Business Model 95 5.1 PZU Group’s new operating model 96 5.4 Banking and strategic partnerships 116 5.5 Management of the PZU Group’s brands 123
PZU on the capital and debt markets 173 8.1 Equity and bond market 174 8.2 PZU’s share price 176 8.3 Banking sector on the Warsaw Stock Exchange 183 8.4 PZU’s investor relations 184 8.5 Analysts’ recommendations for PZU stocks 189 8.6 PZU Group’s dividend policy 191 8.7 Debt financing of PZU, Pekao and Alior Bank 194 8.9 Calendar of PZU’s major corporate events in 2019 200
According to the strategy, the PZU Group is developing its health, investment and banking areas. In 2018 we placed the bar very high for our competitors, setting trends, deploying innovative solutions and consolidating our position on the markets where we operate. Even now, we can use our broadly defined digital resources to adjust our offering quickly, reaching clients with value proposals based on top quality services.
The digitization process will also bring more products available via the Internet. In 2018, the www.pzu.pl portal changed radically. Now you can conveniently use it on your smartphone, report a claim, make an appointment with an agent or buy an insurance policy. In addition, the #myPZU (moje.pzu.pl) Internet platform has been launched, offering a broad range of services, including the ability to purchase and service of insurance products, book a doctor appointment and medical tests and access to TFI PZU’s investment offering. The inPZU platform is an innovative transaction tool enabling retail and institutional clients to purchase units of passive mutual funds directly. While these funds are very popular across the globe, they are still considered a novelty in Poland. Our solution is a pioneering one. We offer a product that is well-suited to client needs, affluence and capabilities with the management fee being a mere 0.5%, with a comparable average for actively managed Polish funds in the range of 3%. Building competences in low-cost investments is another step towards Employee Capital Schemes to be launched in July 2019.
Thanks to economies of scale, scope of operations and many millions of clients, PZU is bound to be a key player in this market.
index had fallen by 9.5% y/y. Its performance was comparable to that on the main trading floors in Europe and the US. In this uninviting environment, PZU’s shares rose by 4.1% and, considering the value of dividends paid, the rate of return for shareholders was 10.1%. This demonstrates the great strength and potential accumulated under the PZU brand, on the economic side of the business and the total shareholder rate alike.
On behalf of the Management Boards of the PZU Group companies, I hereby convey to you our activity report for 2018.
From an economic point of view 2018 was primarily a period in which the PZU Group reported spectacular results that surpassed all-time highs quarter on quarter. The value of insurance sold increased by PLN 623 million to PLN 23.5 billion, while the overall PZU Group’s net profit climbed by PLN 1.2 billion to PLN 5.4 billion. The robust profitability of the core underwriting business and the expanding share of the banking segment made a major contribution to this performance. We delivered such rapid business growth while preserving a rational risk appetite. The SII solvency ratio in Q3 2018 was nearly 245%, representing the optimum level of safety from the Supervisory Board’s vantage point.
As the key authority overseeing the Management Board’s operations, the Supervisory Board fastidiously scrutinized the implementation of multiple changes against the regulatory backdrop as Polish regulations were harmonized with European Union law. The Insurance Distribution Act (“IDD”) precipitated extensive modifications in sales, distribution and network management. It also expanded the protection of client interests, which is something positive for the overall insurance market. The General Data Protection Regulation (“GDPR”) contributed to greater client data security. Nevertheless, these legal amendments did not adjudicate some issues, e.g. personal data processing in respect of health for underwriting purposes. The payment of claims for (pain and suffering) caused by the vegetative state of a relative injured in an accident returned as a topic. That is why PZU set up additional provisions of PLN 148 million to make possible payments by virtue thereof. Despite that, we anticipate that these types of events will happen less and less frequently because work is underway on a law to regulate the operations of firms that pursue claims.
The PZU Group is more than just ambitious strategic objectives. It also espouses fundamental ethical values that will persist for much longer than the horizon of the current strategy. Having this in mind we take a comprehensive approach to non-financial reporting, which according to the Supervisory Board is an important part of business assessment and the growth prospects of the PZU Group. I am confident that the unswerving execution of the strategy entitled “The New PZU – More Than Insurance”, which takes into consideration the principles of sustainable development, will deliver new value to shareholders, clients, employees and all other stakeholders.
stability and safety – Solvency II ratio is above average for insurance groups in
Recap of 2018 results Net insurance claims and benefits PLN 14.6 bn
We would like to do something different from the classical client relation model insurers follow in which the only contact clients have with their insurer after buying a policy is when a claim occurs. We bring together all of the PZU Group’s activities and integrate them in a client-focused manner: life insurance, non-life insurance, health insurance, investments, pensions, health care, banking and assistance services. Our client relationships and the knowledge of our clients are becoming our main value, while the Group’s chief product is the acumen in addressing client needs to build a stable future.
Its companies are active not only in life, non-life and health insurance but also in investment, pension, health care and banking products. Moreover, they render assistance services to retail clients and businesses through strategic partnerships. The magnitude and variety of operations paint the larger picture of what PZU is. It is a powerful financial institution, but above all it is a group of service companies whose operating foundation is the trust of its clients.
It is the Group’s strategic ambition to pursue a new approach to building client relations, thereby leading to the integration of all operating areas with the client at the focal point. This will make it possible to deliver products and services that are well-matched to client needs at the appropriate time and place and respond to other client needs on a comprehensive basis. A crucial element in this process involves the usage of tools rooted in artificial intelligence, big data and mobile solutions that will contribute to building an entrenched technological advantage in integrated client service.
Among all the Polish insurers PZU offers its clients the largest sales and service network. It has 411 branches with convenient access across the country, 9.1 thousand tied agents and agencies, 3 thousand multi-agencies, nearly 1 thousand insurance brokers and electronic distribution channels. When it comes to bancassurance and strategic partnerships, the PZU Group cooperates with 13 banks and 21 strategic partners. PZU also has a claim handling system that operates efficiently.
The PZU Group’s clients in Poland also have access to Bank Pekao’s distribution network (825 branches) and Alior Bank’s distribution network (202 own branches, 8 branches of private banking, 8 regional business centres, 643 intermediaries). Both banks have professional call centers and mobile and internet banking platforms.
We manage business in a responsible manner PZU is an organization operating at a large scale. It is also cognizant of the expectations various stakeholder have of it, including clients, employees, investors, industry experts, social environment and a number of institutions and organizations. That is also why managing relations with stakeholders and their impact on the business community is accomplished in a deliberate and sustainable manner. PZU is a company that is open to social expectations. In the actions it takes it strives to set trends and construe business solutions responsibly. It also gets involved in actions to benefit the local communities in which the Group’s clients and employees function. For the PZU Group, sustainable management is a deliberate choice of how it conducts its business, thereby making it possible to build the company’s long-term value in an ethical and transparent manner while giving consideration to stakeholder needs and expectations. The full scope of information pertaining to the PZU Group’s implementation of corporate social responsibility principles that also incorporates all the legally-required nonfinancial information can be found in the 2018 Non-financial Information Report of the PZU Group and PZU forming an attachment to this Activity Report of the PZU Group and PZU.
The Group’s value growth should be aligned to the needs of the environment and rely on sustainable and responsible resource utilization
Poland is the Group’s core market. 92% of its revenue (measured by gross written premium) is generated in Poland. The insurance activity in the Baltic States (Lithuania, Latvia, Estonia) and in Ukraine generates 8% of its revenue.
Bank Pekao was established in 1929. It is a universal bank, providing a comprehensive offerof banking services to individual and institutional clients, operating mainly in Poland.
Tightening cooperation with banks has opened up enormous growth opportunities for the PZU Group, especially in terms of integrating and focusing its services on clients at every stage of their personal and professional development. Cooperation with the banking segment forms an additional plane for PZU to build lasting client relations.
INNOVATIONS create a NEW value for the clients of the PZU Group
Third Party Assets of TFI and OFE PZU clients (PLN billion)
Assets of Pekao TFI (PLN billion) Net result on asset management (PLN million)
Contribution of banking activity to the net profit of the parent (PLN million)
P/E (price to earnings per share) P/BV (price to book value)
Net insurance claims and benefits paid (14,563) (14,941) (12,732) (11,857) (11,542)
Net profit attributable to equity holders of the parent company 2,559 2,502 1,754 2,343 2,968
Net profit attributable to equity holders of the parent company 654 393 181 - -
Equity attributable to the owners of the parent company 14,925 14,599 12,990 12,924 13,166
Restated data as at 31 December 2014 - 2017 PZU Group excluding financial data of Pekao and Alior Bank Data from consolidated statement of financial position for 2016 restated - as at 1 January 2017
As at the end of Q3 2018, the solvency ratio (calculated according to the standard Solvency II equation) was 245%, a level above the average solvency ratio reported by insurance groups in Europe.
AFinancial strength rating and credit rating awarded to PZU by S&P
In 2018 no changes were made to PZU’s rating or outlook, while S&P Global Ratings twice affirmed the financial strength and creditworthiness ratings for PZU at A- with a stable outlook. This rating was assigned to PZU on 27 October 2017. This is one of the highest possible ratings for a Polish company to receive.
PZU and LINK4: the most admired insurance brand creation, 1st and 2nd place
PZU: The Best Annual Report 2017 (main prize in the category “Banks and financial institutions”)
Marketing: HR: IR: PZU: Paweł Surówka - Insurance Manager of the Year 2018
Transformation of PZU into a joint stock company wholly-owned by the State Treasury
JUNE Impact’18 Congress in Cracow – The Future of the Digital Economy
The high economic growth based on the robust domestic demand - particularly household consumption supported by the high real disposable income and situation on the labour market -created favorable conditions for PZU’s business growth.
The most readily available information about the labor market comes from the enterprise sector. In 2018, average paid employment grew by almost 168 thousand people, as compared to an increase by 266 thousand people in 2017. In December 2018, the average monthly employment in enterprises was 2.8% higher than the year before. The growth in employment, coupled with the declining workingage population, resulted in a lower unemployment rate. The registered unemployment rate in December 2018 was 5.8%, compared to 6.6% in December 2017. At the end of 2018, the seasonally adjusted rate of economic unemployment (according to Eurostat) stood at 3.5%, which was below the European Union average (6.6% in December 2018). This notwithstanding, the extent of the decline in the rate of unemployment in 2018 was smaller than in the four prior years.
In 2018 and in January and February 2019, the Monetary Policy Board decided not to change interest rates. They remained flat at the level set in March 2015 – the reference interest rate was 1.5%. According to the Monetary Policy Council, the current level of interest rates is still conducive to keeping the Polish economy on a sustainable growth path and helps it preserve macroeconomic balance.
Source: Central Statistical Office, preliminary estimate of GDP in 2018 as at 28 February 2019.
Labor market and consumption In 2018 the labor market conditions continued to improve from an employee point of view. Employment grew and the unemployment rate decreased, albeit slower than a year earlier. At the same time, companies reported difficulties filling vacancies and wages were on the rise at a relatively high rate.
Public finance The Finance Ministry announced that the state budget deficit in 2018 was PLN 10.4 billion, which is much lower than the PLN 41.5 billion planned. This means that the state budget deficit was a mere 0.5% of GDP. The State Treasury debt at the end of December 2018 was PLN 954.2 billion, up PLN 25.8 billion (+2.8%) from the beginning of 2018. According to the European Commission’s forecasts in November 2018, the deficit of the general government sector in Poland in 2018 dropped to 0.9% of GDP. In 2018 Poland had no problems whatsoever in obtaining market financing – the Finance Ministry reported that over one-fourth of its borrowing needs planned for 2019 had been pre-financed at yearend.
Lithuania At the end of 2018, the Lithuanian economy experienced a slowdown in its economic growth. GDP in the third quarter was 2.9% y/y, having declined on a q/q basis by 0.9%. Growing household incomes were a driver of the Lithuanian economy, having translated directly into higher internal demand and ongoing pressure on wage inflation.
Latvia In the third quarter of 2018, Latvia’s GDP grew at a rate of 5.3% (annual data, seasonally adjusted). The rapid growth of the Latvian economy was driven by rising investments and private and public consumption.
The Latvian labor market experiences decreasing unemployment and high demand for labor, meaning that wage growth remains solid. In the third quarter of 2018, gross wages increased 8.0% y/y in nominal terms.
Estonia Despite the slight cooling of the economic situation in Europe, Estonia maintained its upward trend. According to data published by the Bank of Estonia1 the country’s GDP increased 4.2% in Q3 2018 (on a year-on-year basis), whereas the quarter-on-quarter increase was 0.4%. In the third quarter of the year, GDP driven chiefly by domestic demand, while exports recorded a slight increase. The construction and real estate sectors were responsible for approximately half the growth.
The Estonian labor market is struggling with a shortage of qualified employees, which predominantly affects those sectors of the economy that suffer from low productivity and find it hard to compete with sectors offering higher wages. The annual increase in average gross monthly wages was 6.4% in Q2 2018, and 7.5% in Q3 2018.
The consumer price index (CPI) moved up 3.4% in 20182 compared to the previous year. The largest impact on the annual change in the index was exerted by housing maintenance expenses, including prices of electricity supplied to homes, solid fuels and rents.
1 Estonian Economy and Monetary Policy, 4/2018, Bank of Estonia. 2 Data published by the Estonian Statistical Office.
2.3 Situation on the financial markets 2018 was an unfavorable year for investors on global financial markets. Most asset classes recorded a negative rate of return (with Polish and German treasury bonds among the few notable exceptions). Despite the temporary trepidations at the turn of January and February, stock prices grew for the better part of the year on developed markets, having dwindled only in the last quarter of the year. The prices of US and German treasury bonds behaved erratically throughout most of the year. The yields on 10-year US Treasuries continued to increase steadily until October. Subsequently, they declined, but not deep enough to break the level at which they started the year. In 2018, the yields on 10-year German Bunds dwindled. The year began with a strong growth in the yields on German bonds, but at the end of February the upward trend reversed, and the decline even accelerated at the end of the year.
In Poland, the stock market ended the year 2018 in the red. In 2018, the WIG and WIG20 indices lost 9.5% and 7.5%, respectively. Against the backdrop of increases in global indices and the improved economic situation in Poland, all of the country’s major stock market indices grew until the end of January. The beginning of February roughly marked a synchronized descent in all stock market indices. In the middle of the year, certain differences appeared in the paths followed by large and small cap indices. While WIG20, the blue chip index, stabilized and even improved somewhat in the second half of the year, the medium and small company indices of mWIG40 and sWIG80, respectively, continued to decline rapidly in this period. Compared to other major sectors, in 2018 the fuel industry was outstandingly strong compared to such poorly performing industries as banking, utilities, commodities and construction, among others.
WIG and WIG20 indices due to the high rate of growth in household consumption
The registered unemployment rate in Poland in December 2018 fell to compared to 6.6% in December 2017
The average monthly salary in Polish economy in 2018 grew by compared to a 5.7% increase in 2017
In 2018, the consumer price index (CPI) in Poland rose in annual average terms, compared to 2.0% in 2017
- share of bank loans in the Polish banking system in relation to the GDP in 2017, while the European average is 126%
Deposits are the most popular form of accumulating financial assets in Poland - on an annual basis, of all households hold them
External environment 2018 was another year in which Polish PLN-denominated treasury bonds appreciated. The yields declined along the whole yield curve, with the largest movement recorded on annual and 10-year bonds. The behavior of Polish 10-year treasury bonds was largely correlated with changes in the yields on 10-year German bonds. At the same time, during the year the spread between Polish and German 10-year treasury bonds tightened by 31 basis points, which resulted partly from the robust fundamentals of the Polish economy. This fact did not go unnoticed by Standard & Poor’s: the agency raised its credit rating to A- with a stable outlook. Throughout 2018, the yields on 10-year treasury bonds slumped by 49 bps from 3.30% to 2.81%. The yields on 5-year treasury bonds declined by 36 bps and stood at 2.29% at the end of the year, while the yields on 2-year bonds dropped by 37 bps to 1.34% during the year. The yield of Polish debt treasury securities with a one-year maturity fell by 56 bps, reaching 0.91% at the end of the year.
In Poland, the market insurance model has been developing since 1990. Currently, Poland has the largest insurance market in Central and Eastern Europe. However, even though the size of this market (as measured by gross written premium) doubled between 2008 and 2017, it still remains way behind Western Europe. In 2017, total gross written premium in the Polish market was EUR 14.4 billion (compared to EUR 7.0 billion in 2008). Europe’s largest insurance market is the United Kingdom (with EUR 283.6 billion in gross written premium in 2017). Markets above the EUR 100 billion gross written premium threshold include France (EUR 211.6 billion), Germany (EUR 198.0 billion) and Italy (EUR 131.0 billion).
3 Swiss Re, Sigma No. 3/2018: “World insurance in 2017” 4 Insurance Europe,
Poland’s insurance penetration rate, which is the ratio of total gross written premium to gross domestic product (GDP), is below the European average. In 2017, this rate stood at 3.1%, whereas the Europe average was 7.5%7. Even lower penetration rates were achieved in the insurance markets of Lithuania (1.9%), Ukraine (1.5%), Estonia (1.4%) and Latvia (0.9%). The highest penetration rates were recorded by the United Kingdom (12.2%), Denmark (10.8%), Finland (10.2%) and the Netherlands (9.5%).
Written premium per capita (2017, EUR) in relation to the growth rate of the insurance market (2015-2017, EUR)
The Polish banking market features a low, though rising percentage of corporate loans in the total amount of nonfinancial sector loans (approximately 30%). In turn, Poland is the fourth country in the European Union in terms of household loans stated as a percentage of all the loans in the banking sector.
Share of loans in GDP (2017, %) in relation to GDP per capita
External environment stated as a percentage of households’ assets are markedly smaller in Poland than in the most economically developed countries in Europe. In 2016, they stood at 8.5% in Poland, while they were 17.8% of gross assets in the euro area. This disproportion is also very visible in absolute figures: EUR 3.5 thousand in Poland versus EUR 10.6 thousand in the euro area. On the other hand, financial assets, even though they are small, are a popular form in which Polish nationals accumulate financial means. 90.8% of all households hold them, with deposits being the most popular form of accumulating financial assets (84.9% of all households have deposits). Households much more rarely invest their savings in mutual funds (3.8% of households), though on average the amounts involved are higher (median of EUR 19.6 thousand). NBP’s research shows that the increase in financial assets (94% in two years) was the main driver of the growth in net assets.
Banks are financed with client deposits in Poland to a greater extent than in other countries in the European Union. At the end of 2017, they accounted for 73% of the total balance sheet value of the banking sector.
On the other hand, financial assets (deposits, mutual funds, equities, bonds, life insurance and voluntary pension plans)
On 1 October 2018, the insurance distribution act of 15 December 2017 took effect. It implements in Polish law the regulations of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (Insurance Distribution Directive, abbreviated as IDD). The act increases the protection of customers concluding insurance agreements, which entails imposing additional requirements on entities offering insurance, mainly reporting duties. The new rules are supported by strict administrative sanctions applied in the event of breaches of sales obligations and rules. The regulatory authority may impose fines on an insurance undertaking in the amount up to PLN 21,827,500 for specified violations or 5% of the gross written premium reported in the most recent financial statements for the financial year, or twice the amount of benefits obtained or twice the amount of losses avoided as a result of the violation, if they can be determined.
On 3 January 2018, provisions of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II) came into effect. They imposed new obligations on financial market entities in respect of, among others, protection of investors, market transparency and corporate governance. The new regulations force changes in the market infrastructure and envisage a number of new powers for the regulators..
The regulations of the MiFID II directive were entered into the national legal system by amending the Financial Instruments Trading Act, of 29 July 2005, which took effect on 21 April 2018.
In addition to strengthening client protection, other regulations were accepted that have exerted or will exert an impact on the functioning of the PZU Group. Some of them are presented below: The new approach to tasks to combat money laundering has defined the Act of 1 March 2018 on counteracting money laundering and financing of terrorism (it took effect on 13 July 2018). The act defines anew the principles and procedure for preventing money laundering and financing of terrorism. The process of identifying and analyzing risk associated with combating money laundering is supposed to incorporate material factors from the vantage point of a given client as well as from the view point of a given institution’s risk of money laundering. Groups are obligated to implement group procedures defining the rules for sharing and protecting information among the entities in a group in connection with performing their duties to combat money laundering and financing of terrorism.
The act on the liability of collective entities for illegal acts under the threat of a penalty aims to enhance the effectiveness of tools to mete out sanctions against collective entities, especially when combating grave economic and treasury criminal activity. In comparison with the regulations to date, this bill extends the grounds for the liability of collective entities by incorporating thereunder conduct deemed to be the own conduct of collective entities bearing the markings of an illegal act. The liability of a collective entity for all illegal acts under threat of penalty as a crime or treasury crime, except for private treasury crimes has been introduced. The requirement of first obtaining a prior ruling (a judgment condemning a natural person) has been abandoned.
Selected Supreme Court rulings affecting insurance activity issued in 2018 In reference to the term for responding to a client complaint and the consequences of failing to meet it, pursuant to the act of 5 August 2015 on the examination of complaints by financial market entities and on the Financial Ombudsman, the Supreme Court ruled that in such a situation the financial market entity may challenge the justification for the claim pursued by the client (case file III CZP 113/17).
from the date of transformation if the annual fee rate stated as a percentage for perpetual usufruct is 1%, 2% or 3%, respectively, or of its intent to remit the fee for the period in which the sum total of these fees will not exceed the market value of the real property if the fee rate stated as a percentage for perpetual usufruct is higher than 3%. The regulations of the act are applicable while giving consideration to public aid regulations, where the provision of public aid requires the fulfillment of conditions for extending de minimis aid as prescribed inter alia by Regulation no. 1407/2013 of the EU Commission on 18 December 2013 in the matter of applying articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid.
2018 was also a period in which numerous changes were adopted in the tax area, with the following being among them: Regulations concerning the identification and transmission of information regarding tax schemes (in English referred to as Mandatory Disclosure Rules, or MDR) took force on 1 January 2019. Reporting pertains to tax schemes, or actions (including ones that are just at the planning stage) in which at least one party is a taxpayer or that exert or may exert an impact on a tax obligation. According to these regulations, PZU is obligated to introduce and apply a procedure to prevent non-compliance with the duty to transmit information regarding tax schemes. A financial penalty (with a maximum of PLN 10 million) may be imposed on obligated entities in the event of failing to meet the obligation of applying the procedure.
In reference to the tax on revenues from buildings the scope of taxation has been extended to all buildings (residential and non-residential) that have been commissioned for usage (entirely or partially) pursuant to a lease contract, tenancy contract or some similar contract. The new scope of the tax means that PZU Group companies will also be subject to it.
2.7 External factors that may affect the conditions of operations and the PZU Group’s activities in 2019
In the Polish economy there are presently no clear signs of disruption to the balance where during the upcoming quarters they could lead to a material, cyclical slowdown. The situation in the labor market and the government’s announcements regarding extension of the 500+ program and payout of the “thirteenth pension” in 2019 will drive consumption, although its growth rate may slacken. Among the internal factors that may curtail GDP growth in Poland, one should cite problems with hiring properly qualified staff, possible decline in the willingness to invest in businesses or a higher than expected increase in inflation eroding households’ real income (though the regulations on electricity prices introduced at the end of 2018 contain that risk).
The consumption growth rate in 2019 will remain robust. Public investments should continue to grow markedly, though the shortage of qualified employees and higher costs may lead to delays in the execution of some projects. Cyclical factors presently support growth in the investments of businesses, though the external situation may exert an unfavorable impact. For GDP growth in and around the Polish economy clearly started to slow down at the end of 2018. Especially the growth rate of industrial production in the euro area and Germany fell off. The adverse impact of protectionism on business expectations and decisions is becoming evident and the probability of imposing US customs duties on cars imported from the EU has increased recently. The slowdown in global trade is visible. Uncertainty related to relations between the US and China and to Brexit continues to persist. Concerns linked to the deterioration of Italy’s budget situation and its cohesiveness with the rules of the Stability and Growth Pact and to the resilience of the financial sector in the euro area may reappear if there is a stronger slowdown in the euro area economy. It therefore appears that the possibility of a serious slowdown in GDP growth in the euro area and the overall global economy, and hence the occurrence of unfavorable phenomena on the financial markets, is the most important macroeconomic risk in 2019. We expect that the pace of GDP growth in Poland in 2019 will be approximately 3.7%.
The uncertainty related to Brexit is an important factor adversely affecting economic growth in the euro area at the threshold of 2019. A “disorderly” Brexit – leading to more commercial barriers, disruptions in transport and the probable decline in the United Kingdom’s GDP would also be a shock to the Polish economy. For the United Kingdom is the second largest importer of our goods and services following Germany. The pool of EU funds of which Poland is a beneficiary would also be reduced. The direct adverse impact exerted by such a scenario on GDP in Poland is usually estimated to be several tenths of a percentage point. However, considering the indirect impact exerted, among others, by slower GDP growth in the euro area, the repercussions would probably be more pronounced.
Gross fixed capital formation in % (y/y) 5.1 7.3 3.9 (8.2) 6.1
Increase in prices of consumer goods and services in % (y/y, end of period) 1.6 1.6 2.0 (0.6) (0.9)
Nominal wage growth in national economy in % (y/y) 6.9 7.0 5.7 3.7 3.5
Unemployment rate in % (end of period) 5.6 5.8 6.6 8.2 9.7
NBP base rate in % (end of period) 1.50 1.50 1.50 1.50 1.50 *Estimate as of 28 February 2019 Source: Macroeconomic Analysis Office PZU
Also, all resolutions regarding insurance rates (e.g. in Ukraine) will have an impact on the Group’s activity. Some legal acts that influenced insurance activity in 2018 and that will also affect trends in 2019 include IDD and MIFID II. Introduction of the Employee Capital Schemes Act (as of July 2019) is an important legal change that may affect the shape and functioning of life insurance and third pillar pension products available so far. It is also expected that the pension system review planned for 2019 will define the rules of operation of the second pension pillar. SECTION 2.6 REGULATIONS PERTAINING TO THE INSURANCE MARKET AND THE FINANCIAL MARKETS IN POLAND
The most important one is the level of competition in individual product groups constituting the PZU Group’s core business. Due to the positive technical result recorded in the non-life insurance market (mainly in Poland but also in the Baltic States), it is plausible that in 2019 a more active pricing policy and more stringent competition to attract clients will emerge. Also, life insurance and health products are expected to see further price competition in 2019.
The situation in the insurance and banking sector may also change in connection with new entrants and trends associated
External environment with the development of new technologies, among others, operators of big databases / clients and insurtechs / fintechs10. Additionally, client expectations change – they largely shift toward personalized offers in the insurance and health segments alike.
PZU Group’s activity and results in the short and longer time horizon will be shaped by demographic trends, mortality and fertility rates (life insurance segment) and factors of chance – the occurrence of catastrophic phenomena, such as floods, hurricanes etc. (non-life insurance segment).
In this section: 1. Structure of the PZU Group 2. Non-life insurance (PZU, Link4 and TUW PZUW) 3. Life insurance (PZU Życie) 4. Banking (Bank Pekao, Alior Bank) 5. Mutual funds (TFI PZU) 6. International operations 7. Medical services (Health Area) 8. Pension funds (PTE PZU) 9. Other operating areas
Paweł studies Administration at the Maria Curie-Skłodowska University in Lublin. He is doing his internship in the Tied Agent Sales Department. The reports he prepares enhance the efficiency and quality of cooperation with our agents. On days off he follows the latest motor trends; he is a passionate coffee lover and music accompanies him all day long. Additionally, as of the new academic year, he will be a PZU Ambassador in Lublin.
Centrum Medyczne Medica 2 Płock - Poland PZU Zdrowie – 100.00%
PZU Ukraine Kiev - Ukraine PZU – 83.2292% PZU Życie – 0.00397% PZU Ukraina Life – 16.7668%
Centrum Medyczne św. Łukasza Częstochowa - Poland PZU Zdrowie – 100.00%
Św. Łukasza, while in December 2018 – Elvita acquired shares in SZOZ Multimed. In January 2019 – PZU Zdrowie acquired shares in Alergo-med; • in May 2018 PZU PTE and Pekao PTE entered into a business transfer agreement encompassing i.a. the operations of Pekao OFE and Pekao DFE, involving the management of Pekao OFE and the management of Pekao DFE. SECTION 3.8 PENSION FUNDS (PTE PZU)
• in June 2018 an Organized Part of the Business (OPB) was spun off from PZU CO and contributed to Pekao Financial Services (PFS) held by Bank Pekao. As a result of this transaction PZU acquired a 33.5% equity stake in PFS SECTION 3.9 OTHER OPERATING AREAS.
Market situation Measured by gross written premium in the first three quarters of 2018, the non-life insurance market in Poland grew by a total of PLN 2,038 million (+7.3%) versus the corresponding period of the previous year.
The sales growth in insurance against fire and other damage to property (up PLN 546 million, +11.1%, of which indirect activity grew by PLN 148 million), motor own damage insurance (up PLN 496 million, +8.8%) and motor TPL insurance (up PLN 385 million, + 3.3%), chiefly due to the considerable rise in the average premium (the consequence of phasing in price hikes starting in 2016) and the higher level of premium coming from indirect activity (motor TPL indirect insurance up PLN 36 million year on year) made the largest contribution to the higher level of the gross written premium.
In addition, markedly higher sales of accident and sickness insurance (up PLN 263 million, 15.0%), general TPL insurance (up PLN 174 million, +11.6%) and assistance (up PLN 143 million, +20.0%) made a positive contribution to the overall non-life insurance market’s growth. A decline in premium was observable only in insurance for various financial risks
Non-life insurance market - gross written premium vs. technical result (in PLN million).
* it contains LINK4 and TUW PZUW Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, PZU’s data fire and other damage to property of PLN 415 million (effect of considerable sales growth accompanied by a simultaneous decline in claims and benefits paid) and motor own damage insurance of PLN 279 million and in motor TPL insurance of PLN 226 million made the largest contribution to this change.
Non-life insurance undertakings – percentage of gross written premium in the first three quarters of 2018 (in %)
Gross written premium of non-life insurance undertakings in Poland (in PLN million)
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń [Insurance market] 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015, Rynek ubezpieczeń 3/2014 * including growth in written premium in the AXA Group by PLN 835 million, partly as a result of the transfer, in October 2016, of the business of Liberty Seguros Compania de Seguros y Reaseguros S.A. Poland Branch and the insurance portfolio of Avanssur S.A. Poland Branch to AXA Ubezpieczenia TUiR S.A.
(down PLN 51 million, -7.7%) as an outcome of the evolving conditions on the financial insurance market and in legal protection insurance (down PLN 2 million, -2.4%).
In the first three quarters of 2018, the PZU Group had a 35.9% share in the non-life insurance market, compared to 36.8% in the corresponding period of 2017 (34.8% and 35.8% on direct activity, respectively), thereby recording a slight dip while simultaneously retaining the portfolio’s high profitability.
PZU’s activity As the PZU Group’s parent company, PZU offers an extensive array of non-life insurance products, including motor insurance, property insurance, casualty insurance, agricultural insurance and third party liability insurance. At yearend 2018, motor insurance was the most important group of products offered by PZU, both in terms of the number of insurance agreements and its premium stated as a percentage of total gross written premium.
PZU Plan na Zdrowie [PZU’s Plan for Health] forming a flexible medical care proposal offered to private individuals (also to those engaged in running businesses), companies and institutions. Depending on the option selected clients receive on top of the underlying insurance a package of health benefits enabling them to customize the scope of medical care to their own needs. This proposal stands out among the ones available on the market as it provides extensive support if health problems arise following an accident – Plan na Zdrowie and W Ciężkiej Chorobie (Critical Illness), W Leczeniu Nowotworu (Cancer Treatment) and in the course of everyday care – W Trosce o Ciebie (Caring for You); • it launched the sales of the Pewnie na Rower (Feeling Secure on My Bicycle) insurance product in the web that was designed to afford the most extensive protection to cyclists. For the first time ever clients have the possibility of taking out insurance for the cycling season. In practice that means that the cover lasts for 7 months regardless of when they submit their proposal. Clients can insure a new bicycle or a used bicycle not older than four years. The insurance is based on bicycle accident insurance. One can add a rider in the form of a cyclist’s TPL policy, a bicycle own damage policy, i.e. cover in the event of theft or damage and baggage insurance. The insurance protects the person named in the policy meaning the bicycle user and owner alike, while the TPL and accident insurance cover is effective regardless of whether the bicycle is owned or the insured is using a rented bicycle; • it implemented “fast-track sales” for the PZU Dom [PZU Home] product. This new front-end makes it possible simultaneously to prepare at lightning speed an offer aligned to a client’s profile with three different options that have various types of cover. This system is similar to Direct insurance in terms of its simplicity and intuitiveness; • it rolled out a product solution in PZU Auto AC making it possible to use in full the possibilities offered as a result of the Green Parts project. The clauses of the General Terms and Conditions of Insurance obligate the insured to enable PZU to pick up parts from the workshop eligible for replacement to recycle them and reduce the costs of damages. In that manner PZU takes social responsibility for co-creation, and hence, for recycling roughly 4 million parts per annum. The utilization of these salvaged parts is carried out in accordance with the Act on Waste and regulations in this area. In every instance PZU asks clients whether they would like for the salvaged parts after vehicle repair (damaged parts) to be utilized by PZU’s partners; • devised a new plan for the product PZU AUTO Assistance – PZU GO. PZU GO is an innovative product using telematic technology, thereby confirming PZU’s focus on developing innovative solutions as it cares for the life and health of its clients. If a road accident is identified using the mobile application connected to the sensor mounted in the vehicle, PZU attempts to help or rescue life by establishing contact with the insured or the Rescue Notification Center. PZU GO (will be) is an extension of its motor insurance offer making it more attractive by adding PZU assistance even without having to be in contact with the insured.
• extending the offer for car fleet clients to include three innovative solutions underpinning Polish fleet companies at home and abroad: ◦ International Legal Support addressed to fleet clients rendering services across Europe (transport companies) as well as all other businesses whose drivers travel abroad. Having this legal assistance service available in 37 countries in Europe, an insured who participates in an accident or a collision gets immediate legal support through the hotline in the language of the country where he or she is located; ◦ Advisory Service under which the appointed team of PZU experts supports clients in mitigating insurance risk by reducing the frequency and average claim value, thereby eliminating down time for vehicles caused by claim events and obtaining a stable and predictable amount of insurance premium in subsequent years; ◦ Telematic service for users or holders of light fleets. Under its insurance cover PZU offers clients a free of charge car fleet audit and an assessment of the telematic solution it has in respect of its influence on insurance risk, giving recommendations on modifications to support driver safety. The outcome of the audit will form the basis for underwriting the fleet and the foundation for calculating the insurance premium.
PZU cooperated with 9 banks and 10 strategic partners in 2018. PZU’s business partners are leaders in their industries and they have client bases with enormous potential offering an opportunity to extend the offering to include more innovative products. PZU established cooperation with the PZU Group’s member banks, namely Alior Bank and Pekao, launching the roll-out of a comprehensive offering via its distribution network. Cooperation with Pekao and Alior Bank enables PZU to offer its clients a full array of financial and insurance services at each stage of their lives. In strategic partnerships, cooperation applied mostly to companies operating in the telecom and power sectors through which insurance for electronic equipment and assistance services
PZU Group’s operations were offered, e.g. the assistance of an electrician or a plumber. PZU launched cooperation with Allegro and PLL LOT to offer insurance on the e-commerce market.
LINK4’s operations LINK4 entered the Polish insurance market 15 years ago as the first company offering products by phone; it still continues to be one of the leaders on the direct insurance market. It is extending its cooperation with multiagencies, banks and strategic partners. The Company offers an extensive array of non-life insurance products, including motor insurance, property insurance, casualty insurance and third party liability insurance.
The most important activities associated with modifying its product offering in 2018 were as follows: • launching a line of products unlike any other on the Polish market dedicated to current and future parents. In the new LINK4 Mama offer, current and future parents alike can choose from two types of packages they can utilize in full or they can adapt them to their own needs. The LINK4 Mama brand received the award for being the Discovery of the Year in 2018 from the Consumer Laurels project commission. The firm has also elected to embrace a novel method of promulgating its new brand by undertaking cooperation with leading Polish bloggers running parenting portals. In the LINK4 Mama package clients can take accident insurance for Moms and TPL in their private lives that applies to losses caused to third parties by moms or their children. If they elect to take out one or both of these products at the same time, clients can enrich their insurance bundle with a medical package for mom. Under this bundle Link4 will organize and cover half the costs of visits to physicians in various specialties, legal assistance and a Rapid Assistance Package with an unlimited 24/7 concierge. The other package called LINK4 Dziecko (Child) can be construed anyway a client likes, by picking any number of products from the offer, i.e. accident insurance Child, a medical package for children and Rapid Assistance Package.
◦ Post-theft Assistance offered to clients holding a motor TPL insurance policy or bundle. Under this insurance a client obtains compensation for the items in the stolen vehicle and reimbursement of the costs related to vehicle theft. In addition, clients obtain hotline support in proceedings following vehicle theft; • enriching the current product offer by aligning it to evolving client expectations (e.g. TPL in private life, extending the territorial range to include Europe, raising the sums insured in travel insurance – the possibility of insuring treatment costs up to PLN 800 thousand) and deploying unrivalled solutions on the market to make Link4 products more attractive (weather alerts for clients who hold apartment insurance and as of January 2019 also for clients who hold motor own damage or SmartCasco).
It offers its clients a flexible insurance program to optimize the costs and scope of cover.
Since 2016, it has been selling and handling insurance products targeted at clients from various industries, focusing predominantly on cooperation with large enterprises, medical centers (hospitals and clinics) and local government units. Such entities, within the framework of cooperation exercised under TUW’s model, are provided with the opportunity to dissipate their risks within the boundaries of mutual benefit societies adjusted to the specific nature of the pertinent group of entities and thereby reducing the costs of their insurance premiums. TUW has 246 members for whom 44 mutual benefit societies have been established.
In 2018, the primary emphasis was placed on constantly improving the product offering, expanding the team of professionals offering comprehensive insurance service to the mutual’s members and aligning its offering to its clients’ needs.
The most important activities associated with modifying its product offering in 2018 were as follows: • obtaining KNF’s consent to extend the business to include statutory class 2, giving the ability to extend PZUW’s offer to include another pillar, namely health insurance, including: ◦ Occupational medicine - offered to employees working for companies that are members of TUW PZUW. Under this insurance clients obtain access to a wider package of tests including among others physician rulings, preventive health care for employees and assessments of the ability to work while considering the state of health and the threat posed at a given work position; ◦ TUW PZUW Medical Care Group Insurance, a supplement to TUW PZUW’s main offering addressed to the employees of the Mutual’s Members. In the Medical Care package clients can utilize doctor consultations, outpatient procedures and laboratory and imaging diagnostics in more than 2.1 thousand PZU Zdrowie medical centers in more than 500 cities in Poland; • rolling out in the offer, as the first insurer in Poland, a product called Third Party Liability Insurance for the Members of the Governing Bodies of a Medical Treatment Entity. Extending this offer is part of the mutual’s expansion onto the market made up by medical entities, especially hospitals that are one of the major axes on TUW PZUW’s strategy for the upcoming years. This product addressed to TUW PZUW’s clients who already hold compulsory TPL insurance for a medical treatment entity protects the representatives of the management of medical treatment entities against the financial consequences of erroneous managerial decisions, omissions and procedural violations; • implementation of comprehensive cybernetic insurance offering protection against the adverse consequences of damages related to the operation of a computer network and computer network safety breaches, also as a result of cyber terrorism; • launching an insurance program for church-related institutions encompassing property and third party liability insurance under a dedicated mutual benefit society.
Factors, including threats and risks that will affect the operations of the non-life insurance sector in 2019 Besides chance events (such as floods, droughts and spring ground frost), the following should be treated as the main factors that may affect the situation of the non-life insurance sector in 2019: • possible slowdown in economic growth in Poland. The poorer financial standing of companies may result in elevated credit risk, a higher loss ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth; • possible slowdown in the growth rate of gross written premium, mostly as a consequence of the motor insurance portfolio’s profitability generated in recent years, and thereby the return to an active pricing policy and competition to attract clients; • case law concerning the amounts of general damages paid in cash under the TPL insurance held by the owners of motor vehicles for suffering sustained to the closest family members of persons who have died (Article 446 of the Polish Civil Code); • increase in the prices of spare parts affecting claims handling expenses due to the depreciation of the Polish zloty against the euro; • changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly; • emergence of more regulations or financial burdens on insurance undertakings.
Market situation Poland’s life insurance market measured by gross written premium was estimated at PLN 16,409 million in the first three quarters of 2018 meaning that over the most recent 5 years it contracted on average by 6.7% per annum. At the same time, the premium collected in the first three quarters of 2018 was 10.3% lower than in the corresponding period of the previous year. This resulted principally from the evolution in the single premium business in investment products while the gross written premium in periodic products has persisted at a similar level.
Attention should be drawn to the fact that the premium contraction during the first three quarters of 2018 for the overall market year on year pertained to single premiums to a greater extent (down PLN 1,911 million, i.e. 31.7% y/y). At the same time, the growth rate for the corresponding period of 2017 was positive at 8.0%. The single premium compound average growth rate since 2013 was -18.3%. The changes in circumstances on the capital market and in the legal environment should be considered to be the underlying causes for the gross written premium on single premium business to fall in a trend over several years. The record low interest rates contributed to the decline in the yields offered by term deposits packaged as insurance products, thereby leading to heightened interest in other investment products. Additionally, a tax was introduced as of 1 January 2015 on short-term endowment insurance offering a fixed rate of return or a return based on indices; this also contributed to reducing client interest in these types of products and ultimately to their retraction, especially the first ones, from the offer of insurance undertakings. In subsequent years the regulatory authority’s guidelines, including guidelines regarding the level of fees incurred by clients of unit-linked products and EU directives regulating the market for these types of products and their distribution led to insurance undertakings constricting their offering of these types of products, especially in cooperation with banks. The next quarters of 2018 were characterized by a dip in the level of single premium to the lowest figures in many years.
Gross written premium reported by life insurance undertakings in Poland (in PLN million)
Life insurance market – gross written premium vs technical result (in PLN m)
The total technical result generated by the life insurance undertakings in Q1-Q3 2018 was down PLN 11 million (0.5%) from the corresponding period of 2017 to PLN 2,407 million. A decline of PLN 116 million (19.7%) transpired in the life insurance group (group I), while one of the main drivers was the drop off in revenue from investment activity in the part allocated to this product group. At the same time, the life insurance segment result improved by PLN 81 million in combination with unit-linked business (class III) and by PLN 55 million in accident and illness insurance (class V). In the first instance, improvement transpired as a result of the falling level of expenses, chiefly acquisition expenses as revenue slackened. In turn, in the latter instance, the cause was linked to the growing level of business accompanied by a simultaneous fall off of the loss ratio.
The total value of the investments made by life insurance undertakings at the end of Q3 2018 was PLN 40,912 million, signifying 0.6% growth compared to the end of 2017. In turn, negative investment performance and the rising level of redemptions accompanied by the decline in the level of client contributions to funds led to a lower net asset value of life insurance in which the policyholder bears the investment risk (down 9.3% to PLN 53,633 million).
During the first three quarters of 2018, PZU Życie wrote 37.8% of the gross written premium of all life insurance undertakings, signifying further growth on top of last year’s market share (+3.0 p.p.). The expansion of PZU Życie’s market share was driven by a positive rate of growth in periodic gross written premium on a y/y basis than that of all its competitors combined and the lower decline on average than for the other market players in the form of a single premium, accompanied by the Company holding a lower percentage of that business in its portfolio.
insurance cover for those already in the portfolio, along with strengthening their loyalty and increasing their satisfaction level. Taking advantage of the unique synergy of competences within the PZU Group (insurer, medical operator, investment manager), the company is able to comprehensively take care of life, health and savings of its clients, providing them with the broadest possible support.
Most significant product changes in 2018 Under group and individually continued (protection) insurance, PZU Życie made the following major changes in 2018: SOHO clients As part of the insurance products dedicated to the SOHO business (micro-business conducted by businesses run by one or two persons), two existing products were combined in October 2018: Mój Biznes [My Business] and Zdrowy Biznes [Healthy Business] with a price benefit offered for the combined purchase (2-in-1). The combined offer provides comprehensive protection to clients that includes both financial support for the beneficiaries in the event of death, illness or after an accident, as well as access to private medical care for the insured.
SME clients The main change that was introduced in 2018 in group insurance for the SME segment was the implementation of PZU Ochrona i Zdrowie, a new protection and health product in November. In that insurance, the Company offers, among others, a benefit in the event of the insured’s death, financial support and medical services in the event of critical illness or
Groups: Talanx - Warta, Europa, Open Life; VIG - Compensa, Vienna Life; Aviva- Aviva, Santander-Aviva Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2018
Product offer PZU Życie, as a popular and the largest insurer on the Polish market, continuously expands its product offering by adding new products or modifying existing ones to protect its clients at each stage of their lives. Changes in the product offering are intended to attract new clients and expand the accident. The insurance consists of 3 bundles: Moje Zdrowie, Moja Rodzina, Mój Wybór.
• The Moje Zdrowie [My Health] bundle offers private medical care in the event of an illness (critical illness or regular cold) or an accident and prevention measures. Additionally, in the event of a critical illness or accident, PZU provides financial support to the insured; • In the Moja Rodzina [My Family] bundle, the insured’s relatives receive financial support in the event of his/her death caused by an illness or an accident (including motor accidents). The bundle also offers benefits for the insured on account of a childbirth and financial support in the event of a death of the relatives; • Each insured (employee) may adapt the insurance to their needs and individually expand the insurance cover to include additional options from the Mój Wybór [My Choice] bundle. In this bundle, PZU Życie ensures financial aid in the event of accidents in daily life, offers additional insurance for family members in respect to medical care and finances the purchase of specified prescription medicines (at 80% of their regular price).
Corporate clients Two new health riders to the P Plus group life insurance were implemented in March 2018: • PZU w Trosce o Zdrowie [PZU Care for Your Health] The insurance covers, among others, specialist consultations, physical therapy procedures, ECG tests, CT and MRI scans in the event of an illness of the circulatory system, nervous system, malignant neoplasm and meningioma. The key benefits for the client include: ◦ access to private medical care – after delivery of documentation confirming the occurrence of a critical illness,
◦ psychological care. • PZU Powrót do sprawności [PZU Return to Ability] –
• In November 2018, system changes and additional clauses were introduced to the General Terms and Conditions of P Plus and Pełnia Życia group life products in connection with the proceedings by UOKiK (more detailed specification of the list of exclusions of liability and introduction of a definition of diagnostic and treatment proceedings in the GTCI.
Individual continuation clients In April 2018, PZU Życie commenced the national rollout following the pilot sales of the Kontynuacja dla Ciebie [Continuation for You] product. This insurance is an alternative to the standard individual continuation. This product aims to give a package of benefits close to a group offer, which an insured would like to continue having, and it is our response to the needs of younger clients.
In an effort to develop the offer for individual continuation clients, sales of new riders were launched: • PZU Uraz Ortopedyczny [PZU Orthopedic Injury] –
Individual clients In 2018, PZU Życie rolled out the following individual protection insurance product: • in the direct channel (on the moje.pzu.pl website) – PZU Ja
PZU Group’s operations the client does not have to provide any information about his/her health condition. Additionally, we offer special treatment to clients with a Large Family Card: if the insured or the beneficiary hold a Large Family Card at the benefit stage, the benefit paid out will be 30% higher; • in the PZU Branch Network and the Agency Network – the new PZU Gwarantowane Jutro [PZU Guarantee of Tomorrow] endowment insurance product. Four riders were implemented along with the base agreement (death caused by an accident, death in a motor accident, hospitalization, monthly benefit in the event of the insured’s death). Additional riders will be rolled out in early 2019; • promotion entitled “Twelfth premium – pay less or nothing” in the PZU Start w Dorosłość [PZU Launch into Adulthood] dowry insurance product. The promotion calls for rewarding clients for conducting simulations, leaving data with a marketing consent and for the purchase of this policy; • individual life insurance for borrowers of cash loans extended by Alior Bank; • in Bank Pekao – life insurance for borrowers of cash loans (CPI PEX).
The standing of the banking sector in 2018 continued to be stable underpinned by the persisting vibrance of the economy and the functioning of banks in a low interest rate environment. In 2018, the banking sector generated a net profit of PLN 14.7 billion, i.e. PLN 1.0 billion (7.5%) more than the 2017 figure.
The sector’s net result was shaped predominantly by the improved operating result (to PLN 19.1 billion, i.e. up 3.5% in comparison with the corresponding period in 2017), caused by significantly higher net interest income with a concurrent dip in the result on fees and commissions.
Banks’ operating expenses (net of depreciation and provisions) climbed 1.7% in the analyzed period. This change was caused by growing employee expenses (up 2.5%) and higher general and administrative expenses (up 0.8%).
At the end of December 2018, assets of the banking sector reached PLN 1.9 trillion and increased by PLN 119.4 billion, or 6.7% compared to the end of 2017.
The consumer loan portfolio (gross) increased by 7.9 billion while the portfolio of housing loans for households rose at the same time by PLN 27.7 billion. With respect to receivables from non-financial companies, the (gross) value of operating loan portfolios rose by PLN 13.1 while investment loan portfolios fell by 0.8 billion. The value of gross mortgage loans for corporate clients increased by 9.4 billion in 2018.
The deposits of non financial clients accumulated in banks increased by 88.2 billion in 2018.
Operations of the Pekao Group The Pekao Group is led by Bank Pekao S.A., a universal commercial bank offering a full range of banking services provided to individual and institutional clients operating chiefly in Poland. The Pekao Group consists of financial institutions operating on the following markets: banking, asset management, pension funds, brokerage services, transaction advisory, leasing and factoring.
Pekao’s strategic objectives announced in the new strategy for 2018-2020 “Strength of the Polish Bison” include becoming the leader of profitability in the Polish banking sector through embarking on the path of intelligent growth in a business model based on high efficiency and quality of processes. Business development is based on a strong capital and liquidity position while maintaining the highest risk management standards and further improving cost effectiveness.
Since April 2018, the bank has been participating in the Large Family Card program, which is a nationwide system of discounts for families with three or more children. Since the beginning of June, the cardholders have been able to use the services and products of Bank Pekao on very favorable terms, for example they receive a 5% refund (maximum PLN 600 for 2 years) for household bills. In addition, the bank has prepared a special price offer for an Express Loan, housing loan, Flexible credit card, while selected Partners of the Discount Gallery Program offer special discounts on shopping for large families. Bank Pekao serves more than 1.4 million families.
The Bank dynamically increased its share in the microbusiness segment, which was driven by the availability, attractive offer and effective and fast processes. In 2018, Pekao changed the account offer for micro-businesses, introducing a single Konto Przekorzystne Biznes instead of seven accounts previously. The Bank also launched a very attractive currency offer for businesses that included free supporting accounts in 20 foreign currencies; also all foreign currency transfers received and 5 outgoing European SEPA transfers per month are free.
On 1 July 2018 a split payment mechanism was made available to business clients in Pekao’s electronic banking systems, thereby facilitating the execution of wire transfers using funds on the VAT account.
Under its offering for corporate clients Bank Pekao signed an agreement in 2018 with Bank Gospodarstwa Krajowego pertaining to participation in the Export Letters of Credit Program enabling the bank to confirm and discount export letters of credit from countries with a heightened level of risk, whereby it supports Polish companies in their expansion onto international markets.
In 2018 the bank enriched its offering to include bank guarantees issued in the form of a PDF file bearing a qualified electronic signature (e-guarantees) and it launched the Open Financing Platform (OPF) – a new tool for trade finance. This platform provides for fully comprehensive electronic handling of the financing process and redemption of accounts receivable.
In export support Bank Pekao collaborates with the Export Loan Insurance Corporation (KUKE) that offers instruments to mitigate the risk involved in international transactions. In 2018 Pekao signed a master agreement with KUKE regarding their joint offer for exporters and has executed the first transactions on that basis. Under the KUKE agreement insurance guarantees are extended for the payment of receivables in respect of letters of credit opened by international banks - confirmed, post-financed or discounted by Pekao. The development of cooperation with KUKE has also encompassed other export financing products. The Bank has executed transactions to issue contractual guarantees and pre-finance an export contract using collateral in the form of a KUKE insurance guarantee.
Pekao OFE, DFE Pekao PZU PTE’s acquisition of the management of Pekao OFE and DFE Pekao is one of the outcomes of the PZU Group acquiring Bank Pekao in 2017. The winding up of Pekao OFE commenced on 1 August 2018 and ended on 12 October 2018, and on that day Pekao OFE’s assets were transferred
pertains to three areas: asset management (portfolio management for retail clients/private banking), unit-linked funds, and Alior SFIO sub-fund management. From 5 January 2017, Alior TFI has been listed on the alternative market of the Warsaw Stock Exchange (NewConnect).
Factors, including threats and risks which will affect the banks’ operations in 2019 The situation of the banking sector in 2019 is likely to be primarily affected by the following factors: • the scale of demand for banking services and the ability of banks’ clients to timely pay their liabilities largely depends on the clients’ financial situation. Apart from the country’s macroeconomic standing, the economic situation of a number of client groups also depends on the national economic policy being pursued. Both a lower growth rate of the Polish economy and changes in the legal framework for the operation of enterprises may have an adverse impact on the financial standing of selected clients of banks; • changes in the external environment and international events, including tensions related to geopolitical factors (e.g. Brexit, trade wars), affecting the domestic economy; • development of banking services offered by non-regulated entities; • interest rate policy of the Monetary Policy Council; • high requirements regarding equity and solutions based on the latest accounting standards (IFRS9) and the ability to use capital to gradually achieve compliance with the MREL requirements; • translation of solutions related to the most recent accounting standards (IFRS 9) into the volatility of risk costs – in particular in the context of the expected economic slowdown (a higher sensitivity of costs to business cycle fluctuations); • continuing high level of contributions to the Bank Guarantee Fund.
The only market segment that recorded growth were cash and money funds (an increase in assets by over PLN 15 billion).
Mutual fund companies – share in assets as at 31 December 2018 (in %)
The market growth rate was largely driven by motor insurance (accounting for 63.3% of the market). Sales of MTPL insurance increased 15.7% and the motor own damage insurance market increased 12.0%, chiefly as a result of the growing sales of new automobiles.
In 2018, there were 12 companies operating in the non-life insurance sector (including 8 branches of insurance companies established in other EU member states).
Źródło: Izba Zarządzających Funduszami i Aktywami transactions, the total shares of top four players in the non-life insurance market was 84.1%.
In the life insurance structure, unit-linked insurance represented the largest share at 60.9% of the portfolio value. Traditional life insurance accounted for 17.4% of written premium.
At of end of 2018, there were 8 companies operating in the life insurance sector. The Lithuanian life insurance market is highly concentrated. The share held by the four largest life insurers in total gross written premium was 76.6%.
The biggest share in the non-life insurance market share, measured in terms of gross written premium, was captured by motor insurance, whose market position was additionally strengthened by a price increase in the market. Motor TPL insurance accounted for 28.2% of the market while motor own damage accounted for 23.5%. Also health insurance (18.8% market share) and property insurance (16.4% market share) had an important position in the product mix.
Lietuvos Draudimas is the leader of the non-life insurance market in Lithuania with a share of 30.5% after 12 months. In 2018 it recorded a 10.9% increase in gross written premium compared to the previous year, reaching EUR 193 million. The biggest increase was recorded in motor insurance (12.1% y/y).
In Latvia the PZU Group conducts operations through AAS Balta, which became part of the Group in June 2014, and 2 As of 1 January 2018, IF P&C Insurance AC (the leader on the Estonian non-life insurance market) started to report total gross written premium, altering the approach taken to date, based on installments and in that manner it significantly distorted market data. The other market participants adopted the same approach to reporting on a non-recurring basis in December 2018.
At yearend 2018, the net asset value of funds managed by TFI PZU remained at a similar level as at yearend 2017. As regards the most popular solutions, very notable is the increase in assets managed by PZU Oszczędnościowy (former PZU Gotówkowy) by PLN 350 million, PZU PD Polonez by PLN 200 million, inPZU Obligacje Polskie by PLN +210 million, PZU Sejf+ by PLN 153 million, inPZU Obligacje Rynków Wschodzących by PLN 108 million, inPZU Akcje Polskie and inPZU Akcje Rynków Rozwiniętych by approx. PLN 100 million each.
Changes in the asset value of individual funds were driven predominantly by: • active sales of funds as part of Employee Pension Plans; • active sales of PZU Oszczędnościowy and PZU Sejf+ to retail clients;
On the Ukrainian market, the PZU Group operates insurance business via two companies: PrJSC IC PZU Ukraine (a non-life insurance company), referred to as “PZU Ukraine”, and PrJSC IC PZU
3 As of 1 January 2018, IF P&C Insurance AC (the leader on the Estonian non-life insurance market) started to report total gross written premium, altering the approach taken to date, based on installments and in that manner it significantly distorted market data. The other market participants adopted the same approach to reporting on a non-recurring basis in December 2018.
Market situation The health market is a business area that is dynamically developing and prospective. The trends observed in 2018 were as follows: • continuation of the double digit pace of growth in the private health insurance market; • development of telemedicine and service opportunities through remote channels; • greater need to provide care to senior citizens; • increasing awareness of prevention and periodic examinations.
In accordance with PMR data5: at the end of 2017, private health care offered under fee-for-service products was worth PLN 16.9 billion (up 9.5% y/y). In turn, the value of medical subscriptions was PLN 4.0 billion (up 10.2%), while the value of private health insurance climbed to PLN 0.7 billion (up 25.5% y/y).
Operations in the Health Area Operations in the Health Area include: • sale of health products in the form of insurance (life and health insurance and non-life health insurance) and non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs); • development of the medical infrastructure for the public in
Poland to ensure the best accessibility of provided services and execution of revenue targets.
In 2018, the PZU Group’s offering in the Health Area was supplemented with the following two new products: PZU Ochrona i Zdrowie [PZU Cover and Health] health protection product for the SME segment offering a benefit in the event of the insured’s death, financial support and medical services in the event of critical illness or accident; the product consists of the following 3 bundles: • Moje Zdrowie [My Health] – offers private medical care in the event of an illness (critical illness or regular cold) or an accident and prevention measures; moreover, in the event of a serious illness or accident, the insured obtains financial support; • Moja Rodzina [My Family] – the insured’s immediate family members receive financial support in the event of his/her death caused by an illness or accident (including motor accidents). The bundle also offers benefits for the insured 5 PMR Report entitled „Private Health Care Market in Poland 2018” dated July 2018 on account of a childbirth and financial support in the event of the death of immediate family members; • Mój Wybór [My Choice] – financial aid in the event of accidents in daily life, offers additional insurance for family members in respect of medical care and funding for the purchase of specified prescription medicines (at 80% of their regular price).
In an effort to develop the Health Area in 2018: • The PZU Group’s service provider network was extended to include more medical centers, which means that PZU already had over 2,100 centers; • a new hotline operation model was rolled out to service clients holding health products, including life insurance and non-life insurance with a health rider. The hotline structures operate in PZU Zdrowie as the Medical Service Management Center (CZUM), which allows for integrated management of client experience and improvement of the service quality, while also testing innovative solutions; hospital care rehabilitation prevention programs co-funding for medications occupational medicine
In the Health Area the company offers a broad range of health products adapted to the segment and clients’ needs: outpatient care
Factors, including threats and risks, that may affect the operations of the Health Area in 2019 • Changes in the current mortality, fertility and morbidity levels, which may adversely affect the value of sales and cause a deterioration of the loss ratio (e.g. subscriptions or health insurance); • Changes in client trends and behaviors towards customization of the offering. Clients’ new expectations may bring about the need to change processes and systems, which in turn may affect the achieved results; • The entry into force of the Employee Capital Plan Act is yet another benefit for employees, which may cause a deterioration in interest in the health care offering due to budgetary constraints on the part of employers; • Continued pressure on the prices of group insurance products. The market for health services remains very competitive both in terms of prices and the range of available services; • Salary pressures exerted by doctors and other personnel serving patients in medical centers, which affects our financial performance in the Health Area; • Potential modification of the National Health Fund’s contracting rules may cause significant changes in the financial results generated by medical centers.
Market situation At yearend 2018, the net asset value of open-end pension funds was in excess of PLN 157 billion, down 12.4% versus the end of the previous year.
(among others, legal consulting, organization of assistance services etc.); • managing the loyalty program, PZU Pomoc w Życiu Club – at the end of 2018 nearly 1.9 million club members were eligible for insurance discounts and products of cooperating companies (rebate programs from partners).
PZU Finance AB PZU Group’s activity on the debt market is realized through PZU Finance AB with its registered office in Stockholm (Sweden). The company’s core business is to raise loan funds through the issue of bonds or other debt instruments and provide financing to PZU Group companies.
PZU LAB PZU LAB is a company dealing with advisory services and assistance in implementation of all kinds of solutions improving the security of the strategic corporate clients of PZU and TUW PZUW.
The company cooperates with numerous academic centers and experienced experts (local and foreign). The company constantly seeks new and effective technological solutions allowing to mitigate the risks which particularly impact the insurance activity.
The PZU LAB team has developed methods for cooperation with the existing and prospective clients. First, the engineers identify critical installation sites, simulate critical events such as fire, flooding or explosion, and determine their consequences. Then the possible scenarios and the methods of minimizing them are discussed. PZU LAB engineers implement innovative technological solutions in client companies wishing to improve their safety. This approach signifies an evolution in client relations. PZU ceases to be only a seller of insurance and becomes a risk management advisor.
Open-end Pension Funds – percentage of net asset value as at 31 December 2018 (%)
Źródło: KNF, Dane miesięczne o rynku OFE, Dane za grudzień 2018 roku
At yearend 2018, PZU’s Voluntary Pension Fund ran 74.1 thousand individual pension security accounts (IKZEs) in which assets of more than PLN 168 million were accumulated. Consequently, it retained its position as one of the leaders in the segment of voluntary pension funds.
Ogrodowa-Inwestycje Ogrodowa-Inwestycje Sp. z o.o. (Ogrodowa-Inwestycje) is the owner of the City-Gate office building (located at ul. Ogrodowa 58 in Warsaw) and leases office space to external clients and PZU Group companies.
PZU Corporate Member Lmited On 28 September 2017, PZU acquired shares in PZU Corporate Member Limited, entitling it to 100% of votes at the shareholder meeting.
Lloyd’s is an association of over 80 syndicates managed by over 50 agencies.
Grupa Armatura The PZU Group has held an equity stake in Armatura Kraków S.A. (Armatura Kraków) since October 1999. At present, Armatura Kraków is 100% owned by the PZU FIZ AN BIS 2 mutual fund.
In this section: 1. The tenet underpinning the #newPZU Strategy 2. Strategy operationalization 3. Pursuit of key projects and initiatives in 2018 4. Completed activities in 2018
“This internship has exceeded my expectations. Every day I get huge support at every stage of my work. I receive auxiliary materials and my duties are varied and focused on development. I think that this is the best way of achieving professional and personal success.”
PZU 2020 - More Than Insurance 4.1 The tenet underpinning the #newPZU Strategy
On 9 January 2018 the PZU Management Board and Supervisory Board adopted the strategy update up to 2020. The PZU Group’s new operating model departs from the classical model of cultivating client relations based on sales and after-sales service in the direction of having frequent and high quality client interactions during every stage of life anywhere PZU can lend a helping hand. Building relations and partnerships in this line of thinking has been defined as delivering products and services well-matched to clients at the appropriate time and place so as to ensure at the same time that the product’s attributes (including its price) are aligned to client needs.
Streamlining processes in insurance activities, including better price to risk matching, and also by improving the investment result (benefits from Project Alpha)
High growth rate in the number of health clients stemming from greater sales activity and reaching new market segments 1 Taking into account the investment activity in our own portfolio and net of the health insurance presented by PZU Zdrowie 2 Pertains to third party asset management (giving consideration to all PZU Group entities)
Implementation of a new „moje.pzu.pl” portal 65 bn PLN of third party assets under management 200 m PLN of net profit on third party asset management 15% share of assets on the Employee Capital Schemes market1 5 m accounts established by clients 10 products available in the direct channel 50% market share held by PZU SA and Link4 of non-life insurance sold in the direct channel
Deploy a telematic solution to rescue drivers’ lives – PZU GO
Launch the inPZU innovative internet platform to offer units in passive funds
Devise and accept the PZU Group’s environmental standard under the name of “Green PZU”
Launch the PZU Data Lab - center for innovation based on data and artificial intelligence
Ramp up PZU Zdrowie’s size and profitability by tapping into technology and the high quality and accessibility of services
Expand the range and reach new target client groups with a simple and transparent offer
#1 Joint CRM Initiative: combine PZU’s databases under a single CRM (customer relationship management) system / obtain a full client picture (360 degree view).
Purpose: • effectively customize the offer to client needs in terms of quality and costs alike; • align pricing to risk better; • accelerate the procurement process and streamline service processes by providing clients with tools to manage easily the products they have in the overall PZU Group; • create a full client picture (360 degree view) to cultivate partnership relations, standardize processes, grasp client needs better, underwrite risk in an optimum fashion, pursue more effective cross-sales efforts and manage the sales network more efficiently.
Execution: • work was underway in 2018 on a project to optimize prices in real time (assuming that models would be adjusted every 1-2 weeks). This system is based on machine learning using data originating from the Everest system. In 2018 pilot programs were run on parts of the new system; • emphasis was placed in streamlining the tariff-setting process in the corporate segment to implement a new risk management model for the Everest policy administration system. A telematic offer was also implemented to align prices better to the loss ratio in client fleets..
Our aspiration is for the following business areas to benefit from these changes first: tariff-setting and risk management, sales, client retention and claims handling, as well as medical diagnostics.
Purpose: • support cross selling initiatives; • grow the client retention ratio in various lines of business; • analyze pictures and images in claims and benefits handling processes (e.g. comparison in real time of the picture of the claim and the cost estimate received); • smart solutions in medical diagnostics; • enhance efficacy in the detection of insurance fraud; • render risk management consulting services for companies; • launch the PZU Data Lab - center for the creation of innovations based on data and artificial intelligence. • cut expenses; • enhance quality in client service; • augment client loyalty; • build a competititve edge, • improve sales and profitability; • grow the value of the brand and the Company.
Purpose: • sell insurance to the clients of Bank Pekao and Alior Bank; • bring new insurance clients from PZU to these banks; • cost savings in the area of the real estate and purchasing administration system through the creation of an integrated property administration system, or a common purchasing model.
Execution: • tests of a telematic solution were begun in 2018 to enhance drivers’ safety. PZU GO is a telematic app for a smartphone connected to a small beacon attached to a car’s windshield. A set of sensors makes it possible to detect an emergency situation and dispatch a signal to PZU’s alarm center that will make contact with the driver in question to furnish the requisite support. If it is not possible to make contact with the car driver, rescue services will be sent to the accident site. Additionally, under partnership programs, PZU GO will also provide a benefit package for drivers with a PZU policy and in the future also cheaper motor insurance policies for the best of them. The beacon is self-sufficient and is capable of operating on a single battery for two years. Series of pilot projects with the involvement of the Group’s employees were run in 2018 to augment the effectiveness of the system. In December this solution was furnished to clients, selected tied agents, PZU branches and outlets in Masovia and Silesia. More than 300 devices were already in operation at the end of February 2019. There are plans to enrich the device with new functionalities and make it available to a broader group of clients. On 10 February 2019 PZU GO detected the first very grave road accident. The PZU Emergency Center immediately contacted the driver and summoned rescue services and road assistance. PZU’s clients who were injured in the accident were hospitalized and their vehicle was safely towed to a workshop; • the Data Lab analytical environment was formed under the #nowePZU strategy for the purpose of experimenting with large data files – to design analyses rapidly and test analytical hypotheses. This agile ecosystem supports the
Boost sales by utilizing bank channels in line with client preferences Dedicated product offering for various segments, including retail clients and SMEs Availability of insurance products linked to bank products (insurance for loans and borrowings, personal bank account) Implementation of an insurance offer to supplement the offering of banking products (life insurance, health insurance, assistance) Broad offering of investment products (TFI), pension products (ECS, IRA, IRSA) and unit-linked products dedicated to the premium segment
• the work in this area also pertained to modifying how we communicate with clients. The purpose was to simplify the language of communication with clients. In 2018 changes pertained in particular to debt collection, retail sales and messages in the #myPZU service. The deployment of standards in internal communication and recruitment was also kicked off.
Execution: • the generalist sales strategy also entails enhancing the elasticity of the corporate sales network; changes were made to its structure and motivation, training and development systems. Sales processes were simplified and salespersons have obtained extended powers to submit offers.
PZU Zdrowie’s EBITDA margin #8: Development of sales and consolidation in PZU Investments Initiative: design a uniform asset management structure in the PZU Group to utilize multi-channel distribution. Products are also supposed to be sold on international markets within the strategy’s horizon up to 2020.
Execution: • in 2018 the solution was implemented in full to allow the clients and consultants on the PZU Zdrowie hotline to book medical benefits in selected centers through the online channel. More centers are added to the system as the integration process progresses.
• to build size PZU Zdrowie cultivated cooperation with partner centers and acquired new centers. At the end of 2018 PZU’s network had more than 2,100 partner centers in more than 500 cities in Poland and over 60 proprietary branches.
• As the leader on the group and voluntary savings market under EPP (roughly PLN 5.3 billion in assets), PZU TFI has rich experience in pension solutions. Its thorough market intelligence, extensive client base, high cost effectiveness, size of operation and rich experience enable TFI PZU to offer attractive terms and conditions in this new formula; • in October 2018 the new internet inPZU transaction service to sell mutual funds was launched. This service directly reaches retail clients with its new offer of index funds. Client service is done solely in the online channel without having to pay a visit to a branch while the platform is available on all network-enabled devices. inPZU has enabled the Group to build the first offer of low cost index funds in Poland and grow TFI PZU’s revenue; • a modern system to handle the overall investment, finance and accounting process to handle, value and record invesments was deployed in TFI PZU in 2018. In addition, implementation work is in progress on a comprehensive business solution handling the overall investment process from analysis and submitting orders to clearing and confirming trades to risk management and comprehensive reporting at the PZU Group level (PZU, PZU Życie, TFI PZU) in accordinace with the binding legal regulations and KNF’s guidelines.
Purpose: • gather in a single place client information translating into loyalty and more transactions; • provide clients with a functionla dashboard enabling them to check their insurance and health coverage at any time (book appointments, too) and manage their investments and, in the future, banking services as well.
Execution: • the “moje.pzu.pl” portal was launched in 2018; it integrates the PZU Group’s services and allows clients to manage their health and insurance cover and buy policies. More functionalities are steadily being added. The launch of the “my.pzu.pl” portal was one of the largest IT projects in PZU. The work related to launching the platform called for the integration of more than 20 IT systems and numerous project teams toiled on it. As a result, more than 100 million records pertaining to clients and their services were processed. At the end of 2018, the portal had more than 100 thousand accounts. Promotional efforts to raise awareness about using the platform when handling products are slated to be taken in 2019; • the new unveiling of the pzu.pl portal transpired in H2 2018. This portal supports the online purchase of products, reporting claims and booking appointments under private medical care and contacts with an insurance agent. This new portal features a modern design, straight forward communication, intuitive navigation and responsiveness (customized to every device); • the service zgłoszenie.pzu.pl was launched in 2018 in which it is possible to report a loss or a claim at a recordbreaking fast pace and determine its value. In motor and non-life claims clients receive an automatically calculated proposal of the indemnity payment. The new tool has also been made available for use by Contact Center employees. That means that registration through our information line takes less time. The content of this service was the subject matter of consultation with the Institute of Simple Polish at the University of Wrocław; clear and comprehensible graphics and photos were used. This platform is adapted for use on mobile devices. The outcome of these efforts is the shortening of the time it takes to register claims from 15 to 5 minutes. The number of cases registered by the internet service has jumped up by nearly 20%; #10: Development of the direct offering Initiative: Develop the best sales site in the online channel among European insurers.
Execution: • conceptual work got started in 2018 in the PZU Club – new space for client contacts.
Metric: pace of new sales of in group insurance to SME clients in PZU Życie (70% up to 2020 - versus 2016), pace of growth of gross written premium on property insurance dedicated to the SME segment (20% up to 2020 – versus 2016).
5. Development of TUW PZUW’s operations confirmed by its market share of 1.4% at the end of Q3 2018 (up 0.4 p.p. y/y; direct activity).
6. Membership in Lloyd’s and close collaboration with the Argenta Syndicate. PZU received a prestigious certificate entitled „Member of Lloyd’s”.
7. Enlargement of the scope of work to utilize telematics in the PZU Group. Following the solutions deployed in Link4, work on the PZU GO project was launched with the purpose of enhancing drivers’ safety.
9. Commencing the implementation of advanced consulting services in risk management by the PZU Lab.
10. PZU won the Polish Radio’s Economic Prize in the “National Treasure” category awarded to businesses that stood out in the past year on the market place and contributed to promoting Poland on the international arena.
Investments 1. TFI PZU is in third place on the market in terms of net assets under management. At the end of 2018, TFI PZU’s assets under management were PLN 19.8 billion, accounting for 7.7% of the assets in domestic mutual fund companies (TFIs). Pekao TFI is in fourth place on the market in terms of net assets under management. At the end of 2018, Pekao TFI’s assets under management were PLN 19.4 billion, accounting for 7.6% of the assets in domestic mutual fund companies (TFIs).
3. TFI PZU is the market leader in the employee pension plan segment among domestic mutual fund companies. At the end of 2018 TFI PZU had PLN 5.3 billion in assets under management (EPP, GPP, PPO, ZPI.
4. The net asset value of OFE PZU Złota Jesień at the end of 2018 was PLN 22.1 billion (including the assets acquired from OFE PEKAO), which translated into 3rd place on the market with a share of 14.1%.
Banking 1. The value of banking assets in the PZU Group’s possession rose to PLN 264 billion at the end of 2018.
2. The administrative expense ratio in PZU and PZU Życie improved 0.2 p.p. at the end of 2018 to 6.6%.
3. The administrative expense ratio in the international companies improved by 0.6 p.p. At the end of 2018 this ratio was 9.2%.
Building its CSR position in the financial industry - Membership in the Respect Index of listed companies observing corporate social responsibility
PZU’s further membership in the basket of companies pursuing corporate social responsibility included under the RESPECT Index was affirmed on 12 December 2018 (the study covered the company’s operations in 2017). Its result was lower than the average result in the financial industry. Among other things, this was the result of greater pressure on reporting at the Group level, i.e. including Bank Pekao and Alior Bank. Efforts will be taken in 2019 to streamline communication, thereby making it possible to report the required data to a broader extent.
Indicator concerning the timeliness of examining complaints 97% up to 28 days 95% up to 28 days
The commitment index rose 5 p.p. in 2018 to 40%. The participation ratio was 73% (52% in 2017).
The standard and guidelines for execution were devised Fully implemented (100%)
In November 2018 the “PZU Group Standard - Green PZU” was enacted with general guidelins for planned implementation in the environment. They should be completed by the end of 2020.
Suppliers Percentage of suppliers adhering to the “Code of CSR Best Practices for PZU’s Suppliers”
PZU 2020 - More Than Insurance 4.4 Completed activities in 2018
Więcej na: In this section: 1. PZU Group’s new operating model 2. Insurance 3. Health 4. Banking and strategic partnerships 5. Management of the PZU Group’s brands
The PZU Group is constantly changing. Along with the new Strategy for 2017-2020, the Group’s business model is undergoing modification from being an insurer (chiefly involved in the valuation and transfer of risk) to being a service company (an advisory company operating on the basis of technological know-how). This will enable clients to optimize their decisions at all stages of their lives. It will ultimately translate into augmenting the trust and loyalty placed in the brand of first choice which PZU will become in insurance, finance and health services.
We are changing PZU – we are becoming a lifetime partner
Above all, PZU is driven to utilize its Big Data files better, it is betting on digitalizing processes, using artificial intelligence and new technologies associated with the development of fintechs and insurtechs. In this manner new underwriting methods will emerge in the Group. It is expected that by the end of 2019, tariffs will be optimized in real time, while the models themselves will undergo adjustment once every 1-2 weeks. This will open the path to the more extensive utilization of artificial intelligence models in tariff processes in 2020. At the same time, artificial intelligence is a method of simplifying processes, including ones directly affecting clients. The beneficiaries of change will be areas such as sales, claims handling and medical diagnostics.
Launching the “moje.pzu.pl” portal is not just the outcome of developing digitalization and mobility in PZU but also a way of radically modifying client interactions. This is a one-of-a-kind dashboard enabling clients to check their insurance coverage at any time, manage their medical coverage and appointments and handle their investments and, in the future, banking services as well. The ability to enter into an agreement through the online channel means that this portal / app will ultimately be used by all PZU clients.
To strengthen relations with its clients PZU also intends to simplify its product offer (in terms of the number of products and the language used), universalize the sales network and roll out an integrated SME service model. Tightening cooperation with the Alior and Pekao SA banks is also an important issue whereby the Group will be able to devise comprehensive financial solutions responding to the needs of retail clients and small and medium-sized companies. Up to 2020 PZU plans to fully utilize the potential of the financial market’s largest proprietary distribution network. The universalization of the sales network will make it possible for sales people to offer clients at least 3 of the PZU Group’s 5 lines of business (life insurance, non-life insurance, medical care, investment products, banking products).
Non-life insurance is offered in Poland under three brands: PZU, the traditional and most well-known brand, LINK4 associated with direct sales channels and TUW PZUW, the brand under which the mutual insurance company does business. SECTION 3.2 NON-LIFE INSURANCE Life insurance is sold in Poland under the PZU brand. SECTION 3.3 LIFE INSURANCE International insurance activity is conducted under the brand of Lietuvos Draudimas in Lithuania, under the Balta brand in Latvia and under the PZU brand in Ukrainie and Estonia. SECTION 3.6 INTERNATIONAL OPERATIONS.
Alior Bank clients number of partner outlets cooperating with the PZU Group at the end of 2018, >2,100 number of proprietary PZU Zdrowie medical centers - number of Bank Pekao branches at the end of 2018, 5 million Bank Pekao clients, - number of PZU branches, including 189 branches in small towns tied agents and agencies in the PZU Group - the biggest agency network among Polish insurers >60 number of own ATMs of the PZU Group’s clients are satisfied with the claims and benefits handling process (satisfaction survey on a sample of 20 thousand clients conducted in 2018)
The PZU Group’s insurance offer in Poland is complemented by an extensive range of investment products - open and closedend mutual fund products and pension products - open-end pension fund, individual retirement security accounts with a voluntary pension fund, employee pension plans, individual retirement accounts (IKE) and individual retirement security accounts (IKZE). The Group offers investment solutions customized to the needs of all types of investors. In October 2018 the inPZU platform was launched. It enables clients to invest on their own in passive funds, which is an innovation on the Polish market. Two investment paths are available on inPZU: for beginning investors who can use the “Helper” and the expert path where the client will unilaterally build his or her own investment portfolio by selecting among 6 index funds, ranging from the safest ones to equity funds.
At yearend 2018, the PZU Group’s distribution network included the following: • tied agents – in Poland the PZU Group’s own agency network consisted of 9.1 thousand tied agents and agencies. Sales are conducted through the agency channel predominantly in the mass client segment, particularly of motor and non-life insurance as well as individual insurance (life insurance). In the Baltic states (the PZU Group is active on the non-life insurance market in Lithuania, Latvia
PZU Sejf+ with capital protection PZU Oszczędnościowy [PZU Savings] PZU Dłużny Aktywny [PZU Active Debt Fund]
Employee pension plan (EPP) Employee capital scheme (ECS) Group Pension Plan
Corporate finance and investments We offer insurance and financial instruments to enable you to invest conveniently and safely and grow your capital. We will help you care for an additional pension for your employees. In turn, thanks to numerous insurance guarantees we care for the financial security of your company and your business partners.
PZU has a Relationship Manager who stays in contact with the injured party for the duration of the claims handling process. That person’s assignment is not only to collect the documents needed to take a position on the claim in question, but also to convey information to clients about the stage of service.
PZU has accelerated the process of determining the amount of damages by introducing new forms of determining the extent of a loss. On top of conducting a vehicle inspection in a fixed inspection point, through a Mobile Motor Expert in a
In a workshop belonging to the company’s repair network (motor claims)
Text message with the content CLAIM to the number 4102 – we will call you back and accept your notification e-mail to kontakt@pzu.pl venue chosen by a client or in a Repair Network workshop, the quantum of the loss may be determined under a simplified service procedure (without conducting a vehicle inspection), self-service (calculation of the amount of the loss on your own) or video inspection (using an app to determine the amount of the loss). A Video Inspection is an option offered to clients as of April 2018 as an alternative form of conducting an inspection of vehicles and other damaged items and determining the amount of the benefit due in claims handled under motor and property insurance. PZU is recording greater and greater interest among clients in this form of determining the amount of the loss.
To meet client expectations PZU supports handling the entire claims handling process with the use of a smart phone. With a smart phone injured parties may report a loss, summon Assistance on the roadside or from home, initiate the repair process in a Repair Network workshop, conduct a video inspection and determine the amount of the loss. Only the final stage in the claims handling process, i.e. determining the amount of the indemnity and disbursement belongs to PZU in this process.
PZU has built the largest network of centers in Poland that arrange replacement vehicle rental services and roadside assistance services. A network of centers offering these services is also being developed in the Baltic States. Currently, clients of Lietuvos Draudimas in Lithuania and the Lietuvos Draudimas branch in Estonia may benefit from replacement vehicle rental services and roadside assistance services. Moreover, since 2015, Lietuvos Draudimas as the only insurer in Lithuania has been arranging such services for holders of TPL insurance.
PZU keeps working on improving communication with its clients. Traditional letters are being replaced by electronic and telephone forms of contact. Moreover, efforts are being made to adapt all communication, e-mails and text
Visualizing distinct case handling stages in the form of an Online Case/Claim Status report available to the Group’s clients in Poland is a great convenience to clients. By logging into the www.pzu.pl website and stating the claim/case number, clients may find out in exactly how many steps PZU will carry out the claim handling process, what it will involve, what the current stage of the case is and what has already been done. Also available on www.pzu.pl are video tips on how to handle the claim online. Short videos featuring PZU employees explain to clients how to report a case in a few simple steps and then how to check the status of the case or how to take advantage of the accident insurance policy in case of an accident.
An unrivaled solution supporting the handling of personal injuries under TPL insurance is the group of Organizers of Assistance for Accident Victims. These are mobile members of staff who visit accident victims directly in their homes to determine the actual standard of living of the victim and in consultation with the victim assess his/her needs arising from the accident for which PZU is liable under TPL insurance. For severely injured accident victims, PZU Client Relationship Managers arrange a broad array of medical, social and occupational rehabilitation and psychological support. Injured parties have the option of obtaining treatment and rehabilitation in medical centers applying modern technologies. Persons who have become disabled as a result of an accident are given advice on how to adapt the closest environment to their needs, how to properly select devices that compensate for dysfunctions and disability and receive support in terms of their return to the open labor market. The most severely injured children are provided with comprehensive and long-term psychological support to mitigate the adverse consequences of post-traumatic stress. PZU Relationship Managers also explain to accident victims the rights they have and what documents they should produce.
Efforts have been continued under the property pre-claims handling procedure introduced in 2017. It entails initiation of contact with a client who has been injured in a chance event, i.e. after a gas explosion. Within the scope of measures taken in this process PZU contacted 65 clients who received a proposal of utilizing assistance services in line with the type of event that had occurred. 12 claims were registered. Each contact generated a positive client response. Pre-service garnered special recognition in the contact center industry – this project won the Golden Handset 2018 prize in the competition organized by the Polish Marketing Association under the category of Excellent Client Communication.
For several years PZU has been analyzing the options for utilizing aviation and satellite photos in the claims handling process regarding crops. The remote sensing method was implemented in the spring of 2018 for practical claims handling regarding the consequences of severe ground frost. Remote sensing makes it possible to obtain information concerning facilities or areas from a distance (remotely), most frequently by using sensors installed on aircraft or satellites facilitating the measurement of reflected and emitted radiation. The Normalized Difference Vegetation Index, or NDVI is a highly popular and effective method used in agriculture. It uses the measurement of reflected light in the near-infrared spectrum and its absorption in the red channel. NDVI is correlated with the biological processes taking place in plants whereby it is possible to define its developmental state and condition. This information is widely used to forecast crop yields.
The claims handling methodology devised by PZU’s employees in the spring of 2018 based on remote sensor imaging was used in claims handling on area of approximately 10 thousand square kilometers. The second phase of the measures undertaken in 2018 concerned underwriting the risk related to entering into insurance for the damages caused by the effects of severe ground frost. This phase was conducted in the autumn and pertained to an area of approximately 17 thousand square kilometers. The major advantage given by remote sensor methods is the sourcing of data for the entire are of the insured crops. The remote sensor method features objectivity and makes it possible to source the data required to calculate the indemnity quickly for a large geographical area. PZU is working on utilizing satellite pictures in crop claims handling processes. This methodology is subject to constant improvements and there are plans to utilize it on a broader scale.
In 2018 innovative solutions in property claims were implemented. Jointly with the Allegro brand PZU has given clients who hold insurance for the contents of their homes an offer whereby they can replace their television set with a new receiver if it is damaged as a result of a power surge. The details of this process were prepared in such a way so that the client’s participation in the actions related to claims handling would be curtailed to a minimum, i.e. reporting the event and selecting an offer for the delivery of a new device from among the several offers proposed by Allegro. The chief objective was to minimize the severity of the loss sustained by clients so that they can enjoy the usage of a new receiver as soon as possible. These efforts have been met with interest and a positive reception among clients.
The Service Scenario for Property Claims is another innovative solution PZU introduced in 2018. In the handling of water damage claims under PZU Dom insurance clients have the option to obtain PZU’s assistance in finding a craftsman who will proceed to repair the client’s loss within several days. This means that clients do not have to rifle through announcements to find a suitable craftsman. PZU is the one responsible for designating a Repair Shop and will pay for the costs of renovation and construction work. It is purely a voluntary decision to take advantage of the Service Scenario for Property Claims. In every situation clients may select the conventional method of claims handling and receive the indemnity on the bank account they designate. At the same time, using this innovative solution to repair a loss to a structure does not suspend the payout of the indemnity due for household contents and other insured objects.
• Artificial Intelligence in Claims Handling - using solutions predicated on Artificial Intelligence technology in processes involving claims and benefits handling; • Pre-Claims Handling Service - process involving PZU making initial contact with an injured party, even before that party reports a claim. This project applies to property claims and it aims to improve satisfaction with client service and augment the insurer’s proactive client-centric and modern image; • Semantic analysis of documentation - utilization of a sophisticated analysis of semantic expressions to extract information from scans of documents.
In 2018 PZU continued working on the moje.pzu.pl service, a self-service platform for retail clients. This platform is constantly refining the scope of its functionalities and the services available there. In November 2018 a landmark implementation transpired in the project: two services operating separately were merged and new elements were appended: presentation of renewal offers (also including ones prepared by an agent), fast track to purchase PZU Dom insurance, medical background information to make a preliminary online diagnosis of someone’s state of health, purchase of a doctor’s visit / test from outside the scope of insurance for yourself and your family members and the availability of an investment offer on inPZU.pl.
In 2018 one of the main innovative projects in Link4 was the deployment of Robotic Process Automation, i.e. RPA technology. This solution imitates human work and is capable in simple tasks of fully assisting employees in their daily tasks. That means employees can do more interesting and more development-focused tasks offering greater business value to the company.
The company’s culture of innovation is an extremely important aspect that forges the generation of new and interesting projects and ideas. In mid 2018 Link4 held its first internal conference entitled Link4Future addressed to all its employees. The purpose of this conference was to show and familiarize employees with the most fascinating trends, events and technologies from around the world, especially from non-insurance industries. Keynote speakers from outside Link4 were invited to attend the conference. The event’s success and its positive reception among employees led to writing this event into the company’s event calendar on a permanent basis.
The company employs telematic solutions to enhance safety on Polish roads. For every motor policy purchased, it offers a free NaviExpert navigation service to its clients whereby it analyzes a driver’s driving style. Another year of the functioning of the telematic program called “Cash Back” made it possible to improve analytical algorithms and the mechanics used to reward drivers. Link4 rewards people whose driving style it considers to be smooth and safe – the reward is in the form of Polish zloty accumulated on a client’s account. At the end of the policy term drivers can receive a payout of this amount or apply it to lower the premium for a new policy. In 2018 safe drivers collected a total of more than PLN 1 million while the person who broke all records obtained a refund of PLN 1,200. In addition, the program’s highly pronounced impact on renewal of policies is observable. The renewal rate is several times higher than among portfolio clients who do not have the telematic program.
In conjunction with the stronger presence of meteorological phenomena (such as wind storms, tornadoes, torrential rain, storms and blizzards), Link4 and Skywarn Poland - Polish Storm Hunters have given clients holding real estate insurance access to a weather alert system. In the event of expected sudden and severe weather phenomena clients receive a text message containing a warning and a website link where they can read about how to protect themselves against the adverse consequences of various weather events. The reception of this service has been positive with fewer than 1% of clients discontinuing it has inclined the firm to make this service available in 2019 to motor insurance clients. Weather warnings taken into account when planning a car trip may exert a measurable contribution to enhancing road safety and reducing the number of accidents.
In Q4 2018 Link4 introduced new payment solutions. It deployed two innovative payment solutions on the insurance market. Clients can use their card to remit payment in the agency channel by using the Tubapay solution. In turn, at the end of the year, the BLIK payment system, which has been attracting more and more users was added to the possible forms of payment.
Areas to which alerts were most frequently directed in 2018 broken down by weather phenomena
PZU LAB engineers cooperate with clients at all stages of their operations and offer a broad range of solutions and consulting and training services and services based on innovative technologies, custom-made to the enterprise’s individual needs. The Company supports clients in the area of safe enterprise management, reduction of financial losses associated with contingencies and stoppages, and building the reputation of a trusted partner in the local and international market.
The key benefits from the deployment of the system include: significant improvement of compliance with the qualitative or procedural recommendations and the quality and speed of the remedial decisions made, prevention of degradation of the facility’s safety layers, and thus reduction of the risk of catastrophes which may cause serious human injuries, serious damage to buildings, machinery and materials or serious environmental damage, not to mention the damage to the image, as well as obtaining access to audit data and tools for analyzing them.
One of the latest PZU LAB initiatives is a study program entitled “Risk management in the enterprise in the insurance aspect” launched in September 2018 together with the Business School of the Warsaw University of Technology. During studies, risk managers in a business, agents, brokers and students have an opportunity to absorb a huge amount of practical knowledge on risk management, the role of insurance and deployment of state-of-the-art technologies. Lectures and case studies are presented by outstanding professionals combining theory with practice, who on a daily basis work on the point of contact of the world science, business, institutions and engineering offices. During the classes, also PZU LAB experts share their expertise on risk assessment and optimization in industry.
Conference participants had the opportunity to see how safe and effective water mist can be in extinguishing fires. In some cases, water only intensifies the fire and causes huge damage due to flooding. Often as much as 80% of the fire damage is caused not by fire but by the water used to extinguish it. Participants found out that even more damage can be caused by the use of powder fire extinguishers used in each office. As a result of their use, electronic equipment within the radius of 10 meters is no good for use. Apart from that, the powder has very corrosive properties, which contributes to additional
Business Model damage. Water mist not only extinguishes fire effectively and quickly, but practically does not cause any additional damage.
During the conference a strategic cybersecurity cooperation agreement between PZU LAB and NASK SA was signed. Its aim is to ensure cooperation on improvement of security of the Polish industry’s IT infrastructure. Clients will receive not only support in enterprise risk management and adaptation of the security levels to the requirements of insurance and financial institutions in Poland and abroad, but also comprehensive technological support in designing and implementing state-of-the-art technological solutions in the area of IT/OT system cybersecurity.
The Health Area has become an integral part of PZU Group’s business model in 2014. Currently, the operations associated with development of medical services are one of the most important growth areas of the PZU Group. At the end of 2018, the Group had 2.3 million in-force health contracts. This is a 52% increase in relation to 2017. In 2020 the health business is expected to generate PLN 1 billion in revenues.
The operating model in the Health Area supplements and expands PZU’s insurance offering. Two complementary types of activities are conducted: • sale of health products in the form of insurance and sale of non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs); • development of the medical infrastructure in Poland to ensure the best accessibility of provided medical services.
Clients and products In the Health Area the PZU Group offers a broad range of health products adapted to the segment’s and clients’ needs: Corporate client segment (life and health insurance) – the sales of group life and health insurance constitute the basis for the business operations of the PZU Group’s Health Area. The offering is addressed to corporate clients and the SME and micro business segments. Employers may purchase insurance in the sponsored or co-financed model, or negotiate a group offer for their employees.
Mass insurance segment (health, non-life insurance) – mass clients buying non-life policies are offered additional health insurance of assistance nature, ensuring access to specific medical services if an event under the basic policy occurs.
Retail client segment (life and non-life health insurance) – retail clients are provided with health care in the form of individual continuation or rider to life insurance.
Non-insurance products – PZU Zdrowie as a medical operator offers health services to individual clients using proprietary clinics and corporate clients seeking an alternative for products in the form of insurance.
Distribution channels Health products – in the form of life and health and property insurance and non-insurance products – benefit from synergies within the PZU Group and are distributed through virtually all sales channels, however based on the corporate and agency chain of PZU and PZU Życie.
People are the most important asset in the company. Thanks to our offering, you can provide your employees e.g. with life cover, medical care and subsidy to purchase of prescribed medicines.
Medical infrastructure PZU Zdrowie cooperates with more than 2,100 partner centers in more than 500 towns and cities in Poland.
At the same time, it has been consistently developing its own network of over 60 medical centers, among others in Warsaw, Gdańsk, Poznań, Katowice, Częstochowa, Radom, Płock and Opole, which in aggregate employ more than 1,300 physicians. Initially, it was created by acquiring local healthcare service providers with extensive experience and a good reputation in the medical community. Currently, PZU Zdrowie is expanding the scope of its operations through acquisitions and, in parallel, through building greenfield medical centers, which makes it easier for the company to usher in uniform standards in terms of equipment and patient service in such facilities.
In 2018, 3 new PZU Zdrowie medical centers were opened – in Warsaw at ul. Puławska 145, in Kraków at ul. Kotlarska 11 and in Poznań at ul. Grunwaldzka 184. These centers, situated in excellent locations, were built on a greenfield basis with interior design consistent with the latest visual identity standards of the PZU Zdrowie brand. Furthermore, the Gdańsk branch located at ul. Abrahama 1A was expanded also in accordance with the new standards. The newly opened medical centers have a multi-specialization profile, to enable both patients benefiting from the medical care offered by PZU Zdrowie and patients who use the services rendered in these centers on an ad hoc basis to be provided with the necessary medical assistance. An important issue is the location of these centers – they have been built in modern buildings easily accessible by public transport.
In the beginning od 2018 PZU Zdrowie aquired shares of CM Św. Łukasz in Częstochowa. At the turn of 2018 and 2019, two mergers were finalized – in Oświęcim (Multimed, acquired by Elvita) and in Tarnów (Alergo-Med, acquired by PZU Zdrowie), in both cases leading providers of private medical care. Through these acquisitions, PZU Zdrowie expanded its own network of medical centers in the Małopolska region.
Contact channels A patient can make a doctor’s appointment or an appointment for any other medical service provided by PZU Zdrowie through multiple contact channels: • self-service website mojePZU [myPZU] with access to the calendar of appointments of each center; • 24/7 hotline; • appointment scheduling form on pzu.pl; • text message to make an appointment; • PZU mobile application (available from App Store and
Group offering healthcare functionalities, enabling the holder of health products to: ◦ make or cancel an appointment over the Internet; ◦ see which centers cooperate with PZU; ◦ check the list of past and upcoming appointments; ◦ verify if a specific medical service is covered by the user’s insurance; ◦ obtain advice on how to prepare for an examination.
• Olimp [Olympus] – PZU Zdrowie’s website assisting employers in handling various matters related to occupational medicine services, for example by: ◦ monitoring expiration dates of employees’ medical examinations; ◦ enabling the creation of a referral for an examination with “one click”; ◦ enabling the PZU Hotline to contact the employee with sufficient advance notice to remind him/her about an upcoming examination; ◦ providing the PZU Hotline with the referral form to facilitate the conversation with the employee and schedule his/her examinations; Facilities for patients
• Communications broker – a project integrating the calendars of partner network centers and own network centers, facilitating the process of scheduling appointments and the provision of medical services.
A major element of the PZU Group’s business model is the banking business. The tightening of cooperation with the banks within the PZU Group (with Alior Bank and Bank Pekao acquired by the Group in 2015 and 2017, respectively) has opened up tremendous growth opportunities, especially in terms of integrating and focusing services on clients at every stage of their personal and professional development. Cooperation with the banking segment forms an additional plane for PZU to build lasting client relations. Its ambitious targets entail the sales of insurance to the clients of Bank Pekao and Alior Bank as well as PZU bringing insurance clients as new clients to these banks.
A comprehensive offering of financial services will help reach the client through all channels. This should considerably ramp up the number of products per client while making a material contribution to grow new sales. The PZU Group assumes that in 2020 it will collect PLN 1 billion of additional written premium from cooperation with the banks and that the banks themselves will acquire 1 million of the Group’s insurance clients. Significant savings will also be generated owing to synergies in the areas of procurement, IT and real estate within the Group. It is expected that costs will be cut by PLN 100 million by 2020. SECTION 4. STRATEGY
The first results of this cooperation are as follows: • in the bancassurance area, PZU’s insurance of real properties owned by mortgage borrowers has been introduced for both Pekao’s and Alior Bank’s clients. Moreover, Pekao’s clients may avail themselves of the insurance for buildings and residential units prepared by PZU. In addition to the standard insurance for real estate that can form collateral for the debts of the bank’s borrowers, clients can choose from additional bundles spanning insurance for their household personal property, assistance and third party liability. Pekao also made available an option to buy voluntary PZU CPI insurance (loan repayment insurance) offered in conjunction with a loan application during the “one click” process in the Pekao24 system, while Alior Bank rolled out life insurance with PZU Życie for cash loan borrowers. The PZU Wojażer travel insurance is being offered by both banks in the remote channel. Moreover, Pekao’s offering includes group insurance PZU-TRAVEL BUNDLE – BUSINESS for users of business payment cards issued by Pekao; • In assurbanking, PZU supports the sales of a Pekao account in tens of its branches, while it launched a pilot project in 3 branches on 5 March 2018 where PZU employees are actively offering the Bank’s Przekorzystne Konto (Mega Beneficial Account). The disbursement of benefits to PZU clients in Pekao’s Branches (auto-disbursement) was also deployed; • As part of the companies’ cooperation, insurance programs were launched for the banks’ employees and special offers on bank products for the employees of PZU Group companies; in Pekao training was delivered to 6.7 thousand branch employees who obtained a license from KNF to sell PZU insurance; • operational synergies include cost synergies in IT, administration and security, which translate into a real impact on the costs of PZU and Bank Pekao. In 2018, the realized cost synergies reached the amount of PLN 40 million.
As a leader of the Polish financial market, with immense potential to create innovative solutions for business, the PZU Group actively promotes Polish economy abroad. PZU and Bank Pekao cooperate regularly at such events as #PolandCanDoNation as well as promotion of Poland during the World’s Economic Forum in Davos.
On 4 October 2018 in New York, under the PZU initiative #PolandCanDoNation, one of the biggest meetings took place, bringing together the leaders of Polish economy and representatives of American business. Several dozens of CEOs from the most important Polish companies took part in the events. Polish Prime Minister was the guest of honor.
culminated in the debate “From Developing to Developed – A Macroeconomic Perspective”, organized with the Reuters press agency and Boston Consulting Group.
Business Model global issues and Polish economy. Our guests discussed global trends, such as the industrial revolution 4.0, biotechnology or artificial intelligence. It was also a place of meetings with clients and mutual funds interested in increasing their exposure to Poland. The Polish Home was created for the first time in the history of the World’s Economic Forum in Davos and was open to visitors from 21 to 25 January 2019.
The bank’s business model is based on a segmentation of clients into the following areas: • Retail Banking – providing services to individual clients and micro businesses through a leading network of branches and partner outlets, supported by the Bank’s remote channels, which are leading in the market; • Private Banking – providing services to affluent clients and offering investment advisory services in private banking centers and via remote channels. In Q4 of 2018, under organizational changes in the Bank, this function was incorporated into the structures of Retail Banking; • Banking for Small and Medium Enterprises (SME) - a segment focused on providing services to one of the most rapidly developing sectors of the economy. Clients are serviced by advisors, supported by product specialists. The service is provided in universal retail branches, as well as in specialized Business Customer Centers. Clients are offered professional products and services tailored to their individual needs, based on proven corporate banking product solutions and adapted to the needs of the SME segment; • Corporate Banking – client segmentation comprises medium-sized and large corporations (segmentation based on revenues), public sector entities, financial institutions and the commercial property finance industry. Clients are serviced by advisors, supported by product specialists, which leads to optimization of the level of services and service costs.
As at the end of December 2018, the bank had 825 own branches and 1,708 own ATMs. With a competitive offer of products and services in the Polish market and a high standard of customer service, the Bank administered 5,949.4 thousand current accounts, 378.0 thousand mortgage loan accounts and 678.1 thousand Express Loan accounts (data as at 31.12.2018).
As from the beginning of 2018, the Bank has consistently pursued a growth strategy in the Small and Medium Enterprise segment. Customer service is provided in specially created dedicated SME Business Centers across Poland, where clients can receive support of qualified Advisors, supported by Product Specialists (in respect of foreign currency transaction services, leasing, factoring or EU funds).
Along with the development of remote channels, the bank also implements a project to increase the efficiency of its traditional retail sales network. In corporate banking, one of the key initiatives is a project geared towards proficient management of relationship value, based on a better understanding of the client’s potential and needs, raising the efficiency of the sales network by the way of digitization and automation, as well as optimization of the key processes and activities of the network employees.
In 2018, improvement in the quality of customer service was achieved. According to a Newsweek survey, over the past year the bank rose to become the leader in the “Mortgage Banking” category, and ranked second in the Forbes ranking for the most friendly bank for companies, up from 11. place taken in the previous survey.
Retail clients may also use an innovative mobile app made especially for tablets: “Pekao24 for tablets”. In addition to the key transaction functions available in the regular Pekao24 system, the app has been equipped with a financial analysis tool, which makes it easier for clients to review receipts to and expenditures from their accounts. A new, simplified transfer form and an advanced operation history search engine make daily use of a bank account easier. The “Pekao24 for tablets” app is available for devices with an Android and iOS operating system.
Alior Bank is a universal deposit and credit bank, providing services to natural persons, legal persons and other domestic and foreign entities. The bank’s core business comprises maintaining bank accounts, granting cash loans, issuing bank securities and purchase and sale of foreign currencies. The bank also conducts brokerage activity, provides financial advisory and intermediation services, arranges corporate bond issues and provides other financial services. In its operations, Alior Bank combines the principles of traditional banking with innovative solutions and consequently it sets new trends in financial services and consistently strengthens its market position. SECTION 3. OPERATION OF THE PZU GROUP
At the end of 2018, Alior Bank catered to 4.0 million retail clients. The higher client number in 2018 resulted from the bank’s organic growth. Alior Bank provides services predominantly to clients from Poland. The percentage of international clients in the overall number of the bank’s clients is negligible.
In addition to behavioral segmentation, the bank divides its retail clients in the following operating segments: • mass clients (persons whose assets in the bank do not exceed PLN 100 thousand and whose monthly inflows to their personal account are under PLN 10 thousand); • affluent clients (persons with monthly inflows to their personal accounts exceeding PLN 10 thousand or holding assets worth more than PLN 100 thousand); • Private Banking clients (persons with assets worth more than PLN 1 million or holding an Elite Account).
This segmentation is reflected in the structure of the sales network, as the sales units are specialized into, respectively: universal branches, premium and mini-premium and Private Banking branches.
Distribution channels At the end of 2018, Alior Bank had 861 outlets (202 traditional branches, including 8 Private Banking branches, 8 Regional Business Centers and 643 partner outlets). The bank’s products were also offered in the chain of 10 Mortgage Centers, 10 cash centers and a network of roughly 5 thousand intermediaries.
Alior Bank’s traditional branches are located throughout Poland, in particular in cities with more than 50 thousand residents, offering the full range of the bank’s products and services. Partner outlets on the other hand are located in smaller towns and in selected locations in Poland’s major cities, offering a broad range of services and deposit and credit products for retail and business customers.
Cooperation between the bank and its partner outlets is based on an outsourcing agency agreement. Under these agreements, agents provide exclusive agency services to the bank in respect to the distribution of products. These services are provided in locations owned or leased by agents approved by the bank.
The bank’s products are also offered in financial intermediary chains, such as Expander, Open Finance, Sales Group, Dom Kredytowy Notus, Fines, DFQS, GTF and others. The range of the bank’s products available from financial intermediaries varies depending on the intermediary, however financial intermediaries offer mainly cash loans, consolidation and mortgage loans as well as installment loans.
The Bank is an example of an efficient collaboration between a corporation and fintech companies. Together with VoicePin it successfully introduced artificial intelligence which, under the name of DRONN, supports the bank in monitoring its key clients, increased risks, account closing processes or sending of reminders in enforcement seizures. This technology also powers Virtual Advisors supporting remote contact with clients. The system is based on artificial intelligence, biometrics and speech analysis, one of the most advanced generations of robots. It has been designed to carry a casual, logical conversation with clients: respond to answers and ask questions that match them. The Virtual Advisor is used in soft recovery and in marketing research.
In the course of executing its innovation strategy, in 2018 Alior Bank launched Bancovo, an innovative online loan and credit platform. This is the first such solution in Poland, due to which clients have gained online access to actual offers of numerous banks and loan providers. Bancovo aggregates and presents to a client the most appropriate offers, the most profitable for them, which may be accepted in a fast, simple and secure manner, directly via the Internet. The innovative solutions applied in BANCOVO (big data + self-learning machine learning systems) allow for getting credit and loans online in a simple and friendly manner. Based on UX best practices, provision of data was limited to minimum. Within one minute, the client receives actual offers of banks and loan providers to choose from and due to transparent presentation, the client may select the solution most appropriate for them. An agreement is executed via the Internet, in compliance with the highest security standards. The platform guarantees its Partners a client profile of proper quality due to applied tools, such as prescoring or anti-fraud shield.
Bancovo won in the second edition of the Polish contest entitled ‘The Heart Corporate Innovation Awards 2018’1 in the category of “New Digital Venture”, where the jury reviewed applications for new brands or businesses developed by corporations. Alior Bank also found itself among the best in the category “Deal of the Year” for the investment in PayPo, the startup specializing in deferred payments for online purchases.
Alior Bank also won golden prize in the category “Offering Innovation” for Konto Jakże Osobiste [Very Personal Account] in the sixth edition of the EFMA Distribution & Marketing Innovation Awards competition,2 where innovations were assessed that may constitute added value to traditional banking products. The Very Personal Account is the bank’s flagship product in which the clients, choosing from among 10 benefits – services and functionalities, may put up an account as they wish, managing on their own additional benefits to accounts and individually adjusting them to their needs.
Strategic partnerships Cooperation under a banking model, its strong market position, brand recognition and its strategic objective of creating an ecosystem in which the overriding objective is to manage client relations skillfully by offering clients solutions in all venues accessible to clients will contribute to intensifying activities in strategic partnerships with companies operating on the Polish market.
Watch and Mac computers, guaranteeing the organization and coverage of costs of repairing the equipment or replacing it for new products. The insurance operates in Poland and during foreign travel which lasts altogether not longer than 60 days. Apple devices may be insured only on the purchase date in the SAD sales network (with a sales person); • assistance insuarnce for power consumers, customers of Enea (corporate clients), guaranteeing services of professionals, e.g. an electrician or an IT specialist; • insurance for individual customers of Innogy, offering services of professionals, e.g. an electrician, locksmith for power consumers – participants of the Innogy Benefit Club; • insurance for individual customers of Innogy, offering services of professionals, e.g. an electrician, locksmith for power consumers – participants of the Innogy Benefit Club.
PZU is the most recognizable brand in Poland. According to spontaneous brand recognition studies, recognition of the PZU brand reaches 88%, while prompted brand awareness is 100%.3 Even though it is associated mainly with insurance, the PZU Group umbrella contains several brands. They differ in terms of the visual systems used, target groups and business models.
In the PZU Group’s architecture, there is also a group of socalled PZU family brands. The family consists of companies whose names do not refer to the dominant brand, such as AAS Balta i TUW PZUW. However, their logos look similar to the corporate brand. These companies also use similar visual identification systems.
The last level of brand architecture is the independent brands group. This category includes the brands within the PZU Group, the names and visualization of which differ from the corporate brand, such as Lietuvos Draudimas and Link4. Both companies are distinguished by their high prompted brand awareness on the Lithuanian and Polish markets, at 97% and 94% respectively.
Władysław is an intern in the PZU TFI Structured Investment Department. He studies financial markets at the University of Economics in Kraków. With his analyses he supports the team in making strategic investment decisions. In his free time, he takes care of his health by going to the gym and he passionately reads news from all over the world.
Financial Results 6.1 Major factors contributing to the consolidated financial result
Operating profit was driven in particular by the following factors: • growth in gross written premium in motor insurance (due to the higher average premium coupled with the decline in the number of insurance policies), the acquisition of several high-value contracts and higher sales in international companies (chiefly in motor insurance); • higher profitability in the mass insurance segment, mainly due to the higher result of the non-motor insurance portfolio connected to the lower level of weather-related claims and the motor own damage portfolio, slightly offset by the decline in the result on motor TPL insurance – as a result of remeasurement of the provision for claims for general damages for pain caused by an injured relative being in a vegetative state; • higher underwriting result in the corporate segment due to improved profitability in the portfolio of motor own damage insurance partly offset by the higher loss ratio on motor TPL and third party liability insurance; • increased profitability in group and individually continued insurance as a result of the constantly growing insurance portfolio, improvement in the loss ratio in protection products compared to last year and a change in the mix of individually continued products with a lower standalone expense for provisioning the future disbursement of benefits; • better performance in the banking segment at Alior Bank in connection with the high sales level of credit products 1 Non-recurring events include the effect of converting long-term policies into yearly renewable term business in type P group insurance, the non-recurring effect of remeasurement of provisions in non-life insurance for claims for general damages due to being in a vegetative state and the level of weather-related claims (storms) higher than the average for the prior 3 years in a comparable period..
supported by good business cycle and a low interest rate environment; • lower result on listed equities, in particular due to the weaker performance of stocks listed on the Warsaw Stock Exchange.
The tendencies observable in the main constituents of operating result were the following: • 2.7% increase in gross written premium to PLN 23,470 million. That growth pertained chiefly to motor insurance in the mass and corporate client segments (due to the higher average premium) and ensued from the acquisition of several high-value contracts and higher sales in international companies. Including the reinsurers’ share and movement in the unearned premium reserve, the net earned premium was PLN 22,350 million and was 4.7% higher than in 2017; • higher net result on investing activity, was a combination of a higher investment income earned on the banking activity after the start of consolidation of Pekao SA in June 2017 and a lower net result on investing activity excluding banking activity. The net result on investing activity was PLN 10,630 million, up 25.5% compared to 2017. Income on investments, excluding banking business, fell mainly due to the worse performance achieved in listed equities, driven in particular by the deterioration of market conditions on the WSE – the WIG index fell by 9.5% in 2018 versus an increase of 23.2% in the previous year, translating in particular into softer investment performance in the portfolio of assets to cover investment products that does not have any impact on the PZU Group’s overall net result. This effect was partially offset by the better performance of the marked to market treasury bond portfolio, due the more favorable movement of the debt market; • interest expenses up to PLN 2,046 million vs. PLN 1,350 million in the corresponding period of the previous year, associated in particular with the start of consolidation of Pekao. The increase pertained mainly to interest borne on current and term deposits on banking activity and interest on own debt securities issued, primarily in connection with the issue of subordinated bonds by PZU in the amount of PLN 2,250 million in June 2017; • lower level of claims and benefits. They amounted to PLN 14,563 million, which indicates a 2.5% drop compared with 2017; In particular, the decline was recorded in life insurance in connection with the lower investment result on most unit-linked product portfolios, compared with high positive results achieved last year (this effect was offset by the changes in the net investment result) and lower client contributions to accounts in individual unit-linked products in the bancassurance channel, as well as in insurance against fire and other damage to property as a result of a lower level of damage caused by weather conditions (gusty wind, torrential rain); • higher acquisition expenses (a PLN 229 million increase) in the mass and corporate client segments alike, driven mainly by higher sales and the evolution in the sales channels mix; • the increase in administrative expenses to PLN 6,609 million from PLN 5,357 million in 2017 was due to the start of consolidating Pekao in June 2017. Administrative expenses of the banking segment rose by PLN 1,246 million. At the same time, the administrative expenses of the insurance segments in Poland were PLN 5 million higher compared to the previous year. This change largely resulted from higher payroll costs in response to clear signs of wage pressure on the market while maintaining persistent cost discipline in operating areas unrelated to wages – both current and project-related operations; • higher negative balance of other operating income and expenses of PLN 2,165 million. The change resulted mostly from a higher levy on financial institutions and an increase in Bank Guarantee Fund charges. The PZU Group’s expense on the levy on financial institutions (on insurance and banking business alike) in 2018 was PLN 1,092 million vs. PLN 822 million in 2017, while the BFG charges rose from PLN 121 million to PLN 372 million (in both cases due to the consolidation of Pekao).
Ne t r ev en ue fr om co m m is sio n an d fe e in co m e
Ne t i nv es tm en t r es ul t
Premiums In 2018, the PZU Group collected gross premiums of PLN 23,470 million or 2.7% more than in 2017.
They included mainly: • net revenues from commissions and fees in the banking segment of PLN 1,925 million, including mainly: brokers’ commissions, revenues and expenses related to the service of bank accounts, payment and credit cards, fees charged for intermediation in insurance sales; • income on OFE asset management. It amounted to PLN 122 million (up 1.7% compared to the previous year because of the higher average net assets of OFE PZU); • revenues and fees received from funds and mutual fund companies in the amount of PLN 562 million, or PLN 285 million more than in the previous year, mainly caused by the start of Bank Pekao’ consolidation.
Net investment result and interest expenses In 2018, the net investment result2 including interest expenses was PLN 8,584 million compared to PLN 7,121 million in 2017. This higher result was caused predominantly by the commencement of Pekao’s consolidation in June 2017. After the contribution of Pekao and Alior Bank is netted out, the net investment result after factoring in interest expenses in 2018 was PLN 904 million and was PLN 951 million lower than in the previous year.
In addition, the results on the portfolio of assets covering investment products were down PLN 528 million y/y, even though this is neutral to the PZU Group’s overall net result because they are offset by the lower level of net insurance claims and benefits.
In 2018, the value of the PZU Group’s investment portfolio3, excluding the impact of banking activity, was PLN 50,270 million compared to PLN 46,164 million as at the end of 2017.
The overall growth of the investment portfolio was related to the higher premiums inflow due to business growth and the rising value of the investments.
partly offset by the decrease in the balance of funds presented in receivables presented outside the investment portfolio.
The Group runs its investment operations in compliance with statutory requirements while maintaining appropriate levels of safety, liquidity and profitability, therefore debt treasury securities accounted for over 60% of the investment portfolio.
• costs of amortization of intangible assets identified as a result of acquiring companies were up PLN 53 million (effect of the acquisition of the equity stake in Pekao in June 2017); • increase in the BFG charges from PLN 121 million in 2017 to PLN 372 million in 2018 (as a result of the acquisition of the equity stake in Pekao).
Net claims and benefits (including the movement in technical provisions) were PLN 14,563 million, or 2.5% less than in the corresponding period of the previous year. The following factors contributed to the decline in the category of net claims and benefits: • in life insurance, a lower investment result on most unitlinked product portfolios, compared with high, positive results achieved last year and lower client contributions to accounts in individual unit-linked products in the bancassurance channel; • in insurance against fire and other damage to property, a lower level of weather-related claims (gusty wind, torrential rain).
In 2018, acquisition expenses went up PLN 229 million compared to the corresponding period of the previous year. This increase was caused in particular by higher sales in the mass and corporate client segments in connection with the evolution of the sales channels mix.
The Group’s administrative expenses in 2018 were PLN 6,609 million compared to PLN 5,357 million in 2017, i.e. they went up 23.4% over the previous year. The increase resulted mainly from the consolidation of Pekao. Administrative expenses of the banking segment rose by PLN 1,246 million. At the same
Investment properties Equity instruments – unquoted Equity instruments – quoted Monetary market instruments Non-treasury debt securities Treasury debt securities time, the administrative expenses of the insurance segments in Poland were PLN 5 million higher compared to the previous year. This change largely resulted from higher payroll costs in response to clear signs of wage pressure on the market while maintaining persistent cost discipline in operating areas unrelated to wages – both current and project-related operations.
In Q1 2018, a non-recurring effect of remeasurement of provisions was recognized, mainly in motor insurance for claims for general damages due to being in a vegetative state in the amount of PLN 148 million.
In the corresponding period, a higher level of losses caused by weather phenomena (storms) than the average for the last 3 years was recorded at PLN 170 million.
The conversion effect of long-term policies into yearly renewable term agreements in type P group insurance treated as a non-recurring event was lower in 2018 by PLN 18 million in comparison with the comparable period of the previous year (PLN 17 m in 2018 compared to PLN 35 m in 2017).
Non-current assets, i.e. intangible assets, goodwill and property, plant and equipment were presented in the statement of financial position at PLN 10,235 million. They constituted 3.1% of assets. Their decline of PLN 325 million versus the end of 2017 resulted from, among others, amortization of intangible assets identified as a result of the acquisition of shares in Bank Pekao by PZU and depreciation of tangible non-current assets.
Equity and liabilities At the end of 2018, consolidated equity stood at PLN 37,407 million, down from the end of 2017 by PLN 153 million. The value of non-controlling interests fell by PLN 479 million to PLN 22,482 million versus last year, among others, in connection with the dividend payment by Pekao of PLN 2,074 million, with PLN 1,659 million of that being the dividend attributable to non-controlling interests, as well as the effect of IFRS 9 implementation. The declines were partially offset by the result generated by Alior Bank and Pekao attributed to non-controlling shareholders amounting to PLN 2,155 million. Equity attributable to the parent company’s shareholders rose by PLN 326 million compared to the end of the previous year – as an effect of the net result attributable to the parent company generated in 2018 totaling PLN 3,213 million, partially offset by of the distribution of profit for 2017, including the allocation of PLN 2,159 million as a dividend and the impact exerted by applying IFRS9.
Cash flow statement At the end of 2018, net cash flow was PLN 8,774 million, up PLN 3,431 million versus the previous year. This increase pertained, in particular, to net cash flow on investing activity.
The following industry segments were identified in order to facilitate management of the PZU Group: • corporate insurance (non-life insurance) – this segment covers a broad scope of property and casualty insurance products, other liability and motor insurance customized to a client’s needs entailing individual underwriting offered by PZU and TUW PZUW; • mass insurance (non-life insurance) – this segment consists of property and casualty, accident, other liability and motor insurance products. PZU and LINK4 provide insurance to individuals and entities from the SME sector; • life insurance: group and individually insurance – PZU Życie offers it to employee groups and other formal groups. Persons under a legal relationship with the policyholder (e.g. employer, trade union) enroll in the insurance agreement and individually continued insurance in which the policyholder acquired the right to individual continuation during the group phase. This spans the following types of insurance: protection, investment (however, not investment contracts) and health insurance; • individual life insurance – PZU Życie provides those products to retail clients. The insurance agreement applies to a specific insured who is subject to individual underwriting. These products include protection, investment (which are not investment contracts) and health insurance; • investments – reporting according to PAS – the revenues of the investments segment comprise the investments of the PZU Group’s own funds, understood as the surplus of investments over technical provisions in the PZU Group insurance companies based in Poland (PZU, Link4 and PZU Życie) plus the surplus of income earned over the riskfree rate on investments reflecting the value of technical provisions of PZU, Link4 and PZU Życie in insurance products, i.e. the surplus of investment income of PZU, Link4 and PZU Życie over the income allocated at transfer prices to insurance segments. Additionally, the segment includes income from other free funds in the PZU Group, including consolidated mutual funds; • banking segment – a broad range of banking products offered to corporate and retail clients alike by Pekao and Alior Bank.
• Baltic States segment – includes non-life insurance and life insurance products provided in the territories of Lithuania, Latvia and Estonia; • investment contracts – include PZU Życie products that do not transfer material insurance risk and do not satisfy the definition of insurance contract. These are some of the products with a guaranteed rate of return and some products in unit-linked form; • other – include consolidated companies that are not classified in any of the above segments.
◦ development of the insurance portfolio containing various financial risks, including of several high-value contracts and the higher premium from the insurance of GAP financial losses; • net claims and benefits grew 20.3% compared to the corresponding period of 2017, which, together with a 16.0% increase in net earned premium, means that the loss ratio deteriorated by 2.4 p.p. to 68.4%. The loss ratio moved up in the following areas: ◦ motor TPL as an outcome of rising annuity benefits, the observed increase in the average payment and remeasurement in Q1 2018 of the provision for claims for pain and suffering,
Mass insurance In 2018, the mass insurance segment generated an insurance profit of PLN 1,725 million, which is 30.0% more than in the corresponding period last year. The following factors drove this segment’s performance in 2018: • a 6.9% increase in net earned premium combined with a 3.3% increase in gross written premium in comparison to 2017. The PZU Group posted the following under sales: ◦ growth in gross written premium in motor insurance as a result of the higher average premium coupled with a stable level in the number of motor TPL insurance policies,
◦ higher written premium in other TPL insurance (+5.6% y/y) and accident and other (11.5% y/y), mainly assistance and accident insurance; • higher net insurance claims and benefits in 2018 by 1.7%, which when coupled with net earned premium being up 6.9%, translated into the loss ratio improving by 3.1 percentage points compared to 2017. This change resulted mainly from the following: ◦ a decline in the loss ratio in insurance against fire and other damage to property, including crop insurance due to the lower number of damage claims caused by forces of nature (in the corresponding period, damage caused by gusty wind and rainfall); ◦ lower loss ratio of the motor insurance portfolio due to considerable improvement in motor own damage insurance and slight change in TPL insurance – remeasurement of the provision for claims for pain and suffering for pain caused by the vegetative state of a relative injured in an accident (Supreme Court ruling). After netting out the effect of movement in the provision for pain and suffering, high profitability was maintained in motor TPL insurance and motor own damage insurance; • income from investments allocated to the mass insurance segment based on transfer prices was PLN 526 million, up 9.1% year on year, mostly due to appreciation of the EUR to PLN exchange rate of 3.1% faced with depreciation of 5.7% in the corresponding period last year; • acquisition expenses (without reinsurance commissions) rose to PLN 1,890 million and were up by PLN 145 million or 8.3% year on year, which when coupled with the net earned premium being up by 6.9% signifies growth of acquisition expenses by 0.2 p.p. The factor driving the evolution in the level of acquisition expenses was the higher level of direct acquisition expenses due to the expanding portfolio and the change in the mix of sales channels (rising percentage of the multi-agency and dealer channels featuring higher selling expenses); • administrative expenses in this segment totaled PLN 594 million, down PLN 14 million, or 2.3% since the year before, driven primarily by the outcome of cost discipline in non-staff areas in current and project activity and higher staff costs as a response to the clear signs of salary pressure on the market.
Ad m in is tra tiv e ex pe ns es
At the same time, revenues from group protection products remained under pressure of increased departures from groups (work establishments) due to the legal reduction of the retirement age in Q4 2017.
fee charged on assets accumulated in unit-linked products increased by PLN 5 million y/y (following an increase in the average assets value). Income allocated according to transfer prices dropped as a result of lower market interest rates; • net insurance claims and benefits together with the movement in other net technical provisions were PLN 976 million, reflecting the decrease in costs by PLN 696 million compared to 2017. This was driven mainly by the significantly lower investment result on most unit-linked product portfolios in this period. In the product offered in the Bank Millennium network, it additionally resulted from lower client contributions to the accounts. From the insurance result point of view, these factors are not significant – they are balanced by other relevant items of the profit and loss account; • in 2018, acquisition expenses decreased in the individual insurance segment by PLN 9 million to PLN 126 million. Lower commissions on the sale of unit-linked products in the bancassurance channel (due to lower sales with the commission paid upfront) were partly offset by the increasing costs of sales support and remuneration to intermediaries for selling protection products, in the latter case also in the bancassurance channel; • administrative expenses in 2018 increased to PLN 69 million compared to PLN 61 million in the previous year. This was influenced by the strategic investments in the exclusive sales network aimed at increasing sales in this segment and, to a smaller extent, an increasing level of remuneration for the handling of unit-linked products in the bancassurance channel (growing assets of such products).
In 2018 very high sales of credit products were recorded in Pekao and Alior Bank, among others thanks to the favorable economic climate and the low level of interest rates.
Profitability of the banks in the PZU Group measured by the net interest margin amounted to 2.8% in Pekao (for the whole year) and 4.6% in Alior Bank. The difference in the level of the indicators results in particular from the structure of the loan receivables portfolio.
The net fee and commission income in the banking activity segment amounted to PLN 2 380 million and was PLN 797
Investments The revenues of the Investments segment comprise the investments of the PZU Group’s own funds, understood as the surplus of investments over technical provisions in the PZU Group insurance companies seated in
Operating income of the investment segment (based exclusively on external transactions) were lower than in the corresponding period of last year, primarily due to the worse conditions on the Warsaw Stock Exchange.
Ad m in ist ra tiv e e xp en se s
In addition, other contributors to the operating result included other operating income and expenses, where the main components are the BFG fees (PLN 372 million) and tax from other financial institutions (PLN 770 million).
The improvement of the segment’s result was the outcome of the following factors: • growth of gross written premium. It amounted to PLN
257 million and increased compared to the previous year by PLN 34 million (or 15.2%). The increase in non-life insurance premiums (11.6% y/y) occurred primarily in motor insurance, both as a result of increasing tariffs in mandatory insurance and in accident insurance thanks to conclusion of new contracts. Premiums in life insurance increased by PLN 13 million (or 31.0%); • higher investment result. In this area the segment generated PLN 19 million, i.e. PLN 1 million more than in 2017; • increase in net claims and benefits. These reached PLN 59 million and were 5.4% higher than in the previous year. In life insurance the value of benefits paid increased in relation to the previous year by PLN 2 million (or 11.8%). The loss ratio calculated on the basis of the net earned premium in non-life insurance was 40.4%, down 6.6 p.p. compared to the previous year; • increase in acquisition expenses. They stood at PLN 82 million compared to PLN 69 million in the previous year. Due to the higher commission burden, expenditures for this purpose in life insurance increased by PLN 9 million (or 36.0%). The segment’s acquisition expense ratio went down compared to the previous year by 2.2 p.p. to 53.9%; • higher administrative expenses. They amounted to PLN 25 million, up PLN 2 million compared to the previous year. The administrative expense ratio calculated on the basis of the net earned premium decreased by 2.3 p.p. and stood at 16.4%.
Summing up, the increase in the segment’s operating result was driven mainly by the lower operating expenses allocated to the products of this segment.Investment contracts
Cl ai m s, b en ef its a nd c ha ng e in te ch ni ca l p ro vi sio ns
Profitability ratios The return on equity attributable to the parent company (PZU) for the period from 1 January 2018 to 31 December 2018 was 22.1%. ROE was 1.1 p.p. higher than in the previous year. The profitability ratios achieved in 2018 by the PZU Group exceed the levels achieved by the whole market (according to the data for three quarters of 2018).
Basic performance ratios of the PZU Group 2018 2017 2016 2015 2014
Return on equity (ROE) – consolidated (annualized net profit/average equity) x 100% 14.6% 15.3% 14.7% 16.6% 22.6%
In 2018, the issuer (PZU) recorded a technical result at a level of PLN 1,539 million compared to PLN 1,218 million in the preceding year, which signifies a 26.3% increase in the result year on year. Net profit was PLN 2,712 million compared to PLN 2,459 million in 2017 (up 10.3%). Excluding the dividend received from PZU Życie SA, PZU’s net profit was PLN 1,454 million and was higher by PLN 425 million compared to 2017.
In the individual net result items, PZU recorded: • an increase in gross written premium to PLN 13,003 million, or 4.6%, compared to the previous year, mainly in motor insurance as a result of an increase in the average premium (driven by changes in the tariff introduced in recent years and changes in the structure of the insured vehicle portfolio) and in insurance against fire and other damage to property. Adjusting for the reinsurers’ share and the movement in the provision for unearned premiums, net earned premium was PLN 12,086 million, up 8.1% from 2017; • a higher level of claims and benefits totaling PLN 7,520 million, up 4.9%, compared to 2017. The main change was recorded in the motor insurance and third party liability insurance group; • net investment result higher by PLN 153 million. These were mainly the effects of the dividends paid out by Pekao, compensated partly by the lower than the year before dividends received from PZU Życie; • higher acquisition expenses, taking into account reinsurance commission (an increase by PLN 218 million), mainly due to an increase in direct acquisition expenses driven by the growing insurance portfolio combined with a change of the structure of sales channels (higher share of multiagency and dealer channels characterized by higher commission rates); • a decrease in administrative expenses to PLN 655 million compared to PLN 693 million in 2017, primarily as a result of the application of cost discipline measures both in current and in project activities.
In 2018 PZU collected gross written premium of PLN 13,003 million, i.e. 4.6% more than in 2017. They comprised mainly: • TPL motor insurance premiums, accounting for 41.5%
of PZU’s insurance portfolio (42.4% in the prior year). In 2018, their value was 2.3% higher than in the previous year, mainly as an effect of increase in the average premium as a result of the tariff changes introduced in recent years combined with a lower number of insurance policies; • motor own damage insurance premiums with a 25.0% share of PZU’s total gross written premium (i.e. 0.3 p.p. less than in the corresponding period of the previous year) – increase (+3.3% y/y) being the resultant of the average premium and a decease in the number of concluded insurance policies (in the corporate client segment); • insurance against fire and ather damage to property premiums, accounting for 19.7% of PZU’s premium portfolio. In 2018 their share in the insurance portfolio increased 0.5 p.p. and the value was higher by 7.4% compared to the previous year – the effect of the higher premiums from household insurance, SME, and indirect activity with the Group Companies; • accident and other insurance premiums, whose share amounted to 8.0% (an increase by 0.7 p.p. compared with 2017). In this insurance category PZU recorded an increase in the value of the premiums mainly in assistance insurance (including assistance offered with motor insurance) and various financial losses insurance – in 2017 TUW PZUW was joined by several existing strategic partners and end of cooperation with a big customer under an obligatory quota share inward reinsurance treaty.
The increase in the portfolio value resulted primarily from higher cash flows in connection with the dynamic development of the insurance portfolio, and the investment resulted generated. Compared to the year before, the share of bank deposits and conditional transactions, entered into mainly to enhance the return on investing activity, increased.
The following factors contributed to the change in the net value of claims and benefits: • higher claims and benefits in motor insurance resulting from change of the structure of the insurance portfolio, remeasurement of the provision for claims for pain and suffering and the observed increase in the average payout; • the higher loss ratio in third party liability insurance, resulting to a large extent from an increase in the value of the annuities provision (mainly in third party liability insurance for medical entities) and reporting of several large claims; • the lower level of claims in the group of damages caused by elements and other property losses, including much lower level of events with a high unit value and claims under crop insurance – in the corresponding period of 2017, there were numerous losses caused by gusty wind and rainfall.
During 2018, acquisition expenses (without reinsurance commissions) amounted to PLN 2 371 million and increased by 10.9% compared with 2017. This increase resulted predominantly from an increase in direct acquisition expenses (commissions) which resulted from higher sales and change of the distribution channel mix (higher share of the multiagency and dealer channel in the portfolio).
The balance of other technical income and expenses in 2018 was negative and stood at PLN 242 million. The deterioration of the balance in relation to 2017 was the result of, among others, revaluation charge for receivables and lower other technical incomes.
On 31 December 2018, PZU’s total assets value amounted to PLN 43,567 million and was 2.8% higher as at the end of 2017.
PZU’s receivables stood at PLN 2,343 million and accounted for 5.4% of assets. For comparison, at the end of 2017, they amounted to PLN 2,315 million (5.5% of PZU’s assets). The highest growth was recorded in the value of receivables on reinsurance, including from related parties (increase by PLN 73 million, compared to the end of 2017 ) resulting from the dynamic growth of the inward reinsurance portfolio with TUW PZUW. Non-current assets – in the form of intangible assets, goodwill and property, plant and equipment – stood at PLN 458 million and constituted 1.1% of assets.
At the end of 2018, net technical provisions were the main component of PZU’s equity and liabilities. They stood at PLN 20,998 million (including estimated recourses) and accounted for 48.2% of equity and liabilities. Their share in the balance sheet increased by 1.1 p.p. compared to 2017, while in terms of value they rose by PLN 1,030 million, in particular due to
Financial Results higher provisions for outstanding claims and benefits, mainly in the group of motor TPL insurance and general TPL.
The balance of contingent liabilities increased by PLN 75 million compared to the year before. This resulted mainly from the increase in the granted guarantees and sureties (which include, among others, the guarantee granted to the subsidiary PZU Finance AB), partly compensated by a decrease in other contingent liabilities, including disputable liabilities, challenged by the insurer.
In 2018, PZU generated a return on equity (ROE) of 19.7%, up by 0.5 p.p. compared to 2017. In 2015-2018, the average return on equity (ROE) was 17.5%.
4. Acquisition expense ratio* (acquisition expenses/net earned premium) x 100% 19.3% 19.0% 20.1% 19.9% 19.3%
5. Administrative expense ratio (administrative expenses/net earned premium) x 100% 5.4% 6.2% 7.9% 9.5% 9.2%
Return on equity (ROE) (annualized net profit/average equity) x 100% 19.7% 19.2% 12.8% 18.2% 21.4%
Return on assets (ROA) (annualized net profit/average assets) x 100% 6.3% 6.2% 4.3% 6.3% 8.1%
We devote considerable time to continue developing sophisticated risk management procedures. They are of fundamental importance to us as at the end of the day the goal is for our customers to have safety and peace of mind and for our results to be predictable.
The main elements of the PZU Group’s risk management system have been implemented to ensure sectoral consistency and the execution of the various entities’ strategic plans and the overall PZU Group’s business objectives. They include the following: • systems of limits and limitations on the acceptable level of risk, including the level of risk appetite; • processes involving the identification, measurement and assessment, monitoring and controlling, reporting and management measures pertaining to various risks; • risk management organizational structure in which the management boards and supervisory boards of the entities and dedicated committees play a crucial role.
The first three entail the following: • The Supervisory Board, which supervises the risk management process and assesses its adequacy and effectiveness as part of its decision-making powers defined in a given entity’s Articles of Association and the Supervisory Board bylaws, as well as through the Audit Committee; • The Management Board, which organizes the risk management system and ensures that it is operational, by adopting strategies and policies, setting the level of risk appetite, defining the risk profile as well as tolerance levels for the individual categories of risk; • Committees, which make decisions to mitigate individual risks to a level determined by the risk appetite. The committees adopt the procedures and methodologies for mitigating various risks and they accept limits to mitigate the various types of risk.
Risk appetite defines the maximum level of permissible risk while setting limits and restrictions for the various partial risks and the level above which remedial actions are taken to curtail further risk expansion.
The process of determining the risk appetite and risk limits for each risk category consistent with the Group’s process has been implemented in all the insurance entities in the PZU Group.
The management board of each entity determines the risk appetite, risk profile and tolerance limits reflecting its financial plans, business strategy and the objectives of the entire PZU Group. This approach ensures the adequacy and effectiveness of the risk management system in the PZU Group and prevents the acceptance of risk levels that could jeopardize the financial stability of individual entities or the entire PZU Group. The determination of the appropriate level of risk in each entity is the Management Board’s responsibility, whereas a review of the risk appetite values is conducted once a year by the unit responsible for risk, with all actions being coordinated at the PZU Group level.
Risk appetite is also determined at least once a year in the PZU Group’s banking sector entities. This process is carried out based on the applicable oversight regulations (including those arising from remedial plans) and best practices. This process is tailored to both banks to reflect their business strategy and capital structure. Risk appetite in banking entities is a topic for consultation with the PZU Group’s parent company and the subject matter of opinions issued by the PZU Group Risk Committee with a view to ensuring consistency between the activities carried out by the banks and the strategic plans and business objectives of the PZU Group as a whole while maintaining an acceptable level of risk at the Group level. Once agreed, the level of risk appetite is then approved by the banking entities’ supervisory boards.
Risk management prevents the acceptance of risk at a level that could pose a threat to the PZU Group’s financial stability
The risk appetite determined at least once a year in Pekao and Alior (after consultations with the parent company) ensures alignment of the banks’ activities with the PZU Group’s strategic plans and business objectives
The risk management structure in the PZU Group comprises 4 decision-making levels: (i) Supervisory Board, (ii) Management Board, (iii) Committees, (iv) three lines of defense as part of operations
The PZU Group provides support for the implementation of a risk management system, including the introduction of compatible mechanisms, standards and organization of an efficient operation of the internal control system (with particular emphasis on the compliance function), the risk management system (in particular in the reinsurance area) and the security management system in the PZU Group, and also monitors their ongoing application. The PZU Group dedicated personnel cooperates with the Management Boards of entities and managers of such areas as finance, risk, actuarial services, reinsurance, investments and compliance on the basis of pertinent cooperation agreements; • II - ENTITY LEVEL – monitoring of limits and specific risks Risk management at this level aims to ensure that the PZU Group entity attains its business objectives in a safe manner appropriate to fit the extent of the risk incurred by that entity. The limits and risk categories specific to the company are monitored at this level and also, as part of the risk management system, mechanisms, standards and organization are implemented for the efficient operation of the internal control system (with particular emphasis on the compliance function), the risk management system (in particular in reinsurance) and the security management system.
The risk management process consists of the following stages: Identification Begins with the proposal to commence the creation of an insurance product, acquire a financial instrument, change the operating process, as well upon the occurrence of any other event which potentially results in a risk. The identification process takes place until the expiry of the liabilities, receivables or activities related to the given risk. The identification of market risk involves recognising the actual and potential sources of such risk which are then identified as to their relevance.
Management actions These activities encompass among others risk mitigation, risk transfer, risk avoidance, specifying risk appetite, acceptance of risk tolerance levels, as well as tools which facilitate such activities, i.e. thresholds, reinsurance plans and reviews of underwriting policy 7.5 PZU Group’s risk profile identification of actuarial risk is performed, among others, as follows: • analyzing the general terms and conditions of insurance with respect to the accepted risk and compliance with the existing laws; • analyzing the general/specific terms and conditions of insurance or other model agreements with respect to the relevant actuarial risk being undertaken; • identifying the potential risks related to a given product, for the purposes of subsequent measurement and monitoring; • analyzing the impact exerted by the introduction of new insurance products on capital requirements and risk margin computed using the standard formula; • verifying and validating modifications to insurance products; • assessing actuarial risk through the prism of similar existing insurance products; • monitoring current insurance products in the portfolio; • analyzing the policy of underwriting, tariffs, technical provisions and reinsurance and the claims and benefits handling process.
Assessing actuarial risk entails recognizing the degree of the threat or the group of threats determining the possibility of a loss emerging and analyzing the elements of that risk in a manner enabling one to make a decision to accept that risk to be insured and for a given entity to incur liability. The purpose of underwriting is to assess the future loss ratio and curtail adverse selection. Assessing actuarial risk also involves measures to reinsure the largest risks posing the greatest threat.
The measurement of actuarial risk is performed in particular using: • an analysis of selected ratios; • the scenario method - an analysis of impairment arising from an assumed change in risk factors; • the factor method - a simplified version of the scenario method, reduced to one scenario per risk factor; • statistical data; • exposure and sensitivity measures; • application of the expertise of the Company’s employees.
PZU Group actuarial risk compliance risk concentration risk liquidity and credit risk operational risk market risk
The major risks to which the PZU Group is exposed include the following: actuarial risk, market risk, credit risk, concentration risk, operational risk, model risk and compliance risk. The major risks associated with the operation of Alior Bank and Bank Pekao include the following risks: credit risk (including the risk of loan portfolio concentration), operational risk and market risk (involving interest rate risk, FX risk, commodity price risk and financial instrument price risk). The overall risk of the banking sector entities accounts for approximately 33% of the PZU Group’s total risk (Q3 2018), while the largest contribution is in credit risk.
Risk identification commences with a proposal to start developing an insurance product, buying a financial instrument, modifying an operating process and also with the moment when some other event occurs that may potentially lead to the emergence of risk in a given entity and it is in play until the time when the related liabilities expire. The
Reporting aims to engage in effective communication regarding actuarial risk and supports management of actuarial risk at various decision-making levels from an employee to the supervisory board. The frequency of each report and the scope of information provided are tailored to the information needs of each decision-making level.
The management actions contemplated in the actuarial risk management process are performed in particular by doing the following: • defining the level of tolerance for actuarial risk and monitoring it; • business decisions and sales plans; • calculation and monitoring of technical provision adequacy; • tariff strategy, monitoring of current estimates and assessment of the premium adequacy; • the process of assessment, valuation and acceptance of actuarial risk; • application of tools designed to mitigate actuarial risk, including in particular reinsurance and prevention..
Group has a material exposure to credit risk and interest rate risk.
Reporting involves communicating the level of market risk, the effects of monitoring and control to various decisionmaking levels. The frequency of each report and the scope of information provided therein are tailored to the information needs at each decision-making level.
The application of limits is the primary management tool to maintain a risk position within the acceptable level of risk tolerance. The structure of limits for the various categories of market risk and also for the various organizational units is established by dedicated committees in such a manner that the limits are consistent with risk tolerance. Banking sector entities are in this respect subject to additional requirements in the form of sector regulations.
Credit risk is measured using: • measures of exposure (gross and net credit exposure and maturity-weighted net credit exposure); • standard formula.
A measure of total concentration risk is the sum of concentration risks for all entities treated separately. In the case of related parties, concentration risk is calculated for all related parties jointly.
In the case of banking entities suitable measures are employed in accordance with the regulations applicable to this sector and best market practices. In particular, credit risk is measured using a set of loan portfolio quality metrics.
The following are subject to monitoring: • exposures to financial insurance; • exposures to reinsurance; • exposure limits and VaR limits; • loan exposures (this pertains to banking entities).
Management actions in respect of credit risk and concentration risk involve in particular: • setting limits to curtail exposure to a single entity, group of entities, sectors or states; • diversification of the portfolio of assets and financial insurance, especially with regard to state, sector; • acceptance of collateral; • execution of transactions to mitigate credit risk, i.e. selling a financial instrument, closing a derivative, purchasing a hedging derivative, restructuring a debt; • reinsurance of the financial insurance portfolio.
In banking activity the provision of credit products is accomplished in accordance with loan granting methodologies appropriate for a given client segment and type of product. The assessment of a client’s creditworthiness preceding a credit decision is performed using a system devised to support the credit process, scoring or rating tools, external information (for instance, CBD DZ, CBD BR, BIK and BIG databases) and the internal databases of both of the PZU Group’s banks. Credit products are granted in accordance with the binding operational procedures stating the relevant actions performed in the lending process, the units responsible for that and the tools used.
To minimize credit risk, security interests are established in line with the level of exposure to credit risk and in accordance with the client’s ability to provide the required collateral. The establishment of a security interest does not waive the requirement to examine the client’s creditworthiness.
In turn, credit scoring is used as a tool supporting the decision making process regarding loans for retail clients and microenterprises, while credit rating has the same role in the segment of small, medium-sized and large enterprises.
Liquidity risk Financial liquidity risk means the possibility of losing the capacity to settle, on an ongoing basis, the Company’s liabilities to its clients or counterparties. The aim of the liquidity risk management system is to maintain the capacity of fulfilling the Company’s liabilities on an ongoing basis. The Company maintains the required level of investment portfolio liquidity.
Risk assessment and measurement are carried out by estimating the shortage of cash to pay for liabilities. The risk estimate and measurement is carried out from the following perspectives: • liquidity gaps – by monitoring a mismatch of net cash flows resulting from insurance contracts executed until the balance sheet date and inflows from assets to cover insurance liabilities in each period, based on a projection of cash flows; • stress tests - by estimating the impact of selling the portfolio of financial investments in a short period to satisfy liabilities arising from the occurrence of extraordinary insurable events; • current statements of estimates (short-term financial liquidity) – by monitoring demand for cash reported by other business units by the date defined in prevailing internal regulations.
The banks in the PZU Group employ the liquidity risk management metrics stemming from sector regulations, including Recommendation P issued by the Polish
The following measures aim to reduce financial liquidity risk: • maintaining cash in a separate liquidity portfolio at a level consistent with the limits for the portfolio value; • maintaining sufficient cash in a foreign currency in portfolios of investments earmarked for satisfying insurance liabilities denominated in the given foreign currency; • provisions of the Agreement on managing portfolios of financial instruments entered into between TFI PZU and PZU regarding limitation of the time for withdrawing cash from the portfolios managed by TFI PZU to at most 3 days after a request for cash is filed; • keeping open credit facilities in banks and/or the possibility of performing sell-buy-back transactions on treasury securities, including those held until maturity; • centralization of management of portfolios/funds by TFI PZU (using the services of one external asset management entity facilitates risk management, including liquidity risk).
Model risk Considering the growing importance of the scope in which models are used and the classification of the risk of models as material for the PZU Group, the formal process of identifying and assessing this risk was launched in 2018. The process aims to ensure high quality of risk management practices applied to this risk. It is currently being implemented in PZU and PZU Życie.
Model risk is defined as the risk of incurring financial losses, incorrectly estimating data reported to the regulatory authority, taking incorrect decision or losing reputation as a result of errors in the development, implementation or application of models.
Model risk is very important for banking sector entities and therefore management of this risk has already been implemented in the course of adaptation to the requirements of
The compliance risk management process at the PZU and PZU Życie level covers both systemic activities carried out by the Compliance Department and ongoing compliance risk management activities which are the responsibility of the heads of organizational units or cells in the Companies. Compliance risk is identified and assessed for each internal process at PZU and PZU Życie, in line with the demarcation of reporting responsibilities. Moreover, the Compliance Department identifies compliance risk on the basis of information obtained from the legislative process, from notifications to the register of conflicts of interest, gifts and irregularities, and from inquiries received by the Department.
The systemic activities include, in particular: • development and implementation of systemic assumptions and internal regulations consistent with those assumptions; • recommending to other PZU Group entities solutions for the application of a consistent compliance function and a systemic approach to compliance risk management; • monitoring of the compliance risk management process, including in particular: performing compliance risk analyses, reviewing the degree of implementation of guidelines provided by external entities in respect of compliance risk management; • consulting on and issuing interpretations and guidelines for the application of the adopted standards of conduct and compliance risk management; • planning and delivery of training and internal communication in the field of compliance;.
Moreover, the Compliance Department at PZU level makes efforts aimed at ensuring consistent and uniform standards of compliance solutions in all PZU Group entities and monitors compliance risk throughout the PZU Group.
In 2018 the PZU Group entities had compliance systems adapted to the standards designated by PZU.
The provision of full information on compliance risk in each member of the Group is the responsibility of compliance units. These units are required to assess and measure compliance risk and take appropriate remedial actions aimed at mitigating the likelihood of realization of this risk.
On an ongoing basis, PZU Group entities provide information on compliance risk to the Compliance Department at PZU and PZU Życie. In turn, the tasks of the Compliance Department include the following: • analysis of monthly and quarterly reports received from compliance units of each member of the Group; • assessment of the impact of compliance risk on the PZU
Compliance risk is assessed and measured by calculating the effects of risk materialization of the following types: • financial, resulting, without limitation, from administrative penalties, court judgments, decisions issued by UOKiK, contractual penalties and damages; • intangible, pertaining to a loss of reputation, including damage to the PZU Group’s image and brand.
In 2018, because of the effective dates of critical legal changes, the compliance area was involved in the work on adapting the Company to the new regulations. These included mainly the requirements arising out of the following legal regulations: • Act of 11 May 2017 on Statutory Auditors, Audit Firms and
Public Supervision; • Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation); • Act of 16 December 2016 on Rules for Managing State Property; • Markets in Financial Instruments Directive of 15 May 2014 (MIFID 2) (regulation material for some PZU Group entities, in particular TFI); • Insurance Distribution Act of 15 December 2017; • Act of 1 March 2018 on Preventing Money Laundering and the Financing of Terrorism.
The PZU Group currently identifies the following types of risk concentration: • within actuarial risk, it identifies concentration risk with regard to possible losses caused by natural disasters, such as, in particular, floods and cyclones and concentration of large corporate risks, however in both these instances, the reinsurance program in place reduces the potential for net loss; • within credit and market risks, concentration risk is identified at the level of corporate groups, sectors of the economy and countries; • within operational risk and other material risks, no concentration risk has been identified.
Risk concentration in the identified areas is subject to regular measurement and monitoring.
Financial assets exposed to exchange risk include deposit transactions and debt securities used to hedge payments from technical provisions denominated in foreign currencies, exposures to equity instruments quoted on stock exchanges other than WSE, investment fund units and certificates, exposures to derivatives denominated in foreign currencies and financial assets of consolidated international insurance companies.
Interest rate risk: possibility of incurring a loss as a consequence of movement in the value of financial instruments or assets and movement in the current value of projected flows on liabilities as a result of shifts in the term structure of market interest rates or volatility of risk-free market interest rates.
Sensitivity of the asset portfolio (in PLN m) Change of the risk factor
Currency risk: possibility of incurring a loss as a consequence of movements in the value of assets, liabilities and financial instruments as a result of changes in currency exchange rates or volatility in currency exchange rates.
The differences in the sensitivity of the asset portfolio between 2017 and 2018 stem from executing the adopted investment strategy and aligning the investment portfolio to it.
Currency risk calculation of the provision on the net financial result and equity.
Banking activity Interest rate risk Interest rate risk is defined as the risk of the level of market interest rates exerting an adverse impact on the current result or the net present value of the Bank’s capital. When managing interest rate risk in its banking book, the banks endeavor to secure the economic value of equity and to achieve its intended net interest income target within the accepted limits.
Foreign exchange risk The fundamental measure of foreign exchange risk in both banks is the Value at Risk (VaR) model to designate the potential value of a loss on currency positions due to changes in exchange rates, while maintaining the assumed confidence level of 99% and the period in which the position is kept. This value is calculated daily for all areas responsible for risk taking and risk management, both on an individual and collective basis.
PZU’s operations in inward reinsurance involves the PZU Group’s other insurance companies. The greater exposure to protection of the Baltic companies, Link4 and TUW PZUW is causing the PZU’s gross written premium by virtue thereof to rise.
sensitivity of reserves Impact of changes in assumptions on the net financial result and equity
The PZU Group’s other insurance companies, i.e. Lietuvos Draudimas, Lietuvos Draudimas Branch in Estonia, AAS Balta, PZU Ukraine, LINK4 and TUW PZUW have reinsurance cover aligned to the profile of their operations and their financial standing. Every material insurance portfolio is secured with the appropriate obligatory treaty. Reinsurance cover is provided for the most part by PZU, which transfers a portion of the accepted risk outside the Group.
Więcej na: In this section: 1. Equity and bond market 2. PZU’s share price 3. Banking sector on the Warsaw Stock Exchange 4. PZU’s investor relations 5. Analysts’ recommendations for PZU stocks 6. PZU Group’s Capital and Dividend Policy 7. Debt financing of PZU, Pekao and Alior Bank 8. Credit rating 9. Calendar of PZU’s major corporate events in 2019