A. TABLE OF CONTENTS................................................................................................... 2 B. INTRODUCTION ............................................................................................................. 5 1. Summary of the consolidated financial results .............................................................................. 5 2. Macroeconomic environment in 2011 ........................................................................................... 6 2.1 Basic trends in the economy and rate of economic growth ..................................................... 6 2.2 Capital market .......................................................................................................................... 6 2.3 Monetary policy, interest rates, inflation .................................................................................. 7 2.4 Labour market and consumption ............................................................................................. 7 2.5 Foreign exchange rates ........................................................................................................... 7 2.6 Impact of macroeconomic factors on the insurance sector ..................................................... 8 2.7 Market shares of PZU, PZU Życie and PTE PZU ................................................................... 8 2.7.1 General insurance market ............................................................................................... 8 2.7.2 Property and other personal (non-life) insurance ............................................................ 8 2.7.3 Life insurance ................................................................................................................ 10 2.7.4 Pension insurance ......................................................................................................... 11 2.7.5 Investment funds ........................................................................................................... 12 2.8 Macroeconomic factors which will have an impact on PZU Group‟s operations in 2012 ...... 13 3. Organization scheme of the PZU Group ..................................................................................... 13 3.1 Organization of the PZU Group ............................................................................................. 13 3.2 PZU Group companies .......................................................................................................... 15 3.2.1 PZU ................................................................................................................................ 15 3.2.2 PZU Życie ...................................................................................................................... 17 3.2.3 PTE PZU ........................................................................................................................ 17 3.2.4 Lithuanian market .......................................................................................................... 17 3.2.5 Ukrainian market ............................................................................................................ 17 3.2.6 TFI PZU ......................................................................................................................... 18 3.2.7 PZU AM ......................................................................................................................... 18 3.2.8 PZU Pomoc SA .............................................................................................................. 18 3.2.9 Ogrodowa-Inwestycje Sp. z o.o. .................................................................................... 19 3.2.10 PZU CO ......................................................................................................................... 19 3.3 Changes in the organizational structure of the PZU Group .................................................. 19 C. FINANCIAL RESULTS OF THE PZU GROUP IN 2011 ................................................ 22 4. Events with a significant impact on the operations and results of the PZU Group in 2011 ........ 22 5. Commentary to the consolidated financial results of the PZU Group ......................................... 22 5.1 Premiums ............................................................................................................................... 22 5.2 Results on investing activities ................................................................................................ 23 5.3 Claims .................................................................................................................................... 24 5.4 Acquisition and administrative expenses .............................................................................. 25 5.5 Other operating income and expenses ................................................................................. 25 5.6 Results and business ratios of the PZU Group ..................................................................... 26 5.7 Analysis of assets and liabilities ............................................................................................ 27 5.8 Material off-balance sheet items............................................................................................ 28 5.9 Solvency margin .................................................................................................................... 28 5.10 Impact of one-off events on operating results ....................................................................... 29 5.11 Changes in investments in subordinated entities .................................................................. 30 6. Commentary to segment reporting .............................................................................................. 32 6.1 Property and personal (non-life) insurance ........................................................................... 32 6.2 Life insurance ........................................................................................................................ 37 6.3 Investment contracts ............................................................................................................. 40 6.4 Activities in the area of pension funds ................................................................................... 41 7. Risk factors which may have an impact on financial results in future periods ............................ 42 7.1 Property and personal (non-life) insurance ........................................................................... 42 7.2 Life insurance ........................................................................................................................ 43 7.3 Pension funds ........................................................................................................................ 43 8. Management position on the previously published forecast results............................................ 44 D. PZU GROUP‟S OPERATIONS IN 2011 ........................................................................ 45
Motor liability insurance 2 891 8 725 6 101 2 591 7 674 5 083 Other products 3 071 10 754 7 416 2 935 9 804 6 869
Due to the increase in rates and restructuring the quality of the motor insurance portfolio (speciically in the corporate client segment) and the absence of natural disasters which had such an impact on
The expected slowdown in the pace of economic growth with a possible insignificant deterioration on the labour market may have a negative impact on the demand dynamics for insurance products.
Warsaw 15.09.2004 100.00% 100.00% 100.00% 100.00% Purchasing, using, leasing and selling properties 9 Armatura Kraków SA
Armagor SA (until 5 April 2011: Armagor Sp. z o.o.) 1)
17 Omicron SA Warsaw 13.09.2011 100.00% N/A 100.00% N/A The Company does not conduct activities.
Warsaw 13.08.2004 100.00% 100.00% 100.00% 100.00% Managing the employee pension fund.
1. Accident insurance, including accident at work and occupational disease; Based on Shareholders Resolution on 8 March 2012, the Company has started liquidation on 16 March 2012.
The expected benefits for PZU Życie resulting from the transfer of COUW and part of Telecentrum to the external entity cover:  a reduction in operating expenses by concentrating on basic business operations;  the possibility of further optimizing activities related to the comprehensive servicing of insurance products by concentrating them in a specialized entity.
PLN 100 thousand which was registered with the National Court Register on 2 September 2011.
for the sale of Inter-Risk for a total of PLN 2,500 thousand.
Table 10: Analysis of gross written premium in the PZU Group
In the non-life insurance segment, the drop was related to a significant decrease in property insurance, and it resulted mainly from the absence of claims in respect of natural disasters which took place in 2010 (intense snowfalls in the 1 st quarter of 2010 and the flood in the 2 nd quarter of 2010).
Net cash from operating activities 1 587 572 469 423 238.2%
In 2011 acquisition costs in the non-life segment increased by PLN 28.3 million (+1.9%) compared with the prior year as a result of an increase in sales, changes in the structure of distribution channels
Funds and health insurance underwritten in group form. In individually continued insurance premium, dynamics were achieved mainly due to upselling additional insurance (the number of insured dropped, mainly in D-type closed portfolio of continued insurance). The significant premium dynamics in individual insurance was the result of:  developing a protection-linked savings and investment product with a regular premium “Plan na
(a technical loss in this group of investments) compared with the strong growth in 2010.
In the life insurance segment no one-off events were noted which would have a significant impact on the operating results of the segment either in 2011 or in 2010.
During the 12 months ended 31 December 2011, PZU did not conclude any insurance contracts for a sum of one net risk insured exceeding 25% of the total amount of technical reserves and equity.
In continued group and individual insurance additional insurance with Karta Apteczna (Pharmacy
 tools were implemented aimed at reducing the costs of technical IT infrastructure and increasing its reliability (such as the process of accelerating the wide area network, tools for monitoring the operations of critical systems, modernizing the data maintenance and backup system).
The key undertakings of TFI PZU in 2011 in the area of sales and marketing include:  actively acquiring employee pension schemes;
3. The equity and solvency margin are calculated in accordance with the prudence norms established for the Polish insurance market.
concluded or terminated loan agreements in 2011 with non-related entities in terms of equity. The table below present the total balance of loan agreements drawn, renewed and terminated.
PZU and PZU Życie is provided in the Consolidated Financial Statements of the PZU Group for 2011 –
By the date of preparing this Directors‟ Report of the PZU Group no contracts were concluded
Polish Insurance Association (“PIA”) which associates insurance companies operating on the
In accordance with the provisions of the Statute, the Supervisory Board convenes:  the Annual General Meeting when the Management Board fails to convene such Annual General
Code or the Statute. In accordance with the Statute, the resolutions of the General Meeting concerning the following matters require a qualified majority of three fourth of the votes: (i) changing the Statute, (ii) reducing share capital, (iii) selling and leasing out the enterprise or its business unit and establishing a limited property right on them. The resolutions of the General Meeting relating to preference shares and matters of the Company‟s business combination by transferring all its assets to another company or a merger by forming a new company, closing the Company (also as a result of moving its seat or main office abroad), its liquidation, transformation or reduction in share capital by cancellation of a portion of shares without at the same time increasing it, require a 90% majority of the votes cast.
Management Board of PZU was as follows:  Andrzej Piotr Klesyk – Chairman of the Management Board of PZU;  Witold Jaworski – Board Member of PZU;  Przemysław Dąbrowski - Board Member of PZU;  Tomasz Tarkowski – Board Member of PZU;
 Bogusław Skuza - Board Member of PZU;  Ryszard Trepczyński - Board Member of PZU.
Board who establishes the scope of responsibilities for individual Board Members. The resolutions of the Management Board are passed only in the presence of the Chairman of the Management Board or a person appointed to direct the work of the Management Board in his absence, and if at least one half of the Management Board Members are present at the meeting. The resolutions of the Management
In accordance with the Rules and Regulations of the Management Board, the Board's meetings are held not less frequently than once every two weeks. The work of the Management Board is directed by the Chairman, whose competencies include in particular:  establishing the scope of responsibilities for individual Board Members;  convening the Management Board meetings;  drawing up the agenda for Board meetings;  applying to the Supervisory Board to appoint or dismiss members of the Management Board;  appointing a person to direct the work of the Management Board in the absence of the Chairman of the Management Board.
Company, and an annual report on the activities of the Supervisory Board;  concluding, terminating and amending contracts with the Management Board members and establishing the principles for their remuneration as well as the level of remuneration;  appointing, suspending and dismissing the Chairman of the Management Board, the Management
Supervisory Board's approval;  delegating members of the Supervisory Board to temporarily perform the duties of the
The amendments in question are aimed at dividing the competences in this respect between appropriate PZU's bodies and at eliminating interpretation differences which may occur due to the fact that there no clear instructions specifying if the amount of the transaction includes the VAT.