MILLI RE 2023 ANNUAL REPORT

RISK MANAGEMENT PRACTICES d) Capital Investment Risk This risk expresses the loss that may arise in the value of capital investments or dividend income due to general market conditions, legislative amendments and/or to the problems in managerial or financial structure of the invested companies. Market values of the equities followed- up under financial assets held for trading account are evaluated on the basis of Borsa İstanbul (BIST) data, whereas available-for-sale financial assets are evaluated according to their fair values. Subsidiaries and affiliates are evaluated according to equity method. e) Real Estate Investment Risk This risk expresses the negative impact on assets which are sensitive to real estate prices, due to adverse movements or excessive volatilities in real estate prices or the sale of the real estates under actual value. Real Estate Investment Risk is monitored in accordance with valuation reports which are to be prepared in accordance with the related provisions of the legislation and taking into consideration the Company’s requirements and investment policies. Besides, by applying a defined downward stress on the expertise values, loss amount that may arise in the value of real estates and shareholders’ equity is monitored. Non-Financial Risks Operational Environment Risk This risk is defined as the risk of negative impact of external factors (political, economic, pandemic related, demographic etc.) of the Company’s operating environment, on the operational ability of the Company. Qualitative methods are used to measure this risk. The underwriting portfolio is monitored on country basis to see if there are any business acceptances from countries that are defined as “unapproved” due to political or economic conditions and also credit ratings of countries, generating the highest share of estimated premium income in respect of developing market acceptances are analyzed. Strategy Risk This risk arises due to the inefficient managerial and organizational structure of the Company, inability of the management to determine and/or develop effective strategies or non-disclosure and/or lack of implementation of these strategies, erroneous business decisions, and improper application of decisions or noncompliance with the changing market dynamics. Qualitative methods are used to measure the level of this risk. On the basis of “Self-Assessment Methodology”, “Questionnaire” and/ or “Interview” methods are used to determine the level of the risk as “High”, “Acceptable” or “Low”. Model Risk This risk expresses the probability of loss that may occur if the models that the Company uses within risk measurement processes are inappropriately designed or not properly implemented. In measurement and assessment process of Model Risk, “Questionnaire” and/or “Interview” methods are used on the basis of “Self-Assessment Methodology”, to determine the level of the risk as “High”, “Acceptable” or “Low”. Operational Risk This risk expresses the probable losses arising from inappropriate or inoperative business processes, human errors, technological or infrastructural interruptions, changes in management or processes, inaccurate internal/ external reporting or external factors occurring while Company conducts its vital functions necessary for the continuation of business, and inability to secure low cost and high efficiency as a result of business interruption due to disasters. Qualitative and quantitative methods are used together in measuring the operational risk. Factor Based Standard Approach is applied as a quantitative method. In this method, the required capital for operational risks is calculated by multiplying gross technical provisions and gross earned premiums by the factors in respect of the relevant lines of business. “Self-Assessment Methodology”, which allows determination of the risks related to activities conducted with the involvement of staff performing such activities, is applied as a qualitative method for operational risk. The level of the operational risk that the Company is exposed to is subsequently classified as “High”, “Acceptable” or “Low” depending on the result of the assessments. Reputation Risk This risk can be defined as the probable loss due to loss of confidence in the Company or damage to the “Company Reputation” resulting from failures in operations or noncompliance with current regulations. 84 MİLLİ RE