External environment 29 2.1 Main trends in the Polish economy 30 2.2 External environment in the Baltic States and Ukraine 31 2.3 Situation on the financial markets 32 2.4 Polish and Baltic States insurance sector compared to Europe 34 2.5 Polish banking sector compared to Europe 36 2.6 Regulations pertaining to the insurance market and the financial markets in Poland 39 2.7 Factors that may affect the conditions of operations and the PZU Group’s activities in 2020 42
Business Model 95 5.1 PZU Group’s new operating model 96 5.4 Banking and strategic partnerships 119 5.5 Management of the PZU Group’s brands 127
Financial results 131 6.1 Major factors contributing to the consolidated financial result 132 6.2 PZU Group’s income 134 6.3 PZU Group’s claims paid and technical provisions 138 6.4 PZU Group’s acquisition and administrative expenses 138 6.5 Atypical factors and events affecting the results 139 6.6 PZU Group’s asset and liability structure 139 6.7 Contribution made by the market segments to the consolidated result 141 6.8 Issuer’s financial results – PZU (PAS) 151
The PZU Group on the capital and debt markets 175 8.1 Equity and bond market 176 8.2 PZU’s share price 180 8.3 Banking sector on the Warsaw Stock Exchange 185 8.4 PZU’s investor relations 186 8.5 Analysts’ recommendations regarding PZU’s shares 190 8.6 PZU Group’s Capital and Dividend Policy 192 8.7 Debt financing of PZU, Pekao and Alior Bank 195 8.9 Calendar of PZU’s major corporate events in 2020 201
Corporate governance 203 9.1 Application of corporate governance rules 204 9.2 System of control in the process of preparing financial statements 206 9.3 Audit firm auditing the financial statements 209 9.4 Share capital and shareholders of PZU, stock held by members of its governing bodies 210 9.5 Rules for amending the Company’s Articles of Association 211 9.6 Shareholder Meeting and shareholder rights 211 9.7 Supervisory Board and Management Board - composition, powers, method of operation 214 9.8 Compensation of the members of governing bodies 231 9.9 Diversity policy applied to the Issuer’s administrative, managing and supervising bodies 235
In 2019 we successfully continued work on optimizing and automating processes employing artificial intelligence to identify and handle claims. The outcome is improvement in claims handling standards and shortening of the time for technical analysis while simultaneously augmenting cost effectiveness. According to the targets in the strategy, the comprehensive approach to clients is creating new quality that is translating into the centralized and smarter utilization of data.
Changing organizational culture, employees’ greater engagement The successfully implemented changes simultaneously involve a transformation in the PZU Group’s organizational culture so as to strengthen employee engagement and to align them to the company and its strategy.
PZU’s employee engagement, which has been evaluated in an independent study, has grown by 11 percentage points since 2018, thereby reaching a record-breaking level of 51% despite the downward trends on the market. At the same time, PZU is one of the top ten employers in the reputable “Employer of the Year” study that has been conducted by AIESEC Polska for nearly 30 years. These results make me particularly proud because they prove that the PZU Group is gaining an ever greater ability to attract and retain the best employees while creating working conditions for them in which they are able to develop professionally and be successful.
To an ever greater degree the PZU Group is also opening up to international cooperation, thereby becoming an advocate of the Polish economy and the overall region. During the World Economic Forum in Davos we set up the Business Council of Growing Europe jointly with the largest companies from Central and Eastern Europe to promulgate investments in the region. The strategic partnerships being established with global financial institutions like Goldman Sachs open up opportunities for us to offer our products to an ever wider community of clients, while forming a window to the world for our clients to date.
Maintaining the stability of the Group’s foundations The outcome of these projects and initiatives is that the PZU Group’s position is getting stronger on the insurance market in Poland. The record-breaking value of gross written premium in 2019 was a success as it exceeded PLN 24 billion, while maintaining a very high return on equity of 21.2%. This was the result of the high profitability achieved in the most important sales areas. The combined ratio in non-life insurance was 88.4%, while the operating margin in group insurance was 21.3%.
The results generated in 2019 and the successfully implemented solutions allow us to gaze into the future with a large amount of optimism. They serve as proof that the PZU Group is a dynamic organization that fastidiously observes the market environment, analyzes market cycles and is capable of drawing conclusions based on the changes taking place, or even get in front of them for the benefit of its shareholders.
I can assure you that the Management Board under my leadership will continue to pursue with determination ambitious plans to develop the PZU Group by building new client access channels and extending the offer and perfecting data analysis processes. We are endeavoring to become our clients’ partner of top choice, among individual and corporate clients, as we stand at their side, recognizing the risks and protecting them against these risks while allowing clients to meet their needs, ambitions and plans.
This is how we see our responsibility; this is how we understand our role in interactions with clients, employees and communities where we function and – quite naturally – in interactions with our shareholders.
The mojePZU platform, as the most extensive electronic client service system on the insurance, finance and health market has become a symbol depicting the PZU Group’s new approach and bringing together all of its competitive advantages. It provides clients with convenience and the ability to use PZU’s services from any venue at any time of the day. What’s more, it has become a crucial tool in how our employees and agents streamline client service, proving that direct sales is not inconsistent with an efficient distribution network but rather is something that supports and broadens its reach.
On behalf of the management boards of the PZU Group companies, I have the pleasure of conveying to you our activity report for 2019, which was an exceptionally successful year for the PZU Group. The Group’s net profit attributable to the holders of the parent company totaling PLN 3,295 million was a recordbreaking level in PZU’s history on the stock exchange.
Unwavering execution of the #newPZU strategy The successes we have achieved are the outcome of pursuing our ambitious strategy entitled “The New PZU – More Than
This end is served by the innovative and forward-looking solutions that are gradually being implemented and that are based on modern technologies, including artificial intelligence
The PZU Group’s strength is rooted in the synergy of insurance and banking. New products and growing results are the outcome of the rapid development in bancassurance and assurbanking. The premium collected in collaboration with the banks belonging to the PZU Group was PLN 0.89 billion at the end of 2019, or 160% above the year before, thereby nearly reaching the level not projected to be achieved until 2020. Cost reduction has outpaced the strategic objective planned for 2020 in the amount of PLN 100 million.
Social engagement as expressed by PZU’s social strategy announced in 2019 under the slogan of #10yearslonger is an important part of the PZU Group’s efforts. It is rooted in prevention, or preventing losses and misfortunes, instead of just providing assistance when something bad happens. This involves a wide spectrum of prevention in safety and health.
At the same time, engaging in projects such as creating a stock market index comprising states belonging to the Three Seas’ Initiative under the name of CEEplus is an investment in the future and proof of the PZU Group’s growing international significance. PZU’s contribution to this index involves the launch of a passive fund known as inPZU CEEplus based on this index to promote the region of the Three Seas’ Initiative and attract investors to this region.
Percentage share in the operating result (adjusted for PZU’s shares in banks)
1 Assisted recognition of the PZU / PZU Życie brand, study by the Gfk Polonia institute, 2019
We place special emphasis on our code of ethics and corporate social responsibility in how we conduct business. The PZU Group’s value growth should be aligned to the needs of the environment and rely on sustainable resource utilization.
We would like to do something different from the classical client relation model insurers follow in which the only contact clients have with their insurer after buying a policy is when a claim occurs. We bring together all of the PZU Group’s activities and integrate them in a client-focused manner: life insurance, non-life insurance, health insurance, investments, pensions, health care, banking and assistance services. Our client relationships and our knowledge of our clients are becoming our main value, while our chief product is our acumen in addressing client needs to build a stable future.
It is the Group’s strategic ambition to build long-lasting client relations, thereby leading to the integration of all operating areas with the client at the focal point. This makes it possible to deliver products and services that are well-matched to client needs at the appropriate time and place and respond to other client needs on a comprehensive basis. A crucial element in this process involves the usage of tools rooted in artificial intelligence, Big Data and mobile solutions that contributes to building an entrenched technological advantage in integrated client service.
PZU’s philosophy of thinking is driving the transformation of the company’s operating model from an insurer model (pricing and transferring risk) to the model of a service company specializing in utilizing data (risk management consulting and services as well as caring for the future of clients, retail and business alike). The new model brings together all of the PZU Group’s activities and integrates them in a client-focused manner: life insurance, non-life insurance, health insurance, investments, pensions, health care, banking and assistance services.
In the Baltic States in which the PZU Group is in the insurance business, its distribution network consists of approximately 700 agents, 21 multiagencies and 408 brokers. PZU also cooperates with 4 banks and 14 strategic partners. In Ukraine insurance products are distributed through approximately 400 agents and in cooperation with 15 multiagencies, 37 brokers, 7 banks and 4 strategic partners.
We manage our business responsibly PZU is an organization operating at a large scale. It is also cognizant of the expectations various stakeholder have of it, including clients, employees, investors, partners, industry experts, social environment and a number of institutions and organizations. That is why managing relations with stakeholders and their impact on the business community is accomplished in a deliberate and sustainable manner. PZU is a company that is open to social expectations. In the actions it takes it strives to set trends and construe business solutions responsibly. It also gets involved in actions to benefit the local communities in which the Group’s clients and employees function. For the PZU Group, sustainable management is a deliberate choice of how it conducts its business, thereby making it possible to build the company’s long-term value in an ethical and transparent manner while giving consideration to stakeholder needs and expectations. The full scope of information pertaining to the PZU Group’s implementation of corporate social responsibility principles that also incorporates all the legally-required non-financial information can be found in the 2019 Non-Financial Information Report of the PZU Group and PZU.
Insurance – for many years the PZU Group has provided insurance cover in all of the most important areas of private, public and business life, thereby safeguarding its clients’ lives, assets and health. PZU (nonlife insurance, including motor, residential and buildings, agricultural and third party liability insurance) and PZU Życie (life insurance) are the leaders on Poland’s insurance market. Since 2014, following the acquisition of Link4, insurance is offered by the Group in Poland under two brands: PZU, a brand with more than 200 years of tradition standing behind it and Link4, a much younger brand associated with direct sales channels. TUW PZUW, a mutual insurer, was founded in 2015 to sell and handle insurance products for companies in various industries, focusing on cooperation with large corporates, medical entities (hospitals and clinics) and local government units.
An extensive range of investment products is offered under the PZU Investments brand, namely open and closed-end mutual funds and pension products: an open-end pension fund, individual retirement accounts, individual retirement security accounts with a voluntary pension fund, employee pension plans and, as of 1 July 2019, employee capital schemes (ECS). PZU TFI also invests the PZU Group’s own funds.
The PZU Group delivers its clients value that is difficult to replicate: quick doctor appointments (in basic medical care a visit is offered within a maximum of 2 business days, and in the case of specialists within a maximum of 5 business days), respecting referrals for tests prepared by physicians from outside the PZU Zdrowie network, remote medical consultation enabling a patient check-up, discussion of symptoms, test results, receipt of a prescription for medicines taken on a long-term basis or referral to examination, cooperation with 2,200 partner centers in Poland and a proprietary network of 130 branches and an offer enriched with preventive activities.
Bank Pekao was established in 1929. It is a universal commercial bank offering a full range of banking services provided to individual and institutional clients operating in Poland.
The PZU Group’s operations in the banking segment are conducted chiefly in the following areas: bancassurance, assurbanking, cooperation and operational synergies.
Products and services accessible to clients whenever and wherever they want them
Net result on asset management of TFI and OFE PZU clients (PLN million)
Banking assets in the PZU Group (PLN billion) ROE (return on equity)
Net profit attributable to equity holders of the parent company 2,343 1,754 2,502 2,559 2,780
Equity attributable to the owners of the parent company 12,924 12,990 14,599 14,925 16,169
The financial results generated by the PZU Group in recent years place it among the most profitable financial institutions in the country. At the same time, they translate into high asset utilization ratios. In 2019 the return on equity was 21.2%, much higher than the average posted by insurance companies in Europe. Rapid growth is achieved while preserving a high level of business safety. This is corroborated both by its high solvency ratios and by the A- investment grade rating /positive/ awarded by the US rating agency S&P Global Ratings.
As at the end of Q3 2019, the solvency ratio - (calculated according to the standard Solvency II formula) was 220%, a level above the average solvency ratio reported by insurance groups in Europe.
Own funds (PLN bn ) Solven cy margin (P LN bn)
Selected awards and distinctions The PZU Group received numerous awards and distinctions for the activity in 2019. We present some selected ones below.
Business: TFI PZU: “The Most Credible in the Polish Economy” in the “Revolutionary” category for inPZU
PZU Zdrowie: 100% Polish Product LINK4: Client’s Golden Laurel of 2019 in the Motor Insurance Category
PZU: Efma & Accenture Insurance Awards 2019 workforce transformation, core insurance transformation
PZU: Philanthropist of the Year in 2019 in the Sports category
LINK4: Effie Awards for LINK4 Mom “Don’t Be Afraid to Be Afraid”
PZU Zdrowie: Icebreakers - for Employers Supporting the Hiring of Disabled People
CSR: HR: IR: PZU: First place in IIF’s data quality ranking for 2019
Creation of the PZU brand - transformation of the Polish Mutual Insurance Directorate into a public company – Powszechny Zakład Ubezpieczeń Wzajemnych
Rebranding PZU’s Initial Public Offering (IPO) Acquisition of a stake in OJSC „SkideWest ” (PZU Ukraine), business launch on the Ukrainian insurance market
NOVEMBER PZU as the partner of the 11th Annual CFA Institute
In this section: 1. Main trends in the Polish economy 2. External environment in the Baltic States and Ukraine 3. Situation on financial markets 4. Polish and Baltic States insurance sector compared to Europe 5. Polish banking sector compared to Europe 6. Regulations pertaining to the insurance market and the financial markets in Poland 7. Factors that may affect the operations of the Polish insurance sector and the PZU Group’s activities in 2020
The growth rate of an average monthly salary in the business sector showed a slight downward trend in 2019. The nominal average monthly salary in this sector increased in 2019 by 6.5% compared to a 7.1% increase in 2018. However the salary growth rate in the entire economy did not slow down. Thanks to a high increase in salaries in the state budget sphere in 2019, the average monthly wages in the Polish economy increased by 7,2% compared to 7.1% in 2018. The increase in disposable income, supported by introduction of additional social benefits and reduction of PIT, accelerated in 2019 compared to the year before, which is confirmed by the data for the first three quarters. The robust growth in disposable income, coupled with high consumer confidence indicators, contributed to the achievement of a relatively high rate of growth in household consumption in 2019 (3.9%).
In 2019, the Monetary Policy Council decided not to change interest rates. They remained flat at the level set in March 2015 – the reference interest rate was 1.5%. According to the Monetary Policy Council, the current level of interest rates is still conducive to keeping the Polish economy on a sustainable growth path and helps it preserve macroeconomic balance.
Source: Central Statistical Office, preliminary estimate of GDP in Q4, 2019 as at 28 February 2020
Lithuania ccording to preliminary estimates, Lithuania’s GDP growth in Q4 2019 stood at 3.8% on an annual basis. The Lithuanian economy was powered by investments and favorable labor market. Increased investments a few years back have brought about a significant increase in production capacity which, in turn, has contributed to growth of industry and exports.
In December 2019 the unemployment rate in Lithuania stood at 8.7%, down by 0.2 p.p. compared to December 2018. To a slight extent, a higher immigration rate eased tensions on the labor market. The majority of immigrants have been hired by transportation companies, whereas a number of other industries continue to struggle with a shortage of personnel.
In December 2019, the annual inflation rate was 2.3%, driven largely by higher prices of food, soft drinks and goods and services related to home maintenance (commodity prices increased 2.1% and service prices grew by 2.6%).
2.3 Situation on the financial markets 2019 was a favorable year for investors on global financial markets. Most asset classes brought a positive rate of return. Despite temporary fluctuations in Q2 and Q3, the prices of equities on developed markets were increasing. The yields of US and German treasury bonds showed a significant correlation throughout the year. The yields of 10-year US Treasuries and 10-year Bunds were dropping uninterruptedly from the beginning of the year to the beginning of September. Subsequently, they increased, but not deep enough to break the level at which they started the year. The yield of German Bunds was at the historical low this year.
For most part of the year, trends on the financial markets were swayed by news of heightened tensions in global trade relations, the risk of a disorderly Brexit and indications of decelerating economic growth in the world’s major economies. In 2019, the US trade policy became more austere, especially towards China, which resulted in bilateral tariff hikes. This had an adverse effect on the dynamics of global trade and resulted in a worsening of the business climate in economies dependent largely on exports, including Germany, which in 2019 just missed technical recession. The rate of GDP growth in the US, China and the euro area began to subside. The concerns about upcoming recession were also fueled by the yield curve inversion in the US, which in the past was quite a precise indicator of an approaching recession. From March 10-year US treasury bonds offered lower yield than short-term 3-month bonds and this status quo lasted till October. Only the end of the year reduced the uncertainty in the context of key risks. The US and China started to work on the first phase of a trade agreement, which entered into force in January 2020. In addition, the danger of a no-deal Brexit disappeared.
The Polish equity market closed 2019 practically without any changes, being in terms of the rate of return one of the weakest indices in the world. In 2019, the WIG index yielded a rate of return of +0.3%, but the WIG20 index lost 5.6%. Against the backdrop of increases in global indices and the very good economic situation in Poland in the first half of the year, all of the country’s major stock market indices grew until the end of March. The beginning of April roughly marked a synchronized descent in all stock market indices. By the end of the year, certain differences appeared in the paths followed by large and small cap indices. While in the last months of the year, the WIG20, the blue chip index, was declining, the medium and small company indices of mWIG40 and sWIG80 were improving in this period. Compared to other major sectors, in 2019 the telecommunication industry was outstandingly strong, while all other sectors recorded negative rates of return.
Drop in the rate of registered unemployment in Poland in December 2019 to from 5.8% in December 2018 growth in average monthly wages in the corporate sector in Poland in 2019 versus 7.1% in 2018
Annual average consumer price inflation (CPI) of in 2019 versus 1.6% in 2018 since 2015
Baltic States’ annualized GDP during the first three quarters of 2019: in Latvia1.9%
Medium-term and long-term treasury bond yields in 2019 dropped. The performance of Polish 10-year treasury bonds was largely correlated with changes in the yields on 10-year bonds on the core markets. At the same time, during the year the spread between Polish and German 10-year treasury bonds tightened by 26 basis points, which resulted partly from the robust fundamentals of the Polish economy against the backdrop of European economies. Throughout 2019, the yields on 10-year treasury bonds slumped by 78 bps from 2.85% to
Bank loans stated as a percentage of GDP in the Polish banking system at
In 2019, from the beginning of the year until the end of September, a clear trend transpired on the main currency markets with the US dollar strengthening markedly against other major global currencies. In the light of decreasing concerns about a disorderly Brexit, the British pound appreciated by the end of the year. Eventually, the USD/EUR exchange rate stood at 1.12 at the end of 2019, which means a 1.8% decline compared to the end of the previous year. In the same period, the Polish zloty weakened against the US dollar and strengthened against the euro. Between the beginning and end of 2019, the US dollar appreciated against the Polish zloty by 1.0% to PLN 3.80, while the euro was worth PLN 4.26 at the end of 2019, down 1.0%. The Polish zloty clearly weakened against the Swiss franc by 2.7% (the PLN/CHF exchange rate increased to PLN 3.92).
2.4 Polish and Baltic States insurance sector compared to Europe he European insurance market generates approximately 31,6% of the world’s gross written premium3. According to the data published in September 20194 active insurers in Europe, in countries associated with Insurance
Europe acquired in 2018 EUR 1,311 billion of GWP. 2018 was a difficult year for the insurance market due to the intensive price war, major uncertainty on the financial markets and the risk of an economic recession. The problems faced the European Union have exacerbated – migration policy, lawabidingness and financing of structures have become the trouble spots sources of friction between member states. The strengthening of conservative factions and uncertainty of actions had negative impact on medium – and longterm investments in the region. This also translated into consequences for the European insurance market.
Gross written premium per capita (2018, EUR) in relation to the insurance market growth rate 3,0 zł
Analyzing the penetration of insurance in relation to GDP per capita, it should be expected that the Polish insurance sector will develop alongside Poland’s economic development (growing GDP), greater affluence of the society (increasing disposable household incomes) and growing insurance awareness of the local population, which was exactly the path taken by West European countries.
The Polish banking sector operates in accordance with the classic model of financial intermediation in which banks mainly provide loans to the non-financial sector using their customers’ deposits in the process. This is reflected in the high 11 As at the date of the report, the most up-to-date data for Europe’s banking market are available for 2018 12 European Central Bank,
Growth dynamics in the years 2012-2018 (CAGR for data in euro)
P pe r ca pi ta 8, i n eu ro 70,000
External environment indebted than in the euro area: the average household has total liabilities of 5.5% of gross assets while in the euro area the average debt is 26% of assets in total15.
Mortgage loans account for the highest percentage of household loans (roughly 60%); in the European Union that percentage is higher (roughly 70%). Housing loans in Poland account for 38.5% of the GDP, which is similar to the European Union average. The growth rate of consumer loans is higher than the GDP growth rate and Poland is a country with one of the highest share of debt of this type in relation to the GDP in the European Union. The quality of high-amount loans is currently slightly lower than of other consumer loans 16.
Banks are financed with client deposits in Poland to a greater extent than in other countries in the European Union. Financial assets (deposits, mutual funds, equities, bonds, life insurance and voluntary pension plans) stated as a percentage of households’ assets are markedly smaller in Poland than in the most economically developed countries in Europe. In 2016, they stood at 8.5% in Poland, while they were 17.8% of gross assets in the euro area. This disproportion is also very visible in absolute figures: EUR 3.5 thousand in Poland versus EUR 10.6 15 BZGD research is conducted in the international research network called Household Finance and Consumption Network (HFCN). Central banks and statistical offices representing euro area countries, Poland and Hungary participate in this undertaking initiated in 2006 and coordinated by the European Central Bank (ECB). wiadomosci_2018/ZGDwP_20180109.html 16 National Bank of Poland, Report on the stability of the financial system, December 2019 share of loans in the banking sector’s assets, which accounted for 68% of total assets and was higher than the average for the banking sectors of the European Union (62%)13. The share of other types of assets in the banks’ balance sheets, in particular assets held for trading, was much lower in Poland, just like in other Central and Eastern European countries, than in developed economies.
The recent research conducted by the National Bank of Poland indicates that households in Poland are significantly less 13European Central Bank, 14 Polish Financial Supervision Authority, Standing of the banking sector January-March 2019
Source: NBP, Stability report, December 2018 on a personal account kept in ZUS. Monies transferred to a mutual fund will be private monies of the saving person (currently the assets accumulated in OFEs are public funds).
From the perspective of operation of the PZU Group and execution of PZU’s parent obligations the amendment of Article 105 sec. 1 of the Banking Law Act of 29 August 1997 was desirable. In accordance with this regulation the bank is obligated to provide the insurance undertaking with information constituting banking secret to the extent required for the insurance company to comply with the regulations pertaining to group supervision applicable to such undertaking, as specified in the Insurance and Reinsurance Activity Act and the regulations pertaining to supplementary oversight exercised pursuant to the Act of 15 April 2005 on supplementary oversight over credit institutions and insurance undertaking, reinsurance undertakings and investment firms comprising a financial conglomerate.
Another regulation of importance for insurance companies was the amendment of the Insurance and Reinsurance Activity Act of 11 September 2015 which came into effect on 4 May 2019. It allows insurance companies to process data concerning health of the insureds or beneficiaries contained in insurance agreements or declarations submitted before an insurance agreement is concluded, for underwriting purposes or in order to perform the insurance agreement, to the extent required given the purpose and type of insurance. Consent of the data subject is not required for the processing of data in the above extent.
On 28 September 2019, the Act of 19 July 2019 on Special Rights of Injured Persons with an Exhausted Indemnity Determined on the basis of Applicable Regulations Prevailing before 1 January 2006 (Journal of Laws 2019, Item 1631) came into force. After the indemnity is exhausted, up to the amount of liability of the insurance company for the damage, in the case of obligatory third party liability insurance for motor vehicle owners and farmers on account of operating a farm, the injured party will be entitled to a claim for payment of an annuity against the Insurance Guarantee Fund. The claim is limited to the amount of the indemnity determined as at the date of submission of the claim in a situation where the insurance undertaking was not required to pay an annuity on the basis of a court ruling setting a different amount thousand in the euro area. On the other hand, financial assets, even though they are small, are a popular form in which Polish nationals accumulate financial means. 91% of all households hold them, with deposits being the most popular form of accumulating financial assets (85% of all households have deposits). Households much more rarely invest their savings in mutual funds (3.8% of households), though on average the amounts involved are higher (EUR 19.6 thousand). NBP’s research shows that the increase in financial assets was the main driver of the growth in net assets17.
On 1 January 2019 the Act on Employee Capital Schemes of 4 October 2018 entered into force. It establishes a private long-term saving scheme in which employee savings are built jointly by employees, their employers and the state. Such savings are to be invested by financial institutions selected by employers in communication with employees. The ECSs were launched on 1 July 2019, initially in the largest employers employing over 250 people. From 1 January 2020 the ECS obligation covered also employers employing over 50 employees. Ultimately, as of 1 January 2021, the schemes will be introduced in all employers (with the exceptions specified in the ECS Act).
External environment 2021. The Regulation establishes harmonized regulations for financial market participants (including insurance companies that offer investment products) with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability-related information with respect to financial products. Financial market entities will be obligated to, among other things, publish on their websites information about their strategies on the integration of sustainability risks in their investment decision-making process. In addition, the EU conducts advanced work on a regulation establishing the so-called taxonomy of investments in terms of their impact on sustainable development, which will apply among others to the aforementioned disclosures (it will amend Regulation 2019/2088). On 17 December 2019, a close-to-final version of the draft of this regulation (comprise proposal of the Presidency) was published. Preliminary proposals for consideration of issues related to sustainable financing in prudential regulations, i.e. in Solvency II regulations, have already been prepared for the insurance sector.
2019 was also a period in which numerous changes entered into effect in the tax area, with the following being among them: In January 2019, new insurance activity regulations (MDRs) came into force, which introduced the obligation to report tax schemes. These regulations are aimed at increasing effectiveness in combating dishonest taxpayers and at eliminating aggressive tax optimization schemes. They impose additional obligations on tax advisors, financial institution employees as well as on clients of these entities.
Pursuant to the amendment to the Act on exchange of tax information, starting on 1 September 2019, clients of financial institutions have to submit a tax residency declaration for the period of 1 January 2016 to 30 April 2017. A criminal liability clause for tax residence declarations also came into effect on 1 September, 2019. This clause replaced the warning about criminal liability for making factually incorrect declarations.
Selected Supreme Court rulings affecting insurance activity issued in 2019 From the Supreme Court rulings handed down in 2019 with regard to insurance, one should mention the most important ones pertaining to: general damages for the injured party’s relatives, liability of the insurance undertaking for expenses incurred for lease of a replacement vehicle and prepared expert valuation, and imposition of penalties by the President of the Office of Competition and Consumer Protection for applying abusive contractual clauses.
In the resolution of 22 October 2019, in case I NSNZP 2/19, the Supreme Court concluded that a relative of an injured person who has suffered a serious and permanent injury is not entitled to general damages in cash pursuant to Article 448 of the Civil Code. This resolution is a turning point compared to earlier Supreme Court resolutions adopted in similar cases. The future will show whether the stance presented in it will be accepted in the line of rulings.
On 15 February 2019, in the case with file ref. no. III CZP 84/18, the Supreme Court noted that insurer’s liability in third party liability insurance of a motor vehicle owner comprises also necessary and economically justified expenditures, incurred by the injured party for rental of a replacement car in the period of a prolonged repair, unless they result from circumstances attributable to the injured party or a third party. The resolution pertains to factors driving the necessity to use a replacement vehicle, disruption of the causal effect and liability of different entities for the necessity of using a replacement vehicle.
On 10 September 2019, in the case with file ref, no. I NSK 54/18, the Supreme Court concluded that the President of the Office of Competition and Consumer Protection may impose a penalty on the commercial undertaking for application of abusive contractual clauses listed in the abusive clause register, but only in the cases in which the clause was previously entered in the register as a result of proceedings with regard to the same commercial undertaking.
of the number of resulting payments, exceeds PLN 15 thousand or equivalent.
The changes to the regulations not only impose new obligations on taxpayers but also provide for certain simplifications. These include removal, as of 2020, of the obligation submit separately VAT tax returns in the current form and the existing JPK_VAT report.
Due to the scope of PZU Group’s business (insurance sector in Poland, Baltic states and Ukraine, mutual and pension funds sector, banking), the main factors that will shape the environment in which the Group will operate and may have direct influence on the development and results of the Group in the medium term, in particular in 2020, can be divided into three categories: macroeconomic and geopolitical, legal and regulatory, and market factors, specific to individual sectors / businesses in which the Group is involved.
Macroeconomic and geopolitical factors In the Polish economy there are presently no clear signs of disruption to the balance where during the upcoming quarters they could bring about a strong cyclical slowdown. However Poland enter the declining period of the use of EU funds from the 2014-2020 financial framework, on top of which local governments plan to curtail expenditures on investments. This will likely slow down the pace of economic growth. At the same time, in the euro area, especially in Germany, a relatively low GDP growth rate continues. In 2020 the situation in the labor market and increased social benefits and tax cuts should support increasing consumption in households. However, with the inflation picking up y/y and increasing consumer concerns regarding the economic slowdown, the consumption increase rate from 2019 may be difficult to maintain in 2020. The internal factors that may curtail GDP growth in Poland include problems with hiring properly qualified staff, decline in propensity to invest (suggested by business climate research)
or a higher than expected increase in inflation eroding households’ real incomes.
The consumption growth rate in 2020 will likely remain robust, although probably lower than last year. Public investments funded from the central budget should continue to grow, though the shortage of qualified employees and higher costs may lead to delays in the execution of some projects. Businesses, in turn, in the face of uncertainties related to demand for their goods and services, may curtail their investments, which is suggested by the NBP business climate research carried out in January. GDP growth in and around the Polish economy clearly slowed down in 2019. Especially the growth rate of industrial production in the euro area and Germany fell off. The slowdown in global trade has become visible. The main danger for global growth and market sentiment is spreading epidemic of COVID-19. Pandemic may disrupt not only global supply chains, but also worsen consumer and entrepreneurs sentiments, limit travelling, and lead to temporary shutdown of public institutions. Global insecurity is also related to future negotiations on UE-UK economic relations after Brexit.
It therefore appears that – although certain symptoms of improving business climate in global industry can been seen – the possibility of a serious slowdown in GDP growth in the euro area and the overall global economy, and hence the occurrence of unfavorable phenomena on the financial markets, is the most important macroeconomic risk in 2020. We expect that the pace of GDP growth in Poland in 2020 will be approximately 3.0%. Moreover, if the impact of the coronavirus epidemic on global economic growth turned out to be significant, we
Growth of gross fixed capital formation in % (y/y) 4.0 8.9 6.9 2.7
Consumer price index in % (y/y, annual average) 2.0 1.6 2.3 3.6
Nominal salary growth in the national economy in % (y/y) 5.7 7.1 7.2 7.3
The above macroeconomic factors and the geopolitical situation in the world (tensions in the Middle East, presidential elections in the US, scale of spreading of the Wuhan coronavirus) may affect the behavior of global central banks and, as a consequence, the overall conditions in the global and national financial market. The climate and direction of the changes in the financial markets is, in turn, important for the attractiveness of the products offered by the PZU Group, in particular unit-linked funds. It also affects the level of assets and management fees charged by the Group companies for asset management.
Legal and regulatory factors The PZU Group’s activity is subject to the impact of local regulations and European legal acts. From the perspective of the insurance business, the Group’s activity will be affected by any legal changes that may contribute to an increase in the insurance companies’ burden, e.g. court verdicts on payout of general damages under TPL insurance, or completion of the legislative work on the act on provision of services regarding pursuance of claims for damages. The adopted solutions may translate into the amount of the claims paid by the PZU Group.
Potential intervention of the supervisory authority in the unit-linked segment, that may lead to a reduction of sales or changes in product structure, may also have an impact on the Group’s operations.
The situation in the insurance and banking sector may also change in connection with new entrants and trends associated with development of new technologies, among
PZU Group grasps how new technologies are changing the insurance and banking industry, carefully keeps track of the dynamic social and demographic changes and constantly analyzes the threats and opportunities affecting the development of the markets in which it operates. The PZU strategy for 2017-2020 published on 9 January 2018 and entitled “The New PZU – More Than Insurance” is also our response to the ongoing changes. PZU’s goal is to take advantage of the opportunities ensuing from the transformation of the insurance market, address our current clients’ needs better and enhance their satisfaction as well as reach those segments that value digital solutions SECTION 4 PZU 2020 – MORE THAN INSURANCE.
We are strengthening our position as the financial services leader. The PZU Group’s brand spans insurance, banking products, mutual funds and pension funds and medical services.
3 the Elvita Group consists of the following companies: Przedsiębiorstwo Świadczeń Zdrowotnych i Promocji Zdrowia ELVITA – Jaworzno III Sp. z o.o., Przedsiębiorstwo Usług Medycznych PROELMED Sp. z o.o. in Łaziskach Górnych 4 the Alior Bank Group is composed of the following companies: Alior Bank SA, Alior Services Sp. z o.o., Alior Leasing Sp. z o.o., Meritum Services ICB SA , Alior TFI SA, New Commerce Services Sp. z o.o., Absource Sp. z o.o., Serwis Ubezpieczeniowy Sp. z.o., PayPo Sp. z o.o., CORSHAM Sp. z o.o., RBL_VC Sp. z o.o. 5 the Bank Pekao Group is composed of the following companies: Bank Pekao SA, Pekao Bank Hipoteczny SA, , Pekao Leasing Sp. z o.o., Pekao Investment Banking SA, Pekao Faktoring Sp. z o.o., Centrum Kart SA, Pekao Financial Services Sp. z o.o., Pekao Direct Sp. z o.o. (until 16.01.2020 Centrum Bankowości Bezpośredniej Sp. z o.o.) Dom Inwestycyjny Xelion Sp. z o.o., Pekao Investment Management SA (which holds a 100% stake in Pekao TFI SA), CPF Management 6 the Armatura Group is composed of the following companies: Armatura Kraków SA, Aquaform SA, Aquaform Ukraine TOW, Aquaform Romania SRL 7 the Tomma Group is composed of the following subordinate companies: Bonus Diagnosta Sp. z o.o. and Asklepios Diagnostyka Sp. z o.o.
Grupa Armatura 6 Cracow - Poland Investments Funds menaged by TFI PZU – 100.00%
Bank Pekao 5 Warsaw - Poland PZU – 20.00% Investments Funds menaged by TFI PZU – 0.0213%
Market situation Measured by gross written premium in the first three quarters of 2019, the non-life insurance market in Poland grew by a total of PLN 1,192 million (+4.0%) compared to the corresponding period of the previous year.
Within motor insurance, the gross written premium in motor TPL, which is the most sizable part of the non-life insurance market in Poland (PLN 12.2bn, or 39.1% of total non-life market in first three quarters of 2019) increased by 0.4% y/y (by
The PZU Group conducts various activities in insurance and finance. In particular, the PZU Group’s companies provide services in life insurance, non-life insurance, health insurance and they manage client assets within its open-end pension fund and mutual funds, and thanks to its investment in Bank Pekao and Alior Bank they also offer banking services.
PZU* Market Market net of PZU PZU* Market Market net of PZU
In the first three quarters of 2019, the technical result of the non-life insurance market fell by PLN 255 million to PLN 2,116 million. The fall in the technical result in insurance against fire and other damage to property of PLN 324 million (as an effect of an increase in claims and benefits paid more than offsetting the growth in earned premium) and motor own damage insurance of PLN 260 million, offset by a PLN 302 million increase in motor TPL, had the largest impact on this change.
The movement in the technical result in the motor insurance group resulted from a combined effect of a higher earned premium (up by PLN 790 million, +5.2%) and an increase in the loss ratio of the motor own damage portfolio.
The following entities in the PZU Group operate on the non-life insurance market in Poland: the Group’s parent company, i.e. PZU, along with LINK4 and TUW PZUW.
To respond to client expectations in recent years, the PZU Group has been consistently extending its offering for retail and corporate clients, thereby sustaining its high market share.
In the first three quarters of 2019, the PZU Group had a 33.7% share in the non-life insurance market, compared to 35.9% in the corresponding period of 2018 (33.2% and 34.8% on direct activity, respectively), thereby recording a slight dip while retaining the portfolio’s profitability well above market average.
PLN 44 million). Within that figure, a decline was visible in motor TPL in direct activity (down PLN 149 million, -1.3% y/y), which was offset by higher premiums from indirect activity (a growth of PLN 193 million, +27.1% y/y). The gradually declining dynamics of premium growth in motor TPL resulted from the active pricing policy pursued by competitors after a period of above-average profitability of the portfolio. On the other hand, growth of sales in motor own damage insurance grew was 5.0% y/y (or PLN 307 million) and contributed the most to the market increase in the period.
In non-motor insurance, general TPL insurance (up PLN 167 million, +10.0%) and assistance (up PLN 105 million, +12.2%) made the most positive contribution to the overall insurance market’s growth. A decline in premium was observable only in legal protection insurance (down PLN 20 million, -24.8%).
PZU Ukraine’s share of the non-life insurance market in Ukraine in the first three quarters of 2019,
Lietuvos Draudimas’ share of the non-life insurance market in Lithuania at the end of 2019
Lietuvos Draudimas branch’s share of the non-life insurance market in Estonia at the end of 2019 market position held by Bank Pekao and Alior Bank, respectively, measured by assets at the end of Q3 2019
PZU’s activity As the PZU Group’s parent company, PZU offers an extensive array of non-life insurance products, including motor insurance, property insurance, casualty insurance, agricultural insurance and third party liability insurance. At year end 2019, motor insurance was the most important group of products offered by PZU, both in terms of the number of insurance agreements and its premium stated as a percentage of total gross written premium.
Most of the changes in the corporate insurance segment called for enhancing the effectiveness of collaboration with intermediaries and making the dedicated offer for car fleet clients and leasing companies more attractive. The most important activities related to the product offering were as follows: • started submitting offers to leasing clients in quotation services by matching PZU’s offering to the client’s expectations and risk; • rolled out and promoted prevention programs in motor insurance – Audax and Bezpieczna Flota (Safe Fleet) and in property insurance – RyzykoPRO; • expanded the offering of cyber risk insurance by including coverage for medium-sized enterprises with the sum insured of up to PLN 20 million; • developed a new offering in the field of property insurance in international transport, aiming to increase the degree of competitiveness and standardization of the proposal, in particular for clients in the business of both domestic and international transport; • implemented efficient and cost-optimal solutions for the robotization of business processes in five areas, including back-office and front-office, which additionally supports the development of internal competence to maintain and develop robotized solutions in the future. Owing to the use of robotization, it was possible, among others, to shorten the time necessary to handle client requests, including the process of issuing damage certificates for corporate clients. A comprehensive approach to implementing robotization was recognized by Efma, which granted PZU the main award in the Efma & Accenture Insurance Awards 2019 contest.
In strategic partnerships, cooperation was based mostly on companies operating in the telecom and power sectors through which insurance for electronic equipment and assistance services were offered, e.g. the assistance of an electrician or a plumber. PZU’s insurance offering is also present on the e-commerce market through cooperation with Allegro and PLL LOT.
* PZU Group – PZU, LINK4, TUW PZUW ** PZU Group’s market share in non-life insurance on direct business Groups: Allianz – Allianz, Euler Hermes; Ergo Hestia – Ergo Hestia; Talanx – Warta, Europa; VIG – Compensa, Benefia, Inter-Risk, Wiener; Generali - Generali, Concordia Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2019
• extending the offer to clients holding a motor policy with LINK4 to include: ◦ Post-theft Assistance offered to clients holding a motor TPL insurance policy or bundle. This is a benefit up to PLN 2 thousand, which the client may use for various expenditures related to the car theft, such as: purchase of things that were in the stolen vehicle but are not covered by motor own damage insurance, rental of a replacement car, taxi rides or registration of another vehicle. Additionally, the insured may use a hotline that is available 24 hours a day and 7 days a week,
The dynamic growth and performance in 2017 resulted in TUW Polski Zakład Ubezpieczeń Wzajemnych being noticed on the international market when it was added to the list of largest mutual insurance companies in the world. According to the Global 500 report prepared by the International Cooperative and Mutual Insurance Federation (ICMIF) and published in 2019, TUW Polski Zakład Ubezpieczeń Wzajemnych is the second fastest growing mutual insurance company in the world, ranking 471st in the ranking of 500 largest cooperative and mutual insurance companies in the world.
Market situation Poland’s life insurance market measured by gross written premium was estimated at PLN 15,898 million in the first three quarters of 2019, meaning that over the most recent 5 years it contracted on average by 5.6% per annum. At the same time, gross written premium in Q3 2019 (ytd) was 3.1% lower than in the corresponding period of the previous year. This resulted principally from the evolution in the single premium business in investment products, while the gross written premium in products with a periodic premium increased slightly.
At the same time, market concentration measured by the periodic gross written premium remained high. The sequence of the largest market players did not change either, but their combined share, especially of the top four, expanded.
The total technical result generated by the life insurance companies in the first three quarters of 2019 was up PLN 135 million (5.6% y/y) to PLN 2,542 million. An increase of PLN 167 million (34.8%) transpired chiefly in the life insurance group (class I). This was caused by an increase in investment income in the portion allocated to this product group as well as growth in revenues, which more than offset the claims inflation and increase of costs associated with insurance activity.
PZU Życie Market Market net of PZU Życie PZU Życie Market Market net of PZU Życie
PZU Życie’s technical result represented more than half the result earned by all life insurance companies. This evidences the high profitability these products enjoy. PZU Życie’s technical result margin on gross written premium was 1.6 times higher than the overall margin generated by other companies offering life insurance (21.0% versus 13.0%).
Product offer PZU Życie, as a popular and the largest insurer on the Polish market, continuously expands its product offering by adding new products or modifying existing ones to protect its clients at each stage of their lives. Changes in the product offering are intended to attract new clients and expand the insurance cover for those already in the portfolio, along with strengthening their loyalty and increasing their satisfaction level. Taking advantage of the unique synergy of competences within the PZU Group (insurer, medical operator, investment manager), the company is able to comprehensively take care of life, health and savings of its clients, providing them with the broadest possible support.
Life insurance undertakings - percentage of periodic gross written premium in the first three quarters of 2019 (in %)
Groups: Talanx - Warta, Europa, Open Life; VIG - Compensa, Vienna Life; Aviva - Aviva, Santander-Aviva Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2019
Health) product, since July 2019 the option has been implemented of selling products consisting of only the protection part (PZU Life Coverage) or only the health part (PZU Life Coverage). This insurance is intended for small and medium enterprises employing at least 3 staff. Spouses, life partners or adult children of the primary insured (employee/company owner) may also benefit from this proposal. PZU Życie pod Ochroną (PZU Life Coverage) provides support for the insured’s family in the event of the insured’s death as well as a cash benefit and medical services, including in the event of an accident or a critical illness. Each employee may also individually extend the cover to include financial support in the event of a child’s health problems, co-funding of prescription drugs and additional financial support in the event of an accident in everyday life. PZU Zdrowie pod Ochroną (PZU Health Coverage) offers, among other benefits, access to doctors and tests in 620 cities and towns across Poland. Each employee may also individually extend the cover to include co-funding of prescription drugs and medical care for family members. The introduction of the option to sell only protection or only health products permits the agent to better tailor the offering to the needs of the policyholder; • in January 2020, pilot sales of the PZU Ochrona dla Rolników (PZU Cover for Farmers) product began, targeted at individuals who own or co-own a farm. Insurance cover may also include their spouses or life partners and adult children. The product was created on the basis of P Plus group insurance agreements. The advantages of this offering include high benefits under accident riders and a new benefit addressed only to this group of clients: death of the insured as a result of an accident at agricultural work. This is a new solution on the market, developed to meet the expectations of clients from this market segment. Each client may choose a proposal from the four available options; • in January 2020, new riders were added to the P Plus group insurance offer. The following three new riders were designed to provide insurance cover for children: ◦ accidental dismemberment of a child, ◦ hospitalization of a child caused by an accident or illness, ◦ occurrence of a critical illness of a child (26 different diseases); each of these types of insurance may be extended to cover medical services that include consultations with specialist physicians and rehabilitation; • in January 2020, a new rider was added to the PZU Ochrona i Zdrowie (PZU Cover and Health) – PZU Życie pod Ochroną “Ochrona dla Dziecka” (PZU Life Coverage product: “Child Cover”), which consists of the following three additional risks: critical illness of a child, hospitalization of a child and dismemberment of a child. The cover applies to children under the age of 18. The rider has two options that differ in the amount of the sum insured. The amount of the premium depends of the number of the insured’s children.
Insurance) rider. It is the first rider in this product line that provides both cash benefits and medical services such as outpatient rehabilitation and doctor consultations. The cover includes permanent accidental bodily injuries and accidental bone fractures. This insurance is complementary to the rider providing medical services in the event of accidental orthopedic injury; • raising the admission age limit in four insurance riders. This change expands the target group for these insurance products to include the oldest clients covered by individually continued insurance. It applies to the following riders: ◦ accidental death of the insured NW Plus, ◦ accidental hospitalization of the insured, ◦ With a Pharmacy Card, ◦ Assistant During an Illness; • after the completion of the pilot offering, sales of the target Insurance Program, Kontynuacja dla Ciebie (Continuation for You), began. This offering is targeted at persons leaving type P Plus group insurance, type P employee insurance or type P group life insurance who are eligible to continue the group insurance individually. This proposal may be taken advantage of by individuals under the age of 50 as at the date of signing the declaration of enrollment. Clients may choose the insurance cover that suits them best from the continuation options available for the eligible persons. A total of 6 options with different sums insured, depending on the type of continuation, are available.
• launch of promotional fees payable by clients in unit-linked products sold by Bank Millennium, Bank Pekao and Alior Bank.
As regards its other initiatives, PZU Życie continuously strives to understand the needs of its clients better and build longterm relations with them. The Company wants to respond swiftly to changes in the environment through a sophisticated offer accompanied by clear and communicative messages by doing the following: • creating predictive client attrition models and responding swiftly and effectively to symptoms of client dissatisfaction; • developing a loyalty program; • using a simple and transparent arrangement and description of its products on its new website www.pzu.pl.
(Employee Capital Schemes) and its impact on the products existing in the 3rd pillar of the pension system; • possible intervention of the regulatory authority in the unitlinked fund segment.
Market situation As at the end of December 2019, there were 30 domestic commercial banks, 538 cooperative banks and 32 branches of credit institutions operating in Poland.
Gross receivables from the non-financial sector (without debt instruments) increased 4.8% to PLN 1,062 billion y/y as at the end of December 2019. Growth in this area was driven mainly by receivables from households (+5.5% y/y) and receivables from enterprises (+3.3% y/y).
As at the end of December 2019, assets of the banking sector reached PLN 2.0 trillion and increased by PLN 106.8 billion, or 5.6% compared to the end of 2018.
Operations of the Pekao Group The Pekao Group is led by Bank Pekao, a universal commercial bank offering a full range of banking services provided to individual and institutional clients operating chiefly in Poland. The Pekao Group consists of financial institutions operating on the following markets: banking, asset management, pension funds, brokerage services, transaction advisory, leasing and factoring.
New products and services According to Bank Pekao’s strategy, its growth among retail clients is driven by the significant acceleration of growth in the number of accounts, among others thanks to its new personal account offering, a new proposal for young people and the cutting edge mobile banking solution.
Due to its scale and growth potential, Retail Banking is considered a priority area for the bank’s development. The strategic activities carried out in 2019 were chiefly aimed at: a significant and sustainable increase in the number of clients acquired, growth in the portfolio of consumer loans and mortgage loans, improvement in profitability through intelligent price management, strengthening of relations with client through active cross-selling based on an extensive proposal of investment and insurance products, development of the business client segment (microenterprises). These objectives were pursued by a variety of activities, including by tapping into the client acquisition potential in digital channels using the latest biometrics solutions, automation of the lending process for cash loans and development of cooperation with the PZU Group in the field of insurance and investment products. At the same time, the implemented solutions ensure the highest quality of loans granted. For clients taking out a cash loan, the bank extended the product offering to include new PZU insurance bundles available to clients purchasing loans both through remote channels and in branches.
In 2019, Bank Pekao consistently promoted acquisition strengthening activities, acquiring clients with the help of its new and simplified offering of current accounts (Mega Beneficial Account) and payment cards (including the particularly promoted Revolutionary Card) as well as based on effective marketing techniques and streamlined sales processes in all distribution channels. These activities translated into record-breaking sales results in terms of the establishment of new accounts, which throughout the year reached the level assumed in the strategy of 455,000. In 2019, Bank Pekao rolled out the option of opening an account online using a computer or smartphone. Identity is verified by using biometric measurements of a face and a personal ID. In the second half of 2019, the share of sales initiated in remote channels was approx. 20%.
Bank Pekao holds a leading position in terms of accounts for foreigners. The most sizeable group are citizens of Ukraine for whom the bank has prepared a broad range of products
PZU Group’s activity and services, including a helpline in Ukrainian, a full set of necessary documentation in Ukrainian the PeoPay mobile application, the Konto Przekorzystne (Mega Beneficial Account), a multi-currency card with an option of free international ATM withdrawals, including in Ukraine.
The microenterprise segment is one of the most significant and promising segments for the bank. Within the framework of business development activities carried out in this area, a number of initiatives were pursued in 2019 to improve the attractiveness of the proposal (including a new offering of card payment terminals, a selfie account and the proposal “PLN 600 for a good start with Pekao”) and to boost sales efficiency through optimization of service processes. Bank Pekao was the first bank in Poland to roll out a simple and convenient account opening process for microenterprises that requires no visit to a branch. Self-employed individuals may open a business account through remote online channels. The account holder’s identity is verified online by permitting the user to take his or her own ‘selfie’ and a photograph of his or her ID card. The service is available on a 24/7 basis. Business clients have the possibility of contacting the bank via a chat, video and voice connection with the bank’s hotline via the internet.
The Bank is steadfastly pursuing its growth strategy in the Small and Medium Enterprise segment. In 2019, activities aimed at intensifying sales and strengthening relationships with existing clients were continued. Such activities included, in particular: development of a service model based on mobile relationship managers, remote channels and product specialists, strengthening of employee competences by acquiring high-quality specialists, various initiatives focused on intensifying acquisition efforts.
In 2019, two types of loans related to environmentally oriented activities were introduced to the bank’s offering. The PrzEKOrzystny (Mega Beneficial) loan is intended for funding RES generation in the form of the borrower’s use of photovoltaic panels for own needs. The loan is secured with a gratuitous BGK Biznesmax guarantee, which lets the clients obtain a preferential interest rate and, during the first three years of loan repayment, also a 5% refund of interest.
Operations of the Alior Bank Group The Alior Bank Group is headed by Alior Bank. Alior Bank is a universal deposit and credit bank, providing services to natural persons, legal persons and other domestic and foreign entities. The bank’s core business comprises maintaining bank accounts, granting cash loans, issuing bank securities and purchase and sale of foreign currencies. The bank also conducts brokerage activity, provides financial advisory and intermediation services, arranges corporate bond issues and provides other financial services.
Moreover, in Q4 2019, taking advantage of the opportunities introduced by the Payment Services Directive 2 (PSD2), Alior Bank introduced the possibility for clients of other banks to apply for Alior Bank loan products without the need to provide a certificate of earnings. This option is offered based on the Account Information Service (AIS). The solution is available from selected points of sales and from the contact center. By the end of Q1 2020, the availability of the tool is scheduled to be gradually expanded to cover the whole sales network and various processes, including the online processes.
PZU Group’s activity product offering for business clients. To this end, cooperation was established with PZU focused on offering real property insurance (against fire and other elements) for clients using a non-revolving loan secured by real property. The insurance is offered in the so-called individual model in which Alior Bank appears as an insurance intermediary.
Alior TFI Alior TFI (formerly Money Makers) operates in the Alior Bank Group. It was established in 2010 and its operations originally focused on asset management services. Alior Bank’s cooperation with its subsidiary Alior TFI pertains to three areas: asset management (portfolio management for retail clients/private banking), unit-linked funds, and Alior SFIO subfund management. Since 5 January 2017, Alior TFI has been listed on the alternative market of the Warsaw Stock Exchange (NewConnect).
Situation on the mutual fund market As at the end of December 2019, the overall domestic mutual fund market’s assets were nearly PLN 268 billion compared to PLN 257 billion at the end of the year before, representing an increase by 4%.2
In 2019, according to estimates by Analizy Online, the balance of payments to and withdrawals from retail funds offered by TFIs in the domestic market was positive at PLN 1.6 billion. The financial market reacted to economic developments in accordance with expectations. After the weak 2018, there was a rebound. All groups of mutual funds posted y/y increases, the stock and commodity segments deserving special attention.
Savings accumulated in the ECS will be invested in defined date funds, that is funds with a specific investment target date, which will be close to the participant’s expected retirement date. Depending on the participant’s age, the degree of risk will be modified: initially, funds will be invested in more risky assets (such as equities), and over time they will be automatically switched to safer assets (such as bonds). Owing to a precisely described investment policy of defined date funds, the security of assets managed under the ECS increases. The ECS offering entity should have the ability to accumulate funds in at least eight different defined date funds intended for employees of different age groups. Each defined date fund is required to invest funds accumulated in the ECS in accordance with the interests of the participants, striving to ensure the safety
Factors, including threats and risks, which will affect the operations of mutual funds and Employee Capital Schemes in 2020 The condition and performance of the market for mutual funds and Employee Capital Schemes will depend mainly on the following: • macroeconomic situation: the rate of economic growth and changes in the rate of inflation domestically and throughout Europe; • actions taken by central bank (Fed, ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets; • slowdown in the world’s largest economies and trade war (appreciation of the US dollar); • global geopolitical situation (US-Middle East conflict, development of negotiations on future EU-UK economic relations after Brexit, presidential elections in the United States and Poland); • uncertainties related to privacy and technology regulations, new taxes and the enactment of antitrust regulations; • slowdown in the economies based on the global automotive industry; • degree of popularity of Employee Capital Schemes which will translate into the amount of funds accumulated in ECS funds; • also in addition, short-term uncertainty related to the development and impact of the Wuhan coronavirus epidemic on global economic growth and the sentiments on financial markets.
at 31 December 2019 amounted to PLN 9 million, representing a 10.5% market share.
As at 31 December 2019, the net asset value of the defined date funds (ECSs) stood at PLN 84.7 million. (KNF).
TFI PZU’s operations Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU) operates on the mutual fund market in the PZU Group. It offers products and services for both retail and institutional clients – including additional investment and savings programs forming part of the third pillar of the social security system: Individual Retirement Accounts (IRAs), Employee Savings Plans (ESPs), Employee Pension Plans (EPPs), Employee Capital Schemes (ECSs), Company Investment Plans (CIPs) and Group Pension Plans (GPPs) which additionally offer Individual Retirement Security Accounts (IRSAs).
As at 31 December 2019, TFI PZU managed a portfolio of net assets worth PLN 21.2 billion, which translates into a 7.9% market share. Accordingly, it is among the largest mutual fund companies in Poland – as at 31 December 2019 it was ranked fourth in Poland according to reports published by the Chamber of Fund and Asset Management (IZFiA). TFI PZU is also a market leader in the employee pension plan segment among institutions operating in this market with net assets of PLN 6.1 billion. In turn, the assets accumulated in ECS funds as
Lithuanian market According to the Bank of Lithuania’s data, gross written premium collected by non-life insurance companies in 2019 totaled EUR 675 million, representing a y/y increase by 7.1%.
The market growth rate was largely generated by health insurance and property insurance whose sales rose by 25.3% and 8.2%, respectively. The rate of written premium growth in motor insurance (61.5% of the market) slowed down due to the competitive environment. Eventually, in 2019, written premium in third party liability and motor own damage insurance increased 3.8% and 4.8%, respectively.
In the life insurance structure, unit-linked insurance represented the largest share at 62.9% of the portfolio value. Traditional life insurance accounted for 15.7% of written premium.
The Ukrainian insurance market is highly fragmented – as at the end of September 2019, there were 234 insurance companies operating in the country, 23 of which offered life insurance. Despite the number of insurers that continues to be enormous, the top 100 non-life insurance undertakings generated 98% of gross written premium, while the top 20 life insurance undertakings generated nearly 100% of written premium.
In 2019, gross written premium collected by PZU Ukraine was UAH 1,709 million, up 12.7% from the previous year. In turn, gross written premium collected by PZU Ukraine Life in 2019 was UAH 524 million, up 26.8% compared to 2018.
Factors, including threats and risks, that may affect the insurance business in the area of foreign companies in 2020 • slowdown of economic growth in the Baltic states; • resumption of price pressure in motor insurance caused by improved portfolio profitability in recent years (in the Baltic states); • case law concerning the amounts of general damages paid in cash for the suffering sustained (legislative amendments in Lithuania) under the TPL insurance held by the owners of motor vehicles to the closest family members of persons who have died; 5 Insurance TOP, Ukrainian insurance quarterly, #4(68)2019
Latvian market The Latvian non-life insurance market recorded a gross written premium of EUR 303 million in the frist three quarters of 2019. This was nearly EUR 23 million (i.e. 8.1%) more than in the same period of the previous year.
The motor insurance business had the largest share in the non-life insurance market measured by gross written premium. Motor TPL insurance accounted for 25.5% of the market while motor own damage accounted for 23.1%. Also health insurance (18.9% market share) and property insurance (18.5% market share) had an important position in the product mix.
The structure of non-life insurance in 2019 was dominated by motor insurance, which accounted for 57.4%, including MOD insurance accounting for 31.6%. 27.4% of the gross written premium in the market was collected on property insurance.
At the end of 2019, there were 13 companies operating in the non-life insurance sector (including 5 branches of foreign insurance companies) among which the top 4 held a combined 69.0% market share.
Lietuvos Draudimas is the leader of the non-life insurance market in Lithuania with a share of 30.2% in 2019, with gross written premium of EUR 204 million (5.6% growth y/y).
Since May 2015 the entity conducting operations in Estonia is a branch of Lietuvos Draudimas and was established as a result of merger of two entities – branch of the Lithuanian PZU company registered in 2012 and the Estonian branch acquired in 2014, which conducted operations under the Codan brand. The company’s share in the Estonian non-life insurance market in 2019 was 15.8%. Accumulated gross written premium was EUR 63 million4.
Ukrainian market The Ukrainian insurance market after Q3 2019 posted 16.3% growth in gross written premium reaching UAH 41 billion. The premium written for non-life insurance was UAH 37 billion, signifying 16.0% growth compared to the corresponding period of 2018. Motor insurance (25.7% of the market) recorded a 31.0% increase in gross written premium.
• changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly; • coming into force of new regulations or financial burdens on insurance undertakings.
In accordance with PMR data7: at the end of 2018, private health care offered under fee-for-service products was worth PLN 18.9 billion (up 10.5% y/y). In turn, the value of medical subscriptions was PLN 4.5 billion (up 13.6%), while the value of private health insurance climbed to nearly PLN 1.0 billion (up 17.3% y/y).
Operations in the Health area PZU’s operations in the Health Area include: • sales of health products in the form of insurance (life and health insurance and non-life health insurance) and non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs); • development of medical infrastructure (medical centers and patient service solutions) in Poland to ensure the best accessibility of services and the achievement of revenue targets.
6 PMR Report entitled „Private Health Care Market in Poland 2019” dated July 2019 7 PMR Report entitled „Private Health Care Market in Poland 2019” dated July 2019
In 2019, the PZU Group’s offering in the Health Area changed as follows: • launch of pilot sales of PZU Z Myślą o Życiu i Zdrowiu
(PZU Thinking about Life and Health) product (May 2019) directed to companies employing up to 4 people. Each option of the offer may be additionally extended by private medical care. The insurance ranges have been prepared to address different needs, depending on the client’s stage in life; • commencement of pilot sales of 2 new ranges of the two new ranges of the Opieka Medyczna S (Health Care S) health insurance for corporate clients (June 2019) – the first range is profiled to enable a detailed checkup of the health condition of the thyroid gland, liver, heart, arteries and kidneys. The second range enables tests profiled for malignant neoplasms occurring most frequently in women and men. The most notable benefits include: analysis of results of marketing surveys: prevention of the illnesses that clients fear the most, benefits requested most frequently by sales in non-standard offerings, increase of market advantages – by adding medical services and keeping prices at attractive levels; • as part of the PZU Ochrona i Zdrowie (PZU Cover and Health) product, since July 2019 the option has been implemented of selling standalone proposals consisting of only the protection part (PZU Życie under Cover) or the health part (PZU Zdrowie under Cover). This insurance is dedicated to small and medium-size enterprises employing at least 3 staff. Spouses, life partners or adult children of the primary insured (employee) may also benefit from this proposal. PZU Życie pod Ochroną (PZU Life Coverage) provides support for the insured’s family in the event of the insured’s death as well as a cash benefit and medical services, including in the event of an accident or a critical illness. Each employee may also individually extend the cover to include financial support in the event of a child’s health problems, co-funding of prescription drugs and additional financial support in the event of an accident in everyday life. PZU Zdrowie pod Ochroną (PZU Health Coverage) offers, among other benefits, access to doctors and tests in 620 cities and towns across Poland. Each employee may individually extend the cover to include co-funding of prescription drugs and medical care for family members. The newly introduced possibility of selling standalone products enables the agent to tailor the offering to the needs of the specific insured; • in November 2019, the option was added to the PZU Ochrona i Zdrowie (PZU Cover and Health) product that makes it possible to offer the owner, in addition to the higher medical care variant, the option of creating the whole variant adjusted to his or her specific needs – the condition for saving such an offer is a premium of at least PLN 150. The insurance cover of the higher variant developed for the owner may also include his or her relatives. Moreover, as part of product improvements, the following elements were added to the offering: ◦ “Certificate” document handed out to the policyholder by the agent immediately after the policyholder has signed the application for the execution of the insurance agreement. The document contains the bank account details and the date of payment of the first premium as well as instructions on how to benefit from the insurance cover from its first day of validity; • welcome pack – a set of materials that the agent may send by e-mail to the policyholder after he or she has signed the application. The set includes documents facilitating the policyholder’s becoming familiarized with the insurance in detail and providing the policyholder with additional information, specifically templates for completing the declaration by the insured, a detailed list of medical services available hospital care rehabilitation
In the Health Area the company offers a broad range of health products adapted to the segment and clients’ needs: outpatient care under the selected cover, an explanation, written in plain language, of the statements collected on the declarations, a leaflet informing the policyholder how to set up a MojePZU account, a guide on insurance services for companies (accounting, tax and legal issues, insurancerelated services, reporting of insurable events, filing of complaints).
◦ takeover of the Alergo-med medical center in Tarnów, ◦ acquisition of Tomma Diagnostyka Obrazowa, the largest network in Poland in terms of the number of diagnostic laboratories; • two new facilities were opened under the PZU Zdrowie brand – in Wrocław and Radom; • PZU Zdrowie expanded its service provider network by including more cooperating centers, which means that at the end of 2019 PZU’s partner network already had approx. 2,200 centers; • dental services were launched as a new business line in PZU Zdrowie’s own centers (Warsaw, Kraków, Poznań, Wrocław); • a new hotline operation model was fine-tuned to service clients holding health products, including life insurance and non-life insurance with a health rider, online tools were developed to increase the percentage of cases handled during first contact. The hotline structures operate in PZU Zdrowie as the Medical Service Management Center (CZUM), which also allows for integrated management of client experience and improvement of the service quality, while also testing innovative solutions; • an EDM system was rolled out in PZU Zdrowie’s own centers; • a tool has been developed further for booking on-line appointments through a direct connection with the calendars of cooperating medical centers. At the end of 2019, PZU Zdrowie was connected to approx. 200 medical centers located across Poland and comprising the PZU Zdrowie network as well as to external partners; • in September 2019, PZU Zdrowie became the first medical operator to launch the Virtual Clinic service enabling patients to undergo a full medical process without leaving home. The service enables the purchase of a telemedicine appointment with the selected specialist physician, the collection of recommendations and e-prescriptions and the placement of orders for medications to be collected later from a conveniently located pharmacy; • PZU Zdrowie also put at the disposal of its clients the first telemedicine doctor’s office in which the patient has the option to undergo diagnostics using telemedicine equipment, followed by a video consultation with a physician; • PZU Zdrowie participated in the PZU Group’s Safe Summer Vacation prevention campaign and carried out several dozen Health Zone prevention programs for employees in various companies across Poland.
Factors, including threats and risks, that may affect the operations of the Health Area in 2020 • changes in the current mortality, fertility and morbidity levels, which may adversely affect the value of sales and cause a deterioration of the loss ratio (e.g. subscriptions or health insurance); • changes in client trends and behaviors towards customization of the offering. Clients’ new expectations may bring about the need to change processes and systems, which in turn may affect the achieved bottom-line results; • the entry into force of the Employee Capital Scheme Act is yet another benefit for employees, which may cause a deterioration in the interest in our health care offering due to budgetary constraints on the part of employers; dental services prevention programs co-funding for medications occupational medicine telemedicine
• continued pressure on the prices of group insurance products. The market for health services remains very competitive both in terms of prices and the range of available services; • salary pressures exerted by doctors and other personnel serving patients in medical centers, which directly affects PZU’s financial performance in the Health area; • potential modification of the National Health Fund’s contracting rules may cause significant changes in the financial results generated by medical centers.
Market situation At yearend 2019, the net asset value of open-end pension funds was nearly PLN 155 billion, down 1.6% compared to the end of the previous year.
which currently manage open-end pension funds (OFEs) and voluntary pension funds (DFEs) will be transformed into mutual fund management companies (TFIs); • OFEs and DFEs will become specialist open-end mutual funds (SFIOs) that will be managed by TFIs; • an OFE member will have the following options what to do with the funds accumulated on his or her OFE account: ◦ the default option will be the transfer of funds from the OFE account to an individual retirement account (IKE) with the possibility of continued payment of contributions on a voluntary basis. The transfer of funds from OFE to IKE will be subject to a 15% transformation fee. Payment of this fee will be spread over a period of 2 years. The disbursement of pensions from IKE will be exempt from income tax, and savings accumulated in IKE will be inheritable,
◦ under the umbrella SFIO established as a result of the transformation of OFE, a pre-retirement sub-fund will be spun-off for the accumulation of assets owned by fund participants approaching the retirement age,
The bill does not provide for any transition period for adjustment of the operations of a universal pension fund management company transformed into a mutual fund management company to the new regulations. From the day of transformation into a mutual fund management company, the universal pension fund management company will be required to apply the provisions of the Act on Mutual Funds and the implementing regulations to this Act as well as the provisions of Community law pertaining to collective investment institutions and managers if collective investment institutions, in particular Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision.
PZU Pomoc PZU Pomoc provides auxiliary services to PZU Group companies, including: • managing the PZU repair network – at the end of 2019, the company cooperated with 910 repair shops; • organizing motor assistance services for LINK4; • conducting salvage auctions and sales after loss and damage incidents; • supporting technical claims handling in motor claims; • handling assistance products for PZU and PZU Życie (among others, legal consulting, organization of assistance services etc.); • managing the loyalty program, PZU Pomoc w Życiu Club – at the end of 2019, approx. 2 million club members were able to take advantage of insurance discounts and products of cooperating companies (rebate programs offered by partners).
The PZU LAB team has developed methods for cooperation with the existing and prospective clients. First, the engineers
PZU Group’s activity identify critical installation sites, simulate critical events such as fire, flooding or explosion, and determine their consequences. Then the possible scenarios and the methods of minimizing them are discussed. PZU LAB engineers implement innovative technological solutions in client companies wishing to improve their safety. This approach signifies an evolution in client relations. PZU ceases to be only a seller of insurance and becomes a risk management advisor.
Battersby Investments SA The line of business of Battersby Investments SA is brokerage in granting cash loans in the form of an employee benefit. Brokerage is carried out using the Cash lending platform, while the proposal is presented by Alior Bank. The Cash portal is an innovative solution on the Polish market that enables employees to take out online loans. The loan proposal is targeted at employees of those companies that have established cooperation with Cash.
Through PZU Corporate Member Limited, the PZU Group expanded its international activity. The company is a member of Lloyd’s.
Armatura Kraków is the parent company of the Armatura Group. The Armatura Group includes Armatura Kraków SA, Aquaform SA, Aquaform Bauprodukte, Aquaform Ukraine, Aquaform Romania, Morehome.pl. The business of the Armatura Group lies outside the domain of financial and insurance services. The group is a leading manufacturer in the sanitary and heating industry in Poland. The companies making up the Armatura Group specialize in the manufacture of bathroom and kitchen taps, aluminum central heating radiators, a wide range of valves and sanitaryware.
In this section: 1. The tenet underpinning the #newPZU Strategy 2. Strategy operationalization 3. Pursuit of key projects and initiatives in 2019 4. Actions performed in 2019
On 9 January 2018 the PZU Management Board and Supervisory Board adopted the strategy update up to 2020. The PZU Group’s new operating model has broken with the classical model of cultivating client relations based on sales and aftersales service in the direction of having frequent and high quality client interactions during every stage of life anywhere PZU can lend a helping hand. Building relations and partnerships in this line of thinking has been defined as delivering products and services well-matched to clients at the appropriate time and place so as to ensure at the same time that the product’s attributes (including its price) are aligned to client needs.
In order to create the appropriate business environment to attain these targets, clients interactions were redefined from scratch. This entailed an alteration to the philosophy of how the overall Group operates. Various business units have been placed in a single integrated system dedicated to providing full dimensional client service at every stage of cooperation. Client interactions were realigned to long-term partnership based on trust and understanding where a major value driver is the quality of the solutions dedicated to clients.
The ambition of the #newPZU strategy is to generate a return on equity (ROE) in excess of 22%, i.e. substantially higher than the average for insurance companies in Europe.
Contribution of the various lines of business to ROE growth 1 Taking into account the investment activity in our own portfolio and net of the health insurance presented by PZU Zdrowie 2 Pertains to third party asset management (giving consideration to all PZU Group entities))
High growth rate in the number of health clients stemming from greater sales activity and reaching new market segments
Strategic initiatives 55% of the clients in PZU SA and 33% of the clients in PZU Życie SA will give marketing consent
Data base merger and creation of a single joint CRM system in the PZU Group / full client picture (360 degree view)1
Utilization of artificial intelligence and robotics to augment the quality of motor claims handling
PZU Zdrowie sales development – Virtual Clinic launch to support remote consultations and place orders to fill prescriptions in a selected pharmacy
Metric: percentage of marketing consents and client contact details in PZU and PZU Życie.
Purpose: • optimize online prices; • align prices to risk better; • offer greater price elasticity; • maintain a highly competitive position; • improve sales results and profitability.
Execution: • work on a project to optimize prices in real time was continued in 2019. This system is based on machine learning using data gleaned from the Everest product system. Solutions employing advanced analytics and learning algorithms for motor products were rolled out. Similar mechanisms are slated to be deployed in other insurance products (non-life and agricultural products) in subsequent phases. These solutions support dynamic pricing to satisfy risk and client requirements and enhance the competitiveness of the offer while simultaneously increasing profitability.
The PZU Group’s aspiration is for the following business areas to benefit from these changes first: tariff-setting and risk management, sales, client retention and claims handling, as well as medical diagnostics.
Purpose: • support cross-selling initiatives; • grow the client retention ratio in various lines of business; • analyze pictures and images in claims and benefits handling processes (e.g. comparison in real time of the picture of the claim and the cost estimate received); • smart solutions in medical diagnostics; • enhance efficacy in the detection of insurance fraud; • render risk management consulting services for companies; • launch the PZU Data Lab - center for the creation of innovations based on data and artificial intelligence; • cut expenses; • enhance quality in client service; • augment client loyalty; • build a competitive edge; • improve sales and profitability; • grow the value of the brand and the Company.
Execution: • work was continued on PZU GO, PZU’s key project to save customers’ lives. This is an innovative telematic solution to call for help automatically following a collision on the road. This solution is already available for mass sales; • AI in the claims handling process is a solution implemented in 2019 to harness artificial intelligence in handling motor claims. Automating the analysis of claims handling documentation (photos) supports employees in their dayto -day work, thereby shortening servicing time; • tests were also run on large data sets and analytical hypotheses were tested to improve several prediction models underpinning sales in PZU. They form the basis for advanced selection of clients and customizing a personal product offering.
Special offers for PZU clients (discounts / cash back) and strategic partnership
Execution: • work was continued in 2019 to make a number of product enhancements for clients. New products and functionalities were rolled out to support more rapid customization of the offer to meet client needs, for instance, POZ Ochrona and POZ Zdrowie, as well as a number of smaller enhancements, such as creating a health questionnaire on the enrollment
Execution: #7 Development of sales in PZU Zdrowie Initiative: build PZU Zdrowie’s size and profitability. Build a competitive edge by tapping into technology and the high quality and accessibility of services.
Execution: • inPZU transaction service to sell mutual funds started to operate in October 2018. This service allowed the Group to build Poland’s first offer of low-cost index funds and grow TFI PZU’s revenue. Development work on the platform took place in 2019; it was integrated with the mojePZU platform and this led to onboarding new clients and growing assets under management; • the sales of a new product were launched – ECS (Employee Capital Schemes). In keeping with this program’s underlying assumptions, the offer was sent to the corporate segment with 250+ employees. In 2020 sales will focus on the corporate segment with 50+ employees; • thanks to the cooperation with Goldman Sachs Asset Management initiated in 2019, in January 2020 it was possible to launch two new passive funds: inPZU Goldman Sachs ActiveBeta American Equity Large Cap Index and inPZU Goldman Sachs ActiveBeta Emerging Markets Equity Index. In addition, the Equity CEEplus inPZU subfund was launched. It was created in cooperation with the Warsaw Stock Exchange and is based on the WSE CEEplus index; • work was in progress under the initiative to build and implement a comprehensive business process administering the overall investment process. The launch of the new system is slated to transpire at the turn of Q2 and Q3 2020; • work was continued to implement a single integrated finance and accounting system to administer valuations and record investments in PZU, PZU Życie and TFI PZU. This solution will make it possible to augment effectiveness and optimize operations in the back-office (for instance to meet the requirements of the Solvency II Directive.) System implementation is slated for 2020.
PZU TFI and PTE TFI of the P ZU Group's banks
Purpose: • gather in a single place client information translating into loyalty and more transactions; • provide clients with a functional dashboard enabling them to check their insurance and health coverage at any time (book appointments, too) and manage their investments and, in the future, banking services as well.
Purpose: • design an offer of 10 products based on simple and understandable rules; • reach clients who prefer digital channels; • build a leadership position in the direct channel with a market share of at least 50%.
#11 Loyalty program Initiative: launch a loyalty program for the overall Group spanning all its products. The points collected by using these services as well as other activities (among others having a claim-free history and referring the program to a friend) may be converted into products and services from our partners.
Execution: • enhancing the PZU Club concept – new space for client contacts. The idea is to foster more frequent client interaction by extending the offer of regular benefits in the following categories: sport, health and safety. Prizes for various types of activities (such as customer referrals, etc.) are one idea on how to win customer trust. Marketing consents secured from club members support a customized approach to communication and ramp up the quantum of transactions (increasing the number of products per client and cross-sell).
Metric: pace of new sales of group insurance to SME clients in PZU Życie (70% up to 2020 - versus 2016), pace of growth of gross written premium on property insurance dedicated to the SME segment (20% up to 2020 – versus 2016).
Execution: • an important stage in the transformation of the agency network structure in PZU Życie was wrapped up in 2019. As a result, the network’s reach was extended by hiring 500 new salespersons, new acquisition rules and a new structure in the Head Office were introduced, and the field structure was adjusted. New compensation rules for agents and advisors were also introduced for work done in the SME group portfolio. These changes will deliver measurable benefits to the PZU Group. Actions are currently being taken to define the directions for further network development.
Execution of the PZU Group’s CSR strategy 2019 was the first year of executing the PZU Group’s CSR strategy that defined the ambitions PZU and PZU Życie have for corporate social responsibility. Within the bounds of these assumptions the areas of corporate social responsibility, operating directions and management approach to the initiatives being undertaken were defined.
NPS for retail clients in insurance versus the competition > competition > competition
Indicator concerning the timeliness of examining complaints 97.4% up to 28 days 95% up to 28 days
The commitment index rose 11 p.p. in 2019 y/y to 51%. The participation ratio was 84% (73% in 2018).
The implementation work was in line with the plan for 2019. Fully implemented (100%)
Financial commitment to social activity PLN 84 million > PLN 50 million per annum
The implementation work was in line with the plan for 2019.
90% of PZU’s suppliers* covered under the tender process accept and obey the “Code of CSR Best Practices for PZU’s Suppliers”
PZU 2020 - more than insurance 4.4 Completed activities in 2019
1 ROE attributable to the parent company 2 Direct business 3 PZU jointly with TUW PZUW and LINK4 4 Data at the end of Q3 2019 5 Administrative expenses in PZU and PZU Życie 6 Own funds after subtracting anticipated dividends and asset taxes 7 PZU Investments’ consolidated net result
The PZU Group is constantly changing. Along with the new Strategy for 2017-2020, the Group’s business model is undergoing modification from being an insurer (chiefly involved in the valuation and transfer of risk) to being a service company (an advisory company operating on the basis of technological know-how). This will enable clients to optimize their decisions at all stages of their lives. We are hoping it will ultimately translate into growing trust and loyalty placed in the brand of first choice which PZU will become when it comes to insurance, finance and health services.
The PZU Group’s offer is the most extensive and most comprehensive, insurance and financial offer on the Polish market. It consists of a broad array of insurance, pension and investment products addressed to all client segments. Group companies are active in health care, banking and additionally they render assistance services to retail clients and businesses through strategic partnerships. SECTION 1 PZU GROUP’S DEVELOPMENT
PZU wants to do something different from the classical client relation model in which the only contact clients have with their insurer after buying a policy is when a claim occurs. PZU intends to effectively help clients solve their problems in many areas and during every stage of life. PZU’s philosophy of
thinking about clients constitutes a departure from the classic model of an insurer’s client relations rooted solely in sales and aftersales service. PZU’s goal is to establish and maintain relations by delivering products well-matched to clients at the appropriate time and place so as to ensure at the same time that the product’s attributes (including its price) are aligned to client needs.
This approach has defined the operating philosophy under the PZU Group’s new business model.
The new model brings together all of the PZU Group’s activities and integrates them in a client-focused manner: life insurance, non-life insurance, health insurance, investments, pensions, health care, banking and assistance services. This approach drives the gradual transformation of insurers from focusing primarily on valuation and transfer of risk toward being an advisory and service company (operating on the basis of technological know-how). Achieving a high degree of quality and number of client interactions calls for creating a model in which the core is client knowledge and the skill of building long-term relations. The transformation in the direction of an advisory and service company will make it possible to care for the clients’ future and satisfy their needs comprehensively when it comes to protecting their life, health, property, savings and finances.
We help companies grow by offering them a wide array of products supporting their growth.
The PZU Group proposed abandoning “product centricity” in favor of an ecosystem whose overriding objective is to manage client relations skillfully by offering solutions in all venues available to clients. Accurately anticipating the future, understanding client needs and building ever better methods of becoming part of their daily lives are the logical grounds underpinning other initiatives in PZU’s new strategy. These initiatives contribute to transforming the Group’s operating model in the direction of an ecosystem spanning not just insurance, but also banking, health protection and payments.
Launching the moje.pzu.pl portal is not just the outcome of developing digitalization and mobility in PZU but also a way of radically modifying client interactions. This is a one-of-a-kind dashboard enabling clients to check their insurance coverage at any time, manage their medical coverage and appointments and handle their investments.
mojePZU is the most comprehensible platform available on the insurance, financial and health markets. It is continuously upgraded with new functions. In 2019, the possibility of using the PZU Pomocni Club was added. It is a loyalty program, through which clients are able to obtain attractive discounts and rebates. The club gives them bonuses, for example for leading a healthy lifestyle and everyone who registers in the Club receives a welcome gift.
Clients and products The PZU Group has a comprehensive product offer spanning life and non-life insurance for 16 million clients in Poland. They are retail clients, sole proprietors, small and medium enterprises and large corporates. The PZU Group enjoys the trust of over 1.2 million clients in the Baltic States and Ukraine.
Non-life insurance is offered in Poland under three brands: PZU, the traditional and most well-known brand, LINK4 associated with direct sales channels and TUW PZUW, the
Key: on a scale from 1 to 4 where 4 denotes the highest sales
Life We have health care for you and your relatives. We help you when you have an accident or fall ill. We give financial support to your family in important and tough times.
PZU Sejf+ with capital protection PZU Oszczędnościowy [PZU Savings] PZU Dłużny Aktywny [PZU Active Debt Fund] PZU Aktywny Akcji Globalnych inPZU
Unit-linked life insurance – PZU Cel na Przyszłość [Goal for the Future]
Investments and savings We offer a host of investment and savings opportunities. You can grow your capital with us in mutual funds and secure additional funds for retirement. You can also choose savings solutions combined with life cover.
In 2019, the PZU Group’s distribution network included the following: • tied agents – in Poland the PZU Group’s own agency network consisted of 10 thousand tied agents and agencies. Sales are conducted through the agency channel predominantly in the mass client segment, particularly of motor and non-life insurance as well as individual insurance (life insurance). In the Baltic states (the PZU Group is active on the non-life insurance market in Lithuania, Latvia and Estonia through Lietuvos Draudimas, AAS Balta and Lietuvos Draudimas’ PZU Estonia branch, respectively, while on the life insurance market it is active through PZU Lietuva GD), the Group’s agency network consisted of approx. 700 agents, while in Ukraine (where PZU is active on the non-life insurance market and on the life insurance market through PZU Ukraine and PZU Ukraine Life, respectively) it had roughly 400 agents; • multiagencies – on the Polish insurance market, the PZU Group cooperates with more than 3.2 thousand multiagencies. They perform sales operations targeted mainly at the mass market (insurance of all types is sold through this channel, especially motor insurance and nonlife insurance) as well as individual life insurance. In turn, in the Baltic States Group companies cooperate with 21 multiagencies and in Ukraine with 15 multiagencies; • insurance brokers – in Poland, the Group, in particular PZU’s Corporate Client Division, cooperated with almost 1.1 thousand insurance brokers. In the Baltic states where the brokerage channel is a major insurance distribution channel, the Group companies cooperated with over 408 brokers, whereas Ukrainian companies cooperated with more than 37 brokers; • bancassurance and strategic partnership programs – in the area of protective insurance, in 2018 the PZU Group cooperated in Poland with 13 banks and 21 strategic partners. The PZU Group’s business partners are leaders in their industries with client bases offering enormous potential. In strategic partnership, cooperation applied mostly to companies operating in the telecom and power sectors through which insurance for electronic equipment and assistance services was offered. In the Baltic states, PZU cooperated with 4 banks and 14 strategic partners. In Ukraine, the respective numbers were 7 banks and 4 strategic partners.
The PZU sales network is subject to continuous expansion and change. It is one of the investments, through which we are able to implement the strategic assumption of “being closer to clients”. In 2019, PZU Życie built a team of 500 new effective relationship managers, also known as Network Plus. A change in the way of training, providing incentives and remunerating agents in this network took place not only without harming the traditional agency network, but it also allowed for growth in both sales channels.
PZU Mój Zdrowy Biznes [My Healthy Business] PZU Zdrowy Biznes [Healthy Business] PZU Mój Biznes [My Business]
Employee Pension Plan (EPP) Employee Capital Scheme (ECS) Group Pension Plan
All risk property insurance Property insurance against fire and other natural elements Insurance of construction and installation risks
Business Model 12 thousand employees / banking advisors (7.3 thousand in Bank Pekao and 4.8 thousand in Alior Bank) were certified to sell PZU’s insurance products and received the KNF license.
Claims and benefits handling For clients, claims handling is the ‘moment of truth’ when the quality of the product purchased from an insurer is tested. Satisfying client expectations during the claim handling/case handling process is the key to building PZU’s client relationships. Further measures were taken in 2019 to streamline and shorten this process. As a result of those measures, more than 86% of the simple benefits are handled on the day they are reported.
In 2019 PZU extended the online service to report claims and benefits to include automatic calculation of the claim amount in casualty claims. The new release of the service also facilitates claim notifications for foreign partners. The service upheld its emphasis on simple communication language and was awarded the “Simple Polish Language Certificate” by the Institute of Simple Polish at the University of Wrocław.
In 2019, PZU created a separate unit to handle foreign claims and assistance services – the Foreign Claims Handling and Assistance Center, which specializes in handling international motor insurance claims, correspondent claims and claims representative’s claims and also handles all the claims notified under travel insurance.
Artificial intelligence also finds application in the analysis of documents and correspondence that PZU received from its customers. In 2019, a pilot program was carried out, which focused on the application of artificial intelligence mechanisms in the e-mail correspondence handling processes. The pilot confirmed that, by examining keywords, it is possible to automatically recognize and classify correspondence based on its purpose. The mechanisms assess not only the content of the e-mail but also its attachments in various formats. This technology, when combined with robotics (Robotic Process Automation) offers unlimited opportunities in further automation of responses to client questions. Also in 2019, the pilot of application of artificial intelligence to the understanding of medical documentation was completed. The application of machine learning and development of a model based on documents templates had surprising results. Out of a diverse set of new documents, the system is able to automatically find the correct one and is very effective in harvesting the requested data. It is irrelevant where in the document the data are located. The system is also able to standardize data, for example by changing various data formats into a single format desired by the user. The structured data are more suitable for further processing.
LINK4 also invests heavily in data analysis. As a result of such analysis, the company is able to understand the client better and prepare a suitable offer. The other transformation focus is the claims side, where new technologies can strongly drive our competitive edge. The robots that LINK4 has been using since 2017 make the claims handling process much less engaging for the client and also fast.
In 2019, the family of claims robots was increased by 15 more, which had a significant impact on the efficiency of work and the possibility to introduce additional activities that are satisfactory for the client. Among others, they support: automatic registration of motor and casualty claims, update of the reserve amount and entry of costs of inspections carried out by third party suppliers, verification of a vehicle’s loss ratio, collection of loss documentation, handling of memos from the Insurance Guarantee Fund, handling of medical opinions or review of vehicles with MOD insurance.
In addition to the robots supporting LINK4 employees in their daily work, the company also provides tools that the clients themselves may use to reduce the claims handling time to the necessary minimum. This is supported by the new mobile app and accelerated claims handling paths. In 2019, LINK4 introduced a new claims registration form in TPL motor insurance, which enables quick and efficient collection of data and then setting of a claims handling path based on business rules and actual client preferences. Clients increasingly select the accelerated claims handling path, under which the insured may receive the benefit within 24 hours. They can use an application in the phone’s mobile browser and attach photographs of the loss in a simple form. In 2019 more than 30% motor claims and 65% apartment claims were handled using the simple procedure. The fastest claim was paid out to the client’s account four hours after the loss was reported.
PZU was the pioneer in DCH (Direct Claims Handling) on the Polish insurance market. Currently, DCH is executed in two forms: at an individual level or under the agreement worked out by PIU. DCH is offered by entities accounting for nearly 70% of the motor TPL insurance market, as measured by gross written premium. The said agreement, which is based on a lump-sum approach, has greatly simplified the settlement of claim payments between insurers. PZU also maintained its own DCH solution previously introduced for clients injured by insureds in establishments that did not sign the agreement. In Estonia, direct claims handling has been regulated by the provisions of the TPL Insurance Act since the beginning of 2015. In turn, clients in Latvia who wish to take advantage of DCH must purchase a rider on their insurance.
2019 was another year of cooperation with repair shops in the area of post-accident vehicle repairs in countries covered by the PZU Group’s insurance business. PZU has created Poland’s largest network of cooperating repair shops enabling the Company to control the quality and speed of service already at the claim handling stage. Every client who orders a repair in the PZU Pomoc repair network receives a Quality Certificate guaranteeing that the repair has been performed in accordance with the highest standards. PZU is refining its proposal to assist clients in managing damage remains by selling them on the Online Assistance platform. Clients are presented with a proposal to sell their damage remains for the highest purchase offer obtained from reliable entities that cooperate regularly with the platform administrator (a similar solution is also available to clients of the Estonian Lietuvos Draudimas branch).
PZU keeps working on improving communication with its clients. Traditional letters are being replaced by electronic and telephone forms of contact. Moreover, efforts are being made to adapt all communication, e-mails and text messages for clients to the principles of a simple language so that the information provided to the clients is clear and comprehensible.
Visualizing distinct case handling stages in the form of an Online Case/Claim Status report available to the Group’s clients in Poland is a great convenience to clients. By logging into the www.pzu.pl website and stating the claim/case number, clients may find out in exactly how many steps PZU will carry out the claim handling process, what it will involve, what the current stage of the case is and what has already been done. Also available on www.pzu.pl are video tips on how to handle the claim online. Short videos featuring PZU employees explain to clients how to report a case in a few simple steps and then how to check the status of the case or how to take advantage of the ADD policy in case of an accident.
In 2019, the Remote Client Service Center launched the PZU GO service. Its main aim is to help on life threatening situations and monitoring driver and passenger safety when driving, as well as developing correct and safe driver behaviors. The PZU GO mobile app is connected to a small beacon device, installed on the car windshield. The device collects data and sends them to the PZU GO app via Bluetooth. When it detects a situation which may suggest an accident it sends information on the client’s location to PZU’s Remote Client Service Center. A Center employee contacts the client to check if they need help. If telephone contact cannot be established, emergency services are called to the scene (ambulance, fire brigade, police). The PZU hotline may be also contacted by pressing a single button (SOS) on the app’s main screen. PZU GO is not only emergency help – it is also professional assistance in arranging for towing, replacement car rental, claim registration or help in quick disbursement of the claim. After the event PZU remains in constant contact with the client so that at each stage of recovery and repair of material damages, the clients know that they can rely on PZU. In the process, emergency services have been called to 12 events and road assistance to 10 events.
In practical handling of crop claims resulting from ground frost PZU applies the remote sensing method. Remote sensing makes it possible to obtain information concerning facilities or areas from a distance (remotely), most frequently by using sensors installed on aircraft or satellites facilitating the measurement of reflected and emitted radiation. In the autumn of 2019 PZU carried out the tests of the use of satellite remote sensing in risk underwriting in conclusion of winter crops insurance. Satellite remote sensing also worked in elimination of frauds involving reporting damages in fields where the crops have already been collected. The remote sensor method features objectivity and makes it possible to source the data required to calculate the indemnity quickly for a large geographical area. PZU can see a broad application of remote sensing in claims handling hence the method is subject to constant improvements.
In January 2019, the Insurance Fraud Prevention Team was moved to the Security Department. This change was aimed at establishing single point of supervision over all cases associated with prevention of crime, including insurance crime.
PZU also tries to construct the processes and improve client service based on the employees’ experience. By the end of 2018 the Inspiration Council was established. The Council members include invited employees with outstanding knowledge, competences, creativity and engagement. There are over 400 participants. The Inspiration Council is a place where employees put forward solutions facilitating their daily work and improving client service processes. Ideas are analyzed, developed in detail and, to the extent possible, implemented. Employees appreciate both the development opportunities and their impact on the changes.
The Subrogation Agreement Service System for property claims (SOPR_M) – in November 2018 most insurance companies operating in Poland signed new agreements pertaining to handling of subrogation claims: • Agreement on mutual recognition of subrogation claims in property insurance (up to PLN 1 million) and • Agreement on simplified procedure for mutual recognition of low-value subrogation claims in property insurance (claims from PLN 2 to 10 thousand).
In the above agreements the parties agreed that exchange of information on subrogations will take place through the SOPR_M application operating in the web technology. All operations in the system will be performed using a web browser.
Subrogation claims may be registered in the system in two ways: • manual data input, individually on a form, using the user interface; • through import of files saved in the xml format, individually or several claims in one file.
The application also comprises a number of useful functionalities, such as a browser, reporting module or control module supporting daily cooperation between insurance companies.
Innovative solutions are also collected internally using the Idea Generator, a portal to administer competitions and share inspirations among employees. Since November 2017, more than 400 ideas have been submitted under 6 competitions.
In November 2019, the second year passed since the time when the PZU Management Board adopted the Innovation Strategy developed by the Innovation Laboratory. Its purpose is to help pursue the PZU Group’s mission and strategy and maintain the high level of competitiveness in the new technological environment. The Strategy points to three specific areas in which PZU should be especially active while seeking innovation: the use of Big Data, digitalization and new interactions with clients. The designated areas ascribed the direction to be taken by the pilot projects organized in cooperation with the Innovation Laboratory, the relevant business departments and IT. In 2019 they made it possible to vet the ideas and prepare the implementations, i.e.: • PZU Cash - CASH is a new, innovative financial employee benefit platform, prepared by PZU in cooperation with Alior Bank and Bancovo. After less than eight months from the launch of the project, the platform is available to over 10 thousand PZU Group employees. In the next months the plan is to make the platform available to further organizations who want to offer to their employees the exceptional benefit in the form of easily available, low-interest loans. Each employer who joins CASH will have the possibility of offering the new type of benefit to their employees. Every employee who is bound to his/her employer through an employment contract will have the option of applying for a unique loan. The main advantages of CASH include: ◦ attractively priced offer delivered by a reliable partner – Alior Bank,
◦ the loan can be used for any purpose – from renovation of an apartment, through holiday, school materials to purchase of a car or satisfying any current need,
◦ the process is fully online – from completion of the application to the signing of the agreement via an SMS, which is convenient for the user,
The CASH platform may become a new line of business for PZU and a unique win-win solution for employers and borrowers; • Band of Life –an electronic wrist device, which monitors the basic vital parameters of patients and alerts medical personnel and the people around of any emergencies. The device monitors oxygen saturation of blood, pulse and temperature. If necessary it sends information on the location of the patient who needs help. It is also equipped with a fall detector which activates an alert if the patient falls down. Then the Band of Life diagnoses the risk of deterioration of life parameters it asks the user to contact the medical personnel to carry out a new check-up. This is a pioneering project which PZU introduces in cooperation with the Ministry of Health. Thanks to this technology also the medical personnel obtains support, to provide help to the ill faster and more effectively. For the first time in Poland such an advanced, modern technologies can be used using non-public funds, in medical emergency services and health care; insurance. The solution will enable them to instantly learn the preliminary offer and the price of the PZU Voyager insurance estimated on the basis of individually selected parameters. If the client is interested in the presented options, they will be contacted by a consultant from the PZU hotline to discuss the details. The Google Assistant is available both in Android and in iOS. This is one of the most popular voice interfaces in Poland. Using the implemented actions users may take advantage of the services of the virtual advisor in different areas, such as finance, eating out or education; campaign had arround 145 thousand hits. Efforts of this type are not only a very effective element of the employer branding strategy but also an effective way of reaching both active job seekers and the so-called passive candidates who do not respond to traditional job offers.
LINK4 is the PZU Group company that has long been known for its innovative approach to motor insurance. On the Polish market the Company is running a number of innovative projects to distinguish the brand and position it among the top modern and digital insurers.
The ESTools system, developed by PZU LAB together with its technological partner F@BE (FABE Safety Factory) under an acceleration program, serves to increase and maintain safety in industrial plants using modern technical measures and organization management methods. The system supports ongoing control of insurance audit orders.
Weather alerts, i.e. text messages with information about extreme weather conditions (such as gales, tornadoes, torrential rains, storms, snow storms), which LINK4 sends to clients who have real property insurance or motor insurance, are very popular among clients. In the event of expected sudden and severe weather phenomena clients receive a text message containing a warning and a website link where they can read about how to protect themselves against the adverse consequences of various weather events. In 2019 LINK4’s clients received over 425 thousand such alerts.
The Health Area has become an integral part of PZU Group’s business model in 2014. Currently, the operations associated with development of medical services are one of the most important growth areas of the PZU Group. At the end of 2019, the Group had 2.7 million in-force health contracts. This is a 18% increase in relation to 2018. In 2020 the health business is expected to generate PLN 1 billion in revenues.
The Group offers investment solutions customized to the needs of all types of investors. In October 2018 the inPZU Internet platform was launched. It enables clients to invest on their own in passive funds, a new innovation on the Polish market. Currently the platform is available also on tablets and smartphones. It supports comparison of funds, definition of investment objectives and their personalization. It makes it possible to instantly search funds and ready model portfolios as well as to pay for orders online. This is an attractive tool both for advanced and beginner investors who are just starting their adventure with investments. Thanks to the cooperation with Goldman Sachs Asset Management initiated in 2019, in January 2020 it was possible to launch two new passive feeder funds: inPZU Goldman Sachs ActiveBeta Americal Large Cap Equity and inPZU Goldman Sachs ActiveBeta Emerging Markets
Business Model insurance in the form of individual continuation or rider to life insurance; • Non-insurance products – PZU Zdrowie as a medical operator offers health services to individual clients using proprietary clinics and corporate clients seeking an alternative for products in the form of insurance.
At the same time, it has been consistently developing its own network of 130 medical centers, among others in Warsaw, Gdańsk, Poznań, Katowice, Częstochowa, Radom, Płock and Opole, which in aggregate employ more than 2,200 physicians. Initially, it was created by acquiring local healthcare service providers with extensive experience and a good reputation in the medical community. Currently, PZU Zdrowie is expanding the scope of its operations through acquisitions and, in parallel, through building greenfield medical centers, which makes it easier for the company to usher in uniform standards in terms of equipment and patient service in such facilities.
Additionally, PZU Zdrowie merged with Revimed and Artimed in 2019. In December 2019, Elvita merged with Multimed and in January 2020 Profmed merged with CM Medica.
In 2019, three acquisitions were finalized – Alergo-Med (acquired by PZU Zdrowie), FCM Zdrowie and Starówka (acquired by PZU Zdrowie) and Tomma Diagnostyka (acquired by PZU Zdrowie), leading providers of private medical care.
PZU Medycyna Pracy [PZU Occupational Medicine] PZU Strefy Zdrowia [PZU Health Zones] PZU w Szpitalu [PZU in the Hospital] PZU u Lekarza [PZU at the Doctor’s] PZU w Aptece [PZU at the Pharmacy]
Contact channels A patient can make a doctor’s appointment or an appointment for any other medical service provided by PZU Zdrowie through multiple contact channels: • self-service website mojePZU with access to the calendar of appointments of each center; • 24/7 hotline; • appointment scheduling form on pzu.pl; • PZU mobile application (available from App Store and
Google Play); Innovations In 2019, PZU Zdrowie either started or continued the execution of the following IT projects aimed at improving its customer service: • mojePZU – a self-service website of the PZU Group offering healthcare functionalities, enabling the holder of health products to: ◦ make or cancel an appointment over the Internet, ◦ see which centers cooperate with PZU, ◦ check the list of past and upcoming appointments, ◦ verify if a specific medical service is covered by the user’s insurance, ◦ obtain advice on how to prepare for an examination; • Olimp – PZU Zdrowie’s website assisting employers in handling various matters related to occupational medicine services, for example by: ◦ monitoring expiration dates of employees’ medical examinations,
◦ enabling the creation of a referral for an examination with “one click”,
◦ enabling the handling of several companies from the same group; • Communications broker – a project integrating the calendars of partner network centers and own network centers, facilitating the process of scheduling appointments and the provision of medical services; • Virtual Clinic – allows for remote medical consultations and purchase of prescribed medicines in a selected pharmacy; • EDM – a project implementing medical documentation in own centers.
Our patients can benefit from services throughout Poland – our partner network covers 620 towns and cities and we keep developing our own network of 130 centers.
We also allow our patients to get treatment from doctors from outside our network: through the reimbursement option clients may use medical services included in the coverage outside of our network.
During the 2020 World Economic Forum in Davos PZU together with Bank Pekao organized, for the second time, the Polish House (Dom Polski) – a place devoted to promotion of Poland, its economy and the entire Tri-Sea Region. The leading theme of this year’s Polish House was #GrowingEurope, illustrating the growth and investment potential of the region. Debates and panels organized in the Polish House with the participation of the most important personalities from the world of politics and economy were dominated by the topic of development and promotion of this part of Europe. The Polish House was also a space for presenting the entrepreneurship and innovativeness of Polish businesses. Thanks to meetings with Polish champions, global decisionmakers had an opportunity to learn the opportunities offered by the businesses from Poland and the region. In addition to promoting business, the creators of the Polish House were driven by one more important objective – promotion of the Polish culture and spreading the knowledge about Poland. This was very visible inside the Polish House – designed especially in the style of Polish folk art. The leading motif and inspiration for the authors was the highlander culture.
In the Polish House in Davos, on the initiative of the President of PZU, a memorandum establishing the Business Council of
Growing Europe was signed. The signatories of the Business Council, in addition to PZU and Bank Pekao, included 12 companies known in the international arena and developing their activity on at least regional level. The purpose of the initiative is to promote Central and Eastern Europe as an attractive direction for investors from across the globe and supporting cooperation between the business leaders from the region. The declaration assumes organization of joint events, participation in panels and meetings at the most important conferences and business events, as well as cooperation with experts and advisors. The close cooperation is to promote Central and Eastern Europe as a hub for development of the latest technologies, infrastructure and renewable sources of energy.
Bank Pekao is one of the largest financial institutions in Central and Eastern Europe and one of three biggest universal banks in Poland. With the second largest branch network, it serves over 5.5 million retail clients. As Poland’s leading corporate bank it provides services to one out of two corporations in Poland. The status of a universal bank relies on the leading market position in private banking, asset management and brokerage activity. The Bank offers all financial services available in Poland to individual and institutional clients. The group comprises over a dozen companies which are national leaders in the area of brokerage services, leasing, factoring, financial investment and transaction advisory services. SECTION 3. OPERATION OF THE PZU GROUP
As at the end of 31 December 2019, the bank had 805 own branches and 1,648 own ATMs. With a competitive offer of products and services in the Polish market and a high standard of customer service, the Bank administered 6.2 million PLN current accounts, 394.3 thousand mortgage loan accounts and 717.2 thousand Express Loan accounts.
Bank Pekao’s electronic banking is systematically modernized and developed. In 2019, the bank launched a new release of its electronic banking platform Pekao24 for retail clients. It also works on further development of the PeoPay mobile application and continues to improve its digital solutions dedicated to corporate clients.
The Bank has also given clients the possibility to open an online account themselves, using a computer or a smartphone. Identity is verified by using biometric measurements of a face and a personal ID. The service is available online 24 hours a day, 7 days a week. Pekao is the first bank in Poland which offered the identity verification process based on face biometrics. Additionally, business clients have the possibility of contacting the bank via a chat, video and voice connection with the bank’s hotline via the internet.
The bank’s operations are conducted by various divisions that offer specific products and services earmarked for specific market segments. Currently, the bank has presence in three industry segments: individual clients (retail segment), business clients (business segment), treasury operations.
In order to learn the opinions of entrepreneurs on the corporate solutions and to match the offering even better to the entrepreneurs’ needs, Alior Bank has established the Business Client Council, which is an advisory body in development of new products and services and improving the processed for the business.
The offer for entrepreneurs and quality of the business client service have been frequently appreciated by independent experts.
Individual client (retail segment) As at 31 December 2019, Alior Bank catered to 4.0 million retail clients. The higher client number in 2019 resulted from the bank’s organic growth.
From September 2019 work was launched on the update of the behavioral segmentation. In 2020 the bank will present a new, broader approach, to even better respond to the clients profile and address their needs.
Business client (business segment) Alior Bank has a comprehensive and contemporary offer for business clients in all the segments: micro, small and medium and corporate. As at the end of 2019, the bank serviced more than 224.6 thousand business clients, and the total credit exposure reached PLN 21.3 billion.
Distribution network At the end of 2019, Alior Bank had 820 outlets (197 traditional branches, 7 private banking branches, 8 corporate centers and 608 partner centers). The bank’s products were also offered in the chain of 10 mortgage centers, 9 cash centers and a network of roughly 5 thousand intermediaries.
The bank also used distribution channels based on a modern IT platform incorporating: online banking, mobile banking and call centers and the DRONN technology. The Bank uses the Internet, including Internet banking, to enter into agreements for: savings and checking accounts, currency accounts, savings accounts, deposits, debit cards and brokerage accounts. These channels are also used to accept applications for credit products: cash loans, credit cards, overdraft limits and mortgage loans. Using the Internet, the bank also offers installment loans in an on-line process and offers services of a currency exchange office.
Alior Bank’s traditional branches are located throughout Poland, in particular in cities with more than 50 thousand residents, offering the full range of the bank’s products and services. Partner centers on the other hand are located in smaller towns and in selected locations in Poland’s major cities, offering a broad range of services and deposit and credit products for retail and business customers.
Cooperation between the bank and its partner centers is based on an outsourcing agency agreement. Under these agency agreements, agents provide exclusive agency services to the bank in respect to the distribution of products. These services are provided in locations owned or leased by agents approved by the bank. The bank’s products are offered in financial intermediary chains, such as Expander, Open Finance, Sales Group, Dom Kredytowy Notus, Fines and others, whose offering focuses mainly on cash loans, consolidation loans, mortgage loans and installment loans.
Executing the process of moving the clients from branches to the digital world (the so-called project digitization), the systems were expanded to include a number of self-service functions. It is now possible to change personal data (including change of the ID document and data verification in the data of the Ministry of Internal Affairs and Administration), manage marketing consents, submit a FATCA/CRS declaration, and unblock access to Alior Online and Alior Mobile via the website. Additionally, to simplify the contact with the hotline consultants, the possibility of an authorized call from the level of the Alior Mobile application has been implemented. Large part of the system development focused on adaptation of the solutions to the requirements of the PSD2 Directive, aimed at enhancing the security of clients and transactions.
In the Alior Mobile application, it is also now possible to add a card to the Apple Pay or Google Pay service (for apps installed on iOS and Android devices, respectively). Both in online and mobile banking the direct debit service was introduced in accordance with the changed transaction execution method. The increased transaction rates are also supported by the
Business Model possibility of adding a card to the Mastercard Priceless Specials loyalty program.
A number of changes were implemented to adapt the system to the legal requirements – including the changes regarding the split payment, new method of handling tax transfers and change in the method of execution of FX and foreign transfers.
In order to ensure the highest client satisfaction, both in Alior Online and Alior Mobile a number of improvements in the service of the blind and persons with impaired vision were introduced and the Alior Online dashboard was reconstructed.
In 2019, Alior Bank successfully migrated nearly 77 thousand business clients to BusinessPro online banking, offering them, at the same time, the possibility of moving between the business context and the individual context without relogging. Based on the comments and suggestions of clients from small, medium-sized and big business segment, the interface of the BusinessPro online banking system has been modified to address the users’ needs in the most useful and intuitive manner.
In 2019 the Open Banking Team executed a number of projects as a result of entry into force of the PSD2 directive and the PSA as a result of which banks were obligated to make their testing environment available and publish production interfaces allowing for connection with services offering access to account information and payment initiation. Alior Bank opened the testing environment to general use through the developer portal in March 2019. In June it published the API with access to production data that can be used by authorized service providers. At the same time, thanks to the obtained license for provision of services as a TPP (third party service provider) as the second bank in Poland, it started to work on leveraging the opportunities offered by access to other banks’ data. The end of 2019 brought a launch of the first service using API of the biggest Polish banks in the lending process.
In 2019 the strategic partnership portfolio was expanded by cooperation with Energa – Obrót SA. As part of the cooperation, PZU provides the clients of Energa – Obrót SA with technical assistance services – these are specialized professionals, including among others: electrician, plumber and brown goods/white goods servicing staff, who provide help in the case of a failure in the household. The assistance services are available in different options, so clients may choose the coverage that suits their needs.
1 Study conducted by the Gfk Polonia institute, 2019 2 Bank’s clients in Poland, Kantar Millward Brown, 2018 rok
The result before tax was PLN 7,080 million compared with PLN 7,086 million in the previous year (down 0.1%). Net profit was PLN 5,185 million, i.e. PLN 183 million below the result in 2018. Operating profit in 2019 was PLN 7,084 million, down PLN 3 million compared to the result in 2018.
The net result fell by 1.5% compared to last year,1 net of nonrecurring events.
group protection portfolio and an increase in operating expenses; • higher profitability in international companies due to the dynamic growth of sales and substantially higher investment income; • squeezed results in the banking segment due to, among others, higher contributions to the Bank Guarantee Fund and the unfavorable impact of the CJEU judgment on consumer loans.
N et re ve nu e fr om co m m is si on an d fe e in co m e
N et c la im s an d be n ef it
Net revenues from commissions and fees 243 740 2,312 3,355 3,279
Net insurance claims and benefits paid (11,857) (12,732) (14,941) (14,563) (15,695)
Net profit (loss) attributable to equity holders of the parent company 2,343 1,935 2,895 3,213 3,295 restated data for 2015-2018 *excluding interest costs 349,
Net profit attributable to the equity holders of the parent company
Group and individually continued insurance – Poland 6,689 6,775 6,855 6,891 6,966
In 2019 the value of the PZU Group’s investment portfolio, net of banking activity3, was PLN 49,689 million compared with PLN 50,270 million at yearend 2018.
The decrease in the value of the investment portfolio was associated with the repayment of EUR-denominated own bonds and the disbursement of a dividend by the Group. These factors were offset by the inflow of premiums and investment performance. The increase in the percentage of non-treasury debt market instruments is the result of the consistently implemented investment policy to ensure greater diversification of the investment portfolio and curtailment of volatility in results.
2 Net investment result includes: net investment income, net result on realization of financial instruments and investments, movement in allowances for expected credit losses and impairment losses on financial instruments and net movement in fair value of assets and liabilities measured at fair value. 3 The investment portfolio contains investment financial assets (including investment products), investment properties (including the part presented in the category of assets held for sale) financial derivatives along with the negative valuation derivatives and liabilities arising from repurchase transactions presented in financial liabilities.
Net claims and benefits (including the movement in technical provisions) reached PLN 15,695 million and were 7.8% above the corresponding period of the previous year. The following factors contributed to the increase in the net claims and benefits category: • the higher investment income in most unit-linked product portfolios in life insurance versus last year’s performance (this does not exert any influence on the PZU Group’s net result; this position is the outcome of better investment performance in the portfolio of assets covering investment products); • in insurance against fire and other damage to property – above-average number of losses caused by atmospheric phenomena.
The Group’s administrative expenses in 2019 were PLN 6,606 million compared to PLN 6,609 million in 2018, i.e. they were down PLN 3million versus the previous year.
The banking segment’s administrative expenses (net of the adjustments made to the fair value measurement of assets and liabilities) dropped by PLN 139 million in conjunction with both banks maintaining cost discipline and Alior Bank reversing a portion of its provision for deferred payroll costs. At the same time, the administrative expenses in the insurance activity segments in Poland were up PLN 96 million versus last year’s figures. This change largely resulted from higher personnel costs in connection with the wage pressure on the market.
PLN 372 million in 2018 to PLN 611 million in 2019 due to the higher payment to the compulsory resolution fund; • establishing a provision for disputed claims and prospective liabilities in connection with the CJEU judgment on consumer loans and mortgage loans in CHF totaling PLN 294 million and lower by PLN 75 million balance of provisions released and established for extended bank guarantees and sureties; • levy on financial institutions – the PZU Group’s financial institutions tax charge (for insurance and banking activity combined) was PLN 1,134 million in 2019 compared to PLN 1,092 million in 2018. This higher levy was for banking activity was a result of an increase in underlying assets (the bank levy rate did not change).
In 2019 in connection with the CJEU judgment, the PZU Group estimated the effects of the legal risk resulting from the premature amortization of consumer loans made before the date of the CJEU judgment and set up a provision charged to other operating expenses in the amount of PLN 272 million.
The 2018 result was strapped with the non-recurring effect of establishing additional provisions of PLN 148 million, chiefly in motor insurance to cover claims for pain and suffering linked to people being in a vegetative state.
Assets Loan receivables from clients were the chief component of the Group’s assets as at 31 December 2019. They held a 56.8% share of total assets with their balance of PLN 194,868 million, which compared to the end of 2018 expanded by PLN 12,814 million.
The second largest asset category were investments (investment financial assets, investment properties and financial derivatives). They totaled PLN 116,504 million and were PLN 10,655 million higher than at the end of the previous year. They represented 33.9% of the Group’s total assets compared with 32.2% at the end of 2018. The growth in the value of investments took place in Pekao. Excluding banking activity, the investment portfolio shrank due to the amortization of the own bond issue in EUR and the Group’s dividend distribution. These effects were partially offset by the higher influx of funds due to premiums in connection with business development and the higher value of investments.
PZU Group’s receivables, including receivables under insurance contracts and current income tax were PLN 5,737 million, which represented 1.7% of assets. For the sake of comparison, at the end of 2018 they were PLN 6,343 million (1.9% of the Group’s assets) and their decrease was caused mainly by the outstanding transactions on financial instruments and margins.
As at 31 December 2019, the PZU Group held PLN 7,788 million of cash and cash equivalents (2.3% of assets). At yearend 2018, this value was PLN 17,055 million and the movement occurred mainly in the cash accumulated by Bank Pekao in the central bank in conjunction with the reserve requirement.
* Interest rate, foreign exchange and equity price derivatives duly presented in the categories of debt market instruments – treasuries, money market instruments and listed and unlisted equity instruments.
Structure of the portfolio of investments net of the impact of banking activity* (in %)
As at the end of 2019, the value of technical provisions was PLN 47,329 million, which accounted for 13.8% of liabilities and equity (PLN +1,490 million compared to the end of 2018). The movement in this item resulted in particular from: • higher unearned premium reserves in non-life insurance resulting mainly from insurance sales development; • higher claims provisions in non-life insurance due to the notification of several high value claims; • higher provisions for unit-linked life insurance products due to high positive investment income.
Corporate insurance In 2019 the corporate insurance segment generated an operating result of PLN 327 million, or 22.0% higher than in the corresponding period of last year. The pace of growth in this segment’s result was the highest among all the insurance segments in Poland.
◦ development in the portfolio of insurance for various financial risks, in particular GAP financial loss insurance offered to individual and institutional clients with the support of PZU Group leasing companies,
◦ sales growth in general TPL insurance (+8.3% y/y) due to the conclusion of several high unit value contracts and development in the portfolio of medical insurance and strategic partners in TUW PZUW,
Cash flow statement Net cash flow at yearend 2019 totaled PLN (9,292) million, down PLN 18,066 million compared to last year. This drop related particularly to net cash flow on investing.
• net claims and benefits moved up by 1.2% compared to the corresponding period of 2018 signifying an improvement in loss ratio of 3.4 p.p. to 65.0% in combination with the growth in net earned premiums (+6,4%). The decrease in the total loss ratio in the segment was the outcome of the following: ◦ lower loss ratio in the motor TPL insurance class – in the corresponding period of 2018 as the result of remeasurement of the provision for pain and suffering claims,
◦ higher premium in motor own damage insurance, ◦ higher level of sales of insurance against fire and other damage to property, mostly in insurance for household and small and medium enterprises offset to a slight degree by the decline in the premium on agricultural insurance ensuing from the market’s high level of competitiveness translating into a loss of a portion of the portfolio of insurance for farm buildings and the lower average premium in crop insurance,
◦ active up-selling of other riders in individually continued insurance products, especially while offering the underlying contract in PZU branches and raising the sum insured during the lifetime of these contracts. Besides the rider stated above, in Q4 2018 PZU Życie rolled out a rider covering a myocardial infarction or stroke to provide financial support when these types of events occur, while in Q3 2019 insurance to safeguard the policyholder in the event of permanent bodily injury or broken bones in the form of a cash benefit and access to medical services, At the same time, revenue on group protection products was under pressure from more frequent lapses as
Ac q ui si ti on e xp en se s
◦ rising value of medical benefits in health products in proportion to the dynamic growth in this portfolio of contracts,
In su ra nc e re su lt selling health and protection products, modification made to the remuneration system in the agent network, and increasing sales levels; • incremental growth in administrative expenses of PLN 36 million (6.0%) y/y having regard for organizational changes in sales divisions and higher staff costs stemming from wage pressure on the market.
Poland (PZU, Link4 and PZU Życie) plus the surplus of income earned over the risk-free rate on investments reflecting the value of technical provisions of PZU, Link4 and PZU Życie in insurance products, i.e. surplus of investment income of PZU, Link4 and PZU Życie over the income allocated at transfer prices to insurance segments.
Pension insurance In 2019 the operating profit of the pension insurance segment was PLN 101 million, down 5.6% from 2018. The major drivers of the operating result’s level and movement are as follows: • other revenue of PLN 142 million fell 4.7% compared to the previous year. This change resulted from the decline in revenue due to the reimbursement of funds from the Insurance Guarantee Fund; • administrative expenses of PLN 43 million were up 7.5% from the previous year. This change resulted mainly from: ◦ amortization of the right to manage Pekao funds (the management of OFE Pekao was acquired in 2018),
In 2019, the banking activity segment posted PLN 3,498 million in operating profit (net of the amortization of intangible assets acquired as part of acquiring banks), representing a decrease of PLN 538 million compared to 2018. The lower result was precipitated chiefly by additional charges, among others, the higher contribution to the Bank Guarantee Fund y/y mainly on the account of higher payments to the banks compulsory resolution fund and the adverse impact exerted by the CJEU judgment related to consumer loans.
In 2019 Pekao made a contribution of PLN 3,003 million to operating profit (net of amortization of intangible assets acquired as part of the Pekao acquisition transaction) in the “Banking Activity” segment while Alior Bank contributed PLN 495 million.
The key element of the segment’s revenue is investment income which climbed to PLN 9,014 million y/y in 2019 (1.7% growth y/y). Investment income consists of: interest income, dividend revenue, trading result and result on impairment losses and provisions.
The profitability of the banks in the PZU Group in 2019 measured by the net interest margin was 2.9% in Pekao and 4.6% in Alior Bank. The difference between them stems in particular from the mix of the loan receivables portfolio. Bank Pekao reported improvement in its interest margin of 4 bps as a result of new sales higher margin while Alior Bank reported decrease in its interest margin by 12 bps. due to lower interest result in consequence of CJEU judgment related to consumer loans.
Moreover, other operating income and expenses contributed to the operating result; their main component consists of fees to the Bank Guarantee Fund (PLN 611 million) and the provisions for refunds of fees, resulting from the CJEU ruling on consumer loans in the amount of PLN 243 million in Alior Bank and of PLN 29 million in Bank Pekao.
• higher administrative expenses. They were PLN 31 million, up PLN 6 million compared to the past year. The administrative expense ratio stated as a percentage of net earned premium dwindled by 2.2 p.p. to 14.3%.
27 million to PLN 42 million, mainly due to the difference in investment income in the unit-linked products as described above.
The segment’s operating result was PLN 5 million with changes resulting from the falling level of costs due to the dwindling size of business in this segment.
Income on investing activity in the investment contracts segment improved by PLN 30 million over the previous year, mainly as a result of a better rate of return on individual pension security accounts (IKZEs) and unit-linked funds in the bancassurance channel.
The cost of insurance claims and benefits coupled with the movement in other net technical provisions rose y/y by PLN
Cl ai m s, b en ef its a nd c ha ng e in te ch ni ca l p ro vi si on s
Profitability ratios The return on equity attributable to the parent company (PZU) for the period from 1 January 2019 to 31 December 2019 was 21.2%, i.e. a level materially outpacing the figures achieved by the overall market and the main competitors (based on data for the first three quarters of 2019). ROE was down 0.9 p.p. compared to the level achieved in the previous year.
Basic performance ratios of the PZU Group 2015 2016 2017 2018 2019
Return on equity (ROE) – attributable to the parent company (annualized net profit/ average equity) x 100%
3. Operating expense ratio in the insurance segments (insurance activity expenses/net earned premium) x 100%
4. Acquisition expense ratio in the insurance segments (acquisition expenses/net earned premium) x 100%
5. Administrative expense ratio in the insurance segments (administrative expenses/ net earned premium) x 100%
In the individual net result items, PZU recorded: • higher gross written premium of PLN 13,039 million, or 0.3% in comparison with the previous year, is the outcome of lower motor insurance sales (the impact of significant price competition) and premium growth in insurance for various financial losses and damages caused by natural catastrophes. Net of the reinsurers’ share and the change in the provision for unearned premiums, net earned premium was PLN 12,303 million, up 1.8% from 2018; • a higher level of claims and benefits in the amount of PLN 7,760 million, implying an increase of 3.2% compared to 2018. The major change was recorded in the class of insurance for damage to property caused by natural catastrophes and motor own damage partially offset by the lower loss ratio in motor TPL and other TPL; • increase of net investment result by PLN 71 million was chiefly the effect of the dividends received from PZU Życie being higher than a year ago and the stabilization of investment income, mainly due to modifying the strategy for managing debt portfolios from a short-term to a longterm focus; • higher acquisition expenses, taking into account reinsurance commission (up PLN 105 million), as the outcome of a shift in the product and sales channel mix: the multi-agency and dealer channel featuring higher commission rates have a higher share while at the same time there was a lower pace of growth in the sales of motor TPL insurance featuring lower commission rates; • administrative expenses up to PLN 704 million versus PLN 655 million in 2018 chiefly as a consequence of higher personnel (due to wage pressure on the market) and IT costs on the market partially curtailed by maintaining cost discipline in other areas of business.
of PZU’s insurance portfolio (41.5% in the prior year). In 2019 they were down 5.1% from the previous year due to the lower number of insurance policies coupled with the decline in the average premium; • motor own damage insurance premiums with a 24.7% share of PZU’s total gross written premium (i.e. 0.3 p.p. lower than in the corresponding period of the previous year) – slight drop (-0.6% y/y) forming the outcome of the declining average premium and the lower number of concluded insurance policies in the corporate client segment and growth in the mass client segment; • premiums on insurance against fire and property damage accounting for 20.7% of PZU’s premium portfolio. In 2019 their percentage of the insurance portfolio edged up 0.9 p.p., while its value was up 5.0% versus the previous year – this was the effect of the higher premiums on household and business insurance and indirect activity; • accident and other insurance premiums whose share totaled 9.5% (up 1.5 p.p. versus 2018). In this category of insurance PZU posted higher premium mainly in insurance for various financial risks (including GAP financial loss offered to individual and institutional clients with the support of PZU Group leasing companies), and in accident and sickness insurance driven by the development of cooperation with the PZU Group’s banks (cash loan insurance) and health insurance sales growth.
In 2019 net claims and benefits and movement in PZU’s provisions totaled PLN 7,760 million, signifying 3.2% growth compared to 2018.
• the higher level of claims in the group of damage caused by natural catastrophes and other damage to property, including events with a high unit value and crop insurance claims – the higher than normal number of losses caused by atmospheric phenomena such as ground frost, rainfall and hail; • the decline in claims and benefits in third party liability insurance largely as the consequence of the considerably smaller movement in the annuity provision - in the corresponding period of 2018 the provision was increased mainly in third party liability insurance for medical entities; • lower loss ratio in the motor TPL portfolio as the outcome of the lower sales pace and rising claim-related inflation (in the corresponding period of 2018 the provision was increased for claims for pain and suffering).
Acquisition expenses in 2019 (excluding reinsurance commissions) totaled PLN 2,489 million and were up 5.0% versus 2018.This incremental growth stemmed from the increase in direct acquisition expenses (commissions) and indirect selling expenses forming the consequence of the shift in the product and distribution channels mix (the rising share held by the multi-agency and dealer channel coupled with the simultaneously lower sales growth in motor TPL insurance featuring lower commission rates).
The balance of other technical income and expenses in 2019 was negative and stood at PLN 254 million. The deterioration in the balance versus 2018 was the outcome of of declining revenue on foreign exchange differences and the impairment to update the value of receivables.
At the end of 2019, the main component of PZU’s equity and liabilities consisted of technical provisions. They totaled PLN 21,465 million (net), representing 51.6% of equity and liabilities. Their share in the balance sheet increased by 3.4 p.p. compared to 2018, while in terms of value they rose by PLN 467 million, in particular due to higher provisions for unpaid claims and benefits, chiefly in motor TPL and motor own damage insurance and in insurance for other damage to property.
3. Insurance activity expense ratio (insurance activity expenses/net earned premium) x 100% 29.4% 27.9% 25.2% 24.8% 25.6%
4. Acquisition expense ratio* (acquisition expenses/net earned premium) x 100% 19.9% 20.1% 19.0% 19.3% 19.9%
5. Administrative expense ratio (administrative expenses/net earned premium) x 100% 9.5% 7.9% 6.2% 5.4% 5.7%
6. Combined ratio (COR) (net claims and benefits + insurance activity expenses) / net earned premium x 100%
Return on assets (ROA) (annualized net profit/average assets) x 100% 6.3% 4.3% 6.2% 6.3% 6.2%
PZU exercises supervision over the PZU Group’s risk management system on the basis of mutual cooperation agreements entered into with other Group entities and the information provided thereunder. It manages risk at the PZU Group level on an aggregate basis, especially with respect to capital requirements.
Additionally, the PZU Group has in place processes to ensure the effectiveness of risk management at the PZU Group level. The risk management rules applicable to the PZU Group’s subsidiaries include a recommendation issued by PZU (the parent) regarding the organization of the risk management system in insurance sector and banking sector subsidiaries. Additionally, guidelines regulating the various risk management processes in the PZU Group entities are also issued from time to time.
The management boards of PZU Group entities are responsible for fulfilling their own duties in accordance with the generally applicable provisions of national and international law. In particular, they are responsible for the implementation of an adequate and effective risk management system.
Supervision over the risk management systems in the various financial sector entities is exercised by supervisory boards. PZU designates its representatives to the Supervisory Boards of its subsidiaries, including in particular the Alior Bank and Bank Pekao.
Committee is to coordinate and supervise activities related to the PZU Group’s risk management system and processes.
This process is tailored to both banks to reflect the business strategy and capital structure of each entity. Risk appetite in banking sector entities is a topic for consultation with the PZU Group’s parent company and the subject matter of opinions issued by the PZU Group Risk Committee with a view to ensuring consistency between the activities carried out by the banks and the strategic plans and business objectives of the PZU Group as a whole while maintaining an acceptable level of risk at the Group level. The agreed upon level of risk appetite is also approved by the Supervisory Boards of the banking sector entities.
Supervision over risk management systems in the banking sector entities (Alior and Pekao) is exercised by the Supervisory Boards of these banks, to which PZU designates its representatives
Reinsurance providing security against negative impact of catastrophic events on the results of the PZU Group’s insurance activity
Boards of entities and managers of such areas as finance, risk, actuarial services, reinsurance, investments and compliance on the basis of pertinent mutual cooperation agreements.
• II - ENTITY LEVEL – monitoring of limits and risks specific to the entity Risk management at this level aims to ensure that the PZU Group entity attains its business objectives in a safe manner appropriate to fit the extent of the risk incurred by that entity. The limits and risk categories specific to the company are monitored at this level and also, as part of the risk management system, mechanisms, standards and organization are implemented for the efficient operation of the internal control system (with particular emphasis on the compliance function), the risk management system (in particular in reinsurance) and the security management system.
Risk measurement and assessment Risk measurement and assessment 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.
The assessment of actuarial risk consists in the identification of the degree of the risk or a group of risks that may lead to a loss, and in an analysis of risk elements in order to make an underwriting decision.
The major risks associated with the operation of Alior Bank and Bank Pekao include the following risks: credit risk (including the risk of loan portfolio concentration), operational risk and market risk (involving interest rate risk,
FX risk, commodity price risk and financial instrument price risk). The overall risk of the banking sector entities accounts for approximately 33% of the PZU Group’s total risk (Q3 2019), while the largest contribution is in credit risk.
Actuarial risk This is the likelihood of a loss or an adverse change in the value of liabilities under the existing insurance contracts and insurance guarantee agreements, due to inadequate assumptions regarding premium pricing and creating technical provisions.
The management actions contemplated in the actuarial risk management process are performed in particular by doing the following: • defining the level of tolerance for actuarial risk and monitoring it; • business decisions and sales plans; • calculation and monitoring of the adequacy of technical provisions; • tariff strategy, monitoring of current estimates and assessment of the premium adequacy; • the process of assessment, valuation and acceptance of actuarial risk; • application of tools designed to mitigate actuarial risk, including in particular reinsurance and prevention.
Moreover, to mitigate the actuarial risk inherent in current operations the following actions in particular are undertaken: • defining the scopes of liability in the general / specific terms and conditions of insurance or other model agreements; • co-insurance and reinsurance; • application of an adequate tariff policy; • application of the appropriate methodology for calculating technical provisions; • application of an appropriate procedure to assess underwriting risk; • application of a correct claims or benefits handling procedure; • sales decisions and plans; • prevention.
Market risk This is the risk of a loss or an adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, credit spread, as well as value of liabilities and financial instruments.
The risk management process for the credit spread and concentration risk has a different set of traits from the process of managing the other sub-categories of market risk and has been described in a subsequent section (Credit risk and concentration risk) along with the process for managing counterparty insolvency risk.
When measuring market risk, the following stages, in particular, are distinguished: • collection of information on assets and liabilities that generate market risk; • calculating the value of risk.
Monitoring and control of market risk involves an analysis of the level of risk and of the utilization of the designated limits.
Management actions in respect of market risk involve in particular: • execution of transactions serving the purpose of mitigation of market risk, i.e. selling a financial instrument, closing a position on a derivative, purchasing a derivative to hedge a position; • diversification of the assets portfolio, in particular with respect to market risk categories, maturities of instruments, concentration of exposure in one entity, geographical concentration; • setting market risk restrictions and limits.
The application of limits is the primary management tool to maintain a risk position within the acceptable level of risk tolerance. The structure of limits for the various categories of market risk and also for the various organizational units is established by dedicated committees in such a manner that the limits are consistent with risk tolerance as agreed by the management boards of the subsidiaries. Banking sector entities are in this respect subject to additional requirements in the form of sector regulations.
To minimize credit risk, adequate collaterals are established in line with the credit risk incurred. The establishment of a collateral does not waive the requirement to examine the client’s creditworthiness.
Liquidity risk Financial liquidity risk means the possibility of losing the capacity to settle, on an ongoing basis, the PZU Group’s liabilities to its clients or business partners. The aim of the liquidity risk management system is to maintain the capacity of fulfilling the entity’s liabilities on an ongoing basis. Liquidity risk is managed separately for the insurance part and the banking part.
(e.g. current accounts, cancellations and renewals of deposits, level of their concentration); • possibility of shortening the maturity period for specific items of assets (e.g. mortgage loans with an early repayment option); • possibility of selling items of assets (liquidity portfolio).
Monitoring and controlling financial liquidity risk involves analyzing the utilization of the defined limits.
Operational risk Operational risk is the risk of suffering a loss resulting from improper or erroneous internal processes, human activities, system failures or external events.
Monitoring and control of operational risk is performed mainly through an established system of operational risk indicators and limits enabling assessment of changes in the level of operational risk over time and assessment of factors that affect the level of this risk in the business.
Management actions involving reactions to any identified and assessed operational risks involve, in particular: • risk mitigation by taking actions aimed at minimizing risks, for instance by strengthening the internal control system; • risk transfer – in particular, by entering into insurance agreements; • risk avoidance by refraining from undertaking or withdrawing from a particular type of business in cases
Risk management where too high a level of operational risk is ascertained and where the costs involved in risk mitigation are unreasonable; • risk acceptance – approval of consequences of a possible realization of operational risk unless they threaten to exceed the operational risk tolerance level.
The business continuity plans in PZU Group entities are kept up to date and tested regularly.
Model risk Taking into account the growing importance of the scope of use of models and the fact that model risk was classified as material risk for the PZU Group; the formal process of identifying and evaluating this risk was continued in 2019. The process aims to ensure high quality of risk management practices applied to this risk. It is currently being developed in PZU and PZU Życie. Within the framework of this process, the models were monitored and independently validated in 2019.
The compliance risk management process at the PZU and PZU Życie level covers both systemic activities carried out by the Compliance
In turn, activities of the heads of organizational cells and units related to ongoing management of compliance risk, include in particular: • identification and evaluation of compliance risk in the supervised area; • measurement of compliance risk in the supervised area; • determining the instruments to provide protection and limit the number and scale of irregularities; • reporting any threats and events in the compliance risk area to the Compliance Department; • taking actions to mitigate compliance risk; • ongoing monitoring of compliance risk in the supervised area.
Moreover, the Compliance Department at PZU level makes efforts aimed at ensuring adequate and uniform standards of compliance solutions in all PZU Group entities and monitors compliance risk throughout the PZU Group.
Due to the broad spectrum of the PZU Group’s business, reputation risk is also affected by the risk of litigation whose value varies, which is predominantly inherent in the Group’s insurance companies and banks.
The identification and assessment of compliance risk in the Group’s entities is performed for each internal process of these entities by the heads of organizational units, in accordance with the allocation of responsibility for reporting. Moreover, compliance units in PZU Group entities identify compliance risk on the basis of information obtained from notifications to the register of conflicts of interest, gifts and irregularities, and from inquiries sent to them.
Compliance risk is monitored, in particular, through: • systemic analysis of the regular reports received from the heads of organizational units and cells; • monitoring of regulatory requirements and adaptation of the business to the changing legal environment of PZU Group entities; • participation in legislative work aimed at amending the existing laws of general application; • performing diverse activities in industry organizations; • coordination of external control processes; • coordination of the fulfillment of reporting duties imposed by the stock exchange (in respect of PZU) and by statute; • increasing the level of knowledge among PZU Group staff in the field of competition law and consumer protection, tailored to the specific business areas; • monitoring of anti-monopoly jurisprudence and proceedings conducted by the President of UOKiK; • reviews of the implementation of recommendations issued by the PZU Group’s compliance unit; • ensuring uniform standards and consistent implementation of the compliance function within the PZU Group.
Management actions in the area of response to compliance risk include in particular: • acceptance of the risk arising, without limitation, from legal and regulatory changes; • mitigation of risk, also through aligning procedures and processes to regulatory requirements, evaluation and design of internal regulations to suit compliance needs, participation in the process of agreeing on marketing activities; • avoidance of risk by preventing any involvement of PZU Group entities in activities that are out of compliance with the applicable regulatory requirements, best market practices or activities that may have an unfavorable impact on the PZU Group’s image.
As part of efforts aimed at reducing compliance risk in the PZU Group at system level and day-to-day level, the following risk mitigation actions are undertaken: • continuous implementation of an effective compliance function as a key management function; • participation in consultations with legislative and regulatory authorities (supervised entities within the PZU Group) at the stage of development of the regulations (social consultations); • delegating representatives of the PZU Group’s supervised entities to participate in the work of various commissions of regulatory authorities; • participation in implementation projects for new regulations; • training of staff on new regulations, standards of conduct and recommended management actions; • issuing opinions on internal regulations and recommending possible amendments to ensure compliance with the applicable laws and accepted standards of conduct; • verifying procedures and processes in the context of their compliance with the applicable laws and accepted standards of conduct; • aligning documentation to upcoming changes in legal requirements before they are enacted; • systemic supervision exercised by PZU over the execution of the compliance function in PZU Group entities; • running analyses and conducting ongoing monitoring of the application of the rules for the functioning of the Chinese walls – in connection with the additional investor commitments made by PZU in connection with the proceedings under the notification on the intent to purchase Bank Pekao’s shares; • ongoing monitoring of changes in the legal and regulatory environment in order to identify gaps or areas requiring action to ensure compliance.
In 2019 - in connection with the PZU Group continuing to meet the criteria for treating it as a financial conglomerate, and hence the necessity for KNF to continue applying supplementary oversight to it under the Act of 15 April 2005 on supplementary oversight over credit institutions and insurance undertakings, reinsurance undertakings and investment firms comprising a financial conglomerate – compliance was involved in the work to align the Company to the requirements ensuing from this act, as well as to the requirements stemming chiefly from the following legal acts: • Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation); • Directive of 15 May 2014 on Markets in Financial Instruments (MIFID II) (this regulation is material for some PZU Group entities, in particular for TFI); • Act of 15 December 2017 on Distribution of Insurance; • Act of 1 March 2018 on Combating Money Laundering and
Offerings and the Conditions for Offering Financial Instruments in an Organized Trading System and on Public Companies and some other acts.
At present the PZU Group identifies the following types of risk concentration: • within actuarial risk, it identifies risk concentration with regard to possible losses caused by catastrophic events, such as, in particular, floods and cyclones and concentration on large corporate risks, where in both cases the applicable reinsurance program facilitates reduction of the possible net losses; • with respect to credit risk and market risk, risk concentration is identified at the level of groups, sectors of the economy and countries; • no risk concentration was identified within operational risk and other significant risks.
Equity price risk – the possibility of incurring loss as a result of changes in the values of assets, liabilities and financial instruments caused by changes in the level or in the volatility of market prices of equities.
Changes in assumptions regarding provisions for the net capitalized value of annuities in non-life insurance (in PLN m)
Change in assumptions regarding provisions in life insurance excluding annuity products (in PLN m)
Reinsurance protection in the PZU Group secures insurance activity, limiting the consequences of the occurrence of catastrophic phenomena that could adversely affect the financial standing of insurance undertakings.
Reinsurance treaties in PZU On the base of the reinsurance treaties it has entered into PZU limits its risk related to catastrophic losses (e.g. floods, cyclones) among others through a catastrophic non-proportional excess of loss treaty and related to the consequences of large single losses under non-proportional reinsurance treaties to protect its portfolios of property, technical, marine, air, third party liability and third party liability motor insurance. PZU’s risk is also limited by reinsuring the financial insurance portfolio.
Its reinsurance partners have high S&P ratings. That evidences the reinsurer’s robust financial position and affords the Company security.
Reinsurance premium under obligatory treaties in PZU according to the Standard & Poor’s / AM Best rating
PZU’s reinsurance partners have high S&P ratings. That evidences the reinsurer’s robust financial position and affords the Company security.
PZU’s inward reinsurance business involves the PZU Group’s other insurance companies. Continued exposure to protect Baltic companies, LINK4 and TUW PZUW means that PZU continues to generate a high gross written premium by virtue thereof.
Reinsurance treaties in the PZU Group’s international companies, LINK4 and TUW PZUW The PZU Group’s other insurance companies, i.e. Lietuvos Draudimas, Lietuvos Draudimas Branch in Estonia, AAS Balta, PZU Ukraine, LINK4 and TUW PZUW have reinsurance cover aligned to the profile of their operations and their financial standing. Every material insurance portfolio is secured with the appropriate obligatory treaty. Reinsurance cover is provided for the most part by PZU, which transfers a portion of the accepted risk outside the Group.
The following table shows the evolution of the level contractual sensitivity of interest income (NII) to change in interest rates by 100 bps and value sensitivity economic capital (EVE) of the PZU Group banks for a change interest rates by 200 bps.
As at the end of Q3 2019, the estimated solvency ratio (calculated according to the standard Solvency II formula) was 220% and remained above the average solvency ratio for European insurance groups.
The Solvency II ratio for the PZU Group compared to European insurers
The shares of PZU, Pekao and Alior Bank accounted for 19.7% of the value of the shares traded on the Warsaw Stock Exchange in 2019 totaling PLN 37.8 billion. Their total market capitalization at yearend was PLN 64.7 billion.
The global economy’s most important central banks made attempts to normalize monetary policy as early as 2018. The American central bank, the FED, hiked interest rates four times, while announcing another two rate hikes in 2019 and continuing to pursue a quantitative tightening operation, i.e. reduce its balance sheet by curtailing the reinvestment of maturing bonds.
In March 2019 this strategy changed materially when the FED withdrew from additional hikes of interest rates, and in July 2019 rate cuts were revisited (three rate cuts of 25 basis points each in 2019). Quantitative easing was also resumed in October 2019, whereby the balance sheet of the US Federal reserve began to swell again.
Source: The measures taken by the ECB also indicated a loosening policy. In early June 2019 ECB’s Governing Council announced that ECB’s prime interest rates will remain at their current level at least until H1 2020. A mere few weeks later the President of the ECB stated that it would be possible to continue reducing interest rates and renew quantitative easing (QE), which transpired in September 2019.
Vibrant market conditions in the US and Europe also translated into growth on emerging markets. In 2019 the MSCI Index moved up 15.4% y/y, thereby presenting relatively greater strength than the WIG20, an index of the Warsaw Stock Exchange’s largest companies.
The WIG index gained 0.3% y/y in 2019 while WIG20 backtracked 5.6% y/y. The weakness of local indices was related among other things to portfolio conversions in open-end pension funds (OFE) (due to transformations in the pension system) and the escalation of banking sector’s problems associated with their Swiss franc loan portfolios. Revisions to the MSCI emerging markets index also had an
The number of conferences for institutional investors: 16 international conferences 4 domestic conferences non-deal roadshows in New York, Paris and Frankfurt
The percentage of retail investors in PZU’s shareholder structure at the end of 2019 was
,,0 35,000 p ts 40,000 p ts 45,000 p ts 50,000 p ts 55,000 p ts 60,000 p ts 65,000 p ts 70,000 p ts
PZU’s share price adjusted for dividends paid from May 2010 to 2019
1 WIG20 is a price index, i.e. it is calculated by using only the prices of the transactions related to it, without incorporating dividend income
Warsaw Stock Exchange indices In 2019, the Polish blue chip index (WIG20) oscillated in the range between 2,047 and 2,414 points (vs. between 2,083 and 2,630 points in 2018), ending the year’s last session at 2,150 points (down 5.6% y/y and down 2.6% when adjusted for dividends). The sWIG small cap index behaved much better in this year with upward movement of 13.9% y/y.
PZU’s share price In 2019, PZU’s shares remained among the most liquid companies traded on the WSE. With a market capitalization of over PLN 34.6 billion at the end of 2019, PZU ranked as the third largest company by market cap on the Warsaw Stock Exchange. PZU’s share in WSE’s total trading volume was 8.7% (4th place).
The share price at the last trading session in 2019 was PLN 40.03, down 8.8% y/y. After adjusting the share price for the dividend according to the methodology used by the stooq service ( movement in PZU’s share price in 2019 was -2.0% versus WIG20 index down by 5.6%, WIG20TR 2 down by 2.6% and WIG Banks down by 9.2%.
The annualized standard deviation for daily changes in the PZU share price declined by 7.1 p.p. to 20.0%. These values for WIG and WIG20 fell by 2.6 p.p. and 1.7 p.p. to 12.6% and 17.0%, respectively. The value of shares traded for the overall WIG index contracted 6.8% y/y to PLN 190 billion.
Value of shares traded (PLN m) 20,145 16,755 18,902 17,183 16,620
Average number of trades per session 3,329 4,169 3,942 3,751 3,744
Average trading volume per session (shares) 1,872,705 2,225,087 1,795,331 1,681,702 1,649,190
Capitalization at the end of the period (PLN m) 29,377 28,677 36,406 37,908 34,567
S&P Global Ratings raised PZU’s rating outlook from stable to positive
P/BV Share price / book value per share 2.3x 2.2x 2.6x 2.5x 2.1x
In the first half of 2019, the WIG Banks index advanced by 6.1% y/y, or 3.9 p.p. more than the WIG20 index. The unfavorable judgments handed down by CJEU (Court of Justice of the European Union) on consumer loans and Swiss franc loans were among the major contributors responsible for the softening of sentiment in this index. Their outcome was that banks were compelled to set up additional provisions. This also led to lower market expectations regarding future commission and fee income.
In 2019, the share prices of the banks controlled by PZU, i.e. Pekao (a member of the PZU Group since 7 June 2017) and Alior Bank (a member of the PZU Group since 18 December 2015), went down 1.8% (adjusted for a dividend of PLN 6.6 per share) and 46.0%, respectively. Alior Bank’s softer performance relative to the WIG Banks index ensued among other things from the concern for the condition of the loan portfolio in the corporate segment, especially in the context of the emerging potential problems of two corporate clients, exacerbated at a later time by CJEU’s unfavorable rulings on consumer loans. CJEU’s rulings on Swiss franc loans exerted a relatively small impact on the share prices of the PZU Group’s banks – in comparison to most of the banks listed on the Warsaw Stock Exchange, the PZU Group’s banks’ exposure is very low.
PZU’s shareholder structure According to current reports regarding the percentage of share capital and votes held by shareholders at the shareholder meeting, the sole shareholder controlling more than 5% of PZU’s stock as of 31 December 2019 was the State Treasury of the Republic of Poland (34.2%). In July 2019 NationaleNederlanden Otwarty Fundusz Emerytalny and Nationale Nederlanden Dobrowolny Fundusz Emerytalny reported that they had dropped below 5% of share capital and votes at the PZU shareholder meeting SECTION 9.6 PZU’S SHARE CAPITAL AND SHAREHOLDERS.
Open-end pension funds and fund management companies in PZU’s shareholder composition in 2015-2019
Investors from the United Kingdom maintained the largest weight in PZU’s shareholders structure with a share of 18.1% of all stocks held by institutional investors (excluding the
Communication with capital market participantsusing digital tools In 2019, PZU continued to hold regular meetings attended by representatives of its Management Board during which it published its quarterly results. The strategy update was an additional event. All corporate events held with capital
Activities targeting institutional investors In 2019, PZU representatives participated in the following: • 3 non-deal roadshows in New York, Paris and Frankfurt
(2 in 2018); • 16 international finance conferences attended by global institutional investors (14 in 2018); • 4 conferences for institutional investors held in Warsaw
Activities addressed to retail investors In 2019, PZU engaged in active dialogue with retail investors providing them with reliable and up-to-date information on PZU’s business, the insurance industry and its financial results. In this respect, PZU implemented both communication projects (e.g. the online report, a newsletter, a factsheet, mass mailing) and took active steps to enable direct contact between investors and the Company’s representatives, including, in particular: • for the ninth time it participated in the largest conference for retail investors from Central and Eastern Europe organized in Poland by the Polish Association of Individual Investors: the 23rd Wall Street Conference in Karpacz; • organized 4 chats with retail investors hosted by the Member of the PZU Management Board in charge of the PZU Group’s Finance Division after publication of each quarter’s financial results.
Board and the community of investors, both in the local market and in the global market; • ensure understanding and approval for PZU’s business strategy among investors and analysts; • secure a deep and broad market for PZU’s shares and bonds by continuing investor-friendly measures to build a diversified base (in terms of geography, numbers and profile) of an appropriate number of well-informed investors familiar with the company; • ensure a reliable valuation for PZU’s stock by providing sellside analysts of investment banks and brokerage houses with high quality information about PZU’s operations, industry trends, drivers of financial performance and feedback after analysis of their recommendations; • widen sell-side research coverage, in particular among international investment banks; • provide the PZU Management Board with regular feedback concerning the perception of PZU among capital market players and broad knowledge of current and potential shareholders of the company; • monitor investor sentiment towards PZU shares and changes in the shareholder structure in order to adopt the most adequate investor relations measures and tools; • develop digital tools to address investor needs better, i.a. implement new solutions in the online annual report and enhance the functionality of the investor relations service; • extend the scope of non-financial reporting; • report carbon footprint data; • deploy a loyalty program.
In 2019 “buy” and “hold” recommendations were prevalent. One “sell” recommendation was issued in January. In September it was revised to “hold”. At year end, there were 5 “buy” and 7 “hold” recommendations.
In 2019 PZU’s average target share price according to analysts was PLN 45. The largest difference between the average target price and the PZU’s actual share price was observed in Q3 2019 when the recommended price was as much as 22% higher than PZU’s actual share price. The smallest difference (0.78%) was observed in June 2019. At the end of 2019 the gap was 10%, i.e. it was at a comparable level to the gap seen at the same time in 2018. At the end of December 2019 the PZU share price was PLN 40.03, while the average price from these
Price variance between the recommendations and the share price at the end of 2019 (PLN 40.0)
Price variance of the recommendations in 2019 recommendations was PLN 44.20. In the full year of 2019 the average target price determined by analysts was on average 13% higher than PZU’s market price.
Institutions issuing recommendations for PZU’s stock (as at 31 December 2019)
PZU’s earnings and dividend per share in 2010-2019 * the payout ratio net of the dividend payout from excess capital (PLN 2 per share) ** up to the date of preparing this Activity Report, the Management Board has not adopted a resolution concerning the proposed distribution of profit for 2019 Source: PZU data
Source: PZU data * in 2013 a dividend was paid from excess capital (PLN 2 per share) Source: PZU data
Up to the date of preparing this Report on the activities of the PZU Group, the Management Board has not adopted a resolution concerning the distribution of profit for 2019.
The issue was effected with a view to supplementing PZU’s equity, following the acquisition of a 20% stake in Bank Pekao, in order to maintain the Solvency II ratio at a level not lower than 200%, as defined in the PZU Group’s Capital and Dividend Policy.
Dividend paid for the year (in PLN m) 1,796 1,209 2,159 2,418 **
Dividend per share for the year (PLN) 2.08 1.40 2.50 2.80 **
Dividend per share on the date of record (PLN) 3.00 2.08 1.40 2.50 2.80
(a) Movement in the share price y/y (30.0)% (2.4)% 26.9% 4.1% (8.8)%
Dividends paid by PZU from its earnings in the 2015-2019 financial years
Cumulative dividend per share (PLN) Bo ok value per share (P LN) The closin g pr ice from the last session (PLN)
PZU bonds: XS1082661551 for EUR 850 million (redeemed on 3 July 2019)
The liabilities arising from the bonds were secured by a guarantee extended by PZU. The bonds bore interest at a fixed interest rate of 1.375% per annum. The coupon was paid once a year. The bonds were redeemed on 3 July 2019.
Closure of Alior Bank S.A.’s current Bond Issue Program On 5 August 2019 the Bank wrapped up its own bond issue program established under the Bank’s Management Board Resolution No. 253/2015 of 29 July 2015, which was approved by the Bank’s Supervisory Board under resolution no. 54/2015 of 10 August 2015.
The total value of the company’s liabilities due to covered bonds amounted to PLN 1.3 billion (principal value) as at the end of December 2019. The liabilities under covered bonds with maturity date up to 1 year account 6.8%, from 1 year up to 3 years account for 47.6% with maturity date from 3 up to 5 years account for 21.2% and with maturity date from 5 years up to 10 years account for 24.4% of the total nominal value.
Subordinated bonds On 30 October 2017, Pekao placed its first issue of subordinated bonds with a value of PLN 1.25 billion in order to improve its capital ratios. The bonds have a 10-year maturity with an early redemption option five years after the date of issue. The bonds bear interest at a reference rate based on WIBOR6M plus a margin of 1.52%. After receiving on 21 December 2017 the Polish Financial Supervision Authority’s consent, the funds from this issue were earmarked to raise the Bank’s Tier II capital.
On 15 October 2018 Pekao issued subordinated bonds in subsequent B and C series worth PLN 550 million and PLN 200 million, respectively. The series B bonds have a 10-year maturity while the series C bonds have a 15-year maturity. Both series bear interest at a floating interest rate equal to the sum of the underlying WIBOR6M rate and a 1.55 p.p. margin
(for series B bonds) and a 1.80 p.p. margin (for series C bonds), respectively. These bonds offer an early redemption option of five years before maturity. As a result of classifying the series B and C bonds as instruments in Tier II capital, after obtaining the consent of the Polish FSA on 18 October 2019 (for the series C bonds) and 16 November 2019 (for the series B bonds), the total capital ratio (TCR) for the bank and the bank’s group increased.
On 4 June 2019, Pekao issued series D subordinated bonds worth PLN 350 million. The D series bonds have a 12-year maturity with an early redemption option seven years after the date of issue. The bonds bear interest at a reference rate based on WIBOR6M plus a margin of 1.70%. After receiving on 3 July 2019 the Polish Financial Supervision Authority’s consent, the funds from this issue were earmarked to raise the Bank’s Tier II capital. Additionally, on 4 December 2019 the Bank issued D1 series subordinated bonds with a nominal value of PLN 400 million and parameters identical to the D series. On 11 December 2019 the Bank received the Polish FSA’s decision expressing its consent for the Bank to treat the D1 series bonds as instruments in the Bank’s Tier II capital.
On 30 December 2019 both series of the bonds were assimilated and designated by the National Securities Depository (KDPW) with a single ISIN code.
Other unsecured bonds The Pekao Group’s various entities have programs to issue unsecured bonds backed by Bank Pekao. These instruments are used to diversify funding sources; in particular, they elevate the percentage of the Bank’s subsidiaries’ assets funded directly from the wholesale market.
Issuer rating Since 2004, PZU and PZU Życie have been subject to regular reviews by the rating agency of S&P Global Ratings (S&P). The rating assigned to PZU and PZU Życie results from an analysis of the financial data, competitive position, management and corporate strategy as well as the country’s financial standing. It also includes a rating perspective (an outlook), namely, an assessment of the future rating of the company in the event specific circumstances occur.