MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 General Information / 15 In 2018 where several global risks with potential threats to the economic equilibrium were on the rise, global economy is expected to reach a growth rate of 3.7%, close to the rate obtained in 2017, despite various developments. Global immigration problem arising from the geopolitical developments in the Middle East foremost the civil war in Syria were the political factors indirectly impacting the financial markets in 2018. Fed’s interest rate increases, US policies putting protectionist trade measures on the agenda, uncertainty caused by Brexit, protests in France which started as a reaction against the general economic conditions and spread all around the country as well as the budget crisis between Italy and the EU Commission stood out as the other main contributors shaping the global markets. Even though positive economic growth was sustained throughout the year in USA and the European Union, the adverse effect of US trade restrictions on demand during the second quarter of the year and loss of momentum in Euro Zone, increasing uncertainty on economic policies, signalled global economic slowdown for the next period. Deterioration in the economic outlook of some developing countries, currency devaluations, tighter monetary and fiscal policies as well as increasing borrowing costs raised concerns that deceleration of economic expansion and fluctuations in economy would be inevitable in 2019. However, indicators that central banks in advanced economies would be opting for cautious policies in line with the market parameters create positive expectations for developing markets. 2018 was a year where rapidly changing agenda influenced economic and political areas in Turkey. Operation Olive Branch, shifting to a new government system with 24 June Presidential Elections, downward revisions in Turkey’s country and banking sector credit notes, restoration of sanctions on Iran, CBT (Central Bank of Turkey) interest rate hike as well as the announcement of “all-out war” on inflation following New Economic Programme were the major developments which effected the course of markets in 2018. With economic growth rate reaching 7.4% and 5.3% respectively during the first two quarters of 2018, Turkey showed strong economic performance and continued its positive differentiation from other emerging countries. However, in the second half of the year, economic outlook changed, and growth rate remained only at 1.8% for the third quarter, nevertheless during the same quarter rising export levels supported the market trend towards economic equilibrium. Relative positive developments in Turkey’s foreign relations along with the rapid decline in oil prices stood out as important developments supporting upward movement in Turkish-lira denominated assets. According to the 2018 year-end figures released by the Insurance Association of Turkey, Turkey’s Insurance Industry premium volume is registered as TL 54.7 billion, increasing by around 17% compared to the previous year. 87% of the market premium was generated from Non-Life and 13% from Life business. Despite the premium growth achieved in Fire and Natural Disasters, Health and Agriculture, total premium volume of the market decreased by 2% in real terms. Main factors causing this reduction were the ongoing price cap imposed on Land Vehicles Liability as well as the negative impact of decreasing consumer and housing credits on Life Insurance premium growth, given the increasing interest rates and general economic slowdown. On the other hand, high interest rate environment stimulated financial investments to generate substantial revenues, which compensated for the negative technical results and contributed to balance sheet profitability. Total economic cost of natural disasters to the global economy in 2018 is estimated to be USD 160 billion. While this amount reached USD 350 billion in 2017, the average of the past 30 years’ historical losses was recorded as USD 140 billion. Decreasing by 43% compared to last year, global insured losses fell back to USD 80 billion. Moreover, 2018 was the fourth costliest year ever on inflation-adjusted basis and similar to the previous years catastrophe events emanating from the climate change dominated the statistics.