4.4. Strategy of PZU Group for the years 2015-2020 – PZU 3.0 Strategy 63 4.5. Development strategy of PZU Group on individual markets 67
Risk management 97 7.1 Objective Risk management 98 7.2 Risk management system 98 7.3 Risk appetite 99 7.4 Risk management process 101 7.5 Risk profile of PZU Group 101 7.6 Sensitivity risk 105 7.7 Reinsurance operations 106 7.8 Capital management 107
Corporate social responsibility 127 9.1 Client relations 128 9.2 Ethics in action 129 9.3 Employees involvement 130 9.4 Social activities for the benefit of the community 131 9.5 Volunteers among PZU Group employees 133 9.6 Environmental impact 134
agents in the tied agent network share in non- life insurance market in Poland after Q3 2014 share in life insurance market in
Ranked 1st in Poland in terms of gross written premium in life insurance customer satisfaction rating with the claims handling process 13.1%
Ranked 1st in Poland among mutual fund companies, by net assets value combined ratio (COR) in non-life insurance return on equity
On behalf of the Management Boards of PZU Group companies, I hereby present the Management’s Report of PZU
The period for the realisation of PZU Group’s strategy for the years 2012-1014 focusing around PZU 2.0 concept is now over. The strategy defined the vision of PZU development.
PZU Group expanded internationally and became a leader in Central and Eastern Europe through the acquisitions of considerable assets of RSA Insurance Group. The acquisitions
This was another consecutive year which saw the rise of PZU insurance sales.
CEO Statement 6MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
The net investment result is also consequently growing. In 2014, it amounted to PLN 2,733.5 million and was 8.7%
higher than in 2013. Moreover, revenues from fees and commissions grew by 17.2%.
and was only 1.5 p.p. lower than in the record-setting year of
In the upcoming years 2015-2020 we will focus on the realisation of PZU 3.0 strategy. Its main goals include taking
At this point, I would like to thank our employees and agents for their efforts in building PZU value.
The year 2014 also saw the development of several procustomer solutions. In April, PZU Group introduced the direct claims handling service, a breakthorugh in the Polish market.
Another noteworthy event was the record-setting issue of bonds valued at EUR 500 million. This operation was an important element of PZU Group’s asset and liability management strategy.
Last year, PZU Group’s net income reached PLN 2,968 million despite the unfavourable economic and regulatory conditions which led to the increase in claims and benefits and certain provisions. Other factors with considerable impact on result during the year were the increase in the net investment result and slightly declined profitability of the insurance business.
Dear All, 2014 was another year in PZU Group’s history which saw its leadership in the dynamic domestic and regional insurance market. The past 12 months were also the final stage of the realization of PZU 2.0 strategy assumed for the years 20122014 and crowned with success.
The granted “A” category for stable perspectives confirm the excellent financial conditions of both entities.
I would like to thank the Management Boards and employees of PZU Group for their vision, commitment, and effective work which build the measurable value of the PZU brand. We hope that the first signs of economic improvement that appeared in 2014 will continue this year. This concerns GDP growth, dropping unemployment, or household consumption. This will create even better conditions for the development of all
number 1 insurer in Poland and the market leader in non-life insurance in Lithuania and Latvia
We are the number 1 insurer in Poland and the market leader in non-life insurance in Lithuania and Latvia
The Capital Group of Powszechny Zakład Ubezpieczeń Spółka Akcyjna (PZU Group) is one of the largest financial institutions in Poland and in Central and Eastern Europe. PZU is its leading insurance company. Offering a comprehensive range of insurance services, PZU Group satisfies the fundamental needs of 16 million customers in Poland in the area of security and stability. PZU Group is also an important player in other segments of the Polish financial market, such as investment fund companies, open pension funds, and employee pension plans. With each year, PZU Group expands its operations in Central and Eastern Europe. In 2014, PZU Group became the leader of the non-life insurance market in Lithuania, Latvia, and Estonia thanks to the acquisition of big local insurance companies.
Number one in the ranking of mutual fund companies – share in net assets value
Group) is one of the largest financial institutions in Poland and in Central and Eastern Europe. It is headed by a Polish insurance company, PZU SA (PZU, Issuer).
PZU Group is also an important player on other segments of the Polish financial market, such as investment fund companies, open pension funds, and employee pension plans.
Eastern Europe. In 2014, the Group became the leader of the non-life insurance market in Lithuania and Latvia thanks to the acquisition of large local insurance companies. The organic development also strengthened its position on the fragmented
Group’s Capital and Dividend Policy for the Years 2013–2015, which was adopted in August 2013 and updated in May 2014, is to reduce the cost of capital by optimizing the balance sheet structure through the conversion of equity to cheaper external capital, while maintaining a high level of security and development funding.
In 2014, PZU Group released bonds in the amount of EUR
500 million in scope of optimising the financing and currency structures.
PZU Group’s products accompany individual customers at every stage of life and every stage of development of companies. PZU Group not only provides comprehensive insurance coverage in all major areas of private, public and business life, but also offers various forms of increasing savings, including the accumulation of funds for an additional retirement income. PZU Group is an innovator on the Polish financial market. It also offers a continually expanding range of health care services.
PZU Group also supports the Polish economy as it insures big infrastructural projects such as investments in the energy industry, construction and modernisation of railway lines.
It is a precursor in the development of healthcare insurance and was the first to introduce medicine insurance to the
414 branches, 9.1 thousand exclusive agents, 3 thousand multiagencies and electronic distribution channels (call centre, the Internet). It is also implementing a modern IT system, with a view to building closer relationships with the multimillion group of its customers.
Promoter Score) among customers who experienced the claims handling process or received a payment of benefits, was as high as 26%. As many as 49% of customers indicated that they are active promoters of PZU.
The financial results achieved by PZU Group in recent years place it among the most profitable financial institutions in the country. They simultaneously contribute to high performance ratios. In 2014, the return on equity was 22.6%. In 2014, the combined ratio (COR) GLOSSARY for non-life insurance was 95.7%.
obtained from the mass market (non-life insurance) and group insurance customer (with moderate sum of insurance).
Asset management – thanks to its offer of products with above-average investment results, PZU Group will become the leader in customer asset management in Central and
Eastern Europe. It will retain the leading position on the Polish investment fund market and intends to hold at least 11.5%
of shares in fund management companies’ assets by the year 2020 (excluding PZU Group’s assets held in investment funds).
Health care – PZU Group intends to become the biggest integrated operator for coordinated health care on the
Polish market. The complex offer will cover ambulatory care, prevention, hospitalisation, rehabilitation, and long-term care.
The high operating effectiveness will increase the value for the stockholders. Despite operating under the conditions of low interest rates with an unfavourable effect on investment activity, the 2020 rate of return on equity will be 20%.
PZU Group entities have a common operating philosophy, which stresses the following three basic values: • We are Fair.
The CSR GLOSSARY activities undertaken in support of the business objectives apply to the following areas: Client relations – the Group enforces the Good Practices in PZU code, which establishes the standards for ethical business operations. In order to learn the needs and opinions of the clients, we conduct surveys, take advantage of social media, analyse complaints, and conduct quality audits of our communication with the clients.
Activities for the community and hence concern for financial awareness and comprehensive safety.The Group sponsors numerous education-oriented ventures, such as Akcjonariat
Employee relations – building performance-oriented organizational culture. The year 2014 included the commitment survey among the employees. The results of this survey serve as the foundation for the development of the
Otwarte PZU, TalentUp oraz SmartUp are the three main programmes for the Group’s employees. Beside recognising employees with high development potential, they promoted
At the end of 2014, PZU Group employed approximately 16.1 thousand employees calculated as FTEs (including 7.96 thousand in PZU and 3.34 thousand in PZU Życie). Significant increase in FTE results from M&A in 2014 of insurance companies in Baltic States and in Poland.
PZU’s share price listings between the IPO on the Warsaw Stock Exchange (12.05.2010=100) and 31.12.2014
PZU TSR PZU WIG stoxx europe 600 insurance 45.2% of shareholder return comes from dividends (to date PLN 143.04 per share)
54.8% of shareholder return comes from share price growth, PLN 173.50 per share
November The end of the process of purchasing insurance companies: • In Baltic states: the Lithuanian market leader - Lietuvos Draudimas AB and the Lativian market leader - AAS Balta and the Estonian branch of Codan Forsikring A/S
PZU: Gross written premium (according to IFRS) at PLN 8,261.8 milion, i.e. decrease of 0.1% in relation to 2013. Decline in MTPL premium and considerable increase in non-motor premiums.
Gross written premium (according to IFRS) at PLN 7,807.7 million. Increase by 0.8% in relation to 2013 in the conditions of declining single premium (by 6.6%). Withdrawal of the Plan na Życie savings product with a protection component and regular premium and the MegaZysk and Polisa Oszczędnościowa single premium insurance constituting investment contracts.
Life insurance market share of 29.1%, including 42.9% in regular premiums (after three quarters of 2014).
Stable growth in group and individually continued premiums of 1.9% y/y, because of an increasing number of insured, as well as a rise in the average premium, additionally supported by additional sales of profitable riders.
Maintaining the leading position on the market of Employee Pension Programmes, registration of ten new and acquisition of five EPPs.
Cooperation with approximately 1,380 health care centres (compared to 1,050 at the end of 2013).
Providing general health care services for the population of Płock, Włocławek, and Upper Silesia in scope of contracts with NFZ (National Health Fund).
Offering health care to the Tauron Group and the PKN Orlen Group and sanatorium care in Ciechocinek and Ustroń.
Lithuania: In 2014, PZU Lithuania collected premiums in amount of 53.3 million EUR (third on the market with share of 13.8%). The acquired Lietuvos Draudimas AB held a 30.9% market share (the entity enters PZU Group in the end of 2014). According to the recommendations of the Lithuanian authority, on 2nd February of 2015 PZU Group entered a conditional agreement for the sale of PZU Lithuania to the Norwegian insurance company Gjensidige Forsikring ASA. In 2014, PZU Lithuania Life collected premiums in amount of EUR 8.9 million (4.1% share in the life insurance market).
Latvia: In 2014, PZU Group operated through the PZU Lithuania branch and AAS Balta, which entered the Group in June of 2014. In 2014, the share of AAS Balta in non-life insurance market was 22.9%. The total gross written premium of both entities was EUR 61.2 million. From the time it joined PZU Group, ASS Balta generated the gross written premium of EUR 28.9 million.
Setting up of own fleet of replacement cars composed of 300 hybrid vehicles.
Establishment of the Assistance to victims of accidents (Organizatorzy Pomocy Poszkodowanym w Wypadkach).
Net profit at PLN 2,967.6 million, i.e. 9.9% lower than in 2013, mainly due to the rise of paid claims and benefits.
Return on equity 22.6% – a decline of 1.5 p.p. compared with 2013.
The average Pole spends 5 times less on insurance than the average
Contents: 1. Main trends in the Polish economy 2. Situation on the financial markets 3. Insurance sector compared with Europe 4. Regulations on the insurance market and financial markets in Poland 5. External environment in Ukraine and the Baltic States 6. Macroeconomic factors which can affect the operations of the Polish insurance sector and PZU Group’s activities in 2015
The stimulation of the domestic demand resulted in a significant growth of import. In effect, with the negative consequences of the Russian-Ukrainian conflict on the Polish export, the impact of net export on the GDP growth was clearly negative in 2014. However, it should be highlighted that despite the issues concerning export to the eastern markets and the relatively weak economic condition in the Euro zone states, the export dynamics improved. The declining export to Russia and Ukraine was compensated by the growing export to other markets.
(CPI) in the second half of the year. With consideration of the price changes, the average monthly remuneration in the national economy was 3.4% in 2014 in comparison to 2.8%
the year before. The average monthly real dynamics of the remuneration fund in the business sector in 2014 was 4.5%
GDP in Poland in 2014 Unemployment rate in Poland at the end of 2014
Foreign trade balance GDP growth 24MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
+0.6 p.p. y/y gross disposable income growth in 2014 was considerably higher than in 2013. The consumer financial condition indicators also systematically improved.
In 2014, the annual average consumer price index (CPI) did not change in comparison to the 0.9% growth in 2013. The annual consumption index has remained negative from July 2014, reaching -1.0% y/y in December.
Such strong inflation decrease in 2014 resulted mainly from supply factors – primarily the dropping global petroleum prices and the visibly dropping food prices. At the same time, the demand and remuneration pressure on price growth continued to be very weak with the import of low inflation from abroad.
In the first half of the year, the Monetary Policy Council announced that the interest rates would likely be maintained at the same level, but abandoned any form of forward guidance at the July session as the interest rates remained the same. In October, the Monetary Policy Council lowered the reference rate by 50 base points to 2.0%. Additionally, the Council narrowed down the interest rate corridor and set its bottom limit – the rate of interest on the deposits placed by banks in the NBP – at 1%, simultaneously lowering the top limit – the rate of Lombard credit – by 1 percentage point to 3.0%. The promissory note rediscount rate was reduced correspondingly to the reference rate – by 0.5% to 2.25%.
Furthermore, the interest rate for the obligatory provision funds, which had previously constituted 0.9% of the NBP
Poland had no problems in obtaining debt financing – 30% of borrowing needs planned for 2015 had been financed at the end of 2014.
The main trends of the global financial markets were strongly associated with the development of the economic situation in the USA and the Euro zone and with their central banks – the
CPI in Poland as at the end of 2014 Real growth rate of salaries in Poland in 2014
The USA stock market saw a much more significant growth trend than the Euro zone, especially in the second half of 2014 – which was a reflection of the relative condition of the economies of the two regions and the impact of the Russian-
In 2014 Polish treasury bond yield curve clearly dropped, especially concerning bonds with longer maturity periods. The difference between the yields of 10-year and 1-year treasuries dropped by approximately 100 basis points. The declining yields in Poland were corresponding to the European trend.
This was also influenced by the strong drop of the inflation rate in Poland. The 2014 lowering of the NBP reference rate in 2013 was an important factor in the decline in the yields of shorter maturity instruments. For 1-year instruments, this decline amounted to approximately 90 basis points. The 5-year and 10-year bond yields dropped in 2014 by 120 and 150 basis points respectively.
361.8 (i.e. PLN 1,503.1), 5 times less. Almost 60% of the premiums of the average European and 54% of the average
2.4 Regulations regarding the insurance market and financial markets in Poland
On 11 March 2014, the European Parliament passed the socalled Omnibus II Directive, which modifies the regulations of the Solvency II Directive (2009/138/EC concerning the taking-up and pursuit of the insurance and reinsurance business). One of the key elements was the authorisation of the European Commission to pass legally binding acts of the so-called level 2 and 3 in scope of the Solvency II system.
An important document in the Solvency II system is the level 2 delegated act, i.e. the Delegated Resolution of the
Solvency II Directive, which will be enforced from 1 January 2016 and partially already from 1 April 2015. Furthermore,
Insurance Activity GLOSSARY in connection with the implementation of Solvency II.
Furthermore, the act refers to the remuneration for insurance agents and surrender fees for unit-linked products and structured products. While setting the remuneration of the agent, an insurance company should follow the rule of even expense distribution of insurance agent’s commission over time. The act provides the right to withdraw (apart from the right to withdraw provided for in the Civil Code GLOSSARY)
Institutions under supervision may not follow the Principles but if the company fails to implement any of the principles, either permanently or incidentally, it is obliged to inform the market of this fact and justify reasons for non-implementation of a given principle.
Other than the work on implementing the requirements of the Solvency II Directive, there was also work on other regulations, which had or will have impact on the operations of PZU Group. Some of them are listed below: The Act on the amendment to certain Acts in connection with the specification of the principles of paying out pensions from the funds collected in open pension funds of 6 December 2013, which has been in force since 1 February 2014, while some of the provisions, including those regarding the
as at 31 January 2014, was transferred to ZUS. After the redemption of the bonds (effective from 4 February 2014), these funds will be recorded on sub-accounts at ZUS on 31 March 2015, where they will to be indexed and inherited, just as the remaining funds on these subaccounts. Additionally, from 3 February 2014, pension funds must not invest in both treasury debt instruments and debt instruments guaranteed by the Treasury, as well as in instruments issued by the governments of other OECD
states; • specification of the principles of paying pensions from the funds accumulated in OFE and the method of transferring pension rights of those insured with OFE
ZUS. The decision on whether to choose OFE or remain in ZUS was not final. The insured will receive successive opportunities to change their decision in four-year intervals; • establishment of new investment rules by OFE – the gradual reduction in the minimum limit of OFE’s exposure to shares. A substantial proportion of the concentration limits was eliminated. Every OFE needs to specify the objective and principles of the investment policy, as well as the quantifiable benchmark in the annual information for its members; • change in the system of fees and commissions charged by the pension funds – the fees charged by OFEs on the contributions have been reduced from 3.5% to 1.75%
(Central Securities Depository of Poland), while the funds accumulated to date on the additional part of the Fund have been transferred to the OFE managing companies
in 2014, a single gross income in the amount of PLN 132.3 million was recorded by PZU PTE.
through telephone, computer, mobile devices, and other similar devices requires prior consent of the client – an individual or a legal person.
The Act dated 10 June 2014 on amending the Act on competition and consumer protection and the Code of Civil
Procedures. The Act comes into effect on 18 January 2015 and introduces several changes to the Polish anti-monopoly law aimed to strengthen the domestic system of competition and consumer protection. The Act aims to improve the detection of competition limitation, enhance the effectiveness of detection and prosecution of entrepreneurs entering illegal agreements, and strengthen the position of the weaker market players. The
2/14) confirmed that pursuant to Article 448 of the Civil Code
Ukrainian hryvnia. The period of three quarters recorded a positive foreign trade balance (USD 4.3 billion), which resulted from the 25.1% drop in import (with a simultaneous 9.1%
The negative results recorded by the Ukrainian economy and the political situation as well as the drop of the real revenue of the society had a negative impact on the results of the insurance sector. The gross written premiums in the non-life insurance market in the period of three quarters of 2014 was UAH 15.6 billion and was lower by 20.7% than in the premiums corresponding period of the previous year. Life insurance companies collected UAH 1.5 billion gross written premiums in three quarters of 2014, which was 12% less than in the corresponding period of 2013.
Despite the political and economic turmoil in Europe, Lithuania has been able to maintain its stable economic growth.
Despite the economic growth in Lithuania, the prices of non-life insurance presented a dropping tendency due to the offers of big discounts. With relatively high profitability, insurance companies attempted to increase market share. The total gross written premium of non-life insurance companies amounted to EUR 387.2 million, 1.3% higher than in the previous year.
In 2014, the Lithuanian FSA approved several new resolutions concerning the requirements of Solvency II Directive to be implemented.
Despite the Ukrainian crisis and the mutual sanctions between of the Russia and the European Union, the Latvian economy recorded a GDP growth of 2.4% y/y. The main growth accelerator was the domestic consumption (increased by 4.7%
The situation on the labour market improved as well. The real unemployment level dropped to 8.2% (in October 2014) and is half that of the 2008 financial crisis. The general purchasing power of the society also grew because of the growth of average revenue, considerable increase of the minimum salary, and the indexation of pensions. The purchasing power of the society is expected to continue to grow in the next year.
In 2014, the consumer price index (CPI) dropped by 0.1% in comparison to 2013. This was mainly caused by the decrease in the prices of the electronics equipment purchased by households.
The Estonian insurance sector grew rapidly in 2014. The gross written premium of non-life insurance companies amounted to
In October 2014 the amendments to the act on motor TPL
We forecast that the 2015 GDP growth will be similar to that of the last year. Much like in 2014, the main factors of economic growth will be consumption and investment growth.
However, it is difficult to project the consequences of the maintaining price drop for a longer period as the mechanisms weakening economic growth and having unfavourable impact on the insurance market in this situation cannot be excluded.
The prospects of the economic growth in Poland considerably depend on the future situation in the Euro zone. The potential escalation of the Russian-Ukrainian crisis and the associated sanctions create a considerable threat to the economy of the
Russia’s economic problems on the dynamics of the Polish economy has thus far been limited and should remain as such.
The operations and investment result of PZU Group may also suffer from the effects of the unstable financial markets, which may have several potential sources in 2015. The first is the perspective of the economic growth in Poland, Europe, and the USA, which forms investment demand, particularly on the stock market. The recent years since the outbreak of the global financial crisis also show the significant impact of the monetary policy of the central banks on the dynamics of the financial markets. The most important thing in 2015 will be the investors’ collection of “quantitative ease” in the euro zone and its stimulation of the real economy and inflation expectations. Moment and scope of the potential tightening of the US monetary policy constitute the risk, which may entail a certain capital outflow from emerging markets.
Another risk factor is the PLN FX rate, which has been increasingly volatile as of late. A weakening of the Polish currency can be unfavourable to insurance operations e.g. by raising the prices of car replacement parts.
Middle East continues as a result of, but not limited to, the new threat presented by the Islamic States.
Increase in individual consumption in % (y/y) 3.3 3.1 1.1 1.0 3.0
Increase in nominal salaries in the national economy in % (y/y) 4.2 3.4 3.7 3.7 5.6
Rate of unemployment in % (end of the year) 10.5 11.5 13.4 13.4 12.5
PZU Ukraine Kiev PZU – 89.9678% PZU Życie – 0.0043% PZU Ukraine Life– 10.0279%
EMC Instytut Medyczny Warsaw PZU FIZ AN BIS 2 – 28.58%
Centrum Medyczne Medica** Płock PZU FIZ AN BIS 2 – 100.00%
PZU Lithuania Vilnius incl. branches in Latvia and Estonia PZU – 99.88%
of the companies, PZU – as the parent company – makes key decisions regarding both the scope of activities and the finances of PZU Group entities. The companies provide mutual services both under market conditions and based on the internal cost allocation model (in scope of the Tax Capital
Group) thanks to the expertise of selected companies and by taking advantage of the Tax Capital Group.
The non-life insurance market in Poland measured by the gross written premium grew by an annual average of 3.9%
(-16.4%). The technical result of the non-life insurance market, which largely does not include income on investments and deposits, dropped by PLN 374.0 million, i.e. by 26.6% to the level of PLN 1.0 billion. This change was affected to the average annual growth of gross written premium on the non-life insurance market after value of investments of non-life insurance companies at the end of Q3 2014 technical result of non-life insurance companies after
Protection of property and securing third party property against damage Health care
Non-life insurance companies - share in gross written premium in 3 quarters of 2014 (%)
Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Insurance market 3/2014, Insurance market 3/2013, Insurance market 3/2012, Insurance market 3/2011, Insurance market 3/2010.
-114.5 million) and other TPL insurance (PLN -75.6 million for direct business).
was PLN 50.4 billion, which was a 8.9% increase since the end of 2013. The instruments issued or guaranteed by the
*including Link4 which has a different business model than PZU Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Life insurance market 3/2014, data collected by PZU
Within PZU Group, activities on the non-life insurance market in Poland are conducted by the parent company in the Group, i.e. PZU nad Link4.
Over the past years, PZU has been managing approximately 1/3 of the non-life insurance market. After three quarters of 2014, PZU had a 31.4% share of the non-life insurance market compared with 31.1% after three quarters of 2013.
Motor insurance is the most important group of products offered by PZU, both in terms of the number of valid insurance contracts, as well as the share of the premium to the total value of gross written premiums.
In 2014, PZU made changes to its product offering, with customers in mind, which included basic categories of insurance products addressed to all customer segments.
Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Life insurance market 3/2014, data collected by PZU
activity. There is also the option of including the mandatory TPL insurance in scope of a single policy; ◦ the scope of the carrier TPL insurance was expanded considerably by additional riders, including the longawaited cabotage transport insurance in Germany and
insurance, a free-of-charge service allowing the MTPL client of PZU, who is the victim of an accident caused by a non-
The Corporate Client Division underwent considerable business transformation in 2014. Changes were made to the organisational structure, the operating model, and there was implementation of several sales tools aimed to improve the effectiveness of the sales network in the long run. These operations were conducted when the corporate insurance market was experiencing a difficult situation which saw the decline of the average price in key business lines. Nevertheless, the structures oriented towards the development of the so-called medium and big corporate business were able to increase the premium.
During the year, following the analysis of the economic situation, the conditions of guarantees sales to smaller companies operating in sectors related to construction calmed down.
Group are the leaders in their fields and have customer bases with great potential. The cooperation in scope of strategic partnerships concerned mainly the companies operating in telecommunications and energy, which were used to offer insurance of electronic equipment and assistance services.
The sales of protective property insurance in scope of the bancassurance channel covered mainly the insurance of buildings, structures, household, and payment card insurance.
DOM contributed to the 5% growth in written premiums from non-motor products. As a result, the share of gross premiums from non-motor insurance to the total premium increased to a level of 43.5% (41.3% in 2013).
PLN 4,427.3 million, which was 2.9% more than in the previous year.
In 2014, PZU generated a net profit of PLN 2,636.7 million in accordance with the Polish Accounting Standards, of which
Link4 cooperated with banks and several strategic partners in scope of protective insurance in 2014. The sales of nonlife insurance in the bancassurance channel covered mainly the insurance of buildings, structures, and residences, motor insurance, and travel insurance.
In 2014, Link4 collected a gross written premium of PLN 417.1 million (within the written premium of PZU Group of PLN 138.8 million, i.e. from the time of the purchase), most of which is composed of motor insurance as follows: • the value of MTPL insurance was PLN 262.5 million, which composes 62.9% of the entire portfolio; • the value of the motor own damage premium was PLN 77.5 million, which composes 18.6% of the entire insurance portfolio.
Russian-Ukrainian conflict and the slowdown of economic growth in the euro zone and in Germany. In consequence, the worse financial standing of households can lead to a decline in sales of motor policies (as a result of lower new car sales), lower sales of mortgages and the related mortgage related insurance, as well as lower demand for other property insurance. The worse financial standing of businesses can result in a growth in credit risk and an increase in the level of claims in the financial insurance portfolio; • the reduction in the development of mortgage campaigns as a result of the stricter requirements of
Młodych (Flat for the Young) Programme. There are plans to amend the Mieszkanie dla Młodych programme in 2015, which will aim to increase the contributions and thus increase the programme’s popularity, which could influence 42MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
January 2016, which is based on risk evaluation and may change the operating model of selected areas of the insurance companies on the market (e.g. the tariff policy).
3.3 PZU Życie – activities on the life insurance market in Poland
The life insurance market in Poland measured by the gross written premium decreased by an annual average of 2.3%
Due to the above, the share of the bancassurance channel in the gross written premium of life insurance companies is reducing quarter to quarter starting from 2013. This share was 40,6%1 in the first quarter 2014 and dropped since the corresponding period of 2013 by 5.8 p.p.
The result of the changes taking place on the market is the rising prominence of the regular premium over the single premium, which is PZU Życie’s competitive advantage on the market. Throughout three quarters of 2014 the premium was higher by 3.2% compared to the corresponding period of
The gradual increase in the attractiveness of employee pension programmes (EPP) on the life insurance market is noticeable. Much like in previous years, the most common form of EPP were insurance programmes. In 2013 they represented 67%2 of all Employee Pension Programmes.
1 PIU data (www.piu.org.pl), The bancassurance market after the first quarter of 2014. 2 Employee Pension Programmes (EPP) in 2013, Polish Financial Supervision Authority, June 2014
The total technical result achieved by life insurance companies during three quarters of 2014 was greater by PLN 388.7 million (16.7%) than in the corresponding period of 2013, mainly due to the greater profitability of life insurance
During this period, life insurance companies generated a net result at a level of PLN 2.7 billion, which constituted a growth of 14.0% (PLN 326.3 million). This growth results mainly from the investment results of the insurance companies that benefited from the continuing boom on the debt market. As at the end of the third quarter of 2014, the debt instruments and fixed income securities in the portfolios of the life insurance companies composed over 60%.
The condition of the life insurance sector in Poland one year before the requirements of the Solvency II Directive come into effect, i.e. on 1 January 2016, can be graded as positive.
PZU Życie SA (PZU Życie) operates on the life insurance market within PZU Group. The Company offers a wide range of life insurance products, including group and individual protection insurance, investment insurance and pension products.
During three quarters of 2014, PZU Życie collected 29.1% of the gross written premiums of the life insurance companies. In comparison, in 2013, the Company had a 29.3% share of the market. Simultaneously, PZU Życie continued to remain the decisive leader in the regular premium segment. During three quarters of 2014, it obtained 42.9% of such premiums of all life insurance companies.
PZU Życie’s technical result constituted the majority of the result obtained by all life insurance companies. This is the evidence of the high profitability of the products offered. PZU
Życie’s technical result margin was more than three times higher than the margin obtained by all the other companies offering life insurance together (26.1% compared with 7.4%).
This insurance provides financial support in instances of suffering from a major illness such as malignant tumours, multiple sclerosis, and others. In such instances, the insurance provides access to foreign medical consultation in addition to the payout from the policy. This allows the clients of PZU to take advantage of the knowledge and experience of the best health care centres in the world.
Everyone covered by this insurance is entitled to a fiveyear protection and guaranteed that the premium will not change over this period; • group protection insurance – the offer for SMEs was modified with the introduction of a new, flexible offer allowing the client more freedom in the selection of additional insurance and the total insurance and benefit amounts; • group health insurance – the new changes in the general insurance conditions favour the clients as there is easier access to health care (approximately 1,380 health care centres in 460 Polish cities) and there is a new offer for the clients from the SME sector; • medicine insurance – introduction of the new Cztery Pory
In 2014, PZU Życie was active in the field of pension insurance, which also aimed to preserve the portfolio and acquire new clients. The month of January saw the implementation of changes to the IKZE product resulting from the amendment of the Act, which introduced changes favouring the clients as they simplified the structure of payment limits and limited the tax from the pension benefit to the flat rate of 10%.
collected gross written premiums of PLN 8,182.2 million, which was 7.5% less than in the previous year. The vast majority of the Company’s premium was from regular premium products.
It represented 86.3% of the gross written premiums (as opposed to 78.6% in the previous year). It primarily included the written premium from group insurance and individually continued insurance, from which approximately 12 million
In 2014, PZU Życie settled claims and benefits at the amount of PLN 6,529.9 million, which was 4.4% more than in the previous year.
The situation on the life insurance market in 2015 will primarily be affected by: • low interest rates, which reduce the profitability of investments made from premiums collected; • the economic climate on the capital markets, which is difficult to predict and which determines the attractiveness of unit-linked insurance products; • the guidance in scope of insurance distribution released by the PFSA, which affect both the product structure and the entire insurance agency sector; • OCCP (Office for Competition and Consumer Protection)
SA (PTE PZU), is one of the largest players on the pension funds market in Poland. At the end of 2014, OFE PZU was the third largest pension fund, both in terms of the number of members, as well as in terms of net asset value: • The Fund had 2,224.3 thousand members, i.e. 13.4% of all participants of open-ended pension funds belonged to it; • Net assets stood at PLN 19,553.7 million, or, in other words, they represented 13.1% of the total value of assets of the open-ended pension funds operating in Poland.
The ZUS (Social Insurance Institution) transferred PLN 993.4 million in premiums in 2014, which was 28.8% less than in the previous year. The declined premium level results mainly from the introduction of voluntary contribution of premiums to OFE, but also, on a much smaller scale, from the activation of the “slider” (the members within the slider do not pay premiums to OFE). At the end of 2014, DFE PZU held 60.8 thousand IKZE accounts, in which assets worth PLN 8.8 million were kept. As a result, it maintained its position as one of the leaders in the voluntary pension funds segment, while the rate of return in 2014 was 3.64%.
Factors, including threats and risks, which will affect the activities of pension funds in 2015
In 2014, the balance of sales of the products offered by domestic TFIs amounted to PLN 11.5 billion compared to PLN
21.5 billion in 2013. The lower sales balance results mainly from the reduced interest in non-retail funds oriented towards a narrow target group.
The structure of assets changed on the Polish investment fund market because of the trends described earlier. The biggest growth dynamics were recorded by security funds, monetary market funds, debt funds, and raw material funds.
At the end of 2014, TFI PZU had 24 funds and sub-funds in its portfolio, of which 16 were also offered to customers from outside PZU Group.
compared with the situation at the end of 2013. Similarly, it maintained the leading position on the investment funds market with a share of 12.2% (compared with 11.8% by the end of 2013 and 10.5% in December 2012).
TFI PZU’s assets growth in 2014 was primarily due to: • active sales of funds and subfunds – in 2014 the external clients of TFI PZU invested almost PLN 3.1 billion gross
client assets managed by TFI PZU rose 2.5 times during the last three years; • the registration of eight new Employee Pension
The main generator of the market’s gross written premium was property insurance (premium growth of 4.2%). Motor insurance recorded a decline with motor own damage lower by 1.4% and MTPL by 0.1%. The negative dynamics were caused mainly by the lowered policy prices (by approximately 10-15%) and the started price war. The recovering new car market failed to compensate for this decline.
Eleven companies were operating in Lithuania in the non-life insurance sector at the end of 2014 (including 9 branches of insurance companies registered in another EU member state). The largest insurance company in Lithuania in terms of total gross written premiums from non-life insurance remains
Nine companies were operating in the life insurance sector at the end of 2014 (including 4 branches of insurance companies registered in another EU member state). The Lithuanian life insurance market is highly concentrated. At the end of
December 2014, the share of total gross written premiums of the three largest life insurance companies amounted to
In 2014, the non-life insurance companies and branches of foreign companies of this insurance sector operating in Estonia collected the total premiums of EUR 261.4 million, EUR 62.7 million i.e. 24.0% of which were acquired by the branches of foreign insurance companies operating in Estonia.
Considering the product structure, motor own damage insurance (35.3%) and MTPL insurance (25.4%), as well as individual property insurance (15.4%) had the highest market shares.
(RSA) for EUR 258 million: • ASS Balta, the leader of the Latvian market. The transaction covering the purchase of 99.995% of the company’s equity was closed on 30th June 2014 after approval of the Latvian supervisory authority and antimonopoly offices. The final purchase price was EUR 48.4 million for the net assets in amount of EUR 39.4 million. As a result of the transaction intangible assets in the amount of EUR 30,1 million and the goodwill in the amount of EUR 9 million have been recognized.
PZU paid the total price of EUR 191.0 million for the majority bundle representing 99.997% of shares in PZU
EUR 84.5 million have been recognized. The transaction covering the purchase of Lietuvos Draudimas was closed on 31st October 2014 with the reservation resulting from the decision of the anti-monopoly office of the Bank of
PZU Group sold 1,761,941 common shares of PZU Lithuania to the Norwegian insurance company Gjensidige Forsikring ASA.
Estonia to PZU Group; • consent of the Bank of Lithuania concerning the early repayment of the subordinated loan granted to PZU
Lithuania by PZU and the repayment of the subordinated loan by PZU Lithuania; • approval from the Norwegian FSA for the purchase of the shares in PZU Lithuania by Gjensidige Forsikring ASA; • waiver of the preemptive right by the minority shareholder of PZU Lithuania in relation to the shares; • approval of the Lithuanian government commission for the purchase of the shares in PZU Lithuania by the Norwegian insurance company.
Draudimas – “PZU Lithuania Life” was EUR 8.9 million, which was 17.4% more than in 2013. The highest sales growth was recorded in endowment insurance, which increased by 34.3%
However, PZU Lithuania Life’s share of the life insurance market was 4.1% (compared with 4.2% in 2013).
PZU Group operates in Estonia through the PZU Lithuania branch, which was created from the merger of two entities: the Lithuanian PZU branch, which was registered in 2012, and the Estonian branch, which was purchased in 2014 and previously operated under the Codan brand. The total share of the gross written premiums of both entities in the Estonian market amounted to 14.5%. The written premium collected by the newly acquired branch from the time of its acquisition is
On one hand, the Ukrainian insurance market is fragmented as it was composed of 389 insurance companies as at September 2014 (of which 58 were providing life insurance). On the other hand, the TOP 100 non-life insurance companies generated 92.9% of the entire market’s gross written premium and the
Travel insurance, Green Card insurance, corporate non-life insurance and motor insurance played a particularly important role in the growth in written premiums.
During three quarters of 2014, PZU Ukraine had obtained 4.2% (growth of 0.9 p.p. in relation to three quarters of 2013) of the gross written premium on the Ukrainian non-life
insurance sector, which gave it a ninth place on the market.
On the life insurance market, PZU Ukraine Life held sixth place after three quarters of 2014, with a market share of 7.3% (2.5 p.p. growth in comparison to the previous year). The leader’s share was 19.4%.
In connection with this volatile situation the management boards of PZU Ukraine and PZU Ukraine Life Insurance
Ukraine. The main criterion applied when making the above selection is whether a given institution has a trustworthy foreign majority shareholder.
share of PZU Ukraina in gross written premium of the non-life market in Ukraine after Q3, 2014 share of Lietuvos Draudimas in gross written premium of the non-life market in Lithuania share of AAS Balta in gross written premium of the non-life market in Latvia share PZU in gross written premium of the non-life market in Estonia 52MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
The Polish health care market holds great growth potential. Its current value (including drugs sales) exceeds PLN 100 billion, including NFZ (Polish National Health Fund) expenditures exceeding PLN 70 billion and remaining private expenditures estimated at over PLN 30 billion.
Considering the above, PZU Group made the decision to intensify the operations oriented towards real presence on the health care market. The development will include successive acquisitions of health care centres. The systematic acquisition of the successive entities, which began in 2014, will increase the scope of the realised benefits.
The changes to the capital structure of PZU Group made in 2014 and until the release of this report listed below aimed to realise the strategy to build a network of health care centres and health insurance: • On 8th April 2014, PZU FIZ AN BIS 2 purchased 100% of the shares in Centrum Medyczne Medica (CM Medica) from
Pomoc introduced 300 Toyota Auris hybrid cars in Poland in 2014. 5.1 SALES AND SERVICE CHANNELS
Ogrodowa-Inwestycje Sp. z o.o. (Ogrodowa-Inwestycje) is the owner of the City-Gate office building (ul. Ogrodowa 58, Warsaw). In 2014, it leased three leisure centres from
PZU Group has held an equity stake in Armatura Kraków S.A.
Since 27th August 2013, the owner of Armatura Kraków has been an investment fund managed by TFI PZU – PZU FIZ AN
BIS 2. This was a result of the contribution of 51,600,000 shares in exchange for the allocation of investment certificates to PZU Życie.
From 10th March 2014, the shares of Armatura Kraków are not listed on the Warsaw Stock Exchange.
Arm Property sp. z o.o. was established on 26 November 2014. All shares were acquired by Armaton SA.
In 2020 our Group will stand firmly on three robust pillars: insurance, asset management and medical care
Business strategy 2014 was the last year of PZU 2.0 - the PZU Strategy for the years 2012-2014 – which was approved in December 2011. The PZU Strategy for the years 20152020 – PZU 3.0 – was approved in January 2015.
We are PZU! We ensure peace of mind and a sense of security.
Contents: 1. Effects of the PZU 2.0 strategy 2. Projected external situation 3. Implementation of Strategy 2.0 for the years 2012 – 2014 4. Strategy of PZU Group for the years 2015-2020 – The PZU 3.0 Strategy 5. Development strategy of PZU Group on individual markets
When the PZU 2.0 Strategy was in effect, PZU Group considerably strengthened its position on the financial market as a result of the following: • slowdown of the declining share in the non-life insurance market. In the third quarter of 2014, the share of PZU
This new system is used to offer motor, household and some property products. Almost 2.4 million policies were issued in the Everest system by the end of 2014.
Meanwhile, the previous brand was associated with the traditional PZU operating model, which was appreciated mainly by the current clients. The refreshed PZU brand is a symbol of a company, which offers new products and uses modern technologies to communicate with Customers. In 2014, in scope of implementing innovative solutions,
Poland. Today, PZU is seen as a peer of the leading cuttingedge financial institutions; • strengthening the market position in Central and Eastern
Europe – When the PZU 2.0 Strategy was in effect, PZU
considerably strengthened its presence in international markets. In 2012-2013 PZU Group used its subsidiary in
Estonia. In 2014, PZU acquired Link4 (the Polish market leader of direct insurance), the Lithuanian Lietuvos
WIBOR6M GLOSSARY may drop below 2.0% and should rise to approximately 3.5% within the strategy’s horizon; • aging of the society – The Polish population is projected to decline and the share of the elderly in the population structure is projected to increase; • introduction of regulative changes, including implementation of the following: ◦ Solvency II GLOSSARY – The Solvency II Directive will come into effect on 1st January of 2016 and some of its regulations on 1st April 2015. It will have impact on the capital requirements of insurance companies and introduce new risk management standards.
◦ U Recommendation GLOSSARY of the PFSA concerning good practices in scope of bancassurance. It is projected that it may temporarily slow down the development of the sales via bancassurance channel.
• growth of the claims ratio in non-life insurance in the long run; • moderate perspectives in scope of the development of the
Private expenses on health insurance and prepaid health packages (billion PLN)*
1. Operating profit in the mass-market insurance segment in 2014 was 31.9% higher than in 2011.
3. Release of further products on the Everest platform (PZU Auto, PZU Dom, PZU NNW, OC w Życiu Prywatnym, Wojażer).
Building a position in the Investments sector 1. Acquisition of PLN 1.7 billion in net assets of external clients by TFI PZU in 2014. By the end of 2014 TFI PZU managed over PLN 6.0 billion assets of external clients, i.e. 41.5% more than by the end of 2013. The value of these assets grew 2.5 times within the last 3 years.
3. PZU Group registered 17 out of 29 new Employee Pension Programmes (EPP) set-up in 2014. This allowed PZU Inwestycje to strengthen its position as the leader of the EPP market managing 524 out of a total of 1,063 such programmes in Poland.
1. Operating profit, excluding the conversion effect in the group and continued insurance segment for 2014, was 25.4% higher than in 2011.
2. Consistent growth in the gross written premium (+5.8% compared with 2011) and high profitability of the segment.
3. After three quarters of 2014, still first with 42.9% market share in regular premiums. 4. Sales of new individual continuation policies for group life insurance.
Development of individual relations (Klub PZU Pomoc w Życiu [PZU Help in Life Club])
2. Expansion of the range of services and discounts offered by the Klub PZU Pomoc w Życiu.
Dynamic development of health insurance and building the leading private health care provider 1. 111.1% increase in the written premium in group health insurance compared with 2011. 2. 185.3% increase in the number of risks in group health insurance compared with 2011. 3. Introduction of medicine insurance that includes the modified offer of the Antybiotyk
1. Operating profit for 2014 in the corporate insurance segment was 11.7% higher than in 2011.
2. According to the PFSA data, PZU is the market leader after three quarters of 2014 in the category of “enterprises and other entities” in terms of value of gross premium written - 42.2% in motor own damage, 47.6% in MTPL insurance, 19.0% in other insurance.
Effective capital and investment policy 1. Five-year Eurobonds issuance in the amount of EUR 500 million. The high rating and good strategy realisation results allowed for the most beneficial bonds issuance by the Polish company on the international market.
4. Acquisition of the prestigious logistic property portfolio. PZU Group acquired four logistics parks located in Łódź, Wrocław, and Gdańsk for EUR approximately 140 million.
Expansion in Central and Eastern Europe 1. Strengthening of the position in Central and Eastern Europe resulting from the acquisition of the leaders on the following markets: Lithuanian - Lietuvos Draudimas AB and Latvian - AAS Balta, as well as the Estonian branch of Codan Forsikring A/S.
2. 91.5 % of customers were satisfied with the claims handling process (a customer satisfaction survey conducted on a sample of approx. 24 thousand people in 2014). 3. First insurance company on the Polish market to introduce a fleet of replacement cars
HR: business partner/ committed employees/ results-oriented culture 1. Another survey of PZU employee commitment was held. The 2013 involvement index was 48% compared to 40% in the prior year.
7. The “W trosce o serce” (Care for the Heart) programme covered over 1,200 women working at PZU.
The operations of PZU Group until the year 2020 have the following mission: „We are PZU! We ensure peace of mind and a sense of security.”
• Our role is to provide our Clients with peace of mind and a sense of security. Our Clients can always count on us. We know our Clients very well and that is why we are ready to satisfy their needs and meet their justified expectations. Thanks to a large scale of our business and effectiveness, we provide them with top quality services at reasonable price.
Shareholders • As a leader on the Central and Eastern European market, we continue to deliver extraordinary profits to our shareholders.
Group based on three strong pillars, i.e.: • insurance – By raising the market share in selected segments, the Group will completely reverse the trend and acquire a bigger segment of the market. The Group will increase its non-life insurance market shares to a minimum of 35% 1. It will retain its life insurance market share of over 43% measured with the share in regular premiums
PZU Group’s assets in investment funds) PTE PZU I TFI PZU
Group will also ensure a competitive return on equity. In the conditions of low interest rates with an unfavourable effect on investment activity, the 2020 ROE of PZU Group will reach minimum 20%.
The 2020 net result of PZU Group will be achieved in the following conditions of insurance business profitability: • the combined ratio for PZU will be 3 p.p. better than the competition; • the minimum operating margin in group insurance and individually continued insurance will be 20% (3.0 p.p. lower than in 2013).
The new client segmentation will play a considerable role among the instruments to realise the PZU Group’s strategy.
PZU Group’s policy will be based on a new, broader value proposal for the clients and will focus on the following: • complete proposal management in individual segments
(non-life insurance, life insurance, investments, and health); • offering clear and transparent products to the clients –
PZU Group has the most complex and widespread distribution and customer service network, which allows the clients to choose the most convenient form of contact and service.
Main actions (examples): • transparent procedures and innovative working tools; • improvement of the internal communication system; • realisation of the initiatives submitted by employees; • offering professional development opportunities; • attractive remuneration and additional benefit packages.
• introduction of an operating CRM – ensuring a 360° view of PZU Group’s client to adapt the products to the client’s needs and improve the service quality; • allowing direct purchase for the clients and service through the direct/ self service channels (i.e. one PZU client account).
In order to reach the biggest possible number of retail clients,
Main assumptions: • strategy of two complementary brands addressed to clients with various profiles and needs; • preservation of the organisational independence and flexibility of Link4; • coordination of the operations between the entities in the marketing strategy (value proposal); • cooperation of the distribution fields of PZU and Link4 aimed towards synergy, including the use of Link4 offer in
PZU sales channels; • sharing know-how in scope of market information and organisation.
include: • dividend payment at 50-100% of PZU Group’s consolidated profit; • maintenance of the solvency margin (pursuant to Solvency
Życie) at a level no lower than 110%; • if the law should allow it, optimisation of the funding structure by changing the surplus capital into subordinated debt (optionally depending on the needs resulting from acquisitions).
PZU Group admits the possibility of changing the capital and dividend policy after the Solvency II Directive comes into effect. DIVIDEND POLICY CHAPTER 8.6 4.5 Development strategy of PZU Group on individual markets
In the scope of the retail client, PZU Group intends to focus on the following: • mass-market client: The Group will maintain its current target client base (with top potential) and increase the segment’s cross-selling. The introduction of direct/ self service and the insurance products offered under two brands, i.e. PZU and Link4, will play an important role in maintaining the current clients and acquiring new ones. The Group will strengthen relations with its clients thanks to the upsale of non-life insurance (mainly TPL
Corporate clients: PZU Group will retain its position in motor insurance for corporate clients and also retain positive technical profitability.
PZU Group’s objective in the area of life insurance offered to corporate clients is to maintain the market share and accept the simultaneous controlled profitability decline.
Main operations: • implementation of product innovations; • development of service processes applying new technologies and gradual introduction of self-service to group and individually continued insurance; • improving the quality of the database of clients with group and individually continued insurance for potential to use it in cross-sale for retail clients. Monitoring and management of the flow of clients from the group with group insurance to the group with individually continued insurance.
In the area of cooperation with banks, the Group sets the following objectives: • preservation of the market share in scope of non-life products; • in the long term, exploiting the opportunities arising from U
Recommendation and building its position in the field of life insurance (U Recommendation may temporarily contribute to the decline in gross written premiums); • seeking to establish a joint venture with a selected bank partner.
The Group will implement innovative insurance and assistance products for its strategic partners.
PZU Group’s asset management operations are carried out under the PZU Inwestycje brand. The main objectives until the year 2020 include the following: • dynamic growth of clients’ assets and becoming the leader in customer asset management in Central and Eastern
Europe; • building the image of a company which provides unique products with above-average financial results (i.e. better than the median of the competitors) and exceptional competences in investing and managing considerable investment portfolios for the benefit of the clients; • increasing the contribution from client asset management to the financial result of PZU Group.
Until 2020, PZU Group will dedicate over PLN 200 million for expanding asset management operations.
By 2020 PZU Zdrowie will become the biggest integrated coordinated health care operator. This means that it will provide its clients with a full range of health care services, primarily taking advantage of the potential resulting from the available sources of financing.
PZU Zdrowie: • will provide its clients with an entire vertically integrated chain in scope of health care composed of ambulatory care, prevention, hospitalisation, rehabilitation, and long-term care; • will build an effective nationwide network of own standardised centres combined with a network of partner services (to ensure adequate access to the services); • will provide a unique, complex customer service model, including a client-friendly appointment system (online calendars) and an integrated medical documentation system (online patient account); • will take advantage of all available service funding sources
(NFZ, patient funding, additional insurance, and others); 68MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
At the same time, PZU Group is considering investing in a hospital network and potentially in an assisted living residences. They will be treated as financial investments. If market conditions permit, the hospital and assisted living residences will have the potential to be integrated with PZU
In the countries where it is already present, the Group will become one of the three biggest insurance companies considering the gross written premium.
Claims handling, for the customer, is the moment of truth in contacts with the insurer. Satisfying his or her expectations was our priority during the creation of an innovative and revolutionary service – Direct Claims Handling (BLS).
• by telephone via the Contact Centre; • personally at a selected branch or garage belonging to the
PZU was also the first to introduce its own fleet of replacement cars to the insurance market. The offer covers
300 hybrid Toyota Auris cars, which guarantee comfort and safe and ecological use. This provides a high replacement car availability standard according to market rates, which is dedicated for all PZU clients.
By realising the strategy, PZU is consequently implementing projects oriented on the needs of the Clients. The biggest project – the implementation of the new Everest policy system
By implementing the new online IT system, PZU is providing the departments and employees with knowledge allowing for better understanding of the needs of people purchasing insurance and presenting them with complex offers.
• critical systems and business applications at PZU Group were included in the monitoring, which enabled the elimination of the risk of long-term failure and the simultaneous reduction in downtime of critical systems.
The majority of employees in PZU Group were women. At the end of 2014, they represented 64.0% of the total number of 1 Excluding Armatura Group and Health
clients will be activated during successive stages falling to the years 2015 and 2016. Full implementation of the new policy system is planned by the middle of 2016.
IT synergy was conducted and – in selected areas - the companies were entered into the central infrastructure
• in the field of infrastructure consolidation, a comprehensive strategy for the Groups’ technical and system infrastructure was developed for the subsequent five years. Its implementation will reduce the maintenance expenses of the technical infrastructure; • in the field of the system and IT infrastructure capacity management, a systematic infrastructure monitoring was introduced, a strategy for the capacity of critical systems and initiatives was established, and an infrastructure development plan was drawn up; Female employees in PZU Group structure Female employees in PZU Group structure 2014 data includes employment in newly acquired entities in Baltic states and Poland
The employee age structure remains stable. 72.7% of the employees were aged under 44 in December 2014.
Values]) appraisal system has been introduced. Its objective is to improve the efficiency of the whole organization, in accordance with the slogan We Reward Results. WOW is a bonus system based on the assessment of the extent to which objectives are achieved, consisting of the employee’s annual appraisal and the annual development plan.
The following have been organised in 2014 to support employees in improving their skills, which are required at the given work post: • PLUS Training programme – Training is selected for the employee on the basis of his DNA appraisal, which has the objective of developing the areas which constitute 2 TFI PZU, PTE PZU and PZU CO
Organization, infrastructure and human resources 76MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 his weaknesses. Every programme contains a dozen or so training modules, which develop all the new skills implemented in the organization, such as, for instance, team management, personal effectiveness and building customer relationships; • the Lider 2.0 programme – the aim of which is to strengthen key managers in the role of all-round leaders.
Furthermore, 2014 saw the introduction of the Menedżer 2.0 programme, which expands the Lider 2.0 programme over mid-level management (approximately 1,500 managers).
In addition, three projects were inaugurated as a part of the development of the new organizational culture: • Otwarte PZU [Open PZU] – is a programme designed to build employees’ awareness in the area of openness. The programme objective is building innovative basis and it promotes: direct and simple communication, feedback providing strategies, team cooperation, partner relations and research of innovative solutions; • TalentUp – is a programme addressed to specialists and aims to prepare the employees to work more important roles within the organisation; • SmartUP – is a General MBA development programme addressed to managers and directors who exhibit high potential. It has been designed in cooperation with the
Insurance – Opieka Medyczna, Medicine and discounts on insurance offered by PZU.
PZU and its subsidiaries also have mechanisms for entry into and exit from the organization. The assumption to the process of introducing a new employee is to build commitment and loyalty in an atmosphere of openness and cooperation.
– the ”Kochasz? Powiedz STOP Wariatom Drogowym” (If you love, say no to road rage) campaign enforces PZU’s
PZU’s marketing campaigns received numerous awards in 2014, among which “Mocno pomocni agenci PZU” [Strongly
In 2014, the PZU exclusive agent offices were presented with service standards. The visual agency concept consistent with the PZU sales network was developed, which allowed for the implementation of standards in both labelling and the interior design of the agencies. The project provides guidelines on the customer service, as well as the display of advertising materials.
The 2014 acquisition of insurance companies entailed the rebranding of the acquired entities. The process covers the removal of the trademarks of the previous owners and the introduction of the PZU
Net profit of PLN 3.0 billion and the return on capital of 22.6% place us among the most profitable financial institutions both in the country and in Europe. Our financial results already show the effects of our development efforts – our position as the leader of Polish insurance has strengthened and we continue to expand on the international market.
Contents: 1. Key factors affecting the financial results achieved 2. Revenues 3. Claims and technical provisions 4. Acquisition and administrative expenses 5. Structure of assets, equity and liabilities 6. Share of the business segments in the results
PZU Group achieved in 2014 gross profit at a level of PLN
Excluding one-off events1 the net result fell by 3.6% compared with the last year.
Operating profit for 2014 amounted to PLN 3,913.1 million and was lower by PLN 267.7 million in comparison to 2013. This change was brought about, in particular, by: • drop of PLN 310.8 million in profitability in the retail client insurance segment compared with 2013. A decrease of profitability mainly in motor insurance in relation to the increased claims provisions from previous years; • drop of PLN 174.4 million in profitability in the corporate insurance segment. A decrease of profitability mainly in the motor insurance group as a result of a slowdown in sales and a simultaneous increase in claims and benefits for losses from previous years, and other third party liability and non-life insurance due to several claims of high unit value; • higher net investment result related to increase in valuation of debt instruments; • improvement of profitability in the area of group and individually continued insurance by PLN 215.6 million, excluding the conversion effect. An increase in profitability mainly due to larger portfolio and a decrease in the loss ratio associated with the insurance products; • lower rate of conversion of long-term insurance contracts into annual renewable contracts in type P group coverage by PLN 57.2 million, which contributed to a lower increase of the operational result in the group and continued insurance segment.
What is more, the following one-off events had significant impact on year-on-year comparability of the results: • higher results in the pension insurance segment due to the open pension fund (OFE) reform (an increase in revenues 1 One-off events include: higher results in the pension insurance segment due to the open pension fund (OFE) reform, start of the consolidation of investment funds, the settlement agreement with the reinsurer on the Green Card insurance, the effect of the conversion of long-term insurance contracts into annual renewable contracts in type P group cover.
In 2014, as a result of the acquisition transactions, PZU took over Link4 (the leader of Polish direct insurance market), as well as the Lithuanian company Lietuvos Draudimas, Latvian
• higher net investment result, in particular due to the increase in the price of debt instruments. Net investment result amounted to PLN 2,733.5 million, namely 8.7%
1,527.7 million compared with PLN 1,406.5 million in 2013, related mostly to higher costs of projects, including the strategy implementation, IT, as well as personnel costs and the costs of customer service training;
• a higher negative balance of other revenues and expenses in the amount of PLN 370.1 million mainly due to the depreciation of intangible assets identified as a result of the acquisition of insurance companies.
Other operating revenues and expenses and benefits and change in measurement of investment contracts
In 2014 PZU Group collected gross premiums of PLN 16,884.6 million, i.e. 2.5% more than in 2013. They comprised mainly: • regular life premiums, which had a 41.6% share of the total gross written premium (41.9% in 2013). Their value was higher by 1.7% compared with the previous year mainly due to the growth of group protective insurance and the premiums in the health insurance; • MTPL insurance. This comprised 16.2% of the Group’s insurance portfolio (17.2% in the prior year). In 2014, its value was 3.1% lower than in the prior year. This was the effect of a decline in policy prices as a result of strong competition on the market and lower car sales; • Motor own damage insurance. This type of insurance had a 12.1% share of the Group’s total gross written premium
(i.e. 0.2 p.p. less than in the prior year), a decrease caused by price pressure from the competition; • Fire and non-life insurance – this type of insurance represented 11.3% of total premiums. Its value increased by 0.1% compared with the prior year, foremost because of the upsale of the basic types of risk in household insurances; • accident and other insurance premiums, which had a 5.5% share, which meant a 0.5 p.p. increase compared with 2013. In this insurance category, the most significant increase was recorded in the value of financial insurance in relation to large guarantee policies and the resumption of long-term contracts; • single premiums in life insurance, where the written premium represented 4.7% of the Group’s total premiums
(compared with 5.1% in 2013). In particular, there was a fall in the sales of structured products in the bancassurance channel; • premiums obtained in Ukraine and in the Baltic states, their share in the Group’s premium amounted to 4.2%
and increased in comparison to 2013 as a result of PZU
Fee and commission revenue in 2014 contributed PLN 350.8 million to PZU Group’s result, which is 17.2% higher than in the prior year.
PLN 4.7 million more than in the previous year, mainly as a result of the increase in sales of fund units through the external channel; • front fees from contributions transferred to OFE PZU. This amounted to PLN 19.9 million, namely 40.8% of their prior
year’s value. A fall related to a statutory decrease in the fees from the level of 3.5% to 1.75% from 1st February 2014 REGULATIONS ON THE INSURANCE MARKET IN
It is related to the discontinuation of sales of the shortterm endowment products by PZU Group.
(increase by 8.7%). The following factors had the greatest impact on the increase in the revenue: • decrease in the profitability of Polish treasury bonds across the whole yield curve in 2014 compared with the increases in the middle and on the far end of the curve in the previous year which influenced the increase in the result on the interest-bearing financial assets by PLN 583.0 million compared with 2013; • increase in the value of investment property related mostly to the higher valuation of development projects; • increase in the value of the assets portfolio denominated in EUR, i.a. due to the issuance of debt instruments and a simultaneous increase in the EUR exchange rate.
* The value includes a one-off effect of the consolidation of investment funds (PLN 172.7 million) which took place in 2013.
In December 2014 the value of PZU Group’s investments portfolio2 amounted to PLN 53,958.7 million compared with
Financial expenses increased during 2014 by 256.6% as compared to the previous year.
As compared to the end of the previous year, the currency structure of the investment portfolio has been changed mainly due to: • increase in the value of the assets portfolio denominated in
Euro i.a. due to the issuance of debt instruments; • acquisition of the prestigious logistics property portfolio
Structure of financial assets (in%)3 3 Derivatives related to the interest rate, FX rates and prices of instruments are presented, respectively, in the following categories: Debt instruments – treasury, Money market instruments and Listed and non-listed equity instruments.
According to the strategy, the plan is to further diversify the investment portfolio by increasing the share of corporate debt and alternative assets at the expense of the share of treasury debt instruments, as well as the growth of property investments.
220.4 million. The following factors had an impact on this result: • increase of other operating expenses of newly acquired companies, including mostly the expenses resulting from the depreciation of intangible assets identified as a result of the acquisition of insurance and health care companies in the amount of PLN 87.8 million; • one-off revenue from conclusion of a settlement with the reinsurer (the one-off impact on other operating revenues in 2013 was PLN 73.3 million, the total impact on gross profit was PLN 53.2 million). The settlement agreement related to the settlement of Green Card reinsurance commissions, which were adjusted for 2011, while the result for that period was reduced by PLN 91.8 million.
69.9 million of provisions, i.e. PLN 57.2 million less than in 2013); • increase in the group protection portfolio, including health insurance, with lower loss ratio; • higher claims ratio in motor insurance, in particular caused by a significantly higher level of technical provisions covering claims from previous years; • increase of claims ratio in other TPL insurance as well as fire and other non-life insurance, which is a result of a
Treasury debt securities Non-treasury debt securities Financial instruments Equity instruments – quoted Equity instruments – unquoted Investment properties 45.8 mld 46.5 mld 50.0 mld 51.2 mld 54.0 mld
On the other hand, the following contributed to the decrease in the net value of claims and benefits: • decrease of the ratio of possible indexation of the sum insured by the clients of continued insurance; • lower sale of structured products in the bancassurance channel.
In 2014, acquisition expenses amounted to PLN 2,147.0 million and increased by 6.5% compared with 2013. The main reasons for the increase were the following: • changes of commission rates for motor insurance packages and activities promoting sales in the multiagency channel, mainly in the retail client insurance segment; • modification of the remuneration system in the tied agents channel in the individual insurance segment; • increase of the contract portfolio and high sales of new insurance policies in group protective insurance, as well as an increase of the share of more expensive distribution channels in the portfolio; • start of consolidation of the newly-acquired insurance companies.
As at 31st December 2014, total assets of PZU Group amounted to PLN 67,572.8 million and were 7.6% higher than as at the end of 2013.
higher than at the end of the prior year. They represented 87.3% of the Group’s total assets compared with 90.1% at the end of 2013. The increase in the value of investments was mainly caused by: • a higher price of interest-bearing financial assets; • the start of consolidation of the newly-acquired insurance companies.
PZU Group’s receivables, including receivables from insurance contracts, amounted to PLN 3,068.8 million, i.e. they represented 4.5% of the total assets. For comparison, at the end of 2013 the receivables amounted to PLN 2,672.0 million
2,967.6 million was offset by the dividends paid in the amount of PLN 2,936.0 million.
686.7 million. The increase of the balance by PLN 2,915.9 million compared with 2013 resulted mostly from the liabilities
Total net cash flows as at the end of 2014 amounted to PLN
-282.6 million and decreased by PLN 595.4 million compared with the previous year, i.a. due to the lower inflows from investment contracts.
For management purposes, PZU Group has been divided into the following industry segments: • corporate insurance (non-life). This segment encompasses a wide range of non-life insurance, general liability and motor insurance, which are adapted to customer needs and, with individually valued risks, offered by PZU and
Link4 to large business entities; • Mass-market insurance (non-life). This segment comprises property, accident, general liability and motor insurance.
PZU and Link4 provide the insurance to individuals and entities from the SME sector; • life insurance – group and individually continued. PZU
and PZU Życie in non-investment products. Additionally, the Investments segment includes income earned on other excess cash on other excess cash in PZU Group; • pension insurance. Activity conducted by PTE PZU; • Ukraine. This includes both non-life and life insurance; • Baltic States. Non-life and life insurance products provided by PZU in Lithuania, Latvia and Estonia; • investment contracts. These include PZU Życie products which do not transfer significant insurance risk and do not satisfy the definition of an insurance contract. They include some products with a guaranteed rate of return and some unit-linked products; • other. This encompasses consolidated entities not allocated to any of the segments above.
What is more, the sales structures oriented towards the development of the so-called medium and big corporate business were able to raise the premium and significantly increase the number of insurance policies. Additionally, several big insurance guarantees were granted in the category of financial insurance (an increase by PLN 59.1 million, including Link4’s share of PLN 1.5 million). The increase in the written premium was partially offset by the decrease in the motor insurance group (a decrease of
N et c la im s a nd b en ef it
higher than in the previous year. This was a result of: • gross written premium of PLN 6,539.1 million, which was 1.9% higher than last year. Because of the discontinuation of the short-term endowment insurance offering with a single premium, this was entirely regularly paid premium.
and, additionally, an increase in the group protection portfolio, including health insurance. A simultaneous decrease in the loss ratio of insurance products as a result of a decline of the frequency of events due to death
90MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 compared with 2013 – confirmed by the Central Statistics
This had a positive impact on the level of technical provisions in this portfolio. There was also a decrease of provisions in short-term endowment products in the bancassurance channel compared with a small growth in the previous year – the endowment of the subsequent tranches in the face of the lack of sales of new contracts.
PLN 57.2 million less than in 2013; • acquisition expenses amounted to PLN 356.6 million, i.e.
Prevention Fund charge in 2014 (eliminated for the purpose of the consolidated result) and lower costs related to PZU
less than in the previous year. This was the result of: a significantly lower than in the previous year sales of the structured product in cooperation with Bank Handlowy, a withdrawal of the Plan na Życie savings product with a protection component and regular premium and a decline in the level of contributions to the individual pension accounts (IKE). There was a positive y/y change in the written premium of the protection products in the
PLN 4.8 million to the level of PLN 326.7 million mainly due to the higher level of assets of unit-linked products. The income allocated at transfer prices remained at the similar level; Operating result in group and individually continued insurance segment (PLN million)
PLN 638.8 million, i.e. they increased by 1.9% compared with 2013. This increase is caused by higher disbursements on endowments in structured products both through the
Income from investment segment comprises investment activities in respect of PZU Group’s own funds constituting a surplus of investments over technical provisions in the key insurance companies of PZU Group (PZU and PZU Życie)
compared with 2013. This was the result of: • fee and commission revenue which amounted to PLN 270.6 million, i.e. it increased by 23.9% compared with the prior year. This change was the result of: ◦ statutory withdrawal of funds from the additional part of the Guarantee Fund in the amount of PLN 132.3 million; ◦ decrease of PLN 58.3 million in the management fee resulting from the transfer of a portion of the assets of OFE to the Social Insurance Institution (ZUS); REGULATIONS ON THE INSURANCE MARKET IN
• acquisition expenses amounted to PLN 6.3 million, i.e. they were 62.2% lower than in the previous year. It was caused by a decrease in the costs of commission remuneration linked with the fact that in 2013 the costs of commissions related to the contracts concluded before 31st January 2010 ceased to be settled over time; • administrative expenses amounted to PLN 72.8 million, i.e.
they were 6.5% lower than in the prior year. In particular, the costs of managing pension fund registers declined by
PLN 15.1 million as a result of lowering the management fee of the accounts of the members of OFE PZU from
Poland increased by PLN 19.5 million (mainly the result of a statutory change of the required level from 0.1% to 0.3%
In 2014, the Ukraine segment earned an operating profit of UAH 9.0 million, compared with UAH 40.4 million in the previous year.
The change of the segment result was caused by: • increase in the gross written premium. The premium amounted to UAH 658.2 million and increased by 25.6% in comparison with the previous year. The sales of the Green
Taking into account the depreciation of the currency, the written premium showed a reverse trend (a fall by PLN
30.1 million); • increase in net investment result. This segment earned
UAH 155.7 million in this respect, which is 148.2% more than in 2013. The following factors had the positive impact on its level: the increase in the liquid assets base and positive FX differences, in particular in the life insurance offered mainly in foreign currencies; • significant increase in claims and benefits. The segment disclosed UAH 357.8 million, i.e. 71.9% more claims and benefits than in the previous year. The increase was mainly caused by the increase in the technical provisions in the life insurance company, which amounted to UAH 132.7 million.
O th er s o pe ra tin g re su lts o pe ra tin g re su lts
Ad m in ist ra tiv e ex pe ns es o pe ra tin g re su lts
In the presentation currency the written premium amounted to PLN 173.6 million and was lower by 14.8% compared with the previous year. The segment’s gross result decreased to
The recorded losses were to a large extent caused by the oneoff costs related to the acquisition and then post-acquisition mergers of the companies within PZU Group.
536.5 million, and included PLN 226.0 million of the companies which had not been consolidated in 2013. For comparison purposes, in 2013, the written premium in the segment amounted to PLN 262.3 million. In non-life insurance, without taking into account the newly-acquired companies, the biggest increase was in the non-life insurance (increased by 26.3%) and motor insurance
PLN 41.3 million of acquisition expenses incurred by the companies acquired in 2014. The increase in acquisition expenses resulted mainly from an increase in sales of insurance; • increase in administrative expenses. They amounted to PLN 80.2 million, while the expenses of the newlyacquired companies, where due to the change of the owner additional expenses had to be incurred, amounted to PLN
The results of investment contracts segment are presented as per the Polish Accounting Standards, which means that, among others, the following items were included: gross written premiums, paid benefits and change in technical provisions. The above categories are eliminated for the purpose of the consolidated results.
The following had an impact on the results of the segment in 2014: • drop in gross written premium. This amounted to
(expenses lower than in the previous year by PLN 4.1 million) mainly as a result of the lack of the Prevention
In 2014 PZU Group’s return on equity was 22.6%. ROE was 1.5 p.p. lower than in the prior year. The profitability ratios achieved in 2014 by PZU Group exceed the levels achieved by the whole market (according to the data for three quarters of
remains in the last few years at the level which guarantees high profitability. The ratio increased in 2014, however it was caused to a large extent by a higher loss ratio in motor own damage insurance resulting from an increase in the technical provisions covering claims from the previous years.
Key profitability ratios of PZU Group 2014 2013 2012 2011 2010
1. Claims ratio gross (Claims gross along with change in technical reserves/written premium gross) x 100%
3. Insurance activity costs ratio (Costs of insurance activity/ premium earned net of reinsurance ) x 100%
4. Acquisition expenses ratio (acquisition expenses / premium earned net of reinsurance)x 100%
7. Operating profit margin in life insurance (operating profit / gross written premium) x 100%
We devote a lot of time to the care and continued development of advanced procedures of risk management. We consider them to be fundamental, as, all in all, we want our Clients to feel secure and calm and our results to remain predictable. We are the ones who should concentrate on the risk that our Clients might bear and they should be able to completely rely on our expertise.
Contents: 1. Objective of risk management 2. Risk management system 3. Risk appetite 4. Risk management process 5. Risk profile 6. Sensitivity to risk 7. Reinsurance operations 8. Capital management
98MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 7.1 Objective of risk management
The main objectives of risk management: • raise of the value of PZU Group through active and conscious change in the amount of exposure at risk; • preventing acceptance of risk at a level which could threaten the financial stability of PZU Group.
Risk management in PZU Group is based on risk analysis of all processes and entities , and it is an integral part of the management process.
They include, among others: • the systems of acceptable limits of risk , including the level of risk appetite; • the processes of identifying, measuring and assessing, monitoring and controlling, reporting and managing actions with respect to the individual risks; • the risk management organisational structure, in which
Management Boards and Supervisory Boards of companies as well as dedicated Committees play the key role.
The risk management organisational structure is coherent in PZU Group and in individual companies includes four competence levels.
Board rules and regulations; • the Management Board, which organizes the risk management system and ensures its functionality through approving the strategy and policies and defining the risk appetite, the risk profile and tolerance for individual kinds of risk; • the Committees which make decisions to reduce individual risks to a levels determined by the risk appetite. The
Committees implement the procedures and methodologies for mitigating and accept the individual risks and their limits.
The fourth level of competence relates to operational actions and is divided between the three lines of defence: • the first line of defence – ongoing risk management at the business unit and organizational unit level and decisionmaking as part of the risk management process; • the second line of defence –risk management by specialised units responsible for risk identification, monitoring and reporting as well as controlling limits; • the third line of defence – comprises internal audit, which conducts independent audits of the elements of the risk management system, as well as control activities embedded in the activity.
The below diagram presents organizational structure of the risk management system in each insurance entity within PZU
The risk appetite is defined in PZU Group as the amount of risk taken in order to achieve business objectives and its measure by the level of potential financial losses, decrease in the value of assets or an increase in the value of liabilities in the period of one year.
The way of determining the risk appetite and risk limits is cohenrent in all insurance companies of PZU Group. The
Management Board in each company determines the risk appetite, the risk profile and tolerance limits which reflect its strategic plans and objectives of the entire PZU Group.
Begins with the proposal to commence the creation of an insurance product, acquire a financial instrument, change the operating process, as well upon the occurrence of any other event which potentially results in a risk. The identification process takes place until the expiry of the liabilities, receivables or activities related to the given risk. The identification of market risk involves recognising the actual and potential sources of such risk which are then identified as to their relevance.
Risk assessment and measurement are performed depending on the characteristics of the given risk type and the level o its relevance. The risk assessment is performed by specialised units. In every company, the risk unit is responsible for development of risk assessment tools and risk assessment process to the extent which specifies risk appetite, risk profile and risk tolerance levels.
This involves ongoing reviews of any variances from the assumed parameters, namely limits, thresholds, plans, values from the previous period, recommendations and guidelines issued, which are performed by dedicated units.
Allows efficient risk communication and supports risk management at various decision-making levels.
• company’s level – It ensures that the company implements its business objectives in a safe way which is conformable to the scale of risk involved in its operations. This level involves the monitoring of limits and specific types of risk occurring in the given company and implementation of the risk management process at the level of the single company (both in terms of local legal regulations and standards of PZU Group).
The most important factors influencing PZU Group’s risk profile in 2014: The acquisition of the Polish and Baltic assets was the key event from the point of view of PZU Group’s risk profile. The influence of this event is insignificant due to the traditional structure of the insurance portfolios in the acquired companies and the structure of assets characterised by low level of risk.
The process of risk identification starts with the idea of creating an insurance product and it lasts until the liabilities relating to it will expire. Insurance risk identification is carried out, i.a. by means of: • an analysis of general insurance terms in respect of the accepted risk and compliance with generally applicable provisions of law; • monitoring of the existing products; • an analysis of the policy relating to underwriting, tariffs, provisions and reinsurance, as well as the claims and benefits handling process.
(underwriting) GLOSSARY is the assessment of future claims and the reduction of anti-selection.
Insurance risk measurement is based in particular on: • the analysis of selected ratios; • the scenario method - analysis of impairment arising from an assumed change in risk factors; • the factor method - a simplified version of the scenario method, reduced to one scenario per risk factor; • statistical data.
Monitoring and controlling of insurance risk includes the analysis of the level of risk by means of a set of reports including selected ratios.
Furthermore, in order to reduce the insurance risk associated with the ongoing activities the following actions, in particular, are undertaken: • definition of the scopes of liability and exclusions in the general terms of insurance; • reinsurance activities; • adequate tariff policy; • employ of appropriate methodology of provisions calculation; • appropriate underwriting process; • appropriate claims handling process; • sales decisions and plans; • prevention.
The market risk is measured using the following measures of risk: • VaR, i.e. Value at Risk - a risk measure quantifying the potential economic loss, which will not be exceeded over a period of one year with a 99.5% probability under normal market circumstances; • exposure and sensitivity measures; • accumulated monthly loss.
The setting of limits is the main management tool for maintaining risk positions within acceptable risk levels. The structure of limits for the individual market risk categories and the organizational units is defined by dedicated Committees in line with the risk tolerance.
Credit risk is the risk of loss or adverse change of the financial standing resulting from fluctuations of reliability and creditworthiness of issuers of instruments, counterparties and debtors, which materializes in the default of counterparty or an increase in credit spread.
Concentration risk is a risk arising from lack of diversification in the portfolio of assets or from too high exposure to the risk of default by a single entity or group of related entities.
The risk assessment is based on estimating how probable it is that the risk will occur and potential impact of such occurrence on the financial condition.
Credit risk is measured with the use of the following tools: • exposure measures (the amount of the gross and net credit exposure and maturity-weighted net credit exposure); • VaR.
The total concentration risk is measured as the sum of concentration risks of individual entities. In the case of related related, concentration risk is specified for all related entities cumulatively.
Reporting consists of communicating the level of credit and concentration risk and the effects of monitoring and control to the different decision-making levels. The frequency of individual reports and the scope of information are tailored to meet the information needs at different decision-making levels.
Monitoring and controlling the operational risk is carried out mainly by the established operational risk indicators which make it possible to assess the change of the operational risk level , and the factors that influence the risk level in business activities.
Management actions in response to the identified and assessed operational risk involve, in particular: • reducing risk by taking actions aimed at minimising the risk, i.a. by strengthening the internal control system; • risk transfer – in particular by means of concluding an insurance agreement; • avoiding risk by not engaging in or withdrawing from particular business activity when excessive operational risk is detected and its restriction would be too costly to make the venture profitable; • risk acceptance – approval of the consequences of a possible materialisation of the operational risk if its level does not exceed the tolerance level for operational risk.
The business continuity plans were implemented in the key companies of PZU Group. The companies tested also the actions that secure the correct operation of processes which are of key importance to these companies in the case of breakdown.
Is the risk of legal sanctions, financial losses or a loss of reputation arising from non-compliance with the law, internal regulations or adopted standards of conduct, including norms of ethics.
Compliance risk is monitored mainly through: • the analysis of quarterly reports received from the managers of the organizational units; • the review of the regulatory requirements; • participation in legislative work on amending the generally applicable regulations; • participation in the activities of professional organizations; • coordination of external control processes; • coordination of reporting requirements arising from the stock exchange regulations and the statutory law; • review of the recommendations of PZU Group’s compliance unit.
Mortality at 110% of the currently assumed rate 129 126 129 126
Changes in the assumptions for reserves for insurance contracts and investment contracts with DPF in life insurance, excluding annuity insurance (PLN million)
Mortality at 110% of the currently assumed rate (923) (937) (923) (937)
The below table presents the results of the analysis of the sensitivity of the net financial result and PZU Group’s equity to changes in interest rate risk, exchange risk and equity instruments price risk. The analysis does not take into account the impact of changes in valuation of the deposits taken into consideration in the calculation of the provision on the net financial result and equity.
Reduction of the sensitivity of the portfolio of financial assets exposed to the interest rate risk at the end of 2014, compared with 2013, was caused by the change in the structure of the bond portfolio, a switch from long-term to short-term instruments.
Reinsurance coverage in PZU Group secures the insurance activity, reducing the consequences of the occurrence of catastrophic events which could adversely affect the financial situation of insurance companies. This task was performed through treaty reinsurance supplemented with facultative reinsurance.
PZU’s risk is also mitigated through reinsurance of the financial insurance portfolio. In 2014, the main partners providing treaty reinsurance coverage to PZU were Swiss Re, Hannover
PZU Group has a solid capital base, which is much higher than the capital requirements and the average values for the insurance sector in Poland.
Solvency I rules) of insurance companies, taking into account consolidation adjustments.
PZU and PZU Życie’s unit solvency margins and own funds were calculated on the basis of Polish Accounting Standards and the requirements of the Regulation of 28th November 2003 on the method of calculating the solvency margin and the minimum amount of guarantee capital for insurance categories and groups (Journal of Laws No. 211 of 2003, item 2060 as amended).
The capital requirement calculation model will be changed when Solvency II GLOSSARY enters into force.
and 117% for PZU Życie. The details are presented in the
Calculation of own funds for solvency margin coverage 2014 2013 2012 2011 2010
Amount of PZU Group’s own funds of (in PLN million) 10,081 11,377 12,756 10,959 11,336
PZU Group’s solvency margin (in PLN million) 3,462 3,234 3,144 3,106 3,081
PZU Group’s guarantee capital (in PLN million) 1,154 1,078 1,048 1,035 1,027
PZU Życie ’s solvency margin coverage with own funds 224.1% 235.5% 376.0% 332.5% 367.0%
Contents: 1. Stock and bond markets 2. PZU’s stock prices 3. Debt financing 4. Investor relations 5. Analysts’ recommendations 6. Dividend policy
2.2. An additional factor influencing the behaviour of financial market was the sharp decline of oil prices. Stock markets especially in Central and Eastern Europe remained under significant impact of the conflict in Ukraine and the events which followed - increased geopolitical risk in Europe, the problems of the Ukrainian economy, Western sanctions and
Russian counter-sanctions, the decline in Polish exports to the east (especially food).
POLAND SECTION 2.4. Introduced changes have forced the management of open pension funds to introduce a radical change in the investment policy, which resulted in a decrease of demand for shares from major investors in the Polish market. Open pension funds turned towards the most liquid domestic and foreign shares, at the expense of smaller and illiquid ones. This resulted in a significant disparity in the behaviour of share prices of the largest (WIG20TR) and smallest (sWIG80) companies listed on the Warsaw Stock
In 2014, it could be also observed that Poland slowly ceases to be seen as an emerging market. It is confirmed by the behaviour of the WIG index in comparison with the MSCI
Emerging Markets which reflects the behaviour of emerging markets. Usually, both of them moved in the same direction.
There was a noticeably lower correlation in the behaviour of these indices in 2014.
Not even the largest companies avoided the reduction of share prices. WIG20 with the result of -3.5% finished the second consecutive year with a negative result (+0.5%, including
PZU was the second largest listed company in Poland, and its share in WIG20 portfolio was 14.4%.
The closing price from the last session in 2014 amounted to
in May of 2010 was PLN 312.5. Any investor who bought the shares at that point, doubled the price of compared to the closing price of 31st December 2013 of their investment at the end of 2014. The rate of return on investment in PZU shares,
(592.5 thousand shares) was recorded on 13 November 2014, that is, on the date of publication of the interim consolidated financial statements of PZU Group for three quarters of 2014.
The price/book value ratio was 3.19, making PZU one of the best-valued companies in the financial market listed on the
Business decisions of the Management Board, such as ground breaking direct claims handling and the company’s own fleet of replacement cars, are very well-received not only by the customers but also by investors and analysts.
The closing price from the last session of the year (PLN) 486.00 448.95 437.00 309.00
Average value of the volume per session (PLN million) 73.90 80.85 73.19 92.98
PZU) issued five-year eurobonds for the amount of EUR 500 million1. The redemption of the bonds will take place on 3rd July 2019. The liabilities arising from the bonds were secured by a guarantee granted by PZU. The issue price of one bond with a nominal value of EUR 100,000 amounted to
Stock Exchange (Official List, Main Securities Market) on the basis of a prospectus approved by the Central Bank of Ireland.
Acquiring Link4 PZU's replacement vehicle network Acquiring Lietuvos Draudimas and Codan A/S
Acquiring AAS Balta Issue of eurobonds (500 million Euro) Acquiring Elvita Jaworzno III
amounted to 85 bps, which resulted in the bond yield of 1.499%.
The bonds bear interest at a fixed interest rate of 1.375% per year and the coupon will be paid once a year. As at the issue date it was the lowest coupon obtained in the region of Central and Eastern
The issue of Eurobonds constituted the implementation of PZU Group’s investment strategy in the scope of the management of the matching of assets and liabilities denominated in euro.
IR Vision: We provide honest information everywhere and at all times – this helps to better understand the company and ensures peace of mind and security to those who invest in PZU shares. We set directions for development of inwestor relations in Poland.
As at 31st December 2014, the shareholders of PZU with significant blocks of shares were: the State Treasury (35.2%
Polish institutional investors by 2.7 p.p. at the expense of individual and foreign investors. The increase in the share of institutional investors in Poland is primarily the result of the increased interest of the part of PZU from the open pension fund (OFE), whose share rose to 18.3% from 16.7% in 2013.
Geographic structure of the investors in 2014 was similar to the structure from the previous year. Main changes concerned the involvement of institutional investors from Western
Additionally, on 17th April 2014, a meeting was organized with the aim of presenting and discussing the acquisition of insurance companies from the Baltic States and Poland.
Europe institutional investors excl. Polish State Treasury – 42.2 mln shares
Poland Luxembourg Malta UK Ireland The Netherlands Norway Germany Austria Switzerland Hungary Czech Republic Denmark France Finland Sweden Others
In 2014 PZU organized 186 meetings with nearly 300 institutional investors and 112 meetings with analysts issuing recommendations concerning PZU shares.
Member of the Management Board of PZU who is in charge of Finance Division in PZU Group also participated, after each publication of the results; • we participate in the “10 na 10 – komunikuj się skutecznie”
Deal Roadshow conferences for institutional investors investor meetings at creating of high communication standards for listed companies to reach individual investors; • since its IPO, PZU has been partnering and actively participating in Akcjonariat Obywatelski project; it is an initiative for private investors started by the Ministry of
Treasury during the IPO of such companies as PZU or WSE.
In connection with the issuance of eurobonds in June 2014, the representatives of PZU participated in the Roadshow, in which there were held 24 meetings with almost 50 institutional investors (in the major financial centres of Europe). The effectiveness of the bonds placement was confirmed by the lowest coupon obtained in the region of Central and Eastern
Activities of PZU regarding investor relations are highly appreciated both by investors, analysts and media. In 2014,
PZU received in this area the following awards and prizes: • Granted in the Thomson Reuters Extel survey GLOSSARY: ◦ PZU was ranked first in Corporate Best for Investor
• PZU was ranked first in the category of “Investor Relations”
Board” and “Success 2013”. The following factors were evaluated in the category of “Investor Relations”: quality of information and communication with all capital market participants.
• The award for best investor relations in the survey of the
Company) – awarded by the association to the companies that maintain high reliability of its information policy and protect the rights of investors.
• Distinction for the highest useful value of annual report for 2013 in the „Banks and financial institutions” category in the Best Annual Report competition organised by Polish
Institute of Accounting and Taxes GLOSSARY. In the main awards category, PZU ranked third among banks and financial institutions.
The biggest impact on the valuation of PZU shares in 2014 had the expectations of analysts concerning the assumptions of the new strategy, the potential increase in PZU’s revenues due to the acquisition of the insurance companies in Poland and the Baltic states, as well as the issues related to the amount of dividends, including the possibility of further payments from the surplus capital. The following topics were also stressed: topics concerning the expected results of PZU
November 2013 an advance paid towards the dividend expected at the end of the 2013 financial year in the amount of PLN 1,727 million, i.e. PLN 20 per share, was recognized as part of the payment of the surplus capital.
Maintain assets to cover the provisions of PZU Group’s various companies, i.e. PZU and PZU Życie at no less than 110%
Dividend payout 50% - 100% of consolidated net profit of PZU
Potential amount of dividends paid out from surplus capital up to PLN 3 bn (calculated based on the consolidated net profit for 2013-2015) Subordinated bond issue (work underway)
Dividend from surplus capital of PLN 1.7 bn, i.e. PLN 20 per share
The policy assumes dividend payment calculated based on: • the consolidated net profit, where the amount of the dividend paid cannot be lower than 50% or higher than 100% of the net profit shown in PZU Group’s consolidated financial statements compliant with IFRS; and
In December 2013, all insurance companies operating on the Polish market received a Recommendation of the Head of PFSA (KNF) GLOSSARY regarding restrictions on dividend
At the same time, when deciding on the dividend amount, the insurance companies should take into account additional capital needs within the 12 months of the date of approving 2013 financial statements, among others arising from the growth of costs caused by changes in market and legal conditions and capital needs arising from the necessity to achieve compliance with Solvency II GLOSSARY.
At the same time, it recommended limiting the dividend payment (when meeting the criteria) to the maximum of 75% of the 2013 profit maintaining the capital requirement coverage ratio after dividend of at least 110%. The supervisory body allowed for the payment of dividend from the entire profit generated in 2013, as long as the capital requirements cover will stay at the level higher than the one defined in the recommendation after the payment of dividends.
adopted the resolution on distribution of the net profit for the year ended 31st December 2013, in which it decided to allocate to the dividend payment the amount of PLN 4,663 million, that is PLN 54.00 per share.
dividend for 2009 paid out, PLN 10.91 per share dividend for 2010 paid out,
PLN 26.00 per share dividend for 2011 paid out, PLN 22.43 per share dividend for 2012 paid out, PLN 29.70 per share dividend for 2013 paid out, PLN 20.00 per share dividend for 2013 paid out, PLN 17.00 per share (I tranche)
17th September 2014 was chosen as the date according to which the list of shareholders entitled to other parts of the dividend payment for the year ended 31st December 2013 was established.
The following payment dates of the above-mentioned dividends were set: • 8th October 2014 – PLN 1,468 million, that is, PLN 17.00 per share; • 15th January 2015 – PLN 1,468 million, that is, PLN 17.00 per share.
Because all the key solvency ratios are met and due to the dividend policy, on 19th November 2013 an advance interim for 2013 was paid in the amount of PLN 1,727 million, and was disclosed as part of the payment from the surplus capital of PZU Group, according to the IFRS.
Dividend payout ratio on consolidated profit (%) n/a*** 89.1%* 78.8% 82.6% 92.0%
* dividend from surplus capital paid in 2013 (PLN 20.00 per share), not included in dividend payout ratio ** rate calculated as dividend as at the date of establishing dividend right versus share price at the end of the given year *** until the date of issuing the Management’s Report, The Management Board has not concluded on proposal of profit distribution for the year 2014
At the same time, the supervisory body allows the payment of dividend from the entire profit generated in 2014, as long as the capital requirements cover will stay at the level higher than the one defined in the recommendation after the payment of dividends.
Życie results from an analysis of the financial information, competitive position, management and corporate strategy as well as country financial situation. It also includes outlook, i.e. an assessment of the future position of the Company in the event of specific circumstances. As at the date of the report, both companies had the financial strength rating and the credit rating (awarded by S&P on 16th July 2009) at the A
level, with a stable outlook. This is the top S&P rating available for a Polish company. The long-term credit rating in the local currency as at the date of the report was A with a stable outlook, while the credit rating of Poland for a foreign currency to A- with a stable outlook.
Credit rating A /stable/ 25th March 2014 A /CreditWatch/ 26th November
A-2 /stable/ 8th August 2014 124MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Report for the first quarter of 2015 19th WallStreet Conference for individual investors
We are committed and motivated in our role of the market leader. We are aware that we play an important social role. Through preventive actions, we aim at mitigating negative effects of events that could impact the lives of citizens.
Contents: 1. Client relations 2. Ethics in action 3. Engagement employees 4. Social activities 5. Volunteers among PZU Group employees 6. Environmental impact
The top standards adopted by PZU Group with regard to CSR
GLOSSARY are confirmed by its presence in RESPECT Index of socially responsible companies (of Warsaw Stock Exchange)
Ethics, regarding the firm as a whole and individual employees, is the foundation of all activities performed by PZU
and the prerequisite of sustainable development. Both formal documents (Good Practices in PZU, New Security Policy) and values adopted by the Group are the benchmark for all ethical issues. Three key values of PZU: • wisdom; • simplicity; • imagination.
PZU aims at achieving top service standards and providing its clients with insurance protection adequate to their varying needs. The Company respects principles included in Code of
In order to ensure appropriate norms of cooperation with clients and make them feel secure, PZU analyses their needs and uses the results to improve our business processes. The tools we use for this include: • client satisfaction survey – The Company performs regular surveys of client’s satisfaction and loyalty. In 2014, 50,000 clients were surveyed, participating in one of the key processes including: sales of new policies, claims handling, post-sale support and policy renewal. Among others, client satisfaction with claims handling has been surveyed on a monthly basis. In 2014, the satisfaction ratio of claims handling clients was higher than 91,5% (the survey included a sample of approx. 24,000 people). The research carried out in PZU allows not only determining clients’ needs but also identifying areas for improvement and indicate organizational strengths. Conclusions from the surveys were used to initiate many pro-customer an innovative changes in business processes, i.a.
PZU cares for appropriate relations with its suppliers and expects them to respect all valid regulations pertaining to their scope of operations. In particular, we focus on ensuring appropriate cooperation with agents, providing them with support programs, training (e.g. Akademia Agenta) and a new internal communication portal. Candidates for agents are trained as well. In 2014, 616 training sessions were held for almost 6 thousand people.
Policy) and corporate values adopted by the Group are the benchmark for all ethical issues.
Each employee is obliged to follow the document and has an opportunity to submit issues in this area. Only such procedures allow maintaining suitably high standards of operations and consciously build ethical culture within the organization.
In addition, PZU Group has adopted “The Code of Ethics of the
What is more, any irregularities and violations of the rules of the Group can be reported by means of a dedicated shared platform for reporting incidents in the area of Security,
PZU Group wants to ensure that every employee is aware of how their daily work contributes to the result of the company.
The implemented assessment process facilitates the process of making informed decisions about rewarding and developing employees. What is more, the fact that this solution is a system guarantees that the human capital management is objective and standardised. In 2014, PZU received for the first time Top Employer Polska 2014 certificate. Being recognised as Top Employer allowed PZU to stand out as an employer of choice. It was advantageous for all of PZU stakeholders, but particularly so for its current and future employees. It was also a confirmation of the fact that PZU constitutes a high-quality work environment, which in turn results in engaged and satisfied employees.
In 2014 the third employee engagement survey was conducted among the employees of PZU Group. It is a method of obtaining employees’ opinions about their company.
If employees of a given organisation are committed, the organisation has bigger chance to succeed than a company without such asset. Not only PZU Group benefited from building engagement, the same applies to the employees, as the company creates an environment in which they like to spend time and work. A committed employee of PZU is an employee who thinks about the aims of their actions, about consequences for the company and what else can be done so that the staff can together achieve even greater successes.
Railways (PKP); • a new, enhanced Fit Profit card; • Business English with Boss, discussion panels in English; • FunRoom, a relaxation room in which you can “recharge your batteries” or “de-stress” after a difficult conversation.
Additionally, some of the initiatives were carried out personally by employees. Change Continuators are a group of people who thanks to their positive energy and knowledge of the organization undertake activities that influence employee engagement in a positive way. They act locally in: Gdańsk,
Katowice, Łódź, Poznań, Warsaw and Wrocław – over 80 people in total. So far they have prepared, i.a. numerous children’s carnival balls, guidebooks and libraries.
Regular employee engagement surveys taken by external entities and a number of initiatives, e.g. Employee Picnics are aimed at preventing discrimination in PZU Group’s structures.
Open communication with employees is among the key objectives of PZU Group’s HR policy. The Whistleblowing
System provides a communication path between PZU and its employees and other cooperating entities, e.g. agents. The dialogue with the employees has also the form of Employee
Council activities, confidential surveys allowing feedback to a superior and the Intranet platform PZU24.
The aim of prevention activities is to minimise negative effects of events by i.a. spreading knowledge about safety and health.
Mother and Child. PZU carried out many activities supporting running events – the following are some of the most important of the projects: 9th PZU Warsaw Half-Marathon, PZU Running
Championships, in the marathon. This cooperation involves also sharing experiences, which gives the PZU employees a chance to learn from the best how to overcome difficulties and achieve high scores.
continued the Bezpieczna Flota (Safe Fleet) project addressed to professional drivers and promoted safe road behaviour at the local level, e.g. through school campaigns. Recognizing the importance of sport and healthy life style, PZU and PZU
Życie got involved in Cavaliada, a cycle of equestrian events held every year in Poznań, Warsaw and Lublin.
In 2014, PZU acted as a sponsor and patron of various cultural and sport events – both local and countrywide. As the largest
In 2014, PZU Foundation spent almost PLN 18 million for its statutory operations.
PZU Foundation is financing education initiatives in rural areas and small towns which are run by credible local partners. In 2014, under Z PZU po lekcjach grant competition initiative, subsidies were granted to 20 organizations that successfully extended the educational offer in small locations (up to 30 thousand residents).
Additionally, the Foundation carries out partnerships in education, cooperating with recognized non-governmental organizations in Poland, including: • Krajowy Fundusz na rzecz Dzieci (National Fund for
Enterprise Foundation) in the form of scholarship for students of science and arts from rural areas and small towns; • Polska Fundacją Dzieci i Młodzieży (Polish Children and
Journeys: from grosz to zloty); • Fundacja Wisławy Szymborskiej (Wisława Szybmorska
The PZU Foundation launched in 2014 a nationwide campaign promoting a healthy and active lifestyle - PZU Trasy Zdrowia
(Routes of Health). Mini sports facilities centres for outdoor sport were built as part of the pilot edition of the programme in 30 municipalities throughout the country. Each of the PZU’s
As in previous years, the PZU Foundation cooperated also with organizations supporting Poles abroad, which included: Fundacja Pomoc Polakom na Wschodzie, Fundacja
From July 2014 PZU Foundation has carried out a campaign titled “Kochasz? Powiedz STOP Wariatom Drogowym” (If you love, say no to road rage). Its main objective is to improve road safety by promoting responsible attitudes among drivers.
In 2014, the Management Board of the PZU Foundation, which was in charge of the implementation of the employee volunteering programme, approved the Corporate Volunteer
Strategy in PZU Group, The strategy identifies four key areas of engagement and determines the assumptions for the programmes addressed to employees: family volunteering, education volunteering, volunteering promoting healthy and active lifestyle and civic volunteering. In 2014 we formulated the Academy of Volunteering Leaders from the group of most active employees of PZU Group which promotes and coordinates volunteering activities.
As far as the newly-determined areas, in 2014 the Foundation started implementing two: • family volunteering – national social programme
Managing environmental impact is one of the elements of building the organisation’s value. PZU’s activities in this area take two forms: of responsible internal resource management and of building environmental sensitivity and awareness among stakeholders: employees, clients, business partners, suppliers and representatives of local communities.
PZU cares for natural environment through: • economic management of resources and raw materials.
PZU’s back office. It is powered entirely by energy from renewable sources and offers over 30 places for charging electric cars. The building was designed with special attention devoted to environment protection – PZU has the
We understand that being the market leader, our role is to set the highest standards for the whole industry.
We fulfil this role not only by complying with a wide range of codes, but also by continuously improving them. We believe that we can offer these wise changes to the world that surrounds us.
138MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 10.1 Corporate governance principles applied by PZU
Since the IPO of PZU on a regulated market the Issuer has followed the corporate governance rules laid down in Good practices of companies listed on WSE.
The document was accepted by WSE Council on 4th July 2007 and has undergone several modification since then.
The rules are a set of guidelines (soft law standards) which should be used by supervised entities from 1st January 2015 under the applicable law and with respect to the principle of proportionality.
The rules and information on how to use them can be found on the PZU’s website: zasady-ladu-korporacyjnego 10.2 Application of Good Practices of Companies Listed on WSE
Practices of Companies Listed on WSE except from the one referred to in Section IV.10 and Section I.5, I.9 and I.12.
With regard to the principle referred to in Section IV.10, regarding enabling shareholders’ participation in general meetings using IT tools to allow mutual real-time communication and participating in discussions during the meeting for shareholders who are physically absent at the meeting venue, please note that in our opinion, there are a number of technical and legal factors that may affect the course of a general meeting, and therefore the appropriate application of the above rule. Moreover, in our view, the company’s principles concerning participation in shareholders’
EC). Moreover, PZU did not present a declaration presenting remuneration policy on its corporate website.
The decision concerning future compliance with the said rule will be taken by the Supervisory Board and the General
Ordinance on current and periodic information1 , the Issuer discloses information regarding remuneration, awards or bonuses for each member of the managing and supervisory bodies in PZU in the annual report.
Company’s bodies. The composition of the Management and Supervisory Board is determined based on a decision of the Supervisory Board or a General Shareholders’ Meeting, respectively and other factors, such as sex, are not taken into account.
The announcement on non-compliance with these recommendations was not issued in line with the waiver of the obligation to publish issuers’ reports with respect to corporate governance principles set forth in Section I of Good practices of companies listed on WSE, in accordance with the resolution 1014/2007 of the Management Board of WSE dated 11
declared their readiness to apply the Principles to the furthest objectively possible extent, taking into account the principle of 1 Ordinance of the Minister of Finance of 19 February 2009 on current and periodic information submitted by issuers of instruments and conditions for recognizing as equivalent information required by the laws of a non-member state.
proportionality and the ”comply or explain” rule, arising from their content. These statements of the Management Board and the Supervisory Board of PZU were confirmed by their appropriate resolutions.
Meeting. The legal concerns are related to the possibility of identifying shareholders and inspecting the ID cards of the GSM’s participants; the risk of technical problems, e.g. with the Internet connection or a potential intrusion into information systems, can disrupt the work of the
PZU, including the function of the chairperson, are shaped according to the criterion of independence set out in the
Supervisory Board; the same applies to the appointment and dismissal of the person heading the compliance unit; the Management Board consults the Audit Committee about such decisions.
Moreover, the following rules do not apply to PZU: • rule specified in § 11.3: “In the event that the decision concerning a transaction with a related party was made by the General Shareholders’
Meeting, all shareholders should have access to any information necessary for assessment of the terms on which the transaction is to be executed and its impact on the situation of the supervised institution.”
– in PZU the General Shareholders’ Meeting does not make decisions concerning transactions with related parties; • rule specified in § 49.4: “In a supervised institution, where there is no internal audit unit or compliance unit, the entitlements referred to in items 1-3 shall be held by the people responsible for performance of those functions.”
– there is both an internal audit unit and a compliance unit in PZU; • rule specified in § 52.2: “In a supervised institution, where there is no audit unit or compliance assurance unit, and where no unit responsible for that area has been appointed, the information referred to in item 1 shall be submitted by the people responsible for fulfilling those functions.”
The key controls during preparation of the financial statements include: • controls and permanent monitoring of the quality of input data, supported by the financial systems with defined rules of data correctness, in accordance with the PZU internal regulations concerning the control of correctness of the accounting data;
Supervisory Board of PZU appoints an Audit Committee composed of three members, with at least one of them qualified in accounting or auditing as understood by the Act on statutory auditors. The Audit Committee is an advisory and consultative body to the Supervisory Board and is appointed to improve the effectiveness of the supervision of the correctness of financial reporting, effectiveness of internal control, including internal audit and risk management.
appointed KPMG Audyt Sp. z o.o. sp. k., with the registered office in Warsaw, ul. Chłodna 51, 00-867 Warsaw, entered on the list of entities authorized to audit financial statements under no. 3546 by the National Chamber of Statutory
Other attestation services including review of separate/consolidated financial statements 248 887
As at 31st December 2014 the shareholders of PZU with significant blocks of shares were: State Treasury holding 30,385,253 shares, i.e. 35.2% of the share capital of PZU and the right to 30,385,253 votes at the General Shareholder’s
Emerytalne Aviva BZ WBK SA presented PZU with a notice concerning a change in the ownership of PZU shares by
The Management Board of PZU has no knowledge about concluded agreements which may result in changes in the proportion of shares held by the shareholders.
PZU did not issue, redeem or repay any debt or equity instruments that would provide its shareholders with special control rights.
In line with the PZU’s Articles of Association the voting right of the shareholders is restricted in a way that none of them can exercise more than 10% of the total number of votes at
PZU at the date of the General Shareholder’s Meeting, with the reservation that for the purpose of determining obligations of parties acquiring material blocks of shares provided for in the Act on public offering and the Act on insurance activity, such voting restrictions are considered non-existent. The restrictions do not apply to: • Shareholders who held shares entitling to more than 10%
in the total number of votes in the Company as at the date of adopting a resolution of the General Shareholders’
Meeting; • Shareholders co-acting with shareholders defined in the point above based on agreements concerning joint voting rights attached to the shares.
Shareholder Number of shares Interest in the share capital Share in votes at the General
In line with the PZU’s Articles of Association, the above voting restrictions will expire starting from the moment when a share of a shareholder who, at the date of adopting a resolution of the Shareholders’ Meeting introducing the restriction held shares entitling him to more 10% in the total number of votes in the Company, drops below 5% of the share capital.
General Shareholders’ Meeting in the form of a resolution passed by a majority of three fourths of votes. In cases specified in the Act on Insurance Activity such change must be approved by the PFSA and then recorded in the National
In 2014 the Articles of Association of PZU were not amended.
The Articles of Association are available on PZU’s corporate website (WWW.PZU.PL) in the “Investors relations” section, tab: “Company”.
Shareholders’ Meeting are adopted by an absolute majority of votes, except for cases specified in the Code of Commercial
Number of shares / rights to shares as of the date of submitting this annual report (i.e. 12 March 2014)
Supervisory Board 1. Aleksandra Magaczewska - nd 2. Waldemar Maj nd 30 5. Dariusz Daniluk nd - 8. Dariusz Kacprzyk - nd 9. Jakub Karnowski 28 nd 10. Włodzimierz Kiciński nd 30 -
Shares or rights to shares held by management and PZU supervisory personnel
Board, subject to the right granted to the State Treasury to appoint and dismiss one member of the Supervisory Board; • establishing the rules of remunerating members of the
In accordance with the Articles of Association, a majority of three fourths of votes is required to pass the General
Shareholders’ Meeting’s resolutions on the following: • amendments in the Articles of Association; • decrease in the share capital; • disposal of the enterprise or its organized part or its lease or establishment of a limited property right.
PZU’s website in accordance with the method for providing current information specified in the Act on public offering, conditions governing the introduction of financial instruments to organized trading, and public companies of 19th July 2005, i.e. in the form of current reports. Such announcement should be made not later than 26 days before the date of the
Shareholders’ Meeting are available on PZU’s corporate website (WWW.PZU.PL) in section “Investors relations”, tab “General Shareholders’ Meeting”. A duly called General
Supervisory Board, the General Shareholders’ Meeting is opened by the President of the Management Board or a person designated by the Management Board.
146MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 of any shareholder present or represented at the General
The rights of the shareholders and the method of exercising thereof at the General Shareholders’ Meeting are specified in the Code of Commercial Companies GLOSSARY and the
professional and personal relations, especially with members managing or supervising PZU and entities in PZU Group. The
Association have been met and inform the company when the criteria are no longer met. In addition, the Articles of
Association give the State Treasury the right to appoint and dismiss one member of the Supervisory Board by way of a written statement submitted to the Management Board. The right will expire once the State Treasury ceases to be the
On 15th July 2014 Aleksandra Magaczewska was appointed the Chairwoman of the Supervisory Board.
Supervisory Board of PZU has been as follows: • Aleksandra Magaczewska – Chairperson of the Board; • Zbigniew Ćwiąkalski – Deputy Chairman of the Board; • Tomasz Zganiacz – Secretary of the Board; • Zbigniew Derdziuk – Member of the Board; • Dariusz Filar – Member of the Board; • Dariusz Kacprzyk – Member of the Board; • Jakub Karnowski – Member of the Board; • Alojzy Zbigniew Nowak – Member of the Board; • Maciej Piotrowski – Member of the Board.
started on 30th June 2011 and will end after the lapse of three financial years. The mandates of members of the Supervisory
Shareholders’ Meeting approving the financial statements for the last full financial year of their term, i.e. on the date of the
Aleksandra Magaczewska is a graduate of the Faculty of Law and Administration at the University of
Magaczewska has gained knowledge and professional experience at various positions in the Ministry of Economy where she worked for 11 years (2000-2011). Her work there included i.a. ownership supervision over companies in the steel and mining industry, and special economic zones. Later, as the
Jastrzębska Spółka Węglowa S.A. She worked in the Ministry of Treasury as Director of the Department of Restructuring and State Aid since the beginning of 2012. As the head of the department, she exercised ownership supervision over dozens of state-owned companies, including LOT S.A., defence sector companies and the Industrial Development Agency. Previously she was the Chairwoman of the
Supervisory Board of Kompania Węglowa S.A, PERN “Przyjaźń” S.A., KGHM Polska Miedź S.A. and a Member of the Supervisory Boards of the following companies: Katowicki Holding Węglowy S.A.,
Centrum Bankowo-Finansowe “Nowy Świat” S.A., GRABINEX Sp. z o.o., Centrum Informatyki Sp. z o.o.
He graduated from the Faculty of Law and Administration at the Jagiellonian University in
Ćwiąkalski, J. Górski, sp. k. He is a Member of the Supevisory Board of PLL LOT SA. He was a Member of the Supervisory Board of Bank Przemysłowo-Handlowy in Kraków and, from 16
November 2007 to 21 January 2009, he served as the Minister of Justice – Attorney General in
He is an engineer and MBA graduate. From 2009 he was the Director in the Ministry of Treasury in charge of capital market transactions and ownership supervision over financial institutions. He is an experienced and highly qualified manager with advanced knowledge of tools for restructuring, efficiency improvement, especially in financial management and investment valuation. Until 2009, before he became the CEO of the public listed development company Triton Development S.A.,
Mr. Tomasz Zganiacz was the Deputy CEO and CFO i.a. of the public listed company Arksteel, head of credit department at Societe Generale Bank, a researcher and a lecturer at the Faculty of Production Engineering of the Warsaw University of Technology, and was a participant in the
National Investment Funds programme. Tomasz Zganiacz has been involved in many projects carried out by enterprises from various industries; cooperating with i.a. commercial and investment banks, brokerage offices and other capital market players. He has been in charge of finance management, preparation and implementation of investment projects and has co-authored development strategies. He has broad experience in managing commercial companies; among others, he was a Member of the WSE Supervisory Board. Currently, he is a Member of the
He has a degree from the Faculty of Sociology of the University of Warsaw. In 1996, he received a postgraduate diploma in the field of organization and management. A graduate of AMP IESE Business
Moreover, he gained broad experience in administration during i.a. his employment as the Director of the Chancellery of the Sejm; the Secretary of State in the Chancellery of the Prime Minister, including the Deputy Head of the Chancellery – Member of the Cabinet; the Head of the Standing Committee of the Cabinet; the Secretary of the Capital City of Warsaw. Since 2009, he has been the CEO of ZUS. His extensive experience as member of supervisory bodies extends to numerous companies, including i.a.: PKP Polskie Linie Kolejowe SA, Bank Gospodarstwa Krajowego, Totalizator Sportowy sp. z o.o., PKO BP
Committee. Even earlier, from 2007 to 2009, he worked at Bank Pekao SA as the Managing
Municipal Development Agency (Foundation of the Minister of Finance). Since 21 June 2013 Mr.
Dariusz Kacprzyk has been a Supervisory Board Member of the WSE.
University of Minnesota, as well as a former fellow of The Margaret Thatcher Foundation in the
London School of Economics. He holds the title of Chartered Financial Analyst confirming his qualifications in investment advisory services. He works as an assistant professor in the College of Economic Analyses at the Warsaw School of Economics. From 1997 to 2000 he was the Chief of the political office and an advisor of the Minister of Finance. He later worked as an advisor on macroeconomic matters at PKPP “Lewiatan” in the years 2000-2001. He was an advisor to the
President of the National Bank of Poland and later the Director of its Foreign Department in the years 2001-2003. From 2003 to 2008, he worked at the World Bank Group in Washington, DC
as a Deputy Executive Director. From 2008 to 2012, he held the position of the CEO of PKO TFI, and in the years 2010-2013 he was a Member of the Management Board of the CFA Society of
UK, and in 1996 economic studies at Free University of Berlin, whereas in 1997 in International
Faculty, University of Warsaw and the Deputy Rector in charge of scientific research and cooperation, University of Warsaw. Apart from beeing a lecturer at the University of Warsaw, he also lectures in France, UK, USA, Russia, China and Korea. Furthermore, he served as: advisor to the Prime Minister, to the Minister of Agriculture, the President of University Sports Association at
In 1989, Maciej Piotrowski graduated from the Master Studies at the Faculty of Fundamental
Global Corporate & Investment Banking in Bank of America (Poland) S.A., then from 2002 to 2007, he held the following positions: Management Board Chairman in TP Invest Sp. z o.o. and
CEO of Towarzystwo Emerytalne Telekomunikacji Polskiej S.A. in Telekomunikacja Polska S.A.
Exchange SA. Over the years, he held positions in supervisory boards of numerous institutions, i.a.: Supervisory Board Chairman in Bank Gospodarstwa Krajowego, Member of the Compulsory
Supervisory Board of Bank Przemysłowy in Łódź established by the National Bank of Poland,
Member in Enea Wytwarzanie SA. Mr. Maciej Piotrowski has also served as a Member of the
Board include: • review of the Management’s Report and financial statements for the previous financial year in terms of their compliance with the accounting records, documents and facts; • review of the motions of the Management Board concerning profit distribution or loss coverage; • presenting the General Shareholders’ Meeting with a written report on the results of the review described above and submitting a brief annual assessment of the situation of the company, including internal controls and key risk management and an annual report on the work of the
PZU Życie enterprise or establishment of a usufruct right, division of PZU Życie, combination of PZU Życie with a different company, liquidation or termination of PZU Życie; • selection of the entity authorized to audit the financial statements which will audit the annual financial statements of the company; • wording of the consolidated amended Statue; • approval of the long-term plans for the development of the company and annual financial plans drafted by the
Moreover, the Supervisory Board grants consent to: • acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct exceeding the equivalent of EUR 3.0 million.
Commercial Companies GLOSSARY; • advance payment against expected dividend; • creation and closing of regional and foreign branches.
Supervisory Board are adopted in an open ballot, except for resolutions concerning appointment of the chairman,
Board, delegation of members of the Supervisory Board to temporarily fill in for members of the Management Board and for resolutions with respect to appointing, suspending and dismissing the President of the Management Board, members of the Management Board or the entire Management Board as well and taking decision to stop such suspension which are adopted in a secret ballot. Moreover, a secret ballot may be chosen on request of a member of the Supervisory Board.
Chairman of the Supervisory Board from its members and it may also select the Secretary of the Supervisory Board.
Members of the Management Board, employees of the company competent for the discussed issue, selected by the Management Board and other persons invited by the
Supervisory Board, upon consent of the Supervisory Board, may select one advisor authorized to take part in the meetings of the Supervisory Board devoted to reports and financial statements, and give their advice, provided that such person respects confidentiality and signs a confidentiality statement.
The Statue provide for appointing an Audit Committee by the Supervisory Board. The Committee is composed of three members, including at least one independent members qualified in accounting or auditing. Detailed tasks and terms and conditions of appointing members of the Audit Committee and its functioning have been specified in a resolution of the
In accordance with the Regulations of the Audit Committee adopted by a resolution of the Supervisory Board, the
Supervisory Board for commissioning specific controls in the company to be exercised by an internal or external entity.
The Supervisory Board appointed the Audit Committee on 3rd June 2008. Composition of the Audit Committee as at 1st
Daniluk from the Supervisory Board of PZU. Therefore, on 15th July 2014, the Supervisory Board of PZU added Dariusz
Audit Committee was as follows: • Dariusz Filar – Chairman of the Committee; • Dariusz Kacprzyk – Member of the Committee; • Tomasz Zganiacz – Member of the Committee.
Compensation Committee, the way it works and remuneration are specified in a resolution of the Supervisory Board. The
Supervisory Board of 4th April 2013, it is an advisory and consultative body to the Supervisory Board and is to improve efficiency of the Board’s supervisory activities related to establishing the management structure, including organizational issues, remuneration system, remuneration principles and selection of properly qualified staff.
Composition of the Promotion and Compensation Committee as at 1st January 2014: • Zbigniew Ćwiąkalski – Chairman; • Zbigniew Derdziuk – Member; • Dariusz Filar – Member; • Maciej Piotrowski – Member; • Tomasz Zganiacz – Member.
Supervisory Board and is to improve efficiency of the Board’s supervisory activities related to consulting of all strategic documents presented by the Management Board (in particular, the company development strategy) and presenting the
Composition of the Strategy Committee as at 1st January 2014: • Waldemar Maj – Chairman of the Committee; • Zbigniew Derdziuk – Member of the Committee; • Alojzy Zbigniew Nowak – Member of the Committee; • Maciej Piotrowski – Member of the Committee.
Board is composed of three to seven members appointed for a shared term which includes three consecutive full financial years.
Members of the Management Board, including the President of the Management Board, are appointed and dismissed by the Supervisory Board; however, members of the Management
Board are appointed and dismissed by the Supervisory Board at the request of the President of the Management Board.
Management Board of PZU as at 1 January 2014 consisted of: • Andrzej Klesyk – Chairman of the Board; • Przemysław Dąbrowski – Member of the Board; • Dariusz Krzewina – Member of the Board; • Barbara Smalska – Member of the Board; • Tomasz Tarkowski – Member of the Board; • Ryszard Trepczyński– Member of the Board.
Experience of the Management Board on the financial market and in PZU (in years)
Responsible for: • contact center; • insurance operations; • foreign operations.
Dariusz Krzewina graduated from the Economy and Sociology Department of the University of and post-graduate studies in insurance at Warsaw School of Economics. He has worked in the insurance industry for many years. From September 1993 to August 1998 he was employed in PZU as a Sales Department Head, Deputy Director and Director of the Insurance Office.
HESTIA SA. From April 2002 he was a Sales Director and from October 2002 to June 2004 he was the Chairman of the Management Board and the Sales Director at SAMPO Towarzystwo
Ubezpieczenia SA. In August 2004 he was appointed the Director of the Group Insurance Office
Andrzej Klesyk has been the Chairman of the Management Board of PZU since December 2007.
School. He represents PZU at annual meetings of the World Economic Forum in Davos.
Department and the Institute of Deutsches Elektronen Synchrotron (DESY) in Hamburg. In the years 2002-2008 she worked at the Warsaw office of the Boston Consulting Group. As a strategic advisor to top Polish banks, insurance and telecommunication companies she specialized in business strategies, operational models, distribution strategy, organization and activation of the sales network – in particular in the consumer and SME sectors. She joined PZU Group in 2008 and worked as a Director of the Product Management Office, Managing Director in charge of Mass Client Sector and Managing Director in charge of Marketing and Individual Products.
She joined the Management Board of PZU on 1 February 2013. On 5 February 2013 she was appointed a Director of PZU Group and held the position until 14 March 2013. Member of the
Sp. z o.o. as an analyst and financial controller. In 1998-2000 he was the Treasurer at AIG
Board of Creative Team SA (the Elektrim Group). From 2001 to 2006 he was the Planning and
Controlling Director at PZU. In 2006-2008 he worked at AT Kearney and Accenture as a Manager and a Senior Manager. From October 2008 to March 2009 he held the function of the Director –
and in March 2009 he was appointed the Information Management Director in the Head office of PZU and PZU Życie. He has been a Member of the Management Board of PZU since January 2010. He has held the position of a Member of the Management Board of PZU since December 2010. He is in charge of the Financial Division.
Rafał Grodzicki graduated from Warsaw School of Economics. He has extensive management experience in the banking and insurance sector gained in numerous Polish and foreign institutions. He joined PZU Group in February 2004 holding the following positions: Director of the SME Insurance Office, Coordinating Director in charge of Agency Network Development and
Manager and an advisor) and also represented clients (IT Architect, CIO). His first important engagement was the implementation project for Handlobank, which he managed as a Project
Sławomir Niemierka – PZU Życie Management Board Member, PZU Group Director
He graduated from the Faculty of Law and Administration at the University of Warsaw and
Harvard Business School. He is a qualified legal counsel and a co-authored a number of publications on financial law and bank supervision. He was an academic teacher at post-graduate courses at Polish Academy of Sciences, Warsaw University and the Academy of Insurance and Finance. For many years he worked in the National Bank of Poland, where he headed the Inspection Office responsible for inspections carried out in banks. Member of a Steering
Fund, he supervised the operational risk management system. He joined PZU Group in 2008 and was appointed the Managing Director in charge of auditing. On 19 March 2012 he was appointed
Member of the Management Board of PZU Życie and the Director of PZU Group. He is in charge of risk management, reinsurance, compliance and safety.
Academy of Insurance and Banking). He also completed an Advanced Management Program at IESE Business School University of Navarra and post-graduate studies in road traffic safety, business insurance and management psychology. He has been collaborating with PZU Group since 1996. Initially, he worked in internal control and insurance fraud departments. Since 2002, he specialises in claims handling. He was the Director of the Claims Handling Centre of PZU in
Warsaw. In 2007-2011 he was a Member of the Management Board of PZU Ukraine, where he supervised the Claims Handling, product management and risk assessment departments. He has held the position of a Member of the Management Board of PZU since April 2011 and the position of a Member of the Management Board of PZU Życie - since July 2011. He is in charge of Claims Handling and assistance functions.
Marketing Department. Since the beginning of his professional career he was focused on the capital market. He has vast experience in developing and implementing investment strategies and drawing up investment policies. He has experience in managing large and diverse asset portfolios. He participated in building management structures for strategic allocation of assets, liquidity and investment risk. In 1994-1006 he worked as a broker in the Capital Transactions
Centre of Bank Handlowy w Warszawie SA. In the years 1996 – 2002 he was employed in the
Financial Investment Office of PZU – initially as an Asset Manager and subsequently as the
USA and Harvard Business School Advanced Management Program. He joined PZU Group in 2009. He held the position of Director Managing the Agency Network and Director in Charge of Mass Sales in PZU Życie since May 2010, he held the position of the Director Managing the
Network in PZU Group and Head of the Network Division in the Group. On this position, he was in charge of the network of branches in PZU and PZU Życie and of client service in the network and in the Client Center of PZU Group. On 16 January 2014 he was appointed a Member of the
Board of 8th April 2013 and approved by a resolution of the
Supervisory Board; • competencies of the Chairman and Members of the
In accordance with the regulations of the Management Board, resolutions of the Management Board are especially required for: • adoption of a long-term plan for development and operations of the company; • adoption of an action and development plan for PZU Group; • adoption of an annual financial plan and a report on its implementation; • approval of the financial statements for the previous financial year and the Management’s Report; • approval of a motion concerning profit distribution or loss coverage; • determination of premiums in the compulsory and voluntary insurance and general voluntary insurance terms and conditions; • determination of the scope and size of outward reinsurance and the tasks for inward reinsurance; • adoption of an annual audit and control plan and a report on its implementation with conclusions; • determination of the terms and conditions of investments, prevention and sponsoring; • giving sureties and guarantees (excluding insurance operations) and taking out and giving credit facilities or loans by the company (excluding credit facilities and loans given from the company’s Social Benefits Fund); • appointment of a commercial representation.
Management Board; • calling meetings of the Management Board; • setting the agenda of the meeting of the Management
President of the Management Board who defines the scope of responsibility of each member of the Management Board.
Board during their absence and if the meeting is attended by at least half of the members of the Management Board.
(i.e. using means of distant communication and a qualified electronic signature). The Statue also provide that the meetings of the Management Board may be held using means of direct distant communication.
The President of the Management Board takes decisions in the form of orders and official instructions. Other members of the Management Board administer the operations of the company within the scope specified by the President of the
The bonuses of the Management Board’s Members are dependent on their performance for the financial year. They are awarded by the Supervisory Board after the approval of the financial statements for the year.
including bonuses and special prizes: including bonuses: Contracts concluded with high level managers – High level management (Directors of PZU Group), including:
Compensation and other short-therm employee benefits paid by other entities of PZU (PLN thousands)
including bonuses: including bonuses: High level management (Directors of PZU Group), including: 1,844 478 2,235 1,071
Positions of PZU Group Directors were established in relation to the implementation of the management model, according to which members of the Management Board of PZU Życie as Group Directors are in charge of the same business areas and functions in PZU and PZU Życie. The positions of Group
Directors are established based on Organizational Regulations of PZU (paragraph 20, item 3).
Total estimated valued of benefits in kind allocated by PZU and its subsidiaries (PLN thousands) 1 January – 31 December 2014 1 January – 31 December 2013
Presents a true picture of the development and achievements as well as the situation of PZU Group including a description of the main threats and risks.
Sp. z o.o. sp. k. - which audited the consolidated financial statements was selected in accordance with the provisions of law and that the entity and certified auditors which audited the financial statements met the requirements to express an unbiased and independent opinion on the audited consolidated financial statements, in accordance with the applicable provisions of law and professional standards.
In addition in 2014, the European Bank for Reconstruction and Development (EBRD) - an international financial institution acquired EUR 40 million of bonds issued by PZU
On 3 July 2014 PZU issued a guarantee in relation to the liabilities of PZU Finance AB arising from the bonds issuance.
On 7 July 2014 the Issuer took a loan from PZU Finance AB
PZU Group’s companies provide services to each other, as part of their capital and business ties. With the exception of companies of the Tax Capital Group, transactions are concluded at arm’s length.
Activity and PFSA. A stable rating outlook of the Issuer confirms that PZU has a strong business position, high level of equity and remains competitive entity in the insurance market.
In 2014 and by the date of preparation of this Management’s
Report of PZU Capital Group there were no proceedings before court, body competent to hear arbitration proceedings or public authority body concerning liabilities or receivables of
Appendix: Financial data 174MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Basic amounts from the consolidated profit or loss account (PLN thousands) 2014 2013 2012 2011 2010
Other operational revenues and expenses. measurement and benefits from investment contracts
Share in net profit (loss) of entities measured using the equity method (1,525) 1,404 x x, x
Non-current assets held for sale and disposal groups 606,610 178,897 46,962 x x
Appendix: Financial data 176MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Actuarial profits and losses related to provisions for employee benefits (6,179) 902 x x x
Appropriations on net profit during the financial year x (1,727,046) x x x
Other liabilities, including current income tax 9,415,047 9,404,786 3,078,125 2,484,478 1,615,965
568,502 3.2% without limits 15. Reinsurers’ share in technical provisions 341,126 1.9% 25%
C. Surplus (shortage) of assets covering technical provisions 3,212,117 18.3% x
Assets to cover PZU Życie’s the technical provisions, excluding assest where the investment risk is borne by the policyholder (PLN thousands)
A. Technical provisions (excluding assets for life insurance, where the investment risk is borne by the policyholder) 17,726,655 100.0% x
B. Assets to cover technical provisions, total 21,591,014 121.8% x 1. Debt issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 14,533,197 82.0% without limits 2. Bonds issued or guaranteed by local authorities or associations of local authorities 26,252 0.1% without limits 3. Other fixed revenue instruments 125,472 0.7% 10%
8. Bank deposits 905,782 5.1% without limits 9. Tangible assets, other than property, if amortized using the prudence principle 59,530 0.3% 5%
Appendix: Financial data 180MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Total assets to cover PZU Życie’s technical provisions, where the investment risk is borne by the policyholder (PLN
B. Total assets 4,966,674 100.0% x 1. Securities issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 1,400,657 28.2% bez ograniczeń
Adjusting the rate of PZU Życie calculated according to IFRS to the PAS level x x (390.1) x x
Reducing the technical rate in PZU Życie x x (408.5) x x
Claims ratio gross (Claims gross+change in provisions/written premium gross) x 100%
4. Acquisition expenses ratio (Acquisition expenses/premium earned net of reinsurance) x 100%
5. Administrative expense ratio (Administrative expenses/premium earned net of reinsurance) x 100%
7. Operating profit margin in life insurance (Operating profit/gross written premium) x 100%
Data from the profit or loss statement – corporate insurance (non-life insurance) (PLN thousands)
Appendix: Financial data 184MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Acquisition expenses ratio (including reinsurance commission)* 19.3% 16.4% 17.7% 19.2% 2.9 p.p.
Operating profit (loss) excluding one-off eventsh 1,691,965 1,476,325 1,561,157 1,349,144 14.6%
Data from the profit or loss statement – individual insurance (PLN thousands) 2014 2013 2012 2011 % change 2014/2013
Change in the balance of other technical provisions net of reinsurance (611,119) (712,390) (594,055) 133,908 (14.2)%
Data from the profit or loss statement – investment contracts (PLN thousands)
Change in the balance of other technical provisions net of reinsurance 1,015,526 172,272 1,171,526 72,829 489.5%
Appendix: Financial data 188MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Data from the profit or loss statement – Ukraine segment (PLN thousands) 2014 2013 2012 2011 % change 2014/2013
* Ratios calculated with net premium earned **Operating profit (loss) including other revenues and operating costs
Act on Insurance Activity – Act on Insurance Activity of 22nd May 2003 (Journal of Laws of 2013, No. 950, item 1151, as amended).
ceding company – a person assigning a liability to a buyer.
COR – Combined Ratio – a combined expense ratio calculated for the non-life insurance sector (group II). It is the ratio of all the expenses related to insurance administration and payment of claims to earned premium in a given period.
Everest – a system for managing non-life insurance which is being implemented in PZU.
free float – a public company’s shareholders who are not locked-in. It is the ratio of the number of shares not held by large investors to the total number of outstanding shares.
GPW - Warsaw Stock Exchange in Warsaw insurance agent – an entrepreneur performing agency activities under an agreement concluded with the insurance company. The agents’ activities focus on: customer acquisition, concluding insurance contracts, participating in the administration and performance of insurance contracts and organizing and supervising the agency activities of the agency.
insurance broker – an entity authorized to pursue brokerage activities. A broker performs activities in the name of or on behalf of a person or entity seeking insurance coverage.
inward reinsurance – reinsurance activity entailing a reinsurer or reinsurers accepting a portion of the insurance or groups of insurance yielded by the ceding company.
Życie – an indicator calculated as the ratio of the result to gross written premium in the group and individually-continued insurance segment, net of one-off effects such as, for instance, the conversion effect, namely the conversion of longterm contracts into short-term contracts (according to Polish
Accounting Standards) and changes to technical rates, namely the rate used to discount technical provisions.
solvency margin – the amount of an insurance undertaking’s shareholder funds no lower than the minimum guarantee fund which is required to ensure that the undertaking remains liquid.
sum insured – the cash amount for which an insured object is insured. In non-life insurance the sum insured ordinarily constitutes the upper limit of the insurer’s liability.
technical rate – the interest rate used to discount technical provisions in life insurance and provisions for capitalized annuities in third party liability insurance.
December 2009 on the special accounting standards for insurance and reinsurance undertakings, the technical rates used by an insurance undertaking may not be higher than 80% of the weighted-average rate of return on investments covering technical provisions during the most recent three financial years.
PFSA calculates and announces the maximum technical rate by 31st January of every year.
Thomson Reuters Extel – a survey performed for 15 years by Thomson Reuters, is recognized as one of the key industry rankings and the source of knowledge of good practices on the capital market, including communication with investors.
This Management’s Report contains forward-looking statements regarding Strategy 3.0, which was published on 28 January 2015. These statements include words such as „assumes”, „will hold”. Such forward-looking statements are exposed to known and unknown types of risk and are subject to uncertainty and other material factors that may cause PZU Group actual results, operations or performance to differ materially from the future results, operations or performance explicitly or implicitly expressed in these forward-looking statements. These statements are based on a number of assumptions concerning PZU Group current and future business strategy as well as the environment in which it will operate in the future. PZU explicitly refrains from any duties or obligations in respect of disseminating any updates or adjustments to any statements set forth in this Management’s
Management’s objectives concerning future operations may differ substantially from what has been depicted or suggested in such statements set forth in this Management’s Report of PZU Group. Moreover, even if the financial standing, business strategy, plans and the Management’s objectives pertaining to future operations of PZU Group are consistent with the forward-looking statements set forth in this Management’s Report of PZU Group, these results or events might not form any indication of the results or events in subsequent periods.
PZU Group does not bear liability for the consequences of decisions made after reading this Management’s Report of PZU Group.