PZU 2020 - more than insurance 77 4.1 The tenet underpinning the #newPZU Strategy 78 4.2 Strategy operationalization 80 4.3 Execution of the PZU Group’s strategy in 2019 91 4.4 Completed activities in 2019 92
Risk management 155 7.1 Objective of risk management 156 7.2 Risk management system 156 7.3 Risk appetite 158 7.4 Risk management process 160 7.5 PZU Group’s risk profile 161 7.6 Risk sensitivity 169 7.7 Reinsurance operations 171
PZU Zdrowie has become a key area serving to bolster one of the pillars of our strategy, namely client interactions. In 2019 it posted impressive 47% growth on the private health services market. The number of PZU Zdrowie’s own centers has nearly doubled, while it now has 2,200 partner centers. We have marketed a host of new products, we have extended the benefits provided to date and we have streamlined service. We were the first medical operator to launch virtual clinic, thereby enabling patients to obtain a consultation from a physician, receive a referral for testing or a prescription for medications without leaving the comfort of their own homes. We also opened the first telemedicine office in which patients can do diagnostics on their own by using a specialist apparatus and consult their results with a physician through a video link.
I would like to thank you for the trust you place in us.
At the same time, 2019 was the third year in a row in which the PZU Group’s profit grew. Net profit per share climbed 2.7% year on year and by 14.0 percent versus 2017. As a result, the dividend has also risen. The dividend per share in 2019 was PLN 2.80, or double the amount paid two years earlier.
The PZU Group’s strength is rooted in the strength of the Polish economy. 2019 was an exceptionally successful year for the largest financial institution in Central and Eastern Europe and was taken advantage of effectively to build the PZU Group’s future position.
Chairman of the Supervisory Board Statement to be able to meet the challenges of the future. The ever broader offer that is more and more aligned to client needs is also doing its part. The ever higher quality of services offered not just through the expanding network of traditional branches but also in electronic channels is also doing its part. The social engagement demonstrated by the PZU Group, especially in prevention is building its added value.
The highest net profit since 2010 totaling PLN 3,295 million, the record-breaking gross written premium of PLN 24.2 billion and the high level of solvency at 220% testify to the PZU Group’s excellent condition. This was affirmed in the middle of 2019 when PZU’s rating outlook was raised from stable to positive (rating of A-). When they made that decision, the analysts at S&P Global Ratings highlighted improving risk management practices resulting in greater capital resilience and high capital management discipline. They pointed out PZU’s very good position on the insurance, banking and asset management market, poising it to utilize its advantage to generate robust financial results and improve its position in the overall sector.
The web-based Cash Loan Platform launched in 2019, the fruit of PZU’s cooperation with Alior Bank, is one example of an innovative solution. It gives employees convenient access to quick, inexpensive and safe loans for which they can apply through their employers. In turn, the cash platform allows employers to offer additional benefits to their employees, thereby augmenting their attractiveness on the labor market. This unique business concept also has a social dimension by protecting borrowers who suddenly need money in difficult life circumstances against taking down liabilities on usury terms.
2019, which was a successful year for the PZU Group offers promising prospects for the future. It creates opportunities, which will be harnessed in full, of which I am profoundly convinced.
stability and safety – Solvency II ratio is above average for insurance groups in Europe
The New PZU – More Than Insurance The Powszechny Zakład Ubezpieczeń Group is the largest financial group in Poland and Central and Eastern Europe. PZU heads up the group with its traditions dating back to 1803 when the first insurance company was established on Polish soil. PZU is a public company. PZU’s stock has been listed on the Warsaw Stock Exchange (WSE) since 2010. Since its floatation PZU has been in the WIG20 index. It is one of the most highly valued companies and heavily traded stocks on the Polish stock exchange. Since 2019, PZU has been part of the WIG ESG (sustainability) index.
The State Treasury with a 34.19% equity stake is PZU’s largest shareholder.
Its robust brand underpins strategy execution. According to brand awareness surveys, PZU is the most recognizable brand in Poland (spontaneous recognition of the PZU brand stands at 89% while assisted recognition is 100%).
Among all the Polish insurers PZU offers its clients the largest sales and service network. It has 410 branches with convenient access across the country, 10 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. PZU also has a claim handling system that operates efficiently.
The PZU Group’s clients in Poland have access to Bank Pekao’s distribution network (805 branches) and Alior Bank’s distribution network (197 traditional branches, 7 private banking branches, 8 corporate centers and 608 partner centers). Both banks have professional call centers and mobile and internet banking platforms.
INNOVATIONS create a NEW value for the clients of the PZU Group Major business areas
The PZU Group is also the leader in the Baltic States, and it does business in Ukraine.
Poland is the Group’s core market. The PZU Group generates 92% of its revenue (measured by gross written premium ) from its Polish operations. The insurance activity in the Baltic States (Lithuania, Latvia, Estonia) and in Ukraine generates 8% of its revenue.
Assets of Pekao TFI (PLN billion) Net result on asset management of Pekao TFI (PLN million)
Restated data as at 31 December 2015-2018 Data from the consolidated statement of financial position for 2016, restated as at 1 January 2017
On 14 June 2019, S&P Global Ratings, a US-based rating agency raised PZU’s rating outlook from stable to positive. PZU’s financial strength and credit rating remained at A-. This is one of the highest possible ratings for a Polish company to receive.
PZU’s attractiveness as an investment is highlighted by the promise of sharing profits with shareholders to the extent such profits are not needed to underwrite its rapid growth. The dividend per share paid from 2018 earnings (on 5 September 2019) was equal to PLN 2.80, representing 12.0% y/y growth.
At the end of December 2019, PZU’s market capitalization amounted to PLN 34.6 billion.
Innovations: PZU: InsurTech Award 2019 for PZU GO Alior: Top Institutional Innovator of the Year
PZU: The Best Annual Report 2018 – Best of the Best
PZU and LINK4: Kantar’s Panther for the Most Effective Brand Creation
Agreement to acquire Alior Bank Acquisition of insurance companies in the Baltic States (Latvia, Lithuania, Estonia)
JANUARY PZU and Bank Pekao as the organizers of the Polish
MARCH appointment of the PZU Management Board for a new term of office
MARCH #newPZU in Your Hands – recap of the first year of strategy execution
SEPTEMBER PZU as the titular sponsor of the 41st PZU Warsaw
increase by 213 thousand people in 2018. In December 2019, the average monthly headcount in enterprises was 2.6% higher than the year before. The growth in employment, coupled with the declining working-age population, resulted in a lower unemployment rate. The registered unemployment rate in December 2019 was 5.2%, compared to 5.8% in December 2018. At the end of 2019, the seasonally adjusted rate of economic unemployment (according to Eurostat) stood at 3.3%, which was below the European Union average (6.2% in December 2019) and the euro area (7.4% in December 2019).
Inflation, monetary policy and interest rates In 2019, the consumer price index (CPI) increased by 2.3% in annual average terms, compared to 1.6% in 2018. In December 2019, consumption prices were 3.4% higher than the year before and net core inflation (CPI without the prices of food and energy) stood at 3.1% y/y. The increase in information was generated primarily with the increasing prices of services which in December 2019 were 6.1% higher than the year before. With low core inflation in the euro area, the room for increases in commodity prices remained curbed – in December 2019 commodity prices were 2.4% higher than at the end of 2018.
Labor market and consumption In 2019, the circumstances on the labor market continued to improve from an employee point of view. Salaries increased at a fast pace, employment grew and the unemployment rate decreased, albeit slower than a year earlier.
The most readily available information about the labor market comes from the business sector. In 2019, average headcount grew by almost 165 thousand people, as compared to an
Public finance In the justification for the draft 2020 budget, the Finance Ministry estimates that the state budget deficit in 2019 was PLN 14.4 billion, which is by half lower than the PLN 28.5 billion planned. This means that the state budget deficit stood at 0,6% of GDP only. The State Treasury debt at the end of December 2019 was PLN 973,3 billion, up by PLN 19 billion (+2%) from the beginning of 2019. According to the European Commission’s forecasts of November 2019, the deficit of the general government sector in Poland in 2019 will amount to 1.0% of GDP. In 2019 Poland had no problems whatsoever in obtaining market financing – the Finance Ministry reported that over 40% of its borrowing needs planned for 2020 had been pre-financed at year-end.
In 2019, inflation subsided to the annual rate of 2.7%. This increase largely reflected the higher prices of transport, recreation and culture as well as municipal services which more than offset the lower prices of clothes and shoes. In addition, food and soft drink prices dropped slightly in December.
Latvia In the third quarter of 2019, Latvia’s GDP grew at a rate of 1.9% (annual data, seasonally adjusted). Domestic demand became increasingly the main motor of GDP growth, but its rate significantly slowed down compared to the year before. The deterioration of the business climate was attributable to higher uncertainty in the external market environment. Investments and private consumption dropped, which confirms the increasing caution both among investors and general public.
In Q3 2019, the unemployment rate slightly dropped to 6.0%. The second quarter in a row the number of employees also dropped in annual terms, which may reflect an economic slowdown.
Estonia Based on data published by the Bank of Estonia1 the country’s GDP increased 4.2% in Q3 2019 (on a year-on-year basis), whereas the quarter-on-quarter increase was 1.0%. GDP in Q3 was based mainly on seasonal factors, i.e. one-off increase of excise tax proceeds and record-breaking crops. Faster growth in the agriculture sector had positive impact on exports as the production volumes in the processing industry (the main export sector) remained on the same level as the year before.
Unemployment remained low in Q3 2019. The unemployment rate reached 3.9%. The average wages remained high, recording an increase by 8.2% in Q3 2019.
The consumer price index (CPI) moved up 2.3% in 20192 compared to the year before. Inflation in 2019 slowed down, driven mainly by energy prices, which increased quickly at the beginning of the year to start to decline from October. Inflation in the foodstuffs basket grew at a slower pace, mainly due to a reduced excise rate for alcohol.
Ukraine After years of political and economic tensions, in 2019, the Ukrainian economy was showing signs of stabilization. In Q3, Ukraine’s annual GDP increased 4.1% compared to the corresponding period of the previous year. In December 2019, the annual inflation rate was 4.1%, the lowest in the last 5 years. The inflation pressure was eased down by the strengthening of the hryvnia, reduction of energy prices and increasing of the offering by certain foodstuffs.
After 11 months of 2019, a negative balance of foreign trade in goods and services was recorded (USD -10.9 million) caused 1Estonian Economy and Monetary Policy, 4/2019, Bank of Estonia 2 Data published by the Estonian Statistical Office
Deposits are the most popular form of accumulating financial assets in Poland –
Interest rates held steady by the Monetary Policy Council in 2019, reference interest rate held constant at mainly by the unresolved conflict in eastern Ukraine. The loss of control over the resources in the East curtailed Ukraine’s export capacity (due to disruptions in mining production and electricity generation).
Key central banks were not passive in the fact of the risks for global economic growth. The US central bank (Fed), which still by the end of 2018 predicted two interest rate hikes, closed 2019 with three rate cuts. The European Central Bank (ECB) reduced the main deposit rate and resumed the asset purchase program, finished only in 2018. Additionally, to help European banks in the face of negative interest rates, the ECB introduced a mechanism for exclusion of some bank reserves from the negative interest.
WIG and WIG20 indices underpinned by the high and stable pace of growth in household consumption
The statistical Pole’s insurance spending was in 2018, or above 4 times less than the European average (EUR 1,958)
External environment 2.07%. The yields on 5-year treasury bonds declined by 48 bps and stood at 1.81% at the end of the year, while the yields on 2-year bonds increased by 16 bps to 1.50% during the year. The yield of Polish debt treasury securities with a one-year maturity increased by 7 bps, reaching 0.98% at the end of the year.
In 2018, the statistical European spent EUR 1,958 on insurance, whereas 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 spent EUR 278 on insurance, the average Estonian spent EUR 270 and the average Latvian spent EUR 140. In 2018, the average Ukrainian spent only EUR 38 on insurance.
3 Swiss Re, sigma 3/2019: World insurance: the great pivot east continues 4 As at the date of the report, the most up-to-date data for Europe’s insurance market are available for 2018
PLN exchange rate In Poland, the market insurance model has been developing since 1990. Currently, Poland has the largest insurance market in Central and Eastern Europe. However, even though the size of this market (as measured by gross written premium) 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)2. Europe’s largest insurance market is the United Kingdom (with EUR 341.6 billion in gross written premium in 2018). Markets above the EUR 100 billion gross written premium threshold include France (EUR 219.4 billion), Germany (EUR 202.4 billion) and Italy (EUR 135.1 billion). In terms of size, the Polish insurance market also trails certain West European countries with a significantly smaller population than Poland, including Austria (EUR 17.3 billion), Belgium (EUR 27 billion), Denmark (EUR 31.8 billion), Finland (EUR 23.4 billion), the Netherlands (EUR 72.3 billion), Switzerland (EUR 51 billion) and Sweden (EUR 31.3 billion)5.
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 2018, this rate stood at 2.8%, whereas the Europe average was 7.5%8. Even lower 6 KNF, Annual bulletin. Insurance market 2018, updated on 26 September 2019 7 Insurance Europe, European Insurance – Key facts 2019 8 Insurance Europe,
W ri tt en p re m iu m p er c ap ita
9 Deloitte, CEE Insurance M&A Outlook, update – October 2019 10 Insurance Europe, 2.5 Polish banking sector compared to Europe
Banking assets in Poland have recorded a significant increase since the transformation. Since the end of 2008, they have grown annually by approx. 6% on average. Currently, the Polish banking sector ranks around the European median in terms of assets. According to data of the European Central Bank (ECB), in 2018 the Polish banking sector’s assets totaled11 EUR 444 billion. Europe’s largest banking sector is in the United Kingdom (EUR 10 trillion in 2018) and the smallest one is in Estonia (EUR 26.6 billion). In 2018 the assets of European banks amounted to EUR 41 trillion (EUR 26 trillion in the euro area)12.
Loans per capita (2018, EUR) in relation to the banking market growth rate (2012-2018)
At the end of 2018, loans in the Polish banking sector totaled EUR 302 billion, which placed Poland in the middle of the pack.
Compared to other European Union states, Poland’s banking sector is relatively small in relation to the country’s GDP. Bank loans in the Polish banking system account for 61% of GDP while the European average is 126%. Netherlands, Finland and Denmark have the highest ratios of loans to GDP.
The Polish banking market features a low, though rising percentage of business loans in the total amount of loans extended to the non-financial sector (34.5%). In turn, Poland is the fourth country in the European Union in terms of household loans stated as a percentage of all the loans in the banking sector14.
The most important regulatory changes which entered into force or were announced in 2019 pertained to pension savings, liability for annuities in the case of obligatory third party liability insurance for motor vehicle owners and farm operators, amendments in the Act on Offerings and issues associated with climate, environmental protection and sustainable development.
In addition to Employee Capital Schemes, the next element shaping the growth of private long-term savings is the planned conversion of open-end pension funds, scheduled to take place still in 2020. The changes provide for converting OFEs into specialist mutual funds operating individual pension accounts to which OFE assets will be transferred. Universal pension fund management companies are to be transformed into mutual fund companies. Each person insured in OFE will be able to choose whether the monies accumulated in OFE are transferred to a mutual fund (default option) or recorded 17 National Bank of Poland, Affluence of households in Poland, 2017
Additional obligations for, among others, insurance companies, follow from the Act of 16 October 2019 on amending the Act on Public Offerings and the Conditions for Offering Financial Instruments in an Organized Trading System and on Public Companies and some other acts which entered into effect on 30 November 2019. The Act aims to establish legal regulations encouraging shareholders of public companies to longterm engagement and enhancing transparency of the legal relationships between companies and investors. It introduced, among others, an obligation for life insurance undertakings investing assets in the equities of companies admitted to trading on the regulated market to prepare and publish an engagement policy to describe how the engagement of the shareholders of such companies is taken into account by such entities in their investment strategies. Insurance undertakings will be obligated to draw up and publish an annual report on the implementation of this policy. In addition, the amendments pertain to, among others (i) the requirement to put to a vote at the Shareholder Meeting (by 30 June 2020) the compensation policy, comprising a description of all components, criteria, conditions used to determine fixed and variable compensation for management board and supervisory board members, and (ii) preparation, by the supervisory board, of an annual compensation report to be audited by the auditor and subject to an opinion of the Shareholder Meeting (the first report should cover the years 2019-2020). In addition, the provisions of the act, which will enter into force on 3 September 2020, will enable companies to know the personal data of all its shareholders as part of identification of the shareholder structure.
Environmental protection and sustainable development will play an increasing role in insurance activity. This trend is manifested by 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, which is expected to enter into effect as of
On 29 May 2019, in the case with file ref. no. III CZP 68/18, the Supreme Court declared that the person acquiring, by way of transfer, a claim for damages in a motor insurance loss, is entitled to reimbursement from the third party liability insurer of justified costs of an expert valuation commissioned from a third party only when its preparation was in the circumstances of the case necessary to effectively pursue the damages.
31 December 2019 marked the end of the “transition period” for entry into force of the regulations on the “white list”, which have been prevailing since 1 September 2019, allowing for verification of the VAT status of business partners in a list maintained by the Head of the National Tax Administration Authority. From January 2020 if a payment for a transaction between commercial undertakings documented by an invoice issued by an active VAT payer exceeds PLN 15 thousand, the taxpayer is obligated to pay the amount due to the business partner’s account specified in the “white list”. If they fail to do so, they may be subject to sanctions. The sanctions may be painful – in the event of a transfer to an account not listed on the “white list” the purchaser will not be able to classify the part of the expenditure exceeding PLN 15 thousand as tax-deductible expense. In addition, the purchaser will be liable jointly and severally with the supplier/service provider for the VAT that has not been paid, pro rata to the amount applicable to the relevant delivery/service. In practice the new regulations obligate taxpayers to verify the business partner each time when ordering a payment in order to make sure that the payment is made to an account known to the Ministry of Finance. What is important, in verification of the transaction settlement, the “white list” data on the transfer order date are taken into account.
From 2020, the solution that has already been tested in social security contributions will be applied to taxes. PZU Group Companies will pay their PIT, CIT, VAT and non-tax state budget dues to an individual tax account. Consequently, it will no longer be required to make several transfers to different accounts used for specific taxes.
External environment 2.7 Factors that may affect the conditions of operations and the PZU Group’s activities in 2020
Unemployment rate in % (end of period) 6.6 5.8 5.2 5.3
NBP’s prime rate in % (end of period) 1.50 1.50 1.50 1.50 * Projection of 2 March 2020 Source: PZU’s Department of MacroeconomicAnalyses should take into account the slower GDP growth in Poland – especially in the first half of 2020. However, it may turn into higher GDP growth worldwide in 2021.
Also the market practice regarding liability for annuities in third party liability insurance for motor vehicle owners will be important. Increase in the annuities supported by the Insurance Guarantee Fund may have significant impact on the profitability of insurance companies and this, in turn, may translate into motor insurance prices.
Increasing awareness regarding the climate, environmental protection and sustainable development will drive not only an increase in regulatory burdens but also impact the behaviors of consumers, businesses and financial institutions.
In 2019, the ruling of European Union Court of Justice (CJEU) dated of 3 October, 2019 regarding foreign currency loans, was important for banks operating in Poland. Further legal decisions or judgments referring to foreign currency loans may have strong negative impact on results of the banking sector in Poland, in particular for banks with the large portfolio of loans denominated or indexed to CHF. According to various estimates, the total costs for the sector can reach tens of billions of zlotys, but they are difficult to estimate and will be spread out over time. Because the exposure to foreign currency loans of PZU Group banks that is relatively low compared to other banks in Poland, the direct impact on Group’s results should be negligible. However, any statutory or systemic regulations, among others related to potential capital weakness of some banks in the sector, that would translate into higher financial burdens of the entire sector could also affect the banks of the PZU Group. Much will depend on the actual number of lawsuits (number of borrowers that will decide to take court proceedings), judgements of local courts in individual cases (in reference to the opinion of the CJEU), actions of the national supervisory authorities or activities of the banks themselves.
All material changes in the laws, introduced and expected, are described in SECTION 2.6 REGULATIONS PERTAINING TO THE INSURANCE MARKET AND THE FINANCIAL MARKETS IN POLAND.
External environment others operators of big databases / clients and the so-called insurtechs / fintechs18. The sharing economy trends and increasing environmental awareness result in dynamic development of the shared mobility industry. City dwellers increasingly frequently choose solutions which allow them to quickly and efficiently move around and change the means of transport depending on the situation on the road. Shared mobility is not only about cars but also other types of personal transport devices (e.g. scooters, segways, skymasters, electric monocycles), rented using mobile technologies. The new risks create a potential for development of insurance for individual users and businesses. Additionally, client expectations change – they largely shift in the direction of personalized offers, both in the insurance and in the health segment.
PZU Group’s activity and results in the short and longer time horizon will be shaped by demographic trends, mortality and fertility rates (life insurance segment) and fortuitous factors – occurrence of catastrophic phenomena, such as floods, cyclones etc. (non-life insurance segment).
A detailed description of the factors that may influence the Group’s activity in 2020 broken down into individual operating segments is presented in SECTION 3 OPERATION OF THE PZU GROUP.
18 Fintech - sector of economy encompassing companies operating in the financial and technological industry. 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.
1 the following branches operate within PZU Zdrowie: CM Nasze Zdrowie, CM Medicus, CM Cordis, CM Warszawa, CM Kraków, CM Poznań, CM Wrocław, CM Revimed, CM Artimed 2 the Centrum Medyczne Medica Group is composed of the following companies: Centrum Medyczne Medica Sp. z o.o., Sanatorium Uzdrowiskowe „Krystynka” Sp. z o.o.
Alior Bank 4 Warsaw - Poland PZU – 31.9071% Investments Funds menaged by TFI PZU – 0.0260% Pekao Investment Banking – 0.0009%
EMC Instytut Medyczny Wrocław - Poland Investments Funds menaged by TFI PZU – 28.3076%
Tomma Diagnostyka Obrazowa S.A. 7 Poznań - Poland PZU Zdrowie – 100.00%
PZU Ukraine Kiev - Ukraine PZU – 83.22922% PZU Życie – 0.00397% PZU Ukraine Life – 16.7668%
Starówka Warsaw - Poland Falck Centra Medyczne – 100.00% PZU Corporate Member
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 and utilize their membership in the Tax Group, these companies render services to one another on chosen markets pursuant to an internal cost allocation model (under the Tax Group).
Bonus-Diagnosta Sp. z o.o., in which Tomma holds a 100% stake and 100% of votes at the shareholder meeting; • on 16 December 2019, Specjalistyczny Zakład Opieki Zdrowotnej Multimed Sp. z o.o. merged with Elvita Jaworzno III Sp. z o.o.; • on 2 January 2020, SPP Prof.-med Sp. z o.o. merged with Centrum Medyczne Medica Sp. z o.o.
Gross written premium in motor insurance was up 1.9% y/y (i.e by PLN 350 million) while the gross written premium generated in non-motor insurance was up by 7.2% y/y (or by PLN 842 million).
* it contains LINK4 and TUW PZUW Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2019, Rynek ubezpieczeń 3/2018, PZU’s data
In the first three quarters of 2019, the overall non-life insurance market generated a net result of PLN 3,930 million, up PLN 231 million y/y. Excluding the dividend from PZU Życie, net profit of the non-life insurance market increased by PLN 156 million (6.4%).
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń [Insurance market] 3/2019, Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015
PZU Group’s non-life insurance market share (direct activity) as at the end of Q3 2019, including
PZU Ukraine Life’s share of the life insurance market in Ukraine in the first three quarters of 2019 market share at the end of 2019
PZU Group’s motor insurance market share (direct activity) as at the end of Q3 2019
PZU Życie’s share of periodic gross written premium in the first three quarters of 2019
OFE PZU Złota Jesień’s share of total assets in the open-end pension funds operating in
AAS Balta’s share of the non-life insurance market in Latvia in the first three quarters of 2019
PZU Group’s 3rd market position measured by revenue in health at the end of 2019 motor non-motor of LINK4’s share
Faced with changing market conditions, PZU realigned its offer in 2019 to clients’ evolving interests and needs by rolling out new products and innovative solutions. In mass insurance, PZU did the following: • developed a new offering of third party liability insurance for natural persons in private life, expanding the scope of this insurance by including damage caused by children under the age of 13 with a limit of up to PLN 10,000 without pursuing a claim of faults in parental supervision and damage related to short-term use of premises and their fit-out; • expanded the scope of PZU Dom by including damage caused by children under the age of 13 (limit of PLN 10,000) and damage caused during short-term (up to 90 days) use of premises in the course of business or tourist trips. Moreover, the offering was supplemented in December 2019 with a clause enabling upselling the PZU Dom product with mandatory insurance of agricultural buildings, thereby providing a much broader coverage than that required by the mandatory insurance; • made the health insurance bundle PZU Plan na Zdrowie – W trosce o Ciebie more attractive by including, among others, telemedicine examinations and the possibility of obtaining a prescription without the need to see a doctor in person; • introduced a new offering of mandatory third party liability insurance for entities engaged in medical treatment activities and professional legal expenses insurance for physiotherapists performing their work in a professional practice (a change in the offering resulting from amendments to legal regulations as of 1 June 2019); • in April 2019 it launched sales of a new option of the PZU AUTO Assistance product – PZU GO. PZU GO is an innovative product using telematic technology, thereby confirming PZU’s focus on developing innovative solutions as it cares for the life and health of its clients.
In financial insurance, PZU was unswerving in its support for the Polish economy by providing insurance guarantees and securing the performance of contracts in such key areas as the power sector, the shipbuilding industry, the construction industry and the science and innovation sector. At the same time, in the area of portfolio insurance (GAP financial loss), PZU expanded its cooperation by including new partners, including lease companies.
In 2019, PZU cooperated with 9 banks and 11 strategic partners. PZU’s business partners are leaders in their industries and they have client bases with enormous potential offering an opportunity to extend the offering to include more innovative products. PZU cooperates actively with the PZU Group’s member banks, continuing the roll-out of a comprehensive offering using the banks’ distribution networks. This cooperation with Pekao and Alior Bank allows PZU to gradually expand the offering and scale of sales of insurance products linked to bank products, including insurance coverage for cash loans and mortgage loans.
LINK4’s operations LINK4 entered the Polish insurance market as the first company offering products by phone; it still continues to be one of the leaders on the direct insurance market. It is extending its cooperation with multi-agencies, banks and strategic partners. The company offers an extensive array of non-life insurance products, including motor insurance, property insurance, casualty insurance and third party liability insurance. The company focuses predominantly on the development of innovative solutions providing added value to its clients and business partners. By using new technologies in internal processes and in relations with clients, the company continues to challenge the thinking of insurance. This was recognized by the jury of the Leaders of the Banking and Insurance World contest, which awarded LINK4 the title of the Best Digital Insurer of 2018. At the end of 2019, the company had in place 36 business processes executed fully or largely by robots.
In 2019, the company focused on expanding further its current product offering by adapting it to the changing expectations of its clients and business partners. The most important activities associated with modifying its product offering were as follows: • launch of cooperation with Lumi (a PGE Group brand), a supplier of electricity on the Warsaw market, offering clients value in the form of an exceptionally attractive combination of the insurance and energy offering along with a gift card of PLN 250, which can be used for purchases in Warsaw’s largest shopping centres or to buy gas at Orlen and Lotos stations; • launch of an additional form of payment for insurance using BLIK, offering, as the first insurance company in Poland, split of payments into up to four installments in all sales channels; Non-life insurance undertakings – percentage of gross written premium in the first three quarters of 2019 (in %)
◦ Weather alerts sent to drivers as a text message with information on the pending atmospheric event, allowing the clients to protect their cars against deteriorating weather conditions,
◦ Bad Weather Insurance – insurance offered to clients holding a TPL motor insurance concluded through a multiagency in the period from 17 June 2019 to 31 July 2019. The product is an insurance cover for losses involving damage to or destruction of a vehicle as a result of, among others, fire, hail or strong wind; • extension of the travel insurance cover, including supplementation of the standard cover to include chronic illness with the treatment costs limit of 20% of the sum insured; • introduction of a joint offer of LINK4 and Credit Agricole, which provides one year of insurance on a bicycle, whose purchase is financed by an installment loan from Credit Agricole. The insurance covers loss of a bicycle as a result of theft with burglary to a family house, auxiliary building, apartment or accompanying premises. The benefit will also be paid out in case of a robbery or common theft, provided that the bicycle was properly secured; • development of sales of the unique LINK4 Mama insurance brand supported with innovative calculators on the link4mama.pl website, for which in April 2019 the company was named the Leader of 2018 in the Techno Business contest organized by “Gazeta Bankowa” and previously received a bronze statue in the reputable MIXX Awards competition, for accessibility and practicality of the solution in the User Experience category; • roll-out of a TPL insurance product for Eco-cyclists, providing third party liability coverage for damage caused to a third party in connection with the use of personal transport vehicles such as bicycles and electric scooters; • extension of property insurance coverage.
TUW PZUW’s activity 2019 was another historic record-breaking year for TUW PZUW in terms of both sales and profitability.
The company continues to experience a rapid increase in the number of its members, currently standing at over 380. In 2019, the largest rate of increase in the number of members was recorded among church institutions. Within the framework of TUW PZUW, 48 mutual benefit societies were established, bringing together members that fulfill specific criteria (industrial, corporate, in terms of risk types).
Factors, including threats and risks, that will affect the operations of the non-life insurance sector in 2020 Besides chance events (such as floods, droughts and spring ground frost), the following should be treated as the main factors that may affect the situation of the non-life insurance sector in 2020: • possible slowdown in economic growth in Poland. 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; • possible slowdown in the growth rate of gross written premium, mostly as a consequence of the motor insurance portfolio’s profitability generated in recent years, and thereby the conduct of an active pricing policy by market players and rivalry to attract clients; • case law concerning the amounts of general damages paid in cash under the TPL insurance held by the owners of motor vehicles for suffering sustained to the closest family members of persons who have died (Article 446 of the Polish Civil Code); • increase in the prices of spare parts affecting claims handling expenses due to the depreciation of the Polish zloty against the euro; • changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly; • coming into force of further regulations or financial burdens on insurers.
Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2019, Rynek ubezpieczeń [Insurance market] 3/2019, Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015
The outcome of this market evolution was the expanding significance of periodic premium that constitutes PZU Życie’s competitive edge on the market. In the first three quarters of 2019, periodic premium was 1.5% higher compared to the same period in 2018, with a cumulative average growth rate of 0.3% for the last 5 years. Despite the decline in periodic premium in unit-linked life insurance (by PLN 210 million y/y), the premium from protection products (in classes I and V) continues to trend upward (PLN +395 million y/y), mostly in individual insurance.
In this same period, life insurance companies generated a net result of PLN 2,061 million, representing a PLN 97 million (4.9%) increase y/y. This improved result was the effect of the technical result described above partly offset by a worse performance recorded on insurers’ free funds.
The total value of the investments made by life insurance undertakings at the end of Q3 2019 was PLN 39,918 million, signifying 0.7% growth compared to the end of 2018. In turn, the high level of surrenders accompanied by the decline in the level of client contributions to funds led to a lower net asset value of life insurance in which the policyholder bears the investment risk (down 3.3% to PLN 49,231 million).
PZU Życie’s activity Within the PZU Group, PZU Życie operates on the Polish life insurance market. PZU Życie offers an extensive range of life insurance products, which for management purposes are reported and analyzed broken down into the following three segments: group and individually continued insurance, individual insurance and investment contracts.
During the first 3 quarters of 2019, PZU Życie wrote 39.9% of the gross written premium of all life insurance companies, signifying further growth on top of last year’s market share (+2.2 p.p.). The reason for the increase in PZU Życie’s share is the higher level of written single premium than a year earlier (both from protection insurance products and investment insurance products) with a decrease in the share of other market participants (in the unit-linked life insurance group).
Most significant product changes in 2019 Under group and health insurance, PZU Życie made the following major changes in 2019: • implementation of functionalities supporting automatic process of signing an insurance agreement in PZU Ochrona I Zdrowie (PZU Cover and Health), which is a protection and health insurance product (March 2019). Thanks to the implementation, a seller may prepare an offer for the client, prepare the proposal and collect data of the insureds (enrollment declarations). The vast majority of the process is already carried out electronically and is not limited by the working time of the support teams. Thanks to the implementation, the seller can complete the whole process in a single meeting with the client and can provide administration electronically, printing only the final versions of the documents; • pilot sales of the PZU Z Myślą o Życiu i Zdrowiu (PZU Thinking about Life and Health product (since May 2019 with the launch of sales throughout Poland scheduled for March 2020) targeted at companies employing up to 4 people. This is the innovation that agents and clients have been waiting for – each employee may select a different insurance option and the insurance agreement is concluded remotely. PZU Życie can insure even a single employee – also when an employer itself does not take out a cover. The product is very flexible. It supports enrollment for people from 18 to 65 years of age. A client may select up to 6 insurance options with different covers and benefit amounts. Additionally, each option may be extended to include private medical care and the cover may be extended to include underage children. The insurance ranges have been prepared to address different needs, depending on the client’s stage in life. As a result, for example a client who does not plan to establish a family, will not pay for risk such as childbirth or spouse’s illness. The insured is not obligated to fill out a medical questionnaire and the premium begins from just PLN 45 per month. The product can be offered using two paths: standard (using paper forms) and remote (using the mojePZU portal). Thanks to mojePZU, the seller may sign a remote agreement without the need to hold a meeting with the client. This is not only very convenient for the client, but also saves time for the seller – the client receives an offer and a set of documents by e-mail and is guided by the system step-by-step to enter into the policy himself/herself. The client may also pay the insurance premium directly in mojePZU; • commencement of pilot sales of two new ranges of the Opieka Medyczna S (Health Care S) for corporate clients (June 2019) – the first range is profiled to enable a detailed checkup of the health condition of the thyroid gland, liver, heart, arteries and kidneys. The second range enables tests profiled for malignant neoplasms occurring most frequently in women and men. During the development of the new ranges, particular emphasis was put on: ◦ analyzing results of marketing surveys: to support prevention of the illnesses that clients fear the most,
◦ keeping prices at attractive levels; • as part of the PZU Ochrona i Zdrowie (PZU Cover and
In individual protection insurance products, PZU Życie implemented the following new life insurance products offered in PZU Branches and the Agency Network: • PZU Wsparcie Najbliższych (Support for Relatives) life insurance. 5 riders were rolled out together with the basic agreement: ◦ tumors and other critical illnesses rider, ◦ consequences of critical illnesses rider, ◦ surgical operations rider, ◦ accidental dismemberment rider, ◦ accidental bone fracture rider; • PZU Ochrona Każdego Dnia (PZU Protection Every Day) periodic life insurance; PZU Na Dobry Początek (PZU For a Good Start) endowment insurance. Annuity riders were also rolled out together with the basic agreement.
PZU Życie cooperated actively with 4 banks, including the PZU Group’s member banks, continuing the roll-out of a comprehensive offering using the banks’ distribution networks. The cooperation with Pekao and Alior Bank allows PZU Życie to gradually expand the offering and volume of sales of insurance products linked to bank products. In Q1 2019, life insurance for borrowers of Pekao cash loans was launched.
Within the framework of individual investment insurance, PZU Życie carried out new subscriptions for structured insurance Świat Zysków (World of Profits; 11 subscriptions throughout 2019). Various investment strategies that adapt to volatile market conditions were offered in the individual subscription tranches. The following changes were made by PZU Życie to its product offering in the bancassurance channel: • launch of sales of the Platinum Investment Plan insurance (a single premium unit-linked product) by Dom Inwestycyjny Xelion sp. z o.o.;
Factors, including threats and risks, that may affect the operations of the life insurance sector in 2020 The following constitute the major risk factors on the life insurance market in 2020: • the prospect of a higher inflation rate and economic growth driving an increase in sovereign bond yields, which in the long term will be beneficial to the PZU Group, although in the short term may adversely affect investment income; • softer conditions on the capital markets deteriorating the attractiveness of products, especially unit-linked products; • demographic changes and the aging society and the ensuing changes in the current mortality, fertility and morbidity levels, especially diseases of civilization, i.e. lifestyle diseases; • constant price pressure in group insurance and the battle for client ownership (and their data), thereby cutting the insurer’s margins, reducing the quality of the product and fostering entry and exit obstacles for clients to overcome with independent intermediaries; • changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly; • availability of medical personnel in public health care; • the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies; • continued development of the new pension security system
The standing of the banking sector in 2019 continued to be stable, underpinned by the persisting vibrance of the economy and the functioning of banks in a low interest rate environment. In 2019, the banking sector generated a net profit of PLN 14.6 billion, i.e. PLN 1.5 billion (11.8%) more than in 2018.
The sector’s net result was shaped predominantly by the improved operating result (PLN 2.1 billion, i.e. up 11.8% in comparison with 2018), caused by significantly higher net interest income with a concurrent improvement in the result on fees and commissions.
Banks’ operating expenses (other than depreciation and provisions) climbed 4.1% in the period under analysis. This change was caused by growing employee expenses (up 4.7%) and higher general and administrative expenses (up 3.6%).
The consumer loan portfolio (gross) increased by PLN 8.1 billion compared to the end of 2018, while the portfolio of housing loans for households rose at the same time by PLN 27.4 billion. With respect to receivables from non-financial undertakings, the (gross) value of operating and investment loan portfolios rose by PLN 3.5 billion and PLN 10.3 billion, respectively. During the year, the gross value of property loans granted to non-financial undertakings decreased by PLN 0.3 billion.
As at the end of December 2019, the value of deposits from the non-financial sector increased by PLN 111.2 billion.
As at the end of December 2019, the total capital multiple of the commercial and cooperative banking sectors was 19.7% compared to 19.0% at the end of December 2018, while the Tier I capital ratio at the end of this period was 17.1%.
Pekao’s strategic objectives announced in the new strategy for 2018-2020 “Strength of the Polish Bison” include becoming the leader of profitability through building lasting business relationships and improving operating efficiency. Pekao’s strategic priorities in 2020 will remain: smart growth, building long-term relationships with clients based on an integrated service model, digital and operational transformation designed to strengthen Pekao’s position as one of the most recognizable banks in Poland owing to its professional approach to business and value creation for the client.
In 2020, the strategy “Strength of the Polish Bison” developed for 2018-2020 will end. Accordingly, the bank will begin work on the development of a new strategy that will cover the time horizon of the next several years.
1 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012.
Pekao keeps strengthening its leading position among banks focused on acquiring young clients. The largest increase in the number of clients occurred in the group of young people aged 13-17. In 2019, the number of newly acquired clients aged 1317 was 58% higher compared to 2018, and the increase in the number of acquired clients under the age of 26 was 12% y/y.
Bank Pekao’s electronic channels conducted active sales campaigns of PZU’s tourist insurance offered through the mojePZU portal.
Other focus areas included activities aimed at improving client satisfaction through continued streamlining and optimization of key processes, products and services. Owing to these activities, the number of acquired clients increased significantly (up 18% compared to 2018). For instance, clients from the SME sector may choose from a broad range of products involving FX Spot transactions and transactions designed to hedge their exchange rate risk, which until recently were available only to clients in the corporate segment.
As part of the Cashless Poland Program, Bank Pekao offers POS terminals to clients on attractive terms. The total number of payment terminals provided to clients in 2019 was 71% higher compared to 2018.
Moreover, Pekao has signed an agreement with the European Investment Bank to provide funding for the execution of projects aimed at improving energy efficiency, including modernization of thermal insulations, replacement of machinery and use of renewable energy sources, owing to which business operators in Kujawsko-Pomorskie Voivodship can obtain a low-interest loan. The Energy Saving Loan is only available from Bank Pekao. The bank is able to offer the low interest rate thanks to funding from the EU’s Regional Operational Program.
As part of its offering for corporate clients, Bank Pekao, as a leading corporate bank in Poland, took a number of initiatives in 2019 focused on strengthening relations with its clients, improving its product offering and increasing profitability by enlarging the share of income obtained from sources other than loans. Dedicated activities supported by product and sector specialists were focused on boosting the volume of strategic cross-selling products such as leases and factoring as well as transactional banking products. These initiatives contributed to the increase in the share of income obtained from sources other than loans in the segment’s total income by 36 basis points compared to 2018.
Alior Bank provides services predominantly to clients from Poland. The percentage of international clients in the overall number of the Bank’s clients is negligible. As part of retail banking activities, in 2016 Alior Bank opened a foreign branch in Romania.
Alior Bank is one of the most modern and innovative financial institutions in Poland. It is a place for people who have ideas and business courage to set new banking standards. The bank’s offering includes products and services both for individual and business clients, including small and medium enterprises and institutional clients. The bank’s offer combines the principles of traditional banking with innovative solutions. As a result, Alior Bank systematically strengthens its market position and for years has been consistently setting new directions of development of the Polish banking. By implementing the “Digital Disruptor” strategy, Alior Bank has the ambition of becoming the digital bank of first choice for individual clients and for small and medium enterprises in Poland and wants to become one of the most innovative banks in Europe.
At the end of Q3 2019, Alior Bank was the 8th largest bank in Poland (in terms of the value of its assets).
New products and services One of its key strategic initiatives in 2019 was the opening of the new cash loan distribution channel – the Cash platform. It was created in cooperation with PZU and is based on the technology used on the Bancovo.pl website. It will be made available to employees of selected large enterprises. The platform involves the use of a full online process carried out by the client himself or herself, with the provided income information subsequently verified and confirmed directly by the client’s employer. An important element of this process involves repayments in the form of installments deducted from the employee’s paycheck directly by the employer. Employees of the PZU Group were the first to be offered access the platform. In the future, more companies are expected to be added to the platform. In September 2019, Bancovo enlarged its loan brokerage offering with an installment funding product by establishing cooperation with EURO RTV AGD, Poland’s largest retailer in the home appliances market. With this solution, Bancovo provides a loan engine that aggregates proposals of selected financial institutions and then, carrying out a paperless process, provides funding for the purchase of merchandise offered by the store.
In 2019, Alior Bank continued to focus on process automation in the area of Trade Finance where it introduced a number of new products and services, including: • automatic opening process of iKonto Biznes and “4x4
Account” in the new Electronic Banking system; • possibility of registering a Trusted Profile in the electronic banking system and signing public administration applications with the Trusted Profile; • in the electronic banking channel, the provision of a module for managing cash, domestic, foreign and economic bundles available under the 4x4 Account; • introduction of an offering for micro, small and mediumsized enterprises based on the automated lending process Feniks KB and one decision made within no more than 20 minutes for the following five forms of funding: current account overdraft, business loan, credit card, factoring and leasing; • expansion of the offering with virtual multi-currency cards and the Smart Data reporting service, enabling the option of linking up to 23 currency accounts and thus eliminating the need for incurring currency conversion costs. The bank also made available to its business clients Garmin Pay and Fitbit Pay transactions, thereby offering a broad range of the most popular types of payments using smartphones and smartwatches.
Factors, including threats and risks which will affect the banks’ operations in 2020 The situation of the banking sector in 2020 will primarily be affected by the following factors: • the scale of demand for banking services and the ability of banks’ clients to timely pay their liabilities largely depends on the clients’ financial situation. Apart from the country’s macroeconomic standing, the economic situation of a number of client groups also depends on the national economic policy being pursued. Both a lower growth rate of the Polish economy and changes in the legal framework for the operation of enterprises may have an adverse impact on the financial standing of selected clients of banks; • changes in the external environment and international events, including tensions related to geopolitical factors, affecting the domestic economy; • development of banking services offered by non-regulated entities; • interest rate policy of the Monetary Policy Council; • continuing high level of contributions to the Bank
Other than the factors related to the institutional environment mentioned above, one of the most important issues of today is 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. In this context, the ruling announced by the Court of Justice of the European Union (CJEU) on 3 October 2019 is of great significance as it may prompt more borrowers to bring their claims to court. This may have a strong adverse impact on the financial performance of the affected banks, in particular those with a large portfolio of such loans. 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 (in reference to the CJEU opinion), 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.
2 IZFiA, assets as at 31 December 2019 the employee’s account are privately owned, much like bank deposits and can be withdrawn at any time and are inheritable. A person saving his or her money in an ECS will be able to freely dispose of the funds accumulated on his or her account after reaching the age of 60, regardless of whether he or she is employed or retired at the time.
Money on the participant’s ECS account come from three sources: • contributions financed by the employer (basic contributions, additional contributions); • co-payments financed by the State (welcome payment, annual co-payments); • payments financed by the ECS participant (basic contributions, additional contributions).
The basic contribution to the ECS will equal 2% of the participant’s monthly salary forming the basis for calculation of contributions for retirement and disability insurance payable by the ECS participant plus 1.5% of the salary forming the basis for calculation of contributions for retirement and disability insurance payable by the employer. Moreover, in the ECS management agreement, the employer will have the option to declare an additional contribution of up to 2.5%. This means that the employer will fund an additional contribution of at least 1.5% but no more than 4% for each employee. The ECS participant will also be permitted to declare an additional contribution of up to 2%, up to a maximum of 4% (sum of the basic and additional contributions). As a result, between 3.5% and 8% of the employee’s salary may be transferred to his or her ECS account. Administration of the ECS will be a taxdeductible expense.
Mutual fund companies – share in assets as at 31 December 2019 (in %)
Employee Capital Schemes The ECSs were launched on 1 July 2019, initially in the biggest employers employing over 250 people. From 1 January 2020 the ECS obligation covered also employers employing over 50 employees. Ultimately, as of 1 January 2021, the schemes will be introduced in all employers (with the exceptions specified in the ECS Act). ECSs will be managed by mutual fund companies (TFIs) which have been granted consents and licenses to operate in Poland. The Employee Capital Schemes are the universal savings scheme for employees implemented in cooperation with employers and the state. ECSs form a capital system that is not part of the pension system. Savings held on
At yearend 2019, the net asset value of funds managed by TFI PZU was PLN 21.2 billion, up 7% from the end of 2018. As regards the most popular solutions, very notable was the increase in assets managed by PZU Obligacje Krótkoterminowe (former PZU Oszczędnościowy) by PLN 635 million, PZU Papierów Dłużnych POLONEZ by PLN 687 million, PZU Dłużny Rynków Wschodzących by PLN 163 million, PZU FIZ Sektora Nieruchomości 2 by PLN 142 million, PZU Dłużny Aktywny by PLN 134 million, PZU Stabilnego Wzrostu MAZUREK by PLN 126 million.
As at the end of 2019, TFI PZU had 36 funds and sub-funds in its portfolio and 8 ECS sub-funds. The year 2019 saw continued growth of the inPZU SFIO passive funds available on the inpzu. pl platform. TFI PZU also provides asset management services.
Gross premium written by Lithuanian life insurance companies was EUR 270 million in 2019, up 8.9% y/y. The increase in gross written premium was driven by the continuous and stable increase in regular premium (10.6%), which outweighed the 12.7% decrease in single premium market. The rate of growth of the single premium market is hindered by restrictions on tax credits. At the beginning of 2017, the tax credit was reduced to EUR 2,000. Then, in January 2019, the tax credit was cut again – to EUR 1,500 per year.
In H1 2019, due to the pension reform, the volume of life insurance agreements doubled. The participants had to decide whether they would remain in the pension funds or return to the state-run system (SODRA) and start to accumulate capital voluntarily under a life insurance agreement.
Number of employees Date of determining the number of employees Start date of application of the regulations
Public finance sector entities Regardless of the number of employed persons 1 January 2021
The time limit by which the company becomes subject to the ECS regulations depends on the number of employees
After Q3 2019, life insurance companies collected gross written premium of UAH 3 billion, signifying 20.2% growth compared to the corresponding period of 2018.
On the Ukrainian market, the PZU Group operates insurance business via two companies: PrJSC IC PZU Ukraine (a non-life insurance company), referred to as “PZU Ukraine”, and PrJSC IC PZU Ukraine Life (a life insurance company), referred to as “PZU Ukraine Life”. In addition, LLC SOS Services Ukraine performs assistance functions.
At the end of 2019, there were 8 companies operating in the life insurance sector. The Lithuanian life insurance market is highly concentrated. The share held by the four largest life insurance undertakings in total gross written premium was 77.4%.
In 2019, there were 11 insurance companies operating in the Latvian non-life insurance market and 71.8% of the market was in the hands of the biggest 4 insurers.
Estonian market In 2019, non-life insurance companies operating in Estonia recorded a decrease in gross written premium by 12.9%, compared to a 35.9% increase in 20183. In total, gross written premium was EUR 398 million, of which EUR 114 million, i.e. 28.6%, was collected by foreign insurance undertakings operating in Estonia.
Life insurance operations in Lithuania are conducted through UAB PZU Lietuva Gyvybës Draudimas – “PZU Lithuania Life”. Collected written premium was EUR 17 million, representing an increase by 11.1% compared to the previous year. The share held by PZU Lithuania Life in the life insurance market in 2019 was 6.4% (compared to 6.2% in 2018).
In Latvia the PZU Group conducts operations through AAS Balta, which became part of the Group in June 2014, and then (in May 2015) the branch took over the PZU Lithuania branch operating in the Latvian market since 2012. At the end of Q3 2019, the total share of the non-life insurance market reached 28.7% and gross written premium was EUR 114 million (compared with EUR 105 million in 2018).
4 As of 1 January 2018, IF P&C Insurance AC (the leader on the Estonian non-life insurance market) started to report total gross written premium, altering the approach taken to date, based on installments and in that manner it significantly distorted market data. The other market participants adopted the same approach to reporting on a non-recurring basis in December 2018.
Market situation The health market is a business area that is dynamically developing and prospective. The current trends are as follows: • continuation of the double digit pace of growth in the private health insurance market (according to PMR6: forecasted CAGR of approx. 13% for supplementary health insurance in 2019-2024, while for subscriptions CAGR was approx. 11%); • development of telemedicine and service opportunities through remote channels; • greater need to provide care to senior citizens; • increasing awareness of prevention and periodic examinations.
In an effort to develop the Health Area in 2019: • PZU Zdrowie completed numerous acquisitions of medical entities and included them in its own network. This means that, at the end of 2019, its own network consisted of 130 centers: ◦ acquisition of FCM Zdrowie, one of the largest outpatient networks,
PZU Zdrowie received a number of industry awards and distinctions: • Employer/Provider of Health – a certificate awarded by the Ministry of Health to companies and institutions that demonstrate care for the health of their employees and effectively execute health promotion programs internally; • Hippocrates of Health – several physicians from PZU Zdrowie facilities were awarded in the Hippocrates of Health contest organized by medical communities in each voivodeship (first place in the Cardiologist of the Year category, second place in the Gynecologist of the Year category); • Leader of e-Health – PZU Zdrowie’s Artimed Medical Center in Kielce was granted a distinction in Dziennik Gazeta Prawna’s contest for promotion of the e-prescription system. PZU Zdrowie’s center in Kielce is a leader in terms of the number of e-prescriptions issued; • 100% Polish Product – a contest organized by the weekly Do Rzeczy to honor companies that support the development of the Polish economy.
Operations of PTE PZU The PZU Złota Jesień Open-End Pension Fund managed by PTE PZU (PTE PZU) is one of the largest players on the pension fund market in Poland. At the end of 2019, 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 2,375 thousand members, i.e. 15.2% of all participants in open-end pension funds; • net assets stood at nearly PLN 22 billion, thereby representing 14.0% of the total asset value of the open-end pension funds operating in Poland.
At yearend 2019, PZU’s Voluntary Pension Fund ran 29.9 thousand individual pension security accounts (IKZEs) in which assets worth nearly PLN 255 million were accumulated. Consequently, it retained its position as one of the leaders in the segment of voluntary pension funds.
Factors, including threats and risks, which will affect the pension funds’ operations in 2020 The main challenges facing the pension fund market in 2020 are the following: • the economic climate on the capital market and, in particular on the Warsaw Stock Exchange, 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 work on the adoption of solutions 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 OFEs to individual retirement accounts. The act is to enter onto force on 1 June 2020.
On 13 February 2020 the Lower House of the Republic of Poland adopted the act on amendment of certain acts in connection with the transfer of funds from open pension funds to individual accounts retirement. The act is to enter into force on 1 June 2020 passing the legislative process. Assumes model rebuilding OFE operations in such a way that: • universal pension fund management companies (PTEs)
◦ OFE members may submit a declaration on the transfer of assets from OFE to the Demographic Reserve Fund (FRD) at the Social Insurance Institution (ZUS) and have the value of the transferred funds added to their capital accumulated on the Social Insurance Fund (FUS) account. There will be no conversion fee if the OFE member selects this option. The funds accumulated in ZUS will not be inheritable, and future pensions will be subject to income tax in accordance with the rate of the applicable tax bracket,
◦ the investment policy of the pre-retirement fund will be aligned with the age group of the insureds, meaning that the fund’s investment risk will be significantly limited by statutorily imposed investment limits,
◦ the fees charged by the mutual fund management company for managing the assets of open-end pension funds transformed into individual retirement accounts as well as all other fees and costs will be strictly limited.
Open-end Pension Funds - percentage of net asset value as at 31 December 2019 (in %)
Source: KNF, monthly data on the OFE market, Data for December 2019
Tower Inwestycje The owners of Tower Inwestycje Sp. z o.o. are PZU Życie with a 73% stake and PZU with a 27% stake.
Grupa Armatura Since October 1999, the PZU Group has held an equity stake in Armatura Kraków S.A. (Armatura Kraków). At present, a 100% stake in Armatura Kraków is held the mutual fund PZU FIZ AN BIS 2.
PZU 2020 - more than insurance 4.1 The tenet underpinning the #newPZU Strategy
This strategy has specified how various areas within the PZU Group will be integrated to focus on clients in a way that will maximize client convenience and satisfaction. Special emphasis has been placed on analyzing the information the PZU Group has to grasp and use it better.
The strength of the #newPZU strategy lies in technological support spanning the field of innovation and encompassing nearly all the Group’s operating areas. Multi-dimensional data analysis makes it possible to gain a better grasp of client needs, offer more efficient client service and provide for easier contacts with a greater amount of partnership. The means to execute these initiatives involve the usage of tools based on artificial intelligence, Big Data and mobile solutions.
Streamlining processes in insurance activities, including better price to risk matching, and also by improving the investment result
PZU RSA Hannover Re Aviva Zurich Allianz Generali Munich Re Talanx AXA SCOR Re VIG
PZU 2020 - more than insurance 4.2 Strategy operationalization 12 initiatives (in 4 areas: data analysis, cross selling, digitalization of processes and additional client interactions) define the path to achieving strategic objectives.
Implementation of a new „moje.pzu.pl” portal 65 bn PLN of third party assets under management 200 m PLN of net profit on third party asset management 15% share of assets on the Employee Capital Schemes market1 5 m accounts established by clients 10 products available in the direct channel 50% market share held by PZU SA and LINK4 of non-life insurance sold in the direct channel
PZU Investments sales development – inPZU expansion and integration with mojePZU
#1 Single CRM Initiative: combine PZU’s databases under a single CRM (customer relationship management) system / obtain a full client picture (360 degree view).
Execution: • a CRM platform was deployed in 2019 to help PZU agents and employees gain easy and rapid access to information pertaining to products and services. The full client view will make it possible to craft a new dimension of relations and refine cross selling in the PZU Group. Salespersons obtain up-to-date information concerning clients’ active products, anniversaries, expiry dates and history of events. As a result, this will allow us to build strong client relations and augment loyalty and the level of satisfaction. Moreover, the available information can be used to match to a greater extent the product offer and preferences to clients’ actual needs in terms of the frequency, timing and method of contact with PZU. The outcome is that salespersons gain a better familiarity with clients’ current standing in the PZU Group. Measurable benefits ensuing from higher quality leads are expected in upcoming years, translating into better conversion and sales performance; • the comprehensive fraud identification system was developed. This system is based on advanced analytics and client behavioral models providing support in processes to enter into contracts and handle claims. The implemented analytical mechanisms support the identification of fraud in sales and claims handling processes - flagging, for instance, undue disbursements. Algorithms used to identify irregularities are improving from year to year, converting into greater effectiveness; • an important stage in the modernization of the data warehouse infrastructure has been finalized to enhance performance and ensure stability in data processing and reporting. This will streamline the management information process in the PZU Group and expand its analytical capacity.
#3 Artificial intelligence Initiative: tap into new technology solutions harnessing proprietary resources and collaborating with the startup community (insurtech, fintech, technology firms).
#4 Cooperation with banks Initiative: cooperate with the banking segment in the PZU Group.
Purpose: • sell insurance to the clients of Bank Pekao and Alior Bank; • bring new insurance clients from PZU to these banks; • save costs in the real estate administration and procurement system.
Metric: premium in the banking channel, cost cutting as a result of collaborating with banks, number of clients attracted to the Group’s banks.
Insurance sales Client acquisition by the banks Savings 1 bn PLN of gross written premium 1 m new clients Cut costs by 100 m PLN
Sales of PZU’s life and non-life insurance under the bancassurance model to the clients of the Group’s banks
Execution: • cooperation with banks was continued in 2019 ensuring the presence of PZU products and banking products in the PZU Group’s key sales networks; • a new assurbanking business line was set up and the CASH platform was implemented to handle financial employee benefits. This platform was made available under a pilot to the PZU Group’s employees in 2019, while it is scheduled to be made available to more employers in 2020. CASH gives employers the ability to roll out a new employee benefit: quick loans available to all with a low interest rate and a simple method of repayment. This deployed business concept may become an unrivalled solution on the Polish loan market.
#5 Simplifying the product offering Initiative: create a straight-forward product offer in respect of how the products are structured and the wording used.
Purpose: • have universal 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).
SMEIndividual Customer Boost sales by utilizing bank channels in line with client preference
Dedicated product offering for various segments, including retail clients and SME
PZU 2020 - more than insurance form to underwrite insurance risk more precisely. A number of service-related improvements were also implemented, new and simpler documents to confirm the conclusion of a contract were drafted and product parametrization was adjusted. In the near future there are plans to streamline the process of managing negotiations between agents / sellers and the client.
“traditional” offering to include unique riders; • activate the sales network and tap into the full potential rooted in the PZU Group’s client base; • offer a modern patient service process giving consideration to the best practices on the market, innovative technological and medical solutions and quality of service standards, including VIP care; • develop a network of proprietary centers through greenfield and M&A projects.
Third party assets under management• PZU Zdrowie has launched a portal to handle occupational medicine, monitoring expiration dates of employees’ medical examinations and making it possible to send someone for a test with a single click; • Virtual Clinic was implemented. It supports remote medical consultations and ordering prescription filling in a selected pharmacy. Electronic medical documentation in own centers was also deployed; • to build size PZU Zdrowie cultivated cooperation with partner centers and acquired new centers; it also built its own centers as greenfield operations. At the end of 2019 PZU Zdrowie’s network had 2,200 partner centers in 620 cities in Poland and 130 proprietary branches.
#8 Development of sales and consolidation in PZU Investments Initiative: design a uniform asset management structure in the PZU Group to utilize multi-channel distribution. Products are also supposed to be sold on international markets within the strategy’s horizon up to 2020.
Purpose: • achieve cost synergies (one “factory” of investment products); • ratchet up sales by deploying new investment products based on indices or on what is known as “life cycle”; • utilize the changes ensuing from the reform of the pension system - Employee Capital Schemes; • growth the net result on asset management.
• the execution of the goals related to universalizing the sales network was continued, i.e. distributing PZU Życie products through the PZU Tied Agents network. These solutions have made it possible to extend the distribution of life products and drive up sales effectiveness.
Execution: • the development of mojePZU [myPZU] was continued in 2019. It is a self-service website of the PZU Group offering healthcare functionalities, enabling holders of health products to book appointments and check whether their package includes a given service; Strategy 2020
PZU TFI and PTE TFI of the P ZU Group's banks 65 bn PLN
#9 Implementation of a new „moje.pzu.pl” portal Initiative: integrate the digital services surrounding the PZU Group’s processes. The largest project under this initiative is the mojePZU (“my.pzu.pl”) portal.
Purpose: • grow the number of client interactions; • expand the range and reach new target client groups (solicit young clients too) and align the offer better; • segment clients and personalize the offering; • support the development of all of the lines of business; • engage club members to act to benefit the local communities in which they live.
#12 Integrated service model for SMEs Initiative: integrate sales models in the Small and Medium Enterprise (SME) segment.
Purpose: • ramp up the sales of group and property insurance to the small and medium enterprise (SME) segment; • reorganize and unify the sales and service model, develop a multi-agency channel; • create dedicated product offerings for the SME segment.
Execution: • more functionalities were added to the moje.pzu.pl portal for clients in 2019; this portal brings together the PZU Group’s services in one place and allows clients to manage their insurance cover and their health cover, among other things (e.g. book doctor’s appointments, order dedicated medical services) purchase policies and invest through the inPZU investment platform. Launching the mojePZU portal was one of the largest IT projects in PZU. Promotional activities to expand awareness on using this platform for product administration are planned in 2020. This platform is also available to mobile clients. The mojePZU portal was victorious in the prestigious international contest organized by Efma & Accenture Insurance Awards 2019 in the Core Insurance Transformation category.
Metric: number of products available in the direct channel (internet and telephone); market share held by PZU and LINK4 of non-life insurance sold in the direct channel (50%).
Execution: • the direct offer was expanded to include more products in 2019. The sales of the Education product were launched (in the contact center channel) and the underlying assumptions for making more products available for online sales were updated.
Gross written premium growth in non-life insurance in the SME segment 4.3 Execution of the PZU Group’s strategy in 2019
Clients were once again inclined to recommend PZU to a greater extent in 2019 in comparison to the competition. Its NPS (Net Promoter Score) was 10 p.p. higher than the competition’s. This score is to a large extent the outcome of a broad array of client satisfaction and loyalty studies, enabling us identify the organization’s strengths and areas in need of modification and improvement.
The PZU Group’s “Green PZU” Standard, along with the action plan document for the administration and real property area is aimed at ensuring informed management of the natural environment and mitigation of negative impact on the environment.
Percentage of suppliers adhering to the “Code of CSR Best Practices for PZU’s Suppliers”
* suppliers of goods or services invited to participate in tenders organized by the Procurement Office in PZU and PZU Życie
8 Annualized revenues of proprietary centers and branches including revenues from PZU Zdrowie 9 Net of non-recurring costs; profitability computed using the sum of revenues generated by branches and earned premium 10 Including customers acquired through cooperation with banks. 11 Including assets managed by TFI banks of the PZU Group.
In this section: 1. PZU Group’s new operating model 2. Insurance 3. Health 4. Banking and strategic partnerships 5. Management of the PZU Group’s brands
The PZU Group enjoys the trust of more than 22 million clients in 5 countries in Europe.
The PZU Group Strategy published on 9 January 2018: “The New PZU – More Than Insurance” SECTION 4 STRATEGY is client-centered. The mission that we have defined – we help clients care for their future – means that our client relationships and our client knowledge are becoming our overriding value, while our chief product is our acumen in addressing client needs to build a stable future.
A better utilization of the company’s Big Data sets, digitalization of processes, usage of artificial intelligence and new technologies associated with the development of fintechs and insurtechs allows for new risk underwriting methods, streamlining of processes, including those that affect clients directly. The beneficiaries of change include areas such as sales, claims handling and medical diagnostics.
All services in one place Filing an insurance claim, booking a physician’s visit, getting a referral to a medical test or e-prescription, purchase of a home or travel insurance policy or investing their savings – PZU clients can do it all in one place. It is mojePZU.
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 mojePZU mobile app launched in 2019.
Insurance continues to be the PZU Group’s core business despite constant evolution, organic growth and acquisitions. The business model based on effective sales channels and efficient claims handling functions in their midst. The
PZU Group offers insurance in Poland, Lithuania and Ukraine (life and non-life insurance), as well as in Latvia and Estonia (non-life insurance).
Alior Bank clients partner centers cooperating with the PZU Group at the end of 2019, >2,200
PZU Zdrowie’s own medical centers number of Bank Pekao branches at the end of 2019, 5.5 million Bank Pekao clients, 4 million
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
PLN 2 million for safe drivers in LINK4’s “Cash Back” telematic program in 2018own outlets and partner outlets in Alior Bank at the end of 2019 number of employees in Bank Pekao and Alior who held a license from the Polish FSA to sell insurance at the end of 2019 innovative ideas submitted up to the end of 2019 in 6 competitions using the Idea Generator
Business Model brand under which the mutual insurance company does business. SECTION 3.2 NON-LIFE INSURANCE Life insurance is sold in Poland under the PZU brand. SECTION 3.3 LIFE INSURANCE. International insurance activity is conducted under the brand of Lietuvos Draudimas in Lithuania, under the Balta brand in Latvia and under the PZU brand in Ukraine and Estonia. SECTION 3.6 INTERNATIONAL OPERATIONS.
Distribution network PZU’s sales network is organized in a manner that ensures sales effectiveness along with high quality services. Among all the Polish insurers PZU offers its clients the largest sales and service network. It has 410 branches with convenient access across the country with 189 in small communities and tied agents, multiagencies, insurance brokers and electronic distribution channels.
Support after an accident for you and your child Support after a surgical operation
Structured life insurance with a capital guarantee – PZU Świat Zysków [World of Profits]
Non-life, travel, TPL We take care not just of your home but of all your assets. We also protect you and your health. We provide support if you encounter unexpected problems when traveling – in Poland or abroad. You can rely on us if you or your relatives accidentally hurt someone else.
The network of PZU’s tied agent offices is also changing. The goal of the projects launched in succession is to transform agency offices into professional outlets. In July 2018, the Agent 3.0 program was launched, which helps PZU to be even more effective in reaching clients throughout Poland and gives its agents a chance to maximize their sales potential and raise service standards. The support provided by PZU (orientation, logistics, substantive help or modern equipment) is suited to the needs of agents in large and small towns. At the end of 2019, the number of the PZU’s tied agent offices was greater than 1,500.
SECTION 5.4 BANKING AND STRATEGIC PARTNERSHIPS Cooperation with the banks within the PZU Group (Alior Bank and Bank Pekao) forms an additional platform for PZU to build lasting client relations. At the end of 2019, more than
PZU FIO Ochrony Majątku [PZU FIO Wealth Protection] PZU Oszczędnościowy [PZU Savings] PZU SEJF+
Poland Baltic States Ukraine with the content CLAIM to the number 4102 – we will call you back and accept your notification e-mail na kontakt@pzu.pl mojePZU platform / application moje.pzu.pl video chat phone text message in person in a branch to an agent to a person handling group insurance in the company (for group life insurance)
In Poland, claims and benefits handling is carried out in competence centers operating across the country. It is founded predominantly on electronic information and is not tied to the insured’s place of residence or the insurable event. The competence centers handle specific types of damage, which is conducive to stricter specialization and boosts client satisfaction. These units specialize, among others, in handling claims arising from property, motor or personal damage, claims reported by corporate clients, benefits, damage involving in the theft of personal vehicles or claims handled as part of the direct claims handling (DCH) service. A separate unit deals with technical issues related to claims arising from motor or property damage. A similar claims handling model is in place at PZU Estonia where there are 3 competence centers. Centralized among them is only the handling of certain types of damage, such as personal injuries, large property damages and marine damages. In other Group companies operating in the Baltic states and Ukraine, the claims and benefits handling process is entirely centralized.
PZU has a Relationship Manager who stays in contact with the injured party for the duration of the claims/benefits handling process. That person’s assignment is not only to collect the documents needed to take a position on the claim/benefit in question, but also to convey information to clients about the stage of service.
PZU has accelerated the process of determining the amount of damages by introducing new forms of determining the extent of a loss. On top of conducting a vehicle inspection in a fixed inspection point, through a Mobile Motor Expert in a venue chosen by a client or in a Repair Network workshop, the quantum of the loss may be determined under a simplified service procedure (without conducting a vehicle inspection), self-service (calculation of the amount of the loss on your own) or video inspection (using an app to determine the amount of the loss). A Video Inspection is an alternative form of conducting an inspection of vehicles and other damaged items and determining the amount of the benefit due in claims handled under motor and property insurance. PZU is recording greater and greater interest among clients in this form of determining the amount of the loss.
The claims self-service, which has been in operation since 2017, is currently triggered at the time of reporting a claim. In 2019, a client-friendly graphic scheme was implemented for the notification of ADD insurance claims and benefits. The client personally marks the character of injuries sustained on an intuitive human figure, which allows the mechanisms embedded in the system 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. In motor and property damage and in centers repairing devices damaged by a power surge, the client may also, prior to making a decision, assess on his or her own in a few steps the amount of indemnification payable. This information is then forwarded online to the Relationship Manager who executes the payment. This service allows clients to participate in the payout decision in a simple and convenient manner and accelerates the process itself by reducing the waiting time for the disbursement of the benefit. Satisfaction surveys carried out among PZU clients reveal the fact that insureds are of a very favorable opinion about this service. PZU companies in the Baltic States are rolling out similar improvements. In 2019, automatic death benefits payments were implemented. The payments are prepared by automated processes, which speeds up the handling process of those cases considerably.
Additionally, in 2019, in order to optimize the claims handling process, an innovative technology using artificial intelligence algorithms was introduced in Repair Network workshops. The artificial intelligence algorithms implemented by PZU are able to analyze photos documenting a loss, but also name a specific part of a vehicle, assess the extent of the damage and classify a part for repair or replacement. Artificial intelligence needs 30 seconds to carry out such an analysis. Moreover, the solution makes it possible to select 90% of the documentation that fulfills the requirements needed to preserve high quality of claims handling in PZU. Artificial intelligence will forward the remaining claims requiring additional expertise directly to PZU employees.
However what will determine competitive edge in the coming years is claims segmentation analytics, on which LINK4 launched research in 2019. It will enable integration of analytics engines, which determine the claims registration and handling path. The change allows a relationship manager, at the claims registration stage, to select an appropriate path for handling the claim taking into account the business rules as well as the client’s behavior model and its preferences. During a discussion, the relationship manager enters data in the system and then obtains the proposed claims handling path, which is communicated to the client during the same visit. Claims segmentation analytics also enables early detection of total losses, which can speed up the claims handling process significantly in such cases. In the claims handling process, loss adjusters have a significant impact on the customer experience. Their work in LINK4 is also supported by technology. A specially-designed application allows them to calculate the claims amount more precisely based on the stored customer data. The solution enables the analysis of information obtained in contacts with the client, which allows it to propose the cooperation scenarios that match client preferences the best.
In 2019, PZU optimized the Road Assistance selection process in Poland. At present, the Road Assistance selection process is done automatically by robots, which search for the nearest road assistance crew based on information entered by the consultant. Road assistance selection can occur as the consultant is still talking to the client, which reduces the time a tower reaches the insured significantly. Moreover, at the end of 2019, PZU signed agreements with two per-minute car rental companies. A client entitled to a replacement vehicle may use a PLN 300 or PLN 500 voucher to use a vehicle from these operators. As a result, the client is able to use the replacement vehicle only when it is really needed.
Since 2014, the Assistance Organization Team (PZU Client Relationship Managers) has been operating in PZU, a solution that is unique on the insurance market. These are mobile members of staff who visit injured persons directly in their homes to determine the actual standard of living of the victim and in consultation with the victim assess his/her needs arising from the accident for which PZU is liable under TPL insurance. For severely injured accident victims, PZU Client Relationship Managers arrange a broad array of medical and social rehabilitation and psychological support. Injured parties have the option of obtaining treatment and rehabilitation in modern medical centers cooperating with PZU. Persons who have become disabled as a result of an accident are given advice on how to adapt the closest environment to their needs, how to select properly devices that compensate for dysfunctions and disability. Injured children are covered by a program of comprehensive, long-term psychological support featuring, as one of its elements, therapeutic/leisure camps run by counselors experienced in treating post-accident trauma. In 2019, this PZU program was extended to also cover the children who experience trauma after a parent dies as a result of oncological disease. This way PZU addresses the social effects of this increasingly common civilization disease.
PZU continues the property pre-claims handling procedure introduced in 2017. It entails initiation of contact with a client who has been injured in a chance event, i.e. after a gas explosion. Within the scope of measures taken in this process, in 2019 PZU contacted 143 clients who received a proposal of utilizing assistance services in line with the type of event that had occurred. In some of the cases claims are registered in order to launch an efficient claims handling process. Each contact generated a positive client response.
Similarly, subrogation claims may be received by users with the appropriate entitlements in the SOPR_M system, assigned to the insurance company receiving the given subrogation claim.
Practical launch of the use of the SOPR_M application took place and the first experience with the application was gathered in 2019.
◦ installments are repaid directly from the salary, thanks to which you do not have to remember about them.
• PZU Assistant - a few months after the premiere of the Polish version of the Google Assistant service, PZU implemented its own virtual advisor on the Assistant. Using the solution the users of Google Assistant may talk to PZU about insurance for the journey they plan. To start a conversation, you just need to say “OK Google, Talk to PZU”. Consequently, PZU is Poland’s first insurer to use the intelligent voice assistant to communicate with clients. Thanks to the actions implemented by PZU, in cooperation with one of Polish startups, the users of Google Assistant will be able to talk to PZU’s virtual consultant about travel
• #challengePZU - as part of the MIT EF CEE program, supported by the Innovation Laboratory PZU, in cooperation with ChallengeRocket, launched a recruitment campaign under the name #challengePZU (www.pzu.challengerocket. com). PZU used globally innovative formula of an open challenge to recruit programmers (Java and SQL specialists). The methodology is based on the so-called Skill Challenges, which are thematically related to the scope of knowledge required on the given position. Candidates, before being invited to the next recruitment stage, have to demonstrate their real skills. Artificial intelligence analyzes the answers and the candidates’ code and assesses their skills, highlighting deficiencies, if any. Such actions are an element of the innovative strategy implemented in HR departments, based on constant recruitment of the best candidates and building a “Talent pool” dedicated to the organization. Within 2 months the challenge attracted 521 users to the brand, 73% of whom expressed interest in participation in the organization’s recruitment processes. Over two months the official site of the challenge was visited 12,605 times, and the information about the
In 2019, PZU continued collaboration with two startup accelerators: MIT Enterprise Forum CEE and RBL_Start (Alior Bank’s accelerator). The former one looked for solutions related to 3 key areas specified in PZU’s Innovation Strategy (big data, digitization, new client interactions) while the latter one focused on data analysis, relations with clients, security and new distribution channels. The solutions put forward under these programs enjoyed interest from selected business areas – in both programs 9 pilot implementations were launched in the two programs.
In 2019, the Robotic Process Automation area recorded fast growth. This solution imitates human work and is capable in simple tasks of fully assisting employees in their daily tasks. That means employees can do more interesting and more development-focused tasks offering greater business value to the company. At the end of 2019 the company had in place 36 business processes executed fully or largely by robots.
In 2019 the company organized the second edition of the conference dedicated to the topic of innovation, addressed to the company’s employees. The company’s culture of innovation is an extremely important aspect that forges the generation of new and interesting projects and ideas. Events like the LINK4Future conference stimulate creativity among employees and allow for noticing interesting solutions from other industries and markets. Like in last year’s conference, mainly external speakers were invited.
LINK4 has been putting emphasis on the competences of its employees for some time now. In 2019 the Analyst Academy was established to improve the analytical skills of the persons employed on three advancement levels. In the first semester there were approx. 50 participants. The Analyst Academy significantly supports the entire process of transformation of LINK4 into a Data Driven Company. The transformation into a Data Driven Company involves development of the technology and organization around data collection and processing, machine learning and artificial intelligence. To this effect the Data and Advanced Analytics Center was established in LINK4. Its key tasks include: data processing and preparation, development of predictive models and data reporting and visualization. The project’s overriding objective is to generate value through comprehensive and advanced data analysis in the entire organization.
2019 was also a year of testing different technologies in the company. In areas such as claims, client service, sale or back office, technologies in, among others, the following areas were tested: picture analysis, text analysis, speech/voice analysis and automatic search of processes for robotization. The achieved results show the technology’s great potential, which will be reflected in the company’s implementation schedule for 2020.
Areas to which alerts were most frequently directed in 2019 broken down by weather phenomena
In addition, in 2019 tests of two solutions important to clients and agency partners were launched. The first tool was a mobile app aiming to facilitate the agents’ work. It will make it possible, for example, to scan car documents and put offers for clients directly into the system which the agents use, and quickly send the clients’ documents to LINK4 by taking a picture of them and attaching them to the policy/offer directly in the app. The application will also make it possible to quickly carry out a car inspection, thanks to a module who will lead the agent step by step, prompt which pictures to take and then attach them to the policy. The second solution at the testing phase is a new calculator on the website which limits completion of fields to the minimum, e.g. through introduction of the possibility of quick scanning of a QR code or inputting the PESEL number, thanks to which the insurer will quickly verify the client in the Insurance Indemnity Fund database.
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 has been consistently executing the Group’s strategy, delivering innovative solutions and supporting corporate clients in optimizing risk in their business.
PZU LAB engineers cooperate with clients at all stages of the all’s operations and offer a broad range of solutions and consulting and training services and services based on innovative technologies, custom-made to the enterprise’s individual needs. The Company supports clients in the area of safe enterprise management, reduction of financial losses associated with contingencies and stoppages, and building the reputation of a trusted partner in the local and international market.
From the beginning of the company’s operations, PZU LAB experts have helped over 200 clients to mitigate risks associated with their business, implementing, among others, such projects as self-learning company, anti-drone, artificial intelligence and enterprise safety tool (ESTools).
In 2019, as part of PZU’s prevention fund, PZU LAB launched the RyzykoPro program thanks to which approx. 50 Polish businesses will be equipped with the ESTools system free of charge. Businesses, in addition to the technological solutions enhancing the safety of their operations, will receive the support of PZU LAB’s risk engineers in the daily conduct of their operations.
Artificial intelligence solutions implemented by PZU LAB used for failure prediction are another example of risk management innovation. They make it possible to detect irregularities in
Business Model the operation of machines, going back as much as tens of hours earlier than the existing systems. This has paramount importance especially for complicated industrial installations (such as, for example, turbines) because it makes it possible to avoid damages and losses in the range of tens of millions of zlotys.
PZU LAB has highly qualified engineering staff in the area of thermovisual measurements, holding the international ITC Level 1 (Infrared Training Center) certificate. Thermovisual measurements are performed by practitioner engineers with established theoretical background in infrared measurement techniques. PZU LAB engineers also have industry-specific expertise regarding operation and measurement of power facilities and mechanical systems. Based on the audit, the client receives a thermovisual report constituting a tool for managing risk in the enterprise. PZU LAB conducts training regarding thermovisual measurements for clients and business partners, increasing the competences of the safety services in the daily safety management in the enterprise.
PZU LAB cooperates with university centers, state institutions and engineering offices within the framework of partner groups and research councils.
One of PZU LAB’s initiatives is a study program entitled “Risk management in the enterprise in the insurance aspect” launched in September 2018 together with the Business School of the Warsaw University of Technology. During studies, risk managers in a business, agents, brokers and students have an opportunity to absorb a huge amount of practical knowledge on risk management, the role of insurance and deployment of state-of-the-art technologies. Lectures and case studies are presented by outstanding professionals combining theory with practice, who on a daily basis work on the point of contact of the world science, business, institutions and engineering offices. During the classes, also PZU LAB experts share their expertise on risk assessment and optimization in industry. In 2019, PZU LAB made a decision on continuation of the studies in the extended two-semester formula with a new academic partner - Kozminski University in Warsaw.
PZU LAB also cooperates with NASK SA on improvement of security of the Polish industry’s IT infrastructure. Clients receive not only support in enterprise risk management and adaptation of the security levels to the requirements of insurance and financial institutions in Poland and abroad, but also comprehensive technological support in designing and implementing state-of-the-art technological solutions in the area of IT/OT system cybersecurity. PZU LAB and NASK SA have developed a proprietary program of 7 steps allowing for implementation of the requirements following from the Act on the National Cybersecurity System.
PZU LAB 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, organizing regular security forums for the maritime, power and timber industries. In 2019 the total number of participants in the events organized by PZU LAB exceeded 500.
PZU LAB takes part in the acceleration program – Poland Prize, financed by PARP, aimed at putting together young international technological companies with the demand of big corporations for new technology innovations in solutions for business. As a result of the work on the project and acceleration of one of the startups, in November 2019, a company under the name 3dvRisk was established, which on PZU LAB’s order, created Poland’s first prevention portal. 3DVRisk Sp. z o.o. prepares realistic 3D animations presenting loss events from the initial cause to the final effect. The aim of the animation is to show the causes of loss events in order to avoid similar events in the future. The animation is a training element for the company’s employees. After watching it the employee takes a test on the knowledge of safety rules associated with the presented event. The animations are aimed at attracting attention to the errors that can be made in the production process.
PZU LAB, together with the Pomeranian Special Economic Zone, has undertaken an initiative involving the launch of a pilot service of the Innovation Transfer Center. The purpose of the Innovation Transfer Center’s pilot is to better utilize the intellectual and technical potential, development and transfer of technologically advanced solutions to the economy, development of Poland’s innovations ecosystem, and development of Polish economy based on technologically advanced and eco-efficient solutions. In addition, a tool will be developed for support, development and scaling of the developed solutions, thus generating profit through increasing the market value of the implemented solutions.
Equity. Funds of this type are aimed at achieving a better risk profile and return on investment in the entire investment cycle compared to traditional ETF funds based on the index level and weighted by the market capitalization of the companies. In addition TFI PZU has launched a subfund inPZU Akcje CEEplus, created in cooperation with the Warsaw Stock Exchange and based on the WSE CEEplus index, comprising over 100 of the biggest and the most liquid companies from Croatia, Czech Republic, Poland, Romania, Slovakia, Slovenia and Hungary.
The operating model in the Health area supplements and expands PZU’s insurance offering. Two complementary types of activities are conducted: • sales of health products in the form of insurance and sale of non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs); • development of the medical infrastructure in Poland to ensure the best accessibility of provided medical services.
Clients and products In the Health Area the PZU Group offers a broad range of health products adapted to the segment’s and clients’ needs: • Corporate client segment (life and health insurance) – the sales of group life and health insurance constitute the basis for the business operations of the PZU Group’s Health Area. The offering is addressed to corporate clients and the SME and micro business segments. Employers may purchase insurance in the sponsored or co-financed model, or negotiate a group offer for their employees; • Mass insurance segment (health, non-life insurance) – mass clients buying non-life policies are offered additional health insurance of assistance nature, ensuring access to specific medical services if an event under the basic policy occurs; • Retail client segment (life and non-life health insurance) – retail clients are provided with health care under health
Medical infrastructure PZU Zdrowie cooperates with more than 2,200 partner centers in 620 towns and cities in Poland.
In 2019, 1 new PZU Zdrowie medical center was opened – in Wrocław. This is another center situated in an excellent location, built on a greenfield basis with interior design consistent with the latest visual identity standards of the PZU Zdrowie brand. Additionally, a new center was opened in Radom, also in compliance with the new standards. The newly opened medical centers have a multi-specialization profile, to enable both patients benefiting from the medical care offered by PZU Zdrowie and patients who use the services rendered in these centers on an ad hoc basis to be provided with the necessary medical assistance. An important issue is the location of these centers – they have been established in modern buildings easily accessible by public transport.
Extensive medical infrastructure guarantees quick appointments; in the case of basic medical care, an appointment is offered within a maximum of 2 business days, and in the case of specialists within a maximum of 5 business days.
Support in the case of hospital treatment after an accident or illness Support in the case of cancer or critical illness – PZU Pomoc od Serca [PZU Help for Your Heart] Medical care in the case of critical illness – PZU z Miłości do Zdrowia [PZU out of Love for Health]
◦ enabling the PZU Hotline to contact the employee with sufficient advance notice to remind him/her about an upcoming examination,
◦ providing the PZU Hotline with the referral form to facilitate the conversation with the employee and schedule his/her examinations,
◦ creating a list of things to do related to ongoing handling of occupational medicine services and sending reminders by e-mail,
A comprehensive offering of financial services helps reach the client through multiple channels. This should considerably ramp up the number of products per client while making a material contribution to grow new sales. The PZU Group expects that in 2020 it will collect PLN 1 billion of additional written premium from cooperation with these banks and that they will acquire 1 million of the Group’s insurance clients. Significant savings will also be generated owing to synergies in the areas of procurement, IT and real estate within the Group. It is expected that costs will be cut by PLN 100 million by 2020. SECTION 4. STRATEGY.
PZU’s activity in cooperation with the Group Banks takes place primarily in the area of bancassurance, assurbanking and cost synergies.
Effects of cooperation in 2019: • in the bancassurance area in Bank Pekao’s branches, the sale of express loan (PEX) borrower insurance was launched. In addition, the bank’s offer was expanded to include property insurance for housing loan borrowers thanks to which the clients have the possibility of securing their finances in the event of unexpected events during loan repayment. PZU continues and actively develops the sale of real property insurance and loan repayment insurance (PEX) in remote channels; • in cooperation with Alior Bank PZU continues and actively develops the sale of life insurance for cash loan borrowers and property insurance for mortgage loan borrowers. Direct sale of “Pomoc w podróży” travel insurance was launched in Alior Bank’s Exchange Office; • Alior Bank introduced voluntary protection insurance as a supplement of the banking product offer for the business client, offering, in cooperation with PZU, 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; • in the assurbanking area, in cooperation with Bank Pekao, end-to-end sale in the remote channel was launched, thanks to which PZU became the biggest external partner of the bank in the sale of checking and saving accounts (ROR); • PZU’s own branches launched a pilot campaign entitled “Auto plus account” (TPL 10% + ROR PLN 200), supporting the sale of TPL insurance and promoting the sale of the Bank Pekao’s Konto Przekorzystne account; • as part of the cooperation with Alior Bank, PZU has developed an innovative loan platform under the name CASH. In September 2019, the platform was made available to PZU’s employees. The platform is a good example of synergy and utilization of the strengths of the companies within the PZU Group. The implemented business concept
We provide remote medical care – our patients can use a phone, chat or video chat to consult specialist physicians of over a dozen medical fields. During remote consultation, patients may discuss their ailments, test results and receive prescriptions for medicines taken permanently as well as obtain referrals for examinations.
Patient’s path – the purpose of the platform is to conduct a patient check-up, which is very similar to when a physician conducts an examination, followed by presenting the most probable solution and defining the next steps. This may be phone consultation, video consultation or a chat with a doctor or a visit in a clinic to with a specific specialist. However in many cases such a discussion with a patient may end with an advice or a prescription sent without any need to leave home.
We do not require referrals to visit specialist physicians and we also honor referrals from physicians from outside our network.
Business Model has an opportunity to become a unique solution in the Polish loan market, showing at the same time that the PZU Group is committed to finding the best ways of satisfying client needs, including those in the area of finances. The CASH platform may become a new line of business for PZU and a unique win-win solution for employers and borrowers; • Alior Bank has prepared an attractive offer of banking products for the employees of the work establishments with which PZU TFI has signed Employee Capital Scheme (ECS) agreements and which have decided to opt for saving up under the ECS. Through this channel Alior Bank has an opportunity to reach a broad range of individual clients, who may become new clients of the bank or may expand the bank’s products they currently have, and the companies themselves with an offering of products and services for the business client. For PZU the cooperation with Alior Bank increases its competitive edge in the ECS market; • as part of the cooperation with banks, insurance programs were launched for the banks’ employees and special offers on bank products for the employees of PZU Group companies; • as part of the cost synergies in the area of IT, administration, real estate and security, the annualized cost synergies reached PLN 123 million.
The World Economic Forum in Davos is one of the most known and prestigious meetings of key political leaders, global business leaders, renowned intellectuals and experts and journalists. Every year is participants focus on looking for solutions to the biggest economic and social problems of the contemporary world. In total, every year, the Forum is attended by approx. 3 thousand representatives from 110 countries.
A broad product offering, innovative solutions and individual approach provide customers with comprehensive financial service. An integrated service model guarantees the highest quality of products and services, as well as their optimum alignment with the changing needs.
The bank’s business model is based on a segmentation of clients into the following areas: • Retail and Private Banking – providing services to individual clients, including affluent private banking clients and
Business Model microbusinesses. Private banking clients are offered investment advice through private banking centers and remote channels, and all retail clients and microbusinesses are served using the extensive network of own branches and partner centers supported by market-leading remote channels, including digital channels; • Banking for Small and Medium-sized Enterprises (SME) – providing financial services to clients from the SME sector who are serviced by advisors, supported by product specialists. The service is provided in specialized Business Customer Centers and universal retail branches. Clients are offered products and services tailored to their individual needs, based on proven corporate banking solutions and adapted to the needs of the SME segment; • Corporate and Investment Banking – offering financial services to medium-sized and large corporations (segmentation based on revenues), public sector entities, financial institutions and the commercial property finance industry. Corporate and Investment Banking clients are serviced by advisors, supported by product specialists.
The Bank has measurable advantages which allow it to effectively compete in the market and strengthen its market position in strategic areas of operations. The Bank offers competitive products and services, high-level customer service and developed network of branches and ATMs, providing convenient access throughout Poland, as well as a professional call center and a competitive Internet and mobile banking platform for individual and corporate clients, and small and micro businesses.
The Bank focuses on organic growth and implementation of the adopted strategy and monitors the consolidation trends in the Polish and European market which may have impact on its competitive position and possibility of supporting the execution of the Bank’s strategy through inorganic growth. At the same time it consistently develops cooperation with the PZU Group and realizes the resulting synergies.
Distribution network Bank Pekao’s customers can use an extensive distribution network with convenient location of the branches and ATMs throughout Poland, as well as a professional call center and a competitive Internet banking and mobile banking platform for individual and corporate clients, and for small and micro businesses.
Pekao consistently develops its modern PeoPay mobile application, actively used by 1.4 million clients. In 2019, the voice operation of the application was launched. PeoPay users may quickly and conveniently check their account balance, contact the hotline, generate a BLIK code or order a transfer using the Google Assistant.
Leveraging the development of new technologies, the bank consistently implements a number of innovative changes to its product offering.
Pekao was one of the first banks in Poland to deploy Apple Pay and it is the only bank in Poland that enables clients to link Apple Pay to their personal account through PeoPay mobile banking without even having to have a card. In 2019 the bank also expanded the contactless payment offer to include Garmin and Fitbit devices, offering access to Garmin Pay and Fitbit Pay electronic wallets. The bank’s solutions in the area of alternative card payment methods are aligned to the modern trends in the market.
In 2019, the new innovative function of contactless cashback was made available in over 4.5 thousand payment terminals. The service makes it possible to withdraw cash during shopping by placing the card or other mobile payment device near the terminal. The service is available to Visa and MasterCard cardholders. The bank has also implemented the contactless transaction function in the dynamic currency conversion service (DCC). The DCC service allows for effecting the transaction in the currency in which the payment card is issued. The currency conversion service is available to users of both payment cards and Apple Pay, Google Pay or HCE mobile payments.
The bank systematically expanded the scope of functions that can be effected via remote access channels. The most important projects executed in 2019 in the electronic banking system for retail clients included, among others: • introducing the possibility of submitting applications for family benefits under the Rodzina 500+ and Dobry Start 300+ programs; • implementation of the PekaoID service, secure and intuitive digital confirmation of identity in the bank’s online service based on the mojeID service provided by the National Clearing House. Thanks to the PekaoID service the bank’s clients, without having to leave home, can, for example, extend the contract with the mobile operator or electricity supplier or buy a life insurance policy; • adaptation to the requirements of the PSD2 directive regarding the method of logging into the Pekao24 electronic banking and the PeoPay mobile application through additional client verification, the so-called strong authentication; • provision of a new, free transfer authorization method using push notifications in PeoPay, which allows for fast and convenient method of accepting operations, without the need to copy the SMS received.
In order to increase the share in the growing micro-business market, the Micro-business Products and Services Department was set up. Its main aim is to strengthen the bank’s role in the financing of sole trader activity through ensuring adequate and specialized service as well as dedicated products. As at 31 December 2019, the bank serviced more than 190 thousand micro-business clients, and the total credit exposure reached PLN 6.8 billion.
In the service of clients from the top segments, a strategy has been developed for corporations comprising transformation of Regional Business Centers into Corporate Centers specializing in providing services to large entities.
Treasury activity Alior Bank conducts its treasury activity among others in the following areas: spot currency exchange (FX) and FX risk hedging transactions, interest rate instruments ensuring stabilization of the financial costs to clients, transactions reducing commodity price fluctuations, liquidity management – through sale of products allowing them to invest surplus cash, liquidity risk hedging as part of established limits and regulatory measures, FX and interest rate risk management through interbank transactions, commodity price risk management through transactions on commodity markets, currency option portfolio risk management, within established limits, through concluding hedging transactions and option transactions in the interbank market, trading activity on the treasury bond portfolio through purchase and sale of State Treasury bonds, hedge accounting, i.e. hedging of interest rate risk following from banking activity through concluding interest stream swap transactions (IRS, OIS) in PLN and foreign currencies.
The bank has been implementing a project of behavioral segmentation of retail clients, which allows it to target products and services to the appropriate recipients. Behavioral segmentation is applied to the development of the product offering and also to the support given to the sales network. In 2019, the bank continued to apply the strategic segmentation of its clients. In its overall stationary sales network the bank has implemented strategic segmentation. Bankers and advisors were equipped with comprehensive knowledge on how to recognize the clients’ needs and how to talk about them in order to sell products that best fit their needs. In the middle of the year, behavioral segmentation was implemented also in selected remote channel areas.
In addition to the behavioral segmentation, the bank divides its retail clients in the following operating segments: • mass clients (persons whose assets in the bank do not exceed PLN 100 thousand and whose monthly proceeds to their personal account are under PLN 10 thousand); • affluent clients (persons with monthly proceeds credited to their personal accounts exceeding PLN 10 thousand or holding assets worth more than PLN 100 thousand); • Private Banking clients (persons with assets worth more than PLN 1 million or holding an Elite Account).
One of the key strategic initiatives in 2019 which the bank executed jointly with PZU was the opening of the new cash loan distribution channel – the Cash platform.
Higher culture. Novelty bank. Alior Bank is one of the most dynamically developing banks in Poland. This is the first startup bank which, from the very beginning of its activity, has been focusing on innovations and setting trends in online banking in the home market.
It is a leader of modern banking, based on pioneering technological solutions. It uses blockchain, open banking, artificial intelligence and biometrics. It introduces its innovative ideas bravely and successfully. Alior Bank was the first bank in Poland to create a fully internet-based exchange office. It is also responsible for launching the first in Poland video verification in the opening of personal accounts.
New online and mobile banking In April 2019, Alior Bank ended the process of moving clients from the so-called old online banking to the new system. Online and mobile banking were enriched by a number of functions – both sales, transaction and service ones.
In the transaction area, a new possibility has been introduced – presenting information on whether the beneficiary of a BLIK telephone transfer has an active service and a number of optimization changes have been introduced in the BLIK transaction service.
As regards the functionalities dedicated to business clients the following items were provided: package management option under the 4x4 Account, change in the method of filtering and exporting account histories, transfer basket service, and the possibility of moving from Alior Online to Business Pro without the necessity of additional logging.
RBL_Innovation by Alior Bank In response to the changes in the external environment, the accelerated pace of occurrence of new technological solutions and increasing client expectations regarding introduction of innovations by the bank, in 2019 Alior Bank built an internal structure – RBL_Innovation by Alior Bank. Within one year it was recognized as one of 25 best innovation laboratories in the world by the Global Finance magazine, and the RBL_START acceleration program was nominated for the BAI Global Awards 2019.
The Innovation and FinTech department comprises also the Blockchain Competence Center. In the second quarter of 2019 this technology was applied in a tool used for authentication of the public documents delivered to the bank’s clients such as: rules and regulations, fee and commission tables or interest rate tables. The bank’s clients have obtained a transparent solution compliant with the regulator’s requirements and Alior Bank has made significant progress in digitization of the document circulation. In executing the project Alior Bank was one of the first financial institutions globally and the first one in Poland to use the public blockchain technology.
In 2019, 15 agreements with fintechs were signed, 8 of the projects were the outcome of the RBL_START acceleration program. The second edition of this banking program for startups attracted over 200 companies from across the globe, from which 11 companies responding to the bank’s business challenges associated with building the main relationship with the client, advanced data analysis and acquisition of new channels for offering banking products were qualified. The substantive partners of the RBL_START program in 2019 included: PZU, Linklaters, Mastercard, Microsoft and IBM.
In 2019, PZU continued to develop and strengthen cooperation with strategic partners: PLL LOT and Allegro, while working on expanding and diversifying the product offering for clients. The deliverables will be presented in 2020.
Watch and Mac computers, guaranteeing the organization and coverage of costs of repairing the equipment or replacing it for new products. The insurance operates in Poland and during foreign travel which lasts altogether not longer than 60 days; • assistance insurance for power consumers, customers of Enea (corporate clients), guaranteeing services of professionals, e.g. an electrician or an IT specialist; • insurance for individual customers of Innogy, offering services of professionals, e.g. an electrician, locksmith for power consumers – participants of the Innogy Benefit Club; • heath care services for clients of Calypso Fitness clubs, ensuring, among others, access to Calypso Fitness clubs and PZU Zdrowie private health insurance.
PZU is the most recognizable brand in Poland. According to spontaneous brand awareness studies, awareness of the PZU brand reaches 89%, while prompted brand awareness is 100%.1 Even though it is associated mainly with insurance, the PZU Group umbrella contains several brands. They differ in terms of the visual systems used, target groups and business models.
The last level of brand architecture is the independent brands group. This category includes the brands within the PZU Group, the names and visualization of which differ from the corporate brand, such as Lietuvos Draudimas and Link4. Both companies are distinguished by their high prompted brand awareness (96%) on the Lithuanian and Polish markets.
In this section: 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 - PZU’s financial results (PAS)
Return on equity attributed to the parent company (ROE) at 21.2%. Increase in profit attributable to the parent company by 2.6% year on year, despite the banks incurring nearly double Bank Guarantee Fund costs. Gross written premium increase of 3.1% year on year.
In the individual operating result items, the PZU Group posted: • 3.1% gross written premium growth up to PLN 24,191 million. This growth pertained chiefly to investment and protection insurance sold in cooperation with banks, sales growth in international companies and higher sales of insurance against fire and other damage to property in the corporate insurance segment, including the insurance acquired in Q4 2019 under inward reinsurance in the form of a high unit value insurance agreement. Net of reinsurers’ share and the movement in the provision for unearned premiums, net earned premium was PLN 23,090 million, up 3.3% from 2018; • increase in investment income after factoring in interest expenses. In 2019 and 2018 this figure was PLN 9,211 million and PLN 7,849 million, respectively. Investment income rose both on banking activity and net of banking activity. The growth in the result in banking activity was driven in particular by the development in the sales of credit products at Bank Pekao and Alior Bank, among others thanks to the favorable economic climate and the low level of interest rates. This effect was partly offset by the unfavorable impact of the CJEU judgment. Investment income excluding banking activity increased primarily thanks to a higher result earned on listed equity instruments. Improved market conditions on the Warsaw Stock Exchange Better contributed to this outcome as the WIG index edged up 0.3% in 2019 while it posted a 9.5% drop in the corresponding period of the previous year. Favorable market conditions on the WSE also translated into the investment results in the portfolio of assets used as coverage for investment products that do not exert any influence on the PZU Group’s total net result as they are offset by higher provisions for claims and benefits paid; • higher level of claims and benefits paid. They totaled PLN 15,695 million, which means a 7.8% increase compared with 2018. This growth was present in particular in life insurance due to the higher investment income in most unit-linked product portfolios versus last year’s negative performance
(this effect does not exert any influence on the PZU Group’s total net result as higher provisions for claims and benefits paid offset the movement in the net result on investing activity in the portfolio of assets covering investment products). Additionally, the higher level of claims and benefits paid in insurance against fire and other damage to property was a result of the above-average number of losses caused by atmospheric phenomena; • higher acquisition expenses (up PLN 233 million) in the mass and corporate client segments alike. This upward movement was due in particular to the shift in PZU’s sales channel mix, sales development and the changing portfolio mix in the mass and corporate segments leading to non-motor products taking a higher percentage; • lower administrative expenses of PLN 6,606 million versus PLN 6,609 million in the corresponding period of 2018. The banking segment’s administrative expenses (net of the adjustments made to the fair value measurement of assets and liabilities) dropped by PLN 139 million in conjunction with both banks maintaining cost discipline and Alior Bank reversing a portion of its provision for deferred payroll costs. At the same time, the administrative expenses in the insurance activity segments in Poland were up PLN 96 million versus last year’s figures. This change largely resulted from higher personnel costs in connection with the wage pressure on the market; • higher negative balance of other operating income and expenses of PLN 2,832 million. This change was chiefly due to higher fees in the Bank Guarantee Fund, the adverse impact exerted by the CJEU judgment concerning consumer loans (the Court ruled that in the event of premature loan amortization a consumer is entitled to a reduction of all the costs forming part of the overall cost of the loan). and the higher level of the levy on financial institutions as the taxable asset base expanded (the tax rates did not change). The fees to the Bank Guarantee Fund shot up from PLN 372 million in 2018 to PLN 611 in 2019, a provision was established for disputed claims and prospective liabilities in connection with the adverse impact exerted by the CJEU judgment on consumer loans and mortgage loans in CHF totaling PLN 294 million, while the PZU Group’s financial institutions tax charge (insurance and banking activity combined) was PLN 1,134 million in 2019 versus PLN 1,092 million in 2018.
Operating result of the PZU Group in 2019 (in PLN m)
N et in ve st m en t r es ul t
O th er o pe ra tin g in co m e an d ex pe n se s
Premiums In 2019 the PZU Group collected record – high gross premiums of PLN 24,191 million or 3.1% (PLN 721 million) more than in 2018. The following factors made the greatest contribution to the shift in gross written premium (net of the intersegmental premium): • premium growth of PLN 235 million in the individual insurance segment (+17.5% y/y), chiefly due to the steadily rising level of premium for protection products on endowments and term insurance offered in proprietary channels and the expansion seen in the insurance portfolio in investment products and protection products in the bancassurance channel. Following dynamic y/y growth the gross written premium is at its second highest level in PZU’s history on the stock exchange; • premium growth in the corporate client segment of PLN 205 million over 2018 (+6.7%) to the record-breaking level of PLN 3,264 million, mainly in insurance against fire and other damage to property after acquiring several contracts with high unit values in Q4 2019 through inward reinsurance; • sales in international companies up PLN 199 million (10.8%) versus 2018 enabling the foreign segments to produce the highest sales in history at the level of PLN 2,048 million. These areas of growth were particularly visible in motor insurance and health insurance in the Baltic States; • higher sales in the group and individually continued insurance segment – premium surged PLN 75 million (+1.1%) y/y to its highest level in PZU’s history on the stock exchange at PLN 6,966 million, especially as a result of attracting more contracts in health insurance concluded as group insurance and the active up-selling of other insurance riders in individually continued products; Key data from the consolidated profit and loss account
Share in net profit (loss) of entities measured by the equity method 4 (3) 16 (1) (4)
• sales in the mass client segment in Poland at a recordbreaking level of PLN 10,332 million, up PLN 7 million versus 2018. Incremental premium growth in the non-life insurance class was partly offset by declining gross written premium in motor TPL (lower number of insurance policies coupled with an inconsequential decline in average premium).
They included mainly: • net revenues from commissions and fees in banking activity totaling PLN 2,603 million (including mainly: brokers’ commissions, revenues and expenses related to handling bank accounts, payment and credit cards, fees charged for intermediation in insurance sales); • income on OFE asset management. They stood at PLN 143 million; • revenues and payments received from funds and mutual fund management companies of PLN 528 million, or PLN 34 million less than in the previous year.
Net investment result and interest expenses In 2019 the net investment result2 including interest expenses was PLN 9,211 million compared to PLN 7,849 million in 2018. Disregarding the impact of banking activity, in 2019 the net investment result including interest expenses was PLN 1,995 million, up PLN 1,091 million over last year.
The following factors affected the income: • higher result earned on listed equity instruments in particular due to improved market conditions on the Warsaw Stock Exchange – with the WIG index up 0.3% in 2019 in contrast to a 9.5% decline in the previous year; • high performance of real estate funds due to the settlement of property developers’ earnings in Q4; • curtailment of volatility in the earnings of the PZU Global Macro EUR portfolio in connection with the purchase of bonds aligned to the portfolio’s investment horizon constituting above all coverage of the liabilities taken under the issue of own bonds in EUR falling due in the middle of 2019; • better investment results in the portfolio of assets used as coverage for investment products that do not, however, exert any influence on the PZU Group’s total net result as they are offset by higher net insurance claims and benefits paid.
Ukraina i kraje bałtyckie Ubezpieczenia na życie - składka regularna w Polsce Ubezpieczenia na życie - składka jednorazowa w Polsce Ubezpieczenia NNW i pozostałe w Polsce Ubezpieczenia OC i pozostałe w Polsce Ubezpieczenia od ognia i szkód majątkowych w Polsce Ubezpieczenia AC w Polsce Ubezpieczenia komunikacyjne OC w Polsce
On the other hand, a decrease in the net claims and benefits category was recorded in connection with remeasurement, in the corresponding period of the previous year in the motor insurance group in the corporate client segment and the mass client segment, of the provision for pain and suffering claims.
In 2019 acquisition expenses rose PLN 233 million compared to the previous year. This upward movement was due in particular to the shift in PZU’s sales channel mix, sales growth and product mix change, with higher weight of products with higher acquisition expenses.
Result on other operating income and expenses In 2019, the balance of other operating income and expenses was negative and stood at PLN 2,832 million, compared to the balance in 2018, which was also negative at a level of PLN 2,165 million. The following contributed to this result: • higher fees paid to the Bank Guarantee Fund rising from
The effect of converting long-term insurance policies into yearly renewable term insurance in type P group insurance was treated as a non-recurring event and was down PLN 3 million in 2019 compared to the comparable period of last year (PLN 14 million in 2019 compared to PLN 17 million in 2018).
On 31 December 2019 the PZU Group’s total assets were PLN 343,340 million, up PLN 14,786 million in comparison with their balance at the end of 2018.
Non-current assets consisting of intangible assets, goodwill and property, plant and equipment were recognized in the statement of financial position in the amount of PLN 11,375 million. They accounted for 3.3% of the assets. The growth in the account balance of PLN 1,140 million versus 2018 stemmed, among others, from the recognition of new right-ofuse assets as a result of applying IFRS 16 - Leasing.
The balance of the assets held for sale totaling PLN 580 million fell in comparison with the previous year by PLN 567 million due to the sale of a portion of the investment property portfolio.
Nieruchomości inwest ycyjne In st rument y kapitałowe - nienotowane In st rument y kapitałowe - notowane In st rument y ryn ku pieniężnego In st rument y ryn ku dłużnego - nieskarb owe In st rument y ryn ku dłużnego - skarb owe
Aktywa trwałe (wart. niematerialne i prawne, wart. firmy, rzeczowe aktywa trwałe)
Equity and liabilities At yearend 2019 consolidated equity hit PLN 39,288 million, up from PLN 1,881 million at the end of 2018. The value of non-controlling interests rose by PLN 637 million to PLN 23,119 million versus last year, with this change being the outcome of the result attributed to non-controlling shareholders of PLN 1,890 million (generated by Alior Bank and Pekao), the uptick in the measurement of debt instruments and derivatives measured at fair value through other comprehensive income and Pekao’s dividend attributed to non-controlling shareholders of PLN 1,385 million. Equity attributable to the parent company’s shareholders rose by PLN 1,244 million compared to the year before – as an effect of the net result attributed to the parent company earned in 2019 in the amount of PLN 3,295 million, the growth in the measurement of debt instruments measured at fair value through other comprehensive income and PZU’s distribution of profit for 2018, including the allocation of PLN 2,418 million as a dividend.
Financial liabilities were the most important component of equity and liabilities at the end of 2019 with a share of 71.8%. The value of this item was PLN 246,490 million and included in particular: • liabilities to clients for deposits totaling PLN 218,588 million
◦ PLN 3,940 million in certificates of deposit issued by the banks Pekao and Alior,
◦ PLN 1,357 million in covered bonds issued by Pekao; • subordinated liabilities of PLN 6,700 million. The increase of PLN 639 million in the balance versus the end of 2018 was chiefly related to Pekao’s subordinated bonds issue for a total of PLN 750 million in June and December 2019. SECTION 8.7 DEBT FINANCING OF PZU, PEKAO AND ALIOR BANK
The balance of other liabilities as at 31 December 2019 was PLN 8,069 million compared to PLN 7,407 million at the end of 2018. This uptick pertained to accrued reinsurance expenses in particular.
The PZU Group’s balance of contingent liabilities consisted in particular of contingent liabilities worth PLN 11,122 million for revolving limits in settlement and savings accounts and credit cards, credits and loans in tranches of PLN 29,867 million and extended guarantees and sureties in the amount of PLN 9,782 million.
The following industry segments were identified in order to facilitate management of the PZU Group: • corporate insurance (non-life insurance) – this segment covers a broad scope of property 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) – this segment consists of property, accident, liability and motor insurance products. PZU and Link4 provide insurance to individuals and entities from the SME sector; • life insurance: group and individually continued insurance – PZU Życie offers it to employee groups and other formal groups. Persons under a legal relationship with the policyholder (e.g. employer, trade union) enroll in the insurance agreement and individually continued insurance in which the policyholder acquired the right to individual continuation during the group phase. This spans the following types of insurance: protection, investment (other than investment contracts) and health insurance; • individual life insurance – PZU Życie provides those products to retail clients. The insurance agreement applies to a specific insured who is subject to individual underwriting. These products include protection, investment (which are not investment contracts) and health insurance; • investments –the revenues of the investments segment comprise the investments of the PZU Group’s own funds, understood as the surplus of investments over technical provisions in the PZU Group insurance companies based in Poland (PZU, Link4 and PZU Życie) plus the surplus of income earned over the risk-free rate on investments reflecting the value of technical provisions of PZU, Link4 and PZU Życie in insurance products, i.e. the surplus of investment income of PZU, Link4 and PZU Życie over the income allocated at transfer prices to insurance segments. Additionally, the segment includes income from other free funds in the PZU Group, including consolidated mutual funds; • banking segment - broad range of banking products offered to corporate and retail clients by Pekao and Alior Bank; • Pension insurance segment – includes revenues and costs of PZU OFE pension funds; • Baltic States segment – includes non-life insurance and life insurance products provided in the territories of Lithuania, Latvia and Estonia; • Ukraine segment – includes 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 some products in unit-linked form; • other – include consolidated companies that are not classified in any of the above segments.
The level of this segment’s result in 2019 was affected mainly by the following factors: • a 6.4% increase in net earned premium combined with a 7.1% increase in gross written premium versus 2018. The growth rate of the PZU Group’s gross written premium was driven by: ◦ premium growth in insurance against fire and other damage to property (+16.3% y/y) – including in Q4 2019 the acquiring of a contract with a high unit value through inward reinsurance,
Zobowiązania wob ec klient ów - depozyty bieżące i termino we
Zobowiązania finan sowe z wył. zobo wiązań wobec klien tów - depozytów
Material off-balance sheet line items The value of contingent liabilities at the end of 2019 totaled PLN 59,437 million, up PLN 1,770 million compared to last year. The value of contingent liabilities extended to the clients of Alior Bank and Bank Pekao was PLN 57,951 million.
◦ lower premium in motor insurance (-4.7% y/y) offered to leasing companies as a consequence of the lower average premium and the lower number of insurance policies
Mass insurance In 2019 the mass insurance segment generated an operating result of PLN 1,449 million, or 16.0% lower than in the corresponding period of last year. The level of the segment’s result in 2019 was affected by the following factors: • 0.9% y/y increase in net earned premiums coupled with a comparable level of gross written premium. The PZU Group posted the following under sales: ◦ lower gross written premium in motor TPL insurance as a consequence of the declining number of insurance policies coupled with the comparable average price level, ensuing from the active pricing policy among competitors,
◦ higher premium in other TPL insurance (+5.8% y/y) and accident and other insurance (13.0% y/y), mostly assistance and accident insurance; • net claims and benefits in 2019 up 3.9%, which coupled with net earned premium being up 0.9%, translated into deterioration in the loss ratio by 1.8 p.p. versus 2018. This change resulted mainly from the following: Insurance result in the corporate insurance segment (in PLN m)
◦ upswing in the loss ratio in insurance against fire and other damage to property as a result of the aboveaverage number of losses caused by atmospheric phenomena, including ground frost and precipitation in the form of rain and hail,
◦ deterioration of the loss ratio in motor own damage insurance as the outcome of lower sales growth and rising inflation of losses; • income from investments allocated to the segment using transfer prices to the mass insurance segment totaled PLN 481 million, signifying a year on year decline of 8.6%, mostly due to the softening of the PLN-EUR exchange rate totaling 1.0% compared to the strengthening of 3.1% in the corresponding period of the previous year; • acquisition expenses (excluding reinsurance commissions) hit the level of PLN 1,986 million growing by PLN 96 million (+5.1% y/y) compared to the corresponding period of the previous year, which, taken together with the 0.9% growth in the net earned premium translated into a 0.7 p.p. growth of the acquisition expense ratio . The factor driving the change in the level of acquisition expenses was the higher level of direct acquisition expenses as an effect of the shift in the product mix and the sales channel mix (rising share of the multi-agency and dealer channel coupled with the simultaneous lower growth rate of sales of motor TPL insurance featuring lower commission rates); • administrative expenses in this segment were PLN 651 million, signifying growth of PLN 57 million versus last year, i.e. 9.6%, chiefly as the outcome of higher personnel costs due to constant wage pressure on the market and intensification of project-related activities.
The following factors affected the level of, and the changes in, the segment’s result in 2019: • gross written premium growth compared to the corresponding period of the previous year of PLN 75 million (1.1%), which was mainly the result of the following: ◦ attracting more health insurance contracts in the form of group or individually continued insurance (new clients in outpatient health insurance and sales of different options of the medicine product). At the end of December 2019 PZU Życie had more than 2 million in-force contracts of this type in its portfolio. The continued insurance rider called “PZU orthopedic injury” enjoyed a particular amount of success. In case of an accidental orthopedic injury, e.g. fracture, dislocation or sprain, the insured will be provided assistance of a physiotherapist and an orthopedist. The insured will also be able to use rehabilitation procedures in private medical centers across Poland. The insurance garnered excellent response from the clients – three out of four clients enrolling in individual continuation selected this rider as well,
In ve st m en t i n co m e
◦ this year’s limited disbursements of benefits in the portfolio of bank protection products, which was linked to the shrinking portfolio with high unit benefits,
The foregoing effects were partly offset by the following: ◦ lower than last year increase in mathematical provisions in continued products as a result of the change in the percentage of “old” and “new” continuation among the persons joining and remaining in the insured portfolio – in “new” continuation the unit cost of setting up mathematical provisions for future benefit payments is lower; additionally, the level of lapses in the portfolio is lower than last year,
◦ lower value of benefits related to deaths, especially co-insureds and to childbirth, which is correlated with the frequency of these events in the overall population in accordance with the data published by the Central Statistical Office (GUS),
Insurance result in the group and individually continued insurance segment (in PLN m)
channels and bancassurance, changes to the annuity product and the falling acquisition expenses for unit-linked products. In addition, the shift in the revenue structure towards having a higher percentage of protection products with a considerably higher margin level than investment products contributed to the segment’s improved margin. The following factors affected the level of, and the changes in, the segment’s result in 2019: • the growth in gross written premium of PLN 235 million
◦ growth in the portfolio of insureds in protection products in the bancassurance channel, including in particular protection products in cooperation with Alior Bank rolled out in H2 2018 and Bank Pekao in early 2019,
◦ growth in the premium acquired in investment insurance in the bancassurance channel on products offered in cooperation with Pekao and other banks; • higher investment income (up PLN 489 million). The investment result consists of income allocated using transfer prices and income on investment products. Income climbed above all on account of improved performance in investment products, especially due to better conditions on the Polish equity market. This component of income on investing activity does not affect the segment’s result because it is offset by growth in technical provisions. At the same time, the level of the segment’s revenue due to TFI refunding the management fee charged to assets in unitlinked products fell by PLN 6 million y/y as assets shrank due to net outflows and negative investment performance last year. Income allocated using transfer prices varies slightly with its level being driven largely by the technical provisions in protection products; • insurance claims and benefits together with the movement in other technical provisions up PLN 664 million compared to 2018. The change in the result generated on funds in investment products made a major contribution to this increase. This factor does not, however contribute to the segment’s operating result as it is fully offset by higher income on investing activity. Additionally, this was an effect of higher client contributions to their accounts in the products offered in collaboration with Millennium and Pekao. Worth noting were also the positive developments in the annuity portfolio; more technical provisions were released in the period under review and the cost of benefit disbursements was lower - this is the old, maturing portfolio; • acquisition expenses up 10.3% to PLN 139 million. Higher fees to intermediaries for selling protection products, chiefly in the bancassurance channel and additional costs of sales support in the own network were partially offset by lower commissions for the sales of unit-linked products in the bancassurance channel; • inflation of administrative expenses, mainly due to higher personnel costs stemming from wage pressure on the market. Administrative expenses rose PLN 3 million (4.3%) versus 2018.
Individual insurance In 2019 the PZU Group posted a record-breaking operating result in the individual insurance segment. It totaled PLN 271 million, up PLN 44 million compared to the previous year. The improvement in the operating result (19.4%
y/y) only slightly lagged behind the growth rate in the result generated by the corporate non-life insurance segment, which demonstrated the fastest incremental growth in Poland. The main contributors were the rising portfolio of high-margin protection insurance products distributed through own
Additionally, the investment segment includes income from other free funds in the PZU Group (including consolidated mutual funds).
◦ higher personnel costs due to onboarding the team of employees from Pekao PTE; • other line items totaling PLN 4.0 million signifying a decline of 42.9% versus last year (impact exerted by lower acquisition expenses and handling expenses and the release of provisions for the reimbursement of fees charged to contributions overpaid by ZUS for previous years).
Operating income of the investment segment (based exclusively on external transactions) were higher than in the corresponding period of last year, primarily due to the better conditions on the Warsaw Stock Exchange.
Banking segment / Banking activity The banking activity segment consists of the following groups: Bank Pekao and Alior Bank.
In 2019 Bank Pekao and Alior Bank posted higher sales of credit products y/y on favorable business conditions and low interest rates. As a consequence of the higher volume of loans to clients both banks reported higher net interest income (interest income minus interest expenses). The client loan portfolio in both banks in 2019 moved up by a total of 6.9% versus the end of 2018.
Net fee and commission income in the banking segment was PLN 3,146 million, up 1,0% y/y. This segment’s administrative expenses totaled PLN 4,850 million with Pekao reporting costs of PLN 3,375 million and Alior Bank having costs of PLN 1,475 million. The 2.8% y/y decline in costs follows, among others, from maintaining cost discipline in both banks and releasing some of the provisions for deferred salary components in Alior Bank.
As a result, the Cost/Income ratio was 41% for the two banks. Pekao’s ratio was 42% and Alior Bank’s ratio was 39%.
Baltic States In 2019 the PZU Group’s business in the Baltic states generated a record-breaking insurance result of PLN 185 million with a high pace of improvement (it was up PLN 47 million or 34.1% versus the previous year). The improvement of the result was attributable to increasing the scale of business, lower loss ratio, positive effects of the operating leverage and improved investment results.
This result was shaped by the following factors: • increase in gross written premium. It totaled PLN 1,713 million versus PLN 1,592 million last year. Premium in nonlife insurance climbed PLN 114 million y/y (7.5%). The pace of growth was generated in particular by non-life insurance as a result of entering into new contracts, chiefly in the corporate segment in Lithuania, Latvia and Estonia and by health insurance with higher sales in Latvia and Lithuania. Sales growth was also recorded in motor TPL and motor own damage insurance by maintaining higher insurance rates in the early part of the year. Premiums in life insurance increased by PLN 7 million (10.8%); • growth in investment income. In 2019 the result was PLN 38 million and was up PLN 36 million versus the previous year, mainly due to price growth on the equity markets; • higher net claims and benefits. They totaled PLN 989 million and were up PLN 84 million compared to the previous year. The loss ratio in non-life insurance edged down by 0.8 p.p. to 60.3% versus last year. In life insurance the value of benefits was PLN 68 million, up PLN 78.9% versus last year; • higher acquisition expenses. The segment’s expenditures for this purpose were PLN 335 million. The acquisition expense ratio stated as a percentage of net earned premium dwindled by 0.5 p.p. to 20.9%; • increase in administrative expenses. They were PLN 133 million on growth of 6.4% versus the past year. Despite the increase in the costs incurred the administrative expense ratio dropped to 8.3%, or by 0.1 p.p. versus 2018. The decline in the administrative expense ratio was plausible thanks to maintaining cost discipline coupled with growing business volume.
N et re ve nu e fr om c om m is si on
Ukraine The Ukraine segment wrapped up 2019 with an underwriting result of PLN 39 million compared to PLN 23 million in 2018.
The improvement of the segment’s result was the outcome of the following factors: • increase in gross written premium. It was PLN 335 million and had increased by PLN 78 million (30.4%) versus the previous year. The premium in non-life insurance increased (26.7% y/y) mainly in accident and tourism insurance as a result of higher compulsory insurance sales for visas obtained by people traveling to Poland. Premium in life insurance shot up PLN 24 million (43.6%); • higher investment result. This segment generated PLN 33 million for that reason, or some PLN 14 million more than in 2018; • increase in net claims and benefits. They amounted to PLN 81 million, up 37.3% compared to last year. In life insurance value of the benefits paid moved up PLN 8 million (42.1%) compared to last year. The loss ratio measured against net earned premiums in non-life insurance was 38.0%, signifying a decline of 2.4 p.p. versus last year; • increase in acquisition expenses. They were PLN 118 million vs. PLN 82 million in the previous year. Due to higher commission burdens the expenditures for this purpose trended up by PLN 14 million (41.2%) in life insurance. The segment’s acquisition expense ratio went up 0.4 p.p. to 54.4% last year; The PZU Group’s combined ratio (for non-life insurance) has been maintained in recent years at a level ensuring a high profitability of business. This ratio also remained low at 88.5% in 2019.
Administrative expenses were PLN 4 million thereby falling year on year as a consequence of the shrinking portfolio of contracts in this segment.
N et c la im s an d be n ef its
Investment contracts In the consolidated financial statements investment contracts are recognized in accordance with the requirements of IFRS 9.
The results of the investment contracts segment are presented according to Polish Accounting Standards, which means that they include, among other things, gross written premium, claims paid and movement in technical provisions. These categories are eliminated at the consolidated level.
Gross written premium generated on investment contracts in 2019 fell PLN 5 million (-12.5%) compared to 2018 to PLN 35 million. These changes stemmed chiefly from the dropoff of contributions to IKZE accounts after this product was withdrawn from the offer.
Return on equity (ROE) – consolidated (annualized net profit/average equity) x 100% 16.6% 14.7% 15.3% 14.6% 13.5%
2. Net claims and benefits ratio (net claims and benefits/net earned premium) x 100 68.2% 68.4% 70.0% 65.2% 68.0%
In 2019 the issuer (PZU) generated a technical result of PLN 1,405 million versus PLN 1,539 million in the preceding year, signifying a decline of 8.7% year on year. The net profit was PLN 2,651 million compared to PLN 2,712 million in 2018 (down 2.2%). Without taking into account the dividends received from PZU Życie, PZU’s net profit was PLN 1,319 million, down PLN 135 million compared to 2018.
In 2019 PZU collected gross written premium of PLN 13,039 million, i.e. 0.3% more than in 2018. They comprised mainly: • motor TPL insurance premiums, accounting for 39.2%
In 2019 PZU’s investment result was PLN 2,223 million compared to PLN 2,152 million in 2018. The higher income was the effect of the dividends received from PZU Życie, adjusting the strategy for managing debt portfolios from a short-term to a long-term focus and limiting volatility in the earnings of the PZU Global Macro EUR portfolio in connection with the purchase of bonds aligned to the portfolio’s investment horizon constituting above all coverage of the liabilities taken under the issue of own bonds in EUR falling due in the middle of the current year.
The following factors contributed to the change in the net value of claims and benefits: • higher claims and benefits in motor own damage insurance as a result of the rising average payout and the higher frequency of claims in the mass segment;
In 2019 PZU’s administrative expenses were PLN 704 million, i.e. up 7.4% versus the prior year. The increase in personnel costs due to the constant wage pressure on the market and in IT project-related costs partially curtailed by maintaining cost discipline in other areas of business was the major contributor to the year on year growth rate.
On 31 December 2019 PZU’s total balance sheet value was equal to PLN 41,596 million and was down 4.5% versus the end of 2018.
The main component of PZU’s assets were investments totaling PLN 36,660 million (down 2.4% compared to the end of 2018), which accounted for 88.1% of PZU’s total assets compared to 86.2% as at the end of the previous year. With the exclusion of investments in subsidiaries, this level of investments was 6.2% lower compared to the end of 2018. The major reason for the drop in the value of investments was the amortization of the own bond issue denominated in EUR.
PZU’s receivables were PLN 2,085 million and constituted 5.0% of assets versus PLN 2,343 million and 5.4%, respectively in 2018. The largest change was recorded in the value of other receivables from other entities (down PLN 127 million) and receivables on reinsurance, including from subordinated entities (down PLN 92.0 million versus the end of 2018). Noncurrent assets consisting of intangible assets, goodwill and property, plant and equipment were recognized in the balance sheet in the amount of PLN 442 million. They constituted 1.1% of assets.
As at 31 December 2019 PZU had PLN 126 million in cash (0.3% of assets) versus PLN 1,222 million a year earlier.
The balance of contingent liabilities fell by PLN 3,471 million versus last year. This stemmed mainly from the expiry of the guarantee (extended in connection with the issue of nonsubordinated bonds through PZU Finance AB) and the expiry of bondholders’ claims against PZU Finance AB, which transpired on 3 July 2019 on account of the subsidiary amortizing the entirety of the debt by virtue of these bonds.
Return on equity (ROE) (annualized net profit/average equity) x 100% 18.2% 12.8% 19.2% 19.7% 18.4%
In this section: 1. Objective of risk management 2. Risk management system 3. Risk appetite 4. Risk management process 5. PZU Group’s risk profile 6. Risk sensitivity 7. Reinsurance operations 8. Capital management
The main elements of the PZU Group’s risk management system have been implemented to ensure sectoral consistency and the execution of the various entities’ strategic plans and the overall PZU Group’s business objectives. They include the following: • systems of limits and limitations on the acceptable level of risk, including the level of risk appetite; • processes involving the identification, measurement and assessment, monitoring and controlling, reporting and management measures pertaining to various risks; • allocation of powers in the risk management process, in which the Management Boards and Supervisory Boards of the entities and dedicated Committees play a crucial role.
The risk management system in the PZU Group is based on 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 subsidiaries of the PZU Group’s financial sector is based on four decision-making levels.
The first three entail the following: • The Supervisory Board, which supervises the risk management process and assesses its adequacy and effectiveness as part of its decision-making powers defined in a given entity’s Articles of Association and the Supervisory Board bylaws, as well as through the Audit Committee; • The Management Board, which organizes the risk management system and ensures that it is operational, by adopting strategies and policies, setting the level of risk appetite, defining the risk profile as well as tolerance levels for the individual categories of risk; The fourth decision-making level pertains to operational measures and is 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, also within the framework of the prevailing limits; • the second line of defense - risk management by specialized cells responsible for risk identification, measurement, monitoring and reporting and controlling the limits; • 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 activities embedded in operations.
The role of the PZU Group Risk Committee is to provide support to subsidiaries’ supervisory boards and management boards in implementing an effective risk management system that is coherent for the entire PZU Group. The operational objective of the PZU Group Risk
• Committees, which make decisions to mitigate individual risks to a level determined by the risk appetite. The committees adopt the procedures and methodologies for mitigating various risks and they accept limits to mitigate the various types of risk.
The process of determining the risk appetite and risk limits for each risk category consistent with the Group’s process has been implemented in all the insurance entities in the PZU Group. The management board of each entity determines the risk appetite, risk profile and risk tolerance reflecting its financial plans, business strategy and the objectives of the entire PZU Group. This approach ensures the adequacy and effectiveness of the risk management system in the PZU Group and prevents the acceptance of risk levels that could jeopardize the financial stability of individual entities or the entire PZU Group. The determination of the appropriate level of risk in each entity is the Management Board’s responsibility, whereas a review of the risk appetite values is conducted once a year by the unit responsible for risk, with all actions being coordinated at the PZU Group level.
Risk appetite is determined at least once a year in the PZU Group’s banking sector entities. This process is carried out based on the applicable regulatory requirements (including those arising from remedial plans) and best practices.
„Alignment of the banks’ activities with the PZU Group’s strategic plans and business objectives”
Risk management process stages: identification, measurement and assessment, monitoring and control, and management activities
As at the end of Q3 2019, the Solvency II ratio 220% above the average ratio reported by insurance groups in Europe
The Group’s capital management (including excess capital) is conducted at the level of the PZU Group as the parent company
7.5 PZU Group’s risk profile assumptions regarding premium pricing and creating technical provisions: • this is the likelihood of a loss or an adverse change in the value of liabilities under the existing insurance contracts and insurance guarantee agreements, due to inadequate assumptions regarding premium pricing and creating technical provisions; • an analysis of the general terms and conditions of insurance with respect to the accepted risk and compliance with the existing laws; • an analysis of the general/specific terms and conditions of insurance or other model agreements with respect to the relevant actuarial risk being undertaken; • identification of potential risks related to a given product, for the purposes of subsequent measurement and monitoring; • analyzing the impact exerted by the introduction of new insurance products on capital requirements and risk margin computed using the standard formula; • verifying and validating modifications to insurance products; • an assessment of actuarial risk with reference to similar existing insurance products; • monitoring of existing product; • analyzing the policy of underwriting, tariffs, technical provisions and reinsurance and the claims and benefits handling process.
The monitoring and control of actuarial risk includes a risk level analysis by means of a set of reports on selected ratios.
This is the likelihood of a loss or an adverse change in the value of liabilities under the existing insurance contracts and insurance guarantee agreements, due to inadequate
Numerous documents approved by supervisory boards, management boards and dedicated committees govern investment activity in the PZU Group entities.
Market risk identification involves recognizing the actual and potential sources of this risk. The process of identifying market risk associated with assets commences at the time of making a decision to start entering into transactions on a given type of financial instruments. Units that make a decision to start entering into transactions on a given type of financial instruments draw up a description of the instrument containing, in particular, a description of the risk factors. They convey this description to the unit responsible for risk that identifies and assesses market risk on that basis.
Market risk is measured using the following risk measures: • VaR, value at risk: a measure of risk quantifying the potential economic loss that will not be exceeded within a period of one year under normal conditions, with a probability of 99.5%; • standard formula; • exposure and sensitivity measures; • accumulated monthly loss.
In the case of banking entities suitable measures are employed in accordance with the regulations applicable to this sector and best market practices.
The risk is measured: • daily – for exposure and sensitivity measures of the instruments in systems used by particular PZU Group companies; • monthly – when using the value at risk model for market risk or a standard formula.
Credit risk and concentration risk Credit risk is grasped as the risk of loss or adverse change in the financial situation, resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors, which materializes in the form of a counterparty’s default on a liability or an increase in credit spread. The following risk categories are distinguished in terms of credit risk: • spread; • counterparty default risk; • credit risk in financial insurance.
Concentration risk is grasped as the possibility of incurring loss stemming either from lack of diversification in the asset portfolio or from large exposure to default risk by a single issuer of securities or a group of related issuers.
Credit risk and concentration risk are identified at the stage of making a decision on an investment in a new type of financial instrument or on accepting credit exposure. Identification involves an analysis of whether the contemplated investment entails credit risk or concentration risk, what its level depends on and what its volatility over time is. Actual and potential sources of credit risk and concentration risk are identified.
Risk assessment consists of estimating the probability of risk materialization and the potential impact exerted by risk materialization on a given entity’s financial standing.
Credit risk is measured using: • measures of exposure (gross and net credit exposure and maturity-weighted net credit exposure); • capital requirement calculated using the standard formula.
Management actions in respect of credit risk and concentration risk involve in particular: • setting limits to curtail exposure to a single entity, group of entities, sectors or countries; • diversification of the portfolio of assets and financial insurance, especially with regard to country and sector; • acceptance of collateral; • execution of transactions to mitigate credit risk, i.e. selling a financial instrument, closing a derivative, purchasing a hedging derivative, restructuring a debt; • reinsurance of the financial insurance portfolio.
PZU Group entity; • lack of liquidity of financial instruments held; • the structural mismatch between the maturity of assets and liabilities.
Risk assessment and measurement are carried out by estimating the shortage of cash to pay for liabilities. The risk estimate and measurement is carried out from the following perspectives: • liquidity gaps (static, long-term financial liquidity risk) – by monitoring a mismatch of net cash flows resulting from insurance contracts executed until the balance sheet date and inflows from assets to cover insurance liabilities in each period, based on a projection of cash flows prepared for a given date; • potential shortage of financial funds (medium-term financial liquidity risk) – through analysis of historical and expected cash flows from the operating activity; • stress tests (medium-term financial liquidity risk) – by estimating the possibility of selling the portfolio of financial investments in a short period to satisfy liabilities arising from the occurrence of insurable events, including extraordinary ones; • current statements of estimates (short-term financial liquidity risk) – by monitoring demand for cash reported by other business units of a given insurance undertaking in the PZU Group by the date defined in regulations which are in force in that entity.
Operational risk is identified in particular by: • accumulation and analysis of information on operational risk incidents and the reasons for their occurrence; • self-assessment of operational risk; • scenario analyses.
Reporting involves communicating the level of operational risk and the effects of monitoring and control to various decisionmaking levels. The frequency of each report and the scope of information provided therein are tailored to the information needs at each decision-making level.
Model risk has been defined as the risk of incurring financial losses, incorrectly estimating data reported to the regulatory authority, taking incorrect decision or losing reputation as a result of errors in the development, implementation or application of models.
In the entities from the banking sector, given the high materiality of model risk, the management of this risk has already been implemented for some years in the course of adaptation to the requirements of Recommendation W issued by the KNF. Both banks have defined standards for the model risk management process, including the rules for developing models and evaluating the quality of their operations and have ensured appropriate corporate governance solutions.
Department and ongoing compliance risk management activities which are the responsibility of the heads of organizational units or cells in the Companies. Compliance risk is identified and assessed for each internal process at PZU and PZU Życie, in line with the demarcation of reporting responsibilities. Moreover, the Compliance Department identifies compliance risk on the basis of information obtained from the legislative process, from notifications to the register of conflicts of interest, gifts and irregularities, and from inquiries received by the Department.
The systemic activities include, in particular: • development and implementation of systemic assumptions and internal regulations consistent with those assumptions; • recommending to other PZU Group entities solutions for the application of a consistent compliance function and a systemic approach to compliance risk management; • monitoring of the compliance risk management process, including in particular: performing compliance risk analyses, reviewing the degree of implementation of guidelines provided by external entities in respect of compliance risk management; • consulting on and issuing interpretations and guidelines for the application of the adopted standards of conduct and compliance risk management; • planning and delivery of training and internal communication in the field of compliance; • preparation of compliance risk reports and information.
In 2019 the PZU Group entities had compliance systems adapted to the standards designated by PZU.
PZU Group entities are obligated to report compliance risk to the Compliance Department at PZU and PZU Życie on an ongoing basis. In turn, the tasks of the Compliance Department include the following: • analysis of monthly and quarterly reports received from compliance units of each member of the Group; • assessment of the impact of compliance risk on the PZU
Group as a whole; • analysis of the performance of compliance-related instructions given to entities; • support of the PZU Group’s entities’ compliance business units when assessing compliance risk; • reporting to the PZU Management Board and Supervisory
Compliance risk includes, in particular, the risk that the operations performed by PZU Group entities will be out of line with the changing legal environment. This risk may materialize as a result of delayed implementation or absence of clear and unambiguous laws, or what is known as a legal gap. This may cause irregularities in the PZU Group’s business, which may then lead to higher costs (for instance, administrative penalties, other financial penalties) and a heightened level of loss of reputation risk.
Financing of Terrorism; • Act of 16 October 2019 on amending the Act on Public
Risk concentration When managing the various categories of risk, the PZU Group identifies, measures and monitors risk concentration; for the banking sector, these processes are discharged at the level of the various entities according to sector-specific requirements. To meet the regulatory obligations imposed on groups identified as financial conglomerates, numerous initiatives were undertaken in 2019 to implement a model to manage significant risk concentration in a financial conglomerate in keeping with the requirements of the Supplementary Oversight Act. A portion of this work will also be continued in 2020.
Financial assets exposed to foreign exchange risk include the PZU Group’s investment financial assets and financial derivatives denominated in foreign currencies.
Interest rate risk – the possibility of incurring a loss as a result of changes in the value of financial instruments or assets and a change in the present value of projected cash flows from liabilities, caused by changes in the term structure of market rates or in the volatility of risk-free market interest rates.
The differences in asset portfolio sensitivity between 2018 and 2019 ensue from the execution of the adopted investment strategy and the resulting alignment investment portfolio.
Interest rate risk decrease by 100 bp 1,450 2,224 increase by 100 bp (1,369) (2,101)
Interest rate risk The risk of capital instruments pricesCurrency risk increase by 100 bp decrease by 100 bp increase by 20% decrease by 20%
Risk pertaining to technical rates and mortality The table above presents a sensitivity analysis of the net result and equity to changes in the assumptions used to calculate the provision for the capitalized value of annuities. This analysis does not incorporate the impact exerted by changes in the valuation of deposits used to calculate the provision.
Impact of changes in assumptions on the net financial result and equity
This task was accomplished through obligatory reinsurance treaties in conjunction with facultative reinsurance.
In addition, PZU generates gross written premium on inward reinsurance on domestic business through facultative and obligatory reinsurance.
Main reinsurers in 2019: QBE Mapfre Nacional de Reaseguros Toa Re
On 3 October 2016, the PZU Supervisory Board adopted a resolution (Current Report 61/2016 of 4 October 2016) to approve the PZU Group’s Capital and Dividend Policy for 20162020 (“Policy”). No changes were made to this Policy in 2019.
The capital management policy rests on the following principles: • the PZU Group’s capital management (including excess capital) is conducted at the level of PZU as the parent company; • sustain target solvency ratios at the level of 200% for the PZU Group, PZU and PZU Życie (according to Solvency II); • maintain the PZU Group’s financial leverage ratio at a level no higher than 0.35; • ensure funds for growth and acquisitions in the coming years; • PZU will not issue any new shares for the duration of this Policy.
In this section: 1. Equity and bond market 2. PZU’s share price 3. Banking sector on the Warsaw Stock Exchange 4. PZU’s investor relations 5. Analysts’ recommendations regarding PZU stock 6. PZU Group’s Capital and Dividend Policy 7. Debt financing of PZU, Pekao and Alior Bank 8. Rating 9. Calendar of PZU’s major corporate events in 2020
The PZU Group on the capital and debt markets 8.1 Equity and bond market 2019 was a prosperous year for global financial markets. The MSCI ACWI - All Country World Index - (consisting of stocks from 49 different countries, of which 23 are classified as developed markets and the remaining 26 are considered emerging markets) climbed 24.0% y/y, namely a level similar to the very robust year of 2017 during which strong growth was prevalent in almost all asset classes. This trend was reflected by the main stock markets in the US, London, Frankfurt and Paris as their main indices posted growth in excess of 25% y/y. Even events like the protracted trade war between the US and China and the economic crisis in Argentina were unable to affect positive sentiment and the appetite for risk.
The measures taken by central banks in 2019 supported the S&P500 performance. At the end of 2019, S&P500 had risen 29.6% SECTION 2.3. SITUATION ON THE FINANCIAL MARKETS.
The PZU Group on the capital and debt markets adverse impact; revisions were made three times in 2019: in May, August and November. All these changes precipitated a decline in weight of Polish equities in this index, chiefly to the benefit of Saudi Arabia and China. According to analysts’ estimates, the incremental supply may have run into several billion Polish zloty.
The measures taken by the major central banks revealed the phenomenon of negative interest rates on global debt which surpassed the record-breaking amount of USD 17 trillion in Q3 2019. Tensions between the US and China and the threat of a “hard” Brexit aggravated this phenomenon. At the end of 2019 the value of debt securities with negative yields was USD 13.2 trillion.
Medium-term and long-term treasury bond yields fell in 2019. The behavior of Polish 10-year treasury bonds was largely correlated with changes in the yields on 10-year bonds on the core markets. At the same time, during the year the spread between Polish and German 10-year treasury bonds tightened by 26 basis points, which resulted partly from the robust fundamentals of the Polish economy against the backdrop of European economies. Throughout 2019, the yields on 10-year treasury bonds slumped by 78 bps from 2.85% to 2.07%. The yields on 5-year treasury bonds declined by 48 bps and stood at 1.81% at the end of the year, while the yields on 2-year bonds increased by 16 bps to 1.50% during the year. The yield of Polish debt treasury securities with a one-year maturity increased by 7 bps, reaching 0.98% at the end of the year. SECTION 2.3. SITUATION ON THE FINANCIAL MARKETS
The P/E ratio (price / earnings) for PZU’s stock at the end of 2019 was 10.5x
PLN 67.0 million while the average number of trades per session was
The percentage of foreign investors in PZU’s shareholder structure at the end of 2019 was with North American investors holding a
Percentage of PZU held by open-end pension funds (OFE) was while the percentage held by mutual fund management companies (TFI) was
Number of recommendations issued for PZU shares in 2019: highest target price at the end of December 2019: PLN 53.0 average target price at the end of December 2019: Financial strength rating and credit rating for PZU and PZU Życie awarded by S&P Global Ratings: A- (positive)
PZU IPOed on the Warsaw Stock Exchange (WSE) on 12 May 2010. Since its floatation it has been included in its most important index, WIG20 (calculated on the basis of the portfolio value of the 20 largest and most liquid companies on WSE’s main market)1. PZU also belongs to the following Polish indices: WIG, WIG30, WIG-Poland, WIGdiv, WIG20TR, WIG.MSFIN, CEEplus and WIG ESG (sustainable development index) and the following international indices: MSCI Poland (emerging markets), Stoxx Europe 600 (developed markets) and FTSE Russel mid cap index (developed markets).
PZU’s share price (unadjusted for dividends) in 2019 peaked on 25 January at PLN 45.39. During the first three quarters PZU’s share price underperformed the main local benchmark indices of WIG and WIG20. In turn, in Q4 PZU’s share price shot up 7.1%, outperforming the WIG index’s (up 0.3%), WIG20 (down 1.1%) and WIG Banks Index (down 5.2%). The WIG overall market index ended the year slightly up by recording growth of 0.3%.
In 2019, PZU’s shares were highly liquid. The average daily spread of PZU’s stocks was only 7 bps compared to the average spread of 13 bps for the 20 most liquid companies. PZU’s stock turnover exceeded PLN 16.6 billion and accounted for 8.7% of the total market’s turnover.. The average daily trading volume of PZU’s stock in 2019 was 1.6 million shares. The largest daily volume (6.0 million shares) was recorded on a rising (+0.9%)
Volatility Compared to the broad WIG market, PZU’s systematic risk expressed by the beta coefficient (PZU share price versus the WIG index for daily changes) in 2019 was 0.86 (1.23 in 2018). The decline in beta was linked to the relatively soft performance of large cap companies (including PZU) compared to the overall market.
Average trading value per session (PLN m) 80.3 66.8 75.6 69.6 67.0
Closing price on the last trading session of the year (PLN) 51.32 52.59 62.94 67.18 66.11
Capitalization at the end of the period (PLN m) 44,319 45,416 54,354 58,015 57,091
N um be r of tr an sa ct io ns (
P/E Share price / net earnings per share 12.5x 14.8x 12.6x 11.8x 10.5x
EPS (PLN) Net profit (loss) / number of shares outstanding * Calculation based on the PZU Group’s data (according to IFRS); price per share and book value at yearend; net profit for 12 months; number of PZU shares: 863,523,000
Source: PZU (2017,2018,2019) – reported data; other companies - 2019 annual forecasts (Bloomberg); share prices at year end 2019
Context in the banking sector In 2019 the WIG Banks index3 contracted by 9.2%. The correlation between the WIG Banks index and the WIG20 index at the end of June 2019 was 90% (no change y/y). Beta (versus WIG20) was 0.98, i.e. an increase of 0.01 y/y.
3 It is an income-based index and thus, when it is calculated, it accounts for the prices of the underlying shares and the income from dividends and subscription rights.
The greater burden place on banks’ results led to worse performance of the overall WIG Banks index.
The shares of PZU, Pekao and Alior Bank generated 19.7% of total turnover of the Warsaw Stock Exchange in 2019.
According to a survey4 carried out at the end of 2019, PZU’s shareholder structure was stable. The share of foreign investors increased 0.4 p.p. y/y to 35.4% at the expense of domestic investors, which was chiefly related to the decline in the share held by open-end pension funds (OFE). SECTION. 8.1 EQUITY AND BOND MARKET. The share held by retail investors remained at a similar level to the one seen in 2018, namely 7.5%. 4 Shareholder structure survey by IPREO.
Percentage of stocks held by North American investors continued to increase in 2019. At the end of 2019 it was 14.7%, i.e. up 1.5 p.p. y/y (vs. 5.1% in 2014).
State Treasury of the Republic of Poland). Compared to 2018 funds from Norway and Sweden emerged in the community of investors with a shareholding of several percentage points.
< 0.25 m shares * Polish State Treasury – 295.2 m shares (34.2% share in capital)change 2019/2018
MARCH Execution of the #newPZU 2018 strategy market participants in mind were transmitted live in the form of a webcast (with simultaneous translation into English). Recordings of these meetings are available on PZU’s website in the investor relations section at inwestorskie/do-pobrania.
The most important events, achievements and plans were presented once again in the form of an online Annual Report at annualreport2018.pzu.pl. Users have been provided with tools enabling a multi-directional analysis of corporate and macroeconomic events as well as financial results. This report includes interactive infographics, animations and video clips, which offer a succinct presentation of the PZU Group’s activity in 2018.
(6 in 2018); during which nearly 150 meetings with approximately 240 fund managers and analysts representing funds and asset management companies were held.
Moreover, in 2019 the number of face-to-face meetings and the number of investor meetings held with investors, especially international investors using remote means of communication in the company’s headquarters increased. PZU representatives took part in approximately 40 meetings and conference calls with more than 100 people representing asset management companies and in approximately 70 meetings and conference calls with analysts who issue recommendations for PZU’s stock.
Without interruption since 2012 PZU has also been participating in a program conducted by the Polish Association of Individual Investors called “10 of 10: Communicate Effectively. Its purpose is to promulgate high communication standards between public companies and retail investors.
Prizes and distinctions for IR activities PZU’s investor relations activities are highly regarded by investors, analysts and the media. In 2019, PZU received among others the following prizes and distinctions in this area: • 2nd place for Paweł Surówka, the PZU Group’s CEO in the
Extel 2019 survey in the ranking of the best CEOs in terms of investor relations in Poland; • special award entitled “The Best of the Best” in the contest entitled “The Best Annual Report 2018”, whereby it joined the community of the best public companies in terms of reporting; • special prize for the best on-line annual report in the Banks and Financial Institutions category; • award for offering the best Investor Relations service in the contest entitled Issuer’s Golden Website (public companies constituting the WIG20 and mWIG40 indices); • distinction for the best IFRS/IAS-compliant activity report in the Banks and Financial Institutions category.
IR objectives in 2020 The main objectives of PZU’s investor relations function in 2020: • strengthen good relations between the PZU Management
In 2019, PZU stock recommendations were issued by 12 domestic and international financial institutions. In total, sell side analysts published 28 recommendations.
The median target price in the recommendations valid as at 31 December 2019 was PLN 43.4, down 12.3% y/y (the decline would be 6.7% y/y after adjusting for the cut-off of the dividend in September 2019). The average target price was 10.2% higher than the share price at the end of 2019 (at the end of 2018 the deviation was 11.4%).
Analysts’ expectations concerning PZU’s share price in 2019 based on recommendations in effect at the end of December 2019
% recommendations share price jan feb mar apr may jun jul aug sep oct nov dec
• the dividend amount proposed by the parent company’s Management Board which PZU pays for a given financial year is determined on the basis of the PZU Group’s consolidated financial result attributable to the parent company, where: ◦ no more than 20% will be earmarked as retained earnings (supplementary capital) for goals associated with organic growth and innovations as well as execution of growth initiatives,
◦ the remaining part will be paid in the form of annual dividend or will increase retained earnings (supplementary capital) if in the given year significant expenditures are incurred in connection with execution of the PZU Group Strategy, including in particular, mergers and acquisitions; with a reservation that: 8.6 PZU Group’s Capital and Dividend Policy
PZU Group’s Capital and Dividend Policy in 2016 – 2020 was adopted in a PZU Supervisory Board resolution in 2016. SECTION 7.9 CAPITAL MANAGEMENT. According to this Policy, the PZU Group endeavors to manage capital effectively and maximize the rate of return on equity for the parent company’s shareholders, in particular by maintaining the level of security and retaining capital resources for strategic growth objectives through acquisitions.