FINANCIAL PERFORMANCE OF PZU GROUP IN 2012 .......................................................................... 33 4. Events significantly affecting the activities and financial performance of PZU Group in 2012 ...... 33 5. Comments to the consolidated financial performance of the PZU Group ................................... 33 5.3. Claims and change in measurement of investment contracts................................................... 35 5.4. Acquisition costs and administrative expenses ....................................................................... 35 5.5. Other operating income and expense ................................................................................... 35 5.6. Performance and performance ratios of PZU Group ................................................................ 36 5.7. Structure of assets and liabilities .......................................................................................... 37 5.8. Significant off-balance sheet items ....................................................................................... 38 5.9. Equity management and capital requirements ....................................................................... 39 5.10. Effect of one-off events on operating profit ........................................................................... 42 5.11. Changes in investments in controlled entities ........................................................................ 42 6. Comments to segment reporting .......................................................................................... 43 6.1. Corporate insurance: personal and property insurance ........................................................... 43 6.2. Mass personal and property insurance .................................................................................. 45 6.3. Group and individually continued life insurance ...................................................................... 47
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012
„Issuer”);  life insurance offered by Powszechny Zakład Ubezpieczeń na Życie SA (“PZU Życie”);  open pension funds offered by Powszechne Towarzystwo Emerytalne PZU („PTE PZU”), managing
Net profit of the PZU Group calculated in line with International Financial Reporting Standards (IFRS) in 2012 amounted to PLN 3,253.8 million and was 38.8% higher from that of the previous year.
ROE1 for the period from 1 January to 31 December 2012 amounted to 24.0%, and was 5.7 p.p. higher than in the previous year.
The following elements had effects on net performance of the PZU Group compared to the previous year:  Increase in gross written premium resulting from growing sales of TPL motor insurance (mass insurance segment), obligatory accidental insurance of hospitals and medical entities (corporate insurance segment), as well as group insurance and individual investment insurance (in the bancassurance channel);  Higher investment income, mainly due to growing prices of treasury bonds arising from debt instruments yield down, re-bounce on capital markets and introduction of a new investment strategy aimed at improved investments yield accompanied with optimised risk management;  Increase in mathematical provisions and capitalised annuity provision arising from a cutting in technical rates applied resulting from lower treasury bonds yield;  Improved profitability of motor, group and individually continued insurance (excluding conversion and adjustment of technical rates);  Higher level of claims (including the change in technical provisions) in the current year arising from:  growing sales of individual investment products in the bancassurance channel and better performance on investment activity translated into an increase in technical provisions for contracts with an element of investment;  slowdown in conversion of long-term contracts into annual revolving ones in P class group insurance;  Worse performance in contract guarantees in the corporate client segment, among others following an increase in claim provisions related to a series of bankruptcies in the construction industry;  Implementing of the PZU Group strategy on optimising processes and centralising functions, to include unification of PZU and PZU Życie resulting in subsequent stages of headcount restructuring;  Implementing of project work aimed at modification of image of the Group and introducing a new policy system in property insurance (2013 is planned launch of policy sales in new system).
2. Macroeconomic trends in 2012 2.1. Key economic trends and economic growth
According to draft data of Central Statistical Office, GDP in Poland increased by 2.0% in 2012 compared to 4.3%
in the previous year, which was accompanied with clear deterioration in domestic demand: -0.1% compared to 3.4% in 2011. Economic growth slowed down regularly on a quarterly basis, with domestic demand growth being negative from Q2 2012 on.
Industrial production and construction saw significant slowdown. In 2012, value added in industry grew by 1.2%
(10% in 2011), and in construction by 0.5% (8.2% in 2011). The increase in added value in trade and motor repair sectors by 1.5% has been the third worst result since the beginning of the century.
In 2012, prices of Polish bonds grew as well, supported by relatively good economic and budget standing, attracting foreign portfolio capital looking for assets with favorable profit/risk proportion. Additionally, in the second half of the year, the yield decrease was supported with expected reduction in interest rates to be announced by the National Bank of Poland. The second end of the yield curve saw the biggest drop. Between the end of 2011 and 2012, it reached 213 and 218 base points, respectively, for five- and ten-year bonds.
In the second half of 2012, a regular decrease of CPI year ratio in Poland commenced, so in October it returned to the range of allowed fluctuations determined by the Monetary Policy Council (MPC) (2.5% +/- 1 pp.). In
VAT increase introduced a year before contributed to the inflation rate.
November commenced the cycle of interest rate reductions. Beginning from November 2012 and until February 2013, each month all interest rates of the National Bank of Poland (NBP) were reduced by 25 base points. In
March 2013, NBP reference rate was reduced by further 50 base points and MPC signalized the end of its easing policy. The reference ratio was 3.25% in March 2013 compared to 4.75% in October 2012, before the reduction cycle was initiated.
On the money market, changes in WIBOR 6M rates were closely related to the changes in the NBP reference rate.
This tendency continues in 2013 when at the beginning of March WIBOR 6M dropped by further 40 base points 2.4. Labor market and consumption
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 the average nominal pay in domestic economy slowed down significantly, to 3.5% compared to 5.6% in 2011. In 2012, the average pay was in actual terms 0.1% lower than in 2011.
The average annual exchange rate of EUR and USD to PLN increased by 1.6% and 9.9%, respectively, in 2012.
The economic slowdown in 2012 negatively impacted the demand for insurance products. Households rationalised their spending faced with labour market deterioration, slowing growth of disposable income and the low savings rate. Production, import and sale of cars decreased, which reduced opportunities to sell comprehensive car insurance and TPL insurance.
The deteriorated market and financial standing of enterprises contributed to the worsening of the corporate insurance market standing compared to 2011. Suspended investment and financial problems in the construction industry adversely impacted the related insurance and guarantee segment.
Business loan dynamics dropped in 2012, and the financial insurance market grew tougher.
As at the end of Q3 20121 the gross written premium in the Polish insurance industry as a whole calculated in line with Polish Accounting Standards (PAS) amounted to PLN 46,946 million, which denotes a 7.8% rise
The total value of investments of all insurance companies (without shares in controlled entities) amounted to
PLN 86.9 billion at the end of Q3 2012 and increased by 4.8% compared to the end of 2011.
The entire property and perosnal insurance market generated the net result of PLN 2.9 billion in the first three quarters of 2012 (-0.6% year on year). Net of dividend from PZU Życie (which constitutes profit generated by the life insurance sector), the net profit on the property and personal insurance market increased by PLN 0.79 billion (+83.1%). The underwriting profit/loss on the property and personal insurance market, which does not include investment income, increased by PLN 439.7 million to PLN 721.4 million. Positive changes resulted from motor own damage profitability maintained the second consecutive year (an increase in the underwriting profit/loss by PLN 304.0 million to PLN 509.5 million) and reduced losses in motor TPL insurance (by PLN 333.8 million to PLN -81.6 million). Reduced number of claims in motor insurance arising from lower frequency of claims paid, in particular thanks to better weather and less traffic (among others due to fuel price increase) was the main factor contributing to the performance improvement. The number of claims in comprehensive and TPL
Treasury and local self-government units (67.7% i.e. PLN 27.2 billion). Reduced treasury bonds yield in 2012 had a positive effect on measurement of these instruments in insurers‟ portfolios. At the same time, the share of other fixed-income securities (including corporate bonds) increased from 4.3% to 7.2% (from PLN 1.6 billion to PLN 2.9 billion).
Companies providing property and personal insurance estimated the total value of technical provisions for PLN
33.6 billion, which constituted an increase of 7.0% compared to the end of 2011 and resulted mainly from business growth (an increase in gross written premiums).
Chart 1: Gross written premium of other personal and property insurers in Poland
Source: Source: Polish Financial Supervision Authority - “Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń
Table 2: Gross written premium structure – property and personal insurance
TPL motor insurance 35.0% 34.7% 34.6% 34.4% 34.0% 33.8% Other products 39.8% 43.7% 45.6% 38.2% 43.3% 45.9% TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Polish Financial Supervision Authority - “Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń 3/2011 (); PZU data
With the market share of 32.3%, PZU is a leader in the property and personal insurance market in terms of gross written premium. Since 2011, the market share growth has stopped and remained on the level of approx. 33%.
For a few years, in order to maintain the profitability, PZU has carried out a corporate insurance portfolio restructuring program. Thanks to these measures, underwriting result for motor TPL and comprehensive insurance in the corporate client segment have improved significantly (COR decreased by 9.4 pp. and 11.6 pp.
The total underwriting profit/loss on the property and perosnal insurance market increased by PLN 439 million, i.e. by 155.7%, out of which the performance of PZU alone increased by PLN 308 million.
TPL motor insurance 217 (82) (299) (47) (415) (368) Other products 162 294 132 211 492 281 TOTAL 630 721 91 330 282 (48)
Life insurance market in Poland measured with gross written premium has grown by average of 6.8% per year over last four years. At the end of Q3 2012, gross written premium on the life insurance market increased by
+ 5.6% and + 4.3%, respectively. The substantial increase resulted from high sales of one-off group insurance, mainly in the bancassurance channel. Increased interest in these products may have resulted from liquidation of overnight deposits that allowed avoidance of capital tax within a certain limit due to a gap in tax regulations. At the end of Q3 2012, premium from the bancassurance channel accounted for approx. 54.8%
(PLN 14.7 billion) compared to 52.2% (PLN 12.7 billion) during the comparable period in the previous
During this period, life insurers generated net profit of PLN 2.6 billion constituting a growth by 14.3%
Good standing of the capital market and treasury bonds yield down contributed to the growth in investments made by life insurers. The total value of investments made by life insurers at the end of Q3 2012 was PLN 91.0 billion (+7.4%) and net assets in unit-linked life insurance amounted to PLN 42.5 billion (+13.3%).
Life insurers have estimated the total amount of technical provisions at PLN 77.2 billion, which constituted 84.8%
Source: PFSA (www.knf.gov.pl). Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń 3/2011
Source: PFSA (www.knf.gov.pl). Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń 3/2011, data of PZU Życie 3Q '09 3Q '10 3Q '11 3Q '12
Chart 3: Gross written premium of life insurance companies in Poland
Source: PFSA (www.knf.gov.pl). Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń 3/2011 2.7.4. Pension insurance
Table 8: Share of OFE PZU in the pension market in Poland
arise from the complete acquisition ban on the open pension fund market effective from 1 January 2012.
compared to 2011). The law does not allow large funds participation in statutory draws, in which 356 thousand people were allocated in 2012 (79% of new clients).
At the end of 2012, the total net assets of all open pension funds amounted to PLN 269,596 million and increased by 20% compared to the end of 2011. During this period, the assets of OFE PZU increased by 18.9% to
According to the Chamber of Fund and Asset Management (CFAM) at the end of December 2012, net assets of investment funds in Poland approximated PLN 145.8 billion, which means a y-o-y growth by 26.9%. Further, the total assets were the highest after the record level reached in October 2007 (i.e. PLN 144.3 billion).
Table 9: Net assets per segment and their share in the investment fund market in Poland
Debt 41 233 24 710 66.9% 28.3% 21.5% Non-public assets 23 352 14 261 63.7% 16.0% 12.4% Absolute return rate 4 419 2 956 49.5% 3.0% 2.6% Securitisation 2 071 1 760 17.7% 1.4% 1.5% Stock 24 604 21 337 15.3% 16.9% 18.6% Real property 3 486 3 307 5.4% 2.4% 2.9% Cash 13 795 13 595 1.5% 9.5% 11.8% Mixed 20 163 21 286 (5.3)% 13.8% 18.5% Capital protection 2 281 2 886 (21.0)% 1.6% 2.5% Commodity market 519 697 (25.5)% 0.4% 0.6% Undefined 9 898 8 135 21.7% 6.8% 7.1% TOTAL 145 821 114 931 26.9% 100.0% 100.0%
In terms of net AUM, TFI PZU is first among 37 investment funds included in IZFA report with assets value of
PLN 15.3 billion and market share of 10.5%. The increase of about PLN 10 billion y-o-y resulted from the investment strategy mentioned above. At the same time, TFI PZU remains the leader in the segment of employee pension plans among domestic investment pension funds with assets exceeding PLN 1.8 billion.
Motor insurance total 1,8% 1,5% Property insurance, including fire and accidents 32,4% 29,2% Voluntary medical insurance 24,4% 28,0% Cargo 6,7% 5,4% Accidental insurance 5,3% 7,0% Green Card 3,8% 2,7% Medical expenses insurance 1,7% 1,4% Aviation risks 1,7% 1,4% Other products 24,0% 24,9%
According to data for the nine months of 2012, gross written premium in property and personal insurance market was UAH 14.6 billion, which meant a drop by 6.1% year on year. At the same time, the estimated share of the „classical‟ market ranges from 50 to 60%. 4
During the nine months of 2012, distribution of property and personal insurance was as follows: about 40% of gross written premium collected through own sales networks (including 34% through head offices and 66%
In 2012, key processes on the Ukrainian insurance market included price competitiveness and high level of costs related to sales of insurance products, liquidity problems of some insurers, as well as low popularity of insurance services among citizens and little trust in effective insurance.
Ukrainian insurance market has vast growth potential and remains attractive for foreign investors. Effective and necessary legal reforms must be implemented to contribute to its growth and provide conditions that would attract investment.
According to data by Lietuvos Bankas, the Central Bank of Lithuania, in 2012 gross written premium of property and personal insurers amounted to LTL 1.2 billion and grew by 6.6% year on year (LTL 1.1 billion in 2011).
5 State Commission on Finance Service Market Regulation, “Summary of the insurance business for the nine months of 2012”
The increase in motor insurance resulted mostly from growing policy prices and increasing fleets of companies
When comparing the market structure year on year, an increase in motor insurance share is visible, both in TPL
and comprehensive insurance (from 56.7% to 58.6%). The share of TPL insurance increased from 34.2% to 35.0% (by 0.8 p.p.) and of comprehensive insurance, from 22.5% to 23.6% (by 1.1 p.p.). The share of property insurance decreased (from 21.4% to 19.3%).
Act amending the act on statutory insurance, Insurance Guarantee Fund and Polish Office of Motor
Insurers and some other acts (Law Journal No. 205 of 2011 item 1210), “coming into effect on 11
February 2012, has materially changed the existing regulations regarding conclusion and termination of statutory insurance contracts, including motor TPL insurance and agricultural insurance, i.e. statutory insurance of farm buildings and statutory TPL insurance of farmers related to running a farm.
Insurance Guarantee Fund and Polish Office of Motor Insurers, of 22 May 2003 (Law Journal No. 124 of 2003, item 1153, as amended, “Act on statutory insurance”) if an owner of a car is at the same time insured with two or more insurance companies. Further, according to the act, no later than 14 days prior to the policy expiry date, the insurer is obliged to send the insured information regarding insurance terms for the subsequent year.
Pursuant to the amendment, the Act of 22 May 2003 on insurance activity (Law Journal No. 11 of 2010, item 66 as amended) has stated that notifications and statements regarding the concluded insurance agreement submitted to an insurance agent shall be considered as delivered to the insurer represented by the agent.
Act on therapeutic activities of 15 April 2011 (Law Journal No. 112 of 2011, item 654 as amended)
came into effect on 1 July 2011, and Article 25 introducing the insurance obligation and provisions directly related to it have been in force since 1 January 2012 subject to information indicated in the following paragraph. The act has introduced among others an obligation to get insured against patients' claims arising from medical events determined in regulations on the rights of patients and the Patient Ombudsman for therapeutic entities running hospital business.
Ordinance of the Minister of Finance on statutory TPL insurance for therapeutic entities of 22
Act amending the act on rights of patients and Patients’ Ombudsman and the act on statutory insurance, Insurance Guarantee Fund and Polish Office of Motor Insurers of 28 April 2011 (Law
Decisions of provincial commissions shall be binding for the competent insurer, who will be obliged to pay the compensation. The Act has determined the maximum compensation amount payable to patients (PLN 100 thousand in the case of infection, bodily damage and health breakdown, PLN 300 thousand in the case of
Court of Justice stated that Article 5.2 of the Council Directive 2004/113/EC of 13 December 2004 allowing insurers providing different performances depending upon sex non-compliant with the equal treatment principle arising from Article 21 and 23 of the Charter of Fundamental Rights of the European Union. As of 21 December 2012, the European Court of Justice has cancelled the possibility to provide various premium amounts depending on the sex of the insured. In order to ensure execution of the Court‟s decision, the wording of Article 18a of the Act on insurance activity has been changed. According to it, applying the sex criterion to calculation of insurance premium and performance cannot result in various premium level offered to individuals.
Effects of the act for PZU:  necessity of changes in some products and their tariffs, including exclusion of one product from PZU
application of the sex criterion when calculating premium and performance amounts only provided that this does not result in various levels of premium and performance offered to individuals.
Ordinance of the Minister of Finance of 4 October 2012 on statutory TPL insurance for entrepreneurs applying for civil aviation guard contract (Law Journal of 2012 item 1123) states that enterprises applying for such contracts are to conclude an insurance contract not later than on the date preceding the contract date with regard to civil aviation guard activities performed in airports and concerning damages related to the business operations. The Ordinance determines the minimum guarantee amount.
Effects of the ordinance for PZU Group: A potential growth in sales arising from the obligation to conclude the insurance contract and the minimum guarantee amount determined.
Draft Act on insurance activity related to implementation of Solvency II Directive. In May 2012,
Act on modification of certain acts in relation to implementation of the Budget Law of 22 December 2011 (Law Journal No. 291 of 2011, item 1707) whose article 4 amends Article 63 of the Tax Ordinance of 29 August 1997 effective from 31 March 2012 by eliminating the possibility to round the tax amount and therefore to avoid paying it on revenue generated on overnight bank deposits.
Effects of the act for the PZU Group: It may increase interest in other forms of investment /savings, in particular those that allow not paying PIT (policies combined with investments).
Ordinance of the Minister of Health of 17 May 2012 on the detailed scope of and manner of providing information regarding the health of the potential insured to insurers by entities providing medical services and the manner of determining fees for submitting the information (Law Journal of 2012, item 605) has changed the scope of data to be included in an insurer‟s request regarding information about health of the insured or potential insured. In particular, the name of the physician authorised by the insurer to ask for the information has been added, and the scope of personal data of the person of interest has been reduced (only PESEL identification number is necessary, but only if the insurer already holds it, similarly as the number and series of the personal identity card).
November 2011 (III CZP 05/11) regarding the principles of substitute car lease under TPL and new clauses entered in the Register of Abusive Clauses maintained by the President of Office of Competition and Consumer
Journal No. 75 of 2011, item 398) effective from 1 May 2011 changed the amount of premium transferred to open pension funds from 7.3% to: Additionally, effective from 1 January 2012, the above act has introduced the following changes:  The list of products related to voluntary pension accounts has been extended allowing establishing of a voluntary individual pension insurance account along with the statutory individual pension account;
Effects of the act for PTE: Reduced revenue of Powszechne Towarzystwo Emerytalne accompanied with an increase in costs related to implementation of the changes introduced by the Act; that has been partly offset with the tax allowance (payments to the voluntary pension insurance fund can be deducted from the tax basis when annual returns are prepared).
Act of 21 December 2011 amending the Act on the social security system (Law Journal No. 291 of 2011, item 1706). As of 1 February 2012, the disability pension premium (the portion paid by employers) has been increased by 4.5% to 6.5% of the base, i.e. by 2 p.p. (the total disability pension premium has increased from 6.0% to 8.0% out of which 1.5% has been paid by the insured, and the other portion by the employer).
Effects of the act for the PZU Group: Increased operating costs of employers.
of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)
resulted in work performed among others by the Parliament on the Insurance Act. Draft act assumptions include:  increased requirements regarding share capital of insurers;  implementing regulator‟s prudency supervision over market participants;  insurers will be allowed to open private pension funds, administer and manage assets;  the obligation to register terms and conditions of insurance will be eliminated (insurers will be able to run their business based on terms of company operation, based on which all insurance products will be created in future);  concluding e-insurance contracts will be allowed (not only in hard copies) and the digital signature will be approved (for e-policies) and/or facsimile, which should support development of direct sales in
On 1 July 2012, the Ukrainian parliament passed the Act on specific features of insurance for agricultural and food products with state support. Since autumn 2012, farmers can minimise potential losses arising from bad weather since the state has compensated up to 50% of insurance fees for winter wheat.
In September 2012, State Commission on Financial Market Service Regulation published a draft ordinance on changes in the principles of reinsurance contract registration, which: increases the limit of reinsurance contracts with residents that, if exceeded, obliges the policy holder to register, from UAH 150 thousand to UAH 1 million.
The draft does not eliminate the obligation to register contracts with non-residents, which is an additional complication when concluding them.
In the new tax code, the Ukrainian parliament has provided insurance companies the right to pay 3% tax on written premium without the necessity to transit to a general tax system. At the same time, tax base calculation has changed: reinsurance payments to resident reinsurers have been excluded (the Act no. 5412-VI of 2 October 2012 regarding amendments to the Ukrainian Tax Code related to certain tax issues).
On 5 November 2012, amendments to the act on statutory TPL insurance came into effects. Pursuant to them, insurers must be members of the Ukrainian Office of Motor Insurance to be permitted to sell TPL policies to owners of land vehicles. Further, members of the Office will be obliged to pay a guarantee fee to the insurance guarantee fund whose amount is determined in internal regulations of the Fund and cannot be lower than the equivalent of EUR 1 million. Since the Office is the only association of insurers that provide statutory TPL
Standards, which will significantly impact their performance as presented in financial statements (the Act no.
3332-VI of 12 May 2011 amending Act on accounting and financial reporting).
In 2012 the Lithuanian Insurance Act No. 94-4246; 2011, No. 145-6816 adjusting its regulations to Solvency II
requirements has been amended (it will come into effect on 1 January 2014).
Consumption demand may grow only slightly higher than in 2012, with lower investment increase.
The scope of business activities of the PZU Group includes provision of comprehensive insurance services. The
Group companies offer services relating to life, other personal and property insurance as well as asset management on behalf of their customers in the form of an open pension fund and investment funds.
Chart does not include investments funds managed by TFI PZU, which are, alter alia, included in consolidation process
Other financial services, excluding insurance and pension funds 6 PrJSC IC PZU Ukraine („PZU Ukraine”)
Distribution of Armatura Group products, administration and management of the Group.
10 Armatoora SA Nisko 10.12.2008 63,83% 63,83% 63,83% 63,83% Manufacture and sale of heaters and taps.
Manufacturing of bathroom (water and gas) and central heating fittings 13 Armadimp SA Kraków 20.07.2012 63,83% n/a 63,83% n/a Manufacturing of ceramic sanitary fixtures
Warsaw 15.12.2009 100,00% 100,00% n/a n/a Investing of funds collected from members 15 PZU Fundusz Inwestycyjny Zamknięty Akcji 1)
Warsaw 27.01.2010 100,00% 100,00% n/a n/a Investing of funds collected from members
Warsaw 30.04.1999 100,00% 100,00% 100,00% 100,00% Establishing, representing, managing investment funds.
Management of securities portfolios for the account of third parties 19 PZU Pomoc SA Warsaw 18.03.2009 100,00% 100,00% 100,00% 100,00% Assistance services 20 UAB PZU Lietuva Gyvybes Draudimas
Warsaw 13.08.2004 100,00% 100,00% 100,00% 100,00% Management of employee pension fund 23 Ipsilon Sp. z o.o. Warsaw 02.04.2009 100,00% 100,00% 100,00% 100,00% The Company does not carry out any operations.
24 Ipsilon Bis SA Warsaw 02.09.2011 100,00% 100,00% 100,00% 100,00% The Company does not carry out any operations.
25 Omicron SA Warsaw 13.09.2011 100,00% 100,00% 100,00% 100,00% The Company does not carry out any operations.
Acquisition and disposal of real property, agency in real property trade, real property management
Warsaw 28.12.1999 100,00% 100,00% 100,00% 100,00% The Company does not carry out any operations.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 28 LLC SOS Services Ukraine
GSU Pomoc Górniczy Klub Ubezpieczonych SA (d. Nadwiślańska Agencja Ubezpieczeniowa SA)
The PZU Group‟s Parent Company is PZU, which was established as a result of the transformation of Państwowy
Other property and personal insurance, in accordance with the categories specified in the Act on insurance activities: 1. Accident insurance, including accident at work and occupational disease; 2. Sickness insurance; 3. Comprehensive insurance of land vehicles, with the exception of rail vehicles; 4. Comprehensive insurance of rail vehicles, covering damage to rail vehicles; 5. Comprehensive insurance of aircraft covering damage to aircraft;
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 6. Insurance of maritime and inland navigation and vessel comprehensive insurance; 7. Insurance of goods in transport covering damage to transported goods; 8. Insurance of damage caused by natural disasters; 9. Insurance of other damage to goods; 10. Insurance of all types of liability resulting from the ownership and use of land vehicles with their own propulsion, including shipper‟s liability; 11. Insurance of all types of liability resulting from the ownership and use of aircraft, including shipper‟s liability; 12. Insurance of general maritime and inland navigation liability resulting from the ownership and use of maritime and inland vessels, including shipper‟s liability; 13. Liability insurance (general liability insurance); 14. Loan insurance; 15. Insurance guarantees; 16. Insurance of various financial risks; 17. Insurance of legal cover; 18. Insurance in respect of providing assistance for people who have encountered difficulties during travel or absence in their place of residence.
In 2012 and 2011 PZU did not file a request to change the scope of the permit to carry out insurance activities.
Life insurance, in accordance with the categories specified in the Act on insurance activities: 1. Life insurance; 2. Dowry insurance, providing for children; 3. Capital fund-linked life insurance; 4. Annuity insurance.
In 2012 and 2011 PZU Życie did not file a request to change the scope of the permit to carry out insurance activities. Moreover, in 2011 and 2010 permits for insurance activities issued for PZU Życie were not withdrawn with respect to one or more insurance class and no receivership was established.
Based on the By-Laws, the key business of PTE PZU involves:  establishing an open pension fund;
 managing the established open pension fund, representing it before third parties in a manner specified in the By-Laws and managing more than one open pension fund in the cases and on terms and conditions stipulated in the Act on Organisation and Operation of Pension Funds of 28 August 1997 (Law
Journal of 2010 No. 34, item 189 as amended);  establishing a voluntary fund whose business includes individual pension accounts or individual voluntary pension insurance accounts referred to in the Act on individual pension accounts and pension insurance accounts of 20 April 2004 (Law Journal No. 116 item 1205 as amended);  managing the voluntary fund and representing it before third parties in a manner determined in the By-
Lithuanian companies:  PZU Lietuva – property and personal insurance;  UAB PZU Lietuva Gyvybës Draudimas – life insurance.
PZU Lietuva on 15 October 2012 has opened a branch in Latvia and on 14 November 2012 also in Estonia
Fund “Słoneczna Jesień” managed by Międzyzakładowe Pracownicze Towarzystwo Emerytalne PZU (intercompany pension fund management company) on the basis of art. 152 clause 1 of the Act of 28 August 1997 on the organization and operations of pension funds (Journal of Laws No. 232 of 2011, item 1378 as amended).
PZU AM is a company servicing PZU Group entities, included in the Tax Capital Group (details in Section 14.7).
PZU Pomoc SA engages specifically in the following activities:  organizing assistance services consisting of providing assistance to Clients;  lease and rental of motor vehicles;  conducting Internet auctions and Internet trading;  managing loyalty programs as part of conducting other business supporting activities not classified elsewhere;  managing post-accident assets;  activities in the area of medical services.
 PZU Pomoc SA is a company servicing PZU Group entities, included in the Tax Capital Group (details in 3.2.9. Ogrodowa–Inwestycje Sp. z o.o.
The business of Ogrodowa-Inwestycje Sp. z o.o. is:  rental and management of own or leased real estate;  purchase and sale of real estate on own behalf;  activities in the area of stationary telecommunications;  other business and management advisory services.
Ogrodowa is an owner of City-Gate office building (at Ogrodowa 58, Warszawa) and three leisure centres
Ogrodowa-Inwestycje Sp. z o.o. provides services to both PZU Group entities and external clients.
 constant intermediation in underwriting insurance contracts, financial and investment, and assistance contracts;  Contact Center services;  Data Center services;  printing services;  IT services.
PZU Życie holds 63.7% in the share capital of Armatura Kraków SA and therefore 63.7% of votes in the extraordinary shareholders‟ meeting. Since 1 January 2011 the company has been included in the consolidated financial statements of the PZU Group. Management Board of PZU decided to commence consolidation of the company only because it exceeded the materiality level.
Armatura Kraków SA is the parent of the Armatura Capital Group and since 2007 has been quoted with Warsaw
Stock Exchange. The Armatura Capital Group consists of the following companies: Armatura Kraków SA,
Armatoora SA, Armagor SA and Armadimp SA. The Group‟s business activity does not include finance and insurance. It is a leading manufacturer of plumbing and heating equipment in Poland. Its companies specialise in production of bathroom and kitchen taps, aluminium heaters, valves, toilet seats and sinks.
PZU Życie has been holding shares in the company since October 1999.
The restructuring included sales of the company's enterprise (the entire enterprise except of ownership of City
KGJK is PLN 41.4 million and is divided into 827,763 registered preference shares of PLN 50 each. PZU Życie and
PKO BP SA assumed the shares at the price equal their nominal value, i.e. PLN 50 per share. The value of the block of shares held by PZU Życie at acquisition price is PLN 15.53 million. PZU Życie purchased the shares in
The core business of KGJK involves transport of people by cable railway and ski lifts and hotels.
July 2012 a new agreement was signed between PZU Życie and PKO BP regulating cooperation of the shareholders in the process of selling the shares. Then, an advisor was selected in the process. In December 2012, the advisor commenced preparation of a memorandum and valuation of KGJK. The sales procedure is assumed to be completed in Q2/Q3 2013.
Kompania Węglowa SA). On 22 June 2012, PZU Życie sold the whole block of shares in that company to
Spółka Ubezpieczeniowa SA holding 70% of shares in the share capital is the second majority shareholder.
The change of ownership and core business were to allow the company‟s establishing a club for employees of the mining sector and a loyalty program dedicated to them. At present, the company runs the club and develops its offer under the loyalty program.
In 2012, the PZU Group continued transferring financial investments to funds. The objective of the activities was to improve the effectiveness of the management of financial investments.
Details are provided in the financial statements of the PZU Group for 2012, section 2.3.1.
On 16 January 2012 the ownership rights to Inter Risk shares were transferred to the acquirer. The profit from the sale of shares amounted to PLN 2,286 thousand.
Under the agreement dated 20 March 2012, on 23 March 2012 the ownership rights to shares in LLC Finansowa
Kompania Idea-Kapitał were transferred to Publiczna Spółka Akcyjna Kredobank for the total amount of UAH
FINANCIAL PERFORMANCE OF PZU GROUP IN 2012 4. Events significantly affecting the activities and financial performance of PZU Group
The financial performance of PZU Group in 2012 was affected by the following factors:  An increase in the gross written premium resulting among others from growing sales of TPL motor insurance (mass insurance segment), statutory accident insurance for hospitals and TPL for therapeutic entities (corporate insurance segment), group and continued cover, as well as individual investment insurance (bancassurance channel);  Higher investment income, mainly due to growing prices of treasury bonds arising debt instruments yield down, situation on capital markets and introduction of a new investment strategy aimed at improved investments yield accompanied with optimised risk management;  Increase in mathematical provisions and capitalised annuity value arising from a drop in technical rates applied resulting from treasury bonds yield down;  Improved profitability of motor, group and individually continued insurance (excluding conversion);  Higher level of claims (including the change in technical provisions) in the current year arising from:  growing sales of individual investment products in the bancassurance channel and better performance on investment activity translated into an increase in technical provisions for contracts with an element of investment;  slowdown in conversion of long-term contracts into annual revolving ones in P class group insurance;  worse performance in contract guarantees in the corporate client segment, among others following an increase in claim provisions related to a series of bankruptcies in the construction industry;  Implementing of the PZU Group strategy on optimising processes and centralising functions, to include unification of PZU and PZU Życie resulting in subsequent stages of headcount restructuring; Implementing of project work aimed at modification of image of the Group and introducing a new policy system in property insurance (2014 is the planned implementation deadline).
Gross written premiums from direct and indirect insurance for 2012 amounted to PLN 16,243.1 million
Premium changes have been discussed in the comments to segment performance (point 6.1 and 6.2).
Gross written premiums – property and personal insurance 8 791 447 8 532 432 3.0% Corporate insurance 1 839 912 1 823 885 0.9% Mass insurance 6 613 586 6 423 356 3.0% Foreign companies 337 949 285 191 18.5%
Gross written premiums – life insurance 7 453 977 6 751 771 10.4% Group cover and individually continued insurance 6 364 007 6 179 053 3.0% Individual insurance 1 089 970 572 718 90.3%
An increase in net claims (PLN 1,997.6 million i.e. by 19.5%) has resulted mostly from reduced technical rates both in property and personal insurance (PZU) as well as in life insurance (PZU Życie).
IFRS to the one applied in the separate financial statements prepared in line with PAS: PLN 390.1 million;  capitalized annuity amount net of reinsurance in the corporate and mass insurance segment by total of
Further, the following factors contributed to the growth in claims:  an increase in unit-linked life insurance provisions (much better performance on investments): PLN 810.4 million;  in P type group insurance, the conversion of multi-year policies to one-year renewable ones slowed down (the conversion effect in IAS (excluding the change in technical rates) in 2012 translated into release of PLN 207.0 million provisions, i.e. PLN 199.1 million less than during 2011);  in financial insurance, contract guarantees, payments and increase in provisions related to a series of bankruptcies in the construction sector (gross provisions for contract guarantees increased by PLN 117.0 million including by PLN 46.1 million net of reinsurance).
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 5.3. Claims and change in measurement of investment contracts
The claim balance and change in measurement of investment contracts at the end of 2012 and 2011 amounted to PLN -176.8 million and PLN 32.5 million. The decrease resulted from the sales volume of short-term investment products being much lower than in the previous year accompanied with a higher level of endowment payment related to these products.
At the same time, in the pension insurance segment, following regulatory changes and the acquisition ban, the costs decreased by PLN 61.3 million, i.e. by 75.2%.
Moreover, the strategy adopted by PZU has been strictly adhered to in terms of improved claims efficiency, centralised policy handling and internal management (so-called non-insurance accounting) and new client service standards developed (the Group Network Function has been established). Following the above activities, the PZU
(details in section 9.8). Total employment expenses decreased by 2.3% to PLN 1,511.8 million as a result of headcount reduction. In PZU and PZU Życie only the number of FTE‟s decreased by 4.1% compared to the end
PLN 95.6 million in 2011);  in 2011 a provision was recognised for fines imposed by Office for Competition and Consumer Protection of PLN 67.9 million (for limiting competition at sales of group accident insurance and restrictions in refunding costs of a substitute car lease under motor TPL; details provided in Note 54.2 to the consolidated financial statements of the PZU Group);  donation of PLN 50.0 million to PZU Foundation;  Armatura Group being consolidated in line with the full method, which resulted in one-off recognition of revenue of PLN 118.9 million in 2011.
Basic and diluted PZU earnings per ordinary share (in PLN) 29,89 29,90 (0,1)%
Table 14: Data from the consolidated statement of cash flows of the PZU Group
Net cash used in/generated by investment activities 421 388 (288 686) X
In 2012, net profit amounted to PLN 3,253.8 million and was higher by PLN 910.0 million, i.e. by 38.8% than in the previous year.
Investments7 (financial assets and investment property) constitute a key asset accounting for 91.2% of the balance sheet total. Their value reached PLN 50,987.5 million and was 7.8% higher than at the end of 2011.
Equity was higher by 10.9% versus the previous year and amounted to PLN 14,269.3 million.
Technical provisions net of reinsurance accounted for 63.3% of equity and liabilities. At the end of 2012, the balance of provisions amounted to PLN 35,400.8 million and was 8.8% higher than at the end of 2011.
The increase resulted in particular from:  a lower technical rate applied to calculation of mathematical provisions and those for capitalised annuity amount;  higher value of investments: the technical provision for unit-linked life insurance products;  a series of bankruptcies in the construction industry: provision for unpaid claims in financial insurance.
Changes in technical provisions are described in details in section 5.2.
The balance of investment contracts dropped by PLN 1,172.6 million due to the sales volume of short-term investment products being much lower than in the previous year accompanied with a higher level of endowment payment related to these products.
Technical provisions 35 400 778 32 522 729 8.8% Provision for unearned premiums and for unexpired risks
Provision for life insurance 15 675 243 14 595 112 7.4% Provisions for outstanding claims 5 878 445 5 429 481 8.3% Provision for capitalised value of annuity 5 660 281 5 088 626 11.2% Provisions for bonuses and discounts for the insured 4 227 7 192 (41.2)% Other technical provisions 531 617 581 155 (8.5)% Unit-linked provision 3 113 798 2 299 767 35.4%
Investment contracts 2 299 147 3 471 772 (33.8)% Provisions for employee benefits 60 649 255 576 (76.3)% Other provisions 267 456 322 063 (17.0)% Deferred tax provision 357 557 109 716 225.9% Derivatives 129 921 93 443 39.0% Other liabilities, including current income tax 2 441 813 1 797 521 35.8% Accruals and deferred income 682 970 686 957 (0.6)% Liabilities total 41 640 291 39 259 777 6.1% Total equity and liabilities 55 909 560 52 129 282 7.3%
As at 31 December 2012, the amount of recorded disputable claims, unaccepted by PZU Group companies and claimed at court, amounted to PLN 69.7 million (PLN 54.0 million as at 31 December 2011).
Under the guarantee line agreement of 26 September 2008 between PZU and Bank Millennium SA, the bank extended bank guarantees (bid bonds and contractual guarantees) to PZU in procurement proceedings for insurance services. The guarantee line amounts to PLN 15 million and is annually extended for another year. As at 31 December 2012, under the facility valid for the period from 28 September 2012 to 27 September 2013, 53 guarantees for the total amount of PLN 6.5 million were granted.
The above requirement is based on Solvency I regime. Following implementation of Solvency II, the capital requirement calculation model will change.
In line with the letter from the Polish Financial Supervision Authority No. DN2/107/4/2004 MP dated 25 March 2004; PZU SA may recognise the share of the reinsurer - AXA France IARD – in technical provisions as assets covering technical provisions in the amount exceeding 5% of these provisions.
1. Securities issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 2. Bonds issued or guaranteed by local authorities or associations of local authorities 4. Participation units in investment funds 5 286 061 33,8% 40%
6. Real property or its part, excluding property or its part used for internal purposes 9. Receivables from the State Budget 81 050 0,5% No limits 10. Fixed assets, other than real property, if depreciated using the prudence principle 12. Capitalized acquisition costs compliant with the principles of determining provision for unearned premium in section I of the attachment to the act and in compliance with the premium provision calculation in section II
C. Surplus (shortage) of assets covering technical provisions 4 089 265 26,1%
Assets covering the technical provisions in PZU Życie as per PAS
Item Total % of technical provisions 1. Securities issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 2. Bonds issued or guaranteed by local authorities or associations of local authorities 5. Units or investment certificates in investment funds 3 698 0,0% 10%
Following the above changes, the one-off provision increase took place for:  mathematical provisions for group and continued insurance by PLN 798.6 million;  capitalized annuity amount net of reinsurance in the corporate and mass insurance segment by the total of PLN 234.3 million.
PZU increased the provisions for claims under contract guarantees and reduced the estimated income from share in reinsurers‟ profits as a result of a series of bankruptcies in the construction industry (for contract guarantees increase in gross provisions by PLN 117.0 million including PLN 46.1 million net of reinsurance).
Following termination of the Collective Labour Agreement and limiting the liabilities to the statutory level (as described in section 9.8) provisions for employee benefits (retirement and jubilee bonuses) were released and resulted in recognition of one-off profit of PLN 177.0 million.
Since 1 January 2011, the consolidated financial data of the Armatura Capital Group (“Armatura Group”), including the financial data of Armatura Kraków SA, Armatoora SA, Armatoora i wspólnicy sp. k. and Armagora
A one-off effect of the consolidation in 2011 calculated as a difference between the carrying amount of shares of
Armatura Kraków SA as at 1 January 2011 and the share of the PZU Group in the net assets of the Armatura
Group of PLN 118.9 million was charged to the profit/loss for 2011 and presented under “Other operating revenue” of the consolidated income statement.
issued a resolution dated 19 July 2012 to start liquidation of the company as of 1 August 2012. Sigma
Investments Sp. z o.o. did no carry out any business activities.
Insurance against fire and other damage to property 380 084 385 676 (1,4)%
Total property and personal without motor insurance 901 033 774 151 16,4%
* The item includes credit guarantees and other financial insurance, assistance, tourist, maritime, rail and aviation insurance.
In the corporate insurance segment, the increase in gross written premium of PLN 16.0 million (+0.9%)
compared to 2011 resulted in particular from sales of:  new accident insurance from medical events (accident insurance of hospitals + PLN 50.1 million; from 1 January 2012 it was statutory, but in the first half of 2012 the Ministry of Finance changed the law and released medical entities from the obligatory insurance);  TPL for corporate clients (+ PLN 23.7 million) and modified TPL products for therapeutic entities
Gross written premium decreased in motor insurance despite the average premium growth by 10.2% as a result of losing a portion of portfolio (due to the restrictive underwriting policy).
Table 24: Performance of the corporate insurance segment (property and personal insurance)
A significant increase in claims occurred in financial insurance, where technical provisions for suretyships grew in relation to a series of bankruptcies in the construction industry, in particular with regard to contract guarantees for PBG Capital Group companies (PBG SA and Hydrobudowa Polska SA). In relation to payments from contract guarantees issued, PZU joined bankruptcy procedures of the above companies, submitting its claims to their bankruptcy estates. Details of the proceeding are described in sections 54.5 and 54.6 of the financial statements of PZU for 2012.
In other insurance (except from financial and accidental insurance), the amount of claims decreased as a result of:  a lower number of large individual claims and no catastrophes;  a change in approach to individual risk measurement.
Further, due to a change in assumptions regarding projected growth in annuities (from 3.7% to 3.9%) and the technical rate reduction (from 3.7% to 3.6%) related to the reduced bonds yield, one-off negative impact on the underwriting profit/loss was recognised in the form of increased provisions for capitalized annuities of PLN
The 19.9% decrease (compared to the previous period) in investment income allocated in accordance with transfer prices to the corporate segment resulted among others from the reduced value of technical provisions denominated in foreign currencies following changes in PLN/EUR rate underlying the calculation of risk-free rate income.
In 2012 and 2011, the underwriting profit/loss in the corporate segment amounted to PLN 217.5 million and PLN
In the mass insurance segment, gross written premium increased by PLN 190.2 million (+ 3.0%) compared to 2011. The change resulted mostly from:  Increases in TPL motor insurance tariffs (increase in average premium amount) implemented in 2011;  Increase in written premium for other TPL insurance as a result of sales of TPL products for therapeutic individuals and SME‟s, modified among others as a result of changes in the law;  Increase in sales of agricultural insurance product resulting from the sales campaign initiated on 1
Table 26: Performance of the mass insurance segment (property and personal insurance)
In 2012, claims increased by + 4.0% year on year, i.e. slower than the increase in net earned premium. In particular, profitability improved in motor insurance where the number of claims decreased by 1.7 pp. to the level of 74.9% due to improved driving conditions and smaller traffic (among others, reduced fuel prices). At the same time, in 2012 in the property insurance segment, the number of large individual claims was small.
The increase in operating profit in the mass insurance segment by PLN 226.2 million (+39.5%) compared to 2011 resulted from improved profitability of motor insurance (reduced claim frequency) and in property insurance
Written premium by payment type – group and individually continued insurance
The increase was compensated with decrease in sales of life insurance with single premium (bancassurance), what resulted from decline in market interest rate and lower attractiveness of the product.
Table 28: Performance in the group and individually continued insurance segment
Change in the balance of other technical provisions net of reinsurance
The increase in net claims (by PLN 69.4 million, i.e. 1.7%) resulted mainly from higher surrender value in group insurance - Employee Pension Plan and higher endowment payments in the structured bancassurance products
 an increase in unit-linked life insurance provisions (much better investment performance with the increase higher by PLN 218.9 million
In 2012, administrative expenses increase by PLN 17.6 million (+3.1%) compared to 2011 was related to new project initiatives aimed at improvement and automation of service processes and building of a positive image of the PZU Group.
Compared to 2011, the gross written premium increased by PLN 517.3 million (+90.3%) as a result of:  high sales growth of a unit-linked single-premium product introduced in cooperation with Bank
The changes were partly offset with sales of structured insurance with a single premium called “Świat Zysków”, which saw a year-on-year drop and expiration of endowment insurance portfolio originating from the nineties.
Data from the income statement: individual insurance 1 January - 31
The increase in acquisition costs in this segment (by PLN 34.7 million, i.e. by 61.9%) resulted mainly from rapid growth in sales of investment products through bancassurance channel, in particular the unit-linked product with high acquisition costs.
Following the above events (mainly the acquisition cost increase), operating profit of the segment decreased by
Investment income in the investment segment9 constitute the surplus income from investments of PZU and PZU
Improved investment performance of the PZU Group and investment segment resulted among others from growing prices of bonds (two-year treasury bonds yield decreased by 97 p.p. y-o-y, and that of five-year bonds by 26.2%, while the year before it dropped by 20.8%).
An increase of PLN 40.0 million was recorded on derivatives, purchased mainly for risk management purposes
Instruments for which fair value may not be determined 126 348 0.2% 128 227 0.3%
Reverse repo transactions and deposits 6 982 331 13.7% 5 457 008 11.6%
Data from the income statement – pension insurance 1 January - 31
10 The investment portfolio includes financial assets (with investment contracts), investment property and negative valuation of derivatives
The statutory acquisition ban effective from 2012 contributed to the reduction of acquisition costs by PLN 61.3
A change in the Act on open pension funds of 2011 introduced a total acquisition ban on the open pension fund market as of 1 January 2012. The law allows correspondence as the only manner to conclude agreements with open pension funds, which has significantly reduced the number of people changing pension funds and limited the number of individuals who join the funds the first time. These activities resulted from an increased number of people who did not choose their open pension fund and therefore participated in the draw procedure carried out by Social Security Institution (ZUS). Due to statutory provisions, OFE PZU as one of the largest funds on the market does not participate in the draw, which impacts its market share calculated as the number of members. At the end of 2012, PFE PZU had about 2,222.9 thousand members constituting 13.9% of the general number of open pension fund members and gives PFE PZU the third place in the market in this respect.
Insurance Institution as well as profits on investing activities. In 2012, Social Insurance Institution (ZUS) provided
May 2011 from 7.3% to 2.3%, i.e. by 68.5%. Investment profit of OFE PZU in 2012 amounted to PLN 4,872.7 million. The return rate of OFE PZU in 2012 was 15.7%.
The increase in the gross written premium by PLN 21.3 million (+17.6%) year on year resulted both from an increased value of premiums collected through external entities (banks, travel agencies, etc.) and of own sales.
The increase in investment income by PLN 3.4 million (+23.8%) year on year resulted from a growth in liquid financial instruments yield (deposits, bonds) and increase in the liquid asset base.
In 2012, the claim ratio improved compared to the previous year thanks to reduction of popular but claimgenerating medical insurance and balancing of the portfolio with the profitable property insurance one.
Acquisition costs decreased by PLN 3.6 million (-11.4%) compared to 2011.
Table 8: Performance of the Baltics segments (property and personal insurance)
Motor insurance had the highest share in the portfolio structure (57.0%). The share of TPL motor insurance amounted to 36.5% and did not change from 2011, while Motor own damage insurance increased slightly from 19.6% to 20.5%. Accident and health products also generated growth (from 10.2% to 12.0%), and so did property insurance products (from 14.9% to 15.2%).
Investment income for the 12 months ended 31 December 2012 amounted to PLN 9.9 million. An increase in this income arose mostly from improved standing of stock markets and increased exposure to corporate bonds, being more profitable than treasury bonds.
Net insurance claims increased by PLN 25.2 million (+29.1%). The increase resulted mostly from a growth in health claims, where the company had significantly increased its market share in the previous year, and an increase in general TPL provisions.
Operating profit increase resulted in particular from high growth in the net premium earned and investment income.
Written premium by payment type - individual insurance 1 January - 31
In 2012, gross written premium on investment contracts decreased by PLN 1,194.9 million (-39.1%) compared to 2011. Changes in the gross written premium resulted mainly from:  lower sales of short-term endowment and unit-linked investment products in the banking channel;  launch of a new investment product called Individual Pension Security Account (IKZE).
The increase in net claims (+PLN 115.4 million) resulted from the reduction in payments from short-term investment insurance, mainly in own channel.
Acquisition cost decrease by PLN 6.3 million (-16.8%) resulted mostly from a reduction in the volume of sales.
The operating profit of the segment amounted to PLN 1.1. million i.e. PLN 13.7 million less than in 2011. Cost of launching a new product, Individual Pension Insurance Account (IKZE) contributed to the drop.
7. Risk factors which may affect financial performance in the following periods 7.1. Property and personal insurance
Key risks that can affect the Company‟s performance in the property and personal insurance segment in 2013:  catastrophes (flood, hurricane, draught, spring frost);  economic slowdown or stagnation, which may result in an increased number of claims in the financial and property portfolio due to moral hazard;  decreasing sales of new cars resulting in a reduced number of motor insurance policies sold;  legal or regulatory changes regarding business operations, i.e. amendments to the Act on insurance activities, introduction of new standards by Financial Supervision Authority Office and Supreme Court decisions favourable for consumers;  growing consumer awareness that may translate into an increased number of claims, resulting among others from activities of consumer bodies, such as Office of Competition and Consumer Protection,
Insured's Ombudsman, Financial Supervision Authority;  growing insurance delinquency;  increase in the number of drivers without TPL insurance following introduction of the new insurance principles (amended Act on statutory insurance);  continued unemployment rate growth in 2013 and a slowdown in individual consumption, which translate to flat demand for insurance products;  pricing pressure of competitors, in particular resulting from reduced motor claim number in 2012;  returning growing trends in the claims ratio, in particular in the frequency of claims;  increase in the average cost of personal claims due to a growing share of private healthcare and the principle of compensation for a relative‟s death (Article 446 § 4 of the Civil Code of 23 April 1964,
Key risks that can affect the performance in 2013 in the group and individual segment (life insurance):  growing trends in unemployment rate in 2013, translating into lower demand for insurance products;  potential increase in competition in group insurance arising from the growing role of brokers in the segment and the requirement to hold tender for group insurance applicable to entities subject to the Public Procurement Act of 29 January 2004 (Law Journal No. 223 of 2007, item 1655);  decreasing attractiveness of policies combined with investment and structured products in light of planned introduction of tax on capital profit on these products;
Protection, Insurance Ombudsman, PFSA;  changes in the financial brokerage, reduced growth in popularity of independent financial advisory services thus limiting the number of sales channels;  changes in the current mortality, longevity and incidence proportion;  situation in the capital market in 2013, in particular on the Warsaw Stock Exchange – attractiveness of equity products offered by PZU depends on capital market standing;  the amended VAT Act of 11 March 2004 (Law Journal No. 54 of 2004 item 535 as amended) lacks the precise scope of exemptions, e.g. regarding insurance or medical services;  the implementation date and scope of Solvency II is unknown, which may impact the capital requirement level in the PZU Group.
In 2012, Strategy of the PZU Group for 2012-2014 was published. Section 9.9 thereof includes information regarding implementation of the Strategy in the previous year.
PZU GROUP ACTIVITIES IN 2012 9. Activities, key developments and achievements of the major PZU Group Companies
PZU and PZU Życie are regularly rated by credit rating agencies. The rating assigned to PZU and PZU Życie results from an analysis of the financial information, competitive position, management and corporate strategy. It also includes outlook, i.e. an assessment of the future position of the Company in the event of specific circumstances.
As at the date of the report, PZU had a long-term credit rating and financial strength rating (assigned by
The table below presents ratings assigned to PZU and PZU Życie by Standard&Poor‟s, together with those of the previous year.
Financial strength rating A /stable/ 23 July 2011 A /stable/ 22 July 2011
Credit rating A /stable/ 23 July 2011 A /stable/ 22 July 2011
 In March 2012, motor insurance tariffs for individuals and SME changed and were adjusted to market conditions.
Information Centre of the Insurance Guarantee Fund with their Bonus-Malus statements regarding insurance history.
 On 1 July 2012, a new residential insurance version was introduced called PZU DOM Plus with a wider scope of risk included. In the same time, PZU DOM product, a narrow version of PZU DOM Plus, was withdrawn.
 Due to high number of claims regarding statutory insurance of subsidized crops, in autumn 2011, changes were introduced to the insurance offer to improve its profitability.
 In accordance with its strategy, PZU carried out activities aimed at improving the profitability of TPL and
Motor own damage insurance, among others through relatively restrictive underwriting policy and selective sales addressed to selected portfolio segments. As a result, and due to formerly introduced changes in tariffs, further improvement in underwriting profit/loss was observed.
 In TPL insurance: o modified TPL products were introduced for therapeutic entities as a result of legislation changes regarding the scope of liability and increasing the guarantee amount; o risk assessment tools were used consistently and relatively restrictive insurance terms and quoting principles applied o in medical TPL insurance, risk survey use increased.
Work was also commenced with regard to new products, among others lease repayment risk insurance until establishing of a mortgage and lease repayment risk insurance with regard to the insufficient own contribution of a lessee.
 Cooperation with counterparties with large client bases or supporting mass payments was continued and negotiations commenced with new partners, among others IT companies, power plants and commercial networks. It included introduction of a series of new specialized insurance products, among others regarding mobile phones, notebooks and debt repayment risk in case of losing a job.
Life insurance 2012 was the year of adjusting product offer to growing clients‟ expectations, strong competition and changing legal environment. One of the key changes included a response to Decision of the EU Court of Justice of 1 March 2011 and Act on 14 December 2012 amending the Act on insurance activity; PZU achieved compliance with the changes through modifying of its tariff rates and eliminating of sex as a separating criterion.
On 1 January 2012, tariffs for P Plus group insurance changed, which resulted in implementation of:  new tariff levels to improve pricing flexibility of the offer; rebates and commissions were regulated;  new additional group insurance of the title to individual continuation with three continuation guarantee types, differing in terms of premium for the continuation right and in group insurance and in the continuation stage. Thanks to the new continuation guarantee, each new group employee insurance
In 2012 the following was commenced:  activities aimed at increased interest in the additional insurance offer among employers / policy holders;  customisation of the group offer through more flexible and developed product system;  offering assistance services and discount programs through Klub PZU Pomoc w Życiu.
Individually continued insurance products were changed as well in order to ensure their compliance with the Council Directive 2004/113/EC and decision of the European Court of Justice (case C-236/09 Test-Achats of 1
March 2011). Therefore, effective from 1 October 2012, premium calculation principles have changed: the calculation does not include the sex of the insured.
of the premium calculation basis for the previous year is deductible. IKZE is offered by a number of financial institutions, but its framework is regulated by the Act on individual pension accounts amended on 1 January 2012. At the end of 2012, PZU Życie was a clear in the sales of IKZE in Poland with the number of its clients being substantially higher than in other insurance companies.
Due to strong uncertainty regarding stability of financial markets and national economies seen in 2012, PZU Życie has observed growing interest in traditional life insurance products (cover or cover and saving). Therefore, the sales of “classical” products, such as “PZU Ochrona Życia” or “PZU Twoja Ochrona” increased significantly in 2012 compared to previous years.
In 2012, the sale of "Plan na Życie”, an individual life insurance product linked to an equity fund continued, but the “black PR” regarding unit-linked products in the bancassurance channel and discussions regarding construction of such products (among others in relation to liquidation fees) the sales results may indicate that clients have become more cautious when making investment decisions.
On the other hand, structured product enjoyed strong popularity. Twelve successful subscriptions were held for
Further, tools supporting sales and maintenance of products, such as IT systems, simulators, etc., were modified.
The continued sales of „Wielowalutowy Program Inwestycyjny‟ introduced at the end of 2011 in cooperation with
In cooperation with Bank Handlowy w Warszawie, ten subscriptions were held for Indywidualne Inwestycyjne
Ubezpieczenie na Życie. Some of them were offered in a new auto call version (the early endowment option).
Further, a decision was made to withdraw group investment products (except from policies combined with investment) and negotiations were commenced with partners to renew the individual offer of this product based on agency contracts.
In 2012, development of the product offer continued, based on the fee for service model through PZU Pomoc SA, providing medical performances and services. The number of medical partners cooperating with PZU Pomoc SA
General insurance terms and conditions are published in PZU website (www.pzu.pl) and available in PZU offices.
PZU Group has the largest network of POS among Polish insurers.
Organization of PZU sales network is to ensure that high efficiency of sales is maintained, accompanied with high service quality. This is achieved through dual organizational of sales:  division by distribution channel;  customer segmentation.
Key distribution channels:  Exclusive agents: o At the end of 2012, own agency network of PZU consisted of 318 office agents, 5,71011 field agents and 23 partner agencies providing workplaces for the agents; o In 2012, 1,078 agents were recruited; o the agency channel is the key one for sales of all sorts of insurance to mass clients, with special focus on motor and property insurance.
 Insurance brokers: o About 850 brokers cooperate in particular with the Corporate Client Function.
 Direct: o Sales to mass clients through telephone and Internet.
Including dealers cooperating with PZU based on an exclusivity agreement (153)
Including dealers cooperating with PZU based on a multi-agent agreement (996)
 PZU employees o The network of shared POS of PZU and PZU Życie, which carry out sales and provide services, in particular with regard to individual policies (including individually continued products).
 Direct o This distribution channel is used to win clients for individually continued insurance
 Personally, in a selected PZU Branch or shop belonging to the PZU Repair Network
Losses are adjusted in 9 adjustment centres around the country. If the process is based mostly on e-data (in the form of images, documents and data from operating systems) and the service location not depending on the residence of the insured / place where an event occurred, the method involving equal distribution of workload to individual claims handling centres has been adopted.
In 2012, under improvement of claims handling with regard to motor insurance claims, the following measures were undertaken:  Cost optimization through centralising of claim handling procedures regarding substitute vehicles;  Centralized handling of records of cost verification orders regarding car repairs;  Automated random allocation of losses to key adjusters located in one of the 9 claims handling centres;  Automated control of cost estimates prepared by repair shops and submitted through Clam
The following changes were introduced in 2012 to property claims handling:  Another stage of expert system integration aimed among others at verification of external bills / cost estimates with the claims handling operating system;  Reduction of the average claim amount regarding premises, among others by adjusting the existing assumptions to current repair technologies;  New versions of property and TPL claims handling procedures;  Implementing a comprehensive document “Property claims handling standards for corporate clients
In 2012, the following activities were performed with the purpose to improve the claims handling process:  Launching of PZU 24 hotline for PZU Życie claims;  Automated communication with suppliers of diagnostic services in TPL and accident claims. At present, information and data are exchanged automatically (on the system basis) with all four suppliers;  mass correspondence service managed by claims handling system was implemented;  the system used to maintain group insurance (among others by employers / policy holders) was integrated with the claims handling system, which allowed among others automated adjustment of certain losses.
The above measures reduced the average claims handling time compared to the previous year:  in PZU by approx. 4.5 days to 15.65 days; for motor insurance: 18.87 days for TPL and 15.34 days for
IKZE was the key project commenced in 2011 and continued in 2012. Following statutory changes, effective from 1 January 2012, pension funds have been entitled to maintain individual pension insurance accounts (IKZE)
and offer the related financial services (pension savings) to clients. The related activities are performed through
was the first market player in this segment entered in the Register of Funds on 12 January 2012 and thus enabled to commence operations. DFE PZU soon gained a leader position in the voluntary pension insurance segment and became the leader in terms of return rate. Its new product offered as the third pillar pension insurance allows a tax relief in PIT for those paying to IKZE, up to the amount of the annual statutory limit. PTE
PZU focused on support of sales and education, encouraging potential members to make payments.
At the end of 2012, DFE PZU maintained 121.6 thousand IKZE accounts, and as at 31 December 2012, its assets amounted to PLN 3.4 million. Sales of IKZE in DFE PZU are carried out in cooperation with PZU CO, which is the product distributor. DFE PZU became a market leader among voluntary funds managed by pension funds. In the first year of operation on the IKZE market, 30 financial institutions entered the market offering their clients
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 with the new product. The sales performance of DFE PZU in 2012 placed it among the three largest financial institutions offering IKZE. With substantial experience on pension product market, highly qualified management, well-established market position confirmed with numerous awards (e.g. Investment & Pensions Awards for the best-managed pension fund in Central and Eastern Europe in 2010), PTE PZU will develop this aspect of its business to provide clients with the opportunity to increase their funds held in OFE PZU and in DFE PZU in a safe manner.
Acting in the best interest of OFE PZU members, the management board of PTE PZU decided to change its depositary bank to ING Bank Śląski SA. On 18 November 2011, an appropriate permit was obtained from PFSA.
ING Bank Śląski assumed the role as of 14 January 2012. The change, with the existing service and entrusted fund safety standards maintained, allowed OFE PZU significant reduction of fees charged by the Depositary for stowing of its assets. The asset stowing costs were reduced by 32.8% with the average asset growth of 5.4%, which resulted in an increase in funds on accounts of OFE PZU members and IKZE holders, since the bank is also the Depositary of DFE PZU.
In 2013, PTE PZU will actively participated in consulting of proposed changes in legal regulations regarding pension insurance, raising arguments and solutions that secure interests of clients of open pension funds and development of the pension insurance market. We will submit our opinions through the forum of Pension Fund
Group companies (mainly PZU and PZU Życie);  Introducing new closed investment funds to the offer and holding issues of certificates;  Extending the distribution network;  Very good investment performance generated by fund managers.
* The presented historical performance does not include the tax on capital gains and handling fees. The table of tariffs is available at pzu.pl website, in the office of TFI PZU (Al. Jana Pawła II 24 in Warsaw) and in points trading participation units.
Other distribution channels:  Direct sales o The leading products include Employee Pension Plans (the third pillar). The existing and new plans account to nearly 47% of the total net sales (excluding assets of the PZU Group).
 External channel o It accounts for approx. 45% of net sales (except from PZU Group assets).
Their sales share approximated 15% of the total assets collected on the market.
 The manager of PZU Papierów Dłużnych POLONEZ won the award of Gazeta Giełda PARKIET called
“Złoty Portfel” for very good investment performance in 2011;  PZU Bezpiecznego Inwestowania sub-fund changed its name to PZU SEJF+ and its investment policy;  Closed funds: PZU FIZ Nieruchomości 3, PZU FIZ Aktywów Niepublicznych BIS 2, PZU FIZ Aktywów
Ekologia and PZU Papierów Dłużnych POLONEZ;  Establishing cooperation on investing in funds managed by TFI PZU with the following companies: o TU EUROPA SA and TU na Życie EUROPA SA; o AXA Życie TU SA; o Fundusz Górnośląski SA; o Tower Inwestycje Sp. z o.o.; o Ogrodowa – Inwestycje Sp. z o.o.; o Przedsiębiorstwo Produkcyjno – Handlowe „TEMAR” sp. j.
From executive perspective the organizational structure of PZU and PZU Życie is based on the functional and territorial coordination of tasks. Under the functional coordination, PZU and PZU Życie have been divided into divisions coordinating specific functions such as marketing, sales management in specific client segments, claims handling, POS network management, operational division, financial division, HR division, investment division as well as support divisions and functions. The territorial coordination is carried out via territorial structures (regional branches or relevant divisions/functional areas, including specialized units). On each organisational level
(head office, specialised units, regional branches, PZU branches) most of these structures are fully integrated and provide their services to PZU and PZU Życie.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 unit; accounting operations unit (insurance and non-insurance); HR operations unit; collection operations unit; financial insurance unit; administrative support unit;  regional branches with the PZU branch network: points of sales offering direct comprehensive client services regarding property and life insurance.
The organizational structure of PZU and PZU Życie includes committees, collective bodies with decision-making and opinion-giving power.
As a part of optimisation of the organisational structure and tailoring the business strategy to changing environment in 2012 the Group introduced the following key organizational changes:  Restructuring of the marketing division, by way including insurance product management to this division;  Reorganization of sales channel management – sales channel based approach;  Establishment of the Investment Division;  Establishment of the Health Insurance Division in PZU Życie SA;  Further centralization of insurance operations (liquidation of 5 insurance operations units and creation of 2 centres) in PZU SA;  Unification of centres of PZU and PZU Życie responsible for insurance accounting;  Centralisation of financial support, which was provided to field offices at a regional level, in central and specialized units;  Establishment of the HR Division;  Centralization of HR operations and establishing a payroll and HR centre (to replace the payroll centre and dispersed HR services provided at a regional level).
In 2012, measures performed in the IT function were based among others on the following assumptions:  Long-term plan to develop applications supporting key business areas based on the IT architecture agreed with business functions;  System version issue management process to optimise the number of system changes at the same time ensuring improved quality and timely implementation;  IT sourcing strategy with a well-defined sourcing model balancing internal and external sources based on know-how and costs;  Simple, common, transparent measures of efficiency and effectiveness of IT processes and expenditure based on a detailed cost allocation model.
The project is of strategic importance for PZU and has been called Everest. System implementation is based on the agile methodology ensuring high quality of work, maximum alignment of results with business needs and keeping the pre-determined deadlines. Apart from IT, all key business areas including sales (including distribution channel management), operations and product management, claims handling, debt collection and accounting are involved in implementation. The new system will entirely transform processes performed in PZU, in particular will dramatically reduce time to market for new products. The transformation will take 3-4 years and include integration of products, sales, operations, policy management and claims handling.
In 2012, a series of activities aimed at supporting of key business initiatives and optimising of technical infrastructure were performed, in particular:  Another stage of the project regarding the shared ERP-class system for PZU and PZU Życie was implemented and replaced the old finance and accounting systems of the companies;  Internet auction platform was improved to allow sales of assets remaining after property damage to a broad audience and precise valuation of these assets for the insured;  Changes were introduced in all IT systems of the PZU Group with regard to visualizing standards in relation to refreshed PZU brand;  IT tools were introduced to support new principles of employee assessment, bonuses and incentives for
Further, in 2012 a few material initiatives were commenced, which will result in implementation of new IT tools, including those supporting the new sales structure.
At the same time, attention was drawn to such features as reliability and stability, although the firm adjusted to the contemporary market and clients‟ expectations. “Changing for good”
The campaign included not only logotype change, but also modification of branches and POS, as well as advertisement communication.
PZU selects employees with various competences and interests. At the same time, employees may expand their
Employment structure of PZU and PZU Życie at the end of 2012 and 2011 is presented in the tables below.
Employees of these companies constitute a significant portion of the PZU Group‟s headcount
Restructuring program in the PZU Group (as described below) resulted in reducing the average age of employees in the Group and increasing the share of persons with a university diploma degree.
Table 14: PZU and PZU Życie – employment by education * below secondary
The first staff performance review for the year 2012 will be carried out in 2013. The key objective of the review is to promote appropriate attitudes focused on cooperation, knowledge sharing and giving feedback. To this end,
At the same time, in 2012 position valuation process began in order to link the remuneration level to competencies, required skills and market standards. It shall be completed in Q1 2013.
The e-learning platform put into operation allowed among others distributing information regarding HR activities, including the new remuneration and DNA systems. Statistically, there were 8 hours of training per employee delivered through this platform. The target training offer shall be extended by additional modules including soft skills and technical skills. The industry-related knowledge can be extended also through access to e-materials
Further, commitment survey was held among employees. It resulted in a project called TOP 30 – Change
An internship program aimed at strengthening the position of PZU as an employer of choice was launched in order to enable students and young graduates to develop their knowledge and skills and apply them in practice.
On 10 July 2012, the Management Boards of PZU and PZU Życie decided to start the implementation of the last stage of the restructuring plan for the years 2010-2012 and to carry out lay-offs. The decision resulted from implementation of a number of projects consisting in simplification of procedures, automation and optimisation of business processes and centralisation of functions. The restructuring will affect most operations, finance and claims handling areas.
Ultimately, 746 people from both Companies were affected by the aforementioned phase of the restructuring program (employment and remuneration terms and conditions of 192 employees were changed, the headcount was reduced by 554 employees, including 401 employees whose employment contracts were terminated, because they did not approve the new terms and conditions).
PZU and PZU Życie recognized a provision for the restructuring program of PLN 48,353 thousand as at
Employment of PZU and PZU Życie at the end of the years 2009-2012 is presented in the table below.
Labor Code. Former internal regulations of PZU extended the aforementioned entitlements for employees whose length of service at the PZU Group companies exceeded 10 years (up to 6 times an employee‟s monthly pay, depending on the overall length of service); o jubilee benefits have been liquidated
In 2012, PZU Group published its strategic objectives for the years 2012-2014. Their summary is presented in the following table.
4. Nowa Era Sprzedaży (New Sales Era) in the multi-agent channel was implemented to improve efficiency of cooperation with the channel.
5. More sales campaigns were performed based on an extended sales support tool
6. Actions were performed to introduce a new product system that will improve product flexibility and refinement and serve as a tool for individual distribution channels. In 2012, a new operating model was developed, a supplier selected and a detailed analysis performed. Implementation work was commenced.
1. An increase in the number of club members to more than 3 million (versus over 2 million at the end of 2011) enables closer cooperation with clients and expanding the service scope.
Dynamic growth in health insurance 1. A 24.3% increase in the gross written premium in health insurance Y/Y.
3. Work was commenced to develop and implement a direct sales model for corporate clients. The activity supported the strategy of transforming PZU into a business
2. With its large capital base, PZU is searching for investment opportunities both in the country and abroad.
2. Fourth place in the Ranking of Most Precious Polish Brands by Rzeczpospolita Daily in 3. The main award in "Charity Leaders 2012" among companies who provided the most funds for social purposes in 2011 (PLN 20.7 million).
Middle-office: modern integrated client service model 1. Over 350 shared POS of PZU and PZU Życie were established providing their clients with an opportunity to fix both property and life insurance in one-stop-shop.
2. Implementation of the network of high-visibility modern branches shared by the entire
Group and focused on sales continued. At the end of 2012, there were 52 branches.
4. PZU Group Client Centre was opened, being a specialist central unit dealing with clients' issues.
Centres were closed, as well as a branch office and Insurance Operations centre. Their activities were transferred to CBO in Łódź and Opole.
Życie was completed. Additionally, in the first half of 2012, unified real property
Objective Measures undertaken in 2012 management procedures were implemented and a pilot performed for some insurance accounting processes, whose full implementation was continued in the third stage of implementation : in January 2013, further insurance accounting processes were implemented in PZU and PZU Życie.
4. A tool to monitor IT system breakdowns was implemented that allowed reduction of time necessary to identify and rectify problems.
HR: business partner / involved employees / performance oriented culture 1. In Q1 2012 CLA termination process was completed. It proceeded smoothly, with 98.4% of employees having signed amendment arrangements. This was the first step towards a new market-based remuneration system in the PZU Group.
3. Job valuation was verified for consistency in PZU and PZU Życie.
5. The second edition of the internship program was commenced, aimed at strengthening the position of PZU as an employer of choice (interns were hired). These activities improve the value of PZU brand as a good employer (the fifth place in the third edition of Antal International survey “Employers of choice 2012 as seen by professionals and managers”).
Branding: PZU is a modern, truly client-oriented firm 1. Image change, including logotype, office arrangement and advertisement communication.
2. On 10 May, a new logo was presented at a press conference and the brand refreshment process commenced.
3. From 12 May to 31 July a campaign was held called “changing for good” as a part of the image-changing action.
4. High brand recognition: 55% of potential brand customers mention PZU as the first recognizable insurance brand (4 p.p. growth), 90% of potential clients surveyed spontaneously mention PZU as one of insurance brands (“Insurance brand image survey” carried out by GfK Polonia, telephone surveys, sample N=1,500 per month).
As a part of its educational activities, PZU has supported an insurance website “JakieUbezpieczenie.pl”. This is an information and education website, which presents the advantages of insurance in a clear and user-friendly manner.
As every year PZU carried out preventive actions to improve public safety and mitigate various risks. The following activities were carried out in this area in 2012:
 continuation of the cooperation with Tatra Voluntary Mountain Rescue (TOPR), Mountain Voluntary
Rescue Service (WOPR) and chosen groups of Water Voluntary Rescue Service (WOPR)
Branch;  patronage over the Łazienki Królewskie Museum;  PZU zone during the Long Night of Museums at the Royal Castle in Warsaw, Łazienki Królewskie Museum in Warsaw and in National Museum in Kraków;  sponsoring “Rzeszów Carpathia Festiwal 2012”;  patronage over the Decius Villa in Kraków;  sponsoring the “Droga na Harvard” competition;  sponsoring a project of Akcjonariat Obywatelski;  sponsoring of Krynica Economic Forum;  sponsoring of Forbes Ball;  sponsoring Polish Economy Pillar Gala 2011;  sponsoring of Yalta Finance Forum;  sponsoring the Academy of Capital Market Leaders;  sponsoring of Centrum Hewelianum in Gdańsk;  sponsoring of the Second European Forum of New Ideas in Sopot;  sponsoring of the Fourth Women Congress;  sponsoring of the First Congress of Listed Companies‟ CFOs;  sponsoring of WallStreet Conference;  sponsoring of Bukowina Tatrzańska Municipality.
Lubuska RTV in Zielona Góra, Stowarzyszenie Przyjaciół Nowicy, Fundacja Świat Ma Sens in Limanowa.
Osób z Wadami Rąk in Warsaw, Fundacja Wemenders in Warsaw, Mazowiecki Uczniowski
Klub Sportowy in Legionowo, Fundacja Przeciwko Leukemii in Warsaw, Fundacja Ewy
2. Develop savings and investment products, in particular long-term saving ones.
2. Further the creation of the health insurance market in order to increase the scale of the business in this area.
4. Strengthen the direct relations with the insured by offering assistance in PZU Pomoc in PZU Życie
Efficient capital and investment policy 1. Further changes in investment policy, to include modification of investment structure, which will result in improved profitability and reduced fluctuation of ROI.
New international expansion model: PZU International 1. If interesting offers appear, increasing the scale of operations of the PZU Group in the form of cross-border expansion to Central and Eastern European Markets.
Middle-office: modern integrated client service model 1. Implementing a new client service model assuming integrated contact channel structure corresponding to clients' expectations; in particular further development of the modern POS network.
1. Continuing implementation of the new product system to allow improved operating efficiency.
Management Board and adequate Committees;  identification, measurement, evaluation, monitoring and reporting processes and management measures regarding each type of risk;  risk management organizational structure, in which Supervisory Board, Management Board of PZU and
Risk appetite is defined as the risk level which the PZU and PZU Życie are ready to accept when pursuing its business objectives. The definition determines limitations adopted in the risk management strategy.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 11.3. Risk management process
PZU and PZU Życie effectively pursue their risk management strategy through identification, measurement, evaluation, monitoring and reporting processes and management measures. Each element of the process is applied by PZU and PZU Życie to key operational areas, i.e. from the moment of proposing a new insurance or investment product until liabilities or receivables expire, or other activities are completed in relation to the product and support areas.
The fourth competency level is the operating one, where tasks included in the risk management process are distributed to three defence lines: 1) Line 1: risk management at the business (organizational) unit level in accordance with valid procedures, guidelines and limits. On this level, risk management is additionally supported with the current internal control principles, including activities performed by supervisors in the form of ongoing or regular control, as well as the controls embedded in procedures and processes by a given organisational units.
3) Line 3: the internal audit, whose tasks include independent control and audit of key risk management system elements and control activities embedded in the operations of PZU and PZU Życie based on audit and internal control methodologies developed and subject to continuous improvement. Additionally, this line includes monitoring the implementation of auditor‟s recommendations.
In 2012, the risk profile of the PZU and PZU Życie did not change significantly. Key risks to which the Group is exposed include insurance, market, credit, operating, and compliance risk.
The following list defines risk types, tools used to manage each risk type and summarises key risk mitigation methods used in 2012.
In PZU and PZU Życie, insurance risk management process starts with a proposal to develop a new insurance product.
Insurance risk assessment includes:  prevention involving insurance risk management in order to: o reduce loss frequency;
Insurance risk in PZU and PZU Życie is the risk of loss or unfavourable value change in the financial standing, arising directly or indirectly from volatility in the level and fluctuation of market prices of assets, liabilities and financial instruments.
Market risk measurement is based on the following risk measures:  VaR;  factor method: analysis of impairment caused by a determined change in risk factors, based on one scenario per risk factor;  exposure and sensitivity measures;  accumulated monthly loss.
Market risk measurement includes in particular the following three stages:  Collecting information regarding market risk-generating assets and liabilities.
The risk is measured:  every day for measures of exposure and sensitivity of instruments held in Kondor+ transaction system;  monthly using a partial internal model, except from real property used for own purposes, whose balance is updated quarterly and property in real property funds, whose measurement is updated every six months.
The credit risk is measured with:  exposure limits (gross and net credit exposure and net credit exposure weighted with maturity);  Value at Risk limits, the risk measure identifying a potential loss unlikely to be exceeded (99.5%
probability that it will not be exceeded) under normal market conditions within one year.
Credit risk measurement for a single entity is estimated as the total of individual exposures calculated as a product of two figures:
The structure of limits per credit risk class and for individual issuers of the Company is determined by Credit Risk
Committee (CRC) in a manner ensuring their compliance with the risk tolerance accepted by the Management
Operating risk in PZU Group13 is defined as a possibility to incur a loss arising from incorrect or irrelevant internal processes, human errors, system operations or external events.
The objective of operational risk management is to optimize operational risk and operational effectiveness of the
PZU Group and therefore to reduce losses and costs resulting from such risks. The process assumes ensuring adequate effective controls and applying appropriate organizational, procedural and technical solutions.
• Monitoring and analysis of causes of key IT system failures.
Members of the Management and Supervisory Boards are provided with periodical operational risk reports.
Continuity plans have been implemented and tested in PZU Group16 (PZU, PZU Życie, PZU AM, TFI PZU, PZU CO,
Compliance risk is a risk of legal sanctions, financial losses, damage to reputation or credibility if the PZU and PZU
PZU and PZU Życie manage compliance risk based on the Compliance Policy and Methodology to Identify and
Based on the above regulations, clear separation of competences under the systemic and ongoing management of compliance risk has been introduced. In PZU and PZU Życie leaders of areas, units and teams are in charge of ongoing compliance risk management.
 monitoring of compliance with norms of conduct in PZU and PZU Życie,
 monitoring of the compliance risk management process in PZU and PZU Życie, to include in particular: o developing opinions regarding possible non-compliance of draft internal regulations and information, marketing and advertisement materials addressed to clients and investors, o training and internal communication regarding compliance.
 intangible, relating to loss of reputation, including deterioration in terms of image and brand of PZU.
Compliance risk reporting to the Risk Office shall be made on the quarterly basis. Reports on risk on a scale of PZU and PZU Życie are submitted to the Management Board each year by 15 March of the following year. In 2012, there were no significant incidents of non-compliance risk.
Management actions in response to the risk of non-compliance include the following:  acceptance of such risk in respect of legal and regulatory changes;  risk reduction including adaptation procedures and processes in the context of regulatory requirements, evaluation and design of internal control in respect of compliance, participation in the revising the marketing process;  avoiding the risk by preventing the involvement of PZU and PZU Życie in activities inconsistent with applicable regulatory requirements, best practices and those that may negatively affect the image.
Price risk of equity instruments increase by 20% 234 304 254 336 decrease by 20%
Decrease in the sensitivity of the portfolio of financial assets on revaluation of listed equity instruments at the end of 2012, compared to 2011 resulted from lower exposure to financial instruments exposed to other price risk.
Table 18: Sensitivity of the provision for capitalized value of annuity claims
Change in the assumptions for the provision for capitalized value of annuity claims net of reinsurance in property and personal insurance (in PLN million)
Technical interest rate – drop by 1.0 p.p. (1 028) (900) (1 028) (900)
Change in the assumptions for annuity insurance in life insurance (in PLN million)
Technical interest rate – drop by 1 p.p. (38) (36) (38) (36)
Mortality – 90% of the currently assumed level (13) (14) (13) (14)
Liabilities due to investment and insurance with DPF in life insurance (excluding annuity insurance)
The impact of changes in assumptions concerning provisions for contracts for insurance and investment with DPF
Change in assumptions concerning provisions for contracts for insurance and investment with DPF in life insurance (excluding annuity insurance; in PLN
Technical interest rate – drop by 1 p.p. (2 296) (2 168) (2 296) (2 168)
12. Other selected PZU Group companies – directions for development and performance 12.1. PZU Lietuva
In the reporting period the company executed projects aimed at complete unification of life and property and personal insurance companies of the PZU Lietuva Group initiated in the preceding year. The process objective was to adjust the structure of PZU Lietuva to follow new shareholders guidelines, such as reduction of operating costs.
On 6 September 2012 the Latvian Financial and Capital Markets Commission issued a decision approving establishment of a branch of PZU Lietuva in Latvia. The following step was the registration of the Latvian branch in the register of entrepreneurs on 10 October. On 15 October PZU Lietuva opened its office in Riga.
On 17 October 2012 the Estonian Financial Supervision issued an approving establishment of a branch of PZU
In 2012 PZU Ukraine reported a growth in written premium while the Ukrainian insurance market was expected to decline (a decline after 9 months of 2012). After three quarters of 2012 the company was ranked 13 in standard property and personal insurance and its market share reached 2.94% (share of the market leader –
In 2012 the company managed to considerably improve profitability thanks to modification of the rates for motor insurance which constitute a significant portion of PZU Ukraine‟s portfolio and due to increasing the share of property insurance in the portfolio and reducing the share of medical insurance.
In June 2012 PZU Pomoc SA acquired shares in Nadwiślańska Agencja Ubezpieczeniowa, which was transformed into GSU Pomoc Górniczy Klub Ubezpieczonych. PZU Życie acquired 30% of shares in the entity. The entity will develop discount and incentive schemes and incentive programs for the mining industry.
The entity has optimised service processes and development of loyalty programs and at the end of the year it reviewed the strategy of Klub PZU Pomoc w Życiu based on marketing research results. The program will be continued in 2013 in compliance with customer needs.
As for medical services, at the end of 2012 the company had a network of 800 medical centres countrywide.
It optimized service processes which considerably reduced operating expenses without compromising client satisfaction.
The entity became a leader in the agency sale of damaged vehicles using an online auction platform. The tool will be developed in order to implement the platform in claims handling processes in the PZU Group.
Management Board 2 Witold Jaworski (Member of the Board until 27 December 2012)
No data - as at 14 March 2012 / 13 March 2013 these individuals were not members of Management / Supervisory Board of
On the date of the report on the activities of the PZU Group managers and supervisors did not have the PZU
During the 12-month period ended 31 December 2012, PZU did not issue, redeem or repay any debt or equity securities.
The shares of PZU were first traded on GPW S.A. on 12 May 2010. The Company shares are continuously traded in the primary market of WSE. In 2012, PZU shares were included in WIG, WIG20, WIG PL, RESPECT Index
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 -
I II III IV V VI VII VIII IX X XI
I II III IV V VI VII VIII IX X XI XII
Closing balance of shares item 86 352 300 86 352 300
Number of shares traded with stock exchange item 86 344 698 86 344 698
Closing balance of market value of the Company PLN 37 735 955 100 26 682 860 700
Dividend (gross) paid in the current year from previous year profit distribution
In 2012, the price of PZU shares was significantly influenced among others by volatility of financial markets, uncertain date of potential sale of 10% of shares by the State Treasury and very good financial performance compared to other companies in the sector, as reflected in sell-side measurements and analysts‟
In 2012, PZU was on the list of 21 domestic and foreign financial institutions whose analysts issued the total of 55 recommendations regarding its shares. Recommendations like “Buy”, “Accumulate”, “Prevail” were the most frequent (in total 29), while 19 were neutral (“Hold” or “Neutral”) and 7 “Underweight” or “Reduce”.
Capital market indicators for PZU as at 31 December 2012 31 December 2011
(Closing balance of market price of shares – opening balance of market price of shares + dividend paid in the period) / opening balance of market price of shares
In December 2012, Chairman of Financial Supervision Authority, following the above recommendation, encouraged insurance companies to adopt prudent dividend policy and use the 2012 profit to enhance their capital position.
According to above mentioned resolution, the cum dividend date for which the list of shareholders entitled to dividend for the financial year ended 31 December 2011 was determined at 30 August 2012, and the dividend payment date at 20 September 2012.
Further, following court‟s cancellation of a resolution of the General Shareholders Meeting regarding distribution of profit for 2006 in the amount of PLN 3,280,883 thousand, GSM decided to distribute the 2006 profit in a manner corresponding to the distribution based on the canceled resolution, i.e.:  PLN 3,260.9 million for supplementary capital;  PLN 20.0 million to the Company‟s Social Benefits Fund.
Meeting stringent information governance requirements for public companies and fulfilling information needs of different groups of stakeholders, the Management Board of PZU undertakes various investor relations activities aimed at improving transparency in PZU. In 2012 the entity published “Principles for Powszechny Zakład
Ubezpieczeń Spółka Akcyjna to Conduct its Information Policy for Capital Market Participants”. Management
Board declaration is available at PZU website in investor relations tab.
The prime objective of investor relations is to add value to PZU in the area of active communication with capital market participants which whom the Issuer wants to develop long-term relationships. In 2012 the major goal of investor relations was to provide information on the activities and performance of the PZU Group in a transparent manner and to create a positive image of the entity among investors to ensure investors'
The Group also organized communication activities addressed to private investors. PZU representatives participated in 2 conferences organized for private investors in Poland.
Inwestorów Indywidualnych;  The sixth edition of the conference “Professional Investor 2012” in Jachranka
The quality of data and presentation of information concerning companies‟ activities and performance and their value for PZU‟s shareholders and investors have been appreciated by the jurors of "The Best Annual Report 2011”
In November 2012 PZU was granted the right to use the “Investor Friendly Company” certificate by
Stowarzyszenie Inwestorów Indywidualnych (Association of Private Investors). The certificate was awarded for meeting strict requirements concerning investor relations and communication with private investors.
PZU is the parent company and the company representing the PGK in both the above-mentioned agreements. In accordance with art. 25 clause 1 of the CIT Act, the PGK conducts settlements with the Tax Office in monthly cycles. PZU makes tax advances to the Tax Office in respect of corporate income tax, which are due from all the companies belonging to the PGK and the said companies transfer the CIT advances related to their business activities to PZU.
The above objective is achieved through obligatory reinsurance contracts with additional facultative reinsurance.
Based on the reinsurance contracts concluded, PZU mitigates its risks, among other things, by a disproportionate excess of loss agreement protecting PZU‟s portfolio against catastrophic losses (e.g. flood, hurricane), a disproportionate excess of loss agreements protecting the portfolios of property, technical, marine, aviation, third party, and third party motor vehicle insurance against the effects of large individual losses. Additionally, PZU
mitigates its risks through a proportionate contract protecting the portfolio of financial insurance.
Ukraine. The Company participates both in obligatory and facultative reinsurance contracts of the abovementioned companies. Moreover, PZU obtains gross written premium from inward reinsurance from its operations on the domestic and foreign market, mainly through facultative reinsurance.
As part of the outward reinsurance contracts concluded by PZU Życie, the Company hedges the portfolio against accumulation of risks (catastrophe reinsurance) and individual policies with higher sums insured and group insurance - against serious illness of a child.
In the period from 1 January 2012 to 31 December 2012, PZU did not take or terminate any credit facility agreements.
In the PZU Group Armatura Kraków SA, Armagor SA, Armatoora SA and Armadimp SA concluded or terminated credit facility agreements with unrelated entities in 2011. Concluded and terminated credit facility agreements have been presented in the table below.
Credit facilities and loans of the Armatura Group companies * 2012 2011
Credit facility/loan matured during the year - 59 000 * companies from the Armatura Group, which had outstanding credit facilities as at 31 December 2012 and/or 31 December 2011: Armatura Kraków SA, Armatoora SA, Armagor SA, Armadimp SA, excluding line guarantees, guarantees, suretyships, letters of credit and factoring 14.10. Originated loans, including those to the issuer’s related parties
As for investment activities of PZU and PZU Życie in 2012, the entities extended loans totalling PLN 186.2 million maturing until 2018 at arm‟s length interest rates based on an appropriate WIBOR rate and margin. Loans are collateralized in a manner typical for a given instrument.
At the end of 2012 and 2011 the total value of loans (excluding buy sell back transactions) amounted to
14.11. Guarantees and sureties extended and received with respect to credit facilities and loans, including those granted to the issuer’s related parties
The financial position of the Company is very good. It meets all the security requirements imposed by the Act on insurance activity and the Polish Financial Supervision Authority. The stable rating outlook of PZU confirms that the Company‟s position is strong. The entity has high levels of equity and remains a competitive company in the insurance market.
Board of PZU does not see any threats to the Company business.
Own funds of the Company are sufficient to guarantee that all liabilities to the customers will be repaid.
The entities in the PZU Group are parties to a number of court and arbitration disputes and administrative proceedings. The typical court disputes are those related to insurance contracts, employment contracts and contractual obligations, while typical administrative proceedings are those related to own real property.
Most disputes the PZU Group companies are parties to pertain to two companies: PZU and PZU Życie.
Additionally, PZU and PZU Życie are a party to proceedings before the President of the Office of Competition and
PZU and PZU Życie consider such claims when creating technical provisions for reported damages, considering the probability of an unfavourable decision of the court and estimating the value of probable settlement.
In 2012 and by the date of preparation of the report on the activities, the PZU Group did not take part in any proceedings before court, body competent to hear arbitration proceedings or public authority body concerning liabilities or receivables of PZU or its direct and indirect subsidiaries with the value of at least 10% of the equity of PZU.
As at 31 December 2012 the total value of all 40,289 cases heard by courts, bodies competent to hear arbitration proceedings or public authority bodies involving the PZU Group entities was PLN 2,129.5 million. The amount includes PLN 1,638.8 million of liabilities and PLN 490.7 million of receivables of the PZU Group companies, which accounted for 12.2% and 3.7% of the equity of PZU calculated in line with PAS, respectively.
Operations of PZU are not of a seasonal or cyclical nature to the extent that would justify application of the suggestions presented in International Financial Reporting Standards.
It has been described in point 58 of the Notes to Consolidated Financial Statements of PZU Group for the year 14.18. Business Combination
By the date of preparing this report on the activities there were no agreements (including those concluded after the end of the reporting period), which could result in future change in proportions of shares held by the existing shareholders.
On 8 May 2012 the Supervisory Board of PZU appointed Deloitte Polska spółka z ograniczoną odpowiedzialnością
spółka komandytowa with the registered office in Warsaw, Al. Jana Pawła II 19, entered on the list of entities authorized to audit financial statements under no. 73 by the National Chamber of Statutory Auditors as the entity authorized to audit PZU‟s annual financial statements, annual consolidated financial statements of the PZU Group and to review interim separate financial statements of PZU and interim consolidated financial statements of the
The wording of “Good practices of companies listed on WSE” is available on the website devoted to corporate governance of WSE-listed entities (www.corp-gov.gpw.pl) and on the Company's website (www.pzu.pl) in the section dedicated to PZU‟s shareholders – “Investor Relations".
Apart from the aforementioned corporate governance principles the Company applies Ethical standards and other corporate social responsibility principles presented in the following documents:  Code of Good Insurance Practice adopted on 8 June 2009 by the General Meeting of the Polish Chamber of Insurance (“PIU”), an organization associating insurance companies operating in the Polish market.
Initiative (GRI) using the Sustainability Reporting Guidelines & Financial Services Sector Supplement.
and raises a number of issues in various areas, including: corporate governance, availability of services, product quality, data security, the effect of PZU's operations on the natural environment and PZU's active involvement in social activities. The document is available on the Company‟s website:
In 2012 PZU followed the principles defined in “Good practices of companies listed on WSE” adopted by resolution No. 20/1287/2011 of the Council of the WSE dated 19 October 2011, subject to recommendations indicated in Sections I.5, I.9 and I.12 with respect to two-way real-time communication which ensures that shareholders may express their opinions during a shareholders meeting even if they are not physically present at the session and with respect to exercising voting rights during the shareholders' meeting (whether in person or through a proxy). The announcement on non-compliance with these Recommendations was not issued in line with the waiver of the obligation to publish issuers‟ reports referred to in Article 29.3 of the Regulations of WSE
The following issues mentioned in section I of “Good practices of companies listed on WSE” defining
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 absolute majority of votes, except for cases specified in the Code of Commercial Companies or the By-laws. In accordance with the By-laws, resolutions of the General Shareholders‟ Meeting concerning: changes in the Bylaws, decrease in the share capital, disposal and lease of the enterprise or its organized part or establishment of a limited property right require a qualified majority of three fourths of votes. The resolutions of the General
Meeting. Starting from the date of convening the Shareholders' Meeting the announcement with materials presented to shareholders at the General Shareholders‟ Meeting are available at the PZU‟s corporate website
(www.pzu.pl) in its section dedicated to PZU's shareholders in "Investors relations" tab: "General Shareholders‟
Meeting". Duly called General Shareholders‟ Meeting is deemed valid regardless of the number of attending shareholders or number of represented shares.
The General Shareholders‟ Meeting is opened by the Chairman of the Deputy Chairman of the Supervisory Board and then the Chairman of the Shareholders‟ Meeting is elected. If the Chairman and Deputy Chairman of the
Supervisory Board are absent, the Shareholders' Meeting is opened by the Chairman of the Management Board or a person designated by the Management Board.
The General Shareholders‟ Meeting may adopt resolutions regardless of the number of attending shareholders or number of represented shares. Resolutions of the Shareholders‟ Meeting are passed in an open ballot. Secret ballot is held in the following cases: elections, voting requests for dismissal of members of the Company's bodies or liquidators, in cases of their personal responsibility towards the Company, in personal cases, excluding when
The rights of the shareholders and the method of exercising thereof at the General Shareholders' Meeting are specified in the Code of Commercial Companies and the By-laws.
Meeting have the right to participate in the Meeting (date of registration of attendance at the Meeting).
One share of PZU gives the right to a single vote at the General Shareholders‟ Meeting, including restrictions with respect to exercising the voting rights described in the Company‟s By-laws. The shareholder has the right to vote in a different manner under each share held.
Shareholders‟ Meeting and exercising the voting rights are always presented in an announcement of the General
In the period from 1 January 2012 to 31 December 2012, the composition of the Management Board of PZU was as follows: At 1 January 2012, the composition of the Management Board of PZU was as follows:  Andrzej Klesyk - Chairman of the Management Board of PZU;  Witold Jaworski - Board Member of PZU;  Przemysław Dąbrowski - Board Member of PZU;  Bogusław Skuza - Board Member of PZU;  Tomasz Tarkowski –Board Member of PZU;  Ryszard Trepczyński - Board Member of PZU.
On 27 September 2012, Witold Jaworski resigned from the position of a Member of the Management Board of
According to above mentioned, the composition of Management Board of PZU was as follows:
The current term of office of the Management Board of PZU SA has started on 1 July 2011 and will last until the end of three consecutive financial years. The mandates of members of the Management Board expire not later than on the date of the General Shareholders‟ Meeting approving the financial statements for the last full financial year of their term.
Andrzej Klesyk has been the Chairman of the Board of PZU SA since December 2007. From 2003 to 2007 he was a Partner and Managing Director of The Boston Consulting Group in Warsaw, where he collaborated with PZU in performing insurance projects. Created and managed Inteligo, a pioneer Internet banking project.
Managed a team creating Handlobank, the consumer banking division of Bank Handlowy w Warszawie SA.
Andrzej Klesyk graduated from the Faculty of Economy of the Catholic University of Lublin. He was one of the first
Poles to complete a two-year MBA course at Harvard Business School, the USA.
Graduate Management Course. He completed MBA studies at the University of Illinois and the Warsaw-Illinois
Executive MBA program. Przemysław Dąbrowski has vast experience in financial management services for the insurance sector, in managing financial investments and large financial transactions. He has knowledge and experience in accounting, tax and actuarial issues. Przemysław Dąbrowski started his professional career in 1993. From 1993 to 1998 he worked at Whirlpool Polska Sp. z o.o. as an analyst and financial controller. In 19982000 he was the Treasurer at AIG Poland. In the years 2000-2001 he was the Financial Director and a Member of the Management Board of Creative Team SA (the Elektrim Group). From 2001 to 2006 he was the Planning and
Controlling Director at PZU SA. In 2006-2008 he worked at AT Kearney and Accenture as a Manager and a Senior
Manager. From October 2008 to March 2009 he held the function of the Director – Financial Division Deputy Head in the Head office of PZU and PZU Życie. From November 2008 to February 2009 he was the Planning and
Bogusław Skuza graduated from the University of Gdańsk, the Economy of Transport Department, International
Representative of TUiR WARTA SA for the USA and Canada. In 1991-1992 he was a Manager of the Insurance and Claim Department at Gdynia America Line Inc., while in the years 1992-1999 he worked as a Country
Manager and the Deputy Chairman of the Management Board of Marsh & McLennan Polska Sp. z o.o.
Towarzystwo Ubezpieczeń SA. From 2008 to 2010 Bogusław Skuza was a Member of the Management Board of the Group and a CEE Regional Managing Director in Intrum Justitia AB. Bogusław Skuza held the position of the Chairman of the Supervisory Board of Intrum Justitia entities in Poland, the Czech Republic, Slovakia and
Hungary. In the years 1992-1998 he held the position of the Founder Member and the Secretary General of the Association of Polish Insurance and Reinsurance Brokers and in the years 2002-2008 he held the position of a Member of the Management Board of the Polish Insurance Chamber. Since 2009 he has been a Member of Good Practices Council at the Polish Insurance Chamber. He has held the position of a Member of the Management Board of PZU since July 2011. Bogusław Skuza is in charge of the Corporate Client Division, reinsurance and bancassurance.
Tomasz Tarkowski graduated from the Faculty of Automotive and Construction Machinery Engineering at the Warsaw University of Technology and from the Academy of Finance (formerly Academy of Insurance and
Banking). He also completed an Advanced Management Program at IESE Business School University of Navarra and post-graduate studies in road traffic safety and business insurance. Tomasz Tarkowski has been collaborating with the PZU Group since 1996. Initially, he worked in internal control and insurance fraud departments.
Handling Director in a Regional Branch of PZU SA in Warsaw. In 2007-2011 he was a Member of the Management
Ryszard Trepczyński graduated from Warsaw School of Economics, from the Management and Marketing
Management S.A., first as a Director of Debt Securities Department, Director of the Asset Management
Department, and since March 2009 he held the position of the Deputy Chairman of the Management Board in charge of investments. He has held the position of a Member of the Management Board of PZU and PZU Życie since July 2011. Ryszard Trepczyński is in charge of the Investment Division.
Dariusz Krzewina – Chairman of the Board of PZU Życie, Director in the PZU Group
Dariusz Krzewina graduated from the Economy and Sociology Department of the University of Łódź and postgraduate studies in insurance at Warsaw School of Economics. He has worked in the insurance industry for many years. From September 1993 to August 1998 he was employed in PZU Życie as a Sales Department Head, Deputy
Sales Director and from April 2000 to August 2001 a Member of the Management Board of STUnŻycie ERGO
HESTIA SA. From April 2002 he was a Sales Director and from October 2002 to June 2004 he was the Chairman of the Management Board and the Sales Director at SAMPO Towarzystwo Ubezpieczeń na Życie SA. In August 2004 he was appointed the Director of the Group Insurance Office Director in PZU Życie and since January 2006 he was the Coordinating Director in charge of Corporate Clients. He has been in the Management Board of PZU
Board. He has become a Director of the PZU Group in February 2010. He is in charge of HR and the Group
February 2004 holding the following positions: Director of the SME Insurance Office, Coordinating Director in charge of Agency Network Development and Managing Director in charge of Insurance Products – Head of the Mass Client Function. He has been in the Management Board of PZU Życie since 2008. He became a Director of the PZU Group in February 2010. He manages the Operational Function (Contact Centres and
Przemysław Henschke – Member of the Board of PZU Życie, Director of the PZU Group
He also acted as the CIO in Lucas Bank, where he managed the replacement of the banking system and IT
strategy and architecture for the group and started the implementation. Przemysław Henschke joined the Management Board of PZU Życie on 3 February 2012. On 7 February 2012 he was appointed a Director of the PZU Group in charge of the IT function.
Sławomir Niemierka graduated from Warsaw University, Law and Administration Department and a Post-Graduate
Course - Law and Economy in the European Union. He is a qualified legal counsel. He participated in Polish and international training courses in financial supervision and risk management in financial institutions. He authored and co-authored a number of publications on financial law and bank supervision. He was an academic teacher at post-graduate courses at Polish Academy of Sciences, Warsaw University and the Academy of Insurance and
Supervision, where he headed the Inspection Office responsible for inspections carried out in banks, branches of foreign banks and credit institutions in Poland, in particular inspections of internal controls and risk management systems. Member of a Steering Committee of the General Inspectorate of Banking Supervision in charge of the implementation of the second Basel Accord, supervision over risk models, operational risk and accounting standards. He was in a Team in charge of the development of the risk management system in the National Bank of Poland. As a Member of the Management Board of the Bank Guarantee Fund he supervised the operational risk management system, inspections and monitoring of banks financially supported by the Fund.
Witold Jaworski graduated from Poznań University of Economics (master degree in economics), Fachhochschule fur Wirtschaft in Berlin (scholarship) and Eurekans Management Development Program. He holds a PhD in economy. From 2001 to 2010 he was an assistant professor in the Insurance Department of the Poznań
The functioning and competencies of the Management Board arising from the Statute
In accordance with the Rules and Regulations of the Management Board, the Board's meetings are held not less frequently than once every two weeks. The work of the Management Board is directed by the Chairman, whose competencies include in particular:  establishing the scope of responsibilities for individual Board Members;  convening the Management Board meetings;  drawing up the agenda for Board meetings;  applying to the Supervisory Board to appoint or dismiss members of the Management Board;  appointing a person to direct the work of the Management Board in the absence of the Chairman of the
The Statute of PZU does not specify any particular rights for the Management Board to make decisions on the issue or redemption of shares.
State Treasury a personal right to appoint and dismiss one Supervisory Board member by virtue of a written
As at 1 January 2012, the following persons sat on the Supervisory Board of PZU:  Marzena Piszczek Chairman of the Board;  Zbigniew Ćwiąkalski Deputy Chairman of the Board;  Krzysztof Dresler Secretary of the Board;  Dariusz Filar Member of the Board;  Waldemar Maj Member of the Board;  Zbigniew Derdziuk Member of the Board;  Dariusz Daniluk Member of the Board.
On 30 May 2012, General Shareholders Meeting of PZU passed a resolution regarding the number of Supervisory
According to the above mentioned information, from 28 June 2012 the composition of the Supervisory Board is as follows:  Waldemar Maj Chairman of the Board;  Zbigniew Ćwiąkalski Deputy Chairman of the Board;  Tomasz Zganiacz Secretary of the Board;  Dariusz Daniluk Member of the Board;  Zbigniew Derdziuk Member of the Board;  Dariusz Filar Member of the Board;  Włodzimierz Kiciński Member of the Board;  Alojzy Nowak Member of the Board;  Maciej Piotrowski Member of the Board.
The current term of office of the Supervisory Board of PZU started on 30 June 2011 and will end after three consecutive full financial years. The mandates of the Supervisory Board members shall expire at the latest on the date of holding the General Meeting to approve the financial statements for the last full financial year of their performing their functions, i.e. on the date of holding the Annual General Meeting in 2015.
The functioning and competencies of the Supervisory Board arising from the Articles of Association
In accordance with the Statute, the competencies of the Supervisory Board include:  evaluating the Directors‟ Report and the financial statements for the prior financial year in terms of their consistency with the books and documents and with the actual state;  evaluating the propositions of the Management Board concerning appropriation of profit or covering loss;  submitting a written report to the General Meeting on the results of the evaluation referred to in the points above and submitting a brief annual assessment of the Company‟s standing, including an assessment of the internal control system and the system for managing risks significant to the Company, and an annual report on the activities of the Supervisory Board;  concluding, terminating and amending contracts with the Management Board members and establishing the principles for their remuneration as well as the level of remuneration;  appointing, suspending and dismissing the Chairman of the Management Board, the Management Board
General Meetings of PZU Życie in matters relating to: increasing or reducing share capital, issuing bonds, selling and leasing out the PZU Życie enterprise and establishing the right of use thereon, demerger of PZU
Życie, merger of PZU Życie with another company, liquidation or closing of PZU Życie;  electing the entity authorized to audit the financial statements to whom the audit of the Company‟s annual financial statements shall be entrusted;  establishing a consolidated text of the amended Statute;  approving the long-term development plans of the Company and the annual financial plans prepared by the
Management Board;  approving the rules and regulations of the Management Board;  analyzing and giving opinions on issues brought by the Management Board for the consideration of the
Resolutions of the Supervisory Board are passed by an absolute majority of the votes. If the number of votes is equal, the Chairman of the Supervisory Board has the casting vote. The Supervisory Board may pass resolutions both using remote means of direct communication and in writing by circulation. Moreover, the Statute provides for the possibility of casting a vote in writing through another Supervisory Board member. In accordance with the
Management Board members and concerning the appointment, suspension and dismissal of the Chairman of the
Management Board, Board Members or the entire Management Board, as well as making decisions on ceasing such suspension, which are made in a secret ballot. Moreover, a secret ballot can be ordered based on a motion tabled by a Supervisory Board member.
The Rules and Regulations of the Supervisory Board specify the composition and the manner of appointing the
Supervisory Board as well as the scope of the Supervisory Board's operations and the method for convening the
The Supervisory Board elects from among its members the Chairman and Deputy Chairman of the
Supervisory Board, as well as Secretary of the Supervisory Board. In accordance with the Rules and
Management Board (invited by the Supervisory Board) and the Company‟s employees indicated by the
The Statute provides for the Supervisory Board to appoint the audit committee. The committee is composed of three members, including at least one independent member with accounting or audit qualifications. The detailed tasks and principles for the appointment and operation of the audit committee are specified in the resolution of
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 the Supervisory Board, which when electing the audit committee members takes into account the competencies and experience of the candidates in the matters entrusted to this committee.
In accordance with the rules and regulations of the audit committee adopted by a resolution of the Supervisory
Supervisory Board the Chairman of the Audit Committee of the Supervisory Board of PZU. Therefore, during the meeting of the Supervisory Board of PZU on 28 June 2012, the composition of the Audit Committee was supplemented by Tomasz Zganiacz and Dariusz Filar was entrusted with the position of Chairman of the Audit
From 31 December 2012, the composition of the Audit Committee has not changed.
In accordance with the Statute, from the moment of introducing the Company‟s shares to trading on the regulated market as defined in the Act on trading in financial instruments dated 29 July 2005 (Journal of Laws 183 of 2005, item 1538 as amended), the Supervisory Board may appoint the nominations and remuneration committee. The detailed tasks and principles for the appointment and operation of the nominations and remuneration committee are specified by the Supervisory Board in a resolution. The committee should include at least one independent member. If the Supervisory Board is composed of five members as a result of voting on its composition, the nominations and salary committee shall not be formed and its tasks shall be performed by the
The nominations and remuneration committee performs an advisory and consultative function for the Supervisory
Board in the scope shaping the management structure, including organizational issues, the remuneration system and salaries and selecting staff with appropriate qualifications.
Committee will consist of five people, and Zbigniew Ćwiąkalski was appointed as Chairman of the Audit
Committee, Dariusz Filar, Maciej Piotrowski and Tomasz Zganiacz as Members of the Committee. As at 31
The committee shall be dissolved on the date of appointing five members of the Supervisory Board by voting in groups, and its rights shall be taken over by the Supervisory Board as a whole.
In order to properly perform supervisory functions at the Company, the Supervisory Board may appoint permanent committees with an advisory and consultative role. On 30 June 2011, the Supervisory Board appointed a strategy committee composed of the following persons: Waldemar Maj (Chairman of the committee), Krzysztof
Krzysztof Dresler resigned from the position of a Member of the Supervisory Board of PZU and the General
Shareholders‟ Meeting changed the composition of the Supervisory Board of PZU on 30 May 2012, Alojzy Nowak and Maciej Piotrowski were appointed new members of the Strategy Committee based on a resolution of the
Effective from 1 February 2012 and 19 March 2012, the Management Board of PZU appointed Przemysław
15.4. Discussion of the main features of the internal control and risk management systems applied in the issuer's enterprise in respect of the process of preparation of financial statements and consolidated financial statements
The process of preparing financial statements is performed by the Finance Division of PZU (the Accounting Office and central units operating based on applicable regulations). Finance Division of PZU is supervised by a Member of the Management Board of PZU.
Management Board of PZU and the chart of accounts with a commentary, which set out the main principles for recording the economic events of PZU, and the dedicated reporting systems.
Committee reviews interim separate and consolidated financial statements of PZU and audits annual separate and consolidated financial statements of PZU.
Coordination of activities in the scope of the consolidated financial reporting processes is achieved, among other things, by the organizational structure of the Finance Division in the Head Offices of PZU and PZU Życie, which is a joint unit, i.e. it is organized based on personnel unity, and additionally it also employs part-time key persons responsible for the reporting of the majority of the companies covered by consolidation with their seats in Poland.
The process of consolidated financial reporting is regulated by a number of internal documents regulating the accounting policies adopted in the PZU Group and the applied reporting standards, and by detailed schedules covering the key actions and control points as well as allocating responsibilities for timely and proper execution.
15.5. The list of PZU shareholders directly or indirectly holding significant packages of shares
As at 31 December 2012, PZU‟s shareholders holding significant packages of shares are the State Treasury that held 30,385,253 shares, which consisted of 35.2% of the Company‟s share capital.
The remaining shareholders hold a total 55,967,047 shares, representing 64.81% of the Company‟s share capital.
The share capital of the Issuer is divided into 86,352,300 ordinary shares with a nominal value of PLN 1 each, giving a right to 86,352,300 votes at the General Meeting.
15.6. Holders of any securities which give special controlling rights, including a description of those rights
General Meeting, none of them can have more than 10% of the total number of votes existing at the Company on the date of holding the General Meeting, with the reservation that for the purpose of establishing the
Act on insurance activities, this restriction of the voting right shall be considered non-existent.
For the purposes of voting rights restrictions, the votes of the shareholders being parent companies or subsidiaries will be added up in line with the principles specified in the By-laws.
In line with the PZU‟s By-laws, the voting restrictions in question will expire starting from the moment when a share of a shareholder who, at the date of adopting a resolution of the Shareholders‟ Meeting introducing the restriction held shares entitling him to more 10% in the total number of votes in the Company, drops below 5%
Supervisory Board‟s competence to establish a consolidated amended text of the Company's Statute.
On 8 December 2012, the Extraordinary Shareholders‟ Meeting of PZU adopted a resolution no. 3/2012 introducing amendments to the By-laws of PZU, which consisted in adding point 11 to Article 18 and amending
The amendments introduced detailed principles concerning division of competences between the Company's bodies with relation to approving disposal/acquisition of real properties. The changes were made to eliminate any
The District Court for the capital city of Warsaw registered the changes in the By-laws of PZU on 27 March 2012.
On 30 May 2012, the Shareholders‟ Meeting of PZU adopted a resolution No. 25/2012 on amendments to the Bylaws of PZU.
PZU. As of 1 January 2012 provisions of law on the social insurance system which allowed for carrying out acquisition activities for the benefit of open pension funds by insurance companies were repealed.
to reflect the actual share capital structure;  At the same time editorial changes were introduced: “by circulation” was replaced by “in writing” in the entire By-laws of PZU in order to adjust the document to the Code of Commercial Companies.
PZU Group presents a true picture of the PZU Group‟s development, achievements and situation, including a discussion of the main risks and threats.
Signatures of the Management Board Members of PZU: Name and surname Position / Function