Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 9. Operations, key development directions and achievements of the PZU Group ......................... 45 9.1 Rating .................................................................................................................................... 45 9.2 PZU‟s operations in 2011 ...................................................................................................... 45 9.3 PZU Życie‟s operations in 2011 ............................................................................................. 49 9.3.1 Sales .............................................................................................................................. 49 9.3.2 Benefit claims adjustment .............................................................................................. 52 9.4 Operations of PTE PZU in 2011 ............................................................................................ 52 9.5 Organizational structure of PZU and PZU Życie ................................................................... 53 9.6 IT area ................................................................................................................................... 53 9.7 Key marketing activities in 2011 ............................................................................................ 54 9.8 Key activities in the HR area ................................................................................................. 55 9.9 Pursuing the strategy and development projects .................................................................. 56 9.10 Activities related to Corporate Social Responsibility in 2011 ................................................ 58 9.10.1 Business Ethics ............................................................................................................. 58 9.11 Social commitment ................................................................................................................ 58 9.12 The PZU Foundation ............................................................................................................. 59 10. Planned key development directions .......................................................................................... 60 11. Risk management ....................................................................................................................... 61 11.1 Risk management policy ....................................................................................................... 61 11.2 Sensitivity to risk .................................................................................................................... 62 11.3 Stress tests ............................................................................................................................ 63 12. Selected other PZU Group companies – directions of development and results ....................... 63 12.1 PZU Lietuva ........................................................................................................................... 63 12.2 PZU Ukraine .......................................................................................................................... 63 12.3 TFI PZU ................................................................................................................................. 63 12.4 PZU AM ................................................................................................................................. 64 12.5 PZU Pomoc SA...................................................................................................................... 64 12.6 PZU CO ................................................................................................................................. 65
E. ADDITIONAL INFORMATION ....................................................................................... 66 13. Shares or rights to shares held by members of management and supervisory bodies of PZU as at the date of submitting the annual report.................................................................................. 66 14. Other information ......................................................................................................................... 67 14.1 Remuneration of Management and Supervisory Board Members of the PZU Group ........... 67 14.2 Issues, redemption and repayment of debt and equity securities ......................................... 67 14.3 Employee stock ownership plan ............................................................................................ 67 14.4 Price of PZU shares .............................................................................................................. 67 14.5 Dividend ................................................................................................................................. 70 14.6 PZU Tax Group...................................................................................................................... 71 14.7 Main reinsurance contracts binding in 2011 .......................................................................... 72 14.8 Concluded and terminated loan agreements ........................................................................ 73 14.9 Loans granted, including loans granted to the Issuer‟s related entities ................................ 73 14.10 Guarantees and warranties in respect of loans and borrowings granted and received, including those granted to the Issuer's related entities ...................................................................... 73 14.11 Evaluation of financial resources management, taking into account the ability to cover the liabilities drawn, and identification of potential threats and action taken or planned by the Issuer in order to counteract those threats ....................................................................................................... 73 14.12 Litigation pending before the court, the appropriate arbitration body or the public administration body ............................................................................................................................ 74 14.13 Information on significant contracts concluded ................................................................. 75 14.14 Related party transactions ................................................................................................. 75 14.15 The seasonal or cyclical nature of the activities ................................................................ 75 14.16 Significant post balance sheet events ............................................................................... 75 14.17 Business combinations ...................................................................................................... 75 14.18 Information on contracts concluded that are significant to the PZU Group‟s operations, including those concluded between the shareholders ....................................................................... 75 14.19 Cooperation with international public institutions .............................................................. 75
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 14.20 Contracts for audit and review of the financial statements ................................................ 76 F. REPRESENTATIONS OF THE MANAGEMENT BOARD OF PZU .............................. 77 15. Statement of compliance with corporate governance principles ................................................. 77 15.1 The corporate governance principles .................................................................................... 77 15.2 The General Meeting and shareholder rights ........................................................................ 79 15.3 The Issuer‟s management and supervisory bodies and their committees ............................ 83 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 ...................................................................................................... 91 15.5 The list of PZU shareholders directly or indirectly holding significant packages of shares ... 92 15.6 Holders of any securities which give special controlling rights, including a description of those rights......................................................................................................................................... 93 15.7 Restrictions on execution of voting rights .............................................................................. 93 15.8 Restriction concerning transferring of ownership rights to securities .................................... 94 15.9 The principles for amending the Statute of PZU ................................................................... 94 15.10 Amendments to the Statute of PZU ................................................................................... 94 16. The truth and fairness of the presented financial statements ..................................................... 98 17. Election of the registered audit company .................................................................................... 98
In 2011 the financial results of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group (“PZU
Group”) according to International Financial Reporting Standards (“IFRS”), and compared with the previous year, were mainly shaped by:  an increase in written premium in the PZU Group in both segments of insurance activities – life and non-life (a total of ca. + 5.1%);  improved profitability in the non-life segment, mainly in motor insurance and property insurance products: o a significantly lower rate of natural disasters in the analyzed period, which in 2010 related mainly to snow and flood claims (PZU‟s net share in the claims amounted to PLN 369.4 million);  a decrease in the level of administrative expenses achieved thanks to the restructuring program implemented in 2011 and 2010 and the program for reducing fixed cost (-8.1%);  a drop in income on investing activities resulting from the poor condition on the capital markets
 consolidating the Armatura Group – a one-off impact on net profit of PLN 118.9 million.
respectively. Until April, the indices increased in line with the expectations of accelerated global economic growth. In the 2 nd quarter, global growth perspectives dampened, which translated into investors‟ increased risk aversion on the global financial markets. In the 3 rd quarter, the exacerbation of the global debt crisis in the euro zone, fiscal problems in the USA and the rating agencies‟ cutting of the highest financial credibility rating, as well as revised data on the country‟s GDP, contributed to the huge increase in aversion to risk on the global financial markets which also resulted in a drop in the
The return on Polish debt remained relatively stable during the turbulences on the financial markets in 2011. As the Eurozone debt crisis intensifies and investors become increasingly risk averse in the global debt market, the yield of Polish ten- and five-year treasury bonds dropped between the end of 2011 and the end of 2010 by 16 and 17 b.p., respectively. The yield of two-year bonds, however, increased by 7 b.p. In terms of annual average, the return on Polish debt was a little higher than in 2010 – in respect of two- and five-year bonds by 5 and 11 base points respectively, and in respect of 10-year bonds by 19 base points. The resilience of the Polish debt market to crisis events resulted among other things from the maintained relatively high economic growth, progress in reducing the budget deficit and efficient management of debt requirements financing.
In 2011 the average annual inflation (CPI) amounted to 4.3% compared with 2.6% in 2010, and at the end of the year prices of consumer goods were 4.6% higher than in 2010 (3.1% y/y in 2010).
Acceleration of inflation in the 1 st half of the year was the result of the impact of global trends – an increase in food prices and other raw materials (including mainly fuels), and increases in administered prices (including prices of energy for households) and an increase in the VAT rates. In the 2 nd half of the year, in turn, a pro-inflationary factor was the huge weakening of the Polish zloty against key currencies. In 2011 net inflation also increased systematically (CPI, net of food and energy prices)
December 2010 (2.3% y/y compared with 2.4% y/y in 2010), since 2 nd quarter the demand for employees dropped. The slowing down of employment dynamics accompanied by an insignificantly higher number of active employees contributed to maintaining the recorded unemployment rate at a higher level (annual average 12.4% compared with 12.1% in 2010, at the end of the year 12.5%
compared with 12.4%). In these conditions the dynamics of wages and salaries remained moderate.
in 2011 compared with 3.9% in the prior year, in the 2 nd half of the year, in the corporate sector, both the nominal and real dynamics of wages and salaries gradually dropped. At the end of 2011 the average monthly remuneration in the corporate sector after accounting for inflation was slightly lower than at the end of 2010. High inflation was a significant factor impacting the drop in dynamics of the real income of households in 2011, in particular due to the lower dynamics of social benefits.
Therefore, individual consumption increased by 3.1% compared with 3.2% in 2010, but its dynamics in the 2 nd quarter dropped visibly. In the 4 th quarter of 2011 consumer satisfaction ratios dropped yet again.
higher at the end of 2011 than at the end of 2010, and the USD to PLN rate increased by 15.3%. The changes in the annual average exchange rate of the PLN were lower – the EUR / PLN exchange rate increased by 3.1%, and the USD / PLN rate dropped by 1.7%. In conditions of increased aversion to risk, the CHF also strengthened against the PLN, and the CHF / PLN exchange rate was 14.8% higher at the end of 2011 than at the end of 2010.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 2.6 Impact of macroeconomic factors on the insurance sector
However, on the other hand, especially in the 2nd half of the year, dynamics of real income dropped and thus the conditions for an increase in consumer demand deteriorated. The GDP increase was increasingly driven by investments, especially investments in infrastructure.
In 2011, among other things, production, imports and sales of cars dropped which led to the ageing of the car park in Poland and a drop in demand for comprehensive motor insurance (AC). Sales dynamics of durable consumer goods also fell. On the other hand, in 2011 corporate capital expenditure increased after the drop in 2010. The financial position of non-financial companies (data for the period from the 1st to the 3rd quarter of 2011) improved compared with the same period of 2010, contributing to the improvement in the conditions of sales of insurance products for corporate and SME clients.
The weakening of the zloty compared with the EUR had a negative impact on the loss ratio in motor insurance due to the impact of the imported spare parts (a process extended in time due to the importers‟ maintaining specific inventory balances).
The share of Powszechny Zakład Ubezpieczeń Spółka Akcyjna (“PZU”, the “Issuer”) measured by gross written premium on the Polish non-life insurance market was 32.6% as at the end of December
Most current data published by the Polish Financial Supervision Authority (“KNF”) as at the moment of preparing the PZU
Table 2: Non-life insurance market – analysis of gross written premium
Table 3: Non-life insurance market – PZU share in market premium
PZU's results for 2010, the Company achieved very good technical results compared with other companies on the market. This is specifically visible in motor insurance.
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 4/2011, Rynek ubezpieczeń 4/2010, PZU data 2.7.3 Life insurance
Table 5: Life insurance market – gross written premium and technical result
In 2011 the market share of Powszechny Zakład Ubezpieczeń na Życie SA (“PZU Życie”) increased to 30.8% (+1.2 p.p. compared with 2010). The dominating share in the Company‟s key segment of regular premium was maintained and amounts to 43.4%. Thanks to the cooperation with PKO BP SA
Table 7: Position of OFE PZU (open pension fund) on the pension market in Poland
Table 8: Share of OFE PZU (open pension fund) in the pension market in Poland
Jesień” in the market (in %) 31 December 2011 31 December 2010
(-12,962 people); however, it is still the best result among the three largest funds (ING OFE noted a balance of minus 51 thousand people, and Aviva OFE minus 111 thousand people).
As at the end of 2011, the total value of net assets in all OFE amounted to PLN 224,720.1 million and increased by 1.6% compared with the end of 2010. OFE PZU assets dropped by 0.4% during the period, to PLN 30,523 million, which placed OFE PZU third among all OFEs operating on the market in terms of the asset level.
4.8%. The balance of payments and redemptions amounted to minus PLN 3.3 billion. Most new fund inflows were noted in debt funds, money market funds and cash funds (of ca.. PLN 2.1 billion each).
PLN 0.50. The amendments were legitimized by the Act of 22 December 2011 on amendments to some acts related to the realization of the Budget Act (Journal of Laws No. 291 of 2011, item 1707).
3. Organization scheme of the PZU Group 3.1 Organization of the PZU Group
Warsaw 30.11.2001 100.00% 100.00% 100.00% 100.00% Auxiliary activities related to insurance and pension funds
Other financial services, excluding insurance and pension funds 6 PrJSC IC PZU Ukraine (“PZU Ukraine”)
Kraków 07.10.1999 63.83% 64.63% 63.83% 64.63% Manufacture of bathroom and kitchen taps.
Gorzów Śląski 06.09.2009 63.83% 64.37% 63.83% 64.37% Manufacture of valves, tool-related services
Non-consolidated subsidiaries 14 PZU Pomoc SA Warsaw 18.03.2009 100.00% 100.00% 100.00% 100.00% Assistance services.
15 Ipsilon Sp. z o.o. Warsaw 02.04.2009 100.00% 100.00% 100.00% 100.00% Assistance services and provision of medical services.
Purchasing and selling real property, intermediation in trading and real estate management.
Consolidated under the full consolidation method as at 1 January 2011. Discussed under item 5.10.
Krynica 17.08.1998 37.53% 37.53% 36.71% 36.71% Managing ski and tourist lifts.
The PZU Group‟s Parent Company is PZU, which was established as a result of the transformation of
PZU‟s core business is conducting insurance and directly related activities in respect of section II
Until 31 December 2011 PZU Życie could engage in acquisition activities on behalf of open pension funds in accordance with the provisions of the Act of 28 August 1997 on the organization and operations of pension funds (Journal of Laws No. 159 of 2004, item 1667 as amended - “Pension
In 2011 and 2010 PZU did not file a request to change the scope of the permit to carry out insurance activities. Moreover, in 2011 and 2010 PZU permits for insurance activities with respect to one or more insurance class were not withdrawn and no receivership was established.
5. Accident and sickness insurance, if they supplement the insurance referred to above in items 1-4.
Until 31 December 2011 PZU Życie could engage in acquisition activities on behalf of open pension funds in accordance with the provisions of the Pension Fund Act. At PZU, from 1 January 2012 the
According to its Memorandum of Association, the core business of PTE PZU is:  establishing an open pension fund;  managing the established open pension fund and representing it vis a vis third parties in a manner specified in the Memorandum of Association and managing more than one open pension fund.
According to the European Statistical Classification of Economic Activities, the basic business of PTE
PTE PZU manages the third largest open pension fund on the Polish market in terms of net assets -
The PZU Group conducts activities on the Lithuanian market in the area of property and life insurance via two companies:  PZU Lietuva – property and personal insurance;  UAB PZU Lietuva Gyvybës Draudimas – life insurance.
 PZU Ukraine – property and personal insurance;  PrJSC IC PZU Ukraine Life – life insurance.
TFI PZU engages in establishing investment funds and, as their authority, in their management, including intermediation in selling and repurchasing participation units and representing funds vis-à-vis third parties.
Currently TFI PZU manages 21 investment funds and sub-funds with various investment strategies.
Act of 27 May 2004 on Investment Funds (Journal of Laws No. 234 of 2011, item 1391 as amended)
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).
The operations of PZU AM comprise:  conducting brokerage activities within the meaning of the Act of 19 July 2005 on trading in financial instruments (Journal of Laws No. 211 of 2010, item 1384 as amended), including managing investment portfolios of investment funds;  providing portfolio management services.
On 30 June and 29 September 2011 an additional portion of bonds issued by the State Treasury and held by PZU Życie and classified into the portfolio of financial instruments designated at fair value through profit or loss (classified as such at initial recognition) was transferred to PZU Specjalistyczny
The transaction was aimed at improving the effectiveness of financial investment management by tax optimization (in respect of CIT on capital gains and VAT paid to-date to other PZU Group companies for managing securities portfolios and not deductible by PZU Życie).
The presentation, qualification or method of measurement of the said assets in the consolidated financial statements of the PZU Group as at and for the year ended 31 December 2011 (“consolidated financial statements of the PZU Group”) has not changed, and PZU Specjalistyczny Fundusz
On 27 September 2011 (after receiving the consent of KNF for the transaction in 26 September 2011)
PZU acquired all the shares which had been held by PZU Życie in the following companies:  50,000 registered shares in PZU CO (100.0% shares) for PLN 40,605 thousand which reflects the value of PZU CO shares recorded in the books of PZU Życie as at the date of signing the share sale agreement (according to PAS);  13,000 registered shares in TFI PZU (100.0% shares) for PLN 38,364 thousand which reflects the value of TFI PZU shares recorded in the books of PZU Życie as at the date of signing the share sale agreement (according to PAS);  25,001 registered shares in PZU AM (50.002% shares) for PLN 5,617 thousand, constituting the equivalent of the net assets of PZU AM represented by the shares acquired, resulting from the financial statements of the company prepared for the last reported period (according to PAS).
In October 2011, as a result of restructuring, Centrum Obsługi Ubezpieczeń in Warsaw (“COUW”) and part of Telecentrum were transferred from PZU Życie to PZU CO. The number of employees transferred with COUW and Telecentrum amounted to 107 and 58 respectively. COUW is an organizational entity responsible for the comprehensive servicing of some of PZU Życie‟s insurance products.
On 6 October 2011 a new subsidiary of PZU Ukraine was established – LLC Finansowa Kompania
C. FINANCIAL RESULTS OF THE PZU GROUP IN 2011 4. Events with a significant impact on the operations and results of the PZU
The PZU Group‟s financial results in 2011 were mainly shaped by:  changes in the structure of written premium in the property and personal insurance, due to: o restructuring of the corporate clients portfolio; o the effect of increases (as of 2010) of prices for retail clients;  improved profitability in the non-life segment, mainly in motor insurance and property insurance products: o a significantly lower rate of natural disasters in the analyzed period, which in 2010 related mainly to snow and flood claims (PZU‟s net share in the claims amounted to PLN 369.4 million);  stable increase in gross written premium in group protection insurance;  a drop in administrative expenses due to strict cost discipline and the restructuring program conducted, including the process of group layoffs in local outlets;  lower profits on investment activities compared with the prior year as a result of the poor conditions on the capital market, which includes the Warsaw Stock Exchange (“WSE”).
Gross written premium on direct and indirect insurance for the year ended 31 December 2011 amounted to PLN 15,279.3 million (PLN 14,541.0 million in 2010). The PLN 738.2 million (+5.1%)
insurance in the mass client segment (+PLN 287.3 million), fire and other property damage insurance
Changes in premiums are described in detail in the comments to segment results (item 6.1 and item 6.2).
Gross written premium in life insurance 6 751 770 6 512 541 3.7%
Debt securities issued by sovereign governments both as at 31 December 2011 and as at 31 December 2010 constituted ca. 75% of the investment portfolio and Polish government bonds dominated in the portfolio. At the same time, the PZU Group had debt securities issued by other sovereigns in its portfolio (Germany – 1% share in financial assets, Lithuania – 0.3%, Iceland – 0.1%
Portfolio structure 31 December quoted on the regulated market 2 507 136 3 083 846 5,3% 6,7%
 a drop in reserves where the risk of the investment is borne by the insurant in 2011 (a loss on investments in this group of investments) compared with a strong increase in 2010.
In 2011 acquisition costs increased by PLN 50.7 million (+2.7%) compared with 2010. The increase resulted mainly from changes in sales in the non-life segment related to:  an increase in written premium;  changes in the structure of distribution channels (an increase in the share of commission channels offset by a drop in non commission channels and automatic renewals);  changes in the area of sales made in recent years, among other things, by introducing additional bonuses supporting the effectiveness of agents and making their remuneration conditional on achieving goals (the so-called additional commission; in 2011 their role increased and they were implemented in new channels).
The drop in administrative expenses of PLN 121.9 million (-8.1%) was to a large extent the effect of the restructuring activities conducted in PZU Group companies, which covered both the Head Office and local entities of the PZU Group. In 2011 the employment restructuring program in local entities started two years ago was continued; it was aimed, among other things, at improving operating effectiveness in claims adjustment, centralization of the day-to-day handling of policies and creating new customer service standards (establishing an EU Group Network Department) which resulted in a significant decrease in the fixed costs of current operations. Moreover, the continuation of the fixed costs optimization program brought about positive effects and enabled expenses to be reduced in many areas, such as administration (office stationery, postal services), real estate management (costs of cleaning) and IT costs.
PLN 91.8 million;  setting up a provision for the costs of the penalty imposed by Urząd Ochrony Konkurencji i
Table 13: Data from the consolidated income statement of the PZU Group
Data from the consolidated income statement 1 January – 31 December 2011
Net result on investing activities 1 593 826 2 777 774 (42.6)%
Data from the consolidated cash flow statement 1 January – 31
Net cash from investing activities (288 686) 5 329 478 (105.4)%
Net cash from financing activities (1 485 832) (5 727 985) (74.1)%
Equity was 0.5% higher than in the prior year and amounted to PLN 12,869.5 million.
The key component of total liabilities and equity were technical reserves (“RTU”), which comprised ca.
62.4% of the balance sheet total. As at the end of 2011 they amounted to PLN 32,522.7 million, which is an increase of 2.2% compared with the balance as at the end of 2010. The increase in RTU as at the end of 2011 was due to an increase in gross written premium in motor liability insurance in the mass client segment (+13.1%) and an increase in claims in this segment.
The increase in the balance compared with 31 December 2010 resulted mainly from liabilities to credit institutions of PLN 758.9 million in respect of sell-buy-back transactions.
Main balance sheet items 31 December 2011 31 December 2010 % change 5.8 Material off-balance sheet items
As at 31 December 2011, the Group had PLN 86.0 million of disputed claims which were not approved by PZU Group companies and which are to be litigated by the creditors. As at 31 December 2010, disputed claims amounted to PLN 127.1 million.
Under a guarantee line agreement dated 26 September 2008 concluded by and between PZU
and Bank Millennium SA, the bank grants bank guarantees (both in terms of bid bonds and performance bonds) to PZU in tenders for insurance services. The guarantee line is PLN 15.0 million and every year it is renewed for another year. As at 31 December 2011, 33 bank guarantees were in force under the guarantee line, for a total of PLN 6.4 million. Moreover, as at 31 December 2011 PZU
had a warranty in respect of an agency agreement from Raiffeisen-Leasing Polska S.A. in the amount of PLN 11.0 million.
Table 17: Calculation of own funds to cover the solvency margin of the PZU (according to PAS)
Coverage of technical reserves with assets ratio 127.0% 127.4% (0.3) p.p. (Assets covering technical reserves / technical reserves) x 100%
Coverage of the guarantee capital ratio 2 059.8% 2 149.7% (89.9) p.p.
Coverage of technical reserves with assets ratio 106.9% 112.4% (5.5) p.p. (Assets covering technical reserves / technical reserves) x 100%
Coverage of the guarantee capital ratio 997.6% 1 007.6% (10.0) p.p.
As of 1 January 2011 the consolidated data of the Armatura Group (“Armatura Group”, covering the data of the following entities – Armatura Kraków SA, Armatoora SA, Armatoora i wspólnicy sp. k. and
Armagora SA) are consolidated under the full consolidation method in the consolidated financial statements of the PZU Group. Consolidation of the Armatura Group is the effect of its exceeding materiality levels adopted by the PZU Group for the purpose of consolidated reporting.
The difference between the carrying amount of the 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 recognized in the financial results for 2011 and disclosed in “Other operating income” of the consolidated income statement.
Effect on the consolidated financial results of the PZU Group 118 916 5.11 Changes in investments in subordinated entities
PZU Ukraine Life passed in December 2010, on 18 January 2011 PZU‟s offer was accepted for concluding the following:
 with PZU Ukraine a sales agreement of 29,207,233 shares of UAH 7.19 each, amounted to UAH
210,000 thousand (the equivalent of USD 26,448 thousand - PLN 75,380 thousand) was received by PZU on 31 January 2011);  with PZU Ukraine Life Insurance a sales agreement of 139,991 shares of UAH 21.43 each, amounted to UAH 3,000 thousand (the equivalent of USD 378 thousand - PLN 1,077 thousand)
Moreover, in 2011, under the capital restructuring process, the additional capitalization of the
PZU Group changed (interest in the share capital of the property insurance company is currently 89.9678%, and in the life insurance company – 53.4723%). Indirectly, PZU still controls 100% of the
To simplify the ownership structure of PZU Ukraine and to optimize the costs of the PZU Group, on 1 December 2011 a share sales agreement was concluded for the sale of shares in this company held by PZU CO to PZU Ukraine Life. As a result of the transaction, PZU CO exited the Ukrainian market.
As a result of decreasing the share capital, and the consecutive significant increase in the EUR/UAH
Ukrainian Insurance Act specifies for insurance companies, i.e. EUR 1,500 thousand (in accordance with the binding EUR/UAH exchange rate, as at 31 March 2011 the requirement amounted to UAH
On 18 April 2011, at the meeting of the Supervisory Boards of PZU Ukraine and PZU Ukraine Life, a plan of mutual additional capitalization of the companies was presented in the amount of ca.
UAH 8,000 thousand each, in such manner that the shares of PZU Ukraine Life would be taken up by
General Shareholders‟ Meeting of PZU Ukraine and PZU Ukraine Life passed resolutions on:
 increasing the share capital of PZU Ukraine Life by UAH 2,500 thousand, and equity of UAH 7,872 thousand by issuing 25,000 shares with a nominal value of UAH 100 per share and an issue price of UAH 314.88 per share,
 increasing the share capital of PZU Ukraine by UAH 1,800 thousand, and equity of UAH 7.517 thousand by issuing 180,000 shares with a nominal value of UAH 10 per share and an issue price of UAH 41.76 per share.
Net result on investing activities* 2 650 750 4 086 694 (35.1)%
constituted premium collected by PZU. The remaining share comprised premium written by
The change had no impact on the consolidated results or on the consolidated net assets of the
PZU Group as it was offset by changes in the principles for calculating unearned premium reserves and for deferring acquisition costs.
Table 22. Written premium recognized by date of underwriting the policy – non-life segment
Fire and other property damage insurance 1 723 671 1 621 623 6.3%
Table 23. Written premium recognized by date of assuming insurance liability – non-life segment
PZU Życie in 2011 and in 2010 amounted to PLN 663.5 million and PLN 966.7 million respectively.
The drop in the “net change in fair value of assets and liabilities measured at fair value” was caused mainly by the bear conditions on the financial markets in 2011 (in 2011 the WIG index dropped by 20.8% in 2011, whereas in 2010 it grew by 18.8%). This drop was partly offset by an increase in “Net investment income” net of the dividend from PZU Życie (an increase of PLN 95.4 million) – the effect of the positive impact of foreign exchange differences on interest income on financial instruments denominated in EUR (in 2011 on an annual average the PLN weakened against the EUR by 3.1%
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 effectiveness of agents and multi-agents conditioning their remuneration on the achievement of assumed goals and sales profitability).
Operating profit in the non-life insurance segment in 2011 and in 2010 amounted to PLN 2,726.5 million and PLN 3,613.2 million respectively. The PLN 886.7 million (24.5%) drop resulting from deteriorated results on investing activities (mainly lower dividend received from PZU Życie and a drop in prices of financial instruments on capital markets) and higher other operating expenses was partly offset by an increase in net premium earned and lower claims.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 practice of limiting competition on the domestic market for sales of group NNW insurance to children, adolescents and personnel in educational establishments) of PLN 56.6 million.
7. receivables from the State 5 476 0.0% no restrictions 8. fixed assets other than properties, if they are depreciated at rates determined according to the prudence principle 86 693 0.6% 5%
C. Excess/(shortage) of assets for covering the technical * the given maximum limit is the maximum limit for covering technical reserves in receivables from assignors, reinsurers, insurants, insurance intermediaries and the ceded share of technical reserves, in total.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 6.2 Life insurance
Net result on investing activities 876 400 1 689 026 (48.1)%
Table 26. Premium written by product group – life insurance segment
in 2011 and in 2010 amounted to PLN 876.4 million and PLN 1,689.0 million respectively. The drop in the “net change in the fair value of assets and liabilities measured at fair value” was caused mainly by
Other net operating income and expenses in the life insurance segment amounted to PLN -86.8 million and PLN -58.5 million in 2011 and 2010 respectively. The net change in the balance of other operating income and expenses of PLN 28.3 resulted, among other things, from implementing the statutory ban on open pension fund acquisition which was connected with discontinuing the distribution agreement with PTE PZU SA and a loss of part of the income in this respect. Additionally, as at 31 December 2011 the value of the provision for restructuring amounted to PLN 26.0 million, which meant an increase in the said provision of PLN 3.4 million in 2011 (when in 2010 it dropped by PLN 13.4 million).
Description Total % RTU Maximum 1. securities and bonds issued or warranted or guaranteed by the
State Treasury, local authorities or associations of local authorities 17 121 571 0.4%
restrictions 6. receivables from insurants following from insurance contracts concluded with the exception of receivables which matured more than 3 months ago 8. liabilities in respect of transactions concluded on the financial no restrictions
Operating profit dropped by PLN 32.0 million (-26.1%) and reflected the drop in fee and commission income and increase in operating expenses.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 7. Risk factors which may have an impact on financial results in future periods 7.1 Property and personal (non-life) insurance
The risk factors which could have an impact on non-life insurance segment results in 2012 comprise mainly:  the economic slowdown or stagnation which could give rise to an increased loss ratio on the financial insurance portfolio;  the possible increase in the unemployment rate in 2012 and lower dynamics of retail consumption translating into a change in demand for insurance products;  price pressure from competitors;  increasing loss ratios, and specifically the loss frequency;  an increase in the insurance brokers‟ role which could lead to increased acquisition costs;  fluctuations in the return on Treasury securities dependent on the economic position of Poland and European Union countries - a drop in returns on the securities could lead to a drop in returns on investments and the potential need to change the technical rates applied by the company;  the behaviour of the capital markets in 2012, and specifically of the WSE – part of the Company‟s investment income depends on the trends on this market;  absence of a precisely defined scope of exemptions relating to e.g. medical insurance services in the amended Act of 11 March 2004 on Value Added Tax (Journal of Laws No. 54 of 2004, item 535 as amended);  small flexibility of many product applications operating in PZU Group companies, hampering quick adaptation to changing market requirements;  possible changes (amended regulations) in the principles of valuation of reserves for capitalized value of annuities – this could lead to the need to increase the level of prudence and an increase in the reserves;  the growing average cost of personal claims resulting, among other things, from the growing share of non-public healthcare and the impact of monetary compensation on behalf of members of the deceased‟s family (art. 446 § 4 of the Act of 23 April 1964 the Civil Code (Journal of Laws No. 16 of 1964, item 93 as amended, “Civil Code”)), which could lead to the need to increase reserves in motor liability insurance;  the risk of an increase in the number and value of claims from clients and injured parties in connection with the Act of 17 December 2009 on pursuing claims in group proceedings (Journal of
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 7.2 Life insurance
The factors which could have an impact on PZU Życie‟s results in 2012 comprise mainly:  the possible increase in the unemployment rate in 2012 and lower retail consumption dynamics translating into a change in the demand for insurance products;  potential increase in competition in group insurance due to an increase in the role of brokers in this segment and the requirement to conduct tender procedures for group insurance by entities subject to the Act of 29 January 2004 on Public Procurement (Journal of Laws No. 223 of 2007, item 1655 “Act on Public Procurement”);  changes in the financial intermediation market, slowdown in the growth of popularity of independent financial advisory services thus limiting the number of channels for selling insurance products;  fluctuations in the return on Treasury securities dependent on the economic position of Poland and European Union countries - a drop in returns on the securities could lead to a drop in returns on investments and the potential need to change the technical rates applied by PZU Życie and the amount of European Embedded Value;  the behaviour of the capital markets in 2012, and specifically of the WSE – part of the Company‟s investment income depends on the trends on this market;  all changes in universally binding legal regulations or their interpretation in the area of the technical servicing of group insurance by people designated for the task by insurants;  changes in the current level of mortality and morbidity;  small flexibility of many product applications operating in PZU Group companies, hampering quick adaptation to changing market requirements and the possibility of servicing some of the products within a timescale allowing efficient competition in the area of new investment products; 7.3 Pension funds
The risk factors which could have an impact on PTE PZU‟s results in 2012 comprise mainly:  possible changes in the pension insurance system leading to a drop in the amount of pension contribution transferred by ZUS to OFE, creating sub-funds and acquisition principles on the market;  possible increase in the unemployment rate in 2012 translating into a lower number of members acceding OFE;  a low rate of increase in remuneration leading to the lower dynamics of contributions paid in by members of the pension funds;  changes in the financial intermediation market, slowdown in the growth of popularity of independent financial advisory services thus limiting the number of sales channels;
 fluctuations in the return on Treasury securities dependent on the economic position of Poland and European Union countries - a drop in the returns on securities could lead to a drop in the returns on OFE PZU investments and management fees collected by PTE PZU;  the behaviour of the capital markets in 2012, and specifically of the WSE – part of the OFE PZU
D. PZU GROUP’S OPERATIONS IN 2011 9. Operations, key development directions and achievements of the PZU
As at the date of this Directors‟ Report the PZU Group both companies had a long-term credit rating and a financial strength rating (awarded by Standard & Poor's Ratings Services on 16 July 2009) of level A with a stable outlook. On 22 July 2011 Standard & Poor's Ratings Services upheld the above rating.
Rating of creditworthiness A /stable/ 22 July 2011 A /stable/ 5 July 2010
Rating of creditworthiness A /stable/ 22 July 2011 A /stable/ 5 July 2010 9.2 PZU’s operations in 2011
PZU offers a wide scope of property and personal insurance products, in particular motor, personal, agricultural and general liability insurance. As at the end of 2011, PZU offered over 200 insurance products. Motor insurance is the most important group of products offered by PZU, both in terms of the number of binding insurance contracts and the share of written premium in total gross written premium of PZU.
 In 2011 motor insurance tariffs for individual clients and SMEs changed several times to adapt them to market conditions, and specifically to growing costs.
 Introducing the Premium Security Option in motor insurance is a novelty in PZU. The clients who buy this additional option to comprehensive and motor liability insurance will retain the bonusmalus deduction if an insured event occurs.
 Tools enabling verification of the declaration of the insurance history were implemented (submitted by new clients upon underwriting a motor liability or comprehensive insurance contract) using the data of the Information Centre of the Insurance Guarantee Fund (Ośrodek Informacji
 In respect of property insurance a new version of home insurance was implemented PZU DOM
and PZU DOM Plus, covering among other things PZU Pomoc w domu (help at home) insurance.
 Due to the high loss ratio in the mandatory subsidized insurance of agricultural cultivation, in the autumn season of 2011, changes were made to the offer of such insurance aimed at improving profitability.
 In accordance with amendments to legislation (package of health acts) a new offer was prepared for mandatory and voluntary insurance for healthcare facilities. Modifications to the insurance of payers of public benefits were introduced and the option to also insure other professional groups was introduced in respect of financial losses arising in connection with performing the function.
 In NNW insurance PZU Pomoc w Podróży (travel assistance) was added to the offer, covering insurance of the costs of treatment and assistance for people travelling in Poland and abroad.
Special insurance for Euro 2012 Football Cup fans was also created, offered with Polish Pass cards.
 In accordance with the adopted strategy, PZU continued actions aimed at further improving the profitability of motor insurance (AC and motor liability), among other things through changing tariffs and modifying the general insurance terms and conditions for comprehensive insurance of corporate clients. As a result of the actions already conducted, there is a noticeable significant improvement in the technical results.
In accordance with the Regulations of the PZU Management Board, tariffs for mandatory and voluntary insurance are passed in the form of a resolution.
Including dealers cooperating with PZU on the basis of multiagency contracts (964)
(under cooperation with Dom Misia Ratownika);  a system automating payment of annuities was implemented.
In 2011, in the area of group insurance work was conducted related to the re-tariffication of group insurance, the effects of which were implemented as of 1 January 2012:  new tariffication levels which will enable an increase in the price flexibility of the offers and systemizing the amount of discounts and the variability of commissions;  new additional group insurance of rights to individual continuation of insurance with three types of continuation guarantees differentiated in terms of the amount of premium for the right to continue in the group phase and in the continuation phase;
PZU Ochrona Plus (among other things: adding to the additional insurance offer, a guarantee of continuation in all protection packages).
The Company also emphasized the need to develop the PZU Club “Pomoc w Życiu” (help in life), which as at the end of 2011 had 2 million members. At the same time PZU Życie continued work on expanding its offer for Club members.
In connection with the new legal regulations introducing the additional possibility of saving funds for retirement with financial relief, in 2011 PZU Życie conducted work on introducing a new product to the offer – an individual retirement security account (Indywidualne Konto Zabezpieczenia Emerytalnego -
“IKZE”). As a result, as of 2 January 2012, the IKZE product was launched on the market and is directed to current and new clients. An indisputable merit of IKZE is the possibility of acquiring current tax relief by deducting the amounts paid to IKZE in a given year from the tax base.
product clients may regularly invest their funds in investment funds or may use model funds and additionally set protection at a selected level – which given large freedom in managing one‟s contract.
PZU Życie‟s consistently pursued objective is the constant presence of those products on the market.
In January 2011, a new product was launched which expanded the protection offer of PZU Życie, under the name “PZU Ochrona Rodziny” (family protection). This insurance is addressed to current clients who have unit-linked insurance, fixed term insurance and “Plan na Życie” insurance. The contract is constructed so as to ensure wide protection against various effects of accidents.
In connection with the observed volatility on the financial markets, investment products with attractive potential returns and full capital protection gained interest – this was mainly structured insurance. The offer of products distributed jointly with the current partners was expanded. A new type of product was introduced in Bank Handlowy w Warszawie SA under consecutive subscriptions to structured insurance – autocall. In Bank Millennium SA a new, multicurrency unit-linked product was introduced, under which modern model funds and a guarantee fund were launched.
Endowment insurance with a single premium had the largest share in written premium (so-called
In the area of protective insurance, cooperation with PKO BP SA was expanded by life insurance for borrowers of mortgage loans. In respect of other protective products, the Group concentrated on maintaining the current insurance portfolio and on work related to the planned implementation of insurance for consumer finance and mortgage banking clients.
The Company engages in sales of insurance both via its proprietary network and an agency network.
The general terms and conditions of insurance are provided on the PZU website (www.pzu.pl) and in particular PZU customer service points. In accordance with the Act on insurance activities, the general terms and conditions of insurance should be provided to the policyholder before the insurance contract is concluded.
The key project realized in the Company in 2011 was the IKZE project. As a result of statutory changes, universal pension fund management companies were in the group of entities authorized to maintain individual retirement protection accounts (IKZE) and offering respective financial services for clients, related to saving for future retirement as of 1 January 2012. Respective operations will be conducted via the PZU Voluntary Pension Fund established by PTE PZU. PTE PZU was one of the first entities on the market which was allowed to engage in the respective activities by KNF (the decision of 22 November 2011 granting permission to establish Dobrowolny Fundusz Emerytalny
PZU), thus approving the Memorandum of Association. The fund managed by PTE PZU was – as the first entity in this segment – entered in the Fund Register on 12 January 2012, thus having the possibility of commencing operating activities. The new product offered by PTE PZU under the 3 rd pension insurance pillar enables those who make payments to IKZE to use personal income tax relief up to the amount of the annual limit specified by the regulator.
The change – while maintaining the former standards of services and security of the funds entrusted by members of OFE PZU - will enable limiting significantly the amount of fees paid on behalf of the
IT tools, including commencing work on the project aimed at replacing the key policy system of PZU.
motor insurance offer;  at the turn of May and June the “Young drivers” campaign was conducted in which PZU‟s offer addressed to drivers below 26 years of age was presented;  in August and September the “PZU assistance at home” campaign was conducted which promoted the PZU home insurance offer;  in October and November the e-szkoda (e-claim) campaign was conducted aimed at providing information about the possibility of complete loss adjustment via the Internet;  in December the “ochrona znizek” [deduction protection] campaign was carried out aimed at presenting PZU‟s motor insurance offer;  at the turn of February/March and October/November two investment and protection campaigns were conducted in respect of insurance offered by PZU Życie, aimed at building the awareness of the PZU brand as a brand competent in savings and investments;  at the turn of February/March and in October, a group insurance campaign was conducted connected to the option of the insured participating in the PZU Pomoc club in employment establishments.
In 2011, PZU and PZU Życie‟s activites in the area of sales support were focused mainly on the mass product segment. Apart from activities consisting of preparing advertising banners and leaflets the following were conducted:  a test mini loyalty program for PZU clients purchasing motor liability and comprehensive insurance as a package – thanks to this program clients may also make use of the Niezguba service (lost car keys are returned to the owner), and an additional assistance package and discount program;
The amount of additional severance payments depended on the level of remuneration of particular employees and their years of service with the PZU Group.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 contracts with 75 employees were terminated under individual layoff procedures, for reasons not relating to the employees, and the costs of the layoffs were also charged to the restructuring provision.
An outplacement program was launched for the laid-off employees, one of the largest support program for such employees realized in Poland in 2011.
In 2011, a new project was conducted in the HR area “New Energy of PZU Leaders” – a development program for key PZU managers from the Mass Client department. The Project is aimed at permanently strengthening the competencies by PZU key sales managers and gaining a competitive edge on the market in respect of sales of property insurance for retail clients. 25 key managers are participating in the program.
In respect of profitable growth, the following actions were pursued:  a process for implementing a chain of modern outlets was launched according to the physical presence model developed in 2010 - clearly visible, common for the whole PZU Group and salesfocused;  work was completed on revitalizing the corporate property insurance sales area aimed at improving the competencies of sales teams and optimizing their geographic location;  a tool was implemented to enable deeper segmentation of clients, which will be used for crossselling campaigns (analytical CRM enabling the creation of a standardized PZU client database).
Under the actions aimed at building an effective organization, focused on satisfying client needs - in respect of loss adjustment and benefits – the following project activities were pursued:  a new model for cooperation with certifying physicians and simplified and remote NNW loss adjustment procedures were implemented;  the “auto-payment” (“autowypłata”) process in respect of benefits was launched in PZU Życie;  work was carried out related to expansion of Internet services in the area of claims and benefits –
 a pilot program for directing clients to respective repair shops in the chain of garages was conducted;  work was carried out on creating a centralized model for managing the process of renting substitute vehicles during repairs;  under the process of developing the PZU Assistance concept an auction platform was developed
Additionally, apart from the activities listed above, in 2011 several initiatives were conducted in the
PZU Życie, by the end of 2011 the servicing of all the branches of both companies was taken over; This does not relate to the Armatura Group companies
 launching the process of automatic loading of policies issued in the sales system to the policy administration system;  further optimization of the costs of the functioning of the operations back-office;  centralization and automation of the claims and annuities payment process was conducted;  continuing the projects in progress related to the unification and centralization of the IT systems and IT servicing of the PZU Group in other areas, i.e. the Service Desk, systems for the authentication of users, e-mail system or the data warehouse.
The PZU Group applies the ethical principles of corporate social responsibility described in item 15.1.
As part of the educational activities, PZU maintains an Internet insurance-dedicated service –
PZU also was the sponsor and patron of various cultural and sports events, both countrywide and local. Key activities in this area include:  sponsoring the Royal Castle in Warsaw;  the PZU zone during the Night of Museums at the Royal Castle in Warsaw;  close cooperation with the Nowe Sukiennice National Museum Department in Kraków;  patron of the Royal Łazienki Museum;  sponsoring the Grand Theatre in Warsaw;  sponsoring the “Rzeszów Carpathia Festiwal 2011”;  patron of Willa Decjusza in Kraków;  sponsoring the “Droga na Harvard” (Way to Harvard) competition;  sponsoring the Polish Presidency in 2011;
prof. Bronisława Geremka in Warsaw; o financial support was offered for the project “Świetlica – Moje Miejsce” conducted in cooperation with Polska Fundacja Dzieci i Młodzieży in Warsaw; o three-year cooperation was established with the national children‟s fund Krajowy Fundusz na rzecz Dzieci in Warsaw under the program for helping the extremely gifted Program Pomocy
Wybitnie Zdolnym; o one-off subsidies were awarded to Fundacja Pomoc Polakom na Wschodzie in Warsaw,
Fundacja ABC XXI – Cała Polska czyta dzieciom in Warsaw, Fundacja dla Uniwersytetu
In the area of “Culture and Art”, the PZU Foundation supports cultural institutions such as the National
In the area of “Health Protection”, initiatives aimed at widely-understood health prophylactics were financed. Subsidies were granted to the organizations listed below:
The strategy for the years 2012-2014 will, to a large extent, be a continuation of the pursuit of the goals under the strategy for the years 2009-2011. The objective of the PZU Group is maintaining profitable growth and its lead position on the Polish insurance services market.
Pro-client orientation and high operating effectiveness will allow the Group to maintain its lead position
– the PZU Group will remain the largest and most profitable insurance firm in Central and eastern
(help in life);  in the corporate client segment: o transforming PZU into a business partner with a strong expert position that is not only an entity selling insurance but also a client advisor; o maintaining the market position in motor insurance and increasing its market share in nonmotor insurance;  in the operating model:
Additionally actions are planned aimed at: o continuing operations focused on transforming the PZU Group into a results-oriented organization; o increasing the scale of operations of the PZU Group through international expansion on the
Central and East European markets; o refreshing the brand which will enable its modernization and communicating the changes that have already been implemented in the PZU Group; o introducing changes in the investment policy covering, among other things, a change in the structure of investments which will lead to an increase in profitability with a simultaneous reduction in the volatility of results on investing activities.
The risk management system implemented by the PZU Group is directed at risk control and at maintaining an appropriate capitalization level. Through identifying, analyzing, measuring, controlling, managing and reporting the risk related to the operating activities conducted, the PZU Group is able to discharge its obligations towards clients and business partners and fulfil the requirements arising from the provisions of the law and external regulations.
Risk management in the PZU Group is based on the following main principles:  Taking controlled risk – financial strength and constant value growth are an integral part of the
Interest rate risk drop by 100 bp 135 281 156 299
The table above summarizes the results of the analysis of the sensitivity of net profit and equity on changes in interest rate risk, currency risk and price risk of equity instruments. The analysis does not take into account the effect on net profit and equity of changes the in investment valuation, which are taken into account when calculating the amount of provisions.
The decrease in sensitivity to interest rate risk as at the end of 2011 compared with the end of 2010 was due to the increased share of instruments measured at amortized cost in the portfolio.
The decrease in sensitivity of the financial assets portfolio to changes in the valuation of listed equity instruments at the end of 2011 compared with 2010 results from the lower exposure in equity instruments exposed to other price risk.
In connection with the obligation placed on insurance companies by the Polish Financial Supervision
December 2010, in line with the guidance obtained from the Polish Financial Supervision Authority and submitted the test results by the 31 July 2011 deadline. Additionally, the PZU Group participated in the
In 2011, PZU Lietuva improved its position and took 3rd place on the Lithuanian insurance market.
Ukrainian insurance market. After three quarters, the company maintained 10th position on the property and personal insurance market (data as at the end of the third quarter of 2011).
In 2011, TFI PZU introduced changes to its product offer:  nine open investment funds with a diversified investment policy were transformed into PZU FIO
Parasolowy with sectioned off subfunds;  PZU SFIO Ochrony Majątku was transformed into Fundusz PZU FIO Ochrony Majątku;  two new closed investment funds were opened: PZU FIZ Sektora Nieruchomości 2 and FIZ RE
Emblem “Teraz Polska”;  acquiring and handling 15 new Employee Pension Schemes;  recognizing PZU Energia Medycyna Ekologia investment fund as the “DISCOVERY OF THE
YEAR 2011” during the 7 th edition of the Consumer/Client Laurels (“Laur Konsumenta/Klienta”)
conducted by the editorial section of Rzeczpospolita;  awarding four stars to the PZU Papierów Dłużnych POLONEZ Subfund in the Online Analyses
As at the end of 2011, the net asset value of the investment funds managed by TFI PZU was
Sektora Nieruchomości 2; FIZ RE Income; Model Funds for PZU Życie).
(at least third party liability insurance and AC). The pilot scheme will end in December 2012; o “PZU Business Club” – for representatives of entrepreneurs having a business relation with
PZU or PZU Życie, with a specified level of premium written or number of persons entered on the insurance;  launching of operating activities in the scope of medical services.
(IKZE) for PTE PZU and PZU Życie;  creating the Internet Auction Platform -- PZU Pomoc;  optimizing the service processes and resources utilized and, as a result, reducing the rates for
Table 34: Shares or rights to shares held by members of management and supervisory bodies of PZU
Group Directors 3 Mariusz J. Sarnowski (Director of the 4 Krzysztof Branny (Director of the Group
As at the date of preparing the Directors‟ Report of the PZU Group, the management and supervisory board members of PZU did not hold any shares in the remaining PZU Group companies.
In the 12-month period ended 31 December 2011, PZU did not conclude any contracts with the
Management Board Members providing for any compensation in the event of their resignation or dismissal from the position held without an important reason or when their dismissal takes place due to a business combination of the issuer by acquisition. The Management Board Members of PZU have standard non-competition agreements signed under which they are obliged not to undertake activities that are competitive with the activities of the employer for the period specified in the agreement after termination of their employment.
In the 12-month period ended 31 December 2011, PZU did not make any issues, redemption or repayment of debt and equity securities.
Diagram 2: Dynamics of PZU share prices in 2011 compared with WIG20 31.12.2010 = 100%
In 2011, the price of PZU shares was affected by not very optimistic factors shaping the situation on the WSE, and by the sentiments of global investors regarding the Eurozone and the Polish market. On the other hand, the decisions of investors interested in PZU securities were affected by the State
Treasury selling a 10% package of PZU shares and the payment of dividend for 2010.
PLN 355.50. At the same time, WIG20 and WIG indices lost by 21.9% and 20.8% respectively. For the majority of 2011 the shares of PZU lost less than the market.
In 2011, PZU shares closed the trading sessions 124 times with drops, 122 times with increases, and they remained unchanged 5 times. The highest closing price (PLN 396.80) was achieved on 25 May and the lowest (PLN 294.20) on 4 October. The average market price of PZU shares in 2011 was
shares in 2011 was 265,862 shares, with the highest level (1,659,172 shares) recorded on 9 June
** Total Shareholder Return = (market price of shares at the end of the period – market price of shares in the offering + dividend paid in the period/market price of shares in the offering
On 11 May 2011, the Management Board of PZU passed a resolution to accept the motion concerning the appropriation of the net profit of PZU for the year ended 31 December 2010 of PLN 3,516,709 thousand as follows:  PLN 2,245,160 thousand for payment of dividend to shareholders;  PLN 1,271,549 thousand to supplementary capital.
On 30 June 2011, the Annual General Shareholders‟ Meeting of PZU passed a resolution no. 7/2011 concerning the distribution of the net profit of PZU for the financial year ended 31 December 2010 according to which PLN 2,245,160 thousand, i.e. PLN 26.00 per one share was earmarked for payment of dividend. In accordance with the above-mentioned resolution, 30 September 2011 was the date according to which the list of shareholders entitled to payment of dividend for the financial year ended 31 December 2010 was established, and 21 October 2011 was the date of payment of the said dividend.
By the date of preparing this Directors‟ Report of the PZU Group, PZU‟s Management Board had not passed the resolution concerning profit appropriation for 2011.
and PZU Życie forming a Tax Group (hereinafter referred to as “TG”) as defined in the Corporate
Income Tax Act of 15 February 1992 (Journal of Laws no. 74 of 2011, item 397, with further amendments “the CIT Act”). The TG comprised PZU and PZU Życie and was formed for a period of 3 years from 1 January 2009 to 31 December 2011.
Ipsilon BIS SA, Ogrodowa-Inwestycje Sp. z o.o., Ipsilon Sp. z o.o. The TG was formed for a period of 3 years from 1 January 2012 to 31 December 2014.
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 TG and the said companies transfer the CIT advances related to their business activities to PZU.
The reinsurance cover of the PZU Group in 2011 constitutes security of the insurance activities and mitigates the effects of the occurrence of any catastrophic events which might have an adverse effect on the financial standing of the insurance companies. The task was executed by concluding obligatory reinsurance contracts with supplementary 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.
PZU‟s activities in the scope of inward reinsurance are one of the support measures to PZU Lietuva and PZU Ukraine. The Company participates both in obligatory and facultative reinsurance contracts of the above-mentioned companies. Moreover, PZU obtains gross written premium from inward reinsurance from its operations on the domestic and foreign market, mainly through facultative reinsurance.
The outward reinsurance contracts concluded by PZU Życie serve to protect the portfolio of PZU Życie against the accumulation of risks (catastrophe contract), the protection of individual insurance policies with higher insurance sums and the protection of the group insurance portfolio covering the serious illness of a child.
Gen Re, Arch Re and Lloyd‟s. The reinsurance partners have high ratings according to S&P, which ensures certainty of a good financial standing of the reinsurers to PZU Życie.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 14.8 Concluded and terminated loan agreements
The following companies from the PZU Group: Armatura Kraków SA, Armagor SA and Armatoora SA
Table 37: Concluded and terminated loan agreements in the PZU Group
Expiry of a loan in 14.9 Loans granted, including loans granted to the Issuer’s related entities
14.10 Guarantees and warranties in respect of loans and borrowings granted and received, including those granted to the Issuer's related entities
Based on the guarantee line agreement dated 26 September 2008 concluded between PZU and Bank
Millennium SA, the bank grants bank guarantees (related to bid bonds and proper performance of the contract) to PZU in tenders for insurance services. The guarantee line is PLN 15 million and it is renewed every year for a period of another year. As at 31 December 2011, 33 guarantees for the total amount of PLN 6.4 million were active as part of the valid line.
Moreover, none of the remaining direct or indirect subsidiaries of PZU granted any warranties in respect of loans and borrowings or guarantees – in aggregate to one company or an entity related to that company, the total value of which would constitute at least 10% of the Issuer‟s equity.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 fact that PZU has a strong business position, the level of its equity is high and it remains a competitive player on the insurance market.
Board of PZU does not currently perceive any threats to the Issuer‟s operations.
The Issuer has own funds which guarantee covering all liabilities to its clients.
14.12 Litigation pending before the court, the appropriate arbitration body or the public administration body
PZU and PZU Życie include disputed claims in the process of recording technical reserves for known claims taking into account the probability of an unfavourable resolution of the dispute and estimating the value of the probable adjudication. In the case of disputed claims related to the valorization of disability pensions in PZU Życie, the claims are recorded in other technical reserves in the amount of the annual value of the pensions above the corresponding amount of the reserve established as part of the arithmetic life insurance reserves.
In 2011 and by the date of signing these consolidated financial statements, in the PZU Group there were no litigation cases before the court, the appropriate arbitration body or the public administration body in respect of PZU's or its direct or indirect subsidiaries‟ obligations or debt, the unit value of which would represent respectively at least 10% of PZU's equity.
As at 31 December 2011, the value of all the 22,357 cases pending before the courts, appropriate arbitration bodies or public administration bodies in the PZU Group totalled PLN 1,643,448 thousand.
Of this amount, PLN 1,275,625 thousand related to obligations and PLN 367,823 thousand to the
In 2011, no contract was concluded with PZU or its related company as one of the parties where the contract value would have amounted to at least 10% of PZU's equity or where the level of equity was not the criterion enabling proper assessment of the contract concluded - of the PZU Group's sales for the last four financial quarters.
The activities of the PZU Group are not seasonal or cyclical in nature to an extent that would justify applying the recommendations contained in the IFRS.
On 28 February 2012, the Management Boards of PZU and PZU Życie gave notice of termination of
Corporate Collective Labour Agreements (“CCLA”) for both companies. The CCLA was concluded in 2003 in PZU and in 2006 in PZU Życie, and it is an outdated solution which does not work in the current social and economic environment. The purpose of introducing the new remuneration system is to further modernize the PZU Group and improve its competitiveness. The Management Boards of
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 14.20 Contracts for audit and review of the financial statements
On 13 May 2011, the Supervisory Board of PZU selected Deloitte Audyt Sp. z o.o. with its seat in
Warsaw, Al. Jana Pawła II 19, entered in the register of companies authorized to audit financial statements by the National Chamber of Registered Auditors under the number 73, as the registered audit company to carry out the audit of the annual financial statements of PZU prepared in accordance with the Accounting Act of 29 September 1994 (Journal of Laws No. 152 of 2009, item 1223 as amended) and of the annual consolidated financial statements of the PZU Group prepared in accordance with the International Financial Reporting Standards.
Group for the financial year ended 31 December 2011 was concluded on 30 June 2011.
15. Statement of compliance with corporate governance principles 15.1 The corporate governance principles
Exchange” (hereinafter: “The Best Practices of WSE Listed Companies”) binding at the Warsaw Stock
Exchange. The code of “The Best Practices of the WSE Listed Companies” is available on the website devoted to corporate governance on the Warsaw Stock Exchange at www.corp-gov.gpw.pl and on the
Company's website www.pzu.pl in the section dedicated to PZU‟s shareholders – “Investor Relations”.
Reporting Initiative (GRI) using the Sustainability Reporting Guidelines & Financial Services
Sector Supplement. The report is an element in the implementing of the corporate social responsibility (CSR) strategy in PZU 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 PZU‟s website: spoleczna/raporty.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 chapters II, III and IV, in recognition of the recommendations indicated in points I.5. and I.9. of The
Management Board of WSE of 11 December 2007 concerning the obligation to publish reports referred to in § 29 clause 3 of the Rules and Regulations of WSE in respect of corporate governance rules contained in section I of The Best Practices of WSE Listed Companies.
General Meeting. The level of remuneration depends on the function performed in the Supervisory
Board and is not due in the month in which a given Supervisory Board member was absent from the meeting for an unjustified reason. The Supervisory Board decides by resolution whether the absence of the Supervisory Board member was justified or unjustified.
Board. The remuneration of the Management Board members is composed of several components and comprises the basic monthly salary, additional benefits and an annual bonus which is paid once a year and depends on the decision of the Supervisory Board made in the form of a resolution based on the economic and financial results for a given financial year.
has not presented a declaration disclosing the remuneration policy on the corporate website. The decision concerning full compliance with the above principle in the future will belong to the Supervisory
Another matter requiring clarification is the recommendation contained in point I. 9 of The Best
Practices of WSE Listed Companies referring to ensuring the balanced participation of women and men in the company's bodies. PZU has always maintained a policy of appointing competent and creative persons who have appropriate professional experience and education as members of its bodies The composition of the Management and Supervisory Boards is determined by a decision of the Supervisory Board and the General Meeting, and other factors, including the person‟s gender, are not taken into account.
From 1 January 2012, in connection with the amendment to The Best Practices of WSE Listed
An Extraordinary General Meeting is convened in the cases specified in the Commercial Companies
Code Act dated 15 September 2000 (Journal of Laws 94 of 2000, item 1037 as amended, “the
Commercial Companies Code”), the Insurance Activity Act, the Statute and when PZU‟s bodies or persons authorized to convene an Extraordinary General Meeting consider it appropriate.
Meeting within the prescribed deadline;  an Extraordinary General Meeting when it considers it appropriate;  an Extraordinary General Meeting when the Management Board fails to convene an Extraordinary
General Meeting based on the motion of an authorized shareholder, authorized shareholders or the Supervisory Board within 14 days from the date of submitting the motion
The Statute also provides that the shareholders representing at least one half of the share capital or at least one half of the general number of votes in the Company may convene the Extraordinary General
Meeting. These shareholders appoint the chairman of such Extraordinary General Meeting.
The Supervisory Board and the shareholder or shareholders of PZU representing at least one twentieth of the share capital may demand that individual matters be put on the agenda of the next
Before the date of the General Meeting, PZU‟s shareholder or shareholders representing at least one twentieth of the company‟s share capital may submit to the company in writing or using electronic communication means, draft resolutions concerning matters introduced onto the agenda of the
General Meeting or matters which are to be introduced onto the agenda. The Company immediately announces draft resolutions on its website. During the General Meeting, each shareholder of PZU may propose draft resolutions concerning matters introduced onto the agenda.
The General Meeting is convened by an announcement published on PZU‟s website and in line with the procedure for providing of current information specified in the provisions of the Act on public offering, i.e. in the form of current reports. The announcement should be made at least twenty six days before the date of the General Meeting.
A properly convened General Meeting is valid, regardless of the number of present shareholders or shares represented during the meeting.
The certificates of the right to participate in the General Meeting issued by the entity maintaining the securities account shall constitute the basis for that entity to prepare a list, which shall then be sent to the National Depository for Securities (“KDPW”) as the entity maintaining the deposit of the securities.
On this basis, KDPW shall prepare a list of the shares authorized to participate in the General
Meeting. The list prepared by KDPW shall be sent to the Company and shall constitute the basis for
The most significant competencies of the General Meeting specified in the Commercial Companies
Code and the Statute of PZU include passing resolutions concerning, in particular, the following:  reviewing and approving the Directors‟ Report and the financial statements for the prior financial year and granting a vote of approval to individual bodies of the Company for performing their duties;  appropriation of profit or covering loss;  making decisions relating to claims to remedy losses arising in the course of forming the Company or its management or supervision;  selling and leasing the enterprise or its business unit and placing restricted property rights upon them;  cancelling shares and issuing of bonds;  formation of reserve capitals and deciding on their use or how to use them;  demerger of the Company, the Company‟s merger with another company, liquidating or closing the Company;  appointing and dismissing the Supervisory Board members, in recognition of the State Treasury‟s personal right to appoint and dismiss one Supervisory Board member.
The Company‟s shareholder has a right to view the list of the shareholders entitled to participate in the
General Meeting and request a copy of the list, while reimbursing the costs of its preparation.
At the request of the shareholders representing at least one fifth of the Company‟s share capital, the election of the Supervisory Board should be performed by the next General Meeting through voting in separate groups, even if the Statute provides for a different manner of appointing the Supervisory
Board. The persons representing the proportion of the Shares at the General Meeting which is arrived at by dividing the total number of Shares represented at the General Meeting by the number of
Board members by voting in separate groups. In the event that shareholders representing at least one fifth of the Company‟s share capital filing a motion for electing the Supervisory Board by voting in separate groups, the provisions of the Statute providing for a different manner of appointing the
Management Board may provide the shareholder with an answer in writing, taking into account the restrictions concerning the possibility of causing damage, referred to above. In the documentation submitted to the next General Meeting, the Management Board reveals in writing the information provided to a shareholder outside the General Meeting, including the date of providing it and the person to whom the information was given. The information provided to the next General Meeting need not comprise the information announced to the public and provided during the General Meeting.
The shareholder to whom the information requested during a General Meeting was refused and who filed an objection in the minutes, may file an application with the registration court to oblige the
Management Board to provide the information. The application should be submitted within one week of the closing of the General Meeting at which the information was refused. The shareholder may also file an application with the registration court to oblige the Company to publish the information provided to another shareholder outside the General Meeting. In accordance with the Decree of 19 February
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 2009 on current and periodic information to be prepared by issuers of securities and conditions for considering as equivalent the information required by the provisions of the law of a non-EU state
Company shall be obliged to provide, in the form of a Periodic Report, information provided to a shareholder due to Management Board having been obliged to do so by the registration court in the cases referred to above.
In accordance with PZU‟s Statute, the Management Board is composed of three to seven members appointed for a joint term of office which covers three full consecutive financial years. The members of the Management Board, including the Chairman, are appointed and dismissed by the Supervisory
Board, and additionally, the Management Board Members are appointed and dismissed by the
Supervisory Board on a motion tabled by the Chairman of the Management Board. The Chairman of the Management Board for the new term of office who is appointed before the expiry of the current term of office may submit a motion to the Supervisory Board to appoint the remaining Members of the
Management Board for the new term of office before the expiry of the current term of office.
In the period from 1 January 2011 to 31 December 2011, the composition of the Management Board of PZU was as follows: At 1 January 2011, the composition of the Management Board of PZU was as follows:  Andrzej Piotr Klesyk – Chairman of the Management Board of PZU;  Witold Jaworski – Board Member of PZU;  Przemysław Dąbrowski - Board Member of PZU.
As of 15 May 2011, the Supervisory Board appointed Mr Marcin Halbersztadt member of the
As at 31 December 2011 and as at the date of publishing this Directors‟ Report, the composition of the
The Management Board enacts its rules and regulations which are approved by the Supervisory
Board. The operations of the Management Board are directed by the Chairman of the Management
Members of the Management Board acting jointly or one Member acting jointly with a proxy are authorized to represent the Company..
The rules and regulations of the Management Board regulate: (i) the scope of competencies of the
Management Board and the scope of actions requiring permission or approval by the Supervisory
the rules and organization of the work of the Management Board, including organization of meetings and the procedure for making decisions; and (iv) the rights and obligations of the resigning Board
In accordance with the rules and regulations of the Management Board, the following issues in particular require a resolution of the Management Board:  adopting a long-term plan for the Company‟s development and its functioning;  adopting a plan for the operations and development of the PZU Group;  adopting an annual financial plan and a report on its execution;
The remaining Board Members direct the Company‟s activities within the scope of responsibilities established by the Chairman of the Board.
Independent Member is obliged to submit a written statement to the Company concerning his meeting all the independence criteria provided for in the Statute and inform PZU of ceasing to meet those criteria. Moreover, the Statute grants the State Treasury a personal right to appoint and dismiss one
Supervisory Board member by virtue of a written statement submitted to the Management Board, if the share of the State Treasury in the Company drops below 50% of all of the Issuer‟s shares. The right shall expire on the State Treasury ceasing to be a shareholder in PZU.
On 30 June 2011, the Supervisory Board of PZU was constituted. The Supervisory Board decided to entrust the function of its Chairman to Marzena Piszczek, the function of Deputy Chairman to Zbigniew
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
The Supervisory Board has constant supervision over the activities of PZU in all areas of its activities.
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
Supervisory Board may specify up to what amount and on what terms and in what mode the
Companies Code;  make payments of interim dividends;  form and close regional branches and foreign branches.
The Supervisory Board enacts the rules and regulations which regulate its organization and mode of operation. In accordance with the Statute, the Supervisory Board meetings are held at least once every quarter. The Supervisory Board may delegate its members to independently perform specific supervision tasks and appoint temporary commissions for this purpose. The scope of duties of a delegated member of the Supervisory Board and of a commission are specified in a resolution of the
Moreover, the Statute provides for the possibility of casting a vote in writing through another
Supervisory Board member. In accordance with the Statute, the resolutions of the Supervisory Board are passed in an open ballot, except for the resolutions concerning the delegation of Supervisory
Board members to temporarily perform the functions of the Management Board members and concerning the appointment, suspension and dismissal of the Chairman of the Management Board,
The Rules and Regulations of the Supervisory Board were enacted by the Supervisory Board on
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 Supervisory Board and conducting meetings.
Supervisory Board. In accordance with the Rules and Regulations of the Supervisory Board, apart from appointing the IPO committee provided for in the Statute, the audit committee and the nominations and remuneration committee, in order to properly perform its supervisory duties the
Board provide for the possibility of the Supervisory Board and the committees appointed by it availing themselves of the services of experts and advisory firms. Members of the Management Board (invited by the Supervisory Board) and the Company‟s employees indicated by the Management Board competent in the matters discussed at the meeting may participate, among others, in the Supervisory
Board's meetings without a voting right. The Supervisory Board of PZU may also invite to a joint meeting for a specific purpose members of the management and supervisory bodies of other PZU
Group companies. Moreover, members of the Supervisory Board are entitled, on the approval of the
Supervisory Board, to select not more than one advisor authorized to participate with an advisory vote in meetings of the Supervisory Board devoted to financial reports and financial statements, provided that such persons maintain confidentiality and sign a statement of obligation to maintain confidentiality.
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 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.
Supervisory Board, the audit committee is an advisory and consultative body to the Supervisory Board and is appointed in order to increase the effectiveness of the supervisory activities performed by the
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
The nominations and remuneration committee performs an advisory and consultative function for the
The Supervisory Board decided that the nominations and remuneration committee shall be composed of four persons. On 30 June 2011, the Supervisory Board appointed a nominations and remuneration committee composed of the following persons: Zbigniew Ćwiąkalski (Chairman of the committee),
Marzena Piszczek (member of the committee), Zbigniew Derdziuk (member of the committee),
Dariusz Filar (member of the committee). As at 31 December 2011, the composition of the nominations and remuneration committee had not changed. 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.
On 2 January 2011, Przemysław Dąbrowski resigned as PZU Group Director and on 24 January 2011, the Management Board of PZU dismissed Przemysław Dąbrowski from this post and appointed
On 7 July 2011, the Management Board dismissed Mariusz Sarnowski as PZU Group Director effective from 20 June 2011. On 24 August 2011, the Management Board of PZU dismissed Krzysztof
Director as of 1 February 2012. As a result, as at the date of publishing the Directors‟ Report the following persons were PZU Group Directors:.
PZU monitors changes in the external regulations concerning, for example, the accounting policies and the reporting requirements for insurance companies, and carries out appropriate adaptation processes in these areas.
 mapping of data from the source systems to the financial statements, supporting the correct presentation of data;  analytical review of financial statements by specialists in order to confront them with the knowledge of the business and the business transactions conducted;  formal review of the financial statements in order to confirm compliance with the binding legal regulations and market practice in the scope of the required disclosures.
Stand-alone and consolidated financial statements of PZU are subject to:  a registered auditor's review - in the case of bi-annual financial statements;  an audit by a registered auditor - in the case of annual financial statements.
PZU within the scope of examining the correctness of the financial reporting of PZU, the effectiveness of internal controls, including the internal audit and risk management system.
PZU performs control functions through the Management and Supervisory Boards of these companies.
As at 31 December 2011, PZU‟s shareholders holding significant packages of shares are the State
Treasury and ING Otwarty Fundusz Emerytalny. The State Treasury holds 30,385,253 shares, representing 35.19% of the Company‟s share capital and ING Otwarty Fundusz Emerytalny holds 4,339,308 shares, representing 5.02% 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
The Management Board of PZU is not aware of any contracts concluded as a result of which changes might occur in the future in the proportions of shares held by the current shareholders.
The above restriction of the voting rights does not apply to:
 shareholders who on the date of passing the resolution of the General Meeting introducing the restriction had rights from shares representing more than 10% of the total number of votes at the
Company;  shareholders acting with the shareholders referred to in point 1 on the basis of concluded agreements concerning the joint execution of voting rights from shares.
On 1 June 2011, based on a proposition of the State Treasury, the Extraordinary General Meeting of
General Meeting, with the reservation that for the purpose of establishing the obligations of the acquirers of significant packages of shares provided for in the Act dated 29 July 2005 on public offering and the terms and conditions of introducing financial instruments to an organized trading system and on public companies (Journal of Laws No. 185 of 2005, item 1539 as amended) and in the Act on insurance activities, this restriction of the voting right shall be considered nonexistent. For the purpose of restricting the voting rights, the votes of shareholders between whom there is a controlling or subsidiary relationship are added up.
The restrictions do not apply to the State Treasury and shareholders acting with it based on concluded agreements concerning joint execution of the voting rights from shares. The restrictions of the voting rights shall expire when the State Treasury‟s share in PZU‟s share capital drops
 At the moment of the expiry of the right due to the State Treasury, it shall be acquired by a different shareholder representing the highest share in the share capital of PZU if that shareholder holds at least 20% of the share capital.
 Additionally, until the State Treasury ceases to be a shareholder in the Company, it has the right, in accordance with Art. 354 § 1 of the Commercial Companies Code, to appoint and dismiss one member of the Supervisory Board by virtue of a written statement submitted to the Company‟s
Management Board. Such appointment or dismissal shall be effective from the moment of delivery of the relevant statement to the Management Board and shall not require a resolution to be passed by the General Meeting.
On 6 June 2011, in accordance with Art. 32 clause 2 points 4 and 7 of the Act on insurance activities,
Supervisory Board are intended to ensure long-term stabilization of PZU‟s management and consistent execution of the adopted objectives.
On 8 February 2012 the Extraordinary Shareholders' Meeting of PZU adopted resolution No. 3/2012 amending the By-laws of PZU by way of adding item 11 in Article 18 and changing the wording of
The changes of the By-laws of PZU concern the competences of the Company‟s bodies with respect to approving the acquisition or sale of real property, perpetual usufruct right or share in real property or perpetual usufruct right.
Under Article 393.4 of the Code of Commercial Companies the acquisition or sale of real property, perpetual usufruct right or a share in real property or perpetual usufruct right requires a consent of the general shareholders‟ meeting, unless the company by-laws provide for otherwise. The binding By-
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2011 laws of PZU specify the competences of the Supervisory Board with respect to approving the acquisition or sale of real property, perpetual usufruct right or share in real property or perpetual usufruct right the value of which exceeds Euro 3,000,000 (Article 25.2.12 of the By-laws) and does not exclude such approvals from the competences of the General Shareholders‟ Meeting. Therefore, any acquisition or sale of real property, perpetual usufruct right or a share in real property or perpetual usufruct right by PZU requires the approval of the General Shareholders‟ Meeting, irrespective of the value of the transaction. Moreover, if the value of the transaction exceeds Euro 3,000,000, such transaction requires an additional approval of the Supervisory Board. The By-laws of PZU, however, do not specify whether the amount includes the VAT.
To the best knowledge of the Management Board of PZU, the consolidated financial statements of the
PZU Group and the comparative figures have been prepared in accordance with the binding accounting policies and they give a true, fair and clear view of the financial position of the Group and its results, and the Directors‟ Report of the PZU Group presents a true picture of the PZU Group‟s development, achievements and situation, including a discussion of the main risks and threats.
The Management Board of PZU declares that a registered audit company Deloitte Audyt Sp. z o.o. performing the audit of the consolidated financial statements of the PZU Group has been elected in accordance with the binding regulations and that the registered audit company and the registered auditors performing the audit met the conditions required for issuing an objective and independent opinion on the audited consolidated financial statements, in accordance with the binding regulations of the law and professional standards.