9.9 Activities of PZU Życie in 2010 ................................................................................................ 42 10. Other selected PZU Group companies – development and performance .................................. 46 10.6 PZU Centrum Operacji SA ..................................................................................................... 49 12. The summary of Initial Public Offering of PZU shares ................................................................ 51 12.1 The Settlement Agreement performance and the IPO .......................................................... 51 13.2 Establishment of the Risk Division within the structure of PZU and PZU Życie .................... 54 14. Shares or rights to shares held by members of management or supervisory bodies of PZU as of the date of providing the annual report .............................................................................................. 59 15.1 Remuneration of members of management and supervisory bodies of the PZU Group ....... 60 15.2 Issues, redemption and repayment of debt and equity securities .......................................... 61 15.3 Agreement concerning stabilization of the market price of PZU shares ................................ 61 15.4 Price of PZU’s shares ............................................................................................................ 62 15.6 Executed and terminated credit facility agreements .............................................................. 65 15.7 Originated loans, including those to the issuer’s related parties ............................................ 65 15.8 Guarantees and sureties extended and received with respect to credit facilities and loans, including those granted to the issuer’s related parties ................................................................... 66 15.9 Evaluation of financial resources management including the ability to repay liabilities and definition of possible threats and activities, undertaken or planned by the issuer to counteract these threats ................................................................................................................................... 66 15.11 Seasonal or cyclical business .............................................................................................. 66 15.12 Significant events after the end of the reporting period ....................................................... 66 15.13 Significant events pertaining to previous years and disclosed in the financial statements for the current reporting period ............................................................................................................ 67 15.15 Agreements significant for the operations of the PZU Group, including those concluded between shareholders .................................................................................................................... 67 15.16 Agreements on audit and review of financial statements .................................................... 67
REPRESENTATIONS OF THE MANAGEMENT BOARD OF PZU .......................... 67 16. Representation concerning corporate governance ..................................................................... 67 16.2 General Shareholders’ Meeting and the rights of the shareholders ...................................... 70
In 2010 gross written premium of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group
(hereinafter: the PZU Group, the Group) amounted to PLN 14,544,457 thousand (PLN 14,362,717 thousand the year before; an increase by 1.3%).
and deteriorated performance on investments (decrease in the investment base following dividend payment), the operating profit of the PZU Group was materially reduced (by 32.9 percent compared to
The total costs of insurance activity (acquisition and administrative expenses) decreased by 3.7%
compared to the end of the previous year. The decrease resulted mainly from restructuring activities.
was 20.3%, by 3.7 p.p. lower than at the end of the previous year.
the year before. The economic growth was triggered by growing domestic demand (4.0% increase compared to 1% decrease in 2009). The foreign trade balance had a slight negative impact on the GDP increase. The key triggers of domestic demand increase in 2010 included individual consumption, which grew by 3.2% compared to 2.1% in 2009 and growth of inventory, which added 1.8 p.p. to the GDP increase. The year 2010 saw a clear increase in export, among others due to economic growth in Germany and PLN exchange rate favourable for export. Import also grew rapidly, stimulated by an increase in domestic demand. Private investments of enterprises did not grow in 2010. The drop in gross expenditures on fixed assets was higher than in 2009 (1.1% drop)
ROE ratio calculated as net profit for the year divided by average balance of equity in 2010 year.
Policy Council decided to increase the mandatory provision rate from 3.0% to 3.5%, still the decision pertained to the period from 31 December 2010. Based on the decision, the rate returned to the level from before 30 June 2009 and it was a sign auguring the increase in interest rates. On 19 January 2011 the Monetary Policy Council decided to increase the base interest rate by 25 b.p. after 19 months. Currently, the reference rate equals 3.75%.
The situation in the labour market improved in 2010, but the unemployment rate registered at the end of the year (12.3%) was slightly higher than in the previous year (12.1%). Employment in the enterprise sector grew by 124 thousand people after a drop by 98 thousand in 2009.
Frank – by nearly 14.4% between the end of 2009 and the end of 2010.
The macroeconomic situation exerted a slight positive impact on the sale of insurance. Based on estimates, the salary income growth was slightly higher in 2010 than in 2009, still the social benefit income was lower. In such conditions, gross written premium increased faster in 2010 both in life and property insurance. Faster GDP growth and higher employment contributed to improving conditions of selling insurance services. In 2010 production, import and sale of cars increased, which created more advantageous conditions for selling comprehensive car insurance and TPL insurance.
Stronger zloty, in particular comparing to euro, was one of the factors reducing the claims ratio in this insurance segment.
The situation on capital markets was quite advantageous in 2010, which enabled insurers to generate profit both on the stock and bond market.
2.7 Market share of PZU SA, PZU Lycia SA and PTE PZU (data in line with PAS)
The premium of property and other personal insurance companies increased by 5.5% up to
At the end of September 2010 the market share of PZU (hereinafter "PZU”) in the Polish property and other personal insurance market measured by gross written premium amounted to 34.9%.
Source: Report of the Polish Financial Supervision Authority for IIIQ2010, the Issuer
TPL motor insurance 33.0% 33.4% 33.7% 33.0% 34.2% 35.0% Other products 39.3% 44.0% 46.5% 40.1% 42.8% 44.5%
Implementation of the corporate insurance portfolio restructuring program, in particular as regards motor insurance with its high claims ratio, was the main reason for a drop in the property insurance market share of PZU. The above program involves restrictive underwriting policy with respect to higher risk activities.
TPL motor insurance -152.4 -555.6 -403.2 -164.6 -583.1 -418.6 Other products -53.8 -192.9 -139.0 337.5 613.3 275.8
Despite catastrophic events in 2010, which had a particularly strong impact on PZU due to its leading position in the agricultural and property insurance market, in three quarters of 2010 the Company’s technical results remained very good compared to other market players. It was particularly visible in the motor insurance segment.
The year 2010 saw a decrease in the market share of PZU Życie resulting from a lower single premium written obtained through the banking channel (27.3% less), where deposits embedded in policies (with relatively low profitability) and resigning from sales of Fundusz Gotówka insurance, whose profitability was also poor. Reduced exposure to this sort of products results from focusing on sales of high margin ones. As regards regular premium insurance, which is not exposed to considerable market fluctuations and does not involve significant margins (YoY premium increase by 1.9%), the market share of PZU remains stable and the Company’s position leading among other market players. At the end of 3Q 2010 the market share of PZU Życie measured by the gross written premium amounted to 28.5% and dropped by 4,0 p.p. compared to the end of September 2009.
The technical result of PZU Życie accounts for a major part of the result generated by all life insurance companies. The YoY drop recorded during the nine months of 2009 results mainly from a lower reduction in technical provisions in group life insurance due to conversion of unlimited-term contracts to annual renewable ones. Interestingly, despite the reduced technical result of PZU Życie the technical margin on premium written is still nearly four times higher than the margin generated jointly by all other life insurers on the market (25.3% compared to 6.5%).
Number of OPF members 2 193 502 14 930 991 12 737 489 2 119 094 14 360 664 12 241 570 Net AUM in PLN million 30 512,5 221 461,6 190 949,1 24 584,0 179 039,9 154 455,9
Source: Report of the Polish Financial Supervision Authority for IVQ2010, the Issuer
At the end of 2010, PFE PZU had about 2.193.5 members constituting 14.7% of the general number of open pension funds members and gives PFE PZU the third place in the market. Compared to the end of 2009, the number of OFE PZU members increased by 74.5 thousand, i.e. 3.5% (while the total number of members rose by 4.0%).
In 2010 the number of first time clients concluding contracts with a pension fund dropped by 7%
compared to 2009 due to negative demographic factors (individuals born at the time of population decline reach the production age) and worsening of the labour market conditions.
PLN 5.94 billion new funds) as well as debt securities (approx. PLN 1.91 billion). On the other hand, balanced investment funds saw the largest drop (approx. PLN -1.42 billion). The share of five largest investment fund associations measured by value of assets of managed investment funds amounted to 51.4% at the end of December 2010.
2.8 Macroeconomic factors that will affect the activities of the PZU Group in 2011
growth rate is expected to remain at the level reported in 2010 and the consumption and investment growth are likely to increase. These factors should positively affect the demand for insurance services.
3. Organization of the PZU Group 3.1 Business activities of the PZU Group
As at the date of the Report, the PZU Group comprises PZU and seven entities included in consolidation, holding shares in eighteen not consolidated companies. PZU is the parent entity in the
Warsaw 27.08.1998 100.00% 100.00% 100,00% 100,00% Other financial services except from insurance and pension funds 6 PrJSC IC PZU Ukraine („PZU Ukraine”)
Investing activity Acquisition and disposal of public companies’ shares and other listed securities 15 PZU Asset Management SA (PZU AM)
Warsaw 12.07.2001 100.00% 100.00% 100,00% 100,00% Management of securities portfolios for the account of third parties
Vilnius (Lithuania 21 Armatura Kraków SA Kraków 07.10.1999 64.63% 64.63% 64.63% 64.63% Manufacturing of bathroom and kitchen mixer taps 22 Armatoora SA Nisko 10.12.2008 64.63% 64.63% 64.63% 64.63% Manufacturing of heaters and aluminium casts 23 Armatoora SA i wspólnik sp. k.
* Since 1 January 2010, the consolidation of the fund has been discontinued following loss of control.
PZU is recorded in the Register of Entrepreneurs of the National Court Register at the District Court for the capital city of Warsaw, XII Business Division of the National Court Register, under KRS number
Insurance activity concerns other personal and property insurance (Section II of the Appendix to the Act of 22 May 2003 on insurance activity – Dz. U. No. 11 of 2010, item 66 as amended, the “Insurance Act”).
The Company may carry out the following activities directly or through insurance intermediaries:  acquisition for open-end pension funds ;  agency for banking entities;  mediation in selling and redemption of investment fund units or units in foreign funds, open-end investment funds with registered offices in European Union countries and open-end investment funds with registered offices in OECD counties other EU-member states.
In the Ukrainian market the PZU Group carries out property and life insurance activities through two entities:  PrJSC IC PZU Ukraine – property and personal insurance;  PrJSC IC PZU Ukraine Life – life insurance.
At present TFI PZU manages 16 investment funds pursuing various investment strategies.
Pursuant to its Articles of Association, the scope of activities of PZU Pomoc SA includes in particular:  loyalty scheme management as part of other business supporting activities;  organization of assistance services, which involve providing assistance to customers;  rental and lease of motor vehicles.
 computer consulting services, software related services, data processing as well as database related services;  all types of commercial activities and services on own account and in cooperation with other entities.
FINANCIAL PERFORMANCE OF PZU GROUP IN 2010 4. Events significantly affecting the activities and financial performance of PZU Group in 2010
The financial performance of PZU Group in 2010 was affected by the following factors:  changes in the structure of written premium for property and personal insurance segment –
Gross written premiums from direct and indirect insurance for 2010 amounted to PLN 14,544,457 thousand (PLN 14,362,717 thousand the year before). The growth of PLN 181,740 thousand (+1.3%)
resulted mainly from development of group insurance and increasing sales of endowment insurance with a single premium in the bancassurance channel (the life insurance segment). In the property and personal insurance segment, premium written remained on a similar level as in 2009.
Premium changes have been discussed in the comments to segment performance (point 6.1
Gross written premiums – life insurance 6 512 541 6 340 822 2,7% Individual premiums 2 342 210 2 288 920 2,3% In direct insurance 2 342 210 2 288 920 2,3% In indirect insurance - - - Group insurance premiums 4 170 331 4 051 902 2,9% In direct insurance 4 170 331 4 051 902 2,9% In indirect insurance - - 5. 2 Investment performance
Investment income for the 12 months ended 31 December 2010 and 31 December 2009 amounted to
Net profit/loss on realization of investments 303 152 353 480 -14.2% Impairment losses (103 701) (92 170) - Total net profit/loss on realization and impairment loss on investments
A decrease in net investment income by PLN 534,800 thousand resulted from lower interest income.
The “Net change in the fair value of assets and liabilities measured at fair value” decreased by
PLN 90,502 thousand mainly due to a slowdown on the stock market resulting in smaller increases in equity instruments value. In 2010 Warszawski Indeks Gieldowy (WIG) reflecting changes in the prices of all listed companies increased by 18,8% compared to 46.9% in 2009.
A decrease in the value of these securities resulted from the closing of dividend funding transactions in April 2010 with regard to the settlement with Eureko BV.
PLN thousand other (units, investment certificates, not listed stock, shares) 2 657 886 5.9% 2 056 196 4.3%
Loans, reverse repo transactions and term deposits with financial institutions 4 296 170 9.5% 4 667 007 9.7%
In both segments of PZU Group, net claims increased in total by PLN 862,954 thousand (+9.1%). In the life insurance segment it stemmed mainly from a lower level of conversion of multi-year policies to single-year ones (lower amount of mathematical provisions derecognized) and increase in payments
(mainly due to increased amounts of performances in group insurance and continued insurance). In the property insurance segment it was related to a significant increase in property claims, general TPL
and agricultural insurance (intensive snowfalls in Q1 2010 and flood in Q2).
The reasons for a rise in the value of claims have been presented in detail in the comments to segment performance.
In 2010 acquisition costs grew by PLN 11,799 thousand (+0.6%) versus 2009. The increase resulted mainly from changes in sales in the property and personal insurance segment related to restructuring of the insurance portfolio (a rise in the share of higher commission products and distribution channels)
as well as changes implemented with respect to sales network management in the previous year
A decrease in administrative expenses by PLN 145.7 thousand (-8.1%) resulted mainly from restructuring activities carried out in the PZU Group companies, including among others
Net profit/loss on investing activities 2 781 840 3 469 001 -19.8%
Data from the consolidated statement of cash flows 2010 2009 %
Net cash generated by operating activities 469 423 (1 540 556) -130.5%
At the end of 2010, ROE was 20.3%, by 3.7 p.p. lower than at the end of the previous year.
In 2010, the Combined Operation Ratio (COR) in property and personal insurance gained to 104.5%
and increased by 5.5 b.p. comparing to prior year. The increase was caused mainly by higher claim ratio duo to heavy winter and flood in 1 st and 2 nd quarter. Slightly higher level of acquisition cost results from changes in product structure and changes in distribution channels. Operation ratios in property and personal insurance segment are presented in item 6.1.
Financial assets accounting for 89.7% of the balance sheet total, are the key asset item. At the end of 2010, they amounted to PLN 45,345,032 thousand and was 6.0% lower than at the end of 2009.
of liabilities arising from a sell-buy-back transaction entered into with the objective to finance PZU’s advance dividend payment for 2009 in the amount of PLN 4,086,821 thousand.
Equity was higher by 13.6% versus the previous year and amounted to PLN 12,799,926 thousand.
5.8 Changes in investments in controlled entities 5.8.1 PZU Pomoc SA
On 3 November 2010, the Extraordinary Shareholders’ Meeting of PZU Pomoc adopted a resolution on increasing the share capital of the Company by PLN 1,020,080 up to PLN 4,885,800 by means of issuing 102,080 ordinary registered shares, C series, with the nominal value of PLN 10.00 each.
On 25 November 2010 PZU subscribed for all the shares in question and paid PLN 7,615 thousand on the same day.
Ukraine Life”) received protocols concerning a breach of the license requirements from the Ukrainian insurance supervision due to inappropriate level of net assets. (Pursuant to the regulatory requirements, the net assets of an insurance undertaking may not be lower than the share capital).
PZU assumed the total of:  100,000 shares of PZU Ukraine at the nominal value of UAH 10 per share and issue price of UAH 3,000 per share, for the total amount up to UAH 300,000 thousand; (the shares were paid for on 25 June 2010 with USD 37,892 thousand - an equivalent of UAH 299,700 thousand or PLN 126,161 thousand; and on 12 July 2010 with USD 38 thousand - an equivalent of
UAH 300 thousand and PLN 122 thousand);  5,000 shares of PZU Ukraine Life with the face value of UAH 100 each and issue price of UAH 10,400 each for the total amount of up to UAH 52,000 thousand (the shares were paid for on 25 June 2010 with USD 4,753 thousand (PLN 15,826 thousand) - an equivalent of UAH 37,596 thousand and on 12 July 2010 in the amount of USD 1, 822 thousand (PLN 5,855 thousand) – an equivalent of UAH 14,404 thousand).
The increase in the share capital of both companies was registered on 10 August 2010. Successful increase in the share capitals of both companies facilitated satisfaction of the regulatory requirements.
On 7 October 2010, Extraordinary Shareholders Meetings of PZU Ukraine and PZU Ukraine Life passed resolutions regarding redemption of:  25.000.000 shares of PZU Ukraine at the price equal to the nominal value, i.e. UAH 10 per share, for the total amount of UAH 250,000 thousand;  120.000 shares of PZU Ukraine Life at the price equal to the nominal value, i.e. UAH 100 per share, for the total amount of UAH 12,000 thousand.
On 27 December 2010, Extraordinary Shareholders Meetings of PZU Ukraine and PZU Ukraine Life passed resolutions regarding redemption of:  29.207.233 shares at a price lower than the nominal price (UAH 10) i.e. UAH 7.19 per share;  167.989 shares at a price lower than the nominal price (UAH 100) i.e. UAH 21.43 per share.
On 18 January 2011, PZU SA concluded the following agreements with:  PZU Ukraine an agreement on the sale of 29,207,233 shares at UAH 7.19 per share totalling to
UAH 210,000 thousand (the equivalent of USD 26,448 thousand (PLN 75,380 thousand) was received on 31 January 2011);  PZU Ukraine Life - an agreement on the sale of 139,991 shares at UAH 21.43 per share totalling to UAH 3,000 thousand (the equivalent of USD 378 thousand (PLN 1,077 thousand) was received on 31 January 2011).
On 2 February 2011, based on the above agreements, PZU transferred ownership of the shares to acquirers.
Ukraine (pursuant to an agreement concluded on 18 January 2011). In this way, PZU did not lose the controlling interest in PZU Ukraine Life.
Data from the income statement – property and personal insurance change
Gross written premiums 8 032 762 8 023 727 0.1% Net earned premiums 7 700 289 8 147 140 -5.5% Net profit/loss on investing activities 4 090 758 2 836 093 44.2% Net insurance claims (5 690 846) (5 642 669) 0.9% Acquisition costs (1 385 570) (1 366 522) 1.4% Administrative expenses (967 244) (1 055 255) -8.3% Operating profit (loss) 3 613 184 2 719 193 32.9%
* Includes dividend from PZU Życie of PLN 3,120,00 thousand and PLN 1.419,146 thousand in 2010 and 2009, respectively.
Gross written premiums in direct property and personal insurance (by classes specified in section II of the attachment to the Act on insurance activity)
Accident and sickness insurance (class 1 and 2) 505 616 503 242 0.5% TPL motor insurance (class 10) 2 668 813 2 699 655 -1.1% Other motor insurance (class 3) 2 314 797 2 266 895 2.1% Sea, aircraft and transport insurance (classes 4, 5, 6, 7) 48 766 45 346 7.5% Insurance against fire and other damage to property (classes 8, 9)
TPL insurance (classes 11, 12, 13) 500 237 476 883 4.9% Credit insurance and suretyship (classes 14, 15) 68 066 67 959 0.2% Assistance (class 18) 175 915 148 783 18.2% Legal protection (class 17) 777 800 -2.9% Other (class 16) 70 774 159 625 -55.7%
An increase in the value of claims in 2010 versus the previous period was caused mainly by mass claims, such as:  floods (May-June) – the total gross amount of PLN 652,641 thousand (net amount of PLN 230,408 thousand);  snowfalls (January-March) – the total gross amount of PLN 169,427 thousand (net amount of
In 2010, investment income grew by PLN 1,254,665 thousand up to PLN 4,090,758 thousand due to an increased dividend received from PZU Życie (the 2010 dividend amounted to PLN 3,120,00 thousand compared to PLN 1,419,146 in 2009). Investment income of the Group excluding the dividend dropped by PLN 446,189 thousand due to financial assets reduction following the payment of PLN 12,749,917 thousand in 2009 and deterioration of capital markets.
The increase resulted from a change in the product structure (a rise in the share of higher commission products), changes in the structure of distribution channels (an increase in the share of commission channels at the expense of automatic non-commission renewals) as well as changes in sales implemented in the previous year, i.e. standardization of commission rates and introduction
of additional bonuses supporting agent effectiveness and making their remuneration conditional on the goals set (the so called overrides).
among others in the form of reduced IT, administrative and depreciation/amortization expenses.
As regards the property insurance segment, one-off events with a material impact on the Company’s operating profit occurred both in 2010 and 2009.
Data from the income statement – life insurance 2 010 2 009 %
Gross written premiums 6 512 541 6 340 822 2.7% Net earned premiums 6 514 124 6 339 878 2.7% Net profit/loss on investing activities 1 688 815 1 858 322 -9.1% Net insurance claims (4 607 139) (3 793 582) 21.4% Acquisition costs (360 488) (391 911) -8.0% Administrative expenses (601 314) (619 764) -3.0% Operating profit (loss) 2 581 675 3 282 367 -21.3%
Group insurance 4 170 331 4 051 902 2.9% Individual insurance, including: 2 342 210 2 288 920 2.3% - individually continued insurance 1 797 331 1 776 050 1.2% - other individual insurance 544 879 512 870 6.2%
An increase in the gross written premium by PLN 171,719 thousand (2.7%) resulted mainly from growth of group insurance – a rising number of the insured, higher average premium in group cover products as well as higher premium in single premium endowment products distributed through the bancassurance channel. The premium derived from Employee Pension Plans and group health insurance increased as well. In individually continued insurance, premium growth resulted mainly from sales of additional insurance including the new extension “Assistant in Case of Damage to Health”.
The changes were partly offset with expiration of endowment insurance portfolio concluded in the nineties.
A rise in the value of net claims paid and change in the balance of technical provisions by PLN 813,557 thousand (21.4%) was the effect of payments growth by 5.3% accompanied with a growth in provisions compared to a significant drop in 2009.
concluded in the 1990’s. The growth was partly offset with a decrease in payments from individual and group investment insurance (mainly individual pension accounts and Pogodna Jesień)
Administrative expenses in the life insurance segment decreased by PLN 18,450 thousand (-0.3%), except for a one-off appropriation to the Company’s Social Benefits Fund (PLN 5,000 thousand), administrative expenses dropped by PLN 23,450 thousand year on year (3.8%), mainly as a result of cost saving measures applied including headcount reduction and fixed costs optimizing program carried out in the PZU Group.
As regards life insurance, both in 2010 and 2009 no one-off events occurred which would have a material impact on the operating profit generated by the segment.
In 2010 and 2009 investment contract volumes were PLN 2,787,658 thousand and PLN 3,576,627 thousand, respectively. A drop by PLN 788,969 thousand (22.1%) resulted mainly from recalling an individual unit-linked single-premium product “Fundusz Gotówka” (PLN 701,161 thousand) as well as lower sales of endowment investment contracts sold through the bancassurance channel
Revenue from commissions and fees 246 915 309 702 -20.3% Net profit/loss on investing activities 16 121 17 392 -7.3% Acquisition costs (48 738) (61 177) -20.3% Administrative expenses (93 119) (122 425) -15.0% Operating profit (loss) 99 571 116 882 -14.8%
on premiums transferred by the Social Insurance Institution to the pension fund. The fee was reduced as of 1 January 2010 from 7% to 3.5%.
A decrease in acquisition costs by PLN 12,439 thousand (-20.3%) was for the most part the effect of changes in the sales network structure as well as lower costs of incentive schemes and training for the sales network. Administrative expenses of PTE PZU dropped by PLN 29,306 thousand (-23.9%),
which was mainly a consequence of lower transfer agent costs (effective from January 2010, the monthly account maintenance rate was reduced), lower marketing and PR expenses, sales integration within the PZU Group (transfer of some employees from PTE PZU to other PZU Group companies) as well as employment reduction.
The operating profit decreased by PLN 21,526 thousand (15.0%), which corresponded to the drop in the value of revenue from commissions and fees (partly offset by a decrease in costs).
7. Risk factors which may affect financial performance in the following periods 7.1 Property and personal insurance
 changes in regulations applicable to banks, which may result in a reduced number of mortgage loans granted and debtor insurance policies.
Key risks that can affect the performance of PZU Życie in 2011:  unchanged unemployment rate in 2011 and a slowdown in individual consumption, which may translate into a lack of demand for insurance products;  potential increase in competition in group insurance arising from the growing role of brokers in the segment and the requirement to hold tender for group insurance applicable to entities subject to the Public Procurement Act;  changes in the financial brokerage market, reduced growth in popularity of independent financial advisory services thus limiting the number of sales channels of the Companies;  changing profitability of treasury securities depending on the situation in the Polish and EU
economy - lower yield may result in worse investment profitability and the need to change the technical rates applied by the Company, as well as the European Embedded Value amount;  situation in the capital market, in particular on the Warsaw Stock Exchange – a portion of the Company’s investment income is conditional on the market trends;  any changes to the generally applicable regulations or their interpretations with respect to technical management of group insurance products by individuals designated for that purpose by policyholders;  changes in the current mortality, longevity and incidence proportion;  little flexibility of many product applications used in PZU Group companies hindering fast adjustment to market needs and maintenance of certain products within a time period allowing effective competition in the new investment products area.
Key risks that can affect the performance of PTE PZU in 2011:  possible further changes in the pension insurance system leading to a drop in the value of the pension premium transferred by the Social Insurance Institution to pension funds, establishment of sub-funds and laying down the principles for market acquisition;  unchanged unemployment rate in 2011 translating into a lower number of new fund members;  low pace of pay increase affecting growth of premiums paid by pension fund members;  changes in the financial brokerage market, reduced growth in popularity of independent financial advisory services thus limiting the number of sales channels of the Companies;  changing profitability of treasury securities depending on the situation in the Polish and EU
economy - lower yield may reduce the profitability of the Fund’s investments and management fees collected by the Company;
 situation in the capital market in 2011, in particular at the Warsaw Stock Exchange – a portion of the income is generated on the Fund’s investing activities translating into value of assets and fees charged by the Company for management services.
As of the date of preparing the report, PZU and PZU Życie had a long-term credit rating and financial strength rating (assigned by Standard & Poor's Ratings Services on 16 July 2009) at the A level with a stable rating outlook. On 5 July 2010 Standard & Poor's Ratings Services maintained the above rating.
Financial strength rating A /stable/ 5 July 2010 A /stable/ 16 July 2009
On 11 March 2010 the Management Boards of PZU and PZU Życie and Trade Unions operating in the companies concluded a lay-off agreement. As agreed, from 26 March to 20 November 2010, the staff restructuring and optimization was carried out as a part of the lay-offs.
The staff restructuring is related among others to centralization of functions which so far have been dispersed throughout several centres located in large Polish cities and higher specialization of hired staff. It mostly affects operations, finance, loss adjustment and the PZU Group network.
In 2010, the change was expected to affect up to 6,655 employees of PZU SA and PZU Życie at the most and involved net reduction, i.e. cutting the number of staff in 2010 in both companies by
The amount of additional redundancy pay depends on the salary of each employee and their time of employment at the PZU Group.
The total 2010 restructuring costs charged to the provision amounted to PLN 147,750 thousand.
The following steps related to profitable growth were carried out:  a unified model for managing the agency network of PZU and PZU Życie has been developed and implemented; in relation to property insurance segment, the new model was launched in PZU in the second half of 2010, while in life insurance segment, in 2010 the project focused on development of managerial competencies and improved operation of agency network management structures, as well as on operational details of the model of recruitment and inception of new agents;
Życie regarding provision of health care performances related to occupational medicine;  as a part of developing the PZU Pomoc concept, a network of service providers was further developed in relation to Road Assistance as well as in the area of assistance at home; the “door-to-door” service and E-call system.
Moreover, the following initiatives have been carried out in PZU Group in 2010 with respect to process and cost optimization:  employment restructuring resulting in FTE reduction by 2,062;
In 2010 PZU performed 5 wide-scale advertising campaigns focusing on motor insurance:  in January the Company organized a “Newsboys” campaign, which was aimed at changing the image of PZU motor insurance. The idea of the campaign was based on the Rzeczpospolita ranking, which stated that PZU offers the least expensive TPL
and comprehensive car insurance for new cars;  in March and April a campaign aimed at showing the flexibility of the PZU offer was carried out. The key idea was “Insure whatever you need and pay less";  in July-September a campaign “Local discounts” was carried out in selected regions of Poland in order to present the attractive price offer of PZU;  in September the Company launched a campaign “Good comprehensive car insurance, cheap
TPL insurance" focusing on the new motor insurance offer of PZU. The campaign was based on the idea ”Beware of sham insurance”;  in early November we started the second stage of the campaign based on the idea ”Beware of sham insurance”.
The key purposes of these campaigns were:  to change the way PZU motor insurance prices are perceived;  to create a PZU image as a firm offering best motor insurance solutions in the market;  to acquire new customers.
AS every year PZU carried out preventive actions to improve public safety and mitigate various risks.
 partnership programs – in cooperation with Fundacja Edukacyjna Przedsiębiorczości in Łódź
 actuarial competition – the objective of the competition is to select the best master and doctoral thesis.
As for healthcare, grants were provided to support local initiatives related to prevention and financing purchases of medical equipment for health centres.
 “Academy of PZU and PZU Życie” – a program co-financed by European Social Fund, established by Krajowa Izba Gospodarcza and Combidata Poland Sp. z o.o. The project covers training 1 281 people in ICT tools, IT technologies, project management and planning effective organization. Based on a consent of Polish Agency for Enterprise Development
The year 2010 was the first year after the implementation of consolidated IT structures responsible for IT system development and projects in the PZU Group. The introduced changes resulted in a series of financial benefits and improved IT capacity. Key changes include three functional areas.
Project);  automation of registering PZU agents’ activities (the AZP Project);  automation of commission calculating process in PZU Życie (the WNP Project);  supporting work of insurance agents (the Titus+ project);  supporting sales and maintenance of the new individual product of PZU Życie (Plan na Życie within NMP initiative);  supporting management and publication of internal regulations (RAW).
The ongoing project included cooperation on:  implementation of functionalities allowing automation of additional insurance handling within individually continued life insurance in PZU Życie (Dodatki IK);  implementing of IT solutions supporting sales of selected property products to group policyholders (group cross-selling);  implementing of a system to support financial reporting (Hyperion).
The project work carried out in BRI, components of the target IT structure were implemented: solutions to meet the current business needs whose design allows easy adjustment to future requirements.
Życie;  implementing and national rollout of the central loss and claim handling system for PZU Życie
In order to improve application management, a central system efficiency monitoring system (RUEI)
was implemented. The measure shall ensure proactive management of IT systems and prevention of potential breakdowns. In 2010, the central monitoring included the key systems: Insurer, FKX, SLS.
In 2010, centralizing of key IT system was also carried out. Centralization of GUR/GURIK/ROS was completed with projected savings of PLN 2.3 million for the nearest three years.
Strong focus was placed on regime of IT systems maintenance resulting in an increased number of systems transferred to IT for maintenance purposes. At the beginning of 2010, 48 of 200 systems operating in the Group were transferred, with just 15 included in the change management process.
supervised system maintenance allows more efficient management of these systems and the related infrastructure. Inclusion in the change management procedures allows improved control of changes introduced to the systems and therefore more focus on their stability and development aspects.
The year 2010 brought significant changes regarding user support organization. A tender for implementation of the service management system (ITSM) was closed. The existing eleven problem indication channels were replaced by one shared by all employees.
Support structures were reorganized in order to create a common Service Desk. Changes were introduced in the field support, by way of reducing headcount by 30% and simultaneous efficiency growth. Further work is focused on maximizing of problem handling efficiency at first call.
In 2010 principles were developed for efficient budget management of IT portions of implemented projects. The principles shall be implemented in 2011.
maintenance service and optimal option) and a new all risks comprehensive car insurance was implemented. It covers all types of losses irrespective of the cause;  PZU offers also a new door-to-door service. It is an additional package of services for car owners, including collection of the damaged car, supply of the car to the PZU’s Repair
Dom Plus” comprehensive packages were continued. In case of SMEs the Company sold the “PZU Doradca” package. Despite a temporary decrease in sales of property insurance in the flooded areas, high sales were generated in both customer groups. In order to develop this insurance line the discounted residential insurance offer “Ubezpiecz mury” was launched;  as for compulsory subsidized crop insurance, a promotional offer was prepared for large noclaims farms. However, on account of lower purchase prices of agricultural produce in comparison to the previous year, the premium written on that product was lower than last year;  in accordance with the amendments to the legislation, new products of compulsory professional TPL insurance for medical doctors and persons drawing up energy efficiency certificates were implemented. The change of professional TPL insurance for entities authorized to audit financial statements was accompanied by execution of an agreement with
the National Chamber of Statutory Auditors, concerning the principles of concluding insurance contracts for the said professional group. Also the master agreement with the National
PZU offers a wide range of insurance guarantees: from insuring the construction process at every stage, through bid bonds to payment guarantees. Additionally, PZU provides guarantees, e.g. insuring projects financed by the European Social Fund. PZU contract guarantees are granted to SMEs, corporate customers and non-profit organizations.
PZU started cooperation with partners having large homogeneous customer bases and servicing mass payments. The purpose of the cooperation is to complete and develop the offer of these institutions by way of providing specialized and tailored insurance products, such as mobile phone
insurance, notebook insurance, insurance covering the risk of bill payment in case of unemployment, travel insurance and accident insurance.
The structure of the sales network in PZU is to ensure effective sales to maintain a significant share of PZU in the insurance market and high quality of rendered services. This is achieved through dual organizational of sales:  division by distribution channel;  customer segmentation.
As of 31 December 2010, PZU offered its products via the following distribution channels:  exclusive agents – own agency network of PZU;  multi-agents - agents cooperating with several insurance companies;  insurance brokers;  bancassurance – sales through banks and other partners, who sell insurance products as a part of their auxiliary services;  direct – telephone and Internet sales;  PZU employees – sales in own offices.
The motor loss adjustment in 2010 included optimization and stabilization of post-accident car repairs.
In group insurances the year 2010 saw launches of new cover insurance products and the loyalty program PZU Pomoc w Życiu club in cooperation with PZU Pomoc SA.
On 1 January 2010 sales of new additional group insurance Assistant in Case of Damage to Health started. The scope of the group insurance includes hospitalization, surgery or an accident resulting in a permanent disability. The insurance guarantees the entire assistance package including home care by a qualified nurse, assistance in housekeeping, child care, care for pets, provision of rehab equipment, medical transport, transport to rehab facilities, small housekeeping works, assistance for a person appointed by the insured.
No significant events that could materially impact the group investment insurance market took place in 2010. Polish Financial Supervision Authority registered 29 new employee pension schemes out of which 14 are managed by PZU Group companies (3 schemes in the form of group life insurance with
Activities performed in 2010:  sales activities focused on development of group product offer with special attention to nonstandard offers for corporate clients;  in the beginning of the year, a new group hospital product was launched;  principles were developed to separate the health insurance product line from life products
(implemented early in 2011);  construction of own medical services network including outpatient care (through PZU Pomoc
PZU started cooperation with partners having large homogeneous customer bases and servicing mass payments. The purpose of the cooperation is to complete and develop the offer of these institutions by way of providing specialized and tailored insurance products, such as mobile phone insurance, notebook insurance, insurance covering the risk of bill payment in case of unemployment, travel insurance and accident insurance.
The Polish Financial Supervision Authority recommendations for banks and self-regulations of the bancassurance market may affect sales in the insurance sector related to bank products.
At the end of 2010, PZU Lietuva was ranked fourth on the property and personal insurance market.
Catastrophic losses arising from flood, wind, snow and fire on Lisco Gloria ferry where facilities insured by PZU Lietuva were located significantly contributed to the technical result.
In line with the assumptions, employees in HO and field units are unified. The restructuring activities allowed reduction of administrative expenses in the Companies by 19% compared to 2009, which resulted in improved financial performance.
In 2010, PZU Ukraine saw a significant increase in premium accompanied with a slight growth of the Ukrainian insurance market - it extended its classic market share from 2.44% to 3.16% being the tenth biggest on the classical property and personal insurance market (data at the end of Q3 2010)
On 30 December 2010, the Insurance Supervisory Authority decided to issue a new license for PZU
Life Insurance („PZU Ukraine Life”). The issue has been presented in detail in point 5.8.2 hereof.
Key achievements in 2010:  winning fourteen new employee pension schemes;  attracting new distributors of investment fund units: BOŚ Bank SA, Podkarpacki Bank
TFI PZU created PZU Dłużny Rynków Wschodzących, a sub-fund of PZU SFIO Globalnych Inwestycji.
European and world stock exchanges – most of the investment income of TFI PZU is conditional on the market trends;  interest rate fluctuation.
In 2010, the following changes in the organizational structure of PZU AM were introduced:  operations:  Analyst Team was liquidated and its tasks transferred to the Public Market Bureau;  organization of Real Property Market Investment Bureau was commenced;  support:  Supervision and Audit Team transformed in Supervision and Control Team and Internal
The following projects were continued:  input of PZU and PZU Życie portfolios to investment funds (in cooperation with PZU, PZU
Życie and TFI PZU);  for entities not included in the Group:  asset management (portfolios and pension funds);  startup and management of closed-end funds (infrastructure, real property).
In November 2010, an initiative was started aimed at building and development of PZU Pomoc w Życiu club. Each club member is offered privileges including among others:  use of PZU Pomoc assistant;  special custom-made offers;  rebate program allowing discounts for goods and services offered by PZU Pomoc.
vehicles with special markings dedicated to provision of specialist services in case of household breakdowns.
The objective of the PZU Group is to maintain the leading position in the Polish insurance services market and to generate profit for the shareholders. The Management Board intends to analyze potential possibilities of revenue source diversification by way of grasping business opportunities arising in Poland and possibilities of international expansion. The PZU Group intends to accomplish these objectives by focusing on the following activities:  maintaining the market share and focusing on profitability of core operations. The PZU Group shapes its product portfolio, distribution channels and principles of risk measurement and acceptance in a manner allowing for profitable growth in all key markets. The PZU Group differentiates its approach to particular segments of the Polish insurance market, depending on market share and profitability of particular products;
The key initiatives include:  The project of optimizing loss adjustment in motor insurance:  the change in the model of cooperation with garages by way of improving effectiveness of the Repair Network, optimization of the management module in the Repair Network and the dealers’ channel;  completion of centralization of adjustment of losses with foreign elements;  implementation of tools for automatic review of cost estimates and invoices;  implementation of tools for simplified loss adjustment;  developing rules of defining recourse responsibility in losses for own policies and system support for the process;  mass correspondence service managed by loss adjustment system - Mass Printing;  developing the payroll system for the Loss Adjustment Department and key performance indicators;  The project of optimizing loss adjustment in motor insurance:  launching the platform, which allows for requesting third-party inspection automatically, through the Internet;  optimization of expenses prepared by Mobile Property Experts;  implementation of application for simplified loss adjustment related to the construction industry;  integration of expert systems to prepare cost estimates for repair and construction works in the SLS Central IT System managing the liquidation process;
and the State Treasury in PZU. One of the conditions of the Agreement was to oblige both parties to immediately start preparing the IPO of PZU shares.
and the State Treasury - 4,317.615 (5,0%);  the number of shares sold to individual investors at 7,058,582, authorized persons at 73,938 and institutional investors at 18.686.817.
The Management Board of the National Depository for Securities (KDPW) adopted Resolutions
with a code PLPZU0000011. The shares traded in the public offering were registered in KDPW
on 26 April 2010 and the other shares, on 10 May 2010.
On 6 May 2010 PZU applied to WSE for admission and introduction to trading on the primary market of WSE of 60,418,337 A series shares and 25,905,980 B series shares.
On 7 May 2010 the Management Board of WSE adopted Resolution 425/1020 whereby it decided to introduce 60,418,337 A series shares of PZU and 25,905,980 B series shares of PZU to trading on the primary market of WSE on 12 May 2010. The resolution was conditional and its requirements were met on 10 May 2010.
The offering covered 25,819,337 shares of the Company. Under the Offering, 18,686,908 shares of PZU were granted to institutional investors, 7,058,491 shares – to individual investors and 73,938 shares to authorized persons. The demand of institutional investors was nine times higher than the number of shares offered. 59% of institutional investors were domestic investors and 41% were foreign investors.
Under the Offering, the Company shares were granted to 255,541 investors, including 251,288 individual investors, 1,629 authorized persons and 2,624 institutional investors.
On 12 May 2010 PZU shares were first traded on GPW S.A. It was one of the largest offerings in 2010 in Central and Eastern Europe and the largest in history of the Warsaw Stock Exchange. The IPO
ended a 10-year conflict of two largest shareholders of PZU, i.e. the State Treasury and the Dutch
The total expenses related to the IPO of A series shares incurred by PZU amounted to
The costs of preparing the offer of sale of the existing shares constituted the costs of the period and were charged to the financial profit/loss for 2010. The costs in question do not include costs related to the IPO incurred by selling shareholders.
13. Risk management 13.1 Risk management policy 13.1.1 Key risk management assumptions
PZU developed and implemented a risk management system focusing on both risk control and ensuring the adequate level of capitalization. Operational risk identification, analysis, measurement, control, management and reporting allow PZU to meet its obligations to customers and business partners and to satisfy the requirements resulting from legal provisions and external regulations.
Risk management is based on three lines of defence:  Line 1: risk management at the business (organizational) unit level in accordance with valid procedures, guidelines and limits. At this level, risk management is additionally supported by internal control principles.
operations are carried out in compliance with a clearly defined risk policy and subject to risk limitations;  Clear responsibility: the operations of PZU are based on assignment of tasks, competencies and responsibilities. Designated employees are accountable for the risk they undertake, and their incentives are aligned with the business objectives of PZU;  Adaptation to changes in the business environment: the ability to respond to changes in the business environment resulting from both external conditions and internal changes is an integral part of the risk control process in PZU.
The risk appetite reflects the maximum level of acceptable risk that may be assumed by the organization and it is closely related to the business strategy and financial objectives. It may be described both in terms of quality and quantity.
PZU manages risk in a manner which ensures that the equity level and its availability are at least at the level of „AA” rating of Standard&Poor’s Ratings Services (S&P).
In the case of market risk, risk appetite is determined based on the Value-at-Risk (VaR). VaR is a widely used approach to risk assessment resulting from a given portfolio of financial assets in the given time horizon.
The next step involves allocation of risk limits to organizational units at lower levels of the organizational structure.
13.2 Establishment of the Risk Division within the structure of PZU and PZU Życie
The scope of responsibilities of the Risk Office includes:  development of the risk management system;  identification of investment, insurance and operational risks, their measurement as well as development and implementation of an effective risk reporting system;  development and implementation of an internal model for investment, insurance and operational risks;  development of an effective system of reporting profitability of operations, taking into account the cost of capital;
The basis for obligatory coverage of PZU are non-proportional contacts, characteristic of insurers with high capitals, which protect reassured portfolios against effects of large one-off losses or accumulation of numerous losses resulting from a single event.
Market risk in PZU and PZU Życie results from two key sources:  activities related to matching assets and liabilities (the ALM portfolio); and
reporting function. The investing principles approved by the Supervisory Board of PZU constitute the basis for investment activities. Detailed market risk management standards and principles have been defined in the Investing Activities Manual, PZU Market Risk Management Policy and Investment
As part of PZU AM management of the SAA PZU and PZU Życie portfolio, the risk is measured based on the VaR method.
 the risk that a PZU contractor fails to perform its obligations related to reassurance or derivatives not traded on stock exchange, bancassurance activities, etc.;  the risk that a PZU contractor fails to perform its obligation towards a third party, e.g. cash receivable insurance, insurance guarantees.
Exposure concentration limits are set for credit risk resulting from the PZU Group investment activities.
The table below presents credit risk ratios used to calculate the credit risk.
Threshold exposures are defined for insurance and guarantees. The assessment is based on:  simulation models used for estimating VaR and TVaR for guarantees and insurance of cash receivables.
Operating risk management in PZU and PZU Życie is decentralized and it is carried out by all organizational units.
Strategic management with respect to operational risk is carried out by the Management Boards of
In order to streamline the process of identifying and determining the scale and importance of operational risk, in April 2009 the event base for operational risk was implemented. Operational risk events are recorded in the base if the related loss exceeds PLN 1000.
Liquidity risk involves inability to settle liabilities to customers or counterparties at maturity.
Financial liquidity risk of PZU and PZU Życie may result from three types of events:  shortages of liquid funds versus current needs;  illiquidity of financial instruments held by the Company;  a structural gap between the maturity of assets and liabilities.
In the liquidity risk management process, PZU and PZU Życie SA control liquidity in the short, medium and long term.
Reputation risk is the risk of an event or action which will adversely affect the Company image among its customers and business partners, therefore weakening the PZU Group's ability to operate effectively. Reputation risk is limited by defined principles, which, if followed, ensure the Company
reliability for its customers and business partners. The process is additionally supported by activities aimed at early detection of potential problems, which may lead to reputation loss.
The above table sums up the results of the sensitivity analysis of the net profit/loss and equity to changes in the interest rate risk, currency risk and the risk of changes in the prices of equity instruments. The analysis does not present the effect of changes in the measurement of investments on the net financial profit/loss or equity which are taken into consideration while determining the value of the provision.
An increase in the sensitivity to the interest rate risk at the end of 2010 compared to the end of 2009 resulted from an increase in the duration of the debt security portfolio and higher exposure to derivatives with interest rate risk.
An increase in sensitivity to the currency risk as of the end of 2010 compared to 2009 results mainly from higher exposure to investments (derivatives, listed shares) denominated in foreign currencies which do not cover technical provisions.
An increase in the sensitivity of the portfolio of financial assets to changes in the measurement of listed equity instruments at the end of 2010 compared to 2009 results from higher exposure to equity instruments with other price risk.
To comply with the requirement imposed by the Polish Financial Supervision Authority (KNF) on insurance companies, PZU conducted stress tests relating to financial data reported as of 31 December 2009 in line with KNF guidelines and submitted their results by the end of July 2010.
The stress tests showed that PZU had sufficient capitals to safely continue as a going concern if adverse events with considerable financial implications occur in their business environment.
15. Other information 15.1 Remuneration of members of management and supervisory bodies of the PZU Group
Top management (Directors of the PZU Group) ***: 3 411 n/a
Total estimated amount of non-cash benefits granted by PZU and its subsidiaries
** The indicated amount includes the equivalent of UAH 40,000 translated into PLN at the average currency rate of 31 December 2010 as published by the National Bank of Poland (NBP).
**** Amounts paid to Przemysław Dąbrowski are presented in the section regarding high level management since he joined the Management Board on 21 December 2010.
Members of the Supervisory Boards 2 600 2 771 15.2 Issues, redemption and repayment of debt and equity securities
During the 12-month period ended 31 December 2010, PZU did not issue, redeem or repay any debt or equity securities.
15.3 Agreement concerning stabilization of the market price of PZU shares
concluded a stabilization agreement (“Stabilization Agreement”) whereby during the period of 30 days after the first quotation of PZU shares on the primary market of WSE, the stabilization manager could acquire PZU shares on such market to support the market price of PZU shares at a level which would be higher than the one without such transactions. Pursuant to the Stabilization Agreement, due to the steps which could be taken by the stabilization manager, PZU provided the stabilization manager with the put option on the Company’s shares (“Put Option”). Based on the Put Option, the stabilization manager was entitled to sell to PZU not more than 2,590,569 Company’s shares, however, not more than 15% of PZU shares sold in the initial public offering, for the price per one share equal to the price paid by the stabilization manager at WSE for shares under the Put Option, which could not exceed the price of shares for institutional investors in the initial public offering, with the reservation that the
The authorization to acquire own shares by PZU under stabilization transactions has been concluded in the resolution of the Extraordinary Shareholders’ Meeting of the Company of 16 March 2010 adopted based on Article 362.1.5 of the Code of Commercial Companies of 15 September 2000
Article 8 of the By-laws of PZU. In the resolution, the Extraordinary Meeting of PZU authorized the Management Board of the Company to acquire not more than 2,590,569 PZU shares from investor or investors carrying out stabilization activities, with the view to their redemption; the price of shares may not exceed the price of shares in the initial public offering of PZU shares to institutional investors.
Pursuant to the resolution, PZU shares would be acquired to be redeemed, however, such acquisition could take place only to the extent the remuneration of a shareholder (the price of PZU shares) would be paid from the amount which in line with Article 348.1 of the Code of commercial companies could be allocated for distribution between shareholders.
The offering covered 25,819,337 shares of PZU. Under the Offer, the Company shares were granted to 255,541 investors, including 251,288 individual investors (7,058,491 shares), 1,629 authorized persons (73,938 shares) and 2,624 institutional investors (18,686,908 shares).
(PLN 312.5) on WSE and sold them on 31 December 2010 got a 17,25% rate of return including the dividend paid in 2010 (PLN 10.91).
On 26 March 2010, the Management Board of PZU adopted a resolution concerning the proposed distribution of profit for 2009 of PLN 2,510,380 thousand:  1.692.505 thousand to dividends, subject to making an advance payment towards dividend expected at the end of the 2009 financial year, described below;  10.000 thousand to appropriations to the Company’s Social Benefits Fund;  807.875 thousand to reclassification to the supplementary capital.
On 10 June 2010 the General Meeting of Shareholders of PZU adopted a resolution on profit distribution and dividend payment for the year ended 31 December 2009, sanctioning the above recommendation of PZU’s Management Board.
The General Shareholders’ Meeting decided that the total amount of dividend for the year ended 31 December 2009 would be PLN 13,692,021 thousand, however PLN 12,749,917 thousand was paid on 26 November 2009 as an advance payment against dividend expected at the end of the 2009 financial year. The remaining dividend to be paid is PLN 942,104 thousand, i.e. PLN 10.91 per share.
The record date was 25 August 2010 and the dividend was paid on 9 September 2010.
 BGK – PLN 3.813.840.684,00; transaction concluded on 22 October 2009 (3.95%)
The loan repayment deadline was further postponed to: 30 November 2010, 11 February 2011 and 5 March 2011, with modified interest, ranging from 9.16% to 12.16% p.a. The debtor repaid the interest within the above deadlines.
Under the guarantee line agreement No. 118154408 of 26 September 2008 between PZU and Bank
Millennium SA, the bank extended bank guarantees (bid bonds and performance bonds) to PZU
In accordance with the agreement, the guarantee line is PLN 10 million and is open for one year.
As of 31 December 2010, there were 30 active guarantees of the total amount of PLN 8,353,166.64.
A stable rating outlook of PZU confirms that the Issuer has a strong business position, high levels of equity and is a competitive entity in the insurance market.
Considering the strong competitive position and very good financial condition of the Issuer, the Management Board of PZU SA does not see any threats to the Issuer’s business.
The Issuer has own funds sufficient to guarantee that all liabilities to their customers will be repaid.
Operations of the PZU Group are not seasonal or cyclical to the extent that would justify application of the suggestions presented in the International Accounting Standards.
Until the date of preparation of this report on the activities, there had been no significant events pertaining to previous years that would not be included in this report on the activities.
On 12 May 2010 the Supervisory Board of PZU appointed Deloitte Audyt Sp. z o. o. with its registered office in Warsaw, Al. Jana Pawła II 19, recorded by the National Chamber of Statutory Auditors in the list of entities authorized to audit financial statements under number 73, as the entity authorized to audit the financial statements of PZU, prepared in line with the Accounting Act and the consolidated financial statements of the PZU Group for 2010 prepared in line with International Financial Reporting
Information about the fee of the authorized entity can be fund in the financial statements of PZU for
WSE” adopted on 19 May 2010 by resolution of Giełda Papierów Wartościowych w Warszawie S.A.
No. 17/1249/2010, in force since 1 July 2010. The whole document is available at the official website of Giełda Papierów Wartościowych w Warszawie S.A.: www.corp-gov.gpw.pl.
with utmost due diligence, as they increase the Company value for shareholders.
Apart from the aforementioned corporate social responsibility principles the Company applies Ethical standards and other corporate social responsibility principles presented in the following documents:  Code of Good Insurance Practice adopted on 8 June 2009 by the General Meeting of the Polish Chamber of Insurance (“PIU”) which is an organization associating insurance companies operating in the Polish market. The document is the code of conduct for insurance companies specifying their relationships with customers, insurance intermediaries, supervisory body and the Insurance Ombudsman as well as media; governing the relationships between the insurers and setting standards of operation of insurance companies which participate in public trading in securities. The document is available at the PIU
From the IPO to the end of Q2 2010, PZU SA issued one announcement regarding non-compliance with selected principles laid down in “Good practices of companies listed on WSE” concerning recommendations indicated in items II.1, II.2 and III.1.
Board and the evaluation of the internal controls and key risk management in the Company and relations of a Member of the Supervisory Board with a shareholder controlling more than 5% of the total number of votes in the General Shareholders Meeting. Only a part of the Company’s corporate website concerning investors relations has been translated into English.
It should be stressed that the principles II. 1 and II. 2 were not fully applied, as the shares of the Company were not admitted to trading on a regulated market and the Company was not obliged to apply Good practices. After the Company shares were admitted for public trading, works aimed at completing information presented at the corporate website of the Company to include the data required in Good practices were not finalized.
Principle III.1 of Good practices, concerning preparation and presentation of the Supervisory Board’s assessment of the situation of the company to the General Shareholders’ Meeting was not followed.
Based on the Company By-laws and regulations of the Supervisory Board, the Supervisory Board presents a brief assessment of the situation of the Company including internal controls and key risk management to the Ordinary Shareholders Meeting but it is not obliged to carry out and present the assessment of its works to the Ordinary Shareholders Meeting. The Supervisory Board takes a decision concerning compliance with the said rule.
As of 1 July 2010 the Company started to apply principle II.1 and II.2 set forth in “Good practices of companies listed on WSE” with respect to running a corporate website. Furthermore, as the Supervisory Board of PZU SA assessed its work and presented the results of the assessment to the General Meeting of the Company’s Shareholders on 10 June 2010, principle III.1 of the Good
Additionally, guidelines for Supervisory Boards of the PZU Group companies regarding the internal control audit, the risk management system as well as the supervisory board’s self-assessment have been laid down.
As the revised Good practices of companies listed on WSE came into force, since 1 July 2010 PZU
SA followed the corporate governance principles set forth in Good practices of companies listed on
The policy of remunerating members of the management and supervisory bodies does not include all elements indicated in the Commission Recommendation of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC), supplemented by Commission Recommendation of 30 April 2009 (2009/385/EC). Moreover, the Company did not present a declaration presenting remuneration policy on its corporate website.
Board, therefore it was not taken into account at the time of appointing members of the Company bodies. The composition of the Management and Supervisory Board is determined based on a decision of the Supervisory Board or a General Shareholders’ Meeting, respectively. Competences, not the sex are factors considered in appointing members of the Management and Supervisory Board.
An Ordinary Shareholders’ Meeting should be held within 6 months from the end of each financial year.
Commercial Companies, Act on insurance activity, the By-laws and when the Company’s bodies and persons authorized to call the Extraordinary Shareholders’ Meeting deem it justified.
According to the By-laws, the shareholders representing at least a half of the share capital and a half of the number of votes in the Company may call the Extraordinary Shareholders’ Meeting.
Shareholder or shareholders of the Company representing at least one twentieth of the share capital may demand calling the Extraordinary Shareholders’ Meeting and putting appropriate items on the agenda. If the Extraordinary Shareholders’ Meeting is not called within two weeks from the date of presenting the order to the Management Board, the registration court may authorize the requesting shareholders to call the Extraordinary Shareholders’ Meeting. The chairman of the meeting is appointed by court.
The Supervisory Board and a shareholder or shareholders of the Company representing at least one twentieth of the share capital may demand putting appropriate items on the agenda of the next
General Shareholders’ Meeting. The demand should include the justification and the resolution draft concerning the proposed item on the agenda and it should be presented to the Management Board at least twenty one days before the planned date of the General Shareholders’ Meeting.
The announcement is placed on the Company website in accordance with the method of providing current information specified in the Act on public offering, conditions governing the introduction of financial instruments to organized trading, and public companies, i.e. in the form of current reports.
Only persons who were shareholders of the Company 16 days before the date of the General
Shareholders’ Meeting have the right to participate in the Meeting (date of registration of attendance at the Meeting).
Depository for Securities (KDPW), i.e. the entity depositing securities. On such basis, KDPW will prepare the list of persons authorised to attend the General Shareholders’ Meeting due to the shares held. The list prepared by KDPW will be sent to the Company and it will constitute the basis for the Company to prepare the list of persons authorised to attend the Shareholders’ Meeting due to the shares held.
The shareholder of the Company may transfer shares in the period between the date of registration of attendance in the General Shareholders’ Meeting and the date of completing the General
Each share gives the right to one vote at the General Shareholders’ Meeting. The shareholder has the right to vote in a different manner under each share held. The Company’s shareholders may attend the General Shareholders’ Meeting and exercise the right to vote personally or through a proxy.
Supervisory Board, liquidator, Company’s employee of a member of appropriate bodies or the employee of a controlled company or cooperative, the power of attorney may authorize to representation only at one General Shareholders’ Meeting. The proxy is obliged to inform the shareholder of the circumstances indicating the existence or possibility of a conflict of interests.
The most important powers of the General Shareholders’ Meeting specified in the Code of commercial companies and the By-laws include:
 examination and approval of a management board report on the company’s operations, financial statements for the previous financial year and acknowledgment of the fulfilment of duties by members of the company’s authorities;  taking the decision concerning profit distribution or loss coverage;  taking the decision concerning convertible bonds, bonds with priority rights or subscription warrants;  setting the record date, i.e. the date used to determine the list of the Company’s shareholders entitled to the dividend for the previous financial year and the date of dividend payout;  appointing and dismissing members of the Supervisory Board, subject to the right granted to the Treasury to appoint and dismiss one member of the Supervisory Board starting from the time when the share of the Treasury dropped below 50% of all issued shares;  taking the decision to change the By-laws;  taking the decision to increase or decrease the share capital of the Company;  taking the decision to redeem shares;  taking the decision to deprive the Company’s shareholders of the pre-emptive right in part or in whole;  taking the decision to dispose of the enterprise or its organized part or its lease or establishment of a limited property right;  taking the decision concerning a significant change in the Company’s scope of business;  taking the decision to liquidate the Company or transfer its registered office abroad;  choosing the Company’s liquidators;  taking the decision concerning division of the Company, its combination with a different company or companies, its liquidation, termination of transformation;  taking the decision concerning financing by the Company of acquisition or assumption of shares it issues;  taking the decision concerning claims for redressing damage inflicted upon formation of the Company or exercising management or supervision;  creating reserve capitals and taking the decision whether to use them and if so, how; and
 establishing the rules of remunerating members of the Supervisory Board.
The shareholder of the Company may demand that the list of shareholders be sent to them free of charge via e-mail, specifying the address to which the list should be sent.
Immediately after election of the chairman of the General Shareholders’ Meeting a list of attendees should be created and include all persons participating in the General Shareholders’ Meeting, the number of shares they hold and number of votes they are entitled to. The list of attendees should be signed by the chairman of the General Shareholders’ Meeting and displayed during the meeting.
On request of the shareholders representing at least one fifth of the share capital of the Company, members of the Supervisory Board should be elected at the next General Shareholders’ Meeting by a vote in separate groups, even if the By-laws provide for a different manner of electing the Supervisory Board. Persons representing at the General Shareholders’ Meeting the portion of shares which is the aggregate number of Shares represented at the Meeting divided by the number of members of the Supervisory Board (in the case of the Company - five members of the Supervisory
Board) may form a separate group in order to elect one member of the Supervisory Board. However, such persons do not participate in the election of other members of the Supervisory Board. Vacancies in the Supervisory Board not filled by a group of shareholders formed in accordance with the above mode will be filled by way of voting with the participation of all shareholders who did not cast their votes in the election of members of the Supervisory Board elected by a vote in separate groups. If the shareholders representing at least one fifth of the share capital of the Company file a motion for election of members of the Supervisory Board by a vote in separate groups, the provisions of the Bylaws providing for a different manner of appointing members of the Supervisory Board do not apply to such method of election of the Supervisory Board, however, with the reservation that if any member of the Supervisory Board has been appointed by an entity specified in a different act, the election applies only to the other members of the Supervisory Board.
During the General Shareholders’ Meeting, the Management Board is obliged to provide any shareholder, on their request, with information about the company, if it is necessary for evaluation of the matter on the agenda of the General Shareholders’ Meeting. The Management Board refuses to reveal information if it could harm the Company, its related party or controlled company or cooperative, in particular by revealing technical, trade or organizational secrets. A member of the Management Board may refuse to reveal information, if the information could provide basis for their criminal, civil and law or administrative liability. The answer is granted if relevant information is available at the Company’s website, at a place designated for questions from and answers to the shareholders. In response to the request of a shareholder, the Management Board may give an answer in writing outside the General Shareholders’ Meeting, if there are important reasons to do so. The Management Board is obliged to provide the information not later that within 2 weeks of the date of the request during the General Shareholders’ Meeting. If a shareholder files the request for information about the Company outside the General Shareholders’ Meeting, the Management Board may provide the shareholder with information in writing considering the limitations of the possible harm described above. The documentation submitted by the Management Board during the next
General Shareholders’ Meeting, including the date when it was revealed and the person who has
received the information. The information presented to the next General Shareholders’ Meeting may not include information made public and given during the Meeting.
The appeal against a resolution of the General Shareholders’ Meeting as described above does not halt the registration procedure before the registry court. The registry court may, however, suspend the registration procedure after having conducted a trial. In the event of filing a clearly groundless claim the court may, at the request of the Company, adjudicate from the plaintiff an amount representing up to ten times the value of court fees and the fee of one advocate or attorney-at-law. This does not exclude the right to pursue a claim for damages on general terms.
The Chairman of the Management Board of the new term appointed before the end of the current term may apply to the Supervisory Board for appointing other members of the Management Board of the new term before the end of the current term.
On 30 September 2010, the Supervisory Board of PZU SA transferred a Member of the Supervisory
The Management Board exercises all management rights which have not been reserved by the provisions of law or provisions of the By-laws for the General Shareholders’ Meeting or the Supervisory Board.
The work of the Management Board is administered by the Chairman of the Management Board who defines the scope of responsibility of each member of the Management Board. Resolutions of the Management Board are adopted only in the presence of the Chairman of the Management Board or a person designated to administer the work of the Management Board during their absence and if the meeting is attended by at least half of the members of the Management Board.
The Management Board adopts its regulations which are approved by the Supervisory Board.
The regulations of the Management Board specify: (i) the powers of the Management Board and activities requiring consent or approval of the Supervisory Board; (ii) the powers of the Chairman of the Management Board and other Members of the Management Board; (iii) the rules and organization of work of the Management Board, including organization of meetings and the manner of taking decisions; and (iv) the rights and obligations of resigning members of the Management Board.
The By-laws of PZU SA do not provide for any special rights of the Management Board concerning decisions to issue or redeem shares.
The Supervisory Board is composed of seven to nine members. The number of members is specified during the General Shareholders’ Meeting. Members of the Supervisory Board are appointed by the General Shareholders’ Meeting for a shared term which includes three consecutive full financial years. Additionally, at least one member of the Supervisory Board should meet the independence criteria specified in the By-laws (Independent Member) concerning e.g. professional and personal relations, especially with members managing or supervising the Issuer and entities in the PZU Group.
Composition of the Supervisory Board of PZU SA as of 1 January 2010:  Tomasz Gruszecki Chairman;  Marcin Majeranowski Vice-Chairman;  Alfred Bieć Member;  Marco Vet Member;  Tomasz Przesławski Member;  Marzena Piszczek Member;  Waldemar Maj Member.
On 5 January 2010 Tomasz Przesławski i Alfred Bieć were dismissed from the Supervisory Board of
Grażyna Piotrowska – Oliwa were appointed to the Supervisory Board of PZU SA. Composition of the Supervisory Board of PZU SA from 5 January 2010:  Tomasz Gruszecki Chairman;  Marcin Majeranowski Vice-Chairman;  Waldemar Maj Member;  Piotr Maciej Kamiński Member;  Marco Vet Member;  Grażyna Piotrowska-Oliwa Member;  Marzena Piszczek Member.
On 9 June 2010 the Company received a resignation of Jurgen Stegmann from the position of a member of the Supervisory Board of PZU SA and a resignation of Marcin Majeranowski from the position of a member and Vice-Chairman of the Supervisory Board. On 10 June 2010, the General
Board and appointed Zbigniew Ćwiąkalski, Krzysztof Dresler and Dariusz Filar as members of the Supervisory Board of PZU SA.
Composition of the Supervisory Board of PZU SA from 10 June 2010:  Zbigniew Ćwiąkalski Member
On 16 June 2010 the Supervisory Board of PZU SA was established. The Supervisory Board decided to appoint Marzena Piszczek the Chairpersons, Zbigniew Ćwiąkalski the Vice-Chairman and Grażyna
On 30 September 2010, following resignation of Rafał Stankiewicz from the position of a Member of the Management Board of PZU SA, the Supervisory Board transferred Dariusz Filar, to temporarily hold the position of a Member of the Management Board of PZU SA. Dariusz Filar assumed the position on 1 October 2010. He held the position until 21 December 2010, when the Supervisory
Between 1 October and 21 December 2010 Dariusz Filar did not participate in the work of the Supervisory Board of PZU SA.
The current term of the Supervisory Board of PZU SA started on 17 December 2008 and will end on 17 December 2010. The mandates of members of the Supervisory Board expire not later than on the date of the General Shareholders’ Meeting approving the financial statements for the last full financial year of their term, i.e. on the date of the General Shareholders’ Meeting in 2011.
Functioning and powers of the Supervisory Board derived from the By-laws
The Supervisory Board exercises constant supervision over the company’s activities in all aspects of its business.
Board and setting the terms and conditions of remuneration and the amount of remuneration;  appointing, suspending and dismissing the Chairman of the Management Board, members of the Management Board or the entire Management Board, as well as making decision to stop the suspension;  agreeing to transfer the entire or portion of the insurance portfolio;  accepting motions of the Management Board concerning acquisition, assumption or disposal of shares in companies, as well as the Company’s participation in other entities the Supervisory Board may specify the amount, terms and conditions and the way in which the Management Board may carry out the activities without the acceptance of the Supervisory
 conclusion of a material agreement as understood by the Report Ordinance by the Company and its related party, excluding standard agreements concluded by the Company on an arm’s length basis as part of its operating activities (consent will be required on the date of the first listing of WSE);
Additionally, the By-laws stipulate that a vote may be cast in writing throughout another member of the Supervisory Board. In accordance with the By-laws, the resolutions of the Supervisory Board are adopted in an open ballot, except for resolutions concerning delegation of members of the Supervisory
Management Board as well and taking decision to stop such suspension which are adopted in a secret ballot. Moreover, a secret ballot may be chosen on request of a member of the Supervisory Board.
Functioning and powers of the Supervisory Board derived from the Regulations of the Supervisory Board
Board, upon consent of the Supervisory Board, may select one advisor authorized to take part in the meetings of the Supervisory Board devoted to reports and financial statements, and give their advice, provided that such persons respect confidentiality and signs a confidentiality statement.
In accordance with the By-laws and the Settlement Agreement, on 19 January 2010 the Supervisory
Board of the Company appointed an IPO Committee composed of three persons by delegating members of the Supervisory Board to individually perform supervisory activities. The Committee has been appointed for the period until the Company shares are listed on a regulated market as understood by the Act on trading in financial instruments of 29 July 2005, i.e. until 7 May 2010.
Detailed tasks and terms and conditions of appointing members of the IPO Committee and its functioning have been specified in a resolution of the Supervisory Board.
The Committee comprised: Waldemar Maj (Chairman of the Committee - Member of the Supervisory
The By-laws provide for appointing an audit committee by the Supervisory Board. The Committee is composed of three members, including at least one independent members qualified in accounting or auditing. Detailed tasks and terms and conditions of appointing members of the Audit Committee and its functioning have been specified in a resolution of the Supervisory Board, which views relevant competencies and experience of the candidates for members of the Committee.
In accordance with the Regulations of the Audit Committee adopted by a resolution of the Supervisory
Board, the Audit Committee is an advisory and consultative body to the Supervisory Board and is appointed to improve the effectiveness of the supervision of the correctness of financial reporting, effectiveness of internal control, including internal audit and risk management, exercised by the Supervisory Board. Moreover, the Audit Committee may apply to the Supervisory Board for commissioning specific controls in the Company to be exercised by an internal or external entity.
The promotion and compensation committee is an advisory and consultative body to the Supervisory
Board for matters related to establishing the management structure, including organizational issues, remuneration system and the amount of remuneration and selection of properly qualified staff.
The Supervisory Board decided that the promotion and compensation committee will be composed of four persons. As of 16 June 2010 members of the Promotion and Compensation Committee appointed by the Supervisory Board included: Zbigniew Ćwiąkalski (Chairman of the Committee), Dariusz Filar
(Member of the Committee), Piotr Maciej Kamiński (Member of the Committee) and Marzena Piszczek
(Member of the Committee). As of 31 December 2010 the composition of the Promotion and
Compensation Committee had not changed. The Committee is dissolved once five members of the Supervisory Board are elected in a vote in groups and its rights are then taken by the entire
(appointment of Rafał Grodzicki on 1 February 2010);  Director in the PZU Group for Finance in PZU Head Office (appointment of Przemysław
 Director in the PZU Group for Operations in PZU Head Office (appointment of Mariusz J.
On 6 October 2010, names of the positions were altered from "Director in the PZU Group for” to “PZU
On 2 January 2011 Przemysław Dąbrowski resigned from the position of the PZU Group Director, and on 24 January 2011 he was dismissed from the position by the Management Board and replaced by
Financial statements are prepared within the PZU Finance Division controlled by the Member of the Management Board of PZU.
The accounting records are closed and financial statements are prepared in accordance with detailed schedules, including the key activities and control points with assigned liability for timely and correct completion.
The separate and consolidated financial statements of PZU are:  reviewed by a certified auditor - in the case of six-month statements;  audited by a certified auditor – in the case of annual statements.
In accordance with the by-laws of PZU, the Supervisory Board of PZU appoints an audit committee composed of three members, with at least one of them qualified in accounting or auditing as understood by the Act on statutory auditors and their self-governing body, auditing firms and on public oversight of 7 May 2009 (Journal of Laws of 2009, No. 77, item 649). The Audit Committee is an advisory and consultative body to the Supervisory Board of PZU and is appointed to improve the effectiveness of the supervision of the correctness of financial reporting of PZU, effectiveness of internal control, including internal audit and risk management, exercised by the Supervisory Board of
organized based on a personal union and with persons important for financial reporting of the majority of consolidated entities with their registered office in Poland, employed for a FTE fraction. PZU
controls all the consolidated subsidiaries through Management Boards and Supervisory Boards of the companies.
As of 31 December 2010 and the date of submission of the report, the sole shareholder of the Company with a significant block of shares is the State Treasury. The Treasury holds 39,020,483 shares which accounts for 45.1875% of the share capital of the Company.
The share capital of the Issuer is divided into 86,352,300 ordinary shares with the face value of PLN 1 each, giving right to 86,352,300 votes on the General Shareholders’ Meeting.
On 18 November 2010 Eureko BV sold 11,223,818 shares of the Company accounting for 12.9999%
of the share capital of PZU. This way the share capital of Eureko B.V. in PZU dropped by approx.
16.6 Holders of securities with special control rights and a description of the rights
PZU has not issued any securities which would give the shareholders special control rights.
The By-laws of PZU do not provide for any restrictions on transferring the titles to securities issued by the company.
The By-laws of PZU may be changed by the General Shareholders Meeting by a three-fourth majority of votes, consent of the Polish Financial Supervision Authority in the events specified in the Act on
To the best knowledge of the Management Board of PZU, the report on the activities of the Powszechny Zakład Ubezpieczeń Spółka Akcyjna Group presents a true picture of the development and achievements of the Issuer, including a description of basic threats and risk.
15 March 2011 Witold Jaworski Member of the Management Board of PZU