assumption that gradual tightening in liquidity conditions shall continue while the central banks in developed economies would act based on expectations; no substantial cash outflow from developing markets is anticipated and the year 2019 is estimated to continue moderately. In our country where the economic growth rate was 7.4% during the first quarter of 2018, the turmoil of August in local financial markets weakened the confidence to the economy, and adversely affected the consumption and investment demand. Consequently growth rate during the third quarter of 2018 was recorded as 1.8%; in the fourth quarter economy shrank by 3% compared to the same period of the previous year and as at the end of the year growth rate was recorded as 2.6%. On the other hand, both trade and current account deficits shrank in 2018. By the end of the year, exports grew by 7% and reached USD 168 billion. However due to the slowdown in domestic demand and appreciation of hard currencies, imports decreased by 4.6% and was recorded as USD 223 billion. Upward movement in oil prices, appreciation in foreign exchange basket against TL by 37% as well as the increase in food prices caused an upsurge in inflation level. Reaching up to 25.2% in October, the consumer price inflation dropped back to 20.3% by the end of the year as a result of the precautions taken by the government. Turkey shifted to a new governmental system further to the Presidential elections held in June 2018 and macroeconomic plans and policies for the period of 2019-2021 were set by the government, unveiling its new economic programme “Stabilization, Discipline and Transformation” in September 2018, followed by the announcement of “all- out war” on inflation programme. In accordance with the measures taken and policies implemented, stabilization in exchange rates and a limited decline in interest rates were obtained during the last quarter of the year. Natural catastrophes occurring in 2018 caused a total economic loss of approximately USD 160 billion. Even though significantly lower than the record level of USD 350 billion of 2017, the amount was still above the USD 140 billion average of the past 30 years, of which USD 80 billion is estimated to be absorbed by the insurance industry. Increase in the frequency of the catastrophe events especially during the second half of the year did not lead to any significant negativity for the reinsurance buyers owing to the continuing excess reinsurance capacity, while risk selection of reinsurers were tailor-made with differences in pricing based on each buyer. According to the data published by the Insurance Association of Turkey; the premium volume of Turkish insurance market grew by 17% and reached TL 54.7 billion in 2018. Besides the 22% increase in Land Vehicles Third Party Liability, Fire/Natural Disasters insurance premiums grew by 21%, and Agriculture by 27%. However the growth in total market premium is caused by double counting arising from the premiums transferred to the High Risk Insurance Pool for Land Vehicle Third Party Liability and in real terms market premiums shrank. Milli Re with its balanced and diversified portfolio developed in accordance with a profit-oriented risk management strategy, grew its premium production by around 22% to TL 1,320 million in 2018, which was a turbulent year for both the Turkish and global economy. 69% of the total premium was generated from local business, while 31% was obtained from international operations. Milli Re’s total assets reached TL 3,738 million, shareholders’ equity amounted to TL 1,736 million and the net profit was recorded as TL 278 million at the end of 2018. Marking its 90 th anniversary in 2018 and being one of the oldest active reinsurers in Europe, Milli Re continues its steady performance owing to its know-how and experience as well as its strong financial structure combined with its competence of accurate and prompt perception and assessment of market dynamics. Company’s well-established corporate culture as well as the respect and trust gained in the local and international markets remain as the main pillars for providing added value not only to insurance and reinsurance markets, but also to our country’s economy. On behalf of myself and the Board of Directors, I would like to thank our shareholders, business partners and employees for their greatest contributions in our strategy to be a preferred business partner. Mahmut MAGEMİZOĞLU Chairman of the Board of Directors