FINANCIAL PERFORMANCE OF PZU GROUP IN 2010 ........................................ 16 4. Events significantly affecting the activities and financial performance of PZU Group in 2010 ... 16 5. Comments to the consolidated financial performance of the PZU Group ................................... 16 5.4 Acquisition costs and administrative expenses ........................................................................ 18 5.6 Performance and performance ratios of PZU Group ............................................................... 19 5.7 Assets and liabilities structure .................................................................................................. 20 5.8 Changes in investments in controlled entities .......................................................................... 20 6. Comments to segment reporting ................................................................................................. 22 6.1 Property and personal insurance ............................................................................................. 22 7. Risk factors which may affect financial performance in the following periods ............................ 28 7.1 Property and personal insurance ............................................................................................. 28 8. Management Board’s position concerning previous performance projections ........................... 30 9. Activities, key developments and achievements of the major PZU Group Companies .............. 30 9.2 Restructuring of PZU and PZU Życie ....................................................................................... 31 9.3 Key developments and implementation of the strategy .......................................................... 31 9.5 Corporate social responsibility activities in 2010 ..................................................................... 34 9.7 Key activities in Accounting Transactions and IT ..................................................................... 36
16.3 Managing and supervisory bodies of the Company and their committees ............................ 75 16.4 Key features of internal control and risk management used by the issuer with respect to preparation of the financial statements and consolidated financial statements ............................. 85 16.5 PZU shareholders holding directly or indirectly significant blocks of shares ......................... 86 16.6 Holders of securities with special control rights and a description of the rights ..................... 87 16.8 Restrictions on transfers of the title to securities ................................................................... 87 16.9 Rules of changing the By-laws of PZU .................................................................................. 87 17. Correctness and reliability of presented financial statements ..................................................... 88 18. Selection of the entity authorized to audit financial statements .................................................. 88
Following single events of crisis nature, lower amount of mathematical provisions derecognized in group insurance (lower pace of converting long-term policies to annual renewable ones)
The net profit of the PZU Group in 2010 amounted to PLN 2,439,229 thousand, showing a drop by 35.2% compared to 2009 performance.
At year-end, the value of financial assets was PLN 45,345,032 thousand, being 6.0% lower year on year. Equity was 13.6% higher than in the previous year and amounted to PLN 12,799,926 thousand.
At the same time, ROA was 4.7%, by 2.0 p.p. lower than at the end of the previous year.
2. Macroeconomic conditions in 2010 2.1 Major economic trends/economic growth rate
In 2010 GDP in Poland increased by 3.8% outgrowing projections, compared to the increase by 1.7%
and amounted to 2%, despite high expenditures incurred by the public sector on investments in infrastructure. As for manufacturing of GDP, the highest growth driver was higher gross added value in the industry (9.1% versus a decrease of 0.3% in 2009). The increase in the added value in services was higher than in 2009 (1.5% vs. 0.9%), but comparing to the preceding years, it was still moderate.
Despite a high growth in production of the construction and erection industry, which was observed
after the winter downturn, the value added growth in the construction industry (3.8%) was lower than 2.2 Capital market
In 2010 stock exchange indexes grew slower than in 2009 after the rebound. At the end of 2010, WIG
was 18.8% higher and WIG20 14.9% higher than at the end of the previous year. The growth trend on stock exchanges was intermitted by a temporary downturn in late January and early February and a longer slump in May and June, which resulted from the increase in global aversion to risk related to the severe debt crisis in the euro zone peripheral economies. The growth of global stock exchange indexes was driven by expansive monetary policy of key central banks and sustained economic upturn.
In 2010 the prices of Treasury bonds issued in the domestic market increased and their yield to maturity dropped. The YTM of five- and two-year bonds dropped by 40 b.p. and the YTM of ten-year bonds decreased by 16 b.p. (2010 year-end vs. 2009 year-end). Still, in case of 10-year bonds, the average annual decrease was quite significant and exceeded 30 b.p. The decrease in the YTM
of Polish bonds was associated with the YTM of bonds in key underlying markets, resulting from relaxed monetary policy, higher aversion to risk and the fear of the second wave of recession. Due to better economic growth prospects in developed countries, at the end of 2010, the YTM of bonds started to grow in global markets.
In 2010 consumption growth increased quarter by quarter - in particular in the second half of the year, which was related to the changes in tax regulations expected in 2011 or purchases of flood victims.
The sale of cars, furniture, electronic equipment and household appliances visibly grew in 2010.
In effect, the rate of exchange of the Polish zloty deteriorated in May-July and, to a lesser extent, at the end of the year. The Polish zloty strengthened against euro by 3.6% at the end of 2010 versus the end of 2009, but the higher value of dollar in global markets resulted in the deterioration of the PLN/USD rate of exchange by nearly 4.0%. The Polish zloty also weakened versus the Swiss
However, the growth in the mortgage loans remained stable. In 2010 the decrease in investments in fixed assets was even stronger than in 2009, which resulted from stagnation in private investments.
The conditions for selling financial and investment-related insurance (real property insurance) were still quite difficult.
PLN 16.925,9 million, while life insurance companies reported a 4.3% growth up to PLN 23,270.2 million.
In three quarters of 2010 the life insurance market improved. Gross written premium increased by approx. 4.3% YoY as a result of increase in the regular premium (+ 9.9%) and a slight decrease in single premium (-0.2%). The increase in the regular premium is correlated with pay and employment growth, while the single premium has remained stable.
Additionally, a large number of people decided to change their fund (a 6% rise compared to in 2009).
OFE PZU is among funds with a positive transfer balance and holds the seventh position in net transfers in 2010.
At the end of 2010, the total net assets of all funds amounted to PLN 221,251.12 million and increased by 23.86% compared to the end of 2009. During this period, the assets of OFE PZU increased by 23.87% to PLN 30,659.57 million giving OFE PZU third place among the market players. The above rise was mainly driven by the level of premiums received from the Social Insurance Institution as well as profits on investing activities. In 2010, Social Insurance Institution provided OFE PZU with PLN
According to the Chamber of Fund and Asset Management (CFAM) at the end of December 2010, net assets of investment funds in Poland approximated PLN 116.13 billion. The value of AUM in 2010 increased by over 24%. The balance of payments and cancellations amounted to PLN 9.38 billion, while performance on AMU approximated PLN 13.15 billion. Cash funds benefited the most (approx.
In terms of net AUM, TFI PZU is 13 th among 31 investment fund associations included in the CFAM
Further improvement in the labour market is expected in 2011 (e.g. further decrease in the unemployment rate), which will result in a slight increase in the growth of household income. The GDP
The expected growth of inflation and short- and long-term interest rates will considerably affect the investment policy and investment income.
PZU Group. The PZU Group and some subsidiaries of PZU carry out insurance activity including property, personal and life insurance, as well as management of pension funds, establishing and
management of investment funds, and management of portfolio of a single or several financial instruments.
Warsaw 30.11.2001 100.00% 100.00% 100,00% 100,00% Auxiliary activities related to insurance and pension funds
Tower Inwestycje Sp. z o.o. (former PZU Tower Sp. z o.o.; „Tower Inwestycje”)
Warsaw 15.09.2004 100.00% 100.00% 100,00% 100,00% Purchase, operation, lease and disposal of real property
Warsaw 11.10.1999 45.37%* 50.71% n/a n/a Investing of funds collected from members
Subsidiaries not subject to consolidation 10 PZU Pomoc SA Warsaw 18.03.2009 100.00% 100.00% 100,00% 100,00% Assistance services 11 Ipsilon Sp. z o.o. Warsaw 02.04.2009 100.00% 100.00% 100,00% 100,00% Assistance and medical services 12 SYTA Development Sp. z o.o. in liquidation
Warsaw 30.04.1999 100.00% 100.00% 100,00% 100,00% Establishing, representing, managing investment funds 14 Sigma Investments Sp. z o.o.
Kraków 10.02.2009 64.63% 64.63% 64.63% 64.63% Use of free cash, development investments 24 Armagor Sp. z o.o. Gorzów Śląski 06.09.2009 64.37% 63.20% 64.37% 63.20% Manufacturing of valves and tooling services 25 ICH Center SA Warsaw 31.01.1996 90.00% 90.00% 90.00% 90.00% Loss handling services - green card
PZU, a joint-stock company with its registered office in Warsaw at Al. Jana Pawła II 24 is the Parent of the PZU Group. It was established as a result of transformation of Państwowy Zakład Ubezpieczeń
into a joint-stock company wholly owned by the State Treasury pursuant to Article 97 of the Act on insurance activity of 28 July 1990 (consolidated text: Journal of Laws No. 11 of 1996, item 62, as amended).
According to Polish NACE (PKD), the core business of PZU includes other personal and property insurance (PKD 65.12) and according to NACE, non-life insurance (EKD 6603). Warsaw Stock
The core business of the Company includes insurance and other directly related activities.
The Company is allowed to carry out acquisition activity for open pension funds based on the Act on organization and operation of pension funds.
Based on the Articles of Association, the key business of the Company involves:  establishing an open pension fund;  managing the established open pension fund, representing it before third parties in a manner specified in the Articles of Association and managing more than one open pension fund.
Based on NACE classification, the core business of PTE PZU SA is auxiliary activities related to insurance as well as a pension and annuity fund.
In the Lithuanian market the PZU Group carries out property and life insurance activities through two entities:  UAB DK PZU Lietuva – property and personal insurance;  UAB PZU Lietuva Gyvybës Draudimas – life insurance.
Their scope includes establishment and management of investment funds (as their body), including intermediation in the disposal and redemption of participation units as well as representing the funds before third parties.
Its offer includes investment products and services addressed to both individual and institutional customers as well as additional savings schemes under pillar III of the social insurance system, such as:  IKE (Individual Pension Accounts);  Specialized Investment Programs;  PPE (Employee Pension Programs);  ZPI (Corporate Investment Programs).
The Company manages selected asset portfolios of the following PZU Group companies: PZU SA,
The core business of the Company includes:  rental and management of own or leased real property;  acquisition and sale of real property on own account;  wire communication services;  other business and management consulting services.
According to the Articles of Association, the core business of the Company includes:  auxiliary activities related to insurance as well as pension and annuity funds and performance of other functions relating to investment fund management and life and pension insurance settlements;
restructuring of the corporate portfolio;  growing trend in life insurance, both group and individual;  impact of catastrophic and one-off events:  heavy snowfalls in winter (IQ);  two floods in May and June (IIQ);  smaller local floods and heavy rains in July-August;  lower amount of technical provisions derecognized due to conversion of multi-year policies to single-year ones in type P group life insurance; in Q3 2010 the impact of conversion gradually weakened due to reduction of the multi-year contract portfolio;  a decrease in administrative expenses due to fixed cost reduction;  good profit achieved on investing activities despite a significant drop in the value of the investment portfolio (advance dividend payment in November 2009 and payment of 2009 dividend);  consistent implementation of the strategy of the PZU Group with respect to:  maintaining the leading position in group life insurance with a stable level of profitability of this business line;  restructuring of the corporate customer motor insurance portfolio quality in property and personal insurance;  implementation of restructuring processes aimed at reducing administrative expenses
(conclusion of negotiations concerning the collective labour agreement with the trade unions and commencement of the lay-off process).
In direct insurance 7 994 504 7 966 464 0,4% In indirect insurance 37 412 55 431 -32,5%
Interest income 1 772 869 2 273 225 -22.0% Dividend income 77 655 79 290 -2.1% Income on investment property 26 523 22 678 17.0% Exchange differences (17 178) 14 609 -217.6% Other (31 285) (26 418) - Total net investment income 1 828 584 2 363 384 -22.6%
Net change in the fair value of assets and liabilities measured at fair value
The key reason for lower investment income was reduction in the value of debt securities portfolio due to the dividend paid under the settlement with Eureko BV at the end of November 2009.
The net profit on realization of investments decreased by PLN 50,328 thousand, whereas losses resulting from impairment were higher by PLN 11,531 thousand. As a result, net profit/loss on realization and impairment losses on investments dropped by PLN 61,859 thousand.
Investment policy of the PZU Group is secure. Debt securities issued by governments accounted for over 75% of the investment portfolio, both as at 31 December 2010 and 31 December 2009.
the employment restructuring program in PZU and PZU Życie Head Offices in the second half of 2009.
In 2010 the PZU Group continued the employment restructuring process in field units, among others aimed at improved efficiency of claim handling, centralization of current policy maintenance and establishing of new client service standards (creating of the Group Network Function)
and resulting in a significant reduction of fixed costs of current operations. Additionally, on the Capital
Group level, the fixed cost optimizing program carried for half a year produced positive outcome and reduced expenditure in many areas, including administration (office supplies, mail service), real property maintenance (cleaning costs) or IT.
Net cash used in/generated by investment activities 5 329 478 9 404 126 -43.3%
Net cash used in financing activities (5 727 985) (8 029 975) -28.7%
A decrease in financial assets at the end of 2010 results mainly from repayment (on 22 April 2010)
On 10 March 2010, PZU Ukraine and on 21 April 2010, PrJSC IC PZU Ukraine Life Insurance (“PZU
The end of June and beginning of July 2010 saw an issue of shares of both Ukrainian companies.
The second stage of capital restructuring of the above companies involves redemption of its own shares.
In November 2010, the Ukrainian supervisory body informed that the Ukrainian companies met the license terms, and on 30 December 2010, following expiration of the former TPL motor insurance license, it decided to issue a new TPL motor insurance license for PZU Ukraine, valid for an unlimited period of time.
Following new favourable tax solutions introduced in Ukraine on 1 January 2011, Management Board of PZU decided to change the restructuring schedule of Ukrainian companies and carry out the share redemption process in Q11 2011, as well as to reduce the redemption amount by the equivalent of the share capital increase planned for 2011.
The remaining 27.998 shares of PZU Ukraine Life designed for redemption were purchased from PZU
The capital restructuring of the above companies (recording of share capital reduction) shall be closed 6. Comments to segment reporting 6.1 Property and personal insurance
Gross written premiums in direct insurance in the property and personal insurance segment (after intra-segment adjustments) for 2010 and 2009 amounted to PLN 8,031,916 thousand and PLN 8,021,895 thousand, respectively. An increase by PLN 9,035 thousand (0.1%) resulted mainly from growing sales of motor and property insurance products. Sales of motor insurance in the retail customer segment dropped by 0.7% (lower sales mainly at the beginning of the year – at year end increases are observed), whereas due to portfolio restructuring and poor conditions in the lease market sales in the corporate customer segment decreased by PLN 19.7% (the total written premiums in motor insurance decreased by 5.8%). The above decrease was partly offset by a 2.0% rise
in written premiums in other TPL insurance. A drop in the value of premiums earned in 2010 by PLN 446,851 thousand (-5.5%) year on year was for the most part the effect of higher costs relating to changes in the balance of provisions for unearned premiums and unexpired risks. An increase in the provision for unearned premium was higher than the year before since its carrying amount at the end of 2008 was high (due to good sales performance in 2008) and decreased in 2009 following reduction in written premium. In the last months of 2010 increased again due to sales improvement.
* Taking into account intra-group adjustments and excluding gross written premium on indirect insurance totalling to PLN 37,412 thousand in 2010 and PLN 55,431 thousand in 2009.
An increase in the value of claims in the property and personal insurance segment by PLN 48,177 thousand (0.9%) was caused mainly by claims resulting from a heavy snowfall and melt, floods which struck Poland and a growing frequency of claims regarding motor insurance.
In 2010 acquisition costs in the property and personal segment increased by PLN 19,048 thousand.
In 2010 a decrease in administrative expenses of PLN 88,011 thousand was seen (8.3%; excluding the one-off appropriation to the Social Benefit Fund of PLN 10,000, the decrease would amount to
PLN 98,011 thousand, i.e. by 9.3%), mainly due to employment restructuring in the head office of PZU
An increase in the balance of other operating revenue and expenses by PLN 65,391 thousand resulted primarily from the fact that the obligation to make payments to the National Health Fund was cancelled (in 2009, the remaining capitalized costs were settled) accompanied with a reduction in reinsurance commission and profit sharing in 2010.
In 2010 and 2009 the operating profit in the property and personal insurance segment was
PLN 3,613,184 thousand and PLN 2,719,193 thousand, respectively. An increase by PLN 893,991 thousand (32.9%) as a consequence of a higher profit on investing activities (mainly higher dividends received from PZU Życie) as well as a lower level of other operating expenses was partly offset by higher claims and a drop in the net earned premium.
The key events of 2010 include:  snowfalls (Q1) – the total gross amount of PLN 169,427 thousand (net amount of PLN 138,978 thousand);  floods (May-June) – the total gross amount of PLN 652,641thousand (net amount of PLN 230,408 thousand);  a reduced investment base due to dividend payment: in November 2009, in the amount of PLN 12,749,917 thousand as a result of a settlement concluded and the remaining part of the 2009 dividend paid on 9 September 2010 in the amount of PLN 942,104 thousand.
In 2009, the events included the statutory payment to the National Health Fund reducing the operating profit by PLN 119,381 thousand.
Written premium by payment type - life insurance 2010 2009 %
The significant premium growth in individual insurance stems from:  five subscriptions for Świat Zysków single-premium insurance;  launch of a new regular premium savings and investment product with an insurance element called Plan na Życie;  in cooperation with CITI Bank Handlowy SA, launch of a new individual term product with a single premium.
Claims increased by PLN 22,729 thousand mainly following a rise in claims in group cover insurance, continued insurance and increased endowment amounts from individual endowment policies
In 2010, investment income dropped by PLN 169,507 thousand to PLN 1,688,815 thousand. The main reason was a reduced performance on treasury securities (following dividend payment at the beginning of the year).
In 2010 and 2009 acquisition costs in the life insurance segment amounted to PLN 360,488 thousand and PLN 391,911 thousand, respectively. The change by –PLN 31,423 thousand resulted mainly from:  a reduced commission on cover insurance distributed through the bancassurance channel –
effects of reduced sales;  an increase in commissions paid in relation to group cover insurance resulting from the growth share of the premium earned through the broker channel; slowdown in the increasing trend in the share of premium earned through the broker channel in the total gross written premium compared to 2009;  a decrease in indirect acquisition costs.
In 2010 and 2009 other net operating revenue and expenses in the life insurance segment amounted to PLN -52,323 thousand and PLN -110,576 thousand, respectively. A net change in the balance of other operating revenue and expenses by PLN 58,253 thousand resulted among others from a provision for GraphTalk elimination system of PLN 31,292 thousand recognized in 2009 (in 2010, just PLN 764 thousand) and from reduced revenue from derecognized impairment loss on mortgage loan for MetroProjekt (PLN 2,609 thousand in 2010 vs. PLN 16,642 thousand in 2009).
In 2010 the operating profit in the life insurance segment decreased by PLN 700,692 thousand
Investment contracts concluded by PZU Życie are recognized under “Unallocated (consolidation exclusions and other)”. Investment contract accounting is based on the deposit method. In consequence, investment contract volumes are not classified as revenue in accordance with IFRS.
Group 1 897 092 2 502 495 -24.2% Individual, including: 890 566 1 074 132 -17.1% - individually continued - - - - other individual 890 566 1 074 132 -17.1%
(PLN 606.828 thousand). The above change is party offset by increased sales of unit-linked products distributed through the bancassurance channel (PLN 341,193 thousand) and a rise in gross written premium from an investment endowment product “Pewny Zysk” (PLN 179,198 thousand).
In 2010 and 2009 revenue from commissions and fees in the pension insurance segment amounted to
PLN 246,915 thousand and PLN 309,702 thousand, respectively. A drop by PLN 62,787 thousand (20. 3%) resulted mainly from the introduction of a statutory limitation of the fee charged by PTE PZU
At the end of 2010, the assets managed by PTE PZU were amounting to PLN 30,512,533 thousand and increased by PLN 5,929,573 thousand (+24.1%) comparing to 2009.
The key risk factors that can affect the performance of the PZU Group Companies in 2011 include:  unchanged unemployment rate in 2010 and a slowdown in individual consumption, which may translate into a lack of demand for insurance products;  price pressure of competitors;  growing trends in the claims ratio;  stronger position of insurance brokers, which may result in increased acquisition costs;  changing profitability of treasury securities depending on the situation in the Polish and EU
economy - lower yield may result in worse investment profitability and the need to change the technical rates applied by the Company;  situation in the capital market in 2011, in particular on the Warsaw Stock Exchange – a portion of the Company’s investment income is conditional on market trends;  imprecise definition of tax exemptions related to insurance and medical services in the amended
The PZU Group did not publish or disclose any projections concerning separate or consolidated financial information.
PZU ACTIVITIES IN 2010 9. Activities, key developments and achievements of the major PZU Group Companies
PZU and PZU Życie are regularly rated by credit rating agencies. The rating assigned to PZU
and PZU Życie results from an analysis of the financial information, competitive position, management and corporate strategy. It also includes a rating outlook, i.e. an assessment of the future position of the Company in the event specific circumstances occur.
Credit rating A /stable/ 5 July 2010 A /stable/ 16 July 2009
Termination conditions offered to the dismissed employees or employees who did not accept the offered terms of employment exceeded the scope provided for by the applicable laws (the Act of 13 March 2003 on special principles applicable to termination of employment contracts for reasons other than through the fault of employees – Journal of Laws No. 90 of 2003, item 844).
In 2010 the changes affected 6,045 employees, out of which 2,439 were given termination documents.
Dismissed employees were offered one of the largest outplacement schemes introduced in Poland
The project activities carried out in PZU last year were directly related to the PZU Group strategy for 2009-2011, focusing on profitable growth and creating a client-focused cost-effective organization.
 a new multi-agency cooperation model has been developed, based on the new commission and motivation system; in 2010 a pilot was launched in the Pomerania region;  the implementation of modern shared service centres for the whole PZU Group has been started; as a part of this project a countrywide typology and physical presence model for sales and service centres was developed in 2010 and the Company prepared a number of new model offices to be implemented in the first stage;  restructuring of the sales function responsible for property insurance for the corporate sector was carried out, based on improving competences of the sales force and optimizing their placement;  as a part of developing the PZU Pomoc concept, new products were implemented: Door to
Door, Assistance at Home and Assistance on the Road (sold since 2011); The following project activities were carried out as a part of activities focused on creating effective organization, which focuses on customer needs in the area of loss adjustment:  centralizing of claims handling in PZU Życie through transfer to nine centres and full implementation of a new centralized IT system (SLS Life);  a similar process was carried out in the property insurance segment – the existing distributed property loss handling structures were centralized in nine regional centres and a pilot rehab was performed as means of reducing permanent disability;  the internet has been used as a channel for communicating personal claims, requesting for claim payment and checking the status of claims. Additionally, at the end of 2010, the internet claim lodging was integrated with the claim handling system thus eliminating the need of manual data transfer;  in cooperation with PZU Pomoc SA a health care centre was established and a process of service provider contracting was commenced, which significantly improved flexibility of PZU
Apart from the said project related to the network of modern offices, the following activities have been taken in the area of customer service:  the structures of managing the existing offices in the PZU Group have been unified and the process of front-office staff unification has been started in order to provide comprehensive services to customers in the life and property segment in all offices;  an extended client service tool in group insurance was implemented with a possibility to sell property products to these clients, which should allow full use of cross-selling potential with regard to clients of PZU Życie (at present, the activity is being completed).
 optimizing and centralizing of operations and insurance accounting in PZU – the project involved establishing of Back Office and Insurance Accounting Centres and standardizing of sales and insurance accounting process maintenance; similar activities were carried out in relation to back office processes in PZU Życie (also including operations and insurance accounting);  unification of internal accounting processes in PZU and PZU Życie and initiation of the implementation of unified electronic workflow;  implementation of a common IT system for HR and payroll function in PZU and PZU Życie.
Apart from advertising campaigns, in 2010 a series of outdoor, press and cinema projects were carried out, including among others:  placing displays „PZU POMOC 801 102 102” in 10 locations around the country at main roads;  press project – advertorials of PZU Pomoc for the on the road assistance in October-
December 2010;  displays in Cinema-City network (Warsaw, Łódź) placed for the period of one year (logotypes, stairs, seats).
PZU applies ethical and corporate social responsibility principles presented in item 9.1
As a part of its educational activities, PZU launched two insurance websites:  “JakieUbezpieczenie.pl” - an informative and educational website, which presents the advantages of insurance in a clear and user-friendly manner. This website is limited to information only; cannot be used for sale;  „ŻycieNa100procent.pl” – a website including among others savings calculators, questionnaires and product animations, interviews with celebrities, savings-promoting articles, etc.
The following activities were carried out in this area in 2010:  continuation of the cooperation with Tatra Voluntary Mountain Rescue (TOPR), Voluntary
Mountain Rescue Service (GOPR) and Voluntary Water Rescue Service (WOPR);  cooperation with the Misie Ratują Dzieci association in therapeutic and psychological assistance to children who become accident victims.
PZU acted as a sponsor and patron of various cultural and sport events – both local and countrywide.
The key activities in this are include:  sponsoring the Royal Castle in Warsaw;  PZU zone during the Long Night of Museums at the Royal Castle in Warsaw;  close cooperation with the National Museum in Kraków, Nowe Sukiennice Branch;  sponsoring Teatr Wielki (The National Opera House) in Warsaw;  sponsoring Teatr Nowy in Warsaw;  sponsoring Martyna Wojciechowska’s mountaineering “Carstensz Expedition”
 patronage over the Decius Villa in Kraków;  sponsoring the Góraszka Air Picnic;  sponsoring the European Fairy Tale Centre in Pacanów;  sponsoring the Academy of Capital Market Leaders;  sponsoring the “Droga na Harvard” competition.
The mission of the PZU Foundation is to carry out public benefit activities in the area of: education, culture, art, healthcare and social welfare. The Foundation performs its goals by initiating and supporting a number of ideas and projects.
The key activity of the Foundation in 2010 was to provide financing of projects carried out by nongovernment organizations and other organizational units, which statutory objectives are coincident with the areas of activities of the Foundation. Moreover, the PZU Foundation continued cooperation with other well-known social organizations under partnership programs. Financial aid was granted to the PZU Group employees in a difficult life situation.
As a part of its activities in 2010, the Foundation provided grants to non-governmental organizations, which submitted their requests.
and Polsko - Amerykańska Fundacja Wolności - the purpose of which is to facilitate access of young people from rural areas to higher education, by way of funding sponsored scholarships for the first year of studies.
PZU Foundation supported interesting initiatives and cultural events in the area of the arts and sciences, such as projects organized by the National Museum in Warsaw and in Cracow.
From 26 March to 20 November 2010, the company carried out staff restructuring and optimization as part of the lay-offs, as presented in item 6.3.
(PARP) and Combidata Poland Sp. z o.o. and in line with its business needs, PZU changed the project scope from project management to Customer Service Standards;  investing in human capital, PZU prepared requests to PARP to co-finance training projects aimed at creating a modern sales network and developing staff competences in customer service;  the MBA program created in 2009 by Gdańska Fundacja Kształcenia Menedżerów for the needs of the PZU Group by was supported. Program participants include 22 managers from PZU and PZU Życie.
In cooperation with other entities projects and initiatives were performed supporting the strategy of PZU Group and current business activity, which resulted in implementation of the following IT
solutions:  automation and centralization of HR and payroll processes in PZU and PZU Życie (the HRMS
 implementing of a shared integration platform of PZU and PZU Życie (ESB);  implementing of PZU client data integration (MDM);  implementing of the first version of a shared service and sales front-end of PZU and PZU
The area involved strong remodelling of IT supporting processes and principles of cooperation with the business part of the enterprise. The Group implemented the process of “IT system architecture management”. The process allows for determining and designing IT system development strategy in the PZU Group, considering business needs of the entity and the existing solutions. It allows effective planning and implementing of changes in the structure of existing IT systems. Implementation of the „initiative management” process allows clear defining and agreeing of terms and deadlines to deliver new IT solutions to business and purposeful development of the portfolio of implemented changes in terms of business effects optimization. The project management process is also responsible for timely performance of IT liabilities to the business. All these measures resulted in IT
capacity improvement by 300% compared to 2009. In 2010, IT carried out 40 projects in cooperation with the business.
At the same time the Company focuses on the quality controls and technological supervision over service providers. In 2010 the supervision covered 81 key systems of the Group, i.e. 41% more than in the preceding year.
This allowed implementing of several projects of key importance for the business.
For other ten systems, selected elements are monitored. In 2011, all 27 critical systems are planned to be included in the comprehensive monitoring system.
At present, IT maintains 120 systems with 164 included in the change management process. IT
The centralization includes corporate mail as well. It involved pilot migration of some mailboxes.
Construction of the Centralized Mailing System coupled with the Identity Management project (in 2010 the tender for the system was closed) shall improve quality of communication and data transfer via email and increase security of IT system users.
In 2010 the number of solutions reached according to this standard increased to 33%. In 2011, the level of 70% is planned for problems solved at first call.
A number of master agreements with suppliers were negotiated and concluded, using the synergy effect of the PZU Group. The agreements were standardized and in many cases a multi-sourcing model was applied to provide the possibility of selecting the best offer and to ensure competitiveness of suppliers. The number of supplier contracts was reduced by 30%. An IT Supplier Portfolio was established including a target group of companies with whom IT shall cooperate on implementation, development and maintenance of IT structure systems for the nearest three years. The cooperation includes services for PZU, PZU Życie and PZU CO SA. This allows avoiding of one supplier monopolizing provision of services and cost savings of 30%. The Company concluded master agreements for IT consulting services and a master agreement on the purchase of the Oracle technological software.
In 2010, significant improvements in process management were introduced. Many IT processes are described, controlled and measured. KPI linked to incentive systems were introduced. Statistic process control methods were implemented (CFD diagrams) allowing capacity definition. Possibility to precisely calculate and control the time to market for IT is a key result of these works.
PZU offers a wide range of personal and property insurance, including motor, property, personal agricultural and other TPL insurance. At the end of 2010 the Company’s offer included 200 insurance products in 18 insurance classes. Motor insurance constitutes the most important product group offered by PZU, both in terms of the number of binding insurance contracts and the share of gross written premium in the total gross written premium of PZU.
In 2010 PZU activities focused on improving the profitability of the corporate insurance portfolio and pro-sales activities in the retail segment.
 in 2010, the company made changes in the motor insurance offer for individual customers and SMEs (Small and Medium-Sized Enterprises) – e.g. lump-sum TPL/comprehensive car insurance package for new cars was extended by vehicles aged up to three years. Due to the foregoing and further extension of the cooperation with car importers, PZU achieved very good sales results in the dealer channel;  the company introduced a possibility to choose comprehensive car insurance options depending on the type of spare parts used during repair (to determine the claim amount –
Network and covering substitute car expenses;  new principles, evaluation and service tools were introduced with respect to car fleet insurance for SMEs in order to streamline the service process in this segment;  changes were made to the principles of insuring leased cars;  in the area of property insurance for individual customers, sales of the “PZU Dom” and “PZU
Chamber of Legal Advisers concerning TPL insurance of legal advisers was renewed;  as for accident insurance, the premium written was at the level reported last year, mainly thanks to the unthreatened position of PZU in accident insurance for students and teachers and accident insurance for drivers; Products – corporate customer
 in accordance with its strategy, PZU carried out activities aimed at improving the profitability of motor insurance for corporate customers (comprehensive car insurance and TPL motor insurance) by means a changing premium rates. Also new terms and conditions of comprehensive car insurance for fleet customers were introduced. As a consequence of systematic underwriting activities in that product group, the technical results have already improved;  as a part of activities aimed at improving portfolio profitability and quality in the property insurance area, the role of underwriting was increased by limiting sales to industries with the highest claims ratio, streamlining the risk classification and assessment process and more common use of additional clauses changing the insurance scope;  Furthermore, new tools to assess the risk were implemented in the third party liability insurances and changes regarding insurance terms and conditions and evaluation principles were prepared.
In 2010 the Company developed cooperation with the existing partners, i.e. leading banks in the Polish market. Moreover, it started cooperation with ING Bank Śląski SA in the scope of insuring payment cards for retail and corporate customers and with PLL LOT SA in travel insurance.
Recommendation ”T” and recommendation "S” may increase financial safety of borrowers and limit the number of bad loans and mortgage loans.
External firms are no longer engaged in the foreign loss adjustment; the process has been included in the PZU structures under the first stage of centralization of loss adjustment with any foreign elements.
Framework agreements were concluded with external entities with regard to property loss adjustment and a program was implemented to calculate the percent of damage in crops for the loss adjustment purposes (the KŁOS application).
A new model of cooperation with certifying physicians has been developed. The key model assumption is to engage external entities to organize and carry out medical certificate examinations in order to ensure faster and better access to certifying services provided by medical doctors of all faculties.
PZU started cooperation with the Misie Ratują Dzieci association, which organizes psychological rehabilitation sessions for children. The sessions may be attended by persons injured in road accidents and those indirectly affected by accidents – people who lost their relatives or witnessed a traumatic event.
Assistant in Case of Damage to Health is also an addition to individually continued insurance. This is the first assistance product included in the portfolio to cover hospital treatment or surgery following an accident.
Prior to introducing of new versions of the above products the definition of heart attack was modified on 1 June 2010 in line with recommendations of the Office for Competition and Consumer Protection;
 additional insurance from serious disease of a spouse is similar to the above new insurance from serious disease; the only difference being the health of the spouse of the insured as the insurance subject.
PZU Pomoc w Życiu club is an exclusive loyalty program dedicated to clients holding group life insurance in PZU Życie. This is the first product of the kind launched on the insurance market, with the objective to develop client loyalty through offering of a complex coverage of life and health with a wide range of assistance services. The program offers a rebate system allowing discounts for services and products of partners of PZU Pomoc SA (e.g. car lease, mechanical and electric services, vulcanization and tire maintenance, spare parts replacement) and the Concierge program including free of charge concierge services (e.g. leisure; lease and provision of a replacement car or limousine with a driver; booking of conference rooms or tables in a restaurant, etc.) as well as professional services (plumber, electrician, locksmith). Program members are also offered a hotline with all sorts of information, e.g. travels, tourism, weather, entertainment, cultural events, addresses of companies, offices and public institutions and procedures regarding car accident or document loss. Membership is free of charge, and the scope of services offered shall be extended month by month.
In 2010 a clear growing trend was observed in group insurance contracts subject to the Public
In Q3 2010, PZU Życie offered another group of clients – those with individually continued type P
and P Plus policies – with insurance cover extended with five additional policies.
Pogodna Przyszłość fund in PZU Życie and 11 in the form of premiums paid by the employer to PZU
(implemented early in 2011);  guidelines were developed regarding a new commission system for Corporate Client Function
SA) including occupational medicine in the fee for service model; achieving the number of 207 medical service providers around the country at year-end; the target number planned for the end of 2011 is 600 medical service providers;  opening of a non-public outpatient clinic of PZU Pomoc.
In 2010 development of bancassurance product offer was continued, both in cooperation with the existing and new partners. Following the growing trend in stock exchange indexes, client interest in unit-linked products increased. Implementation of modified and new products was commenced in cooperation with both with existing and new partners including single and regular premium.
Both PZU i PZU Życie achieved the projected level of realized written premium on bancassurance products.
Active search for new banking partners and maintenance of the existing relationships regarding insurance offers. In the adopted model, the cooperation is based on extension of the banking offer with custom-made insurance products, among others insurance programs to payment cards, insurance of buildings and residential premises added to mortgage loans. The offer is completed with life insurance products including both coverage added to loans and the full range of investment products.
Commissions:  WNP project: automation of operational processes related to calculation of commission on new sales and modifications of group products;  WNP project: calculation of additional commissions arising from incentive programs for agency sales network under NES project;  calculation of commissions on group insurance for PKK and PSM since April 2010;  centralized handling of claims regarding commissions on group cover insurance introduced in June 2010;
 implementing of calculation of commissions on sales of group hospital insurance;  transfer of calculation of commissions on individual products from BRA.
 individual life insurance with capital fund Plan na Życie;  additions to individually continued cover products;  additional group insurance from serious disease and permanent disability resulting from heart attack or brain haemorrhage introduced to group cover insurance;  1 st stage of PZU Ochrona Rodziny individual life insurance;  new structured insurance sold by Bank Handlowy w Warszawie;  five new subscriptions for Świat Zysków insurance;  two new subscriptions for Solidna Stopa insurance.
Change of technological platform:  migration of IPI Strefa Zysku with GT_UNL to INVEST system;  migration of six cover products sold through banks from Bancassurance to Bankowe system;  hardware centralization of GUR, GURIK and ROS bases - testing and implementation supervision in 360 POK.
Change in maintenance processes:  development and pilot implementation of JOTY equity insurance buyout;  transfer of back office tasks from nine Claim Handling Groups (ZWOK) to centralized maintenance in Shared Service Center;  improvement of maintenance processes for individual equity insurance (renewals, extensions).
In 2010 Otwarty Fundusz Emerytalny PZU “Złota Jesień” won the award for the best pension fund in Central and Eastern Europe granted by Investment & Pension Europe (IPE) in recognition of its performance compared to competitors and reference indexes, risk management and investment decision making methods, as well as involvement in implementing of corporate governance and best practices in its investment portfolio companies.
10. Other selected PZU Group companies – development and performance 10.1 PZU Lietuva
due to high claims ratio, which resulted in withdrawal from cooperation with some clients.
On 1 August 2010 responsibilities of directors in regional branches were combined and since then they have been in charge both for the sale of property and personal and life insurance products. Under the one-company project, separate units selling property and personal insurance products were merged with life insurance selling facilities.
In sales changes were introduced to comprehensive car insurance product (program update)
and voluntary TPL scope was simplified. It was accredited by well recognized banks including
Ukrsocbank (UniCredit Group), Raiffeisen Bank Aval (corporate client insurance). Cooperation was initiated with car dealers including NIKO Motors (Mitsubishi) and TOYOTA Ukraine.
Ukraine regarding the sale of MTPL for an unlimited period of time.
On 18 January 2011 PZU SA concluded transactions involving sales of treasury shares for redemption with the following subsidiaries: PrJSC IC PZU Ukraine („PZU Ukraine”) and PrJSC IC PZU Ukraine
The capital restructuring of the above companies (recording of share capital reduction) shall be closed
No material changes in the business scope of TFI PZU occurred in 2010.
Key sales initiatives included:  active search for employee pension schemes;  continuing extension of the distribution network;  promotion campaign regarding investment plans carried out in mass media;  in cooperation with PZU Group companies, carrying out a market survey aimed at exploration of investment behaviour, in particular perception of the investment fund market;  promotion activities aimed at increase of pension awareness of Poles in cooperation with
Spółdzielczy and Bank Spółdzielczy Rzemiosła;  commencing cooperation on new unit-linked product with Towarzystwo Ubezpieczeniowe
Benefia na Życie SA;  concluding an agreement with PKP SA regarding establishment and management of closed-end investment fund on the real property market.
Additionally, PZU FIO Optymalnej Alokacji was transformed into a sector stock fund PZU FIO Energia
Risk factors influencing the activities and performance of TFI PZU in 2010:  growing competition on the investment fund market resulting in decreasing maintenance fee income and AUM fees;  situation in the capital market, in particular on the Warsaw Stock Exchange and other
In terms of net AUM, TFI PZU is 13th among 31 investment fund associations included in the CFAM
report. At the same time, TFI PZU remains the leader in the segment of employee pension plans among domestic investment pension funds with assets exceeding PLN 1.24 billion.
and amounted to PLN 3,229.8 million. An increase in net assets resulted from a positive balance of payments and redemptions of the fund members and increase in investment value.
Audit Team;  Investment Risk Control Bureau was liquidated and replaced by Investment Monitoring
IN line with adopted assumptions, in 2010 PZU AM provided services solely to the PZU Group companies including PZU, PZU Życie, TFI PZU and MPTE.
The following projects were carried out:  construction of investment portfolio for real property sector in PZU Group;  preparing implementation of new fund management service, among others FIZ RE Income dedicated to institutional investors;  concepts, negotiations of investment contract and work on startup of a closed-end investment fund for real property sector FIZ RE Value Opportunity for PKP SA;  modifying model portfolio management process under Plan na Życie product (in cooperation with PZU Życie).
Another initiative carried out by PZU POMOC SA in 2010 involved launch of 13 "helping hand"
In 2010, performance of the Company was influenced by a decrease in income from transfer agent services due to reduced rates and the employment restructuring program necessitating the payment of lay-off benefits (headcount reduction by 14.5%).
Key initiatives implemented in 2010:  relocation of PZU CO to the new premises at Postępu 18;  relocation of IT resources to the newly established Data Center in Piaseczno;  extension of Call Center (increased number of positions in two locations with redundant infrastructure);  implementing of Information Security Management System ISO 27001 and Continuity Plan based on BS 25999;  employment restructuring.
 as a part of individual motor insurance, the objective of PZU is to stop the process of losing market share and maintain profitability by active pricing policy. The key element of the strategy is “PZU
Pomoc” assistance service. It allows PZU to offer outstanding services and therefore to maintain product advantage and loyalty of key customer groups. “PZU Pomoc” is also a platform, which allows for acquiring new clients despite growing competition;  the purpose of PZU under individual property insurance is to introduce a new version of residential premises insurance, which will improve the competitiveness of the PZU offer by way of allowing for more precise adjustment of the insurance cover to individual needs;  PZU will start a number of initiatives aimed at improving profitability and maintaining the market share of products for SMEs, which are a fast growing customer group.
The Management Board assumes that it will achieve these objectives by way of implementing initiatives, such as centralizing dispersed processes, unifying shared functions in the whole Group, reducing headcount and investing in new technologies, in particular those related to effectiveness of customer service.
12. The summary of Initial Public Offering of PZU shares 12.1 The Settlement Agreement performance and the IPO
On 1 October 2009, the State Treasury, Eureko B.V., PZU and Kappa SA. concluded a Settlement
Agreement (Agreement) to amicably settle the disputes related to the interest of Eureko B.V.
On 13 April 2010, KNF approved the prospectus of PZU which was published on 16 April 2010.
Shares were subscribed for between 20 and 26 April 2010 in the case of authorized persons, between 20 and 28 April 2010 in the case of individual investors and between 30 April and 5 May 2010 in the case of institutional investors.
The information including data required pursuant to Article 54.3 of the Act on public offering, conditions governing the introduction of financial instruments to organized trading, and public companies of 29 July 2005 (Journal of Laws 185 of 2009, item. 1439) published on 29 April 2010 specified:  the price of shares for individual investors, authorized persons and institutional investors at PLN 312.50 per share;  the final number of shares sold during the offering at 25,819,337 shares (29,9% of the total number of issued shares); the final number of sold shares and their share in the total number of issued shares was: Kappa SA - 12,866.492 (14,9%), Eureko - 8,635.230 (10,0%)
granted PZU the status of participant of KDPW (ISSUER) (Resolution No. 212/2010) and decided to register 86,324,317 PZU shares (60,418,337 A series shares and 25,905,980 B series shares)
PLN 25,611,049, including:  the costs of preparing and carrying out the IPO: PLN 6,070,609;  costs of remunerating underwriters: PLN 0;  cost of preparing the prospectus including costs of consulting services: PLN 14,167,954;  promotion costs related to the offer: PLN 5.372.486.
Average cost of sales per one share sold was PLN 0.99 and it did not include costs related to the IPO
 Line 3: the internal audit, whose tasks include independent control and audit of key risk management system elements and control activities embedded in the Group’s operations.
Risk management in PZU is based on the following key principles:  Controlled risk acceptance: financial strength and sustainable value growth are an integral part of the business strategy adopted by PZU. In order to achieve the above objectives, the PZU
The risk appetite is defined in the form of limits approved by one of the following committees:  Asset and Liability Management Committee (ALCO);  Credit Risk Committee in PZU and PZU Życie (CRC);  Investment Committee in PZU and PZU Życie (IC);  Financial Insurance and Guarantee Risk Committee at PZU (KRUFiG).
The foregoing applies to market risk, credit risk relating to investments and reinsurance as well as liquidity risk. Insurance risk is managed at the level of individual companies depending on the nature of their operations. Credit risk related to insurance and financial guarantees is managed at the level of
Risk management at PZU is focused on identification and management of material risks occurring in individual business areas through setting appropriate limits (definition of the risk appetite), monitoring and clear division of obligations and responsibilities relating to risk management in a given area.
The risk profile is reported annually to the Management Board of PZU.
PZU controls particular risk types by way of quantitative analysis (e.g. model-based risk assessment)
as well as qualitative analysis (it is the most important in case of qualitative risks, such as strategic or reputation risk). Based on the analysis, PZU determines its risk profiles and exposure to particular risk types reported annually to the Management Boards of PZU and PZU Życie.
On 4 March 2010 the position of a Risk Managing Director was established within the structure of PZU
and PZU Życie and a Risk Office was established in those entities on 1 August 2010.
 ensuring the PZU Group’s compliance with the requirements of the Solvency II Directive as well as other external acts regarding the insurance and operational risk management system.
PZU and PZU Życie manage the insurance risk using the following tools:  calculation and monitoring of the adequacy of technical provisions;  tariff strategy, current estimate monitoring and premium adequacy assessment;  underwriting;  reinsurance.
PZU introduced an underwriting process which is independent of the sales function, involving risk assessment and taking risk acceptance decisions for SMEs and corporate clients.
The objective of the reinsurance program at PZU is to secure its core business by mitigation of risk that may have an adverse impact on the financial position of the Company. The above goal is achieved mainly through obligatory reinsurance contracts with additional facultative reinsurance.
Market risk management is based on the management functions independence of the risk control function, implementing and maintaining close risk controls and independence of the decision and
Market risk is measured using Value at Risk or scenario analysis. Risk measurement is compliant with
Solvency II. In order to effectively manage market risk, the Company determines limits in the form of capital amounts allocated to a given market risk and limits for particular market risk factors (BPV limits for interest rate risks and exposure limits to stock risk).
Just as in BSK the functions related to portfolio management and risk control are assigned to two separate PZU AM entities. The risk control functions are exercised by the Risk Control Office at PZU
The exposure of PZU and PZU Życie to credit risk results directly from investing activities, activities in the financial insurance and guarantees segment, reassurance contracts and bancassurance activities.
The PZU Group distinguishes three types of credit risk exposure:  the risk of bankruptcy of the issuer of financial instruments acquired or traded by PZU, e.g.
The said limits are determined using:  internal ratings - for facilities granted to companies and local authorities
(%) ratio for 2010 0.82 0.74 1.97 5.6 17.45 30.82 (%) ratio for 2009 0.70 0.70 1.70 4.40 14.60 30.40 *In the case of exposure to mortgages with no rating, the ratio of 2% was adopted.
Operational Risk Coordinators have been appointed in all branches and they are responsible for the process of collecting and reporting data concerning operational risk from controlled units.
The level of liquidity risk at PZU is measured by estimating the shortages of cash required for liability payments.
PZU applies asset and liabilities management (ALM) measures aimed at matching the structure of financial investments which cover technical provisions to the nature of such provisions and at minimizing the related risks.
Strategic risk results from changes in business environment, disadvantageous strategic decisions, inappropriate implementation of business strategies and lack of reaction to changes in business environment. Strategic risk management is carried out along with preparing and updating the strategy of the PZU Group. Changes and factors affecting business objectives and environment of the PZU
Interest rate risk down by 100 bp. 156 299 88 238
Financial assets exposed to the currency risk include investments and debt securities. They secure expenditure due to technical provisions denominated in foreign currencies, exposure to equity instruments quoted on stock Exchange other than WSE, exposure to derivatives denominated in foreign currencies and financial assets of consolidated insurance companies in Lithuania and Ukraine.
14. Shares or rights to shares held by members of management or supervisory bodies of PZU as of the date of providing the annual report
Remuneration paid to members of the Management Board, top management and members of the Supervisory Board of PZU
Salaries and other short-term employee benefits paid by PZU 1 January – 31 December 2010
Salaries and other short-term employee benefits paid by other entities in the PZU Group
Top management (Directors of the PZU Group) ***: 2 027 n/a
Andrzej Klesyk 119 107 Witold Jaworski 147 136 Przemysław Dąbrowski - n/a Magdalena Nawłoka 25 105 Rafał Stankiewicz 79 143
Mariusz J. Sarnowski 40 n/a * The indicated amount includes the equivalent of UAH 429,766 translated into PLN at the average currency rate of 31 December 2009 as published by the National Bank of Poland (NBP).
*** Positions of high level managers were established in 2010 and since then their holders are treated as related parties; therefore, the above table does not include their remuneration for 2009, when they held different positions in PZU Group companies.
Salaries paid to members of the Management Boards and Supervisory Boards of other consolidated companies in the PZU Group
On 16 April 2010, Credit Suisse Securities (Europe) Limited, the stabilization manager, and PZU
total price which PZU would pay for shares under the Put Option increased by the total fee of the stabilization manager would not exceed PLN 683,340 thousand.
(Journal of Laws No. 94 of 2000, item 1037 as amended, “Code of Commercial Companies”) and
During 30 days of the first day of quotation of the PZU shares in the WSE primary market, the stabilization manager did not carry out any stabilization transactions with respect to the Company shares and the Put Option was not exercised.
The shares of PZU were first traded on GPW S.A. on 12 May 2010. The Company shares are continuously traded in the primary market of WSE. On 17 May 2010 the Company’s shares were included in the WIG20 index.
The IPO ended a 10-year conflict of two largest shareholders, i.e. the State Treasury and the Dutch
Key data concerning the price of the Company’s shares in GPW w Warszawie S.A.
Number of shares item 86 352 300 Closing price on the last trading day in the year PLN 355.5 Closing balance of market value of the Company PLN 30 698 242 650 Highest closing price in the year PLN 411 Lowest closing price in the year PLN 330 Average trading volume per session item 317 391 Dividend paid in the current year from previous year profit distribution
The year 2010 was the first year when shares of PZU were traded on Giełda Papierów Wartościowych w Warszawie. After a successful debut (the increase in the closing share price amounted to 15.2%
Starting from October 2010, apart from market trends, the price of shares of PZU was still under the pressure of excess supply of Eureko B.V. On 18 November, after the share lockup period, Eureko sold a block of shares of the Company constituting 12.9999% of the share capital of the entity. The sales price in the process of accelerated book-building was determined as PLN 365.
(7,225,362 shares) was reported on the day of the IPO (12 May 2010).
17.25% Total shareholder return = (market price of shares at the end of the year – market price of shares in the offering + dividend paid in 2010) / market price of shares in the offering
Additionally, in the resolution, the Management Board recommended to allocate an additional amount of PLN 11,999,516 thousand from the reserve capital as payment of dividend for 2009, to finance advance payments against expected dividend. The amount may be used by the Management Board, however, it has to make an advance payment against dividend expected at the end of the 2009 financial year, described below.
As a result of the advance payment towards the 2009 dividend of 26 November 2009 of
PLN 12,749,917 thousand comprising:  750.401 thousand from the net profit for the first half of 2009 recognized in the audited financial statements of PZU prepared as of 30 June 2009;
 11.999.516 thousand from the reserve capital to finance advance payments towards expected dividend at the disposal of the Management Board, the dividend still to be paid for the year ended 31 December 2009 was PLN 942,104 thousand, i.e.
By the date of signing these consolidated financial statement, the Management Board of PZU had not adopted a resolution concerning distribution of profit for 2010.
Appropriations of net profit in the financial year (by basis): - 750 401 appropriation of net profit for the first half of 2009 for advance payment of dividend - 750 401
On 17 February 2010, PZU originated a loan of PLN 16,900 thousand with the initial interest rate of 8,16% p.a. to Polskie Linie Lotnicze LOT SA (“LOT”). The repayment deadline was set at 31 May 2010. The loan tranches of PLN 10,600 thousand and PLN 6,300 thousand, respectively, were made available on 18 February 201 and 11 March 2010.
The loan is collateralized on the contractual cap mortgage up to PLN 33,800 thousand on the perpetual usufruct of real property comprising a plot and a building with a separate ownership title, located in Warsaw, at 17 Stycznia 43.
During the 12-month period ended 31 December 2010, neither PZU nor its subsidiaries gave credit facility/loan collateral or guarantees - to one entity or a subsidiary of such an entity - if the total value of the existing collateral or guarantees constituted the equivalent of at least 10% of the equity of PZU.
Upon appropriate notice, the agreement is extended for further 12-month periods - the current line is valid between 29 September 2010 to 27 September 2011.
The financial position of the Issuer is very good. It meets all the security requirements imposed by the act on insurance activity and the Polish Financial Supervision Authority.
During the 12-month period ended 31 December 2010, PZU did not conclude any related party transactions which could be considered significant (individually or jointly) and would be concluded on non-arm’s length basis.
On 17 February 2011 the Supervisory Board adopted a resolution to open qualification proceedings regarding the position of the Chairman of the Management Board and six Members of the Management Board for the new term of office. Apart from this information, there were no significant events that would not be included in the report on the activities.
15.13 Significant events pertaining to previous years and disclosed in the financial statements for the current reporting period
During the period covered by this report on the activities PZU did not enter into any business combination transactions.
By the date of submitting this report on the activities there were no agreements (including those concluded after the end of the reporting period), which could result in future changes in proportions of shares held by the existing shareholders.
The agreement on the audit of separate financial statements of PZU and consolidated financial statements of the PZU Group for the year ended 31 December 2010 was concluded on 30 November 2010 and regarded only audit of the financial statements for 2010.
In its business activities, the Management Board of PZU SA follows the highest corporate governance standards and ethical principles. The company confirms compliance with the highest corporate governance and corporate social responsibility standards by aligning the internal regulations with
the provisions of law and ethical standards applied in the insurance market as well as adopted codes and internal regulations.
PZU SA follows the corporate governance rules laid down in “Good practices of companies listed on
The Management Board of PZU SA applies and follows Good practices of companies listed on WSE
website:  Good Practices at PZU. The document emphasizes the role of ethical standards applicable to all aspects of PZU operations presenting sound business practices at PZU. It promotes the culture of compliance with the law, decision-making based on ethical standards and responsibility for taken decision. The document is available at the Company website: c53f3668c66a&groupId=10172
Since the IPO, the Management Board of PZU SA strives to ensure access to Company information to all shareholders, to respect their rights regardless of the number of shares held. To ensure transparent operations and compliance with ethical standards, PZU SA adopted “Good practices of companies listed on WSE” constituting an appendix to the resolution No. 12/1170/2007 of the Board of WSE of
The By-laws of PZU SA adopted by the General Shareholders’ Meeting on 2 December 2009 incorporate the rules laid down in the Code of Commercial Companies applicable to corporate governance at public companies as well as provisions which are to ensure PZU SA’s compliance with the corporate governance principles laid down in “Good practices of companies listed on WSE”.
Similar changes introduced to the Regulations of the Supervisory Board of PZU SA on 4 March 2010 reflect, among others, the provisions of the Good Practices applicable to powers and independence of
Supervisory Board Members as well as activities of the committees appointed by the Supervisory
“Good practices of companies listed on WSE” not applied by 30 June 2010.
WSE, subject to recommendations stipulated in I.5. and I.9 of Good practices. The announcement on non-compliance with selected provisions of these Recommendations was not issued in line with the exclusion of the obligation to publish issuers’ reports referred to in Article 29.3 of the Regulations of WSE with respect to corporate governance principles set forth in part I of Good practices of
companies listed on WSE, in accordance with the resolution No. 1014/2007 of the Management Board of Giełda Papierów Wartościowych w Warszawie S.A. dated 11 December 2007.
Remunerations of members of the Supervisory Board are finally determined in the resolution of the General Shareholders’ Meeting. The remuneration depends on the function held in the Supervisory Board and is not due for a month when a member of the Supervisory Board did not attend a meeting of the Supervisory Board without a justified reason. The Supervisory Board determines if the absence of a member of the Supervisory Board is justified or not by adopting an applicable resolution.
The decision concerning future compliance with the said rule will be taken by the Supervisory Board and the General Shareholders’ Meeting.
Principle I.9 of Good practices concerning the balance of sexes in the managing bodies of the Company came into force during the term of office of the Management Board and the Supervisory
The Extraordinary Shareholders’ Meeting is called immediately in all events stipulated in the Code of
 the Extraordinary Shareholders’ Meeting, when necessary;  the Extraordinary Shareholders Meeting, if the Management Board failed to do so upon request of an authorized shareholder, authorized shareholders or the Supervisory Board within 14 days from the date of submitting the request.
The Management Board is obliged to immediately announce all changes in the agenda introduced by the shareholders, however, not later than 18 days before the planned date of the meeting.
Before the date of the General Shareholders' Meeting, a shareholder and shareholders of the Company representing at least one twentieth of the share capital may provide the Company with resolution drafts in writing or via electronic mail concerning items on the agenda of the Shareholders’
Meeting or items which will be added to the agenda. The Company immediately places resolution drafts on its website. During the General Shareholders’ Meeting each shareholder may provide resolution drafts concerning items on the agenda.
Duly called General Shareholders’ Meeting is deemed valid regardless of the number of attending shareholders or number of represented shares. The shareholders cannot adopt resolutions which are not on the agenda, unless the entire share capital is represented on the General Shareholders’
Meeting and none of those present raise objection to the resolution. The Company’s By-laws do not include a contrary statement.
Shareholders' Meeting and not later than on the first business day after the day of registration of attendance at the Meeting.
The certificates of the right to attend the General Shareholders’ Meeting issued by the entity keeping the securities account will constitute the basis for preparing the report to be provided to the National
Further power of attorney is impossible. The proxy – Member of the Management Board, Supervisory
Board, liquidator, employee of the Company or member of appropriate bodies or the employee of a controlled company or cooperative votes in line with instructions provided by the Company shareholder.
The General Shareholders’ Meeting is a body authorized to take decisions, by way of resolutions and decisions concerning issues related to organization and operations of the Company. Resolutions of the General Shareholders’ Meeting are adopted by an absolute majority of votes, except for cases specified in the Code of Commercial Companies or the By-laws. In accordance with the By-laws, resolutions of the General Shareholders’ Meeting concerning: (i) changes in the By-laws, (ii) decrease in the share capital, (iii) disposal and lease of the enterprise or its organized part or establishment of a limited property right and (iv) liquidation of the Company require a qualified majority of three fourths of votes, unless it is adopted under Article 397 of the Code of commercial companies, when an absolute majority of votes is enough.
The shareholder of the Company may review the list of shareholders authorized to participate in the General Shareholders’ Meeting and demand a copy of the list and a refund of the costs of its preparation.
Each shareholder of the Company may demand a copy of motions related to matters on the agenda at the next General Shareholders’ Meeting within a week before the General Shareholders Meeting.
On request of the shareholders holding one tenth of the share capital represented during the General
Shareholders’ Meeting should in writing reveal the information provided to the shareholder outside the
A shareholder who has been refused requested information during the General Shareholders’ Meeting and who raised an objection to the minutes may file a motion to the registry court for obliging the Management Board to reveal the information. Such motion should be filed within a week of the end of the General Shareholders’ Meeting during which such information was refused. A shareholder may also file a motion to the registry court for obliging the Management Board to reveal information given to another shareholder outside the General Shareholders’ Meeting. In accordance with the Report
Ordinance, the Company will be obliged to prepare a Current Report with information revealed to a shareholder following an order of the registry court obliging the Management Board to reveal the information in the following situations: Any resolution of the General Shareholders’ Meeting which is in conflict with the provision of the Bylaws or good practice and detrimental to the Company’s interest or aimed at harming a shareholder may be appealed against by filing a statement of claim against the Company for repealing such resolution. The right to file a statement of claim for repealing a resolution of the General Shareholders’
Meeting is vested in: (i) a shareholder who voted against such resolution and, upon the adoption thereof, requested that his objection be recorded in the minutes, the requirement of having cast a vote does not apply to a holder of a non-voting share, (ii) a shareholder who was prevented from participating in the General Shareholders’ Meeting without a sound reason, (iii) a shareholder who was absent from the General Shareholders’ Meeting, only in the event of a defective convening of the general meeting or adoption of a resolution on a matter not included in the agenda. A statement of claim for repealing a resolution of the General Shareholders’ Meeting should be filed within one month of receipt of information on the resolution, however, not later than three months after the adoption of such resolution.
The shareholders authorized to file a statement of claim for repealing a resolution of the General
Shareholders’ Meeting may file a statement of claim against the Company for declaring the resolution of the General Shareholders’ Meeting adopted in breach of the law invalid. A statement of claim for declaring a resolution adopted by the General Shareholders’ Meeting should be filed within thirty days of the announcement, however, no later than one year after the adoption of such resolution.
16.3 Managing and supervisory bodies of the Company and their committees
Members of the Management Board, including the Chairman of the Management Board, are appointed and dismissed by the Supervisory Board, however, members of the Management Board are appointed and dismissed by the Supervisory Board at the request of the Chairman of the Management Board.
Management Board of PZU SA from 1 January 2010 to 31 December 2010: Positions in the Management Board of PZU SA as of 1 January 2010:  Andrzej Piotr Klesyk - Chairman of the Management Board of PZU SA;  Rafał Iwo Stankiewicz - Member of the Management Board of PZU SA;  Witold Stanisław Jaworski - Member of the Management Board of PZU SA.
On 27 September 2010, Rafał Stankiewicz resigned from the position of a Member of the
Composition of the Management Board of PZU from 28 September 2010:  Andrzej Piotr Klesyk - Chairman of the Management Board of PZU SA;  Witold Stanisław Jaworski - Member of the Management Board of PZU SA.
Board, Dariusz Filar, to temporarily hold the position of a Member of the Management Board of PZU
Composition of the Management Board of PZU from 21 December 2010:  Andrzej Piotr Klesyk - Chairman of the Management Board of PZU SA;  Witold Stanisław Jaworski - Member of the Management Board of PZU SA;  Przemysław Dąbrowski – Member of the Management Board of PZU SA.
The current term of the Management Board of PZU SA started on 27 June 2008 and will end on 27 June 2011. The mandates of members of the Management Board expire not later than on the date of the General Shareholders’ Meeting approving the financial statements for the last full financial year of their term.
Functioning and powers of the Management Board derived from the By-laws
The work of the Management Board is administered by the Chairman of the Management Board who defines the scope of responsibility of each member of the Management Board. Resolutions of the Management Board are adopted only in the presence of the Chairman of the Management Board or a person designated to administer the work of the Management Board during their absence and if the meeting is attended by at least half of the members of the Management Board. Resolutions of the Management Board are adopted by an absolute majority of votes and in the event of a voting tie, the Chairman of the Management Board has the casting vote. The Management Board, upon consent of the Chairman, may adopt circular resolutions, on paper or in an e-form (i.e. using means of distant communication and a qualified electronic signature. The by-laws also provide that the meetings of the Management Board may be held using means of direct distant communication. The Company may be represented by two members of the Management Board acting jointly or one member of the Management Board acting with a commercial proxy.
Functioning and powers of the Management Board derived from the Regulations of the Management Board
The regulations of the Management Board were adopted by the Management Board of 23 February 2010 and approved by a resolution of the Supervisory Board of 4 March 2010.
In accordance with the regulations of the Management Board, resolutions of the Management Board are especially required for:  adoption of a long-term plan for development and operations of the Company;  adoption of an action and development plan for the PZU Group;  adoption of an annual financial plan and a report on its implementation;  approval of the financial statements for the previous financial year and the management report on the activities of the Company;
 approval of a motion concerning profit distribution or loss coverage;  determination of premiums in the compulsory and voluntary insurance and general voluntary insurance terms and conditions;  determination of the scope and size of outward reinsurance and the tasks for inward reinsurance;  adoption of an annual audit and control plan and a report on its implementation with conclusions;  determination of the terms and conditions of investments, prevention and sponsoring;  giving sureties and guarantees (excluding insurance operations) and taking out and giving credit facilities or loans by the Company (excluding credit facilities and loans given from the Company’s Social Benefits Fund); and
Board whose powers include in particular:  defining the scope of responsibility of each member of the Management Board;  calling meetings of the Management Board;  setting the agenda of the meeting of the Management Board;  applying to the Supervisory Board for appointing and dismissing members of the Management
The Chairman of the Management Board makes decisions in the form of orders and official instructions. Other members of the Management Board administer the operations of the Company within the scope specified by the Chairman of the Management Board.
The Independent Member is obliged to present the Company with a written statement that all independence criteria provided for in the By-laws have been met and inform the Company if the criteria are no longer met. Additionally, the By-laws provides the Treasury with the right to appoint and dismiss one member of the Supervisory Board by way of a written statement submitted to
the Management Board, if the share of the State Treasury in the Company falls below 50% of all the Company’s shares. The right will expire once the State Treasury ceases to be the Company’s shareholder.
PZU SA following a decision of the Minister of Treasury. On the same date Piotr Maciej Kamiński and
On 12 January 2010, the Eureko B.V. and Bank Millenium SA dismissed Marco Vet from the Supervisory Board of PZU SA and appointed Jurgen B. J. Stegmann. Composition of the Supervisory Board of PZU SA from 12 January 2010:  Tomasz Gruszecki Chairman
Board of PZU appointed Przemysław Dąbrowski a member of the Management Board of PZU SA.
In accordance with the By-laws, the powers of the Supervisory Board include:  review of the Management report on the activities of the Company and financial statements for the previous financial year in terms of their compliance with the accounting records, documents and facts;  review of the motions of the Management Board concerning profit distribution or loss coverage;
 presenting the General Shareholders’ Meeting with a written report on the results of the review described above and submitting a brief annual assessment of the situation of the Company including internal controls and key risk management and an annual report on the work of the Supervisory Board;  concluding, terminating and amending the agreements with members of the Management
Board;  delegating members of the Supervisory Board to temporarily perform the functions of members of the Management Board who have been dismissed, resigned or cannot perform their functions for other reasons;  accepting instructions concerning votes being cast by the Company’s representatives during general shareholders’ meeting of PZU Życie concerning: an increase and decrease in the share capital, bonds issue, disposal and lease of a PZU Życie enterprise or establishment of a usufruct right, division of PZU Życie, combination of PZU Życie with a different company, liquidation or termination of PZU Życie;  selection of the entity authorized to audit the financial statements which will audit the annual financial statements of the Company;  wording of the consolidated amended By-laws;  approval of the long-term plans for the development of the Company and annual financial plans drafted by the Management Board;  approval of the regulations of the Management Board;  examination and evaluation of issues submitted by the Management Board for discussion during the General Shareholders’ Meeting.
Moreover, the Supervisory Board grants consent to:  acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct exceeding the equivalent of EUR 3 million.
 conclusion of the agreement with the underwriter referred to in Article 433.3 of the Code of commercial companies;  advance payment against expected dividend;  creation and closing of branches.
The Supervisory Board adopts the regulations specifying its organization and the manner of performing activities. The By-laws stipulate that the Supervisory Board should meet at least once every quarter. The Supervisory Board may delegate its members to fulfil specific supervising activities on their own and to this effect appoint temporary committees. The scope of responsibility of a delegated member of the Supervisory Board and the committee is specified in a resolution of the Supervisory Board.
Board to temporarily fill in for members of the Management Board and for appointing, suspending and dismissing the Chairman of the Management Board, members of the Management Board or the entire
Board and the manner of calling the Supervisory Board and conducting debates.
The Supervisory Board elects the Chairman and Vice-Chairman of the Supervisory Board out of its members. In accordance with the Regulations of the Supervisory Board, apart from appointing the IPO
committee, audit committee and promotion and compensation Committee, provided for in the By-laws to properly perform its supervision, the Supervisory Board may appoint other permanent advisory and consultative committees whose competencies, composition and way of work is specified by regulations adopted by the Supervisory Board. The regulations of the Supervisory Board stipulates that the Supervisory Board and the appointed committees may use the services of experts and advisory companies. Members of the Management Board (invited by the Supervisory Board) and employees of the Company competent for the discussed issue selected by the Management Board, may take part in the meetings of the Supervisory Board, however, they cannot cast votes. In specific cases, the Supervisory Board of PZU SA may also invite members of the management board of a supervisory board of a different company in the PZU Group. Moreover, members of the Supervisory
The IPO Committee was responsible for supervising the activities of the Company’s Management
Board relating to the initial public offering and providing the Company’s Supervisory Board with opinions concerning the issues related to the initial public offering.
Board, an Independent Expert), Piotr Maciej Kamiński (Member of the Committee, Member of the Supervisory Board appointed by the State Treasury), Jurgen B. J. Stegmann (Member of the Committee - Member of the Supervisory Board recommended by Eureko). The composition of the Committee did not change.
The Audit Committee was appointed by a resolution of the Supervisory Board on 3 June 2008. As of 31 December 2010 its members included: Marzena Piszczek (Chairperson of the Committee), Dariusz
Filar (Member of the Committee) and Grażyna Piotrowska-Oliwa (Member of the Committee). Grażyna
Piotrowska-Oliwa was appointed by the Supervisory Board as an independent member, qualified in accounting and auditing as understood by Article 86.4 of the Act on statutory auditors and their selfgoverning body, auditing firms and on public oversight of 7 May 2009 (Journal of Laws of 2009, No.
In accordance with the By-laws, once the Company’s shares are listed on a regulated market, as understood by the Act on trading in financial instruments of 29 July 2005, the Supervisory Board my appoint a promotion and compensation committee. Detailed tasks and the method of appointing members of the promotion and compensation committee, the way it works and remuneration are specified in a resolution of the Supervisory Board. The Committee should include at least one independent member. If the Supervisory Board includes five members elected in a vote in groups, the promotion and compensation committee is not appointed and its tasks are carried out by the entire
The Supervisory Board may appoint permanent advisory and consultative committees to perform its supervision in the Company. As of 29 July 2010 the Supervisory Board appointed a strategy committee comprising: Waldemar Maj (Chairman of the Committee), Krzysztof Dresler (Member of the Committee), Marzena Piszczek (Member of the Committee) and Grażyna Piotrowska – Oliwa
(Member of the Committee). As of 31 December 2010 the composition of the Strategy Committee had not changed.
The job of the Strategy Committee is to give opinions about all strategic documents presented to the Supervisory Board by the Management Board (in particular the development strategy of the Company) and present the Supervisory Board with recommendations concerning planned investment with material impact on the Company’s assets.
In January 2010, as part of implementation of the new management model of the PZU Group the following positions were established:  Director in the PZU Group for Management of the Group Branches in PZU Head Office
On 12 August 2010 Krzysztof Branny was appointed to a new position of Director in the PZU Group for Human Resources Management in PZU Head Office (effective from 1 September 2010).
Except for Tomasz Tarkowski, all the persons referred to above are members of PZU Życie
The elements which facilitate completing the process are the accounting principles (policy) and the chart of accounts with a commentary specifying the key rules of recording business events in PZU
Data is prepared in the source systems using formal operating and acceptance procedures which specify the powers of individual persons.
PZU monitors the changes in the external regulations concerning e.g. the accounting policy
(procedures) and reporting requirements of insurance undertakings and carries out appropriate adaptation processes.
 formal review of the financial statements to confirm compliance with the valid legal regulations and market practice in terms of required disclosures.
Activities within the consolidated financial reporting are coordinated through the organizational structure of the Finance Division in the PZU and PZU Życie Head Offices which is shared, i.e.
Consolidated financial reporting is governed by a number of internal regulations concerning the accounting principles (policy) adopted by the PZU Group and applied accounting standards and detailed schedules including the key activities and control points with assigned liability for timely and correct completion.
16.5 PZU shareholders holding directly or indirectly significant blocks of shares
Other shareholders held less than 5% of the share capital - the total of 47,331,817 shares which accounted for 54.8125% of the share capital of the Company.
Eureko B. V. (8,635,230 sold shares, 10% of the share capital of PZU) and the Treasury (4,317,615 sold shares, 5% of the share capital of PZU).
0.002%. At the time of the sale Eureko B.V. announced that the lockup period for shares which were not sold and also for the 3,575,488 shares of PZU held by JP Morgan Chase Bank, NA, subject to the swap transaction concluded with Eureko, will be 90 days, and for 39,020,483 shares held by the Treasury will be 180 days.
The By-laws of PZU do not provide for any restrictions of the voting rights as well as for separation of the equity rights resulting from securities and held securities.
insurance activity and an entry in the National Court Register. Based on the By-laws of PZU, the Supervisory Board can approve the unified amended text of the Company By-laws.
The Management Board of PZU represents that the entity authorized to audit financial statements -
Deloitte Audyt Sp. z o. o. - which audited the annual financial statements was selected in accordance with the provisions of law and that the entity and certified auditors which audited the financial statements met the requirements to express an unbiased and independent opinion on the audited annual financial statements, in accordance with the applicable provisions of law and professional standards.
Date Name and surname Position/Function 15 March 2011 Andrzej Klesyk Chairman of the Management Board of PZU
15 March 2011 Przemysław Dąbrowski Member of the Management Board of PZU