PZU 2020 – more than insurance 83 4.1 newPZU strategy 84 4.2 Strategy operationalization 86 4.3 CSR strategy execution in 2020 96 4.4 Activities executed in 2020 98
The PZU Group on the capital and debt markets 187 8.1 Equity and bond market 188 8.2 PZU’s share price 192 8.3 Banking sector on the Warsaw Stock Exchange 197 8.4 PZU’s investor relations 198 8.5 Analysts’ recommendations regarding PZU’s shares 203 8.7 Debt financing of PZU, Bank Pekao and Alior Bank 209 8.9 Calendar of PZU’s major corporate events in 2021 214
Corporate governance 217 9.1 Application of corporate governance rules 218 9.2 System of control in the process of preparing financial statements 222 9.3 Audit firm auditing the financial statements 226 9.4 PZU’s share capital and its shareholders; shares held by members of its governing bodies 227 9.5 Rules for amending the Company’s Articles of Association 230 9.6 Shareholder Meeting and shareholder rights 231 9.7 Supervisory Board and Management Board 233 9.8 Compensation paid to members of supervisory and management bodies 264 9.9 Diversity policy 268
In pursuance of the Accounting Act requirements, the Company hereby presents a separate statement of nonfinancial information related to PZU Group and PZU SA. The statement was prepared in conformity with the international reporting standards of the Global Reporting Initiative (GRI Standards). Pursuant to Art. 49b.9 of the Accounting Act, the statement of nonfinancial information is available on the Company’s website at: https:// www.pzu.pl/en/investor-relations/reports
was close to 20%, while the return on our investment portfolio consistently outpaces market rates.
In the health segment we have given an excellent response to patients’ new needs by rolling out multiple innovative solutions to serve them in making quick, effective and remote diagnoses. This consists of extending e-offerings and e-benefits and developing the myPZU portal where the option has been added to authenticate identity remotely using the myID and mCitizen apps without having to visit a branch. These are innovative projects that have lent support to the offer in health and have led to greater interest in this offer. The increase in gross written premium in the group and individually continued insurance segment in 2020 was caused by the acquisition of more contracts in health insurance. New clients in ambulatory insurance and higher sales of health products at the end of 2020 gave the PZU Group a portfolio of more than 2.8 million in force contracts of this type.
The challenges the pandemic has brought have released enormous layers of energy and creativity in us whereby we have found a host of new solutions and we are dynamically developing all of the areas of our business. We will face the additional challenges we have included in the new strategy. The priorities in the upcoming years will include the following: ensuring business growth, doing business in a sustainable manner while adhering to ESG standards, providing shareholders with above-average rates of return and an attractive stream of dividends.
II am confident that with the support of the Supervisory Board and the commitment of all of our employees we will achieve our targets. I thank you for your trust.
On behalf of the PZU Group, I hereby convey to you our activity report for 2020.
The past year was a huge unknown for the entire economy. Uncertainty in businesses and households triggered by the avalanche-like spread of coronavirus and the enactment of business restrictions in many industries led to a marked decline in economic activity. The year of the pandemic meant many challenges for the PZU Group companies. Even though they were difficult to anticipate, they did not form an obstacle to development. Rather they served as a driving force to introduce more dynamic change. By taking this approach to business the
On top of risk the pandemic also brought a new perspective. The restrictions placed on the operations of many industries, the shift companies made towards remote work and the lower mobility of consumers decisely accelerated digital transformation and the deployment of advanced technologies in products and services in the insurance and banking sector. Digitization will therefore be crucial for the PZU Group’s further development. In the longer run the pandemic may also enhance the need to take out insurance against the consequences of events that are difficult to predict. The health segment stands out in terms of its huge growth potential and fast pace of growth. Telemedicine has gained a particular amount of popularity with such progress in digitization in health protection. It makes it possible to give a remote
Chairman of the PZU Supervisory Board diagnosis and thus without having to engage in personal contact with a physician.
The PZU Group is adjusting its products and services to clients’ evolving needs. During the pandemic they require above average support. In 2020 the PZU Group also focused on charitable assistance given to the health service and patients grappling with COVID-19. In total, the companies belonging to the PZU Group donated more than PLN 25 million for that noble goal. This was a great act of solidarity. We have gained absolute certainty that as a Group we are capable of combining forces to help weaker people. I am genuinely proud of the PZU Group’s employees who personally got involved in charitable campaigns to mitigate the effects of this disease as it spread. They proved that together they are capable not only of building the company’s strong business position but also of uniting efforts to help the most needy. I am enormously grateful for that.
More challenges reflected in the new business strategy in 20212024 already await the PZU Group. One of its priorities will be to conduct its business in accordance with environmental, social and governance standards. I am confident that the PZU Group will play a crucial role in sustainable development efforts.
I wish the management teams of the companies belonging to the PZU Group and all of the employees good luck in pursuing the ambitious targets and generating above-average rates of return for shareholders.
Percentage share in the operating result (adjusted for PZU’s shares in banks in 2020, excluding the impairment loss on Bank Pekao and Alior Bank goodwill and intangibles identified during the acquisition of Alior Bank) * Assisted recognition of the PZU / PZU Życie brand, study by the Gfk Polonia institute, 2020
We place special emphasis on our code of ethics and corporate social responsibility in how we conduct business. The PZU Group’s value growth should be aligned to the needs of the environment and rely on sustainable resource utilization..
stability and safety – Solvency II ratio is above average for insurance groups in Europe 1 ROE reported / profit and equity adjusted for the impairment loss on assets related to banks acquisitions in the amount of PLN 1,343 million / profit and equity adjusted for the impact of COVID-19 calculated in CHAPTER 6.9 Impact of the COVID-19 pandemic on the PZU Group’s results and the Issuer’s results; additionally, equity adjusted by PLN 2,636 million (80% of the consolidated profit for 2019, which was not paid in the form of dividend)2 KNF (the regulatory authority) expected that in 2020 insurance companies retain the entirety of profit earned in previous years. That stance the KNF expressed on 26 March 2020 in a letter sent to insurance and reinsurance companies 2 Data not audited or reviewed by a statutory auditor 3 KNF (the regulatory authority) expected that in 2020 insurance companies retain the entirety of profit earned in previous years. That stance the KNF expressed on 26 March 2020 in a letter sent to insurance and reinsurance companies indicated the situation involving the epidemic announced in Poland and its possible further adverse economic consequences as well as expected adverse impact on the insurance sector. Dividend payout ratio and dividend per share (DPS) for the preceding 3 years were as follows: 62.5%, PLN 1.40 (2016); 74.6%, PLN 2.50 (2017); 75.3%, PLN 2.80 (2018).
14 15MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
The PZU Group’s consolidated assets total PLN 379 billion. The Group enjoys the trust of 22 million clients in five countries. It offers products and services to retail clients, small and medium enterprises and big business entities. Poland is the PZU Group’s core market measured by its magnitude scale of operations and client numbers. Nevertheless, the Group’s subsidiaries play an important role on the markets in Lithuania, Latvia, Estonia and Ukraine.
The Group companies offer not only in life, non-life and health insurance but also in banking, investment, pension and health care products. They also render assistance services to retail clients and businesses through strategic partnerships. The Group’s operations are founded on clients’ trust.
It is the Group’s strategic ambition to build long-lasting relations with both retail and business clients and care for their future. This is supported by integration of all areas of operations around the client. This makes it possible to deliver products and services that are well-matched to client needs at the appropriate time and place and respond to client expectations in a comprehensive and flexible manner. The key elements of this process are tools rooted in artificial intelligence, big data and mobile solutions that contribute to building an entrenched technological advantage in integrated client service.
The execution of the strategy is underpinned by the most recognizable insurance brand in Poland. According to surveys, spontaneous recognition of the PZU brand stands at 90% while assisted recognition is 100%.
Among all insurers operating in Poland PZU offers its clients the largest sales and service network. It has 410 branches, 9.9 thousand tied agents and agencies, 3.2 thousand multiagencies, nearly 1.1 thousand insurance brokers and electronic distribution channels. When it comes to bancassurance and strategic partnerships, the PZU Group collaborates with 13 banks and 21 strategic partners.
In the Baltic States where the PZU Group is in the insurance business, its distribution network consists of over 700 agents, 18 multiagencies and 400 brokers. PZU also cooperates with 7 banks and 42 strategic partners in these countries. In Ukraine insurance products are distributed through approximately 400 agents and in cooperation with over 20 multiagencies, nearly 40 brokers, 9 banks and 2 strategic partners.
We manage our business responsibly Operating at a large scale PZU is cognizant of the expectations various stakeholder have of it, including clients, employees, investors, partners, industry experts, institutions and organizations, and the entire general public. Therefore, in doing business and in its relations with the stakeholders, it is guided by sustainable development principles. It is a company that is open to social expectations. It strives to set trends and construe business solutions responsibly. It also gets involved in social actions, including those benefiting the local communities in which the Group’s clients and employees function. For the PZU Group, sustainable management is
16 17MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Insurance – for many years the PZU Group has provided insurance cover in all of the most important areas of private, public and business life, thereby safeguarding its clients’ lives, assets and health. PZU (non-life insurance, including motor, residential and buildings, agricultural and third party liability insurance) and PZU Życie (life insurance) are the leaders on Poland’s insurance market. Since 2014, after the acquisition of LINK4, the Group has been offering insurance under two brands: the most recognizable PZU brand, with its 200-year tradition, and the much younger LINK4 brand, associated with direct sales channels. In 2015 the third brand, TUW PZUW, or Towarzystwo Ubezpieczeń Wzajemnych Polski Zakład Ubezpieczeń Wzajemnych, a mutual insurer, was founded to sell and handle insurance products for companies in various industries, focusing on cooperation with large corporates, medical entities (hospitals and clinics) as well as for church institutions and local government units.
Poland is the Group’s core market, where it generates 92 % of its revenue (measured by gross written premium). The insurance activity in the Baltic States and in Ukraine generates 8% of its revenue.
The PZU Investments brand offers an extensive range of investment products: open and closed-end mutual funds and pension products, open-end pension funds, individual retirement accounts (IRA), individual retirement security accounts with a voluntary pension fund, employee pension schemes (EPS) and employee capital schemes (ECS). PZU TFI also invests the PZU Group’s own funds.
The PZU Zdrowie network has 130 own and approximately 2,200 partner centers. Its advantages include quick appointments, respecting referrals for tests from physicians from outside the PZU Zdrowie network, remote medical consultations which make it possible, in addition to obtaining medical advice or discussing test results, to receive a prescription or referral to tests. The offer is supplemented by prevention services
Banking – The PZU Group’s banking business consists of two groups: Bank Pekao (a member since 2017) and Alior Bank (a member since 2015).
Alior Bank is a universal deposit and credit bank. It was established in 2008 as a start-up. It combines the principles of traditional banking with innovative solutions and consequently it sets new trends in financial services and consistently strengthens its market position.
The enormous potential of the largest financial group in Central and Eastern Europe, more than 200 years of client trust, experience, effectiveness and innovation.
Net result on asset management of TFI PZU and PTE PZU (PLN m)
Net profit of the PZU Group (excluding banks) Net profit/loss of banks (Pekao and Alior Bank) attributed to PZU
solvency ratio reported by insurance groups in Europe. On 6 April 2020, S&P Global Ratings (S&P) upheld PZU’s A- rating and changed the ratings outlook from positive to stable. The change of the outlook resulted from the deterioration in financial and business conditions in Poland due to the outbreak of the COVID-19 pandemic, which, according to the agency’s analysts, could affect the PZU Group’s business; in particular, it may lead to a lower contribution from banking activity. At the same time, S&P emphasized that the PZU Group’s position should continue to be stable. This outlook reflects the viewpoint of the agency’s analysts that the PZU Group will maintain its leading business position in Poland, a strong capital position and a stable result on insurance activity whereby it will be capable of withstanding any further potential deterioration in the business environment. As at the end of 2020, PZU’s market capitalization neared was about PLN 28 billion.
Net result on investing activity including interest expenses 1,217 1,855 904 1,995 2 044
Net insurance claims and benefits paid (12,732) (14,941) (14,563) (15,695) (15 580)
Net profit attributable to equity holders of the parent company 1,754 2,502 2,559 2,780 3 106
Net profit attributable to equity holders of the parent company 181 393 654 515 149
(A+B+C) Net profit attributable to equity holders of the parent company 1 935 2 895 3 213 3 295 1 912
Link4: Client’s Silver Laurel in 2020 in the residential insurance category
AWARDS: Alior Bank: Second place in the Bankier.pl ranking for the least expensive brokerage account
Bank Pekao: The best offer of mortage loan in „Złoty Bankier” competition
Pekao Direct: Main prize in the European Customer Centricity Awards in the category Best omnichannel experience
PZU: Celent Model Insurer 2020 in the Data, Analytics, and AI category
AAS Balta: Best employer 2020 in the Baltic States according to Kincentric
PZU: Innovation Eagle awarded by the Rzeczpospolita daily in the category of Innovative Solutions mitigating the effects of the COVID-19 pandemic
Lietuvos Draudimas: Third place for the best COVID-19 internal communication campaign in the PR Impact Award 2020 contest
Innovations: Marketing: Link4: Client’s Golden Laurel in 2020 in the motor insurance category
TFI PZU: Two Alfa awards from the Analizy Online service given to PZU Obligacji Krótkoterminowych and PZU Dłużny Aktywny
24 25MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Acquisition of a stake in UAB DK „Lindra” (PZU Lietuva), business launch on the Lithuanian insurance market
Rebranding PZU’s Initial Public Offering (IPO Acquisition of a stake in OJSC „SkideWest” (PZU Ukraine), business launch on the Ukrainian insurance market
26 27MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
DECEMBER KNF’s recommendation on resuming the possibility of paying dividends from the profits generated in 2019 and 2020
NOVEMBER Purchase of bonds worth nearly PLN 2 billion (issued by BGK) for the COVID-19 Response Fund
The COVID-19 pandemic resulted in an economic downturn in Poland and its environment. The demand and supply shock associated with the dissemination of the virus and the decline in business activity in a number of industries increased the level of uncertainty among enterprises and households, thereby deteriorating the conditions for business development at PZU.
That’s simple! Using the app bearing the very same name PZU employees can check as they go whether the texts they write are overly complicated. “Concise, simple and plain language shows respect to other people”, Przemysław Babiarz, a journalist and winner of the Master of Spoken Polish award contends. He trained PZU employees on how to communicate to be understood.
Gross Domestic Product According to preliminary estimates, real GDP in 2020 declined 2.7% amidst the COVID-19 pandemic. The strongest contributing factors to this decline were slumps in household consumption (-1.7 p.p.) and gross fixed capital formation (-1.6 p.p.). Household consumption and investments dropped by 3% and 8.4%, respectively. As a consequence, in 2020, the investment rate in the national economy (the ratio of gross fixed capital formation to gross domestic product at current prices) fell to 17.1%, compared to 18.5% in 2019. The scale of decline in GDP was curtailed by net exports, which added 1.0 p.p. to its growth rate.
The restrictions on economic activity and freedom of movement imposed in March 2020 with a view to preventing the dissemination of the coronavirus translated into a decline in real GDP in Q2 2020 by as much as 8.4% y/y, following an increase by 1.9% y/y in Q1 2020. Disruptions in industrial supplies caused by the outbreak of the pandemic in China and Italy and the resumption of border controls within the European Union also exerted a negative impact on GDP in this period. In Q2 2020, private consumption plunged by as much as 10.8% y/y. Cost cuts effected by enterprises and a greater degree of uncertainty additionally suppressed investments in fixed assets, which dwindled by 10.7% y/y.
The escalation of the COVID-19 pandemic in the last quarter of 2020 and the partial reinstatement of restrictions on service industries resulted in another slowdown in economic growth. However, because the economy managed to attune to operating in the conditions of a pandemic, the drop in GDP in Q4 2020 turned out to be relatively minor. According to estimates, the rate of GDP growth in Q4 2020 declined to nearly -2.8% y/y, with private consumption dropping by 3.2% y/y. Consumption is estimated to have dwindled by approx. -3.0% y/y, a rate of decline significantly smaller than that experienced in the spring. In the same period, industrial production was on a significant rise, and in October 2020 exceeded the February level, i.e. that generated before the pandemic, followed by an even greater improvement in growth rate in December of approx. 2.7%. However, the situation of service industries exposed to the highest risk of coronavirus infection, where restrictions on the conduct of business were the most severe, was significantly harsher (the data after the Central Statistical Office).
Due to intermittently imposed restrictions on economic activity and health concerns, which resulted in the isolation and self-limitation of consumer mobility, household consumption declined by 3.0% in 2020. The largest such decline was recorded in Q2 2020, when the restrictions were the most severe. Following a strong rebound in Q3, consumption dwindled again in the concluding months of the year. However, due to the adjustments made by companies enabling them to operate in the conditions of the COVID-19 pandemic, the scale of this decline was significantly smaller. Another consequence of the pandemic was an increase in household savings in 2020.
Inflation, monetary policy and interest rates In 2020, the consumer price index (CPI) increased on average by 3.4% in annual average terms, compared to 2.3% in 2019. Accordingly, the shock caused by the COVID-19 pandemic did not suppress the rate of inflation. On the contrary, the prices of services increased significantly (by 6.9% y/y compared to 3.9% y/y in 2019), largely due to an increase in costs resulting from the need to abide by the requirements associated with efforts aimed at counteracting the pandemic. Commodity prices increased by 2.1% compared to 1.7% in 2019. Net core inflation (CPI without food and energy prices) was 3.9% in 2020, compared to 2% in 2019. In 2020, food and energy prices increased 4.7% and 4.9%, respectively, while fuel prices dropped by 10.4%, suppressing the overall growth in the price index (the data after GUS i NBP).
Lowering the interest rates by the Monetary Policy Council in 2020, reference interest rate at unemployment may therefore relatively quickly change into long-term unemployment, which poses a threat to the labor market and to prospects of economic growth.
In 2020, inflation subsided to low levels, with the annual rate of 0.2%. At the beginning of the crisis caused by the COVID-19 pandemic, the inflation was considerably reduced as a result of the global decrease in demand for energy goods and their prices; with the second wave of the pandemic, the inflation remained lower because of the already visible impact of the crisis on prices of services.
Latvia Latvia’s GDP fell down in Q4 2020 by 1.7% (annual data, adjusted for seasonality), i.e. lower than in Q2, when the decrease was 8.9%, and in Q3, when it reached 2.6%. The data suggest that the economy recovered faster – the production sectors did not show a decrease in production, and the service sectors quite quickly restarted business activity. The major cause of the economic downturn in 2020 was a decrease in private consumption resulting from the restrictions introduced because of the COVID-19 pandemic, which significantly limited business activities. That was at the same time prevented by the increase in expenditures on public consumption. In terms of sectors, the downturn was most marked by a decline in the transport sector, business connected with accommodation and catering as well as cultural, entertainment and leisure areas. A growth was observed only in the construction industry, agriculture, public administration and defense.
The annual inflation rate was -0.5% in December 2020, commodity prices dropped by 1.4%, whereas prices of services grew by 1.6%. Compared to December 2019, the average level of consumer prices was mainly affected by a fall in the prices of commodities and services related to transport, housing maintenance, clothing and footwear. On the other hand, price increases were recorded for food, tobacco products and non-alcoholic and alcoholic beverages, as well as for leisure, cultural and catering services and in the area of healthcare.
At the end of 2020, the unemployment rate stood at 7.4%, up 3.3 p.p. compared to December 2019. The economic recovery, with the simultaneous shortage of workforce, was conducive to an increase in the average salaries and wages, which was 3.2% in Q3.
1 according to the definition of the International Labor Organization (ILO)
Increase in consumer price inflation (CPI) in Poland in 2020 by annually on average versus 2.3% in 2019
Insurance penetration rate of in Poland below the European average (4.8% in 2019)
The statistical Pole’s insurance spending was in 2019 or above 4 times less than the European average
The COVID-19 pandemic was a key factor to determine the situation in financial markets in 2020. The outbreak and the related restrictions of business activities as well as the perspective of a strong GDP reduction, which posed the risk of a long-term limitation of the economic growth potential, contributed in the initial period to a sharp decrease of prices of risky assets, a reduction of bond yields and gold price increases. With time, however, the strong response of central banks, involving cuts of interest rates, a large-scale purchase of assets and supporting liquidity of banks to stimulate credit flow to the economy, contributed to calming the market situation. What also helped was government programs, introduced relatively soon and on a large scale, to support companies and employees affected by effects of the pandemic. Towards the end of the year, the imminent prospect of COVID-19 vaccine registration further improved investors’ moods. In 2020, a clearly increased volatility in financial markets continued.
Bond market The profitability of Polish 10-year treasury bonds was 1.25% at the end of 2020 compared to 2.06% at the end of 2019 (the data after Refinitiv Datastream). This meant a decrease in the spread relative to similar German treasury bonds from 225 bps to 182 bps. This is because the yield of 10-year “Bunds” declined in the period from -0.19% to -0.575%. The decline in the bond yield in Poland began as early as in February 2020, while in April and May, it deteriorated as a result of loosening strongly the monetary policy in the situation of a strong GDP
decrease. After the NBP’s reduction of interest rates in May, yields of 10-year treasury bonds only incidentally rose over 1.40%. The central banks, by buying out bonds, were able to prevent longer-term market interest rates to normalize too early so as not to make it difficult for the economy to operate during the pandemic. At the same time, the yields of one-year and two-year treasury bonds in Poland in the second half of 2020 (and especially in Q4) were periodically even close to zero.
PLN exchange rate (the data after NBP, cental bank of Poland)
in stock market indices, with the turning point being the announcement of the next phase of the restrictions on 30 October 2020. Between 17 August and 30 October, the WIG index dropped 16.6% and the WIG20 index fell 18.6%. Then equity prices increased until the end of the first ten days of December, and then slightly fell in the last weeks of the year because investors realized profits. Between 30 October and 31 December 2020, the WIG index rose by 29.3% and the WIG20 by 30.9% (the data after WSE).
What contributed to the decrease in the USD/PLN exchange rate by 1% in 2020, from 3.80 to 3.76, was the strengthening of euro against the US dollar. The EUR/USD exchange rate grew by 9% in 2020, from 1.12 to 1.22. On the other hand, the Polish zloty clearly weakened against the Swiss franc – the CHF/PLN exchange rate increased by 8.7% to 4.26.
Insurers running their businesses in European Union countries collected EUR 1,047 billion in premiums in 2019. This accounts for approx. 18.6% of the world’s gross written premium2.
Concerns regarding the more pronounced global slowdown in economic growth, commercial tensions and the risk of persistently low interest rates, especially for life insurers appeared on the insurance market in 2019. The topic of climate change and the losses it will generate for society and the economy showed up in discussions. Insurers faced challenges such as the technological transformation of the insurance markets, cybersecurity and data security, as well as the growing significance of ESG factors. Despite the detection of the first case of the SARS-CoV-2 coronavirus infection on 17 November 2019 in the city of Wuhan in the Hubei province in central China, nobody had imagined the consequences the COVID-19 pandemic would evince for the functioning of the global economy and the global financial markets.
In 2020 the statistical European spent EUR 1,997 on insurance3. A year earlier, it was EUR 1,9584. In 2018, the average Pole spent EUR 436, or more than 4 times less. Insurance spending in the Baltic states was even lower. In 2018, the average Lithuanian 2 3Swiss Re, sigma 4/2020: World insurance: riding out the 2020 pandemic storm 4 Insurance Europe,
36 37MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
In Poland, the market insurance model has been developing since 1990. At present, Poland has the largest insurance market in Central and Eastern Europe. However, even though the size of this market (as measured by gross written premium) more than doubled between 2009 and 2018, it still remains way behind Western Europe. In 2018, total gross written premium in the Polish market was EUR 13.9 billion (compared to EUR 6.8 billion in 2009)6. In 2019, it was converted into EUR 13.8 billion7.
8 11 Swiss Re, sigma 4/2020: World insurance: riding out the 2020 pandemic storm 9 KNF, Annual bulletin. Insurance market 2019, updated on 6 November 2020 10 Deloitte, CEE insurance and M&A outlook, November 2020
Poland’s insurance penetration rate, which is the ratio of total gross written premium to gross domestic product (GDP), is below the European average. In 2019, this rate stood at 2.8%, whereas the Europe average was 4.8%. Even lower penetration rates were achieved in the insurance markets of Lithuania (2.0%), Latvia (2.8%), Estonia (1.8%) and Ukraine (1.5%). The highest penetration rates were recorded by the United Kingdom (10.3%), Denmark (10.7%), Finland (10.2%) as well as the Netherlands (9.2%)12.
12 Swiss Re, sigma 4/2020: World insurance: riding out the 2020 pandemic storm
At yearend 2019, loans in the Polish banking sector totaled EUR 324 billion, which placed Poland in the middle of the pack among European countries.
European Central Bank (ECB), at the end of 201913 the Polish banking sector’s assets totaled EUR 474.3 billion. The largest banking sector in Europe is that of the United Kingdom (EUR 10.7 trillion at the end of 2019), with Latvia occupying the other end of the spectrum (EUR 22.1 billion at yearend 2019). At the end of 2019, the assets of European (EU-28) banks stood at approx. EUR 42.9 trillion (EUR 28.9 trillion in the euro area)14 . Poland has a relatively low, compared to the European Union, ratio of banking assets to GDP, oscillating around 90%, while the average for the European Union and the countries of Central and Eastern Europe is approx. 260% and 92%15, respectively.
Mortgage loans account for the highest percentage of household loans – roughly 58%. In the European Union, this proportion is higher and stands at approx. 74% on average, while in the countries of Central and Eastern Europe it is roughly 65%. The lesser significance of mortgage loans in the assets of Polish banks results from the fact that such loans are a relatively new product. For comparison, in 2005 their share in household loans in Poland was approx. 30%, compared to more than 80% in some West European countries20. Mortgage loans in Poland represent a mere 20% of GDP, while the average in the European Union is 42% of GDP. Meanwhile, Poland is among the countries with the highest share of consumer loans in total loans. The value of extended consumer loans versus GDP at the end of 2019 was 9.1% of GDP, or more than the average in the European Union (6.1%) and less only than in comparison with Bulgaria and Portugal21.
18 National Bank of Poland, ”Development of the financial system in Poland in 2019” 19 BZGD research is conducted in the international research network called Household Finance and Consumption Network (HFCN). Central banks and statistical offices representing euro area countries, Poland and Hungary participate in this undertaking initiated in 2006 and coordinated by the European Central Bank (ECB). wiadomosci_2018/ZGDwP_20180109.html
Share of loans in GDP (2018, %) in relation to GDP per capita (2018, EUR)
Lo an s p er c ap ita 9, in e ur o
40 41MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
The regulations of the “Anti-Crisis Shield” also have a direct impact on changing the organization of work at PZU, because in 2020 and until the date of publication of this report they have served as the basis for a large portion of the Company’s employees to work remotely. As regards the organization of work and the operation of PZU branches, PZU’s business during the epidemic has also been affected by regulations issued by the Council of Ministers on the establishment of certain restrictions, orders and prohibitions related to the announcement of the state of epidemic and recommendations of the State Labor Inspection Service. In accordance with these regulations, PZU has taken steps to ensure safe working conditions for its employees and agents and to provide safe customer service operations.
At the end of 2019, the relatively freely disposable financial assets of households increased by 10.4% compared to 2018. At the end of December 2019, they totaled PLN 1,422.9 billion, and their relation to GDP increased to 62.2%. Deposits are the most popular form of accumulation of financial assets by households. At yearend 2019, deposits in banks and credit unions accounted for 63.7% of the financial assets of households, 79.1% if counted together with the cash kept by these households. Financial assets of households in the form of life insurance assets (including policies with unit-linked funds) totaled PLN 60.8 billion in 2019, which accounted for 4.3% of total financial assets of these households. Less frequently, households invest their savings in shares listed on the Warsaw Stock Exchange (4.0% of financial assets), treasury securities (1.9%) and non-treasury securities (0.4%)24.
On 4 May 2020, the Regulation of the Minister of Health of 28 April 2020 on Information to Be Provided to Insurance Companies by Entities Performing Medical Activities and by the National Health Fund entered into force. In accordance with
On 19 May 2020, the Regulation of the Minister of Finance of 14 May 2020 Amending the Regulation on the Examination for Persons Applying for the Performance of Agency Activities, Distribution Activities of an Insurance Company and Distribution Activities of a Reinsurance Company entered into force and defined the conditions for the conduct of such examinations using an ICT system during the period of the epidemic. Then, on 27 May 2020, the Regulation of the Minister of Finance of 22 May 2020 Amending the Regulation on Applications for Entry in the Register of Insurance Agents and Agents Offering Supplementary Insurance entered into force. These amendments permit the submission of an application for entry on the basis of copies of documents during the period of an epidemic threat, epidemic or emergency.
The Polish Financial Supervision Authority also initially recommended that insurance companies refrain from paying out dividends from their 2019 profits. In December, KNF issued a statement regarding its assumptions for the dividend policy in 2021, according to which a dividend in the maximum
42 43MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
External environment this Regulation, the insurance undertaking’s application to an entity performing medical activities or the National Health Fund must be accompanied by data on the health condition of the insured person or the person on whose account the insurance contract is supposed to be entered into, and the insurance undertaking must only enclose information about the consent of the person concerned or his or her statutory representative, along with the date and form of expressing such consent. The amendment results in the revocation of the previously binding requirement to receive written consent from clients of insurance companies, which made it difficult to enter into insurance contracts remotely.
Regulations associated with climate issues Some of the consequences of the COVID-19 pandemic will probably involve a greater focus on solutions aimed at protection of the natural environment. The European Union’s ambition is for Europe to become a climate-neutral continent by 2050. To this end, it intends to pursue the European Green Deal initiative, one of the elements of which is to redirect resources of financial institutions towards the funding of investments contributing to sustainable development.
On 29 December 2019, Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector, entered into force. It is scheduled to be applied from 10 March 2021. It applies, without limitation, to insurance companies that offer insurance-based investment products. The Regulation imposes on financial market players certain disclosure requirements related to sustainable development. Such entities are required, without limitation, to publish on their websites information about their strategies on the integration of sustainability risks in their investment decisionmaking process.
On 12 July 2020, Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (“taxonomy”), entered into force. It defines the criteria for building “green” financial products. It has also introduced the need to use markings in product information letting the user know whether they are products that include the “EU taxonomy”, i.e. a classification system for the taking of action aimed at reaching sustainable development objectives. Moreover, a company that is required to publish non-financial information will be required to report in its non-financial statement or consolidated non-financial statement how and to what extent its business relates to economic activity that qualifies as environmentally sustainable. The Regulation is expected to be applied, in principle, from 1 January 2022.
Selected Supreme Court rulings affecting insurance activity Among the Supreme Court rulings handed down in 2020 with regard to the insurance business, the following were the most important: • on the liability of an insurance undertaking for expenses incurred on the rental of a replacement vehicle; • on a benefit disbursed in the event of an early termination of a unit-linked life insurance contract; • on indemnification for care provided by relatives; • on the inclusion of the amount of value-added tax in the amount of indemnification under third party liability insurance of the motor vehicle owner.
On 17 July 2020, in case no. III CZP 75/19, the Supreme Court ruled that the benefit disbursed by the insurer in the event of an early termination of a unit-linked life insurance contract is not the main benefit within the meaning of Article 385 1 § 1 sentence 2 of the Civil Code.
On 22 July 2020, in case no. III CZP 31/19, the Supreme Court recognized in its resolution that an injured party who has suffered a bodily injury or health disorder may claim, pursuant to Article 444 § 1 of the Civil Code, indemnification for the costs of care provided to him or her gratuitously by relatives.
2.7 Factors that may affect the conditions of operations and the PZU Group’s activities in 2021
Due to the scope of PZU Group’s business (insurance sector in Poland, the Baltic states and Ukraine, mutual and pension funds sector, banking), the main factors that will shape the environment in which the Group will operate and may have a direct impact on the development and results of the Group in the medium term, in particular in 2021, may be divided into the following three categories: • macroeconomic and geopolitical; • legal and regulatory; • market factors, specific to individual sectors or businesses in which the Group is involved.
According to all indications, 2021 will be a time of recovery for both the global economy and the Polish economy following the shock caused by the COVID-19 pandemic. The launch of a vaccination program by the end of 2020 is of crucial significance. It is forecasted that Q2 2021 will mark a rebound in economic activity related to spring warming and the lifting of pandemic restrictions as a result of the society acquiring “herd immunity” to COVID-19. Of decisive significance for the economy will be the elimination of the risk of persisting restrictions unfavorably affecting economic activity. According to broadly accepted scenarios, vaccinating health care workers, members of professional groups of key significance for the functioning of the state and individuals most exposed to coronavirus infection will lead to neutralization of the negative impact of the pandemic on the economy in H2 2021. The impulses for a GDP rebound will include the release of withheld consumer demand, the restoration of the service sector to full freedom of operation and the revival of global trade while maintaining quantitative easing-based fiscal and monetary policies.
Based on these assumptions, GDP growth in Poland may, according to PZU’s forecasts, reach approx. 4% or even more in 2021. This relatively quick economic recovery in 2021 will also possible due to the measures that prevented the destruction of the production potential in the form of mass bankruptcies and a spike in unemployment. Although certain service industries and smaller companies have found themselves in a challenging situation, the financial and liquidity standing of companies remains relatively good (in light of the decline in GDP in 2020). This was also due to the public aid extended to them during the pandemic. The forecasted economic recovery should create conditions for improvement in the labor market, including improvement in consumer sentiments. This, in turn, with the accumulated household savings and the restoration of a small overall real growth in payroll expenditures reported by companies, which began already in the closing months of last year, provides the basis for the expectation of a major increase in consumption in 2021. The expiration of support programs creates a risk factor, yet we assume that in a recovery environment it will be possible to avoid a deterioration of the situation in the labor market.
Moreover, in the face of the uncertainty related to the pandemic situation persisting in early 2021, enterprises may also delay their investments. However, the second half of the year should bring a clearer rebound of fixed capital formation, supported by the inflow of funds from the EU’s Next Generation reconstruction program at the end of 2021.
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The aforedescribed macroeconomic factors coupled with the pandemic and the geopolitical situation across the world may affect the behavior of central banks and, as a consequence, the overall conditions in the global and national financial markets. The climate and direction of the changes in the financial markets is, in turn, important for the attractiveness of the financial products offered by the PZU Group, in particular unitlinked funds. It also affects the level of assets and management fees charged by the Group companies for asset management.
The materialization of the economic recovery scenario should result in a slight increase in T-bond yields both in Poland and in the core markets. However, monetary policies based on a quantitative easing approach, including through asset purchases by central banks, will mean that market interest rates are poised to remain at very low levels. The materialization of this scenario will also drive up stock prices.
Moreover, the increasing awareness of sustainable finance, climate change and environmental protection will drive not only an increase in regulatory burdens but will also impact the behaviors of consumers, businesses and financial institutions.
From the perspective of the insurance business, the Group’s activity will be affected by any legal changes and case-law that may contribute to an increase in the insurance companies’ burdens, e.g. court verdicts on payout of general damages under TPL insurance. The adopted solutions may translate into the amount of the claims paid by the PZU Group.
The Group’s business may also be affected by the completion of work by KNF on the so-called ‘product intervention’ concerning unit-linked life insurance products. Sales of unitlinked policies may suffer as a result or the structure of the product may be changed.
Product intervention is a legal measure described in Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products. In accordance with
Growth of gross fixed capital formation in % (y/y) 9.4 7.2 (8.4) 2.4
Consumer price index in % (y/y, annual average) 1.6 2.3 3.4 3.1
Factors specific to the sectors in which the PZU Group operates The operating conditions and financial performance of the PZU Group in the distinct areas of its business are affected by sector-specific conditions and their evolution. The most
External environment important one is the level of competition in individual product groups constituting the core of the Group’s business.
The operation of the markets where the PZU Group is a player is also affected in the short and long term by the social and economic consequences of the pandemic. Certain lines of business experienced this impact immediately. Notably, travel insurance was the first area to take a punch. In the initial phase of the pandemic, the loss ratio increased, whereas following the imposition of travel restrictions, sales of insurance in this product group were suspended.
The profitability generated on the motor insurance business may trigger competition among insurers for clients through an active pricing policy and, as a result, to a reduction in the rate of growth in gross written premium in this segment. On the other hand, curtailment of the pandemic and the related increase in mobility are likely to elevate the quantity of trafficrelated claims to earlier levels.
The pandemic and the accompanying sense of insecurity may cause clients to start generating stronger demand for classic protective life insurance products and health insurance products. These factors have already driven the rapid growth of telemedicine.
The transfer of clients from traditional to remote channels may take place even faster. The change in customer habits which, under normal circumstances, would have taken several years, was a consequence of the lockdowns, which forced the transition to remote work. These factors accelerated the digitization and the use of advanced technologies, especially in the insurance sector. Remote forms of sale, inspection and claims handling became popular relatively rapidly.
The anticipated changes in the insurance and banking sectors will also emerge as a result of the emergence of new entrants and trends associated with development of new technologies, including operators of big databases, insurtechs and fintechs25.
Other global trends, such as the sharing economy or the Internet of Things (IoT), have also created potential for the development, in the medium and long term, of insurance solutions for retail and corporate users.
25 Fintech – sector of economy encompassing companies operating in the financial and technological industries. Fintech companies most often provide financial services using the Internet. It is also a term for all types of technological or financial innovations. Insurtech is one of the areas of the fintech industry encompassing new technological solutions in insurance.
The quest for convenience and the increasing environmental awareness result in a rapid development of the shared mobility industry. City dwellers increasingly frequently choose means of transport which allow them to quickly and efficiently move around and change the means of transport depending on the situation on the road. In addition to cars, shared mobility also includes scooters, segways, skymasters and electric unicycles, rented via smartphone apps.
The PZU Group conducts various activities in insurance and finance. In particular, the PZU Group entities offer services in life insurance, non-life insurance, health insurance and they manage client assets within in an open-end pension fund and mutual funds. As a result of its investments in Bank Pekao and Alior Bank, the PZU Group also provides banking services.
1 The following branches operate within PZU Zdrowie: CM FCM in Warsaw, CM Tarnów, CM Nasze Zdrowie in Warsaw, CM Medicus in Opole, CM Cordis in Poznań, CM in Warsaw, CM in Krakow, CM in Poznań, CM in Wrocław, CM Gdańsk Abrahama, CM Artimed in Kielce, CM Warsaw Chmielna 2 The Centrum Medyczne Medica Group consists of the following companies: Centrum Medyczne Medica Sp. z o.o., Sanatorium Uzdrowiskowe “Krystynka” Sp. z o.o. with its registered office in Ciechocinek 3 The Elvita Group consists of the following companies: Przedsiębiorstwo Świadczeń Zdrowotnych i Promocji Zdrowia ELVITA – Jaworzno III Sp. z o.o., Przedsiębiorstwo Usług Medycznych PROELMED Sp. z o.o. in Łaziska Górne 4 The Alior Bank Group is composed of: Alior Bank SA, Alior Services Sp. z o.o., Alior Leasing Sp. z o.o., Meritum Services. ICB SA, Alior TFI SA, New Commerce Services Sp. z o.o., Absource Sp.z o.o., Serwis Ubezpieczeniowy Sp. z.o.o, CORSHAM Sp. z o.o. (which holds 20% in Pay Po Sp. z o.o.;), RBL_VC Sp. z o.o., RBL_VC sp. z o.o. ASI S.K.A., Harberton sp. z o.o. 5 The Bank Pekao Group is composed of, among others: Bank Pekao SA, Pekao Bank Hipoteczny SA, Pekao Leasing Sp. z o.o., Pekao Investment Banking SA, Pekao Faktoring Sp. z o.o., Centrum Kart SA, Pekao Financial Services Sp. z o.o., Pekao Direct Sp. z o.o. (until 16 January 2020: Centrum Bankowości Bezpośredniej Sp. z o.o.), Dom Inwestycyjny Xelion Sp. z o.o., Pekao Investment Management SA (holding a 100% stake in Pekao TFI SA) 6 The Armatura Group is composed of the following companies: Armatura Kraków SA, Aquaform SA, Aquaform Ukraine TOW, Aquaform Romania SRL 7 The Tomma Group is composed of the following companies: Tomma Diagnostyka Obrazowa S.A., Bonus Diagnosta Sp. z o.o. The structure chart does not include mutual funds or companies in liquidation or under bankruptcy.
Warsaw - Poland PZU – 14.50% PZU Życie – 14.50% Alior Bank – 6.00%
PZU as the parent company, through its representatives in supervisory bodies of subsidiaries and voting at their shareholder meetings, exerts an impact on the selection of strategic directions regarding both the scope of business and the finances of the Group members. As selected companies focus on their specialization, they provide services to each other at an arm’s length basis, using the internal cost allocation model within the tax group.
z o.o., RUCH Detal SA, RUCH Marketing sp. z o.o., RUCH Nieruchomości V sp. z o.o.; • On 30 June 2020, PZU Zdrowie merged with Alergo-Med Sp. z o.o., and Bonus-Diagnosta Sp. z o.o. merged with Asklepios Diagnostyka Sp. z o.o.; • On 1 September 2020, a joint stock company PZU Projekt 01 SA was established with the share capital of PLN 150 thousand; • On 30 October 2020, PZU Zdrowie merged with FCM Zdrowie sp. z o.o. As a result of that transaction, all assets of FCM Zdrowie sp. z o.o were taken over by PZU Zdrowie and FCM Zdrowie sp. z o.o. ceased to exist; • On 30 October 2020, PZU Zdrowie acquired 24,000 shares in CM Gamma sp. z o.o. with a par value of PLN 50 each, as a result of which the stake held by PZU Zdrowie in CM Gamma sp. z o.o. rose from 60.46% to 100%; • On 3 November 2020, PZU acquired 96,000,000 shares in Armatura Kraków SA with a par value of PLN 1 each. The shares were released on 10 November 2020. Consequently PZU holds 100% of the share capital and has 100% votes in Armatura Kraków SA; • On 24 November 2020, the ownership structure of RUCH SA changed, as a result of which PZU and PZU Życie now hold 14.5% each in the share capital and 14.5% each of votes in Ruch SA, while Alior Bank holds 6% in the share capital and 6% of votes in Ruch SA; • On 7 January 2021 Corsham sp.z o.o. sold all owned shares of PayPo sp. z o.o.; • On 1 February 2021 Haberton sp z o.o. was liquidated. National Court Register registered the change on 25 February 2021.
PZU Group’s activity premium in non-life insurance in the first three quarters of 2020.
Market situation Measured by gross written premium in the first three quarters of 2020, the non-life insurance market in Poland grew by a total of PLN 33 million (+0.1%) in comparison to the corresponding period of the previous year.
PZU Group’s non-life insurance market share (direct activity) as at the end of Q3 2019, including of LINK4's share
Lietuvos Draudimas branch’s share of the non-life insurance market in Estonia at the end of 2020 roku market position held by Bank Pekao and Alior Bank, respectively, measured by assets at the end of Q3 2020
PZU Group’s 3rd market position measured by revenue in health at the end of2020 roku
The market growth was driven primarily by gross written premium increase in the non-motor insurance area by PLN 424 million (+3.4% y/y), while gross written premium in the motor insurance area was PLN 391 million lower (-2.1% y/y).
In motor insurance the gross written premium in motor TPL insurance, which is the most important category for the overall market, (PLN 11.8 billion representing 37.8% of the overall premium in non-life in the first three quarters of 2020) fell by PLN 384 million y/y (-3.2% y/y). The change in premium was negative again, both in direct (down by PLN 329 million, -2.9% y/y) and indirect business (down by PLN 55 million, -6.1% y/y). These trends were caused by active price-based competition initiated after a period of high profitability of the portfolio, supported by lower frequency of losses (the period of periodic social isolation as a result of the pandemic) and a slow-down on the leasing market. The sales of motor own damage insurance declined by PLN 6 million (-0.1% y/y) to PLN 6.4 billion, which accounted for 20.7% of the overall written
Non-life insurers – percentage of gross written premium in the first three quarters of 2020 (in %)
In the first three quarters of 2020, the overall non-life insurance market generated a net result of PLN 3,038 million, which is PLN 893 million less in comparison with the corresponding period of 2019. Excluding the dividend from PZU Życie, net profit of the non-life insurance market decreased PLN 892 million (-34.3%).
54 55MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
The following entities in the PZU Group operate on the non-life insurance market in Poland: the Group’s parent company, i.e. PZU, LINK4 and TUW PZUW.
To address expectations voiced by clients, the PZU Group has been consistently extending its offering in recent years for both retail and corporate clients. As a result, it has been able to retain its high market share.
After three quarters of 2020, the PZU Group had a 32.6% share in the non-life insurance market (32.1% on direct activity) compared to 33.7% in the corresponding period of 2019 (33.2% on direct activity). It recorded a slight decline but maintained high profitability of the portfolio.
After the first three quarters of 2020, the PZU Group’s technical result (PZU together with LINK4 and TUW PZUW) stated as a percentage of the overall market’s technical result was 45.6% (the PZU Group’s technical result was PLN 1,077 million while the overall market’s technical result was PLN 2,362 million).
The total value of the investments made by non-life insurers at the end of Q3 2020 (net of the investments in subsidiaries) was PLN 66,630 million, up 9.1% compared to the end of 2019.
LINK4’s activity LINK4, the first insurance company in Poland offering products by phone continues to be one of the leaders on the direct insurance market, extending its cooperation with multi-agencies, banks and strategic partners. It offers an extensive array of non-life insurance products, including motor, home, travel and third party liability insurance.
Given the changing market situation, the company has focused on the development of innovative solutions providing added value to both its clients and business partners. By using new technologies in internal processes and in relations with clients, the company continues to challenge the way of thinking about insurance. At the end of 2020, LINK4 had 47 fully-robotized processes and 9 applications, which support daily tasks of employees.
In connection with the COVID-19 pandemic, the company introduced a number of solutions to facilitate the work of intermediaries. Just one week after the state of epidemic was announced, it introduced the option of executing insurance contracts remotely, without the client having to sign the documents. It also introduced the option of carrying out inspections without the participation of an agent.
It also launched a special claims hotline for clients who are employees of medical services, the police, city guards or other public service institutions that are directly involved in combating the pandemic, as well as volunteers assisting the infected and the elderly. Their notifications are processed first.
The recognition enjoyed by LINK4 on the market and among its employees is confirmed by the title of the Best Quality Employer 2020. The award granted by Centralne Biuro Certyfikacji Krajowej places LINK4 among the best employers in Poland
At the end of 2020, the TUW PZUW had 432 members, which is 50 more than the year before. They are grouped by specific criteria (industry, corporate, risk types) in 52 mutual benefit societies (their number grew by two as compared to the previous year).
In 2020, TUW PZUW continued its dynamic growth in terms of sales. It implemented new products and innovative service solutions, responding to the needs of the changing market and client expectations.
The most significant change in the offering was the launch of the Machinery Loss of Profit (MLoP) product for both large and smaller businesses. In the strategic partnership (affinity) area, an insurance offer was developed for renewable energy sources and assistance for clients with photovoltaic installations.
On the „500 List”, which is the list of largest Polish companies prepared by the Rzeczpospolita daily, TUW PZUW increased its ranking in 2020 from 460th (in 2018) to 407th. As a result it ranked 12th in the „Top Movements” category. It was also ranked 30th in the list of companies with the highest income growth (53rd in last year’s edition).
Life insurance market – gross written premium vs. technical result (in PLN m)
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2020, Rynek ubezpieczeń 3/2019, PZU Życie’s data withdrawn from offer (mainly the fixed rate products). In subsequent years the guidelines of the regulatory authority, including those regulating the level of fees charged to clients of unit-linked products, as well as EU directives regulating the market for unit-linked products and their distribution led to insurance undertakings constricting their offering of these types of products, especially in cooperation with banks. After three quarters of 2018, the first sudden decline in single premiums was recorded (-31.7% y/y, of which -41.3% in the area of investment products) which was followed by downward movements in subsequent years (-24.1% after three quarters of 2020).
At the same time, market concentration measured by the periodic gross written premium remained high. During the last year, the sequence of the four largest market players has not changed and their combined share rose to 71.2%.
Gross written premium* reported by life insurers in Poland (in PLN million)
* based on tables „Technical Account of Life Insurance Companies by Insurance Classes” Source: KNF, Quarterly Newsletter. Rynek ubezpieczeń [Insurance market] 3/2020, Rynek ubezpieczeń 3/2019, Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016
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At the same time, PZU Życie continued to be the leader in the periodic premium segment. the first three quarters of 2020, it generated 45.6% of these types of premiums, signifying a small decrease (by 0.3 p.p.) in the market share in this segment as compared to the previous year. The rate of increase in gross written premium at PZU Życie in this segment was 2% y/y, while the other market players taken together posted a 3.1% growth rate. One of the major factors was the rapid growth in the portfolio of health insurance (class V) and individual protection insurance (class I). PZU Życie had nearly 2.2 million health insurance policies in its portfolio.
PZU’s share in just the life insurance segment (class I) for periodic premiums at the end of Q3 2020 was 59.7% when measured by gross written premium and 64.2% when measured by the number of contracts in force. In turn, PZU’s market share in terms of the method of entering into an agreement just in the life insurance segment (group vs. individual) was 64.9% for group policies and 41.8% for individual policies (measured by gross written premium).
Groups: Talanx - Warta, Europa, Open Life; VIG - Compensa, Vienna Life; Aviva - Aviva, Santander-Aviva Source: KNF, Quarterly Newsletter. Rynek ubezpieczeń [Insurance Market] 3/2020
PZU Group’s activity offer, among others, the possibility of multiple payout of the benefit and receipt of a pharmacy card after hospitalization, i.e. free medicines up to a specified limit. They also provide an additional benefit in the event of hospitalization in connection with a malignant neoplasm; • supplemented the offer by adding the PZU Treatment abroad individual insurance, providing comprehensive organization of treatment in specialized medical centers abroad and covering its costs. The insurance covers: development of a neoplasm, cardiac surgery, neurosurgical procedure, organ or bone marrow transplant; • introduced 5 new products offering insurance coverage for children. They provide for disbursement of a policy benefit in the event of critical illness, hospital treatment, surgical operation or accidental dismemberment of a child. They allow for treatment of the child abroad in specific situations, e.g. if they have a malignant neoplasm, if a cardio- or neurosurgical operation or transplantation is required. As part of the PZU child treatment abroad insurance, PZU arranges for the treatment and covers its costs up to as much as EUR 2 million; • expanded the individual insurance offer to also cover a spouse or partner, making it possible to take out a comprehensive insurance of the whole family under a single policy. Thanks to the joint policy the conclusion of the insurance agreement is simpler and all policy components can be paid for in a single premium.
As at the end of December 2020, there were 30 domestic commercial banks, 530 cooperative banks and 35 branches of credit institutions operating in Poland. The banking network comprised a total of 5,551 branches, 2,911 offices, agencies and other customer service outlets and 3,106 representative offices (including partner outlets). Therefore the banking network comprised a total of 11,568 outlets, i.e. 1,213 outlets less than at the end of the previous year.
Headcount in the banking sector at the end of December 2020 fell to 149.0 thousand people and was 7.9 thousand (5.0%) lower than at end of 2019.
In 2020, the banking sector generated a net profit of PLN 7.8 billion, compared to PLN 13.8 billion in 2019, down PLN 6.0 billion (i.e. 43.8% y/y). The interest income movement (PLN -9.4 billion y/y) had the most profound impact on the development of the net profit. In addition the result on provisions and impairment losses was PLN 4.1 billion lower y/y and the dividend income declined by PLN 1.2 billion y/y. Positive impact came from a decrease of interest expense (PLN -7.3 billion y/y) and commission income (PLN +1.5 billion y/y).
The economic recession already from Q2 2020 exerted strong pressure on the margins in the sector. April and May brought a noticeable deterioration of the interest margin. Despite keeping financial costs under control, the margin dropped to 2.24% at the end of the year, compared to 2.63% in December 2019.
In December 2020, the assets of the banking sector stood at PLN 2,356 billion, up 17.8% y/y. The increase in the assets of the banking sector was driven mainly by an increase of the value of debt instruments.
The structure of deposits recorded a slight decrease of the share of the non-financial sector from 85.6% in December 2019 to 80.4% in December 2020. The biggest increase was posted in corporate deposits, as result of the crisis tendency to increase the liquidity cushion by businesses and accumulation of funds from the “Anti-crisis Shield”. Household deposits also accelerated but to a lesser extent than in the case of corporates.
At the end of September 2020, the banking sector’s own funds for capital ratios, calculated in accordance with the regulations
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The banking sector’s total capital ratio at the end of September 2020 was 20.4% (up 150 bp compared to the end of September 2019). The Tier I capital ratio at the end of September 2020 was 18.4% (up 143 bp compared to September 2019).
At the end of Q3 2020, Bank Pekao was the second largest bank in Poland (in terms of the asset value).
New products and services In 2020, Bank Pekao took broad actions supporting employees, clients and business partners, adapting its activity to the challenges and restrictions associated with the COVID-19 pandemic. The solutions implemented were aimed at maintaining business continuity. The key was to reduce the risk of a coronavirus infection by the employees and provide clients with safe access to banking services.
Bank Pekao promoted “7 golden safe banking rules” encouraging clients to: • use online baking – Pekao24 and the PeoPay mobile app; • use remote contact via chat, video or phone; • limit visits in the bank outlets; • apply safety rules while visiting a branch.
Bank Pekao supported clients in maintaining financial liquidity during the COVID-19 pandemic. Retail banking clients were enabled to suspend repayment of consumer and mortgage loans for the time of temporary problems with managing the household budget during the pandemic. The “moratorium period” covered 6% of the retail loan portfolio and 4% of the micro business and SME loan portfolio. In Pekao24 the Bank launched the possibility of a fully remote application process.
In addition, in 2020 Pekao accepted applications under the governmental program Dobry Start 300+ subsidizing the purchase of school items, emerging as a leader among banks with the largest number of applications accepted online. In addition, together with PZU, an offer of school ADD insurance with a 10% discount was prepared.
The bank granted preferential loans for environmental investments, reduced the volume of consumed paper by encouraging clients to give up hardcopy bank statements, and used recycled paper for production of advertising materials.
Operations of the Alior Bank Group The Alior Bank Group is headed by Alior Bank. Alior is a universal deposit and credit bank, providing services to natural persons, legal persons and other domestic and foreign entities. The bank’s core business comprises maintaining bank accounts, granting cash loans, issuing bank securities and purchase and sale of foreign currencies. The bank also conducts brokerage activity, provides financial advisory and intermediation services, arranges corporate bond issues and provides other financial services.
In 2020 Alior Bank published its new strategy for 2020-2022 entitled “More than a bank”. 2020 was also a period of challenges in the difficult COVID-19 pandemic conditions. Introduction of solutions that guarantee employee and client safety and ensure business continuity was key.
The next effort focused on remote client identification was the cooperation with Polska Wytwórnia Papierów Wartościowych [Polish Security Printing Works]. One of the areas of cooperation is the use of an e-ID, which supports client identity verification without visiting a branch. Thanks to the eDo App, with an e-ID clients can confirm their personal data and may freely use Alior Bank’s products and services.
In 2020, Alior Bank made available to clients the “one click loan” option in a special offer in Alior Mobile and Alior Online. Thanks to the offer, those interested in borrowing additional money may apply for a loan quickly and conveniently without leaving home.
The bank expanded its credit card installment service by offering it through remote channels. Clients may themselves split the repayment into installments by logging into online or mobile banking.
Alior TFI Alior TFI (formerly Money Makers) is part of the Alior Bank Group. The company was established in 2010 and its operations, originally as a brokerage house, focused on asset management services. Following a transformation, from July 2015, it has been operating as a Mutual Fund Management Company.
Alior Bank’s cooperation with its subsidiary Alior TFI comprises primarily the company’s core business, i.e. development and management of mutual funds and representing them vis-a-vis third parties.
Other than the factors mentioned above, one of the most important issues of today remains that of foreign currency mortgage loans. In the absence of a final systemic solution of this issue, the largest impact on the banking system will be exerted by court rulings handed down in lawsuits concerning specific loan agreements. A number of events (among others, the CJEU ruling of 3 October 2019) prompted an increasing group of borrowers to bring their claims to court. This will have a strong adverse impact on the financial performance of the affected banks, in particular those with large portfolios of such loans. So far, the main area of impact were the provisions recognized by banks in connection with the anticipated legal risk – they had a strong, negative impact on the sector’s results in 2020. According to most forecasts, the total costs for the sector may reach tens of billions of Polish zloty but are difficult to estimate and will be spread over time. Much will depend, among other factors, on the actual number of lawsuits filed (how many borrowers end up bringing legal action against the banks), interpretations adopted by national courts in individual cases, reactions of national regulatory institutions and steps taken by the banks themselves. Also, a scenario cannot be ruled out in which the CHF loan problem will be eventually solved by the adoption of appropriate legislative measures.
As a result of low interest rates on bank deposits from May to the end of 2020, debt funds were the most popular, but despite that, as a result of March and April outflows they recorded negative flows (PLN -2.7 billion). In 2020, the importance of Employee Capital Scheme (ECS) funds increased – they are, by nature, resistant to the market situation thanks to systematic
68 69MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
PZU Group’s activity 60. He/she may withdraw the money at any time before but will lose the State Treasury subsidies and will have to pay the capital gains tax.
Employee savings accumulated in the ECS are invested in defined date funds, that is funds with a specific investment target date, which will be close to the participant’s expected retirement date. Depending on the participant’s age, the degree of risk is modified: initially, funds are invested in more risky assets (such as equities), and over time they are switched to safer assets (such as bonds).
The ECS are introduced in stages. In the first stage, started on 1 July 2019, the reform covered employers with more than 250 people, followed by other groups in the next periods.
In connection with the outbreak of the COVID-19 pandemic, the final deadline for signing ECS management contracts by companies employing from 50 to 249 people (II stage of the reform) was postponed by half a year relative to the earlier deadline to 27 October 2020.
ECS may be managed and operated only by companies entered in the records kept by the Polish Development Fund. As at the end of December 2020, there were 20 such institutions: 16 TFIs, 3 PTEs and 1 ZU (Towarzystwo Ubezpieczeń na Życie).
TFI PZU’s activity Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU) operates on the mutual fund market in the PZU Group. TFI PZU offers products and services for retail and institutional clients. It also operates investment and saving programs under the third pillar of the social security system: • Individual Retirement Accounts (IRA); • Employee Savings Plans (ESP); • Employee Pension Schemes (EPS); • Employee Capital Schemes (ECS); • Company Investment Plans (CIP); • Group Pension Plans (GPP), within which Individual
The basic contribution, i.e. the employee’s mandatory payment, equals 2% of his/her monthly salary forming the basis for calculation of contributions for retirement and disability insurance. It may be lower (however not lower than 0.5%) if the employee’s salary earned in the month from different sources does not exceed 1.2 times the minimum wage. An employee may also declare a voluntary contribution in the amount of up to 2% of his/her salary.
Employee Capital Schemes According to the Polish Financial Supervision Authority, the net asset value of the defined date funds under the ECS system at the end of 2020 was over PLN 2.8 billion. Net asset value of the defined date funds in the ECS system operated only by mutual fund management companies (TFI), without universal pension fund management companies (PTE) and insurance undertakings (ZU), at yearend 2020 stood at PLN 2.3 billion.
As at the end of 2020, TFI PZU managed a portfolio of net assets worth PLN 23.4 billion, representing a 10.5% increase from the end of 2019 and an 8.36% share in the mutual fund market. Accordingly, TFI PZU reached the status of one of the three largest mutual fund companies in Poland (it was ranked third according to reports published by the Chamber of Fund and Asset Management (IZFiA)).
Source: KNF, net asset value of Defined Date Funds (FZD) according to management institutions, data for TFI only, without PTE and TU
II 50-249 persons 30 June 2019 1 January 2020 until 27 October 2020 until 10 November 2020
Mutual fund companies – share in assets (Defined Date Funds) as at 31 December 2020 (%)
Changes in the asset value of individual funds were driven predominantly by: • development of the inPZU service and offering and the support actions; • active sales of funds as part of Employee Capital Schemes; • active sales of funds as part of Employee Pension Plans; • acquisition of assets from the efforts in unit distribution by external distributors; • interest rate cuts by central banks, relativizing the profit of certain funds; • the COVID-19 pandemic resulting in increased volatility of fund valuations.
TFI PZU is also one of the leaders of the Employee Capital Schemes market. The amount of assets accumulated in ECS funds managed by TFI PZU stood at PLN 392.2 million, which accounted for nearly 17% of the market (according to Chamber of Fund and Asset Management’s report) as at end of 2020. By 22 January 2021, ECS management agreements were signed with TFI PZU by over 35 thousand employers. This result is attributable to, among others, the broad support that TFI PZU offers to employers in deployment and service of ECS. They may use a free online service for remote conclusion of ECS management and operation agreements and daily service of ECSs. After the outbreak of the pandemic TFI PZU also introduced the possibility of entering into ECS agreements by phone.
Lithuanian market According to the Bank of Lithuania, in 2020 gross written premium collected by non-life insurance companies totaled EUR 664 million, representing a decrease by 1.6% compared to the previous year.
Swedbank is the largest life insurance company in Lithuania in terms of total gross written premiums with a 23.3% market share. The next players are Aviva (19.2% market share) and Compensa (18.7% market share).
Latvian market At the end of 2020 the Latvian non-life insurance market recorded a gross written premium of EUR 380 million, down 4.6% (EUR 18 million) relative to the previous year2.
The biggest drop in sales was recorded in motor TPL insurance (by EUR 14 million) and MOD (by EUR 6 million), which was related to the travel restrictions during the COVID-19 pandemic. The pandemic also resulted in a significant decline in the sale of travel insurance (by EUR 6 million). Health insurance, in turn, recorded an increase in sales by EUR 3 million.
2 The data published in 2019 took into account also the deductions associated with mandatory fees on account of motor TPL insurance. After their restatement, the sales growth rate is estimated at -5.7% y/y.
The motor insurance business had the largest share in the non-life insurance market measured by gross written premium. Motor TPL insurance accounted for 23.7% of the market while motor own damage accounted for 23.0%. Also property insurance (21.3% market share) and health insurance (18.4% market share) had an important position in the product mix.
Estonian market In 2020, non-life insurance companies operating in Estonia recorded a decrease in gross written premium by 3.7%, recording sales in the amount of EUR 383 million. 32.0% of this amount, i.e. EUR 123 million, was collected by branches of foreign insurers operating in Estonia.
At the end of 2020, 13 companies operated in the non-life insurance sector (including 6 branches of foreign insurance companies) among which the top 4 held a combined market share of 70.4%. In 2020 Seesam closed its operations following a merger with Vienna Insurance Group.
Activity of PZU companies in the Baltic States Lithuania As of November 2014, the PZU Group has been operating in the Lithuanian non-life insurance market as Lietuvos Draudimas, which, as of May 2015, is also the owner of the PZU branch in
Lietuvos Draudimas is the leader of the non-life insurance market in Lithuania. Its market share at the end of 2020 was 29.6%. Compared to 2019, the company recorded a 3.4% decrease in gross written premium, reaching the sales of EUR 197 million. The biggest drop (by EUR 12 million, i.e. 9.0%), caused by the restrictions introduced as a result of the COVID-19 pandemic, was recorded in the motor insurance business.
PZU Group’s life insurance operations in Lithuania are conducted through UAB PZU Lietuva Gyvybës Draudimas (PZU Lithuania Life). The collected gross written premium was EUR 19 million, which means an increase by 8.5% compared to 2019. The share of PZU Lithuania Life in the life insurance market in 2020 was 6.4% and did not change from 2019.
Latvia From June 2014, the PZU Group was joined in Latvia by AAS Balta, which in May 2015 took over the PZU Lithuania branch operating in the Latvian market since 2012.
In 2020 gross premium written by AAS Balta reached EUR 107 million, down 6.2% relative to 2019. Market share of AAS Balta in the non-life insurance market stood at 28.2%. The restrictions introduced in connection with the COVID-19 pandemic affected the sales of mainly motor insurance – gross written premium dropped by 7%.
Estonia Since May 2015 PZU Group operations in Estonia are conducted by a branch of Lietuvos Draudimas which was established as a result of merger of two entities: branch of the Lithuanian PZU company and the Estonian branch, which operated under the Codan brand.
Factors, including threats and risks, that may affect the insurance business of foreign companies in 2021 In addition to chance events, such as flood, drought and spring ground frosts, the following risks are possible: • slowdown of economic growth in the Baltic States and
Ukraine – the more challenging financial standing of companies may result in elevated credit risk, a higher loss ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth in both motor and property insurance; • adverse trends related to the increase in the loss ratio may be expected to appear in the area of insurance guarantees, job loss insurance and low own contribution insurance for mortgage loans as a result of the prolonged COVID-19 pandemic; • resumption of price pressure in motor insurance, i.e. competition for clients through an active pricing policy applied by competitors; • reduced demand for voluntary insurance due to an increase in the rate of unemployment and a decline in employment as a result of the ongoing COVID-19 pandemic; • case law concerning the amounts of general damages paid in cash for the suffering sustained (legislative amendments in Lithuania) under the TPL insurance held by the owners of motor vehicles to the closest family members of persons who have died; 3 Insurance TOP, Ukrainian insurance quarterly, #7(75)2020
• changes in trends and behavior of client seeking customized proposals and an electronic, swift conclusion of agreements and handling insurance, forcing insurance companies to adapt to these new expectations rapidly; • increase of insurance fraud as a result of the more difficult situation in numerous industries, increasing unemployment and lower employment rates; • demographic changes and the aging society and the ensuing changes in the mortality and fertility levels; • coming into force of new regulations or financial burdens on insurance companies.
Market situation The health market is a dynamically developing and prospective business area. Experts from PMR4, dealing with market research and analyses in Central and Eastern Europe, expect that in 2020-2025: • the growth rate of private health insurance will reach the average annual level of approx. 7.1% for supplementary health insurance and approx. 6.2% for subscriptions; • the average annual growth rate of the fee-for-service market will be 5.8%. In addition, the following is expected: • further intensive development of telemedicine and service opportunities through remote channels; • increasing number of persons outside working age and greater need to provide care to senior citizens; • increasing public awareness of prevention and periodic examinations.
According to PMR5, the private health care offered under fee-for-service products at the end of 2019 was worth PLN 21.1 billion (up 12.9% y/y). The value of medical subscriptions reached PLN 5.1 billion (up 12.1%), while the value of private health insurance was nearly PLN 1 billion (up 8.9% y/y).
4 PMR Report entitled „Private Health Care Market in Poland 2020 – market analysis and development forecasts for 2020-2025” 5 PMR Report entitled „Private Health Care Market in Poland 2020 – market analysis and development forecasts for 2020-2025”
74 75MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Activities in the health area The PZU Group’s operations in the health area include: • sale of health products in the form of insurance (life and health insurance and non-life health insurance, and non-insurance products); • sale of non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs); • development of proprietary, uniform-standard medical infrastructure (medical centers and patient service solutions) to ensure the best access to services and the achievement of revenue targets.
Development of the insurance health offering of PZU Życie • in March 2020, sales of PZU Thinking about Life and Health product for companies employing up to 4 people were launched. Employees may select from among 6 insurance options with different covers and benefit amounts. Each option may be extended to include private medical care. The insurance covers have been prepared to address different needs, depending on the client’s stage in life. Contracts are concluded remotely via the mojePZU portal. PZU Życie can insure even a single employee – also when an employer itself does not take out a cover; • thinking about children, in the first quarter of 2020 the “P Plus” product was expanded to include three riders with medical services for: accidental dismemberment of a child, hospitalization of a child caused by an accident or illness, critical illness of a child.
Development of e-commerce and IT infrastructure • PZU Zdrowie centers started to provide remote consultations, adapting to the pandemic situation; • psychological consultations over the phone were launched; • thanks to further development of the tool for booking and purchase of online appointments through a direct connection with the calendars of the medical centers, the number of centers throughout Poland supporting such connections increased to approx. 200. They belong both to the PZU and the partner network. More than 20% of medical services are arranged by PZU Zdrowie patients on their own via the mojePZU portal; • starting in January 2020, patients of PZU Zdrowie’s own medical centers obtained access to their online medical documentation on the mojePZU portal. The patients also received an online medical interview free of charge, which allows them to check whether they have COVID-19 symptoms; • as part of the phone-based patient service, in January 2020, PZU Zdrowie introduced an IVA voicebot, which supports the medical call center in booking (and canceling) standard medical appointments; • in April 2020, PZU Zdrowie opened its own PZU Zdrowie Telemedicine Center; • in May 2020, the sales of medical bundles for fee-for-service customers were launched via the mojePZU portal; • the service of health products for children was launched on the mojePZU portal, offering the customers the possibility of making appointments and accessing medical documentation online; • support for registration of claims for reimbursement for medical services was launched on the mojePZU portal.
Development of innovative solutions The MedTech and HealthTech solutions market is developing faster than ever and the progress of digitization in health care
PZU Zdrowie’s involvement in health protection activities PZU Zdrowie’s social activity in 2020 focused on supporting the health care system and the patients in combating the COVID-19 pandemic: • The PZU Zdrowie support hotlines gave 20 thousand pieces of free advice associated with COVID-19, which included medical and psychological consultations. From the beginning of the pandemic, PZU Zdrowie provided: a psychological support hotline – offering free-ofcharge psychological counseling for physicians, nurses, paramedics and lab technicians involved in the fight against COVID-19, the NFZ [National Health Fund] Patient Information Hotline – a free hotline for all citizens, supported by consultants, physicians and psychologists, who provided consultations related to COVID-19, free telemedicine advice – offering consultations with a PZU Zdrowie physician and expert information about COVID-19; • PZU Zdrowie is an operator in the Health Ministry’s Home Medical Care program. Within this program it provides internal medicine support and psychological counseling, but also provides remote monitoring of the health condition of those who are isolated due to COVID-19, among others by checking their oxygen saturation level, pulse and temperature as well as the severity of their symptoms of the illness. The program utilizes a pulse oximeter as a diagnostic tool and an application to transmit and monitor data; • For its customers, PZU Zdrowie additionally launched a Remote COVID Care program, in which patients receive pulse oximeters to monitor their blood oxygen level. They also benefit from the remote internal medicine and psychological care.
• participation in the „Action Defibrillation” educational project in the świętokrzyskie voivodship, which promoted the use of devices, which can restore normal heart action in the event of sudden cardiac arrests.
Factors, including threats and risks, that may affect the operations of the Health Area in 2021 • changes in fertility, mortality, and morbidity rates, as well as the health consequences of the fact that during the pandemic treatments for certain conditions (e.g., cardiovascular and oncology) were postponed, may affect the value of sales and the loss ratios (e.g. in subscription plans or in health insurance); • changes in trends and behaviors displayed by clients, who will start searching for customized offerings – clients’ new expectations may bring about the need to change processes and systems, which in turn may affect the business results; • an increase in unemployment and uncertainty on the labor market may reduce sales growth of new insurance and medical subscriptions for corporate employees; • continued pressure on the prices of group insurance products – the market for health services remains very competitive both in terms of prices and the range of available services; • the demand for specialized doctors exceeds the supply, which may slow down growth and affect margins; • salary pressures exerted by doctors and other personnel serving patients in medical centers may affect our financial performance in the Health Area.
• relatively high saturation of the market in larger cities and also staff shortages and lack of customer potential in smaller towns may reduce our growth rates; • potential modification of the National Health Fund’s contracting rules may cause significant changes in the financial results generated by medical centers.
PTE PZU’s activity The PZU Złota Jesień Open-End Pension Fund, which is managed by Powszechne Towarzystwo Emerytalne PZU, is one of the largest players on the pension fund market in Poland. At the end of 2020, OFE PZU was the third largest pension fund, both in terms of the number of members, as well as in terms of net asset value: • the fund had 2,328 thousand members, i.e. 15.1% of all participants in open-end pension funds; • net assets stood at over PLN 20 billion, thereby representing 13.7% of the total asset value of the open-end pension funds operating in Poland.
78 79MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
At yearend 2020, the PZU Voluntary Pension Fund (DFE PZU) ran 33.2 thousand individual pension security accounts (IKZEs) in which assets worth more than PLN 343 million were accumulated. It kept the leading position in the voluntary pension fund segment.
In spite of the challenges posed by the year 2020, the voluntary pension fund market increased the value of its assets. The active reallocation of portfolios into equity assets was allowed by the much smaller asset values of these funds compared to open-end pension funds.
Also, the value of DFE PZU’s assets is strongly affected by current contributions, which in 2020 were higher than the year before.
Factors, including threats and risks, which may affect the pension funds’ operations in 2021 Key challenges: • the economic climate on the capital market in particular on the Warsaw Stock Exchange, resulting from the course of the COVID-19 pandemic and affecting the value of assets of the funds and the level of fees collected by pension fund companies for management; • opportunities arising from the achievement of the objectives specified in the Capital Accumulation Scheme and the Responsible Development Strategy the pursuit of which will depend on the development of detailed solutions and the entry into force of necessary legislative changes; • active participation in the work on enhancing the performance of the third pillar and making it more attractive, and influencing the need in public awareness for accumulating additional savings for future retirement; • transfer of funds from open-end pension funds to individual retirement accounts.
On 12 March 2020, the Sejm of the Republic of Poland received a government bill on amendment of certain acts in connection with the transfer of funds from open pension funds to individual retirement accounts. The act is to enter into force on 1 June 2021, and the transformation of OFE into specialized open-end investment funds will take place on 28 January, 2022.
which currently manage open-end pension funds (OFEs) and voluntary pension funds (DFEs) will be transformed into mutual fund management companies (TFIs); • OFEs and DFEs will become specialist open-end mutual funds (SFIOs) that will be managed by TFIs; • an OFE member will have the following options what to do with the funds accumulated on his or her OFE account: the default option will be the transfer of funds from the OFE account to an individual retirement account (IKE) with the possibility of continued payment of contributions on a voluntary basis. The transfer of funds from OFEs to IRAs will be subject to a 15% transformation fee. The payment will be distributed over two years. The disbursement of pensions from IRAs will be exempt from income tax, and savings accumulated in IRAs will be inheritable,
PZU Pomoc PZU Pomoc provides auxiliary services to PZU Group companies: • managing the PZU repair network – at the end of H1 2020, the company cooperated with 915 repair shops; • organizing motor assistance services for LINK4; • conducting salvage auctions and sales after loss and damage incidents; • supporting technical claims handling in motor claims; • handling assistance products for PZU and PZU Życie (among others, legal consulting, organization of assistance services); • managing the loyalty program, PZU Pomoc w Życiu Club – at the end of 2020, approx. 2 million club members were able to take advantage of insurance discounts and products of cooperating companies (rebate programs offered by partners).
PZU Centrum Operacji PZU Centrum Operacji provides services supporting the operation of PZU Group companies. It has been established to provide the following services: IT, Data Center, Contact Center, mass printing, HR and payroll-related services and auxiliary services related to insurance and pension funds, as well as constant intermediation in conclusion of insurance agreements, financial and investment agreements and assistance agreements.
The company cooperates with numerous academic centers and experienced experts (local and foreign). It constantly seeks new and effective technological solutions to enable mitigation of the risks that have the greatest impact on the insurance activity.
The PZU LAB team has developed methods for cooperation with the existing and prospective clients. First, the engineers identify critical installation sites, simulate critical events such as fire, flooding or explosion, and determine their consequences. Then the possible scenarios and the methods of minimizing the negative consequences are discussed. Ultimately, PZU LAB engineers implement innovative technological solutions in client companies that are to improve their safety.
Tower Inwestycje The company’s line of business is to invest available funds in: • real estate development initiatives, in particular in the construction of commercial properties; • investment activity.
Open-end Pension Funds – percentage of net asset value as at 31 December 2020 (in %)
Source: KNF, monthly data on the OFE market, Data for December 2020
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The Company conducts work associated with the office and commercial investment project in a prestigious location in Wrocław at ul. Oławska 35 (Plac Dominikański) in a venue occupied for the past several decades by an office building owned by PZU. This investment is partially intended for the PZU Group’s needs and partially for lease.
Ogrodowa-Inwestycje Ogrodowa-Inwestycje Sp. z o.o. is the owner of the City-Gate office building at ul. Ogrodowa 58 in Warsaw and leases office space to external clients and PZU Group companies.
The business of Armatura Kraków lies outside the domain of financial and insurance services. The group is a leading manufacturer in the sanitary and heating industry in Poland. Along with its subsidiary Aquaform SA, it specializes in the manufacture of bathroom and kitchen taps, aluminum central heating radiators, a wide range of valves and sanitaryware.
We are the talk of the town. We talk about language and how much importance PZU attaches to using plain and understandable Polish. In 2020 these efforts have yielded approximately one thousand publications in the media on PZU promoting the use of plain language.
In the PZU Group’s next strategic outlook for the years 2021 2024, all key social, economic and business factors will be taken into account, including those related to the low interest rate environment, the COVID19 pandemic and the ongoing regulatory and demographic changes. The PZU Group will focus on business development in each segment of its existing activity, including insurance, banking services, investments and healthcare. The priorities of the new strategy will include: Branches
This strategy specified how various areas within the PZU Group would be integrated to focus on clients in order to maximize their convenience and satisfaction. Particular emphasis was put on an in-depth, multi-level analysis of the information
PZU’s ROE versus European insurers in 2020 * profit and equity adjusted by the impairment loss on assets related to bank acquisitions in the amount of PLN 1,343 million ** based on preliminary data Source: PZU, company reports - annual data
average ensuring the stability of the Groups’ business, conducting the business in a sustainable manner while adhering to the adopted ESG standards, providing shareholders with above average rates of return and an attractive stream of dividends.
86 87MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Price optimization in real time – utilization of machine learning algorithms when setting tariffs for motor insurance products
Comprehensive client picture CRM platform supporting rapid and easy access to information concerning products and services
88 89MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Tasks accomplished: • effectively customize the offer to client needs in terms of quality and costs alike; • align pricing to risk better; • accelerate the procurement process and streamline service processes by providing clients with tools to manage easily the products they have in the overall PZU Group; • create a full client picture (360 degree view) to cultivate partnership relations, standardize processes, grasp client needs better, underwrite risk in an optimum fashion, pursue more effective cross-sales efforts and manage the sales network more efficiently.
Metric: percentage of PZU and PZU Życie clients who consented to marketing communication.
Execution: In 2020, development work on the integrated CRM platform was continued with a view to supporting all retail sales channels. The platform operates in the “360 degrees” environment – a system that provides PZU agents and employees with ergonomic and efficient access to full information about their clients. The 360-degree view helps build relations with clients and forms the basis for growing cross selling in the PZU Group
#2 More effective tariff setting Initiative: shorten the tariff-setting process, in particular on the motor insurance market.
Purpose: • support cross selling initiatives; • grow the client retention ratio in various lines of business; • analyze pictures and images in claims and benefits handling processes (e.g. comparison in real time of the picture of the claim and the cost estimate received); • deploy smart solutions in medical diagnostics; • enhance efficacy in the detection of insurance fraud; • render risk management consulting services for companies; • launch the PZU Data Lab – center for the creation of innovations using data and artificial intelligence; • cut expenses; • improve the quality of customer service; • augment client loyalty; • build a competitive edge; • improve sales and profitability; • grow the value of the brand and the Company.
Metric: number of innovative solutions which at least 100 thousand clients of the PZU Group have used.
Execution: • AI in the claims handling process – owing to the deployment of a solution based on artificial intelligence algorithms, PZU experts who handle more than half a million motor claims annually, receive only selected cases for analysis. The remaining ones, those that do not raise any doubts, are approved automatically or semi-automatically. This translates into significant financial savings and improvement in client satisfaction. Work is underway to deploy artificial intelligence in all other motor claims handling processes.
• The Band of Life, adapted for use in care for patients infected with coronavirus, is an electronic device worn on a wrist that helps save human life. It monitors the basic vital parameters of patients, such as blood oxygen saturation, pulse and temperature, and alerts medical personnel of any emergencies. The Bands, introduced by PZU in 2019 under a pilot project, have been modified after the outbreak of the pandemic to support the care for patients suffering from COVID-19. By enabling remote monitoring of the patients’ health, the Bands reduce the risk of transmission of the virus to medical personnel. PZU donated almost one thousand Bands of Life to hospitals across Poland.
• Cyber SME – a tool that scans the websites of small and medium-sized enterprises (SMEs) and verifies their cyberattack safeguards. It protects companies against threats coming from the Internet, providing them with tools to react quickly in the event of a cyberattack. PZU agents may also use this platform to prepare customized reports on cyber risks for distinct companies.
• PZU GO – an innovative beacon device that sends out automatic alerts about a road accident and helps to ensure the rapid arrival of assistance services to the injured. It is pasted to the car’s windshield. It connects to the PZU GO app in the driver’s smartphone through Bluetooth and when it detects a large g-force that may suggest an accident, it sends an alert to the PZU Emergency Center. At the same time, it transmits information concerning the vehicle’s location. A PZU consultant immediately calls the client to check whether assistance is needed, and if the client does not pick up, the consultant summons rescue services to the site of the likely accident. More than 93%1 of clients declare that they are satisfied with PZU GO.
#3 Artificial intelligence (AI) Initiative: use new technologies developed both in-house and in cooperation with start-ups (insurtechs, fintechs, hi-tech companies).
Boost sales by utilizing bank channels in line with client preference
Implementation of an insurance offer to supplement the offering of banking products (life insurance, health insurance, assistance)
Broad offering of investment products (TFI), pension products (ECS, IRA, IRSA) and unit-linked products dedicated to the premium segment
Offering bank products in the course of insurance-related contacts (sales and service), including “lead generation” through PZU’s sales network
Sales efforts directed to PZU’s clients in connection with the occurrence of specific life events such as childbirth, the purchase of a car, a motor claim or a property claim
#5 Simplifying the product offering Initiative: create a straight-forward product offer in respect of how the products are structured and the wording used to describe them.
Purpose: • have general salespersons sell simple products effectively; • increase simplicity and shorten the process for clients to buy products; • make the simple offer available through the web (10 widely distributed products).
Execution: • Continued collaboration with banks through the development of both the product offering and the distribution channels enabled the attainment of the assumed objective (PLN 1 billion in written premium from the banking channel) after Q1 2020. At yearend 2020, this result increased to PLN 1.7 billion; • Deployment of assurbanking as a new line of business, under which the CASH loan platform has been established, enabling employers to offer their employees a benefit in the form of quick loans with low interest rates and a simple method of repayment. This deployed business concept may become an unrivalled solution on the Polish loan market. The platform, accessible via the Internet address Portalcash.pl, was acquired in June 2020 by PZU Cash, a special purpose vehicle established for this purpose.
assistance and providing patients with pulse oximeters to measure blood oxygen saturation
#8 Development of sales and consolidation in PZU Investments Initiative: design a uniform asset management structure in the PZU Group to utilize multi-channel distribution; under the strategy until 2020, launch sales of products also on foreign markets.
Execution: • provision of new functionalities of the mojePZU website to clients. In 2020, patients of PZU Zdrowie’s own centers were granted online access to their medical records and were able to book doctor’s appointments for their children. Since 2020, clients have also been able to view their list and status of claims and benefits through the platform. MojePZU also has a functionality enabling the purchase of selected products online (including Auto, Dom, Wojażer, Ja Plus, Edukacja, Auto Opony [Tires], Na wypadek Nowotworu [PZU against Cancer]), the use of an individual pension security account and accession to the PZU Pomocni loyalty club; • launch of an easy authentication option by the client on the mojePZU platform – using the popular mojeID and mObywatel services. The client’s identity is confirmed remotely through an electronic banking platform; • promotion of mojePZU among clients – dissemination of information about the website’s features and the resulting convenience of using the PZU offering; • launch of the mojePZU app for mobile devices; • 1.6 million mojePZU accounts at yearend 2020.
#10 Development of direct offering Initiative: develop the best online sales platform among European insurers.
Purpose: • create an offer of 10 products based on simple and understandable rules; • reach clients who prefer digital channels; Assets under management for third party clients (bn PLN)
Execution: • launch of sales of a subscription-based product, targeted predominantly at strategic corporate clients, distributed through the PZU Zdrowie sales network. At the same time, rules for internal communication with other PZU Group companies and for work on the shared portfolio were prepared to generate the best possible synergies enhancing the efficient sales of health products; • establishment of a tender offering area – its key purpose is to align the product offering to the individual expectations of strategic tendering clients, in accordance with the adopted tendering procedure; • launch of a Remote COVID Care program PZU patients suspecting or already suffering from a coronavirus infection. The program includes remote internist and psychological
• achieve a leadership position in the direct channel with a market share of at least 50%.
Metrics: number of products available in the direct channel (online and phone).
portal. #11 Loyalty program Initiative: launch a loyalty program for the PZU Group’s clients spanning all its products. Reward clients with points for using the PZU Group’s offering, for claim-free periods, for recommending the program to friends and other forms of activity.
Purpose: • grow the number of client interactions; • expand the range and reach new target client groups
Purpose: • by the end of 2020, ramp up the sales of group insurance for small and medium-sized enterprises by 70%, and property insurance in this segment by 20% compared to 2016; • reorganize and unify the sales and service model, develop a multi-agency channel; • create product offers targeted at the SME segment.
Metric: pace of new sales of group insurance to SME clients in PZU Życie, pace of growth of gross written premium on property insurance dedicated to the SME segment.
PZU 2020 - more than insurance 4.3 CSR strategy execution in 2020
NPS for retail clients in insurance versus the competition 22.2% 6 p.p. more than the competition > competition
In 2020, the employee engagement index rose 10 p.p. y/y to a record level of 61%. 82% of staff participated in the employee engagement survey (in 2019: 84%). The large increase in the employee engagement index was driven by the activities taken in 2020, which included: • broader employee access to projects dedicated to professional development, including webinars and conferences; they were open to all employees, regardless of the area of their responsibility or the position held; • exchange of managerial experience within on the #Management Lab platform with the participation of in-house and third-party experts; these activities were focused, in particular, on developing employee engagement; • educational program #DobryStan (#WellBeing) serving the purpose of building high efficiency and mental resilience; psychological support was also provided as part of the program; • efficient organization of work in new circumstances – by applying hybrid and remote models of work, introduced in connection with the outbreak of the COVID-19 pandemic; the adoption of this approach permitted the enterprise to maintain its efficient operation; • ongoing dialogue with employees; surveys were conducted with a view to identifying their needs, in particular at the height of the pandemic.
Environment Implementation of the Group’s “Green PZU” standard Fully implemented (100%) Fully implemented (100%)
Despite the COVID-19 pandemic, the PZU Group maintained its high level of commitment to social endeavors in 2020. The Group continued to support high-profile cultural institutions, running events and business gatherings.
98% of suppliers covered by the tender process have accepted the “Code of CSR
*Suppliers of goods or services invited to participate in tenders organized by the Procurement Department at PZU and PZU Życie
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PZU 2020 - more than insurance 4.4 Activities executed in 2020 1 ROE attributable to the parent company: 10.9% - reported / 17.9% - adjusted by the impact of the impairment loss on goodwill arising from the acquisition of banks, impairment loss on assets arising from the acquisition of Alior Bank - in total PLN 1,343 million / 22.5% - adjusted by the impact of COVID-19 on the group's results in accordance with CHAPTER 6.9 IMPACT OF THE COVID-19 PANDEMIC ON THE PZU GROUP’S RESULTS AND THE ISSUER’S RESULTS, and for a dividend of 80% of the PZU Group's consolidated net profit, which was not paid in 2020 in the form of a dividend and increased equity 2 Direct business 3 PZU jointly with TUW PZUW and LINK4 4 Data as at the end of Q3
ROE (%) attributable to the parent company >2221.2 10.9/17.9/22.5 2019 2020S20204
ZE Bu si ne ss p ro fit ab ili ty ou p ob je ct iv es 5 Administrative expenses in PZU and PZU Życie 6 Own funds after subtracting anticipated dividends and asset taxes 7 Including assets under management / performance of fund management companies (TFI) owned by the PZU Group’s banks 8 Annualized revenues of proprietary centers and branches, including revenues from PZU Zdrowie and the PZU Group 9 Net of non-recurring costs; profitability computed using the sum of revenues generated by branches and earned premium 10 Including clients acquired through cooperation with banks 11 Including assets managed by TFI banks of the PZU Group 12 Excluding the impairment loss on goodwill and intangibles
We want to depart from the classic model of an insurer’s client relations. We mean a situation in which the client’s only contact with the insurer after buying a policy is when they have to report a claim. We gradually modify this insurer model (pricing and transferring risk) to the model of a company specializing in utilizing data. We provide advisory and risk management services and care for the future our retail and business clients.
The PZU Group’s insurance and financial offer is the most extensive and most comprehensive offer on the Polish market. It consists of a broad array of insurance, pension and investment products addressed to all client segments. Group companies are active in health care, banking and additionally they render assistance services to retail clients and businesses through strategic partnerships. SECTION 1 PZU GROUP’S DEVELOPMENT
PZU wants to do something different from the classical client relation model in which the only contact clients have with their insurer after buying a policy is when a claim occurs. PZU effectively helps clients solve their problems in many areas and during every stage of their life. PZU’s philosophy of thinking about clients constitutes a departure from the classic
The PZU Group proposes abandoning “product centricity” in favor of an ecosystem whose overriding objective is to manage client relations skillfully. This means offering solutions in all available places. Accurately anticipating the future, understanding client needs and (inventing) creating ever better reasons for becoming part of their daily lives are the key assumptions of PZU’s new strategy. These initiatives contribute to transforming the Group’s operating model in the direction of an ecosystem spanning not just insurance, but also banking, health protection and payments.
The beneficiaries of the change include the sales, claims handling and medical diagnostics areas.
Payment of a childbirth benefit Education: „Diagnostics of the stage of a child’s development”
Education: “How to save”? Accident insurance for school Travel insurance (school trips) Bank account (access via a mobile application) Payment cards
We help companies grow by offering them products supporting their growth
All services in one place Our clients can handle numerous matters under the same roof. At the mojePZU portal they can: • buy a home or travel policy, • make an appointment with a physician, • collect a referral for examination or an e-prescription, • check their medical records, • invest savings, • report a claim..
Modern self-service offers a single location to access PZU Group’s products and services and helps in the handling of numerous matters without the need to visit a branch or call a hotline. It is accessible from any location and at any time on personal computers and through the mobile app. At the end of 2020, the mojePZU portal was used by 1.6million users.
MojePZU is the most comprehensible platform available on the insurance, financial and health markets. It is continuously developed and upgraded with new functions. In 2020, we expanded it by, among others, the possibility of verifying the identity using mojeID (myID) and mObywatel (mCitizen), which significantly expedited the portal registration process. In addition, we made it possible to set up a portal account through an activation link. Since 2020 an account can be opened also by persons who report a claim from the perpetrator’s TPL policy but are not PZU Group’s clients. Other functionalities introduced in 2020 included, among others, proposals of automatic renewals for clients who have a PZU Auto TPL policy 15 days before the end of the insurance, handling of reimbursement of incurred costs in PZU Zdrowie.
Ukraine (life and non-life insurance), as well as in Latvia and Estonia (non-life insurance).
PZU outlets with 189 outlets in small communities tied agents in the PZU Group the largest agent network among Polish insurers 130 number of own ATMs of the PZU Group’s clients are satisfied with the claims and benefits handling process
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In 2020, the PZU Group’s distribution network included the following: • tied agents – in Poland the PZU’s own agency network consisted of 10 thousand tied agents and agencies. We conduct sales through the agency channel predominantly in the mass client segment, particularly of motor and non-life insurance as well as individual insurance (life insurance). Link4 cooperated with 250 agents not tied to any aggregator. In the Baltic States the Group’s agency network comprised over 700 agents, while in Ukraine there were approx. 400 agents; • multiagencies – on the Polish insurance market, the PZU Group cooperates with more than 3.2 thousand multiagencies. They perform sales operations targeted mainly at the mass market (insurance of all types is sold through this channel, especially motor insurance and nonlife insurance) as well as individual life insurance. Link4 cooperated with 50 multiagencies, while in the Baltic States Group companies cooperated with 18 multiagencies and in Ukraine with 20 multiagencies; • insurance brokers – in Poland, the Group, in particular PZU’s Corporate Client Division, cooperated with almost 1.1 thousand insurance brokers. In the Baltic States where the brokerage channel is a major insurance distribution channel, the Group companies cooperated with over 400 brokers and in Ukraine with nearly 40 brokers; • bancassurance and strategic partnership programs – in the area of protective insurance, in 2020 the PZU Group cooperated in Poland with 13 banks and 21 strategic partners. The PZU Group’s business partners are leaders in their industries with client bases offering enormous potential. In strategic partnership, cooperation applied mostly to companies operating in the telecom and power sectors through which insurance for electronic equipment and assistance services was offered. Link4 cooperated with 5 banks in different sales models – traditional, online and call center. In the Baltic States, PZU cooperated with 7 banks and 42 strategic partners, in Ukraine with 9 banks and 2 strategic partners; • the direct channel – non-life insurance sales through this channel is conducted in particular by LINK4 and comprises cooperation with price comparison engines, website and call center. This channel comprises also the mojePZU portal.
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At the end of 2020, the number of the PZU’s tied agent offices throughout Poland was 1,500, i.e. the same as the year before.
Cooperation with the banks within the PZU Group (Alior Bank and Bank Pekao) SECTION 5.5 BANKING AND STRATEGIC PARTNERSHIPS opened an additional platform for PZU to build lasting client relations. At the end of 2020, more than 9 thousand banking advisors (5.3 thousand in Bank Pekao and 4.1 thousand in Alior Bank) received the KNF license and became qualified to sell PZU’s insurance products.
Internet form in a workshop belonging to the company’s repair network (motor claims)
The online service for reporting claims and benefits zgloszenie. pzu.pl/ makes it possible to automatically calculate the claim amount and report a claim for foreign partners.
PZU supports handling the entire claims handling process with the use of a smartphone. Using a smartphone, the injured party may: • report a claim, • summon assistance on the roadside or from home, • initiate the repair process in a Repair Network workshop, • conduct a video inspection and determine the amount of the loss.
In addition, PZU has a self-service claims handling solution. In the case of ADD claims and benefits, the client personally marks the nature of their injuries on an intuitive human figure, which makes it possible to calculate the benefit amount. The client may accept or reject the proposed amount. This is the only solution of this type on the market for handling ADD claims and benefits.
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In addition, PZU introduced robotics elements at the stage of summarizing the claims notification, sending out correspondence, making the claims decision and downloading police memos in order to speed up the indemnification payout. We also use robotics in specific claim types, e.g.: motor claims, mass claims caused by weather phenomena, and handling of medical claims
PZU was the pioneer in DCH (Direct Claims Handling) on the Polish insurance market. Currently, DCH is executed in two forms: at an individual level or under the agreement worked out by PIU. DCH is offered by entities accounting for nearly 70% of the motor TPL insurance market, as measured by gross written premium. The said agreement, which is based on a lump-sum approach, has dramatically simplified the settlement of claim payments between insurers. Thanks to DCH the claim handling following an accident is carried out by the insurer from whom the TPL policy has been purchased. It subsequently makes a settlement with the perpetrator’s insurer, without the client’s participation. PZU also maintained its own DCH solution previously introduced for clients injured by insureds in establishments that did not sign the agreement. In Estonia, direct claims handling has been regulated by the provisions of the TPL Insurance Act since the beginning of 2015. In turn, clients in Latvia who wish to take advantage of DCH must purchase a rider on their insurance. In 2020, Link4 joined the Direct Claims Handling system.
PZU has built the largest network of centers in Poland that arrange replacement vehicle rental services and roadside assistance services. A network of centers offering these services is also being developed in the Baltic States. Currently, clients of Lietuvos Draudimas in Lithuania and the Lietuvos Draudimas branch in Estonia may benefit from replacement vehicle rental and roadside assistance. Moreover, since 2015, Lietuvos Draudimas as the only insurer in Lithuania has been arranging such services for clients who have purchased its TPL insurance.
The year 2020 with its pandemic has forced us to adapt our service processes and partner cooperation rules in such a way as to ensure safety of both the clients and the service providers. We made sure that vehicles, including replacement cars, are properly disinfected (and ozonized). On-site services were performed in such a way as to limit the direct contact and risk of coronavirus contagion.
The automation efforts initiated in 2019 were continued in 2020. The average roadside assistance arrival time was reduced by a few minutes. Work on changing the supplier of the dynamic map was started – new GPS transmitters were installed for a larger group of service providers, and the processes were planned in such a way as to reduce the impact of the changes in the transition periods. Launch of new products made it possible to develop services associated with tire failure – a network of tire repair workshops and towers with a comprehensive service was expanded. Cooperation with caresharing providers developed and brought an increased number of orders, as well as launch of new caresharing points in new cities, including in Szczecin, Rzeszów and Opole. A client entitled to a replacement vehicle may use a voucher to use a vehicle from these operators. As a result, the client has access to a replacement vehicle only when it is really needed. There were changes not only in roadside assistance, but also in medical products – the service of a new rider Treatment Abroad was launched. The product ensures comprehensive organization of foreign medical services using cooperation with the Spanish provider – Further.
LINK4 has increasing numbers of robots, whose functionalities have significant influence on work efficiency. This reduces the claims handling time and supports introduction of additional activities satisfying the client. Robots support, among others: • automatic registration of motor, property and casualty claims, • update of the provision amount and entry of costs of inspections carried out by third party suppliers, • verification of a vehicle’s loss ratio, • collection of loss documentation, • handling of memos from the Insurance Guarantee Fund, • handling of medical opinions, • review of vehicles with MOD insurance, • availability of loss files.
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Visualizing distinct case handling stages in the mojePZU portal is a great convenience to clients. Logging into moje.pzu.pl and quoting the claim or case number, the client may find out about the case status and the steps that have already been completed.
Also available on www.pzu.pl are video tips on how to handle the claim online. Short videos featuring PZU employees explain to clients how to report a case in a few simple steps and how to check the status of the case or how to take advantage of the ADD policy in case of an accident.
Since 2018 PZU has been developing the pre-claims handling process. The process involves PZU making initial contact with an injured party, even before that party reports a claim. After the occurrence of random event (such as fire, gas explosion, whirlwind), we attempt to identify the client based on information obtained from publicly available sources (including the Internet, radio, e-mail and emergency phone number). If the identification is successful, we establish contact with them to provide help in the difficult situation. PZU proves the required support, starts the claim handling process and arranges for assistance, including rental of a replacement home, clearing up of the property.
PZU uses the remote sensing method during crop claims handling following poor overwintering. Remote sensing makes it possible to remotely obtain information concerning facilities or areas from a distance, most frequently by using sensors installed on aircraft or satellites facilitating the measurement of reflected and emitted radiation. In the autumn of 2019 PZU carried out the tests of the use of satellite remote sensing in risk underwriting in conclusion of winter crops insurance. Satellite remote sensing also worked in elimination of frauds involving reporting damages in fields where the crops have already been collected. The remote sensor method is objective and makes it possible to source the data required to calculate the indemnity quickly for a large geographical area. As PZU can see a broad application of remote sensing in claims handling the method is subject to constant improvements.
PZU also tries to build the processes and improve client service based on the employees’ experience. By the end of 2018 we appointed an Inspiration Council comprised of employees with outstanding knowledge, competences, creativity and engagement. The Council has over 400 members. The Council is a place where employees put forward solutions facilitating their daily work and improving client service processes. Ideas are analyzed, improved and, to the extent possible, implemented.
We collect innovative solutions internally using the Idea Generator, a portal to administer competitions and share inspirations among employees. From the beginning of the Generator, in eight competitions, nearly 600 ideas for internal improvements and innovative projects in PZU were submitted.
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In 2020, PZU continued collaboration with two startup accelerators: MIT Enterprise Forum CEE and RBL_Start (Alior Bank’s accelerator). In the first one, solutions were searched associated with three key areas: big data, digitalization, and new client interactions. In the second one, PZU together with Alior Bank undertook a Special Initiative #COVID-19, which dealt with innovative solutions aimed at combating the coronavirus pandemic and its effects. The initiative attracted huge interest. From among several hundred submissions, experts decided to implement one of them as a pilot project. The solutions put forward under these programs enjoyed interest from selected business areas – in both programs five pilot projects were launched in the two programs.
LINK4 is known for its innovative approach to insurance. On the Polish market the Company is running a number of innovative projects to distinguish the brand and position it among the top modern and digital insurers. The challenges associated with the COVID-19 pandemic pointed to the weight and importance of these technological solutions.
One of the technologies which gained importance in 2020 is RPA (Robotic Process Automation). Robots imitating human work can perform simple activities and take over comprehensive processes. In the times when replaceability of employees and their presence can be strongly limited due to COVID-19, this technology makes it possible ensure the company’s business continuity. In 2020, robots operated over 50 processes in LINK4. Additionally, where automation of the entire process was not possible, they supported employees in preparation of parts of the process. Thanks to RPA it was also possible to create document repositories, which significantly facilitated documentation access and management, especially in the remote work formula.
To facilitate the insurance purchase process for clients, LINK4 introduced a new tool which supports inspection of the car by the client during purchasing the MOD insurance. The solution makes it possible to save the time required for the inspector’s visit and reduces the risk of coronavirus infection thanks to limiting physical contact. To use it, one needs a smartphone with Internet access. The process is simple and intuitive. The client receives a personalized link to a browser app in which, after accepting the rules and regulations, he/she is required to take 8 pictures. What is important, the photos need to be done in real time, which reduces the risk of fraud. They are also verified by artificial intelligence for correctness, among others, against the policy data.
LINK4 as the first insurance company in the Polish market created a repository of public documents secured with the blockchain technology. Thanks to that, it satisfies the requirements of the so-called “durable media” and LINK4 may provide its clients with documents in the electronic version with a guarantee that they cannot be modified and removed over time. All document modifications are visible, because the unique document number, the so-called hash, changes; it is stored and may be verified also on the website of a “Trusted Third Party” (KIR), which guarantees the authenticity of the document. This significantly streamlines the communication and reduces the necessity to send hardcopy documentation.
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In the second half of 2020 the company implemented the Microsoft PowerBI tool which changed the way in which data are analyzed in Link4. Simple tables were replaced by manager dashboards, which support multidimensional analysis. At the end of 2020 there were 20 dashboards which were daily used to analyze and monitor business processes.
Other initiatives and tools implemented by LINK4 in 2020 in the IT area comprised: • modern online premium rate calculator, which allows for advanced analytics and Machine Learning to optimize the price. Price optimization made it possible to execute the company’s business objectives and maintain portfolio profitability; • the new, simplified and intuitive calculator in the direct channel, which significantly reduces the offer calculation time; • completely remote sales process in the agency channel, which turned out indispensible during the COVID-19 pandemic and was very well received by agents; • the Omnichannel program, aimed at ensuring a consistent offer for the client in all communication channels, was launched. Thanks to using new online rate calculation solutions and identification algorithms it will be possible to present a personalized offer to the client in real time; • a hybrid architecture was prepared, combining Microsoft Azure with Link4’s ICT environment, on which the first cloud services will operate in 2021: the new TPL/MOD calculator and an app for processing and analyzing the data from the calculation.
Weather alerts, i.e. text messages with information about extreme weather conditions (such as gales, tornadoes, torrential rains, storms, snow storms) are very popular among Link4’s clients. LINK4 sends them to clients who have real property insurance or motor insurance. In the event of expected sudden and severe weather phenomena clients receive a text message containing a warning and a website link where they can read about how to protect themselves against the adverse consequences of such events. In 2020, LINK4’s clients received over 1.6 million such alerts, three times more than the year before. In the case of mass phenomena, the tool makes it possible to identify groups of clients who might have suffered a potential loss. As a result, it is possible to establish contact with the client, assess his/her situation and needs, and accept the claim report still before the client contacts LINK4.
The PZU Group has the potential of creating innovations also for the industry. The activities in this respect are conducted under the PZU LAB brand. The Company delivers innovative solutions and supports corporate clients in optimizing risk in their business.
From the beginning of the company’s operations, PZU LAB experts have helped over 400 clients to mitigate risks associated with their business. They implemented, among others, solutions using artificial intelligence and such projects as Self-learning Company, Enterprise Safety Tool (ESTools) and PZU LAB Academy.
One of PZU LAB’s initiatives in the Academy is a study program entitled “Risk management in the enterprise in the insurance aspect” launched in September 2018 together with the Business School of the Warsaw University of Technology. In the 2020/2021 semester, the second online edition of the studies was launched with the Kozminski University in Warsaw. During studies, risk managers in a business, agents, brokers and students have an opportunity to absorb a huge amount of practical knowledge on risk management, the role of insurance and deployment of state-of-the-art technologies improving industrial safety. Lectures and case studies are presented by experts combining theory with practice, who on a daily basis work on the point of contact of the world science, business, institutions and engineering offices. During the classes, also PZU LAB experts share their expertise on risk assessment and optimization in industry.
Business model of the engineers with the latest research and technological solutions. Satisfaction of the criteria by installation producers and users is confirmed by the PZU LAB Approved certificate. The “PZU LAB Approved” logo, as a sign of quality and safety of the solutions used, will be visible on sensors, fire doors, extinguishers and other fire system elements subject to certification. The PZU LAB SA system stands out with its comprehensive certification procedure. Certification covers the entire installation with the full life cycle, i.e. production, distribution, design, installation and maintenance. This approach is key as engineers observe the irregular mandatory servicing of the systems and equipment, aggressive price competition and cost cutting at different stages, which adversely affects the quality and effectiveness of operation of the safety systems.
PZU LAB organizes regular safety forums. This way it continues the initiative of sharing knowledge and promoting “best practices” with industrial clients in cooperation with the institutions responsible for security and with academic partners. Due to the COVID-19 pandemic, in 2020 only one safety forum for the maritime industry was organized, attended by approx. 250 representatives of entities and institutions from the maritime sector.
PZU LAB also organizes industry training in the form of workshops. In 2020 training was delivered on claims under third party liability, motor claims and machinery property claims in the power industry for Polskie Sieci Energetyczne. Due to the pandemic, the training courses were organized online.
PZU Group’s insurance offer in Poland is supplemented by a broad range of investment products: • open- and closed-end mutual funds, and pension products: • open-end pension fund, • individual retirement security accounts with a voluntary pension fund, • employee pension schemes (EPS), • individual retirement accounts (IRA), • individual retirement security accounts (IRSA), • employee capital schemes (ECS). These products are offered under the PZU brand.
At the end of 2020 the service was used by over 22,500 active users, and the clients’ assets invested in inPZU passive funds, in 2020 for the first time reached PLN 200 million.
The Health Area has become an integral part of PZU Group’s business model in 2014. Currently, the operations associated with development of medical services are one of the most important growth areas of the PZU Group. At the end of 2020, the Group had 2.8 million in-force health contracts. Despite the COVID-19 pandemic, the value of revenues in the health business approached the figure of PLN 1 billion, reaching PLN 949 million.
• building and development of the medical infrastructure in Poland to ensure the best accessibility of provided medical services.
Additionally, in the period of the COVID-19 pandemic, telemedicine significantly developed. Provision of services in this model enabled PZU Zdrowie clients constant access to medical consultations.
Clients and products In the Health Area the PZU Group offers a broad range of health products adapted to the segment’s and clients’ needs: • Corporate client segment (life and health insurance) – the sales of group life and health insurance constitute the basis for the business operations of the PZU Group’s Health Area. The offering is addressed to corporate clients and the SME and micro business segments. Employers may purchase insurance in the sponsored or co-financed model, or negotiate a group offer for their employees; • Mass insurance segment (non-life health insurance) – mass clients buying non-life policies are offered additional health insurance of assistance nature, ensuring access to specific medical services if an event under the basic policy occurs; • Retail client segment (life and non-life health insurance) – retail clients are provided with health insurance in the form of individual continuation or rider to life insurance; • Non-insurance products – PZU Zdrowie as a medical operator offers subscription and fee for service (FFS) products, and products in the area of health prophylactics for commercial clients. In mid-2020, it launched the PCR test process (COVID-19 test) for travel agents. It also provided health services to retail clients using the company’s proprietary medical centers.
Health protection We provide help in the case of an illness and serious health problems. We offer, among other things, financial support, subsidy to purchase of medicines and access to private medical care.
At the same time, it has been consistently developing its own network of 130 medical centers, among others in Warsaw, Gdańsk, Poznań, Katowice, Wrocław, Kraków, Częstochowa, Radom, Płock and Opole, which in aggregate employ more than 2,200 physicians. Initially, it was created by acquiring local healthcare service providers with extensive experience and a good reputation in the medical community. Currently, PZU Zdrowie is expanding the scope of its operations through acquisitions and, in parallel, through building greenfield medical centers, which makes it easier for the company to usher in uniform standards in terms of equipment and patient service in such facilities.
Innovations In 2020 PZU Zdrowie started or continued the development of IT projects aimed at improvement of the service: • mojePZU [myPZU] – The self-service website of the PZU
Group makes it possible to: - make or cancel an appointment over the Internet, check which centers cooperate with PZU, see the list of past and upcoming appointments, verify if a specific medical service is covered by the insurance held, obtain advice on how to prepare for an examination, attach documents (e.g. test results) to the appointments made in proprietary medical centers, collect orders, referrals and results of laboratory tests from physician appointments from PZU Zdrowie centers, self-service portal mojePZU
We guarantee short waiting times for medical appointments – our availability deadlines are stated in the general terms and conditions of insurance (2 business days for a primary care physician, 5 business days for a specialist physician).
• Olimp [Olympus] – PZU Zdrowie’s website assisting employers in handling various matters related to occupational medicine services, makes it possible to: monitor expiration dates of employees’ medical examinations, generate a referral to examination with a single click, initiate the PZU Hotline to contact the employee with sufficient advance notice to remind him/her about an upcoming examination, verify, by the PZU Hotline employee, the referral form, which facilitates the conversation with the employee and schedule his/her examinations, create a list of things to do related to ongoing handling of occupational medicine services and sending reminders by e-mail, handle several companies from the same group.
• Communications broker – a project integrating the calendars of partner network centers and own network centers, facilitating the process of scheduling appointments and the provision of medical services.; • Virtual Clinic – allows for remote medical consultations and purchase of prescribed medicines in a selected pharmacy.
• Remote PZU Zdrowie COVID Care – program for PZU patients suspecting infection with, or suffering from, COVID-19. In the program the patient receives a pulse oximeter and remote psychological and internist care.
At the same time, innovative solution pilot projects were launched in patient service in PZU Zdrowie medical centers: • AccuVein vein illuminator,
• StethoMe electronic stethoscope, • USG Lumify portable heads, • electronic consents with biometric signature, • monitors in surgeries with medical model visualizations, • artificial intelligence as support in stroke diagnostics in computer tomography examinations, • tele-rehabilitation.
The above efforts are described in SECTION 3.7 MEDICAL SERVICES (HEALTH)
PZU’s activity is based mainly on the area of bancassurance, assurbanking and cost synergies in cooperation with banks from the PZU Group: Alior Bank (in PZU Group since 2015) and Bank Pekao (in PZU Group since 2017) and distribution of bancassurance insurance products through banks outside the Group.
The overriding objective of the cooperation is to reach the largest number of clients using multiple distribution channels and provide insurance cover to bank clients.
In 2020, the PZU Group attained its strategic objective for 2017-2020 by recording PLN 1 billion of premium from the cooperation with Bank Pekao and Alior Bank. Due to the uniqueness of the banking distribution channel and the COVID-19 pandemic, 2020 entailed dynamic development of remote sales channels.
Cooperation with the Bank Pekao and Alior Bank In bancassurance: • with Bank Pekao: cooperation in offering insurance for mortgage loans and cash loans. To secure the borrowers taking express loans (PEX) and insure real properties in 2020, remote sales channels were launched. Thanks to that, clients could enter into an insurance contract without leaving home. This also make it possible to reduce the negative effects of partial closure of branches due to the COVID-19 pandemic; • in Alior Bank: sales of life insurance for cash borrowers and for mortgage loan borrowers, direct sale of “Pomoc w podróży” travel insurance in
Alior Bank’s Exchange Office; sale of voluntary protection insurance as a supplement of the banking product offer for the business client – real property insurance (against fire and other elements) for clients using non-revolving loan secured by real property. The insurance is offered in the so-called individual model in which Alior Bank appears as an insurance intermediary, introduction, in 2020, of new unemployment insurance securing cash loan borrowers in Alior Bank.
In assurbanking: • as part of end-to-end sales, in the remote channel, we successively launch new banking products – currently these are Przekorzystne Konto and Bank Pekao Przekorzystne Konto Biznes accounts; • all PZU’s own branches launched a joint campaign entitled “Car plus account” (TPL 10% + ROR PLN 200), supporting the sale of motor TPL insurance and the Bank Pekao Konto Przekorzystne account. The Konto Przekorzystne promotional offer is available also in the sale of PZU Dom and School ADD products. In addition, in 2020 a pilot project was launched, in which the offer was extended to include PZU partner branches. PZU is one of the largest partners of Bank Pekao in the sales of transaction accounts (ROR) via the bank’s Pekao360 app; • in connection with the COVID-19 pandemic, the possibility of opening the Bank Pekao’s Konto Przekorzystne account by PZU branch staff was introduced. Due to the travel restrictions, the work associated with the combined Konto Przekorzystne and PZU Voyager offer on the mojePZU website was suspended; • together with Alior Bank, an innovative loan platform with a unique product offering for the employees of the Cash Portal was being developed. In 2020 the portal was made
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Bank Pekao is one of the largest financial institutions in Central and Eastern Europe and one of biggest universal banks in Poland. Thanks to the second largest branch network, the bank serves approx. 5.5 million retail clients. As the country’s leading corporate bank it provides services to one out of two corporations in Poland. The status of a universal bank relies on the leading market position in private banking, asset management and brokerage activity. The Bank offers all financial services available in Poland to individual and institutional clients. The group comprises over a dozen companies which are national leaders in the area of brokerage services, leasing, factoring, financial investment and transaction advisory services. SECTION 3. OPERATION OF THE PZU GROUP
Strength of the Polish Bison In accordance with the strategy for 2018-2020“Strength of the Polish Bison”, the bank’s priorities are: smart growth, digital and operational transformation, and building longterm relationships with clients based on an integrated service
Are you an Express Loan (PEX) Borrower? We will help you in situations such as loss of a job, serious illness or hospitalization due to an accident, and we will pay out the money to your nominated beneficiaries in the event of your death. If you are a customer of Bank Pekao, you can also insure your home or apartment..
Are you a loan or mortgage loan borrower? We can help you in many unexpected situations that may happen at home (e.g. theft with burglary, water or electricity installation breakdown). Are you a consolidation loan or cash loan borrower? Our insurance will secure the repayment of your financial liabilities, should an accident leave you unable to live independently model and professional operation designed to strengthen the position as one of the biggest and most recognizable banks in Poland.
As of the beginning of 2021 Bank Pekao acquired, pursuant to an administrative decision, the enterprise and the liabilities of Idea Bank, with exclusions specified in the decision. The acquisition meant that Pekao increased the scale of business and the Micro and SME client base, which are the strategic segments for Bank Pekao’s development.
Clients and products Bank Pekao is a universal bank offering financial services to individual and institutional clients. A broad product offering, innovative solutions and individual approach provide clients with comprehensive financial service. An integrated service model, in turn, guarantees the highest quality of services, as well as their optimum alignment with the changing needs.
As at 31 December 2020, the bank had 713 own branches and 1,592 own ATMs. The bank maintained 6,531.0 thousand current accounts in PLN, 401.3 thousand mortgage loan accounts and 674.6 thousand Express Loan accounts.
BLIK, PeoPay payments, Garmin Pay, Fitbit Pay; • payment for online shopping in the phone without the need to log into online banking; • scanning account numbers from invoices, without the need to key in the account numbers into the app.
In June 2020, the bank released the PeoPay KIDS app developed specifically for children aged between 6 and 13. The app lets children learn in an easy and accessible manner how to save up and manage their money. Children may also obtain their own PeoPay KIDS payment card to let them make purchases in stores and withdraw cash – the transaction limit on the card is set by the parent. The app also enables the user to perform simple operations, such as transfers from the Mega Beneficial Account or top-ups of pre-paid phone cards. PeoPay KIDS is linked to the parent panel in the PeoPay app and Pekao24 online banking. All transactions require a parent’s authorization
In December 2020, the bank made the open banking functionality available in the Pekao24 platform and in the PeoPay app. Thanks to the service, after logging into the PeoPay service or the PeoPay app, the account holders in different banks may check the balances and transaction history on PLN, FX and savings accounts, and the credit card accounts and order local and foreign transfers.
More than a bank The business objectives of Alior Bank’s strategy include, among others, facilitating everyday activities for clients, thanks to integration of banking and non-banking services, delivered both by Alior Bank and by the bank’s partners.
The banking world is changing rapidly. Digital banking accompanies Alior Bank’s clients on a daily basis and the services offered go beyond managing home or company finances. They include purchase of insurance, selection of health care, keeping books of account, easy payments “in the background”. Clients’ trust, listening to their expectations combined with Alior Bank’s technological potential yields unprecedented convenience, new possibilities and tailormaking to individual needs – at a much higher level than in traditional banks. Further expansion of Alior Bank’s technological potential, new business solutions and maintaining stable, long-term relations with clients are the bank’s development foundations.
Clients and products The bank’s operations are conducted by various divisions that offer specific products and services earmarked for specific market segments. The Bank does business in three segments: • Individual client (retail segment)
As at 31 December 2020, Alior Bank catered to 4.2 million retail clients.
In the first half of 2020 the bank implemented modern behavioral segmentation, grouping and describing the portfolio of retail clients actively using banking services. In the second half of the year the bank also implemented segmentation of retail clients who, in cooperation with Alior Bank, finance their installment purchases, whereas Alior Bank is not the bank of their first choice.
This segmentation can be seen also in the structure of the sales network which comprises specialized sales units – universal, premium and private banking branches.
• Business client (business segment) Alior Bank has a comprehensive and contemporary offer for business clients in all the segments: micro, small and medium and corporate. As at the end of 2020, the bank serviced nearly 240 thousand business clients, and the total credit exposure reached PLN 19.7 billion. The number of sold business payment cards in 2020 exceeded 38 thousand. In 2020 the business client segment generated revenues of PLN 1.15 billion.
• FX and interest rate risk management through transactions on the interbank market,
Online and mobile banking In accordance with the strategic priorities, Alior Bank focuses on optimization of the existing and introduction of new solutions in online and mobile banking.
In 2020, the bank focused on solutions which provided clients with online access to products and services, without the need to visit branches. Among the projects, the solutions supporting remote verification of identity were of key importance. This is an area that was being developed as a priority, to provide clients with convenient, fast and safe access to Alior Bank’s offering, at any time and in any place, also in the unique conditions created by the COVID-19 pandemic.
The first big project in 2020 of this category was the investment in the Autenti fintech. Alior Bank with BNP Paribas and PKO Bank Polski jointly invested in a Polish fintech offering a platform for electronic signing of agreements and digital document circulation. The project enables clients to use the latest solutions available in the market.
The next effort focused on remote client identification was the cooperation with Polska Wytwórnia Papierów Wartościowych. One of the areas of cooperation is the use of an e-ID, which supports client identity verification without visiting a branch. Thanks to the eDo App, with an e-ID clients can confirm their personal data and may freely use Alior Bank’s products and services. The possibilities offered by this app already today are revolutionary in the market. Safe, remote identity confirmation or signing have become available to all Alior Bank clients. Thanks to the eDO App it is possible to prevent the practice of criminals using stolen or forged identity cards.
In 2020 the Alior Mobile app and the Alior Online platform went through a number of changes in terms of their appearance and handling of deposit and credit products, and received new functionalities.
In digital banking, the Open Banking was introduced, thanks to which clients may use Alior Online and Alior Mobile to order transfers from other banks. The solution is based on the Payment Initiation Service (PIS). As part of the AIS (Account Information Service) consent given, Alior Online was expanded by a section which enables the client to view his/her accounts in other banks and institutions.
Center, grouped together in the Design Department and RBL_ Innovation; • Fintech Partnership Team, which supports the development of the bank’s external innovation ecosystem.
Watch and Mac computers, guaranteeing the organization and coverage of costs of repairing the equipment or replacing it for new products. The insurance operates in Poland and during foreign travel which lasts altogether not more than 60 days; the dominating PZU corporate brand
In the PZU Group’s architecture, there is also a group of PZU family brands. This family is formed by companies whose names do not reference the parent company brand, such as AAS Balta and TUW PZUW. However, their logos look similar to the corporate brand. These companies also use similar visual identification systems.
The independent brands that joined the PZU Group in 2015 and 2017 are Alior and Pekao, respectively. Both are the leading banks with regard to brand awareness in the category of banks according to the study by Kantar Millward Brown. At the end of December 2020, the prompted awareness of the Pekao brand was 93%2.
In this sections: 1. Major factors contributing to the consolidated financial result 2. PZU Group’s income 3. PZU Group’s claims paid and technical provisions 4. PZU Group’s acquisition and administrative expenses 5. Drivers and atypical events affecting the results 6. PZU Group’s asset and liability structure 7. Contribution made by industry segments to the consolidated result 8. Issuer’s financial results – PZU (PAS) 9. Impact of the COVID-19 pandemic on the PZU Group’s results and the Issuer’s results
The PZU Group’s financial results for 2020 were affected by the unfavorable effects of the COVID-19 pandemic, in particular in the banking business. Net of the banking business, profit attributable to the parent company’s shareholders increased 11.7% year on year. Gross written premium reached 98.7% of the amount collected in the previous year.
The net result declined 23.6% compared to last year, net of non-recurring events1.
• lower profitability in group and individually continued insurance with the concurrent growth in health insurance related to the growth in death-related benefit disbursements in Q4 2020; • higher result on listed equities, mainly due to the increase in valuation of the logistics company; • poorer performance of the banking business caused by: non-recurring effect of the impairment loss on goodwill arising from the acquisition of Alior Bank (PLN 746 million) and Bank Pekao (PLN 555 million), the impairment loss on assets arising from the acquisition of Alior Bank (i.e. trademark and relations with clients) in the amount of PLN 161 million, the higher costs of risk stemming from the establishment of additional loan provisions due to the COVID-19 pandemic, the decrease in interest rates that contributed to the decline in net interest income, and the increase in Q4 of provisions for legal risk related to the portfolio of foreign currency mortgage loans in Swiss francs in Bank Pekao.
• decline in administrative expenses by 0.1%, to PLN 6,597 million, compared to PLN 6,606 million in 2019. Administrative expenses in the banking business (net of adjustments on account of the valuation of assets and liabilities to fair value) dropped by PLN 68 million, while in the insurance segment in Poland they increased by PLN 36 million, due among others to the growth of personnel costs in connection with the wage pressure and introduction in the sales segment of aid packages in connection with the COVID-19 pandemic; • the growth of negative balance of other operating income and expenses to PLN 3,990 million, compared to PLN 2,790 million in 2019. This was caused primarily by the one-off impairment loss on goodwill arising from the acquisition of Alior Bank (PLN 746 million) and Bank Pekao (PLN 555 million), the impairment loss on assets arising from the acquisition of Alior Bank (i.e. trademark and relations with clients) in the amount of PLN 161 million, and the increase of the burden related to the levy on financial institutions from PLN 1,134 million in 2019 to PLN 1,203 million in 2020 (the outcome of the growth of value of assets subject to the levy, and not of the rate). At the same time, the Bank Guarantee Fund (BFG) fees decreased from PLN 611 million in 2019 to PLN 541 million in 2020.
138 139MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Key data from the consolidated profit and loss account in PLN m in PLN m in PLN m in PLN m in PLN m
Net revenues from commissions and fees 740 2,312 3,355 3,279 3,166
N et in ve st m en t r es ul t*
Premiums In 2020, the PZU Group collected gross premiums of PLN 23,866 million, i.e. 1.3% less (PLN 325 million) than in 2019. The change in gross written premium (net of intersegment premiums) was affected chiefly by: • increase by PLN 131 million (+8.3% y/y, to PLN 1,712 million)
Net revenues from commissions and fees In 2020, net revenues from commissions and fees amounted to PLN 3,166 million, i.e. PLN 113 million or 3.4% less than in the previous year. This was due mainly to higher commission costs in the banking segment.
Insurance segments (PLN million), local GAAP i Gross written premium (external)
Total life insurance – Ukraine and Baltic States 88 100 120 151 158
In 2020, net claims and benefits (including the movement in technical provisions) reached PLN 15,580 million, i.e. 0.7% less than in the previous year. This change was driven primarily by: • lower value of claims and benefits in motor insurance in both non-life insurance segments in Poland, where in spite of the increase of the average payout, the value of claims and benefits was lower because of the restrictions on traffic caused by the COVID-19 pandemic; • rise in insureds’ and co-insureds’ death benefits in the group and individually continued insurance segment – as it follows from Statistics Poland’s data, this was consistent with a higher mortality in the whole population, especially in Q4 2020; • increase of the loss ratio in general TPL and various financial risk insurance in the corporate insurance segment, resulting from the higher loss ratio in insurance of medical centers; • above-average number of losses in non-motor insurance, including insurance against fire and other damage, caused by atmospheric phenomena, especially at the turn of Q2 and Q3 of 2020.
The conversion costs of long-term policies into yearly renewable term agreements in type P group insurance treated as a non-recurring event decreased from PLN 14 million in 2019 to PLN 12 million in 2020.
As at 31 December 2020, the PZU Group’s total assets were PLN 378,974 million, up PLN 35,589 million compared to the end of 2019.
Assets 52.1% of the Group’s assets (versus 56.7% at the end of 2019) were loans receivable from clients. Their balance reached PLN 197,288 million. It increased compared to the end of 2019 by PLN 2,420 million mainly due to the growing loans (particularly mortgage loans) for retail clients and despite the drop in sales to business clients.
2.7% of assets (versus 3.3% at the end of 2019) were noncurrent assets – in the form of intangible assets, goodwill and property, plant and equipment. They amounted to PLN 10,170 million and were down PLN 1,250 million versus the end of 2019. The decrease resulted, among others, from the impairment loss on goodwill arising from the acquisition of Alior Bank (PLN 746 million) and Bank Pekao (PLN 555 million) and the impairment loss on assets arising from the acquisition of Alior Bank (PLN 161 million).
144 145MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
2.1% of assets (versus 2.3% at the end of 2019) were cash and cash equivalents. Their value was PLN 7,939 million and was PLN 151 million higher than one year before. This resulted from the increased balance of cash accumulated by Bank Pekao.
1.6% of assets (versus 1.7% at the end of 2019) represented the PZU Group’s receivables, including receivables under insurance contracts and the current income tax. They amounted to PLN 6,246 million and were higher by PLN 509 million compared to the year before. The increase arose primarily from the higher value of outstanding transactions involving financial instruments and margins. It was partly offset by the drop in receivables from policyholders.
Equity and liabilities At yearend 2020, the PZU Group’s consolidated equity soared to PLN 43,403 million, which was up PLN 4,115 million versus the year before.
Equity attributable to the parent company’s shareholders rose by PLN 2,608 million, to PLN 18,777 million. This was driven by the net profit attributable to the parent company’s shareholders generated in 2020 totaling PLN 1,912 million, the increase in the valuation of debt instruments and cash flow hedging instruments measured at fair value through other comprehensive income.
Pekao and Alior Bank PLN 1,324 million on covered bonds issued by Bank
PZU Group's subordinated liabilities at the end of 2020 soared to PLN 6,679 million, which was similar to the value as at yearend 2019. SECTION 8.7 DEBT FINANCING OF PZU, BANK PEKAO AND ALIOR BANK
The revision of provisions in life insurance (SECTION 6.5 DRIVERS AND ATYPICAL EVENTS AFFECTING THE RESULTS) included: • reduction of the technical rate for the continued and group insurance portfolio – the effect was the increase in the provisions by PLN 2,512 million; • introduction of an individual provision calculation method for the group insurance portfolio – increase in the provisions by PLN 34 million; • changed assumptions on mortality and probabilities of the insured having co-insureds – decrease in the provisions by PLN 2,552 million.
3.3% of equity and liabilities at yearend 2020 was other liabilities in the amount of PLN 12,434 million. They were higher by PLN 1,835 million than one year before. The balance changed primarily due to liabilities on borrowed securities (short sale), repurchase transactions and trade
Cash flow statement At the end of 2020, net cash flow was negative and amounted to up PLN 9,263 million versus the previous year. This growth was recorded in particular in flows from operating activities
146 147MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Financial results 6.7 Contribution to the consolidated result made by industry segments
The following industry segments were identified in order to facilitate management of the PZU Group: • corporate insurance (non-life insurance) – a broad scope of property insurance products, liability and motor insurance customized to a client’s needs entailing individual underwriting offered by PZU and TUW PZUW; • mass insurance (non-life insurance) – property, accident, TPL and motor insurance products offered to individual clients and entities in the small and medium enterprise sector by PZU and LINK4; • life insurance: group and individually continued insurance – protection, investment (which are not investment contracts) and health insurance; PZU Życie offers it to employee groups and other formal groups, e.g. to trade unions, and persons under a legal relationship with the policyholder (e.g. employer or trade union) enroll in the insurance agreement; individually continued insurance covers persons who acquired the right to individual continuation during the group phase; • individual life insurance: protection, investment (which are not investment contracts) and health insurance; PZU Życie provides it to individual clients and the insurance agreement applies to a specific insured who is subject to individual underwriting; • investments – the segment reporting according to the Polish Accounting Standards comprises investments of the PZU Group’s own funds, understood as the surplus of investments over technical provisions in PZU, LINK4 and PZU Życie plus the surplus of income earned over the risk-free rate on investments reflecting the value of technical provisions in insurance products, i.e. surplus of investment income over the income allocated at transfer prices to insurance segments; the segment includes also income from other free funds in the PZU Group, including consolidated mutual funds; • pension insurance – the segment includes income and expenses of PZU OFE pension funds; • banking – a broad range of banking products offered to corporate and retail clients by Pekao and Alior Bank; • Baltic States – non-life insurance and life insurance products provided in the territories of Lithuania, Latvia and Estonia; • Ukraine – non-life insurance and life insurance products provided in the territory of Ukraine; • investment contracts – include PZU Życie products that do not transfer material insurance risk and do not satisfy the definition of insurance contract; these are some of the products with a guaranteed rate of return and in unit-linked form; • other – consolidated companies that are not classified in any of the enumerated segments.
combined with a decrease in gross written premium by PLN 290 million (-8.7% y/y) relative to 2019. The growth rate of the gross written premium was determined by: lower written premium on motor insurance (-18.0% y/y) offered to both lease firms and in fleet insurance; was primarily a consequence of a lower number of insurance contracts due to slower sales of new vehicles (the drop in the registration of new passenger cars was as much as 23% y/y) and a downturn in the leasing market as well as the decrease in the average premium as a result of the continuing price pressure; the slowdown in the automotive market is first of all the result of the prolonged COVID-19 pandemic and high uncertainty related to its economic effects, lower written premium from insurance against fire and other damage to property (-11.4% y/y) as a consequence of the execution of a high-value long-term contract in 2019, retention of the general TPL insurance portfolio at a flat level (-0.3% y/y),
increased sales of assistance products resulting from the development of strategic partnerships in TUW PZUW and a higher premium of casco insurance of aircraft as an effect of concluding several high-value contracts, development of the insurance portfolio containing various financial risks, in particular loss of profit insurance; • drop in the net value of claims and benefits by PLN 17 million (-1.1% y/y), which, combined with the net earned premium lower by 4.5%, resulted in deterioration of the loss ratio by 2.3 p.p., to the level of 67.4%. The increase in the total loss ratio in the corporate insurance segment was driven by the following factors: drop in the loss ratio in the motor insurance group resulting from lower frequency of claims but partly offset by the growth in average disbursement (particularly in motor TPL insurance), higher loss ratio in the insurance portfolio general TPL and various financial risk insurance, in particular in medical entity insurance; • income from investments allocated to the segment according to transfer prices increased by PLN 16 million (+16.0% y/y) as a result of the appreciation of the euro against the Polish zloty. At the level of the PZU Group’s overall net result, this effect was partly offset by the increased level of net insurance claims and benefits covered by foreign currency assets; • decline by PLN 12 million (-2.5% y/y) in acquisition expenses (including reinsurance commissions), which, along with a 4.5% y/y decrease in net earned premium, translated into a deterioration of the acquisition expense ratio by 0.4 p.p. The increase in the acquisition expense ratio was driven chiefly by changes in the portfolio structure, in particular by the higher share of non-motor insurance; • administrative expenses higher by PLN 13 million (+9.9% y/y), to PLN 144 million, mainly as an effect of higher personnel costs resulting from salary pressure and higher intervention expenses in connection with the COVID-19 pandemic.
y/y) combined with a decrease in gross written premium by PLN 159 million (-1.5% y/y). The PZU Group posted the following under sales: decrease in gross written premium in motor insurance as the outcome of the lower number of insurance contracts with a simultaneous decline in the average price – slowdown in sales, chiefly in the branches, the Group’s own network and dealership network, was a consequence of their limited availability due to the restrictions imposed in connection with the COVID-19 pandemic. An additional driver was the decrease in the average policy price as a result of the slowdown in the sales of new vehicles and the continuing price pressure, drop in sales of insurance against fire and other damage to property, chiefly in agricultural insurance – it was a result of high competitiveness of the market and the natural erosion of the portfolio in the context of a limited pool of government subsidies; this effect was partly offset by maintaining high growth rate of sales in residential insurance and small and medium-sized enterprise insurance,
Financial results higher gross written premium in other TPL insurance (+0.7% y/y) and ADD and other insurance (+12.1% y/y), mainly accident insurance – it was a result of the growing sales of insurance offered in cooperation with the Group’s banks for mortgage loans and cash loans and providing insurance cover to physicians and medical personnel against a COVID-19 infection; the effect was partly offset by the decrease in the travel insurance premium in connection with the restrictions on domestic and international traffic imposed during the Covid-19 pandemic; • lower net insurance claims and benefits by PLN 189 million (-2.9% y/y), which, when coupled with net earned premium being down 0.7%, translated into the loss ratio improving by 1.4 p.p. relative to 2019. This change was driven mainly by: lower loss ratio in the motor insurance as a consequence of a lower frequency of claims resulting from traffic restrictions in connection with the COVID-19 pandemic and increase in the average disbursement, growth of the loss ratio in non-motor insurance, including against fire and other damage to property, as a result of above-average number of losses caused by atmospheric phenomena, including rainfall and hail (at the turn of Q3 2020); • income from investments allocated to the segment according to transfer prices increased by PLN 44 million (+9.1% y/y), to PLN 525 million, primarily as a result of the appreciation of the euro against the Polish zloty. This effect was partly offset at the level of the PZU Group’s overall net result by the increased level of net insurance claims and benefits covered by foreign currency assets; • rise in acquisition expenses (including reinsurance commissions) by PLN 27 million (+1.4%), to PLN 2,010 million, which, when coupled with the net earned premium being down 0.7%, caused growth in the acquisition expense ratio by 0.4 p.p. This was driven, among others, by a higher level of direct acquisition expenses resulting from a change in the product mix (lower share of the motor TPL insurance premium carrying lower commission rates); • administrative expenses higher by PLN 22 million (+3.4% y/y), to PLN 673 million. It resulted primarily from the growth in personnel costs as an outcome of salary pressure and introduction of aid packages in the sales area due to the COVID-19 pandemic.
Group and individually continued insurance In 2020, the operating result in the group and individually continued insurance segment amounted to PLN 1,391 million, which is 7.1% less than in the previous year.
Factors affecting this segment’s performance and its movements in 2020: • rise in gross written premium by PLN 41 million (+0.6% y/y)
driven by: attracting further contracts in group health insurance products or individually continued products (new clients in outpatient insurance and sales of different options of the medicine product) – at the end of 2020, PZU Życie had more than 2.2 million in force contracts of this type, up-selling of other insurance riders as part of individually continued products, including in the insurance rider against permanent bodily injury or bone fractures introduced in Q3 2019, reduced revenues from group protection products due to the increased attrition of groups of insureds (work establishments),
The negative factors were partly offset by: lower benefit payments due to critical illnesses and hospitalization as well as related to permanent dismemberment, which resulted from decreased activity of the insured after the introduction of lockdown, as well as postponement of medical treatments due to reduced access to health care during the COVID-19 pandemic, slower pace of converting long-term insurance policies into yearly-renewable term business in type P group insurance. As a result, in 2020 provisions were released for PLN 12 million, i.e. PLN 2 million less than in 2019; • acquisition expenses in the segment of group and individually continued insurance lower by PLN 7 million (-1.8% y/y). This was determined by the lower fees for insurance intermediaries in group protection insurance related to the decreased sales; • administrative expenses lower by PLN 8 million (-1.3% y/y), among others, due to the restriction of business activities, which resulted from the restrictions introduced due to the pandemic. This effect was partly offset by the increase in costs of remunerations and intervention expenses related to COVID-19.
Individual insurance The operating result in the individual insurance segment in 2020 was PLN 244 million, meaning it was down by PLN 27 million, i.e. 10% yearon -year.
This is an outcome of the further development of protection products in the banking channel and of term products sold in own chain, the decrease in income from investments allocated according to transfer prices, the lower result on expiring portfolio of the annuity product and the decrease in acquisition expenses for unit-linked products.
Factors affecting this segment’s performance and its movements in 2020: • gross written premium higher by PLN 131 million (+8.3%
Investments The operating income of the investment segment (based exclusively on external transactions) in 2020 was lower by PLN 10 million (-3.0% y/y) than in the last year, primarily due to the greater volatility on the markets due to the COVID-19 pandemic.
Banking segment / banking activity The operating profit in the banking segment (without amortization of intangible assets acquired as part of the bank acquisition transactions), composed of the Bank Pekao and Alior Bank groups, amounted to PLN 194 million in 2020 and was lower by PLN 3,304 million, i.e. 94.5%, than in 2019.
The decisive impact on the result was exerted by the COVID-19 pandemic. It considerably increased the costs of risk, the consequence of which was establishment of additional loan provisions for the forecast deterioration in the loan portfolio quality. The interest rate cuts (by approx. 140 bps in total) in 2020 also contributed to the decline in net interest income generated by the banks.
Bank Pekao’s contribution to PZU Group’s operating profit in the banking segment (net of the amortization of intangible assets acquired as part of the acquisition transaction) was PLN 1,725 million, while Alior Bank’s contribution was negative: PLN (228) million. The segment’s performance was affected by Alior Bank’s goodwill impairment of PLN 746 million and Bank Pekao’s goodwill impairment of PLN 555 million.
In Alior Bank, the value of credit allowances amounted to PLN 1,736 million, including PLN 418 million related to COVID-19, of which PLN 270 million was related to changes in model parameters and PLN 149 million was related to allowances.
The profitability measured by the net interest margin was 2.45% for Bank Pekao and was lower by 42 bps relative to 2019, while 3.91% for Alior Bank, i.e. 61 bps less than the year before. The difference in the net interest margin level between Bank Pekao and Alior Bank results in particular from the structure of the loan receivables portfolio. Interest margin decreased in both banks due to the interest rate cuts that took place in March, April and May and the quicker increase in deposits than in loans.
The net fee and commission income in the banking segment dropped by 4.4% relative to the previous year – to PLN 3,008 million. The main cause of the lower commission income was the lower activity of the clients during the pandemic and higher cards related commission costs, who used bank cards, loans or mutual funds less frequently.
The segment’s administrative expenses dropped to PLN 4,782 million, so they were lower by 1.4% than in 2019. In the case of Bank Pekao they amounted to PLN 3,273 million and of Alior Bank – PLN 1,509 million. The decrease resulted, among others, from maintenance of a strong cost discipline by Bank Pekao despite expenses on investments in operating transformation and digitization, additional costs incurred in connection with the COVID-19 pandemic and dissolution of a part of the provision for deferred remuneration components in Alior Bank.
152 153MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
• administrative expenses higher by PLN 13 million (+30.2% y/y), to PLN 56 million. It was caused by the increased operating expenses of funds due to higher additional contributions to the Insurance Guarantee Fund; • other items higher by PLN 1 million (+25% y/y), to PLN 5 million, due to higher acquisition expenses and costs of service.
Factors affecting the result: • net earned premium higher by PLN 43 million (+2.7% y/y)
130 million. It was an effect of the lack of revenue from the reserve account and of the lower revenue from management fee; 3 Cost/Income ratio, C/I ratio (banking sector) – quotient of administrative expenses and the sum of operating income, excluding: the BFG charge, the levy on other financial institutions and the net result on realization and impairment losses on investments; a decrease in the value of this indicator signifies an improvement in efficiency
Ukraine The Ukraine segment closed 2020 with an increase in the operating result by PLN 15 million (after eliminating the impact of change in the UAH exchange rate the increase would be PLN 17 million), reaching PLN 54 million compared to PLN 39 million in 2019.
Factors affecting this segment’s performance: • decrease in net earned premium by PLN 21 million
154 155MANAGEMENT BOARD’S REPORT ON THE ACTIVITY OF THE PZU GROUP AND PZU SA 2020
Profitability indicators To facilitate the analysis of PZU Group’s profitability, such indicators were selected that best describe this profitability in the opinion of the Management Board.
The return on equity (ROE) and the return on assets (ROA) indicate the degree to which the Company is capable of generating profit when using its resources, i.e. equity or assets. They belong to the most frequently applied indicators in the analysis of profitability of companies and groups regardless of the sector in which they operate.
Gross written premium generated on investment contracts in 2020 decreased by PLN 2 million (-5.7% y/y) compared to 2019 and reached PLN 33 million. The changes resulted primarily from the decrease in the payments to IRSA accounts, after the product was withdrawn from the offering.
The investment result in the segment of investment contracts decreased by PLN 3 million (-18.8% y/y) relative to the previous year, chiefly due to the lower rate of return on IRSAs.
The cost of insurance claims and benefits together with the movement in other net technical provisions decreased by PLN 5 million (-11.9% y/y) to PLN 37 million, mostly due to the aforementioned difference in investment income in unit-linked products and the resulting lower payments to the accounts.
Administrative expenses decreased to PLN 3 million (-25.0% y/y) as a consequence of the decreasing portfolio of contracts in this segment.
The segment’s operating result grew to PLN 6 million (+20% y/y), which resulted from a decrease in costs as a consequence of the shrinking size of business in this segment.
Return on equity (ROE) attributable to equity holders of the parent (annualized net profit/average equity) x 100%
Return on equity (ROE) consolidated (annualized net profit/ average equity) x 100%
Return on assets (ROA) (annualized net profit/average assets) x 100% 2.1% 1.9% 1.7% 1.5% 0.7%
Return on equity attributable to equity holders of the parent (PZU) for 2020 was 10.9%. At the same time, it was 10.3 p.p. lower than that achieved in the previous year, which resulted from non-recurring events, i.e. the impairment loss on goodwill arising from the acquisition of Alior Bank (PLN 746 million) and Bank Pekao (PLN 555 million) and the impairment loss on assets arising from the acquisition of Alior Bank (i.e. trademark and relations with clients) in the amount of PLN 161 million (after adjustment for the impact exerted by deferred income tax and minority shareholdings the impact exerted on the net result attributable to the parent company’s shareholders was PLN 42 million). The lower return on equity in 2020 resulted also from the retention of the whole profit for 2019 in the Company, hence from the lack of payment of dividends. Such a profit distribution was consistent with the standpoint expressed by the Polish Financial Supervision Authority on 26 March 2020 in the letter to insurance and reinsurance companies.
Return on assets (ROA) of the PZU Group for 2020 was 0.7%, i.e. 0.8 p.p. lower than in 2019. The primary cause was the decrease in the result on banking activity, including: • non-recurring effect of the impairment loss on goodwill arising from the acquisition of Alior Bank and Bank Pekao; • impairment loss on assets arising from the acquisition of
In recent years, the combined ratio (for non-life insurance) of the PZU Group’s has been maintained at a level ensuring high profitability of business.
Operating profit margin in life insurance is also an important indicator, i.e. the profitability of life insurance segments calculated as the ratio of the result on operating activity to gross written premium. In 2020, the indicator reached 18.6%, and its fall by 1.9 p.p. in comparison to 2019 was in particular due to a higher loss ratio in the group and individually continued insurance. It was attributable to higher mortality resulting from the COVID-19 pandemic.
As regards banking activities, efficiency is measured by the cost to income ratio, i.e. the quotient of administrative expenses and the sum of operating income, excluding: the BFG charge, the levy on other financial institutions and the net result on realization and impairment losses on investments. In 2020, the cost to income ratio for banking activity in the PZU Group reached 43.2%, and was higher than in 2019 by 2.4 p.p. It is attributable to lower income, including net interest income, resulting from the fall of interest rates in Q2 2020. The operational efficiency ratios, by segment, are given in CHAPTER 11. Glossary of Terms and Alternative Performance Measures 1. Gross claims and benefits ratio (simple) (gross claims and benefits/gross written premium) x 100%
3. Insurance segment activity expense ratio (insurance activity expenses/earned premium on own share) x 100%
Administrative expense ratio in the insurance segments (administrative expenses/premium earned on own share) x 100%
In 2020, the issuer (PZU) recorded a technical result of PLN 1,533 million, compared to PLN 1,405 million in 2019, a growth of 9.1%. Net profit was PLN 1,919 million and fell by 27.6% relative to PLN 2,651 million achieved in the previous year. Disregarding the dividends received from PZU Życie, PZU’s net profit was PLN 588 million, and was by PLN 731 million, i.e. 55.4%, lower compared to 2019.
In 2020, PZU collected gross written premium of PLN 12,537 million, i.e. 3.9% less than in 2019. The premium comprised mainly: • TPL motor insurance premiums, accounting for 38.3% of
PZU’s insurance portfolio (39.2% in the prior year). The lower share in the portfolio, by 0.9 p.p., was attributable to a lower number of policies combined with a drop in the average price. The slowdown in sales, chiefly in the branches as well as in the Group’s own network and dealership network, was a consequence of the restrictions imposed in connection with the COVID-19 pandemic and the resulting limited availability of services to customers. The negative effect was further amplified by: a fall in the average price due to changes in sales channel mix (slowdown of new vehicle sales in dealerships and leasing), and the continuing price pressure; • premium on motor MOD insurance, with a 23.8% share of PZU’s total gross written premium (i.e. 0.9 p.p. less than in the previous year). Alike for the TPL motor insurance portfolio, a strong impact was felt of the slowdown in the leasing financing sector and lower sales of new vehicles (primarily in dealerships); • premiums on insurance against fire and property damage, accounting for 20.2% of PZU’s premium portfolio. In comparison to 2019, their share in the insurance portfolio fell by 0.5 p.p., and by 5.9% in terms of value. It is a result of the conclusion in 2019 of a long-term agreement of high standalone value and lower premium on crop insurance (due to the high competitiveness of the market and the natural erosion of the portfolio in the context of a limited pool of government subsidies); • premiums on ADD and other insurance, whose share in the portfolio reached 11.5%, i.e. up 2.0 p.p. higher than in 2019. Premium value increased mainly in accident and sickness insurance. It is a result of higher sales, offered in cooperation with PZU Group banks, cash loan insurance and mortgage loans. Another factor of this increase is insurance cover extended to doctors and medical personnel against COVID-19 infection. The effect was further augmented by the higher premium written from aircraft casco insurance, following conclusion of a few high value agreements, as well as from various financial risks insurance (predominantly loss of profit).
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The balance of other operating income and expenses was also negative. It amounted to PLN 148 million, whereas in the previous year - when it was also negative - it was PLN 387 million. In 2019, the balance of other operating expenses was charged with the interest expense and change of the valuation on account of foreign exchange differences on the loan taken from PZU Finance AB for the total amount of EUR 850 million and repaid on 28 June 2019. In 2019, revenues on account of foreign exchange differences on the loan received from PZU Finance AB (publ.) amounted to PLN 38 million, while the costs of interest on the loans received amounted to PLN 29.7 million. Furthermore, the level of other operating expenses in 2019 was significantly influenced by adding a provision for taxation risk related to different interpretations of the provisions of the Swedish tax law pertaining to taxation on foreign exchange differences realized on repayment of loans granted in a currency other than the functional currency of the company granting the loan, in the amount of PLN 79 million - the provision was released in 2020.
As at the end of 2020, the total balance sheet value of PZU was PLN 44,665 million and was 7.4% higher compared to the previous year.
The main component of PZU’s assets were investments of the total value of PLN 40,207 million (up 9.7% compared to the end of 2019), which accounted for 90% of PZU’s total balance sheet value, compared to 88.1% as at the end of the previous year. Investments, excluding investments in related parties, increased in connection with the achieved investment performance and the inflow of premiums driven by business growth.
At the end of 2020, technical provisions were the main component of PZU’s equity and liabilities. They reached the value of PLN 21,707 million (net), which accounted for 48.6% of equity and liabilities. Their share in the balance sheet decreased by 3.3 p.p. compared to 2019, while in terms of value they rose by PLN 134 million, in particular due to a higher provisions for outstanding claims and benefits, mainly in the group of motor TPL insurance and general third party liability insurance. It was partly offset by: a lower provision for unearned premiums and release of the equalization provision.
Contingent receivables amounted to PLN 3,976 million, i.e. were lower by PLN 281 million (-6.6% y/y) in comparison to the previous year. They comprised among others: guarantees and sureties received, bills of exchange issued on account of granted insurance guarantees and other contingent receivables comprising mainly securities obtained in the form of a transfer of the debtor’s assets, mortgage on the debtor’s assets and other contingent receivables.
The balance of contingent liabilities was PLN 1,201 million, which represents a growth by PLN 52 million (+4.5% y/y) in comparison to 2019. It is primarily a result of the higher, by PLN 87 million, level of liabilities under guarantees and sureties granted as well as disputed claims not recognized by the insurer.
Financial results 6.9 Impact of the COVID-19 pandemic on the PZU Group’s results and the Issuer’s results
The banks experienced the strongest adverse impact of the pandemic, in particular as a result of the deterioration of economic conditions. Consequently, the negative effects on performance were the most prominent in this area of PZU Group’s operations. The pandemic considerably increased the cost of risk, which resulted in establishment of additional loan provisions for the forecast deterioration of the loan portfolio quality. The value of allowances for expected credit losses and for impairment of financial instruments in Bank Pekao amounted to PLN 1,620 million, of which PLN 830 million was estimated as the result of the COVID-19 pandemic. In Alior Bank, the value of credit allowances amounted to PLN 1,736 million, including PLN 418 million related to COVID-19, of which PLN 270 million pertained to changes of parameters in the models, and PLN 148 million to allowances. The total effect on the Group’s net result attributable to equity holders of the parent company was PLN -242 million.
The lowering of interest rates three times (in March, April and May 2020), by a total of 140 basis points, brought the basic rate down to 0.1%. It in turn translated into lower interest income for banks. This impact has been partly offset by a limit on interest rates applicable to interest liabilities of banks and increased lending activity (receivables from loans increased by 1.1% y/y), however the impact on PZU Group result attributable to equity holders of the parent company over the entire 2020 was PLN -205million.
Falling interest rates and increased credit risk led to shortfalls in the impairment test of PZU Group banks, which required impairment losses to be recognized through the Group’s profit and loss account. A non-recurring impairment loss on goodwill arising from the acquisition of Alior Bank and Bank Pekao - pursuant to IAS, the impairment charge for Alior Bank was PLN 746 million, and for Bank Pekao - PLN 555 million. Furthermore, a non-recurring impairment loss on assets arising from the acquisition of Alior Bank (i.e. trademark and relations with clients), in the amount of PLN 161 million, was charged through the income statement, which after accounting for the deferred income tax and minority interest had an impact on the result attributable to equity holders of the parent company in the amount of PLN 42 million. The total effect of the impairment losses recognized in the results for 2020 is PLN -1343 million.
Materialization of the above mentioned factors: lowering of interest rates, increase of credit risk and - consequently – impairment loss charges for bank-related assets, reduced the Group’s net result attributable to equity holders of the parent company by PLN 1.79 billion.
Insurance activity expense ratio (insurance activity expenses/premium earned on own share) x 100%
Administrative expense ratio (administrative expenses/premium earned on own share) x 100%
Combined ratio (COR) (net claims and benefits + insurance activity expenses) / premium earned on own share) x 100%
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Impairment of goodwill and other intangibles asociated with acquisition of banks (1 343)
The impact of the pandemic was also visible in the results of the Issuer - PZU. The most critical factor was the impairment loss on goodwill arising from the acquisition of Alior Bank and Bank Pekao, which was the effect of deteriorated performance and bank development prospects, as well as no dividend payout by Bank Pekao, which is an important element of the Issuer’s investment result. After the onset of the pandemic in
Bank - in the amount of PLN -781 million, out of which PLN -747 million was charged through the income statement, and Bank Pekao - in the amount of PLN -374 million, out of which PLN -51 million was charged through the income statement. The other impairment losses have been charged to the revaluation reserve. The total effect on PZU’s net result was PLN - 797 million.
Assuming that Bank Pekao would pay out 75% of the profit achieved in 2019, the dividend income in 2020 would have been PLN 336 million.
Risk management in the PZU Group aims to build value for all stakeholders. It involves active and deliberate management of the quantum of risk accepted. The essence of this process also involves preventing the acceptance of risk at a level that could pose a threat to the financial stability of the PZU Group or the PZU Financial Conglomerate.
The main elements of the PZU Group’s risk management system have been implemented to ensure sectoral consistency and the execution of the various entities’ strategic plans and the overall PZU Group’s business objectives. These elements include, among others: • systems of limits and limitations on the acceptable level of risk, including the level of risk appetite; • processes involving the identification, measurement and assessment, monitoring and controlling, reporting and management measures pertaining to various risks; • allocation of powers in the risk management process, in which the Management Boards and Supervisory Boards of the entities and appointed committees play a crucial role.
Supervision over the risk management systems in the financial sector entities is exercised by Supervisory Boards. PZU designates its representatives to the Supervisory Boards, including in particular the Supervisory Boards of Alior Bank and Bank Pekao.
The risk management system in the PZU Group consists in the following: • split of duties and tasks performed by statutory bodies, committees and individual organizational units and cells in the risk management process; • risk management process, including risk identification, measurement and assessment, monitoring and control methods, risk reporting and undertaking management actions; the framework for this process is universal among financial market entities.
The consistent split of duties and tasks in the PZU Group and in individual financial sector subsidiaries covers four decisionmaking levels.
mitigating the individual risks and accept the limits for individual risk types.
The fourth decision-making level pertains to operational measures divided into three lines of defense: • the first line of defense – entails ongoing risk management at the entities’ business unit and organizational unit level and decision-making as part of the risk management process, taking into account the limits for individual risks; • the second line of defense – risk management by specialized units responsible for risk identification, measurement, monitoring and reporting, as well as for limits control; • the third line of defense – internal audit which conducts independent audits of the individual elements of the risk management system, as well as of control procedures.