Corporate governance 167 9.1 Corporate governance principles applied by PZU 168 9.2 Application of Best Practices of WSE Listed Companies 168 9.3 Application of Corporate Governance Rules for Regulated Institutions 169 9.4 System of control in the process of preparing financial statements 170 9.5 An auditing company that audits financial statements 172 9.6 Share capital and PZU shareholders; shares owned by members of its governing bodies 172 9.7 PZU’s Articles of Association 174 9.8 Shareholder Meeting, Supervisory Board and Management Board 174 9.9 Compensation of the members of governing bodies 193 9.10 Diversity policy applied to the issuer’s administrative, managing and supervising bodies 198
The robust conditions on developed markets supported valuations on emerging markets where Poland was one of the largest beneficiaries. WIG20 ranked in the top five fastest-growing
Long-term partnership Comprehensive offer based on client knowledge and their real needs Unparalleled risk management advice for clients
In 2017, the Polish stock market was one of the fastestgrowing equity markets in the world. In 2017 the WIG index rose 23.2%, while the WIG20 index shot up 26.4%. Faced with the acceleration of global economic growth, declining political risk in Europe and the improvement of economic conditions in Poland, at the beginning of the year we observed increases in all major stock market indices in Poland. Starting roughly at the beginning of the second quarter, certain differences appeared in the paths followed by large and small cap indices. While the large cap index WIG20 gained 13.11%
Group, the asset manager role will be played by TFI PZU on the basis of the newly-established Umbrella Fund consisting of defined date sub-funds and specialized sub-fund clones from the TFI’s current offer.
PZU Ukraine Kiev - Ukraine PZU – 83.2292% PZU Życie – 0.00397% PZU Ukraine Life – 16.7668%
Asset Management S.p.A. The total value of the transaction is EUR 140 million. The agreement was finalized on 11 December. As a result, the bank became PPIM’s sole shareholder. SECTION 3.4 BANKING.
Source: PFSA (www.knf.gov.pl). Quarterly Bulletin. Insurance Market 3/2017, Insurance Market 3/2016, Insurance Market 3/2015, Insurance Market 3/2014, Insurance Market 3/2013.
insurance of PLN 1,153 million, in the class of motor own damage insurance of PLN 296 million and assistance services of PLN 31 million made the largest contribution to this change.
PZU Życie’s share in periodic gross written premium was at the end of Q3 2017
PZU Group’s operations terms of products and processes, which turned LINK4 also into a perceived leader in the area of innovations.
Cash Back] deployed in cooperation with NaviExpert, aimed at promoting and rewarding a safe driving style.
and LINK4Dziecko [Link4Child] bundles addressing specific risks related to consequences of accidents and third party liability – insurance offered in cooperation with PZU
(up PLN 446 million, i.e. 8.0% y/y). The growth rate for the corresponding period of 2016 was negative at -34.1%. The single premium cumulative average growth rate in the period under analysis was -17.0%. The changes in circumstances on the capital market and in the legal environment should be considered to be the underlying causes for the gross written premium on single premium business to fall in recent years.
The outcome of this market evolution over several years was the expanding significance of periodic premium that constitutes PZU Życie’s competitive advantage on the market.
Changes in the product offering are intended to attract new clients and expand the insurance cover for those already in the portfolio, along with strengthening their loyalty and increasing their satisfaction level. Concurrently, the changes in the offering take into account the changing requirements of the regulatory authority and the growing extent of statutory consumer protection. It should also be pointed out that in many cases such changes are made not only to the product itself but also entail the modernization and simplification of
MEDICAL SERVICES (HEALTH AREA): • introducing an offering dedicated to VIP clients based on the PZU Group’s extensive spectrum of products and enabling an effective relationship management in this segment. As part of this offering, the following types of insurance products were proposed to the clients: outpatient insurance, hospital insurance, medicine insurance, PZU
In the area of unit-linked insurance, the following changes, among others, were introduced in 2017: • a new unit-linked insurance product with a single premium called Multi Kapitał [Multi Capital] was launched in collaboration with Alior Bank; • also launched to sales was a modified PZU IKZE individual unit-linked life insurance product. This product was made more attractive by extending the range of available benefits through adding an accidental death benefit; • 7 subscriptions of the structured insurance product known as Świat Zysków (World of Profits) that has enjoyed tremendous client interest were sold. Various investment strategies that adapt to volatile market conditions were offered in the individual subscription tranches, based on various models of calculating the investment bonus; • a Key Information Document (KID) was drafted and implemented into the product distribution process in accordance with the objectives pursued by the PRIIP
Pekao’s growth strategy while retaining the bank’s current low risk profile, robust level of profitability and stable long-term dividend payout policy.
• Operational synergies: Cost synergies were implemented in the areas of IT administration and security that have a real impact on the costs of PZU and Bank Pekao.
guaranteeing 80% of the principal and interest on the loans for such clients. In addition, the Bank actively participates in the de minimis guarantee program for micro and small businesses, managed by BGK.
of shares in the share capital and in the total number of votes at the General Meeting of PIM. As a consequence,
AAS Balta had a share of the Latvian non-life insurance market at the end of Q3 2017
As at 31 December 2017, Alior Bank catered to 3.8 million retail clients. The increase in the number of clients in 2017 resulted from Alior Bank’s organic growth and merger with the spun-off portion of Bank BPH.
• In addition, in 2017, Alior Bank finalized the take-over of the assets of the spun-off portion of Bank BPH. Between 24 and 26 March 2017 it completed the last stage of the merger of the two banks – operational merger, involving transfer of data of over 2,700 thousand clients from the acquired portion of Bank BPH to Alior Bank’s IT systems.
Alior Bank also cooperates with PZU Group entities to realize cost and revenue synergies. This cooperation may pertain,
limiting the tax relief to EUR 2 thousand as of the beginning
The biggest share in the non-life insurance market share, measured in terms of gross written premium, was captured by motor insurance, whose market position was additionally strengthened by a price increase in the market. MOD
In 2017, there were 11 insurance companies operating in the domestic non-life insurance market and 64.9% of the market was in the hands of the biggest 4 insurers.
EUR 336 million, EUR 89.4 million, i.e. 26.6%, of which was accumulated by foreign insurance companies conducting operations in Estonia.
Draudimas, which, as of May 2015, is the owner of the PZU
IC PZU Ukraine Life (a life insurance company), referred to as “PZU Ukraine Life”. In addition, LLC SOS Services Ukraine performs assistance functions.
Sales of group life and health insurance constitutes the basis for the business operations of the PZU Group Health Area.
rider to group life insurance; access to rehabilitation services in case of serious disease rider to group life insurance; access to rehabilitation services in case of road accident or accident during job
At the end of 2017, the net asset value of open-end pension funds was nearly PLN 180 billion, up 17.0% with respect to the end of the previous year.
PZU’s philosophy of thinking about clients constitutes a departure from the classic model of an insurer’s client relations rooted solely in sales and after-sales service. PZU’s goal is to establish and maintain relations by delivering products well-matched to clients at the appropriate time and place so as to ensure at the same time that the product’s attributes (including its price) are aligned to client needs.
Impact exerted by Employee Capital Schemes on Poles’ levels of savings
7. Kick-off of preparations to modify PZU’s offer with an eye to the future changes to the pension system (Capital Accumulation Program).
Banking 1. On 7 June 2017, PZU and PFR finalized the deal to acquire a 32.8% equity stake in Bank Pekao SA for a total amount of PLN 10.6 billion. The price per share was PLN 123. It was one of the largest transactions in the European banking sector in recent years. This strategic investment has enabled PZU to become the largest financial group in Poland and Central and Eastern Europe.
8. EFMA, a European organization conferred the Insurance Innovation of the Month award to PZU. Poland’s largest insurer was recognized for its innovative method of catering to the needs of deaf and hard of hearing clients. PZU was the first company in Europe to launch three party video connections via the web with a sign language consultant in 2017.
Business Centers and 638 partner outlets). The bank’s products were also offered in the chain of 10 Mortgage
Internet banking, to enter into agreements for: savings and checking accounts, currency accounts, savings accounts, deposits, debit cards and brokerage accounts. These channels are also used to accept applications for credit products: cash loans, credit cards, overdraft limits and mortgage loans. Using the Internet, the bank also offers installment loans in an online process and offers services of a currency exchange office.
In this chapter: 1. Major factors contributing to the consolidated financial result 2. PZU Group’s income 3. PZU Group’s claims paid and technical provisions 4. PZU Group’s acquisition and administrative expenses 5. PZU Group’s asset and liability structure 6. Contribution made by industry segments to the consolidated result 7. PZU’s performance (Polish GAAP)
In 2017, the balance of other operating income and expenses was negative and stood at PLN 1,559 million, compared to the balance in 2016, which was also negative at a level of PLN 724 million. The following contributed to this result: • levy on financial institutions – the PZU Group’s liability on account of this levy (in both insurance and banking activity)
PLN 9,567 million, including: ◦ PLN 3,821 million on bonds, of which EUR 850 million are Eurobonds issued via the wholly-owned subsidiary
The balance of the PZU Group’s contingent liabilities consisted in particular of PLN 14,536 million in contingent liabilities by virtue of overdraft limits and credit cards, PLN 29,586 million in tranche-based loans and PLN 7,574 million in awarded guarantees and sureties.
◦ lower premium in the group of accident and other insurance, in particular various financial risks as a consequence of the termination of cooperation with a large strategic partner.
In 2017, Pekao has contributed PLN 1,750 million to operating profit (without amortization of intangible assets acquired as part of the Pekao acquisition transaction) in the “Banking activity” segment and Alior Bank contributed PLN 737 million.
In 2017, PZU’s administrative expenses were at PLN 693 million, which was 4.3% lower than in the prior year. Their level was driven primarily by maintaining the cost discipline in current activities and optimization of the costs of project activity.
My passion has taught me that you have to rely on your team, whether in private life or at work. When I see “jump”, I never think in the category of “me” as a single person. It is not possible to achieve anything in this sport if you act alone.
(in particular in the reinsurance area) and the security management system.
The major risks to which the PZU Group is exposed include the following: actuarial risk, market risk, credit risk, concentration risk, operational risk and compliance risk. The major risks associated with the operation of Alior Bank and Bank Pekao include the following risks: credit risk, operational risk and market risk (involving interest rate risk, FX risk and commodity price risk). The overall risk of the banking sector entities accounts for approximately 32% of the PZU Group’s total risk, where the largest contribution is in credit risk.
The process of managing the credit spread risk and concentration risk has a different set of traits from the process of managing the other sub-categories of market risk and has been described in a subsequent section (Market and concentration risk) along with the process for managing counterparty insolvency risk.
Concentration risk is the risk of a loss resulting from the absence of diversification of a portfolio of assets or from a significant exposure to the risk of default on a liability by a single issuer of securities or a group of related issuers.
Management actions involving reactions to any identified and assessed operational risks involve, in particular: • risk mitigation by taking actions aimed at minimizing risks, for instance by strengthening the internal control system; • risk transfer – in particular by entering into insurance agreements; • risk avoidance by refraining from undertaking or withdrawing from a particular type of business in cases where too high a level of operational risk is ascertained and where the costs involved in risk mitigation are unreasonable; • risk acceptance – approval of consequences of a possible realization of operational risk unless they threaten to exceed the operational risk tolerance level.
The fundamental measure of foreign exchange risk in both banks is the Value at Risk (VaR) model to designate the potential value of a loss on currency positions due to changes in exchange rates, while maintaining the assumed confidence level equal 99% and the period in which the position is kept.
Alior Bank Group – total Tier 1 capital adequacy ratio *unaudited data **as at the end of 2017
In 2017, investors continued to focus their attention on central banks which, in line with expectations, kept applying an accommodative monetary policy in an environment of weak inflation. However, in contrast with the previous year, the financial markets did not undergo any serious turbulence associated with greater risks resulting from geopolitical tensions. A series of elections in key European Union countries brought outcomes suppressing the risk of disintegration of the EU and the euro area, and the last months of the year were marked by a declining risk of a ‘hard Brexit’. Nor did the concerns about a significant increase in protectionist policies in the global economy materialize. Of only minor importance to the financial markets were such events such as the proclamation of independence by Catalonia or the escalation of the nuclear program in North Korea. As a result, the economic context fostered many asset classes, and above all equities.
since the beginning of the year, compared to 18.1% growth of the WIG20 index. This situation persisted for most of the second half of the year. It was not until Q4 2017 that PZU’s shares began to slide towards the main market index. As a result, the rates of growth in WIG20 and PZU’s share price
The share price increased by nearly 20% in just two weeks, outperforming the WIG and WIG20 indices hands down. In this period, the trading volumes reached 5 million shares per day, which was almost three times more than the daily average.
Capital market ratios for PZU’s shares 2017 2016 2015 2014 2013
In 2017, under these programs, Alior Bank effected the following issues: • On 11 August 2017, Alior Bank issued bonds with a nominal value of PLN 250 million in a private issue of ordinary bonds. The bonds are unsecured and bear interest at a floating interest rate based on WIBOR 6M plus a margin of 1.19%. The final maturity of the bonds will be 11 August 2020.
• On 20 October 2017, Alior Bank issued series K and K1 bonds with a nominal value of PLN 400 million and PLN 200 million in a private issue of subordinated bonds. The bonds are unsecured and bear interest at a floating interest rate based on WIBOR 6M plus a margin of 2.7% with a maturity of eight years. However, the Bank may exercise an early repayment option five years after the date of issue.
PZU greater than 5% was the State Treasury of the Republic of Poland (34.2% of the share capital) SECTION 9.6 PZU’S
According to a survey carried out at the end of 2017, PZU’s shareholder structure remained stable and diversified, with a slight increase in the share of foreign investors (+1.3 p.p.).
PZU’s investor relations activities are highly regarded by investors, analysts and the media. In 2017, PZU received the following prizes and distinctions in this area: • award for the highest usefulness of an annual report among banks and financial institutions in the Best Annual
European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (“Solvency II”), as amended, the Insurance and Reinsurance Activity Act of 11 September 2015 and the
Book value per share and gross accumulated dividend per share in PZU (PLN) (2010 - 2017)
long- and short-term foreign currency sovereign credit ratings and ‚A-/A-2’ long- and short-term local currency sovereign credit ratings on Poland.
Credit rating A- /Stable/ 27 October 2017 A- /Negative/ 31 October 2016
On 5 February 2018, Fitch Ratings Ltd. affirmed the entity rating for Alior Bank S.A. at BB, while it changed the outlook from stable to positive.
The set of principles expressed in the Best Insurance Practices adopted on 8 June 2009 by the General Assembly of the
Furthermore, the following rules are not applicable to PZU: • principle I.Z.1.10, providing for the publication of financial projections, if the company has decided to publish them, published at least in the last 5 years, including information about the degree of their implementation, because, as at the date of publication of this report, PZU has not published any financial projections or estimates; • principle III.Z.6., concerning cases of non-separation of an internal audit function within the company’s organizational structure, because this function has been separated in
The PZU Supervisory Board appoints the Audit Committee composed of three Supervisory Board Members. The majority of Audit Committee Members, including the Chairperson, satisfy the independence criteria defined in the Act on
◦ o lending for use agreements and other agreements to hand over an asset to other entities for gratuitous use, the market value of the subject matter of a legal act is defined as the value of benefits that would be due if a lease or rental agreement was executed instead, for: - one year – if the asset is handed over under an agreement signed for an indefinite term, - the entire term of the agreement – in the case of agreements signed for a definite term,
The current term of office of the PZU Supervisory Board started on 1 July 2015 and will end after the elapse of three full financial years. 2016 was the first full financial year of this term of office. The mandates of members of the Supervisory
Duda in 2015-2016. He has many years of experience in company law and corporate governance also gained in supervisory bodies in commercial law companies, among others, KGHM
In the Supervisory Board since 12 April 2017, she served as the Supervisory
State Treasury’s monopoly in number games and cash lotteries. From March 2017
Board; • examining and issuing opinions on matters submitted by the Management Board for deliberation at the Shareholder
The detailed tasks and terms and conditions of appointing members of the audit committee and its operation are specified in a resolution of the Supervisory Board which takes into account the relevant competencies and experience of candidates for members of the committee.
Śnitko as a Committee Member. Following this change, the composition of the audit committee was as follows: • Bogusław Banaszak – Committee Chairman; • Marcin Chludziński – Committee Member; • Robert Śnitko – Committee Member.
Accordingly, from 23 March 2017 the Management Board composition was as follows: • Marcin Chludziński – temporarily seconded to discharge the function of President of the Management Board; • Roger Hodgkiss – Management Board Member; • Andrzej Jaworski – Management Board Member; • Tomasz Kulik – Management Board Member; • Maciej Rapkiewicz – Management Board Member.
Management Board and entrusted her with acting in the capacity of Management Board Member.
Corporate governance work of the Management Board is headed by the President of the Management Board whose powers include in particular: • defining the scope of responsibility of each member of the
Management Board may be held using means of direct remote communication.
During martial law in Poland, she was associated with the underground publishing house “Wola”.
Including bonuses and special awards: Including bonuses and special awards: 1) in 2016 the remuneration is only received from PZU Życie, the amount presented in the next table 2) including remuneration resulting from competition prohibition clause of PLN 600 thousand 3) including remuneration resulting from competition prohibition clause of PLN 276 thousand 4) including remuneration resulting from competition prohibition clause of PLN 55 thousand 5) including remuneration resulting from competition prohibition clause of PLN 111 thousand 6) including remuneration resulting from competition prohibition clause of PLN 332 thousand 7) including remuneration resulting from competition prohibition clause of PLN 55 thousand 8) including remuneration resulting from competition prohibition clause of PLN 312 thousand 9) remuneration for the period of performing the function of the PZU Group Director until April 12, 2017 10) including remuneration for the Advisor to the Management Board of PZU: PLN 345 thousand PLN in the period of April 24, 2016 - October 31, 2016 11) including remuneration resulting from competition prohibition clause of PLN 371 thousand 12 including remuneration resulting from competition prohibition clause of PLN 312 thousand
Under the tax group agreement, PZU is the parent company representing the tax group. Pursuant to art. 25 sec. 1 of the
PLN 403 million of this amount pertains to the Issuer’s accounts receivable, representing 22.6% and 3.0% of its equity, respectively, according to PAS).
A weekend concert tour is a wonderful way of spending leisure time! After a couple days expending so much effort, it is very pleasurable to sit down at my desk on Monday. My passion for the guitar is well aligned to my work. The key is to keep a good daily planner: when the quantum of “experiences” reasonably dovetails with temporal possibilities, one can function in such a rhythm without any difficulty.
Basic and diluted PZU Group’s profit per ordinary Issuer’s share (in PLN) 3.37 2.24 2.71 3.44 3.81
Data from the profit and loss account – Ukraine segment (PLN million) 2017 2016 2015 2014 2013 * ratios calculated with net premium earned
Data from the profit and loss account – investment contracts (PLN million) 2017 2016 2015 2014 2013
credit scoring – method for assessing the credibility of an entity (usually a natural person or a business) applying for a bank loan. The result of credit scoring is ordinarily presented in the form of a score – the higher the number of points, the greater the credibility of a prospective borrower sell side – part of the financial sector involved in creating, promoting and selling equities, bonds, foreign currencies and other financial instruments; it includes investment bankers who act as intermediaries between securities issuers and investors as well as market makers who provide for liquidity on the market. Sell-side analysts release research reports with investment recommendations and daily comments for the buy side, i.e. for asset managers. Research reports pertain to companies that are already public and to companies that are being floated on an exchange or that are conducting additional rights offerings gross written premium – a gross amount of premiums