MILLI RE 2020 ANNUAL REPORT

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 57 Milli Re Annual Report 2020 Following the official approval of Brexit in January, 2020 has been the transition period for EU and UK to negotiate on the terms of their future economic relationship. On December 24 th , the parties reached an agreement on a free trade deal called “The EU‑UK Trade and Cooperation Agreement”, which came into effect as of January 1 st 2021. Nevertheless, it is still unclear how the UK’s financial sector will be impacted considering that the deal does not grant regulatory equivalence to the UK’s financial firms. Subsequent to the new 3‑year strategic plan published in September 2019, in November 2020 Lloyd’s launched “Blueprint II” as the second phase of its new business strategy. The 2‑year new program aims to transform the market into a digital ecosystem with higher reliance on data and technology as well as reshaping the entire insurance lifecycle process from start to finish. Moreover, one of the objectives of the new transformation plan is to reduce the operational costs by around GBP 800 million and allow market players to focus more on activities such as new product development and innovation. Considering negative factors such as declining interest rates, poor underwriting results as well as 2020 being another hyperactive year in terms of catastrophe activity exacerbated by the impacts of Covid‑19, substantial price increases have been expected in the eve of January 2021 renewals. Nevertheless, rate increases were capped at lower levels as a result of capital inflows and improved investment return. Consequently, on average global property catastrophe reinsurance rate‑on‑lines rose by 6%, being the highest year‑on‑year price increase attained in the last decade. Although quoting phase took longer, the early start of renewals enabled companies to successfully manage the process in an orderly manner. Apart from the terms, negotiations were mainly shaped around contractual wording issues for January 2021 renewals. Considering the severe impacts of Covid‑19 on the industry, exclusionary language for communicable diseases has undoubtedly been the focus point of lengthy discussions, mainly owing to varying views of underwriters on clauses. Moreover, incorporation of cyber exclusion clauses that provided improved clarity around scope of cover has been the other hot topic especially for the London Market players. Looking at January 2021 retrocession renewals, some level of capacity constraint was observed in the markets due to the trapped collateral in the alternative capital and decisions of some reinsurers on either ceasing underwriting or considerably limiting capacity allocated to retrocession, although it was not to the extent what has been initially anticipated. As it has been the case previously, increases in the cost of retrocession outpaced the upward movements in reinsurance pricing and reached double digits. While some buyers reshaped their retrocession strategy and opted for buying less protection, in general supply was enough to meet demand as many traditional reinsurers were willing to utilize higher levels of capacity in consideration of the favorable rating environment. Increased issuance of new cat bonds has been the other contributor which helped mitigating the pressure on retrocession rates. Europe As 2020 was another benign year in Europe in terms of natural catastrophe activity, Winter storm Ciara and flash floods which were triggered by record amounts of rainfall and impacted the Mediterranean coasts of France and Italy, stood out as the major natural disasters recorded during the year. Looking at the repercussions of the Covid‑19 pandemic in the region, losses reached substantial levels in Germany and Switzerland, mainly arising from the high level of non‑property damage Business Interruption coverage provided by some companies. On the other hand, in some other territories like Netherlands or Nordic Countries, Covid‑19 had almost no impact on property insurance. While Europe‑wide loss free cat programs experienced up to 5% price increases, price adjustments for smaller and regional programs remained at levels closer to the lower end of this range. On the other hand, for loss impacted cat programs, risk‑adjusted price increases changed between 5% to 10%. As far as risk programs are concerned, upward movements were capped at a maximum of 5% for loss‑free programs, while loss impacted programs saw 5% to 10% price increases.