External environment 29 2.1 Main trends in the Polish economy 30 2.2 External environment in the Baltic States and Ukraine 31 2.3 Situation on the financial markets 32 2.4 Polish and Baltic States insurance sector compared to Europe 34 2.5 Polish banking sector compared to Europe 36 2.6 Regulations pertaining to the insurance market and the financial markets in Poland 39 2.7 External factors that may affect the conditions of operations and the PZU Group’s activities in 2019 42
PZU Group’s operations 47 3.1 Structure of the PZU Group 48 3.2 Non-life insurance (PZU, LINK4 and TUW PZUW) 49 3.3 Life insurance (PZU Życie) 56 3.4 Banking (Bank Pekao, Alior Bank) 61 3.5 Mutual funds (TFI PZU) 65 3.6 International operations 66 3.7 Medical services (Health) 68 3.8 Pension funds (PTE PZU) 70 3.9 Other operating areas 71
Financial Results 127 6.1 Major factors contributing to the consolidated financial result 128 6.2 PZU Group’s income 130 6.3 PZU Group’s claims paid and technical provisions 134 6.4 PZU Group’s acquisition and administrative expenses 134 6.5 Drivers and atypical events affecting the results 135 6.6 PZU Group’s asset and liability structure 135 6.7 Contribution made by the market segments to the consolidated result 137 6.8 Issuer’s financial results – PZU (PAS) 148
Risk management 153 7.1 Objective of risk management 154 7.2 Risk management system 154 7.3 Risk appetite 156 7.4 Risk management process 156 7.5 PZU Group’s risk profile 159 7.6 Risk vulnerability 167
Table of Contents 7.7 Reinsurance operations 169 7.8 Capital management 170
Corporate governance 203 9.1 Corporate governance principles applied by PZU 204 9.2 Application of Best Practices of WSE Listed Companies 204 9.3 Application of Corporate Governance Rules for Regulated Institutions 205 9.4 System of control in the process of preparing financial statements 206 9.5 Audit firm auditing the financial statements 209 9.6 PZU’s share capital and its shareholders; shares held by members of its governing bodies 210 9.7 PZU’s Articles of Association 211 9.8 Shareholder Meeting, Supervisory Board and Management Board 211 9.9 Compensation of the members of governing bodies 229 9.10 Diversity policy applied to the issuer’s administrative, managing and supervising bodies 234
This report utilizes photos from campaigns published on the PZU Group Career” site
In pursuance of the Accounting Act requirements, the Company hereby presents a separate statement of non-financial information related to PZU Group and PZU SA. The statement was prepared in conformity with the international reporting standards of the Global Reporting Initiative (GRI Standards). Pursuant to Art. 49b.9 of the Accounting Act, the statement of non-financial information is available on the Company’s website at:
CEO Letter to Shareholders model and augment our investment appeal by offering a strong dividend stream to our shareholders.
In 2018, our unquestionable success was generating an aboveaverage return on equity of 22.1%, nearly double the average posted by insurance companies in Europe. Compared to 2017, this ratio improved by 1.1 percentage points, while sales at the same time rose PLN 623 million. This excellent result was driven largely by good performance on our core insurance business. The combined ratio was 86.6% improving by 2.7 percentage points from 2017, emphasizing the Group’s high quality sales and its optimum pricing policy matching the risks involved. Other contributing factors included good weather conditions and KNF’s active oversight over the adequacy of pricing policies applied by insurance companies. 2018 was also another successful year for the group insurance segment with the operating margin remaining at the high level of 22.1%, or 2.1 percentage points above the level in our strategy.
We understand that today’s world of finance built a digital model also involves potentially stronger competition for us posed by innovative fintechs and startups. That is why we emphasize the use of new technologies in the PZU Group. In 2018, we executed 15 pilot projects in data use, digitization of processes and client interactions. We tested telematic solutions, advanced analytics in routing and semantic OCR. In parallel, we cooperated with startups, acting as a partner in two startup acceleration programs – RBL_Start (Alior Bank’s accelerator) and the MIT Enterprise Forum. We cooperated with the embassies of France, Israel and the United Kingdom, universities (AGH) and organizations integrating business communities focused around innovative activities.
In 2019, we will run more pilot projects, intensifying work to identify technologies (telematics, remote sensors, electromobility, driving autonomy and solutions harnessing the internet of things), from the perspective of using them in more business processes in PZU. Our ambition is to analyze at least several thousand such solutions per annum. At the same time, we remain focused on pursuing our strategic ambitions. These include maintaining the high profitability of our core underwriting activity on a competitive market and in the face of rapidly evolving regulatory changes, development of economies of scale in health and investments and intensification of cooperation in bancassurance. Over 200 years of tradition obligate us to continue to look for solutions and pursue our mission of helping clients take care of their future.
I would like to thank all our employees and agents for their above average commitment to building the #newPZU and the Supervisory Board for their trust and effective cooperation.
Earnings per share rose by 11% to PLN 3.72 in 2018. That was the effect of unwaveringly implementing our strategy entitled “The New PZU – More Than Insurance” adopted by the Management Board in early 2018. I am glad that we have been able to grow within the framework of this value creation
Dear Stakeholders, 2018 was a very successful year for the Polish economy. High GDP growth, equilibrium in the current account balance, the extremely low public finance sector’s deficit and the unemployment rate coming in at a level unrecorded in nearly 30 years formed great conditions for doing business. Relying on its strong brand and economies of scale, the PZU Group leveraged this period to strengthen its competitive edge and develop all areas of its operations.
2018 was also a period of ambitious projects that will serve as the foundation for the digital transformation of the overall PZU Group. We have reached ever more frequently for advanced technology in our business processes: robotics, machine learning and sophisticated mobile solutions. Genuine solutions tested in pilots and acceleration programs back up these slogans. Executing these initiatives over the next several years will underpin the PZU Group’s competitive edge in insurance. It will also make it possible to build new quality in asset management, health and banking.
1 Assisted recognition of the PZU / PZU Życie brand, study by the Gfk Polonia institute, 2018
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. PZU has also been one of the companies belonging to the Respect Index without interruption since 2012. (This index consists of the companies that exhibit the greatest corporate social responsibility on the Warsaw Stock Exchange).
PZU’s philosophy of thinking is driving the gradual transformation of the company’s operating model from an insurer model (pricing and transferring risk) to the model of a service company specializing in utilizing data (risk management consulting and services as well as caring for the future of clients, retail and business alike). The new model brings together all of the PZU Group’s activities and integrates them in a client-focused manner: life insurance, non-life insurance, health insurance, investments, pensions, health care, banking and assistance services.
Its robust brand underpins strategy execution. According to brand awareness surveys, PZU is the most recognizable brand in Poland (recognition of the PZU brand stands at 88% while prompted brand awareness is 100%).
In the Baltic States in which the PZU Group is in the insurance business, its distribution network consists of approximately 1 thousand agents, 33 multi-agencies and 390 brokers. PZU also cooperates with 5 banks and 14 strategic partners. In Ukraine insurance products are distributed through 700 agents and in cooperation with 14 multi-agencies, 30 brokers, 7 banks and 8 strategic partners.
Investments – The PZU Group is one of the largest asset managers on the Polish market. PZU is the uncontested market leader in employee pension schemes.
An extensive range of investment products is offered under the PZU Investments brand, namely open and closed-end mutual funds and pension products: an open-end pension fund, individual retirement accounts, individual retirement security accounts with a voluntary pension fund, employee pension plans. PZU TFI also invests the PZU Group’s own funds.
The PZU Group has three mutual fund management companies: PZU TFI, Pekao TFI and Alior TFI. It also has PTE PZU – a company managing the PZU Złota Jesień Open-end Pension Fund.
Health – Striving to satisfy to a greater and better extent client needs, the PZU Group is intensively growing its health insurance segment accompanied by the accompanying medical care services under the PZU Zdrowie brand. The health business deals with the following two types of efforts: (i) sales of health products in the form of insurance and sales of non-insurance products (occupational medicine, medical subscriptions, partnerships and prevention programs), (ii) construction and development of medical infrastructure in Poland to give clients the best accessibility to the medical services rendered.
The PZU Group delivers its clients quality that is difficult to replicate: quick doctor appointments (in basic medical care a visit is offered within a maximum of 2 business days, and in the case of specialists within a maximum of 5 business days), respecting referrals for tests prepared by physicians from outside the PZU Zdrowie network, cooperation with more than 2,100 partner centers in Poland and a proprietary network of more than 60 branches as well as an offer enriched with preventive activities.
Banking – The PZU Group’s banking business consists of the following groups: Pekao (a member since 2017) and Alior Bank (a member since 2015).
Alior Bank is a univeral deposit and loan bank that was established in 2008 as a start-up. In its operations Alior Bank combines the principles of traditional banking with innovative solutions and consequently it sets new trends in financial services,consistently strengthening its market position.
High potential of the largest financial group in Central and Eastern Europe, over 200 years of trust, experience, efficiency and innovation.
Banking Conducting banking activities, including taking deposits, extending credits and loans, running bank accounts, handling cash settlements and rendering payment services
NET RESULT ATTRIBUTABLE TO THE PARENT COMPANY 3,213 2,895 1,935 2,343 2,968
The financial results generated by the PZU Group in recent years place it among the most profitable financial institutions in the country. At the same time, they translate into high efficiency ratios. In 2018 the return on equity was 22.1%1, nearly double the average posted by insurance companies in Europe. Rapid growth is achieved while preserving a high level of business safety. This is corroborated both by its high solvency ratios and by the A- rating with stable outlook rating assigned by the US rating agency S&P Global Ratings.
During the 12 months of 2018, PZU’s market capitalization rose PLN 4.6 billion. Taking into account the PLN 2.2 billion dividend paid to the shareholders, the annual rate of return on the Company’s stock was 10.1%. The benchmark WIG index recorded a 9.5% y/y loss in the same period.
PZU: Trustworthy Brand PZU: First place in the Insurance Indemnity Fund’s Data Quality ranking in 2018
LINK4: Client’s Golden Laurel for Discovery of the Year awarded for Link4Mama
Alior: Best Bank for Companies Alior Bank: Newsweek’s Friendly Bank 2018
Innovations: PZU: Customer Experience & Engagement, Customer Service in Sign Language
Establishment of PZU Życie by Polski Bank Rozwoju and Bank Handlowy w Warszawie
Formation of TUW PZUW – a mutual insurance company and a direct insurer in Poland -
Portal of new possibilities – new unveiling of the website www.pzu.pl
MARCH record-breaking opening of the year in terms of gross written premium (the best first quarter in the history of the PZU Group)
In this section: 1. Main trends in the Polish economy 2. External environment in the Baltic States and Ukraine 3. Situation on financial markets 4. Polish and Baltic States insurance sector compared to Europe 5. Polish banking sector compared to Europe 6. Regulations pertaining to the insurance market and the financial markets in Poland 7. Factors that may affect the operations of the Polish insurance sector and the PZU Group’s activities in 2019
Working in the Client Service area, you accompany clients in important situations in their lives – child birth, purchase of a new apartment, car failure. In these situations, you provide clients with indispensable support and through your actions you guarantee that they can always rely on us
In this situation, in 2018, the upward trend in average monthly wages in the Polish economy was 7.0%, compared to 5.7% in 2017. The average monthly salary in the business sector increased between yearend 2017 and yearend 2018 by 7.1% compared to a 5.9% increase in 2017. With the inflation rate lower than in 2017, this also caused a higher real increase in the average wage. The robust growth in real income coupled with high consumer confidence indicators contributed to achieving a relatively high rate of growth in household consumption in 2018 (4.6%).
Inflation, monetary policy and interest rates In 2018, the consumer price index (CPI) increased on average by 1.6% in annual average terms, compared to 2.0% in 2017. In December 2018, consumption prices were 1.1% higher than the year before and net core inflation (CPI without the prices of food and energy) declined to 0.6% y/y. With low core inflation in the euro area, the room for increases in the prices of commercial goods remained curbed. Moreover, the demand gap in Poland was closed relatively recently. Accordingly, the country is under no strong inflationary pressure at this point.
To a slight extent, a higher immigration rate eased tensions on the labor market. The majority of immigrants have been hired by transportation companies, whereas a number of other industries continue to struggle with a shortage of personnel. This demonstrates an imbalance on the labor market, ultimately leading to a rapid increase in wages.
In 2018, inflation subsided to the annual rate of 1.9%. Changes in prices remained affected by the domestic economic situation and shifting trends in the global commodities market. This year’s changes in global commodity prices contributed significantly to higher prices of fuels, yet inflation was kept at a moderate level due to the prices of food, beverages, industrial goods and services, which grew at a slower pace than the year before.
In a situation of growing uncertainty in the external economic environment and export opportunities becoming more and more blurred, it is possible that private consumption will again become the economy’s driving force. Private consumption remained on a stable growth path and had a favorable impact on investments. Gross fixed capital formation, the growth rate of which subsided somewhat in the second quarter, increased 4.2% in the third quarter.
In December 2018, the annual inflation rate was 2.6%, driven largely by higher prices of goods and services related to home maintenance, alcoholic beverages and tobacco products, transportation services and healthcare.
After 11 months of 2018, a negative balance of foreign trade in goods and services was recorded (USD -10.6 million). This was another offshoot of the still unresolved conflict in eastern Ukraine. The loss of control over the resources in the eastern part of the country curtailed Ukraine’s export capacity (due to disrupted mining production and electricity generation).
In 2018, trends on the financial markets were swayed by news of heightened tensions in global trade relations and indications of decelerating economic growth in the world’s major economies. In 2018, the US trade policy became more austere, especially towards China, which resulted in bilateral tariff hikes. This had an adverse effect on the dynamics of global trade and resulted in a worsening of the business climate in economies dependent largely on exports, including Germany. The rate of GDP growth in China and the euro area began to subside. At the end of 2018, investors also began to worry that, as a result of monetary policy tightening measures taken by the US central bank (the Fed), economic growth in this country may also decelerate. The increase in uncertainty was also worsened by the possibility of a disorderly Brexit, Italy’s pursuit to adopt a fiscal policy unacceptable by the EU and recurring declarations that customs duties will be imposed on cars exported from Europe to the United States.
However, these events did not stop the Fed from raising its interest rates four times or from continued efforts to shrink its balance sheet. In turn, at the end of 2018 the European Central Bank ended its asset purchase program, thus effectively ending the quantitative easing period.
No interest rate changes by the Monetary Policy Board in 2018, the reference interest rate has remained flat at since 2015
Insurance penetration rate in Poland below the European average (7.5% in 2017)
Ukraine’s GDP growth in Q3 2018 rose on an annual basis
In 2018, especially between March and May, a clear trend transpired on the main currency markets with the US dollar strengthening markedly against other major global currencies. In the light of increasing concerns about a disorderly Brexit, the British pound depreciated in the second part of the year. Eventually, the USD/EUR exchange rate stood at 1.14 at the end of 2018, which means a 4.8% appreciation compared to the beginning of the year. In the same period, the Polish zloty weakened against the major global currencies. Between the beginning and end of 2018, the US dollar appreciated against the Polish zloty by 8.0% to PLN 3.76, while the euro was worth PLN 4.30 at the end of 2018, up 3.1%. The Polish zloty clearly weakened against the Swiss franc by 7.0% (the CHF/ PLN exchange rate increased to roughly PLN 3.82).
In terms of size, the Polish insurance market also trails certain West European countries with a significantly smaller population than Poland, including Austria (EUR 17.1 billion in gross written premium in 2017), Belgium (EUR 25.8 billion), Denmark (EUR 31.2 billion), Finland (EUR 22.8 billion), the Netherlands (EUR 70.0 billion), Switzerland (EUR 48.9 billion) and Sweden (EUR 33.5 billion)5.
The structure of the Polish market is dominated by non-life insurance (approx. 60% of the market), with the majority of gross written premium generated by motor insurance. In 2017, gross written premium collected on motor third party liability insurance and motor own damage insurance accounted for 36% of the entire market’s gross written premium6. The share of life insurance in Poland’s total gross written premium (approx. 40%) was, in turn, a third lower than the European average. A similar structure of insurance markets is also typical of the Baltic states. In those countries, life insurance, on average, accounts for less than 30% of total gross written premium. This structure is completely different from that of West European countries where life insurance takes the bigger chunk of the market. In 2017, nearly 58.5% of insurance premiums in Europe was generated in life insurance, 30.6% in non-life insurance and 10.9% in health insurance. Countries with the most developed life insurance market are countries 5 Swiss Re, Sigma No. 3/2018: “World insurance in 2017” 6 Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Insurance market 2017 that also have the largest insurance markets. These include Italy (in 2017, life insurance accounted for 75.3% of gross written premium), the United Kingdom (69.5%), France (63.6%) and the Scandinavian states: Finland (81.3%), Sweden (78.5%) and Denmark (70.6%).
Analyzing the penetration of insurance in relation to GDP per capita, it should be expected that the Polish insurance sector will develop alongside Poland’s economic development (growing GDP), greater affluence of the society (increasing disposable household incomes) and growing insurance awareness of the local population, which was exactly the path taken by West European countries. Between 2013 and 2017, the insurance penetration rate in Poland increased by 1.1 percentage points, from 2.0% in 2013 to 3.1% in 2017. 7 Isurance Europe,
Banking assets in Poland have recorded a significant increase since the transformation. Since the end of 2008, they have enlarged 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 2017 the Polish banking sector’s assets totaled EUR 427 billion8. Europe’s largest banking sector is in the United Kingdom (EUR 10 billion in assets in 2017) and the smallest one is in Estonia (EUR 25 billion in assets in 2017).
At the end of 2017, loans in the Polish banking sector totaled EUR 300 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 65% of GDP while the European average is 126%. Denmark, Sweden and Holland have the highest ratios of loans to GDP.
Loans per capita (2017, EUR) in relation to the growth rate (2012-2017, EUR)
The research conducted by the National Bank of Poland9 indicates that households in Poland are significantly less indebted than in the euro area: the average household has total liabilities of 5.5% of gross assets while in the euro area the average debt is 26% of assets in total.
Mortgage loans account for the highest percentage of household loans (roughly 60%); in the European Union that percentage is higher (roughly 70%). However, mortgage loans in Poland represent a mere 19% of GDP, while the average in the European Union is 40% of GDP. In turn, Poland is one of the countries with the highest percentage of consumer loans among total loans; the value of extended consumer loans versus GDP at the end of June 2018 was 8.7% of GDP, or more than the average in the euro area (5.9%) and less only than in comparison with Bulgaria, Greece and Cyprus.
On 25 May 2018, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC also referred to as the “General Data Protection Regulation” or “GDPR”. The new regulations introduce a number of changes and broaden the scope of responsibility of data controllers and data processors. The purpose of these changes is to ensure transparency of information transmitted to the person providing the data and to govern issues related to the right to remove certain data from the database at the request of their provider. These new regulations are also intended to provide natural persons and regulatory authorities with effective tools to react properly to any breaches of the Regulation. In the operations of insurance and reinsurance undertakings, the new regulations affect processes involving the processing of personal data, both from the legal perspective and in terms of IT systems, and will cover the majority of processes and areas of insurance activity, most notably sales and client service, on-line services, cross-selling, underwriting, marketing, CRM, counteracting insurance fraud and IT systems supporting business processes.
In the insurance business, 2018 was a year in which many regulations took effect to enhance client protection and equip the regulator with powers and resources to control more effectively and enforce compliance with the established rules: On 1 January 2018, Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) took force GLOSSARY. The Regulation requires that a key information document (KID) on an insurance-based investment product must be drawn up and provided to the client. Violations of the Regulation are punishable by severe administrative sanctions. In the solutions adopted in the Act of 29 September 2017 amending the Financial Market Supervision Act and the Insurance and Reinsurance Activity Act, which is used to apply the said regulation, the regulatory authority may impose fines in the amount up to PLN 21,569,000 or 3% of net revenues on the sale of goods and services and financial operations, and, in the case of an insurance undertakings, 3% of the gross written premiums reported in the most recent financial statements for the financial year as approved by the approving body, or twice the amount of benefits obtained or losses avoided as a result of the violation, if they can be determined.
External environment contribution. The employee’s additional contribution is to be 2.0%, while the employer’s is 2.5%. Mutual funds managed by mutual fund companies, pension funds managed by pension fund management companies, employee pension management companies or life insurance undertakings may be a manager of an ECS.
The indemnities for third party liability insurance for vehicles and farmers were raised in the act of 22 May 2003 on mandatory insurance, the Insurance Guarantee Fund and the Polish Motor Insurers Office. The indemnities in these insurance policies cannot be lower than the PLN equivalent value (per event whose consequences are insured regardless of the number of injured parties: in personal injuries – EUR 5.21 million (previously EUR 5 million) while in property related lossed – EUR 1.050 million (previously EUR 1 million).
The prescription periods for claims in civil cases were shortened under the amendment to the Civil Code of 13 April 2018. The prescription period in cases whose prescription period up till now was 10 years has been truncated to 6 years. The law also bans the pursuit of claims against consumers after the elapse of the prescription period. The act does not shorten the prescription period for consumers’ claims in existence prior to the effective date of the act that have not yet expired on that day.
The Supreme Court also considered the issue regarding the rights of the closest relatives of an injured party who as a result of an illegal act has suffered grave and permanent dismemberment to receive general damages for the injury. The Supreme Court indicated that general damages are due solely when it comes to the gravest and irreversible losses of health in which the injury is comparable to the total loss of a relative (case file III CZP 60/17, III CZP 69/17, III CZP 36/17). The stance taken by the Supreme Court, by stating the prerequisites for a claim to be due, should contribute to unifying case law in the common courts.
In reference to corporate income tax, the amendments concern, among other things, changes to transfer prices (raising limits and changing the mechanisms for defining thresholds above which there is an obligation to prepare transfer pricing documentation), the exemption from the documentation obligation for transactions executed by domestic related parties (provided certain conditions are met) and changes to the approach to settling the costs of cars used in doing business.
The Supreme Court adopted a resolution to determine according to what state of affairs the assessment is made on whether a contractual clause is illegal – the Supreme Court indicated that this assessment should be made as at the time of entering into the agreement (case file III CZP 23/17).
Due to the scope of PZU Group’s business (insurance sector in Poland, Baltic states and Ukraine, mutual and pension funds sector, banking), the main factors that will shape the environment in which the Group will operate and may have a direct influence on the development and results of the Group in the medium term, in particular in 2019, can be divided into three categories: macroeconomic and geopolitical, legal and regulatory, and market factors, specific to individual sectors / businesses in which the Group is involved.
Increase in individual consumption in % (y/y) 4.2 4.6 4.9 3.9 3.0
These macroeconomic factors and the global geopolitical situation (on top of Brexit, populism is on the rise in Europe, tensions in the Middle East, intensification of global protectionism, in particular the course of the US-China trade conflict) and in Poland (two sets of elections: EU and national parliamentary elections in the spring and autumn 2019, respectively) may affect the behavior of global central banks and, as a consequence, the overall conditions in the global and national financial market. The climate and direction of the changes in the financial markets are, in turn, important for the attractiveness of the products offered by the PZU Group, in particular unit-linked funds, and affects the level of assets and management fees charged by Group companies for asset management.
Legal and regulatory factors The PZU Group’s activity is subject to the impact of local regulations and European legal acts. From the perspective of the insurance business, the Group’s activity will be affected by any legal changes that may bump up the burden borne by insurance companies, e.g. court verdicts on payout of general damages under TPL insurance. Currently, legislative work is underway on the act on rendering services to pursue compensatory claims. The bill aims to regulate the rules for commercial undertakings active in the business of pursuing compensatory claims to conduct their business, which may affect the claims paid by the Group.
A detailed description of the factors that may influence the Group’s activity in 2019 broken down into individual operating segments is presented in SECTION 3 OPERATION OF THE PZU GROUP.
The new approach to building relationships with clients, resulting in integration of all areas in the company around the client, drives the gradual transformation of insurers from focusing primarily on valuation and transfer of risk toward being an advisory and service company (operating on the basis of technological know-how). This will enable clients to optimize their decisions at all stages of their lives. It will ultimately translate into growing trust and loyalty placed in PZU as the brand of first choice when it comes to insurance, finance and health services. SECTION 5 BUSINESS MODEL
10 Fintech - sector of the economy encompassing companies operating in the financial and technological industry. Fintech companies most frequently provide financial services through the web. 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.
“In PZU, every day produces a surprise. The whole team supports me with their expertise and experience, and each task stimulates me to act. My work requires creativity and allows me to develop my analytical skills.”
The PZU Group conducts various activities in insurance and finance. In particular, the PZU Group’s companies provide services in life insurance, non-life insurance, health insurance and they manage client assets within its open-ended pension fund and mutual funds, and thanks to its investment in Bank Pekao and Alior Bank they also offer banking services.
Alior Bank 3 Warsaw - Poland PZU – 31.9071% Investments Funds menaged by TFI PZU – 0.0239% Pekao Investment Banking – 0.0005%
Armatura Group 5 Cracow - Poland Investments Funds menaged by TFI PZU – 100.00%
Arm Property Cracow - Poland Investments Funds menaged by TFI PZU – 100.00%
LLC SOS Services Ukraine Kiev - Ukraine PZU Ukraine – 100.00%
Bank Pekao 4 Warsaw - Poland PZU – 20.00% Investments Funds menaged by TFI PZU – 0.0306%
Pekao Financial Services Warsaw - Poland Bank Pekao – 66.4992% PZU – 33.5008%
The following changes transpired in the structure of the PZU Group in 2018 and up to the date of publication of this report: • in January 2018 PZU Zdrowie acquired shares in Centrum
Groups: Allianz – Allianz, Euler Hermes; Ergo Hestia – Ergo Hestia, Talanx – Warta, Europa, VIG – Compensa, Inter-Risk, Generali - Generali, Concordia Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2018
In the first 3 quarters of 2018, the technical result of the non-life insurance market rose PLN 860 million to PLN 2,367 million. The growth in the technical result in insurance against - PZU Group’s share in the non-life insurance market (direct business) at the end of Q3 2018, including LINK4’s share of - share of PZU Ukraine in the Ukrainian nonlife insurance market at the end of Q3 2018, - the share of PZU Ukraine Life in the Ukrainian life insurance market market share at the end of 2018 - PZU Group’s share in the motor insurance market (direct business) at the end of Q3 2018 - PZU Życie’s share in periodic gross written premium at the end of Q3 2018
PLN 19.8 billion - net assets managed by TFI PZU, representing a - share of OFE PZU Złota Jesień in the total asset value of the open-end pension funds operating in Poland at the end of 20187.7%
- share of Lietuvos Draudimas in the Lithuanian non-life insurance market at the end of 2018 - share of AAS Balta in the Latvian non-life insurance market at the end of Q3 2018 - share of the Lietuvos Draudimas branch in the Estonian non-life insurance market at the end of 2018 2nd and 7th - market position of Bank Pekao and Alior Bank, respectively, in terms of accumulated assets at the end of Q3 2018 3rd - PZU Group’s market position in terms of revenues in the health area at the end of 2018 motor non-motor
In the first three quarters of 2018, the technical result declined y/y chiefly in general TPL insurance (down PLN 116 million, of which PLN 103 million was on direct activity) and credit and guarantee insurance (down PLN 5 million including PLN 3 million for direct activity).
The following entities in the PZU Group operate on the non-life insurance market in Poland: the Group’s parent company, i.e. PZU and LINK4 and TUW PZUW.
To respond to client expectations in recent years, the PZU Group has extended its offering for retail and corporate clients (the latter by forming a mutual insurer), thereby sustaining its high market share.
In the first three quarters of 2018 the PZU Group’s technical result (PZU together with Link4 and TUW PZUW) stated as a percentage of the overall market’s technical result was 55.2% (the PZU Group’s technical result was PLN 1,306 million while the overall market’s technical result was PLN 2,367 million).
The total value of the investments made by non-life insurance undertakings at the end of Q3 2018 (net of the investments made by subordinated entities) was PLN 58,749 million, up 9.7% compared to the end of 2017.
Against the background of evolving market conditions, in 2018 PZU matched its offering to clients’ new interests and needs by rolling out new products and innovative solutions. In mass insurance, PZU did the following: • it added more health insurance products to the offer under
Most of the changes in the corporate insurance segment called for enhancing the effectiveness of collaboration with intermediaries and making the dedicated offer for car fleet clients and leasing companies more attractive. The most important activities related to the product offering were as follows: • popularizing the insurance against cyber risks launched in the last quarter of last year. This insurance offers protection against the adverse effects of hacking attacks, including by taking actions aimed at destroying the attack and restoring the company’s normal operations. This offering is targeted especially at those clients who are at risk of data leakage or operational paralysis caused by a cyber-attack.
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, to respond to client expectations in financial insurance, PZU in collaboration with TFI PZU launched a new product combining investments in mutual funds with financial loss insurance to give clients an indemnity in the event of softer investment performance to cover the loss they sustain. This program targets private individuals and companies that are planning to combine their first investment in mutual funds units in the PZU SEJF+ participation units with insurance to cover any possible financial loss.
The Company places its core emphasis on developing innovative technologies to be rolled out in client service processes and internal processes with an eye to optimize them and enhance their efficiency.
• extending the offer to clients holding a motor policy with LINK4 to include the following products: ◦ Wracaj do Zdrowia (Return to Health) offered to clients who hold an motor insurance policy in Link4. Under this insurance clients have access to specialist physicians, ambulatory rehabilitation, selected tests and procedures and specialist diagnostics offered in more than 2 thousand PZU Zdrowie medical centers in more than 500 cities located across the country,
TUW PZUW’s activity 2018 marks the third year of TUW PZUW’s active operations.
The outcome of this market evolution was the expanding significance of periodic premium that constitutes PZU Życie’s competitive advantage on the market. In Q1-Q3 2018, periodic premium was 0.2% higher compared to the same period in 2017, with a cumulative average growth rate of 0.6% for the
Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance market] 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015, Rynek ubezpieczeń 3/2014
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, PZU Życie’s data
The changes in the level and the growth rate of the life insurance market premium in recent years has been stimulated mostly by single premiums in investment products.
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, PZU Życie’s data last 5 years. Despite the decline in periodic premium in unitlinked life insurance, the protective premium in classes I and V continues to trend upward.
At the same time, market concentration measured by the periodic gross written premium is on the rise. The sequence of the largest market players has not changed, but their combined share, especially of the top four, has expanded.
In this same period, life insurance undertakings generated a net result of PLN 1,964 million, representing a PLN 105 million (5.6%) increase y/y. This improved result was the effect of better investment performance recorded by insurers than in the corresponding period of 2017 with respect to investments of undertakings’ free funds and also lower other operating expenses.
PZU Życie continued to be the clear leader in the periodic premium segment. In Q1-Q3 2018, it generated 46.0% of these types of premiums written by insurance companies, signifying growth of 0.2 p.p. in the market share in this segment and, once again, the highest market share level okresowa jednorazowa single periodical
Concurrently, the changes in the offering take into account the evolving requirements of the regulatory authority and the growing extent of statutory consumer protection. PZU Życie takes a customer-oriented approach by designing its offer and client service process so that the client feels fully cared for and satisfied. It should also be emphasized that the changes introduced in 2018 are made not only to the product itself but also entail the modernization and simplification of the way in which insurance is offered and sold (processes and front-ends) and enable the client to take advantage of various contact channels to reach the insurer (e.g. in a branch, by phone, e-mail, client account, person handling technical issues related to insurance in the workplace or through an insurance intermediary, whether tied or external).
Life insurance undertakings - percentage of periodic gross written premium in the first three quarters of 2018 (in %)
PZU Życie’s technical result represented more than half the result earned by all life insurance companies. This evidences the high profitability these products enjoy. PZU Życie’s technical result margin on gross written premium was nearly two times higher than the overall margin generated by other companies offering life insurance (20.4% versus 11.3%).
◦ caregiver supporting the patient and his/her family over the entire treatment path,
◦ fast service time in private medical facilities all over Poland,
providing for private medical care in the event of an orthopedic injury caused by an accident; • Myocardial Infarction or Stroke Rider – providing for financial support in the event of a myocardial infarction or a stroke.
Based on an UOKiK decision, editorial changes were introduced to the GTCI of other riders to individually continued insurance: Z Kartą Apteczną [With Pharmacy Card] and Asystent w Czasie Utraty Zdrowia [Assistant During Illness], related to the wording on exclusions of events pre-existing before liability under the insurance began.
In addition, in the interests of clarity of the message to the client, the letters concerning individually continued insurance are changed to a simple language comprehensible by the consumer in cooperation with the Polish Language Department at the University of Wrocław. The work in this area will be continued in 2019.
In its other initiatives PZU constantly opts for understanding client needs better and better and building long-term client relations. PZU wants to respond swiftly to changes in the environment through a sophisticated offer accompanied by clear and communicative messages by doing the following: • creating predictive client attrition models and responding swiftly and effectively to symptoms of client dissatisfaction; • developing a loyalty program; • using a simple and transparent arrangement and description of its products on its new website www.pzu.pl.
In addition, having regard for the legal and regulatory environment and the requirements placed on PZU, its products were adapted to the EU General Data Protection Regulation (GDPR). These changes affected the process of selling, implementing and servicing products.
Factors, including threats and risks, that may affect the operations of the life insurance sector in 2019 The following constitute the major risk factors on the life insurance market in 2019: • the prospect of a higher inflation rate and economic growth driving an increase in T-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 insurers to adapt to these expectations rapidly; • the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies; • consequences of the entry into force of the Insurance Distribution Directive (IDD); • further consequences of the entry into force of MIFID II; • entry into force of the new pension security system
(Employee Capital Schemes) and its impact on the products existing in the 3rd pillar of the pension system.
Market situation As at the end of December 2018, there were 32 domestic commercial banks, 549 cooperative banks and 31 branches of credit institutions operating in Poland.
Gross receivables from the non-financial sector (excluding debt instruments) increased 6.0% to PLN 1,015 billion y/y as at the end of December 2018. Growth in this area was driven mainly by receivables from enterprises (+6.8% y/y) and receivables from households (+5.7% y/y).
The banking sector’s own funds for capital ratios, calculated in accordance with the regulations laid down in the CRR
Regulation1, totaled PLN 204.6 billion at the end of December 2018, up 3.5% versus the end of December 2017.
Total Capital Ratio of commercial and cooperative banks stood at 19.1% at yearend 2018, versus 19.0% in 2017 and Tier I ratio amounted to 17.2%.
At the end of the third quarter of 2018, Bank Pekao was the second largest bank in Poland (in terms of the value of its assets).
In September 2018, Bank Pekao opened its first foreign representative office in the United Kingdom. The outlet in London plays a representative role. The Bank’s representative office should support corporate and private banking relationships, including Polish companies planning international expansion or private equity funds interested in the Polish market.
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
In January 2018 the bank launched its new Mega Beneficial Account offer to replace the previous line of Euroaccounts. The Mega Beneficial Account is the bank’s main account through which it offers a full array of banking products and services. Moreover, in January 2018 the bank launched a new Savings Account in its offer for retail clients offering an attractive interest rate for their funds and no fees for withdrawals from this account provided that they use the Peopay mobile application.
Bank Pekao is a leading bank in servicing foreigners with more than 25% market share in this respect. The largest group of foreigners using banking services in Poland are the citizens of Ukraine, of which almost every fourth is a Bank Pekao customer. The percentage is even higher among Ukrainian students: every third student has an account with Bank Pekao. The Bank expanded its offering for Ukrainian citizens with a helpline, forms of bank regulations in the Ukrainian language and a Currency Exchange service with preferential exchange rates. Starting in July 2018 it will provide free money transfers to Ukraine and PeoPay mobile banking in Ukrainian.
In 2018, the bank introduced a new Savings Account for retail customers and a Premium Savings Account dedicated to affluent customers with a World Premium Account. The new accounts replaced the Dobry Zysk account.
The bank developed its cooperation with PZU in insurance in 2018. Training was delivered to 6.7 thousand branch employees who obtained a license from KNF to sell PZU insurance. It introduced a group insurance product called “PZU-TRAVEL PACKAGE-BUSINESS” for the users of business payment cards issued by Bank Pekao and a general insurance agreement was executed with PZU concerning the risk of mortgage loan amortization. The bank also made available an option to buy voluntary PZU CPI insurance offered in conjunction with a loan application during the “one click” process in the Pekao24 system. Since June 2018, Bank clients have been able to avail themselves of the new insurance for buildings and residential units prepared by PZU. In addition to the standard insurance for real estate that can form collateral for the debts of the Bank’s borrowers, clients can choose from additional bundles spanning insurance for their household personal property, assistance and third person liability. Bank Pekao’s electronic channels conducted an active sales campaign of PZU’s tourist insurance offered through the moje. pzu.pl portal.
In the PeoPay mobile banking area, in 2018 the bank launched a 24/7 money exchange counter and the ability to manage cards; as a result, clients may now use the application to activate or block a payment card. A user of the PeoPay application may set it to display the account balance on the home screen without the need to log in. The PeoPay app also offers the option of verifying the customer during a conversation with a bank consultant. In June 2018, Bank Pekao implemented BLIK codes in the PeoPay application enabling cash withdrawals from ATMs, payments in payment terminals and on the Internet. Additionally, in June 2018 Bank 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. The number of retail clients actively using mobile banking has been increasing by 31% y/y.
In 2018 the activities in Private Banking area focused on acquiring new customers and strengthening relations with the existing clients by offering products tailored to their needs and to the current market situation. In 2018 400 new clients were acquired. The clients brought investment products for almost PLN 900 million. At yearend 2018, assets under the Investment Advisory service amounted to PLN 3.1 billion. Private Banking clients actively used the internet and mobile banking services., the number of operations performer through remote channels increased by over 90%.
The Bank is steadfastly pursuing its growth strategy in the Small and Medium Enterprise segment. At the outset of 2018 an offer containing new flexible service bundles was rolled out: Standard and Premium. The SME Premium offer targets companies with annual sales above PLN 5 million that need comprehensive service and for whom a tailor-made approach and the ability to negotiate prices are crucial. In H1 2018 new products were made available to clients: multipurpose credit line (overdraft, installment working capital loan, guarantees and letters of credit under a single credit decision and agreement), renewable revolving loan to finance current business and e-financing to support the financing of short-term commercial accounts receivable. In the latter half of the year the bank phased in the SME Universal Agreement forming the basis of the comprehensive offer in transactional banking, making it possible to forge multi-dimensional relations with clients. The SME Universal Agreement was crafted by using modern trends in corporate banking giving clients a wide array of products and services. In turn, as a result of the agreement signed in July of 2018 between Bank Pekao and the European Investment Fund (EFI) regarding a line of portfolio guarantees for loans, loans with an EFI COSME guarantee were launched in the offer as of September 2018. EFI COSME guarantees secure 50% of the principal and interest on investment or working capital loans made to companies; they are extended free of charge and make it easier for companies to obtain access to funding.
Pekao TFI The Pekao Mutual Fund Company (Pekao TFI) is another member of the Pekao Group. Pekao TFI (formerly Pioneer Pekao TFI) is the oldest mutual fund management company in Poland providing clients modern financial products, offering opportunities to invest in the largest global capital markets. For many years it has been devising savings programs, including programs affording an opportunity to put aside more money for retirement under the third voluntary retirement pillar. Pekao TFI also offers a managed account service. At the end of December 2018 the company had assets under management totaling PLN 19.2 billion, signifying an upswing of PLN 1.8 billion, i.e. 10.2% in comparison to the end of December 2017 and was ranked fourth (in terms of assets under management) on the market of investment companies in PolandCHAP. 3.5 MUTUAL FUNDS
PZU Group’s operations to OFE PZU. In turn, the winding up of DFE Pekao kicked off on 19 May 2018 and ended on 28 September 2018. Pekao Financial Services is rendering Transfer Agent Services for the funds managed by PTE PZU.
• PAPERLESS - deploying a solution making it possible to abandon the traditional form of signing contracts.
Alior TFI Alior TFI (formerly Money Makers) operates in the Alior Bank Group. It was established in 2010 and its operations originally focused on asset management services. Alior Bank’s cooperation with its subsidiary Alior TFI
Market situation As at the end of December 2018, the total assets of the domestic mutual fund market stood at PLN 257 billion compared to PLN 279 billion as at the end of the previous year, representing a decrease by almost 8%.
TFI’s activity Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU), part of PZU Group, operates on the mutual fund market. It offers products and services for both retail and institutional clients – including additional investment and savings programs forming part of the third pillar of the social security system: Individual Retirement Accounts (IRAs), Employee Savings Plans (ESPs), Employee Pension Plans (EPPs), Company Investment Plans (CIPs) and Group Pension Plans (GPPs) which additionally offer Individual Retirement Security Accounts (IRSAs).
At yearend 2018, TFI PZU had 36 funds and sub-funds in its portfolio, of which 29 were also offered to clients from outside the Group – in October the portfolio was supplemented with 6 new sub-funds forming part of inPZU SFIO Parasolowy passive funds available through the cutting-edge platform inpzu.pl. TFI PZU has also begun offering professional asset management services.
At the end of December 2018, TFI PZU managed a portfolio of net assets of nearly PLN 19.8 billion, representing a 7.7%
Factors, including threats and risks, which will affect the mutual funds’ operations in 2019 The condition and performance of the mutual fund market will depend mainly on the following: • macroeconomic situation: mostly the rate of economic growth and changes in the rate of inflation domestically and throughout Europe; • actions taken by central banks (Fed, ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets; • intensity of global protectionism, in particular that surrounding the US-China trade war,
• existing economic climate on financial markets; • global geopolitical situation (upsurge of populist sentiments in Europe, Brexit, tensions in the Middle East) and domestic political situation (parliamentary and presidential elections).
Lithuanian market According to the Bank of Lithuania, in 2018 gross written premium collected by non-life insurance companies totaled EUR 630 million, representing an increase by 12.2% compared the corresponding period of the previous year.
Lietuvos Draudimas continues to be the largest insurance company in Lithuania in terms of total gross written premium in non-life insurance. The company’s share in the market at yearend 2018 was 30.5%. Considering the recent acquisition
market share. Accordingly, TFI PZU is among the largest mutual fund companies in Poland – as at 31 December 2018 it was ranked third in Poland according to reports published by IZFiA (Chamber of Fund and Asset Managers). TFI PZU is also the market leader in the employee pension plan segment among institutions operating in this market with net assets of nearly PLN 5.4 billion.
Gross premium written by Lithuanian life insurance companies was EUR 248 million at yearend 2018, up 7.3% from the previous year. The increase in gross written premium was driven by the continuous and stable increase in regular premium (8.9%), which outweighed the 9.4% decrease in single premium income. 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.
Latvian marketi The Latvian non-life insurance market recorded a gross written premium of EUR 280 million in Q1-Q3 2018. This is nearly EUR 43 million (i.e. 18.3%) more than in the same period of the previous year.
In 2018, there were 10 insurance companies operating in the Latvian non-life insurance market and 68.6% of the market was in the hands of the biggest 4 insurers.
Estonian market In 2018, non-life insurance companies operating in Estonia recorded an increase in gross written premium by 35.9%, compared to 11.1% in 20172. In total, gross written premium was EUR 457 million, of which EUR 122 million, i.e. 26.8%, was collected by foreign insurance undertakings operating in Estonia.
Activity of PZU companies in the Baltic states As of November 2014, the PZU Group has been operating in the Lithuanian non-life insurance market through Lietuvos Draudimas, which, as of May 2015, is the owner of the PZU Estonia branch.
Life insurance operations in Lithuania are conducted through UAB PZU Lietuva Gyvybës Draudimas – “PZU Lithuania Life”. The collected gross written premium was EUR 15 million, which means an increase by 12.3% compared to the previous year. The highest sales growth was recorded in endowment insurance, which increased by 11.9% compared with 2017. The share held by PZU Lithuania Life in the life insurance market at yearend 2018 was 6.2% (compared to 5.9% in the corresponding period of 2017).
The largest decreases in net assets were recorded at yearend 2018 by the following funds: PZU SFIO Universum, PZU Stabilnego Wzrostu MAZUREK, PZU Medyczny (former PZU Energia Medycyna Ekologia), PZU FIZ FORTE, PZU Akcji KRAKOWIAK, PZU Akcji Spółek Dywidendowych and PZU Akcji Małych i Średnich Spółek.
PZU Group’s operations then (in May 2015) the branch took over the PZU Lithuania branch operating in the Latvian market since 2012. At the end of Q3 2018, the total share of PZU subsidiaries in the non-life insurance market reached 27.8% and gross written premium was EUR 79 million (compared with EUR 105 million in 2018).
Since May 2015 the entity conducting operations in Estonia is a branch of Lietuvos Draudimas and was established as a result of merger of two entities – branch of the Lithuanian PZU company registered in 2012 and the Estonian branch acquired in 2014, which conducted operations under the Codan brand. The company’s share in the Estonian non-life insurance market in 2018 was 16.0%. Accumulated gross written premium was EUR 73 million3.
Rynek ukraiński The Ukrainian insurance market after Q3 2018 posted 11.1% growth in gross written premium reaching UAH 35 billion. The premium written for non-life insurance was UAH 32 billion, signifying 9.4% growth compared to the corresponding period of 2017. Motor insurance (29.3% of the non-life market) recorded an increase in the premium written by 21.9%, including Green Card insurance by 19.6%. In the corresponding period, life insurance undertakings collected gross written premium of UAH 3 billion, signifying 35.6% growth compared to Q3 2017.
The Ukrainian insurance market is highly fragmented – as at the end of September 2018, there were 285 insurance companies operating in the country (31 of which offered life insurance). Despite the number of insurers that continues to be enormous, the top 100 non-life insurance undertakings generated 98% of gross written premium, while the top 20 life insurance undertakings generated nearly 100% of written premium.
In 2018, gross written premium collected by PZU Ukraine was UAH 1,517 million, 17.8% higher than in the previous year. This increase arose from both the increase in the premium obtained through external entities (banks and travel agencies), as well as through its own distribution channels. In 2018, gross written premium collected by PZU Ukraine Life was UAH 413 million, up 37.8% from 2017. This growth was mainly achieved in the bancassurance and broker channels, in particular as a result of sales of endowment insurance policies.
In the first three quarters of 2018, PZU Ukraine collected 3.4% (up 0.1 percentage points compared to the first three quarters of 2017) of total gross written premium of the whole Ukrainian non-life insurance sector, whereas in the life insurance market PZU Ukraine Life gained an 11.0% market share (up 0.6 percentage points compared to the previous year), which gave both companies fifth4 place on the market.
Factors, including threats and risks, that may affect the insurance business in the area of foreign companies in 2019 • potential slowdown of economic growth in the Baltic states; • resumption of price pressure in motor insurance caused by improved portfolio profitability in recent years (in the Baltic states); • case law concerning the amounts of general damages paid in cash for the suffering sustained (legislative amendments in Lithuania) under the TPL insurance held by the owners of motor vehicles to the closest family members of persons who have died; • postponement of the decision to deregulate premium rates in motor TPL insurance in Ukraine.
PZU Plan na Zdrowie [PZU Plan for Health] Insurance for natural persons (also those self-employed), companies and institutions enabling adjustment of the scope of medical care to the client’s needs. The PZU Group offers the following insurance riders on top of the basic Plan na Zdrowie medical care bundle, which guarantees medical care after an accident (cover includes fractures, paralysis, damage to organs, etc.): • W Ciężkiej Chorobie [Critical Illness] – treatment in the event of one of 16 critical illnesses; • W Leczeniu Nowotworu [Cancer Treatment] – treatment of malignant neoplasm; • W Trosce o Ciebie [Caring for You] – medical care on a daily basis – this insurance is available in three plans: General, Extended and Comprehensive.
• a tool has been developed further for booking on-line appointments through a direct connection with the calendars of cooperating medical centers. In 2018, PZU Zdrowie was connected to 130 medical centers located across Poland; • 3 new medical centers were built on a greenfield basis and opened in Warsaw, Kraków and Poznań, and the Gdańsk branch was extended to bring it up to modern standards.
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 2018, 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 2,420 thousand members, i.e. 15.2% of all participants in open-end pension funds; • net assets stood at over PLN 22 billion, thereby representing 14.1% of the total asset value of the openend pension funds operating in Poland; • in 2018 the merger of Pekao OFE and OFE PZU was completed; in accordance with the decision issued by the Polish Financial Supervision Authority, the funds officially merged on 12 October 2018.
Factors, including threats and risks, which will affect the pension funds’ operations in 2019 The main challenges facing the pension fund market in 2019 are the following: • financial markets sentiment and, in particular performance of the Warsaw Stock Exchange, affecting the value of the funds’ assets and the level of management fees collected by pension fund companies; • 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, as well as influencing the need in public awareness for accumulating additional savings for future retirement; • potential conclusions from the pension system review planned for 2019.
PZU Pomoc PZU Pomoc provides auxiliary services to PZU Group companies, including: • managing the PZU repair network – at the end of 2018 the company cooperated with 895 repair shops; • organizing motor assistance services for Link4; • conducting salvage auctions and sales after loss and damage incidents; • supporting technical claims handling in motor claims; • handling assistance products for PZU and PZU Życie
PZU CO PZU CO is an auxiliary company for PZU Group companies, established to provide the following services: printing, IT, Data Center, Contact Center, auxiliary services related to insurance and pension funds, constant intermediation in conclusion of insurance agreements, financial and investment agreements, assistance agreements and HR and payroll-related services.
At present, the company conducts work associated with the office and commercial investment project located in a prestigious location in Wrocław at ul. Oławska 35 (Plac Dominikański) in a venue occupied for the past several decades by an office building owned by PZU. This investment is partially intended for the PZU Group’s needs and partially for lease.
PZU Finanse PZU Finanse Sp. z o.o. is a service company established for the purpose of keeping accounting ledgers for subsidiaries of the PZU Group (excluding PZU and PZU Życie).
PZU Corporate Member is handled by Argenta Holdings Limited. This agency deals with the ongoing activities of syndicates, invests their funds and employs underwriters.
Armatura Kraków SA (Armatura Kraków) is the parent company of the Armatura Group. The Armatura Group includes Armatura Kraków SA, Aquaform SA, Aquaform Bauprodukte, Aquaform Ukraine, Aquaform Romania, Morehome.pl. The business of the Armatura Group lies outside the domain of financial and insurance services. The group is a leading manufacturer in the sanitary and heating industry in Poland. The companies making up the Armatura Group specialize in the manufacture of bathroom and kitchen taps, aluminum central heating radiators, a wide range of valves and sanitaryware.
The PZU Group’s strategic planning is predicated on four fundamental principles: stability, honesty, innovativeness and responsibility. These are the values that form the basis for the functioning of best practices in the PZU Group (including the principles of sustainable development implemented in business processes in a broad sense) and the Group’s business 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 will be placed on analyzing the information the PZU Group has to grasp and use it better.
In order to create the appropriate business environment to attain these targets, client interactions were redefined from scratch. This entailed an alteration to the philosophy of how the overall Group operates. For this purpose, the various business units were placed in a single integrated system dedicated to full dimensional client service at every stage of development. Client interactions were realigned to long-term partnership based on trust and understanding where a major value driver is the quality of the solutions dedicated to clients.
The strength of the #nowePZU strategy lies in technological support spanning the field of innovation and encompassing nearly all the Group’s operating areas. Multi-dimensional data analysis will make 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 will involve the usage of tools based on artificial intelligence, Big Data and mobile solutions.
The overarching objective of the #newPZU strategy is to generate a return on equity (ROE) in excess of 22%, i.e. nearly twice as much as the average for insurance companies in Europe.
Conversion of the sales network into multi-product sales network 10 core products in broad distribution 50% of salespersons sell multiple products in proprietary networks 1 bn in revenues of PZU Health 12% EBITDA margin
#nowePZU 2020 strategic initiatives 4.2. Strategy operationalization 12 strategic initiatives (in 4 areas: data analysis, cross selling, digitalization of processes and client interactions) define the path to achieving the ROE target > 22%.
Raise the volume of sales and cut costs through PZU’s cooperation with the Group’s banks
Execution: • an integrated CRM platform was launched in 2018 – 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 event histories. The system also prompts new products aligned to client needs. As a result, this will allow us to build strong client relations and augment loyalty and 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, and for a salesperson to glean better familiarity with clients’ current standing in the PZU Group; • work continued on a system facilitating comprehensive fraud identification (FMS) within the framework of building an effective CRM system. This system is based on advanced analytics and behavioral models providing support in processes to enter into contracts and handle damages. Its usage will affect the profitability of the product groups at risk and the offer’s price attractiveness to the final client.
Better matched price to risk and price sensitivity (Tariff setting 3.0)
conduct of pilot projects in short order in cooperation with the best experts on Big Data and Data Science in Poland. In 2018 DataLab and its partners ran projects regarding underwriting based on pictures and rapid quotation when buying real estate insurance on the web.
Metric: number of clients attracted to the Group’s banks, premium in the banking channel, cost cutting as a result of collaborating with banks.
Execution: • 24 insurance products were rolled out in the banking offer in 2018, thereby ensuring the presence of PZU’s products in all the banks’ product lines, while PZU has several leasing bundles in leasing companies containing motor, property and financial insurance. The PZU Group including the banks plans to deploy another fifteen or so products in 2019. Preparatory work (formal legal, business and technology analysis, among others) in assurbanking was also conducted. Several thousand clients were solicited during the pilot period.
Execution: • analytical work was conducted in 2018 to define the optimum rules for carrying out the new distribution, tariff-setting and sales process. The crucial issue for this process was to design a rapid implementation path for new products.
of the Group’s proprietary network) by 2020; • distribution of at least 3 of the 5 lines of business (life insurance, non-life insurance, medical care, investment products, banking products) by general salespersons.
#7: Development of sales in PZU Zdrowie Initiative: build PZU Zdrowie’s size and profitability. Build a competititve advantage by tapping into technology and the high quality and accessibility of services.
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.
• within the framework of product-related development work sales was launched in the Everest system of the following products: PZU Auto Asystent Zdrowotny, PZU Dom Asystent, PZU Wojażer Kontynuacja leczenia po podróży and PZU Plan na Zdrowie; • PZU developed and tested a symptom checker platform based on artificial intelligence in cooperation with a Polish technology start-up; it will be available on the patient portal in an app and also in the form of a dedicated solution for medical hotline employees. 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.
Execution: • in 2018 educational and preparatory efforts were conducted for the new product offer – ECS (Employee Capital Schemes). News on PZU’s efforts was reported in the traditional and internet trade media. A special website emerytura.pzu.pl was also created where current information is published on the upcoming changes. Using that site it is possible to calculate the planned pension benefits coming from saving under the ECS and subscribe to a newsletter. Strategic efforts and efforts to align the business and operating architecture to sell this product were conducted on the business side of things. Moreover, training courses were delivered to salespersons.
#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 “moje.pzu.pl” portal.
Metric: number of accounts established by clients (5 million accounts by 2020).
Execution: • 7 insurance, health and investment products were deployed in the direct offer in 2018. To date, the following insurance products have been available in PZU’s online sales: car, home/apartment, travel (Voyager), individual retirement security account (IKZE), JaPlus, inPlus and FFS (medical benefits falling outside the scope of a subscription).
(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.
1 As of the day of preparing this report the market data on the direct market structure in 2018 were not available.
Integrated service model for SMEs 1 Value generated in 2020 compared with 2016
Gross written premium growth in non-life insurance in the SME segment
Insurance 1. Maintaining the PZU Group’s leadership position on the non-life insurance market. According to the end of Q3 2018 data published by the Polish Financial Supervision Authority, PZU’s market share (direct business) was 34.8%.
2. Link4’s non-life insurance market share was 2.8% at the end of Q3 2018 (down 0.1 p.p. y/y; direct business).
3. Strengthening its leading position in periodic premium life insurance. Market share was 46.0% in the first three quarters of 2018 (45.8% last year). PZU Życie’s life insurance market share at the end of Q3 2018 was 37.8% (up 3.0 p.p. y/y).
4. Consolidation of market leadership in Lithuania and Latvia. The Lithuanian company’s non-life insurance market share was 30.5%, while the market share on the Latvian market at the end of Q3 2018 held steady at 27.8%. The Lithuanian life insurance market share was 6.2% (up 0.3 p.p.). The PZU Group’s non-life insurance market share in Estonia in 2018 was 16.0%, posting growth of 0.4 p.p. The Ukrainian non-life company posted market share expansion (3.4%) of 0.1 p.p. in the first three quarters of 2018 compared to the corresponding period of the previous year, while the life company’s market share edged up by 0.6 p.p. to 11.0%.
8. Commencement of work for PZU to market innovative solutions pertaining to tariff setting and sales support.
11. PZU received a prestigious award as a Trustworthy Brand in 2017 conferred by the “My Company Polska” monthly for products and services that feature a special degree of trust according to commercial undertakings.
2. The slight decline in third party assets under management from PLN 7.3 billion at the end of 2017 to PLN 7.1 billion at the end of 2018 was primarily due to the soft market. The assets of TFI PZU’s third party clients represented 4.4% of the TFI market’s assets at the end of 2018 (net of privately held assets).
5. PTE PZU’s net profit at the end of 2018 was PLN 70.8 million.
Health 1. At the end of 2018, PZU Zdrowie’s revenues were PLN 575.3 million, signifying growth of 26.3% from the previous year.
2. 20.1% growth in gross written premium in group health insurance in comparison with 2017.
4. Further refining of the tool to manage the proprietary medical center network and the centers cooperating with PZU Zdrowie and manage client traffic on the medical hotline.
5. Performance of work on implementing a functionality enabling online communication with Medical Hotline consultants to book medical services with an extensive network of medical centers.
6. Work to implement a portal to handle occupational medicine for employers and a selfservice portal for PZU’s patients (mojePZU portal).
Cost effectiveness culture 1. Increase of administrative expenses in the underwriting segments in Poland by PLN 5 m at the end of 2018, i.e. 0.4% y/y.
Execution of the PZU Group’s CSR strategy 2018 was the first year of executing the PZU Group’s CSR strategy that defined the ambitions PZU and PZU Życie have for corporate social responsibility. Within the bounds of these assumptions the areas of corporate social responsibility, operating directions and management approach to the initiatives being undertaken were defined.
Membership in the index at a minimum average level for the industry
NPS for retail clients in insurance versus the competition >competition >competition
Clients were once again inclined to recommend PZU to a greater extent in 2018 in comparison to the competition. Its NPS (Net Promoter Score) was 7.3 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 to satisfy client needs effectively and identify the organization’s strengths and areas in need of modification and improvement.
Risk assessment framework score (BION) for PZU and PZU Życie Good level* Good level
Financial commitment to social activity PLN 86.8 million > PLN 50 million per annum
was prepared 90% of contracts contain an obligation to adhere to the “Code of CSR Best Practices for PZU’s Suppliers”
Preparations were underway in 2018 to implement a new procurement platform that, according to the assumptions underpinning the CSR strategy, will incorporate the necessity of affirming the obligation to abide by the “Code of CSR Best Practices.
1 ROE attributable to the parent company 2 Direct business 3 PZU jointly with TUW PZUW and LINK4 4 Data at the end of Q3 2018 5 Administrative expenses in PZU and PZU Życie 6 Own funds after subtracting anticipated dividends and asset taxes 7 PZU Investments’ consolidated net result
Analysis of data on campaigns such as “Teddy Bears Rescue Children’s Lives” is not only about tables, bars and charts. The analyses we carry out in such projects give us certainty that our daily work translates into specific effects. The feeling that we do something good motivates us to work.
The PZU Group enjoys the trust of more than 22 million clients in 5 countries in Europe, of which 11.8 million, clients in Poland have group and individually continued life insurance.
The PZU Group Strategy published on 9 January 2018: “The New PZU – More Than Insurance” SECTION 4 PZU 2020 - MORE THAN INSURANCE 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.
PZU wants to do something different from the classical client relation model in which the only contact clients have with their insurer after buying a policy is when a claim occurs. PZU intends to do considerably more and effectively help clients solve its problems in many areas and during every stage of
life. PZU’s philosophy of thinking about clients constitutes a departure from the classic model of an insurer’s client relations rooted solely in sales and after-sales service. PZU’s goal is to establish and maintain relations by delivering products well-matched to clients at the appropriate time and place so as to ensure at the same time that the product’s attributes (including its price) are aligned to client needs.
The combination of PZU’s databases under a single CRM (customer relationship management) system will make it possible to customize the offer to client needs more effectively in terms of quality and costs alike. This will also accelerate the purchase process while streamlining service-related processes. Clients will be able to manage their products in the entire PZU Group quickly and easily (on their own or with the support of advisors).
Insurance continues to be the PZU Group’s core business despite constant evolution, organic growth and acquisitions. The core 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 (nonlife insurance).
Clients and products The PZU Group has a comprehensive product offer spanning life and non-life insurance for 16 million clients in Poland. They are retail clients, sole proprietors, small and medium enterprises and large corporates. The PZU Group enjoys the trust of 1.2 million clients in the Baltic States and Ukraine.
PLN 1 million for drivers driving safely in the LINK4 “Kasa Wraca” [Cash Back] telematic program in 2018 proprietary and partner outlets of Alior Bank at the end of 2018 6.7 thousand - number of employees of Bank Pekao branches who were trained and obtained KNF licenses to sell
PZU insurance in 2018 over 300 innovative ideas submitted in 4 competitions using the Ideas Generator
Distribution channels 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 411 branches with convenient access across the country (with 189 in small communities) and tied agents, multiagencies, insurance brokers and electronic distribution channels.
Key: on a scale from 1 to 3 where 3 denotes the highest sales
Life cover and savings Support for your family Individual continuation of group insurance
Structured life insurance with a capital guarantee – PZU Świat Zysków [World of Profits] Unit-linked life insurance – PZU Cel na Przyszłość [Goal for the Future] Individual unit-linked life insurance – Multi Kapitał [Multi Capital]
Tourist travel insurance Sports travel insurance Work or study travel insurance
Business Model and Estonia through Lietuvos Draudimas, AAS Balta and Lietuvos Draudimas’ PZU Estonia branch, respectively, while on the life insurance market it is active through PZU Lietuva GD), the Group’s agency network consisted of approx. 1 thousand agents, while in Ukraine (where PZU is active on the non-life insurance market and on the life insurance market through PZU Ukraine and PZU Ukraine Life, respectively) it had roughly 700 agents; • multiagencies – more than 3 thousand of them cooperate with the PZU Group on the Polish insurance market. They perform sales operations targeted mainly at the mass market (insurance of all types is sold through this channel, especially motor insurance and non-life insurance as well as individual life insurance). In turn, in the Baltic States Group companies cooperate with 33 multiagencies and in Ukraine with 14 multiagencies; • insurance brokers – in Poland, the Group, in particular PZU’s Corporate Client Division, cooperated with almost 1 thousand insurance brokers. In the Baltic states where the brokerage channel is a major insurance distribution channel, the Group companies cooperated with over 390 brokers, whereas Ukrainian companies cooperated with more than 30 brokers; • bancassurance and strategic partnership – in protective insurance, in 2018 the PZU Group cooperated in Poland with 13 banks in particular Pekao and Alior Bank and 21 strategic partners. The PZU Group’s business partners are leaders in their industries with client bases offering enormous potential. In strategic partnership, cooperation applied mostly to companies operating in the telecom and power sectors through which insurance for electronic equipment and assistance services was offered. In the Baltic states, PZU cooperated with 5 banks and 14 strategic partners. In Ukraine, the respective numbers were 7 banks and 8 strategic partners.
For clients, claims handling is the ‘moment of truth’ when the quality of the product purchased from an insurer is tested. Satisfying client expectations during the claim handling/ case handling process is the key to building PZU’s client relationships. For this reason, the PZU Group took a number of measures in 2018 to streamline and shorten this process. More than 85% of the simple benefits are handled on the day they are reported.
In 2018 PZU started a new internet service to report claims and benefits. This service complies with the philosophy of using simple language, while its usage of intuitive graphics and images makes it user friendly and easy to grasp. Since it is suitable for mobile devices, it can be used anywhere. When reporting a case clients fill out only the data which PZU does not have. Clients receive an automatically calculated proposal of the indemnity payment in motor and property claims. These changes have shortened the time it takes to record a claim from 15 to 5 minutes. The new tool to report claims and benefits has also been made available for use by Contact Center employees. That means that registration through our information line takes less time, thereby considerably enhancing the quality of service.
PZU Ochrona i Zdrowie [PZU Cover and Health] PZU Ochrona Plus [PZU Cover Plus] PZU u Lekarza [PZU at the Doctor’s]
PZU P Plus PZU W Razie Wypadku [In Case of Accident] PZU u Lekarza [PZU at the Doctor’s] PZU Pełnia Życia [PZU Full Life]
PZU Gospodarstwo Rolne [PZU Farm] PZU Uprawy [PZU Crops] PZU Zwierzęta [PZU Animals]
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, without limitation, 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.
In 2018 PZU modified and simplified the form for clients to initiate claims self-service rolled out in 2017. Presently, the claims self-service is triggered at the time of reporting a claim. In accident insurance claims or benefits, the client may freely accept or reject the proposed amount of the benefit. 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.
On top of accelerating the process of determining the amount of the loss PZU has undertaken efforts to speed up the payment of the indemnity by introducing robotics elements at the stage of summarizing the claims notification and making the claims decision. Robotics are used in specific types of claims.
PZU was the pioneer in DCH (Direct Claims Handling) on the Polish insurance market. Currently, DCH is executed in two forms: at an individual level or under the agreement worked out by PIU. DCH is offered by entities accounting for nearly 70% of the motor TPL insurance market, as measured by gross written premium. The said agreement, which is based on a lump-sum approach, has dramatically simplified the settlement of claim payments between insurers. PZU also maintained its own DCH solution previously introduced for clients injured by insureds in establishments that did not sign the agreement. In Estonia, direct claims handling has been regulated by the provisions of the TPL Insurance Act since the beginning of 2015. In turn, clients in Latvia who wish to take advantage of DCH must purchase a rider on their insurance.
2018 was another year of cooperation with repair shops in the area of post-accident vehicle repairs in countries covered by the PZU Group’s insurance business. PZU has created Poland’s largest network of cooperating repair shops enabling the Company to control the quality and speed of service already at the claim handling stage. Every client who orders a repair in the PZU Pomoc repair network receives a Quality Certificate guaranteeing that the repair has been performed in accordance with the highest standards. PZU is refining its proposal to assist clients in managing damage remains by selling them on the Online Assistance platform. Clients are presented with a proposal to sell their damage remains for the highest purchase offer obtained from reliable entities that cooperate regularly with the platform administrator (a similar solution is also available to clients of the Estonian Lietuvos Draudimas branch).
In 2018 PZU invested in new drone technology entailing visual material processing. A professional DIJ Matrice 200 drone, a training drone and drone flight simulators were purchased. Presently, 6 people in PZU hold UAVO certification (Unmanned Aerial Vehicle Operator) issued by the Civilian Aviation Authority (CAA). These certificates are issued after passing a state examination preceded by specialist training. PZU’s aviation personnel is doing additional training using sophisticated simulators. The first aviation missions using a drone outfitted with photo/video and infrared cameras are slated to take place in the spring of 2019. Ultimately, drones will be employed to obtain photo and video documentation regarding property claims. Generating 3D models will facilitate more extensive analysis of the site and object of the claim. This will be a big step on the path to further optimization of the processes to ascertain the causes and scopes of claims, especially catastrophic claims, or of large magnitude in buildings, structures, industrial facilities and power lines.
Handling claims caused by the consequences of severe ground frost involves a determination of whether the damaged plantation has a minimal proliferation of plants guaranteeing a crop yield at an economically justified level.
An invariably significant area of operation in claims and benefits handling is the prevention of insurance fraud. PZU constantly improves solutions to curtail the payment of undue benefits, hinder practices of clients counterfeiting documentation filed during the submission of a claim or statements regarding their health status and purport to simplify many processes. In 2018 support was extended to identify undue payments of claims and benefits by incorporating a Fraud Management System (FMS) when examining non-life insurance claims. Contracts were signed to procure services involving the audit of electronic registers of post-accident vehicle traction and sourcing documents and information from international entities.
Innovations, digitalization and development of new technologies are processes that have been in progress for years in all the sectors of the economy. By rolling out many new solutions companies are gaining an ability to transform their strategy, business model and client, partner and employee experience. PZU grasps how new technologies are changing the insurance industry. In recent years, the PZU Group has been very active in implementing innovative solutions. Activities in this area are supported by the Innovation Laboratory – a unit created with a view to verifying the latest technological trends and testing new solutions across the organization. Modern solutions are being created both internally and in cooperation with the best start-up companies in the respective fields. The first projects have already been distinguished in domestic and international competitions (e.g. the Insurance Innovation of the Month prize and the Innovation in Insurance 2018 prize conferred by EFMA, an international organization, for the I Sign project, the Golden Handset prize for the Pre-Service project and the distinction in a competition organized by The Digital Insurer for the PZU GO project).
Innovative solutions are also collected internally using the Idea Generator, a portal to administer competitions and share inspirations among employees. In 2018, more than 300 ideas were submitted under 4 competitions.
In November 2018, the first year passed since the time when the PZU Management Board adopted the Innovation Strategy developed by the Innovation Laboratory. Its purpose is to help pursue the PZU Group’s mission and strategy and maintain the high level of competitiveness in the new technological environment. The Strategy points to three specific areas in which PZU should be especially active while seeking innovation: the use of Big Data, digitalization and new interactions with clients. The designated areas ascribed the direction to be taken by 15 pilot projects organized in cooperation with the Innovation Laboratory, the relevant business departments and IT. They made it possible to vet the ideas and prepare the first implementations, i.e.: • PZU GO – the first telematic solution of its type in Europe whose purpose is to enhance drivers’ safety. A mobile app combined with a small beacon device makes it possible to place a call automatically for assistance in the event of a collision or accident; • Data Lab - PZU Group’s analytical environment to experiment using large data files, fast design and testing of analytical hypotheses in cooperation with business and IT.
In 2018 PZU started to collaborate with two startup accelerators: MIT Enterprise Forum Poland and Alior Bank (RBL_Start). The former one looked for solutions related to 3 key areas specified in PZU’s strategy. The latter one focused on open banking and the PSD2 Directive, i.e. Payment Services Directive 2 (Directive of the European Parliament and of the Council (EU) on payment services in the internal market) SECTION 5.4 BANKING. The solutions put forward under these programs enjoyed interest from selected business areas and some of them are already undergoing tests in the organization. Having noted the initial editions’ satisfactory results the decision was made to continue cooperation with accelerator programs for startups.
Link4 is the Group brand that has long been known for its innovative approach to motor insurance. On the Polish market the Company is running a number of innovative projects to distinguish the company and position it among the top modern and digital insurers.
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 accompanied by thermograms. Each identified defect or thermal anomaly has its description and status classified according to a simple and legible scale. The status provides information about the severity of the defect. Thermovision is a tool for managing risk in the enterprise.
On 1 October 2018, in Gietrzwałd, the PZU LAB Day was held – an event devoted to safety management in business, where PZU LAB not only talked about but also showed how to efficiently manage risk in enterprises. The conference was attended by representatives of companies from a number of industries, including the power, fuel and mining industry, who work on a daily basis with the corporate client division of PZU, PZU LAB and TUW PZUW. Demonstrations of practical solutions for the industry, organized outside the lecture room, in the form of live shows, were an interesting element of the event.
The guests were even more interested in the demonstration of the possibilities of a professional film drone, the demonstrations of Eagles FPV sports drones and the Ctrl+Sky anti-drone system presented by PZU LAB’s technological partner, Advanced Protection Systems. The guests could see live on the screens how the system detects and tracks flying objects which entered the facility uninvited. Everyone could see the specialized equipment and the mini command center located in a site vehicle used to control and neutralize threats.
We provide help in the case of an illness and serious health problems. We offer, among other things, financial support, subsidy to purchase of medicines and access to private medical care.
Medical care in the case of an accident, illness and for everyday needs Prophylactics for everyone PZU Plan na Zdrowie [PZU Plan for Health]
Innovations In 2018, PZU Zdrowie either started or continued the execution of the following IT projects aimed at improving its customer service: • mojePZU [myPZU] – a self-service website of the PZU
We guarantee short waiting times for medical appointments – our availability deadlines are stated in the general terms and conditions of insurance (2 business days for a primary care physician, 5 business days for a specialist physician); Our patients can benefit from services throughout Poland – our partner network covers over 500 towns and cities and we keep developing our own network of more than 60 centers; 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 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; We also allow our patients to get treatment from doctors from outside our network: through the reimbursement option clients may use medical services included in the coverage outside of our network.
The September promotion into the prestigious group of developed markets, as well as the centenary of regaining independence created a context for conversations about Poland’s prospects, as well as the intellectual and economic potential of Polish people and companies. Those conversations
Are you an Express Loan (PEX) Borrower? We will help you in situations such as loss of a job, serious illness or hospitalization due to an accident, and we will pay out the money to your nominated beneficiaries in the event of your death. If you are a customer of Bank Pekao, you can also insure your home or apartment.
Are you a loan or mortgage loan borrower? We can help you in many unexpected situations that may happen at home (e.g. theft with burglary, water or electricity installation breakdown). Are you a consolidation loan or cash loan borrower? Our insurance will secure the repayment of your financial liabilities, should an accident leave you unable to live independently.
The #PolandCanDoNation campaign, designed to promote Poland and initiated by PZU with a meeting of Polish and American business in New York, was continued in the form of a Polish Home at the World’s Economic Forum in Davos. It was a result of joint actions of PZU and Bank Pekao. Throughout the duration of the Forum - which is one of the most important meetings of the world’s business, the Polish Home was a venue of debates, presentations and conferences devoted to
The World’s Economic Forum is attended by the majority of presidents and prime ministers representing G7 and G20, i.e. the groups of the most developed countries and the biggest economies in the world. The 2019 World’s Economic Forum in Davos hosted representatives of over 100 governments, representatives of over 3,000 companies, leaders of international organizations, representatives of nongovernmental organizations and of science and research from all over the world.
Bank Pekao is one of the largest financial institutions in Central and Eastern Europe. It is a universal commercial bank, the biggest corporate bank and the leader of the private banking segment in Poland. Pekao has over 5 million customers, every second Polish company is a customer of the Bank. The Bank offers all financial services available in Poland to individual and institutional clients. The group comprises over a dozen companies which are national leaders in the area of brokerage services, leasing, factoring, financial investment and transaction advisory services. SECTION 3 OPERATION OF THE PZU GROUP
Pekao is one of the leaders in electronic banking in Poland. In its electronic banking operations, the bank offers its customers a full range of solutions such as: web and mobile sites, a mobile app for phones and tablets and PeoPay mobile payments. Since mid-2017, the bank’s customers have been able to use Pekao24, a new mobile service for mobile phone browsers, which apart from the design change, friendly navigation and intuitive operation, offers the functions familiar to customers from the mobile app for tablets and the Internet service.
Innovations Innovativeness is one of Pekao’s strategic priorities. To this end, the Bank established the Innovation Laboratory, with the objective to create innovative concepts in interdisciplinary teams of the bank’s employees, and in cooperation with start-ups and fintech companies. The bank’s developments in the area of digital transformation have been noted internationally and rewarded by the EFMA association (The European Financial Management & Marketing Association), which named the PeoPay app the best innovation in the world in the category Phygital Distribution & Experience. The Bank’s flagship product was highly praised by international experts, for, inter alia, its multi-functional character - support of multiple currencies, use of biometric data for log-in and transaction authorization, as well as the option to make transactions with one’s phone, without the requirement of having a physical card.
PeoPay is state-of-the-art mobile banking, which integrates the services of banking and payments within one app. PeoPay offers innovative solutions, such as the use of touch-id or faceid to authorize transfers and payments, payment for Internet shopping directly in the phone, without the need to log into Internet banking, scanning of account numbers from invoices, without any prior need of inputting the account numbers into the app. The PeoPay app is available for devices with an Android and iOS operating system. The app can be used to pay at over 700 thousand contactless terminals in Poland (NBP data for the end of Q2 2018), which represents nearly 99% of all POSs, and about 6 million terminals worldwide, as well as in most online stores in Poland and in online stores abroad marked with the Apple Pay or Masterpass logo. In 2018, the mobile service and the PeoPay app provided information on the investment account and offered transfers to the client’s savings and checking account. Clients also received the function of viewing debit cards issued for the account and managing their settings. The new function allows them to set or change the PIN for the card, activate the card, change transaction limits and temporarily block or suspend the card. In the payment schedule, the bank’s clients can easily check the impending payments, such as regular transfers or card repayments, and may use e-mail to contact the bank’s relationship managers directly.
The Bank continues to improve its digital solutions dedicated to corporate clients. In 2018, the Open Financing Platform was launched, a unique supplier financing solution that can be used by companies that are the bank’s clients, as well as the companies that do not have accounts in Bank Pekao. The bank is also working on further development of the Internet banking platform, PekaoBiznes24.
Alior Bank has a comprehensive and contemporary offer for business clients in all the segments: micro, small and medium and corporates. As at 31 December 2018, the bank serviced more than 192.8 thousand business clients.
Alior Bank also used distribution channels based on a modern IT platform incorporating: online banking, mobile banking and call centers and the DRONN technology. The Bank uses the Internet, including Internet banking, to enter into agreements for: savings and checking accounts, currency accounts, savings accounts, deposits, debit cards and brokerage accounts. These channels are also used to accept applications for credit products: cash loans, credit cards, overdraft limits and mortgage loans. Using the Internet, the bank offers installment loans in an on-line process and offers services of a currency exchange office.
Higher culture. Novelty bank. As one of the first financial start-ups, Alior Bank has an innovation culture in its DNA. The Bank uses cutting-edge technologies to implement processes from various areas in the most effective way possible. Robotization and automation are two of the key assumptions of the “Digital Disruptor” strategy adopted by the bank for 2017-2020. The slogan “Higher culture. The Bank of innovation.” emphasizes being open to clients of the era of mobility, and the bank’s focus on digital channels and daily banking.
The Alior Bank’s new Innovation Management Model supports the use of modern technologies to bridge customer needs with the bank’s strategy. This will make life easier for customers while ensuring high profitability for the bank. The model is based on two ecosystems: internal and external. They enable ideas to be retrieved from employees, customers and the fintech sector around the world and turned into innovative solutions for clients. The Bank is introducing a new career path for innovators and crowdsourcing tools to stimulate innovation among employees and open the way towards the use of their ideas in business.
In 2018, Alior Bank launched the RBL_START acceleration program. As the program is launched, Alior Bank’s new RBL_ brand is introduced. Its purpose is to bring together everything that is innovative, digital and cutting edge. At present, there are two entities operating under the RBL_ brand (which is short for REBEL): RBL_START, an acceleration program for start-ups and RBL_LAB, a laboratory conducting work on technology solutions. RBL_START is an original program of Alior Bank addressed to startups from all over the world, aimed at identification of innovative projects,
Business Model their development in accordance with business needs and commercialization (both within the bank’s own systems and among business partners). The major theme of the first edition of the program, which was held in 2018, was trends in new technologies, with a particular focus on open banking, blockchain and roboadvisory. From among nearly 100 applications, 8 startups were selected for a 15-week acceleration program. For that period, the participants received a solid support from bank mentors and program partners in the area of preparing the cooperation model and potential implementation of the idea at the bank and PZU, which was the major partner of the first edition of RBL_START. In addition, the bank provided the participants with API Sandbox, or a testing environment in which services were exhibited in connection with PSD2 Directive, i.e. Payment Services Directive 2 (Directive of the European Parliament and of the Council (EU) on payment services in the internal market). In the RBL_LAB research lab, prototypes of the solutions developed by the startups were tested with clients to better adjust the target products to users’ needs. For the entire period of the program, the startups could also take advantage of the modern RBL space located in the Warsaw Spire building in the center of Warsaw. The effect of the accelerator has taken the form of pilot projects with selected startups in Alior Bank and PZU. One of the successes accompanying the program was Alior Bank’s investment in PayPo, a company participating in the accelerator.
PZU has declared that it will continue to cooperate with startups AI Busters and Aazzur. With the first of these, within ‘proof of concept’, PZU investigates the role of email correspondence in the client service process. In a pilot project, they pay special attention to topic aggregation, message analysis and preparation of suggested answers. In a pilot project with Aazzur, possibilities are studied in the area of generating and presenting a personalized offer of PZU for clients based on their purchasing and financial decisions.
1 The Heart is a corporate innovation center, which together with the partners, Mastercard and Ghelamco, once again, in 2019, awarded prizes to the biggest companies which open themselves to innovations most effectively, building partnerships and implementing new technologies. 2 European Financial Management Association (EFMA) is an organization of banking and insurance professionals, specializing in marketing and distribution of financial services. The institution, associating over 3,300 companies from over 130 countries, conducts studies, publishes industry reports and publications, organizes international conferences as well as – in cooperation with Accenture, a company providing consulting services, modern technologies and outsourcing –holds the annual prestigious Distribution & Marketing Innovation Awards competition, in which every year the most innovative financial services in the world are selected.
Since 14 November 2018, passengers of LOT Polish airlines may purchase a PZU tourist insurance policy at the moment of booking an air ticket. The solution is possible because of the cooperation of PZU with LOT and Chubb European Group. Within the travel insurance “PZU Pomoc w Podróży LOT”, three variants can be chosen, adjusted to the needs of customers of the Polish carrier. Depending on the selected option, the policy will guarantee, among others, refunding the cost of the air ticket, payment for medical expenses, refunding the transport charges in emergency or protection of luggage and personal belongings.
Furthermore, within strategic partnerships, PZU offers a number of insurance products for business clients (persons conducting business activity, companies and institutions), including: • protection of Apple equipment, such as iPhone, iPad, Apple
The main brand used is the PZU corporate brand. This brand is used to identify the PZU Group itself, most of its companies operating on the Polish market (PZU, PZU Życie, PTE PZU, TFI PZU, PZU Pomoc, PZU Zdrowie, PZU Centrum Operacji), as well as some of the international companies – the Ukrainian companies and the branch in Estonia.
The independent brands which joined the PZU Group in recent years are Alior (2015) and Pekao (2017). Both are the leading banks with regard to brand recognizability in the category of banks according to the study by Kantar Millward Brown. At the end of December 2018, the prompted recognition of the Pekao brand was 95%4.
“I was surprised that PZU offers so many development opportunities unassociated with insurance. I think that each good specialist will find a place in PZU. I’m happy that I can constantly develop my financial passion and be satisfied with what I do. You should apply too!”
Return on equity (ROE) attributed to the parent company at the level of 22.1%. The banks’ higher contribution to the PZU Group’s result. Gross written premium up 2.7% year on year.
The incorporation of Bank Pekao in the PZU Group’s structure in June 2017 materially affected the comparability of results year on year. Pekao contributed PLN 3,047 million to the banking segment’s operating result in 2018 compared to PLN 1,749 million in 2017.
Ne t c la im s an d be ne fit
The PZU Group posted the following results in the various segments: • sales in the mass client segment up PLN 296 million (net of intersegment gross written premium) compared to 2017, primarily in motor insurance due to an increase in average premium and a roughly constant number of TPL policies; • premium increased in the corporate client segment by PLN 386 million from 2017 (net of intersegment gross written premium), mainly in motor insurance due to the higher average premium coupled with a decline in the number of motor own damage insurance policies and higher sales of insurance against fire and other damage to property following the execution of several contracts with high unit values; • higher sales in the group and individually continued insurance segment – premium up PLN 36 million, in particular as a result of writing more premium in health insurance sold in group form; • PLN 318 million drop in premiums in the individual insurance segment compared to the year before, driven mainly by lower contributions to accounts in unit-linked products in the bancassurance channel; • gross written premium collected by foreign companies also increased compared to 2017 by PLN 222 million, chiefly in motor insurance in the Baltic States.
Share in net profit (loss) of entities measured by the equity method (1) 16 (3) 4 (2)
Net profit (loss) attributable to equity holders of the parent company 3,213 2,895 1,935 2,343 2,968 * restated data for 2014-2017 349,
Total non-life insurance – Poland (external gross written premium) 13,384 12,702 10,878 9,074 8,367
Group and individually continued insurance – Poland 6,891 6,855 6,775 6,689 6,539
Total life insurance – Ukraine and Baltic States 120 100 88 74 78
Net revenues from commissions and fees Net revenues from commissions and fees in 2018 were PLN 2,620 million, or were PLN 858 million higher than in the previous year, mainly caused by the commencement of Pekao’s consolidation.
The following factors affected the income: • softer performance on listed equities, driven in particular by the deterioration of market conditions on the WSE – the WIG index fell by 9.5% in 2018 compared to a 23.2% growth in the corresponding period of the previous year; • better performance of the marked to market treasury bonds portfolio, in connection with the more favorable situation on the debt market; • negative impact exerted by the foreign exchange differences on own debt securities in conjunction with depreciation of the PLN versus EUR following appreciation in the comparable period, partially offset by the better performance of investments denominated in EUR .
The increase in the balance of reverse repo transactions and term deposits with credit institutions entered into on the interbank market aimed to enhance the return on investment activity. The increase in the balance of these transactions was 2 Net investment result includes: net investment income, net result on realization of financial instruments and investments, movement in allowances for expected credit losses and impairment losses on financial instruments and net movement in fair value of assets and liabilities measured at fair value. 3 The investment portfolio contains investment financial assets (including investment products), investment properties (including the part presented in the category of assets held for sale) financial derivatives along with the negative valuation of derivatives and liabilities arising from repurchase transactions presented in financial liabilities.
Structure of the investment portfolio net of the impact of banking activity* (in %)
In turn, the growth in this category of net claims and benefits was precipitated by the remeasurement of the provision for claims for general damages for the pain caused by the vegetative state of a relative injured in an accident in the motor insurance business in the mass and corporate client segment.
As at 31 December 2018, the PZU Group’s total assets were PLN 328,554 million, up PLN 11,096 million compared to the end of 2017.
Assets As at 31 December 2018, the main part of the Group’s assets took the form of loan receivables from clients. They represented 55.4% of total assets and amounted to PLN 182,054 million, having risen by PLN 12,597 million from the end of 2017.
The second largest asset category were investments (investment financial assets, investment properties and financial derivatives). They totaled PLN 105,849 million and were down PLN 8,903 million versus the end of last year. They represented 32.2% of the Group’s total assets versus 36.1%
at the end of 2017. The decline in the value of investments concerned Pekao and was related to the lower volume of the liquidity portfolio. Excluding banking activity, the investment portfolio expanded on business development (higher receipts from proceeds from premiums) and the rising value of the investments.
As at 31 December 2018, the PZU Group held PLN 17,055 million of cash and cash equivalents (5.2% of assets). At yearend 2017, this value was PLN 8,239 million and the movement occurred mainly in the cash accumulated by Bank Pekao in the Central Bank under reserve requirement.
• subordinated liabilities of PLN 6,061 million. The balance rose from the end of 2017 by PLN 742 million chiefly due to the issue of subordinated bonds by Pekao in October 2018 for PLN 750 million. SECTION 8.3 DEBT FINANCING
As at the end of 2018, technical provisions totaled PLN 45,839 million, which accounted for 14.0% of equity and liabilities (PLN +1,281 million compared to the end of 2017). The movement in this item resulted in particular from: • higher provision for unearned premiums in non-life insurance resulting mainly from growing sales of insurance in Poland; • remeasurement of provisions, mainly in motor insurance, for claims for general damages due to being in a vegetative state; • lower provisions in unit-linked life insurance products due to the negative result on investment activity, and additionally the level of payouts and benefits in the product portfolio exceeded for the first time the amount of client contributions; • higher mathematical provisions in continued business associated with the indexation of amounts insured and the higher average age of the insureds.
The balance of other liabilities as at 31 December 2018 was PLN 7,407 million compared to PLN 9,096 million at the end of 2017. The decrease pertained in particular to liabilities on account of outstanding transactions on financial instruments and liabilities to banks for payment documents cleared by the National Clearing House.
Material off-balance sheet line items At the end of 2018, the value of contingent liabilities was PLN 57,667 million, having fallen by PLN 1,311 million versus last year. The value of contingent liabilities granted to the clients of Alior Bank and Bank Pekao was PLN 56,436 million. The balance of the PZU Group’s contingent liabilities consisted in particular of PLN 13,211 million in overdraft and credit cards contingent liabilities , PLN 28,523 million in contingent liabilities related to tranche-based credits and loans and PLN 7,682 million in granted guarantees.
Moreover, the balance of contingent liabilities included guarantees for the underwriting of securities totaling PLN 4,470 million.
Corporate insurance In 2018, the corporate insurance segment earned an insurance profit of PLN 268 million, which is 40.3% more than in the corresponding period last year.
◦ higher sales of insurance against fire and other damage to property and other TPL following the execution of several contracts (including long-term contracts) with high unit values and development of the medical entity insurance portfolio in TUW PZUW,
These changes were partially offset by the dip in the loss ratio in the motor own damage insurance portfolio as a result of the net earned premium growth being much higher than the growth in claims and benefits, despite the observed increase in average payout and in the insurance against fire and other damage to property (despite several large claims under inward reinsurance); • income from investments allocated to this segment was up 32.9% to PLN 113 million, which was caused in particular by the 3.1% appreciation of the EUR exchange rate vs. PLN, compared to a 5.7% depreciation in the corresponding period last year; • acquisition expenses (without reinsurance commissions) reached PLN 477 million, signifying 12.2% growth versus the ones incurred in 2017, mainly due to higher direct acquisition expenses (the effect of the higher pace of sales coupled with the change in the average commission rate in key distribution channels); • administrative expenses decreased 4.4%, which, given the fact that the earned premium went up 16.0%, translated into an improvement in the administrative expense ratio by 1.2 percentage points. The decline in the expense ratio was due to lower costs of project activity and current operations by consistently maintaining cost discipline.
◦ growth in the premium for insurance against fire and other damage to property, chiefly in household property insurance and small and medium-sized enterprise insurance coupled with a similar level of sales of agricultural insurance despite the fierce competition on the market,
Financial Results increase last year, coupled with a stable level of client contributions to and withdrawals from unit-linked insurance accounts; ◦ lower level of benefits this year in the group protection products portfolio; ◦ lower than last year increase in mathematical provisions in continued products as a result of the previous changes in indexation principles and the share of “old” and “new” continuation both among the persons joining and remaining in the insured portfolio: in the “new” continuation, the unit cost of recognizing mathematical provisions for future benefit payments is lower.
These effects have been partially offset by the slower pace of converting long-term insurance policies into yearlyrenewable term business in type P group insurance exerted an influence on the size of the provisions. As a result of the conversion, in 2018, provisions were released for PLN 17 million, i.e. PLN 18 million less than in the corresponding period of 2017. Additionally, the level of medical benefits under health products is increasing following the dynamic growth of this portfolio.
• acquisition expenses in the group and individually continued insurance segment in 2018 were PLN 349 million, increasing by PLN 17 million (5.1%) compared to last year. The factor driving these expenses was the increasing remuneration for insurance intermediaries, especially for selling health products as the portfolio increased, and also the cost of communication mailed to clients (mainly offers of individual continuation riders); • administrative expenses in 2018 amounted to PLN 604 million. The PLN 17 million increase (by 2.9%) were driven mainly by expenditures related to organizational changes in sales divisions and an increase in personnel costs caused by salary pressures on the market.
Adjusting for the one-off effect related to conversion of long-term contracts into renewable contracts in type P group insurance, the segment’s insurance result amounted to PLN 1,526 million in 2018, compared to PLN 1,415 million in 2017 (up 7.8%). This was driven mainly by constantly growing insurance portfolio, the lower level of benefits in the group protection products and the lower than last year increase in mathematical provisions in continued products as a result of the previous changes in indexation principles and the share of “old” and “new” continuation both among the persons joining and remaining in the insured portfolio.
• the investment result consists of income allocated using transfer prices and income on investment products. In the group and individually continued insurance segment, investment income fell PLN 139 million mainly due to the lower income on unit-linked products as a result of worse conditions on the equity market – the WIG index fell by 9.5% compared to a 23.2% increase in the corresponding period of last year. Income allocated based on transfer prices increased due to an increase in the value of portfolios replicating insurance liabilities; • insurance claims and benefits and the net movement in other net technical provisions totaled PLN 4,931 million (down 4.1% y/y). This change was driven by the following factors in particular: ◦ a decrease in technical provisions in Employee Pension Plans (EPP, a third pillar retirement security product) compared to an increase in the previous year, due to negative investment results this year, compared to an
Summing up, the most important factors driving the yearon -year change in result included lower acquisition expenses in unit-linked products and rising compensation generated by management fees in unit-linked products. Another factor contributing to the improvement in the profit margin was an increased share of protection products in revenues, since they generate much higher margins.
Individual insurance In 2018, the insurance result in the individual life insurance segment was PLN 227 million, PLN 18 million, or 8.6%, more than last year. The main factors affecting the segment’s insurance result are described below: • the decline in gross written premium compared to 2017 by PLN 318 million (19.1%) down to PLN 1,346 million resulted chiefly from lower contributions to unit-linked accounts in single-payment unit-linked products offered jointly with banks, which is in line with the trends in the entire life insurance market. At the same time, positive factors were also at play, such as: ◦ constantly rising level of premiums on protection products in endowments and term insurance offered in own channels – the level of sales and premium indexation under the agreements in the portfolio exceeds the value of lapses,
◦ growth of the insured portfolio in protection products in the bancassurance channel, including particularly the introduction of new products together with Alior Bank and Bank Pekao in H2 2018; • the investment result consists of income allocated using transfer prices and income on investment products. In the individual insurance segment, it fell PLN 360 million y/y mainly due to the lower income on unit-linked products as a result of worse conditions on the equity market. At the same time, the segment’s income from the management
Banking segment / Banking activity The banking activity segment consists of the following groups: Pekao, from June 2017 (effect of settling the transaction and start of consolidation) and Alior Bank.
In 2018, the banking activity segment generated PLN 4,036 million in operating profit (without amortization of intangible assets acquired as part of the bank acquisition transactions), representing an increase by PLN 1,597 million compared to 2017. Taking into consideration the commencement of consolidation of Pekao, one of the largest banks in Central and Eastern Europe, in 2017 all items of the statement of profit or loss and items of the statement of financial position for 2018 are significantly higher compared to the previous year.
In 2018, Pekao contributed PLN 3,047 million to the operating profit (without amortization of intangible assets acquired as part of the Pekao acquisition transaction) in the “Banking activity” segment, while Alior Bank’s contribution was PLN 989 million.
The key element of the segment’s income is investment income, which in 2018 increased to PLN 9,596 million y/y (up 48.2% y/y).
Banks increased their net interest income (interest income less interest expenses) mainly be increasing the volume of loans to their customers. As at the end of 2018, the size of the client loan portfolio in total in both banks grew 7.1% compared to the end of 2017, and deposits from non-financial clients rose 4.4%.
Ne t c la im s a nd b en ef its
In su ra nc e re su lt million higher y/y. In addition to the consolidation of Bank Pekao newly-acquired in 2017, the improvement in this line item was boosted, as in the case of net interest income, by an increase in the sales of loans.
As a result, the Cost/Income ratio stood at 42% in both banks. On a separate basis, the ratio was 44% for Pekao and 39% for Alior Bank.
◦ increase in income on withdrawal of funds from the reserve account by PLN 3 million as a result of obtaining the best 3-year rate of return among funds and the maximum bonus ratio; • acquisition and service expenses stood at PLN 6 million, having increased by 28.2% from the previous year. This resulted mainly from the increase in the sales network, commission costs incurred for distribution of IRSA, adaptation of the systems and infrastructure to support a new IRSA distributor and additional service costs associated with the take-over of the management of Pekao funds; • administrative expenses hit PLN 40 million, i.e. they were down 9% from the previous year. This change resulted mainly from: ◦ lower costs due to the payment of contributions to the Indemnity Fund by PLN 8 million; ◦ incurring the costs associated with the take-over of management over Pekao funds, including inter alia Transfer Agent costs higher by PLN 1.5 million, the costs of migration of OFE member registers in the amount of PLN 1 million and the costs of amortization of the right to manage the funds in the amount of PLN 1 million; • other operating expenses increased by nearly PLN 1 million, primarily as a result of restatement of the provision for refund of contributions overpaid by ZUS for previous years.
Baltic States In 2018, the PZU Group’s business in the Baltic states generated a positive insurance result of PLN 138 million compared to PLN 109 million in the previous year. This result was shaped by the following factors: • increase in gross written premium. It amounted to PLN 1,592 million compared to 1,404 in the year before. The premium in non-life insurance increased by PLN 181 million y/y (or 13.4%). Such a dynamic increase was possible, among others, thanks to higher motor insurance premiums in the region, increase in the sale of property and casualty insurance – in Lithuania, Latvia and Estonia, and significant increase in the premium written in health insurance in Latvia. Premiums in life insurance increased by PLN 7 million (or 12.1%); O pe ra tin g re su lt 17 In co m e
Ukraine The Ukraine Segment closed 2018 with a positive insurance result of PLN 23 million, compared to PLN 11 million in 2017.
Insurance result in the Ukraine segment (PLN million) security accounts (IKZEs) and unit-linked products in the bancassurance channel; • the cost of insurance claims and benefits together with the movement in other net technical provisions decreased PLN 35 million y/y to PLN 15 million due to the negative investment income in unit-linked products in this segment in the current period, as compared to the high positive performance in the previous year; • in the investment contract segment, no active acquisition of contracts is currently underway and only a small fee was paid in unit-linked products in the bancassurance channel; • administrative expenses were PLN 5 million, down by PLN 2 million from the previous year as a consequence of the decreasing portfolio of contracts in this segment.
In 2018 the PZU Group earned PLN 3 million of operating profit compared with PLN 4 million in the previous year (decrease of 25.0%) on investment contracts, i.e. PZU Życie’s products which do not generate a material insurance risk and which do not meet the definition of an insurance contract (such as some products with a guaranteed rate of return and certain unit-linked products). This result in 2018 was driven by the following factors: • gross written premium generated on investment contracts in 2018 decreased by PLN 4 million (-9.1%) compared to 2017 to PLN 40 million. The changes were caused mainly by modification of the IKZE product at the end of 2017, which allowed newly-signed contracts to be signed as insurance contracts and transferred to the individual insurance segment; • result on investing activity in the investment contracts segment fell PLN 32 million versus the previous year, mainly as a result of a worse rate of return on individual pension
Operational efficiency ratios One of the fundamental measures of operational efficiency and performance of an insurance company is COR – Combined Ratio – calculated, due to its specific nature, for the non-life insurance sector (Section II).
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. In 2018, this ratio remained at a low level of 87.1% despite the remeasurement of provisions for claims for general damages due to vegetative state.
Return on assets (ROA) (annualized net profit/average assets) x 100% 1.7% 1.9% 2.1% 2.7% 4.6%
7. Operating profit margin in life insurance (operating profit/gross written premium) x 100% 21.3% 19.3% 25.3% 22.3% 24.4%
In 2018, PZU’s investment activity focused on the continuation of strategic assumptions, in particular on the optimization of profitability of investment operations through greater diversification of the investment portfolio.
In 2018, the result on PZU’s investment activity was PLN 2,152 million compared to PLN 1,998 million in 2017. After netting out the effect of the dividends received from PZU Życie, the net investment result was PLN 894 million compared to PLN 569 million the year before. The increase in the result was attributable mainly to the dividends received from Pekao in the amount of PLN 415 million. In December 2018, the value of PZU’s investment portfolio was PLN 37,571 million compared to PLN 36,553 million at yearend 2017.
In 2018, net claims and benefits and the incremental growth in PZU’s provisions totaled PLN 7,520 million, whichi indicates a 4.9% growth compared to 2017.
In 2018, PZU’s administrative expenses were at PLN 655 million, which was 5.5% lower than in the prior year. The expense dynamics was affected primarily by the persistent cost discipline in operating areas unrelated to wages (current and project-related operations), partly limited by higher payroll costs in response to clear signs of wage pressure on the market.
In 2018, the net balance of other operating income and expenses was negative and amounted to PLN 447 million compared with the also negative balance for 2017 of PLN 217 million. Starting in mid-2014 the balance of other operating expenses was charged with the interest expense and change of the valuation on account of foreign exchange translation differences on the loan taken from PZU Finance AB for the total amount of EUR 850 million (EUR 500 million in July 2014 and EUR 350 million in October 2015). In 2018 positive foreign exchange differences on the loan received from PZU Finance AB (publ.) amounted to PLN 1 million, compared to the 2017 positive differences of PLN 217 million. Additionally, the level of other operating expenses was significantly impacted by the tax on assets – the resulting charge in 2018 was PLN 190 million (increase by PLN 12 million compared to 2017 ).
The main component of PZU’s assets were investments in the total amount of PLN 37,571 million (up 2.8% compared to the end of 2017), which accounted for 86.2% of PZU’s total asset value compared to 86.3% as at the end of the previous year. Net of investments in subsidiaries, the level of investments was higher by 8.8% compared to the end of 2017. The main cause of the increase in the value of investments was the higher level of operating cash flows into the portfolio and increase in the generatedinvestment result.
As at 31 December 2018, PZU held PLN 1,222 million of cash (2.8% of assets). The year before their value was PLN 982 million.
As at the end of 2018, equity amounted to PLN 13,925 million and accounted for 32.0% of equity and liabilities (no changed compared to the end of 2017).
2. Net claims and benefits ratio (net claims and benefits/net earned premium) x 100% 62.2% 64.1% 66.7% 63.8% 66.2%
Joanna studies at the Jagiellonian University. She is doing her internship in the Sales Efficiency Department. One of her projects involves developing training scripts in virtual reality so that our trainers can run workshops more efficiently. Joanna is fascinated by Far East culture. In her free time, she makes costumes from games and comic books, which she regularly presents at international competitions.
“I’m fascinated by technology and I’m happy that I can participate in such an innovative project. I can’t wait for a time when my creative work can be used in education. I like the work system and the fact that from day one I’ve been treated as a full-fledged employee.”
Risk management in the PZU Group aims to build value for all stakeholders by actively and deliberately managing the quantum of risk accepted. The essence of this process also involves preventing the acceptance of risk at a level that could pose a threat to the financial stability of the PZU Group or the financial conglomerate.
Risk management in the PZU Group is based on analyzing risk in all processes and units and it is an integral part of the management process.
In addition, financial sector entities are obligated to apply the appropriate standards for a given sector. The adopted internal regulations specify among others: • processes, methods and procedures facilitating risk measurement and management; • split of duties in the risk management process; • scope and conditions and the frequency of risk management reporting.
In addition, the PZU Group has processes to ensure the effectiveness of risk management at the Group level. The risk management rules applicable to the PZU Group’s subsidiaries include a recommendation issued by PZU (the parent) regarding the organization of the risk management system in insurance sector and banking sector subsidiaries. Apart from the above, guidelines regulating the various risk management processes in the PZU Group entities are also issued from time to time.
Supervision over the risk management systems in the various financial sector entities is exercised by supervisory boards. PZU designates its representatives to the Supervisory Boards of its subsidiaries, including in particular Alior Bank and Bank Pekao.
The risk management system in the PZU Group is based on the following: • organizational structure – comprising a 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 organizational structure of the risk management system that is identical across the PZU Group and the PZU Group’s various financial sector entities has four decision-making levels.
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
The Management Board, which organizes the risk management system and ensures its functionality through approving the Strategy and policies and specifying risk appetite defining the risk profile and tolerance for individual categories of risk.
The Committees, which make decisions to reduce individual risks to the levels defined by the appetite for risk. The Committees implement the procedures and methodologies for mitigating the individual risks and accept individual risk limits.
Specialized units – risk identification, measurement and assessment, monitoring and reporting
Two levels are distinguished in the risk management process: • I - GROUP LEVEL – monitoring the limits and risks specific to the Group such as: Risk management at this level is supposed to ensure that the PZU Group attains its business objectives in a safe manner appropriate to fit the scale of the risk incurred.
The risk appetite in the PZU Group - the magnitude of risk undertaken to attain its business objectives, where its measure is the level of potential financial losses, the decline in asset value or the growth in the amount of liabilities within one year.
The process of determining the risk appetite and risk limits for each risk category consistent with the Group’s process implemented in entities in the PZU Group
As at the end of Q3 2018, the Solvency II ratio 245% above the average ratio reported by insurance groups in Europe
Reporting Allows efficient risk communication and supports risk management at various decision-making levels.
Moreover, to mitigate the actuarial risk inherent in current operations the following actions in particular are undertaken: • the scopes of liability are defined in the general / specific terms and conditions of insurance or other model agreements in financial insurance; • the exclusions of liability are defined in the general / specific terms and conditions of insurance or other model agreements in financial insurance; • reinsurance actions; • adequate tariff policy; • application of the appropriate provision calculation methodology; • relevant underwriting procedure; • relevant benefits handling procedure; • sales decisions and plans; • prevention.
The process of managing the credit spread risk and concentration risk has a different set of traits from the process of managing the other sub-categories of market risk and has been described in a subsequent section (Credit and concentration risk) along with the process for managing counterparty insolvency risk.
(ALM portfolio); • operations associated with active allocation, i.e. designating the optimum medium-term asset structure (AA portfolios); • banking operations – in conjunction with them the PZU
Concentration risk is the possibility of incurring a loss stemming from the failure to diversify an asset portfolio or from large exposure to the risk of default by a single issuer of securities or a group of related issuers.
Reporting involves communicating the levels of credit risk and concentration risk and the effects of monitoring and control to various decision-making levels. The frequency of each report and the scope of information provided therein are tailored to the information needs at each decision-making level.
The risk identification involves analysis of the possibility of occurrence of unfavorable events, in particular: • shortage of liquid cash to satisfy the Company’s current needs; • lack of liquidity of financial instruments held.
To manage the liquidity of the banks in the PZU Group, liquidity ratios are used for different periods ranging from 7 days, to a month, to 12 months and above.
Within management of liquidity risk, banks in the PZU Group also perform analyses of the maturity profile over a longer term, depending to a large extent on the adopted assumptions about development of future cash flows connected with items of assets and equity and liabilities. The assumptions take into consideration: • stability of equity and liabilities with indefinite maturities
• limits of liquidity ratios in the banks belonging to the PZU Group.
Both banks in the PZU Group, upon KNF’s consent, apply individual advanced approaches to measure operational risk and to estimate capital requirements on account of that risk.
Management actions involving reactions to any identified and assessed operational risks involve, in particular: • risk mitigation by taking actions aimed at minimizing risks, for instance by strengthening the internal control system; • risk transfer – in particular, by entering into insurance agreements; • risk avoidance by refraining from undertaking or withdrawing from a particular type of business in cases where too high a level of operational risk is ascertained and where the costs involved in risk mitigation are unreasonable; • risk acceptance – approval of consequences of a possible realization of operational risk unless they threaten to exceed the operational risk tolerance level.
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 operation and have ensured appropriate corporate governance solutions.
In turn, activities of the heads of organizational units related to ongoing management of compliance risk include, among others: • identification and evaluation of risk in the supervised area; • measurement of risk; • determining the instruments to provide protection and limit the number and scale of irregularities; • reporting any threats and events in the compliance risk area to the Compliance Department; • taking mitigation activities; • ongoing monitoring of compliance risk.
Group as a whole; • analysis of the implementation of recommendations issued to companies pertaining to the fulfillment of the compliance function; • provision of support to compliance units in various PZU Group entities in assessing their own compliance risk; • preparation of reports for the PZU Management Board and Supervisory Board.
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 the absence of clear and unambiguous laws or their non-existence manifesting itself in the form of ‘legal loopholes’. This may cause irregularities in the PZU Group’s business, which may then lead to an increase in costs (for instance, due to the imposition of financial penalties) and an increase in the level of reputation risk, thus in a drop of the Group’s trustworthiness on the market (resulting in a possible financial loss).
Due to the broad spectrum of the PZU Group’s business, reputation risk is also affected by the risk of litigation whose value varies, which is predominantly inherent in the Group’s insurance companies.
Management actions in the area of response to compliance risk include in particular: • acceptance of the risk arising, without limitation, from legal and regulatory changes; • mitigation of risk, including adjustment of procedures and processes to regulatory requirements, issuing opinions and drafting internal regulations from the point of view of compliance, participating in the process of agreeing marketing activities; • avoidance of the risk by preventing any involvement in activities that are out of compliance with the applicable regulatory requirements or best market practices or activities that may have an unfavorable impact on the entity’s image.
As part of efforts aimed at reducing compliance risk at system level and day-to-day level, the following risk mitigation actions are undertaken: • continuous implementation of an effective compliance function as a key function in the management system of PZU Group entities; • participation in consultations with legislative and regulatory authorities (supervised entities within the PZU Group) at the stage of development of the regulations (social consultations); • delegating representatives of the PZU Group’s supervised entities to participate in the work of various commissions of regulatory authorities; • execution of implementation projects for new regulations; • training of staff in PZU Group entities in new regulations, standards of conduct and recommended management actions; • issuing opinions on internal regulations of PZU Group entities and recommending possible amendments to ensure compliance with the applicable laws and accepted standards of conduct; • verifying procedures and processes in the context of their compliance with the applicable laws and accepted standards of conduct; • anticipating adjustment of documentation to upcoming changes in legal requirements; • systemic supervision exercised by PZU over the execution of the compliance function in PZU Group entities.
Risk concentration As part of its risk management operations, the PZU Group has been identifying, measuring and monitoring risk concentration; in the banking sector, these processes have been carried out at the level of the individual entities, in line with the requirements for the sector. In order to comply with the regulatory requirements imposed on groups identified as financial conglomerates, intensive adaptation work is under way to implement the model for managing significant risk concentrations in a financial conglomerate.
Risk pertaining to financial assets In the table below summarizes the results of analysis of the sensitivity of the net financial result and equity of the PZU Group (excluding banks) to changes in interest rate risk, foreign exchange risk and equity instruments price risk. This analysis does not take into account the impact of changes in interest rates on the insurance agreements presented in the liabilities or the investment contracts and receivables of banks from its clients.
Equity price risk: possibility of incurring a loss as a consequence of movement in the value of assets, liabilities and financial instruments as a result of changes in the market prices of equities or volatility in the market prices of equities.
Risk pertaining to technical rates and mortality In the table on page 108, a sensitivity analysis is presented 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 take into account the impact of changes in the valuation of deposits taken into consideration in the
The table below depicts the estimated change in the valuation of a given transaction/item as a result of a parallel shift in the yield curve from a given point by 1 basis point (BPV).
increase by 100 bp decrease by 100 bp increase by 20% decrease by 20%
Reinsurance treaties in the PZU Group’s international companies, LINK4 and TUW PZUW
Reinsurance premium under obligatory treaties in PZU Życie according to the S&P rating
On 3 October 2016 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 in the Policy in 2018.
As at the end of Q3 2018, the estimated solvency ratio (calculated according to the standard Solvency II equation) was 245% and remained above the average solvency ratio for European insurance groups.
In Bank Pekao and Alior Bank, the capital adequacy ratio and the Tier 1 ratio were computed on the basis of 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 (CRR Regulation) and also the various types of risk identified in the Internal Capital Adequacy Assessment Process (ICAAP).
Source: Reports of companies. Q3 2018 data for Aegon, Ageas, Allianz, ASR, AXA, CNP, Generali, Gjensidige, Munich Re, NN, RSA, Sampo, Scor Topdanmark and Tryg; Q2 2018 for the others.
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Q1 Q2 Q3 Q4 a significant impact on the perceived stability of the banking sector (accounting for the largest chunk of the WIG20 index). As a result, also retail investors (whose share in the market at yearend 2018 was 12%) kept withdrawing funds from share-based assets (equities and units in mutual funds). The sweeping deterioration did not spare the asset management market, either. Equity assets under management stood at PLN 25.4 billion at the end of 2018, compared to PLN 33.2 billion at yearend 2017. This means a decline by PLN 7.8 billion, of which the value of redemptions of participation units in these funds totaled PLN 3.9 billion. Total assets of mutual funds shrank by PLN 22.1 billion y/y to PLN 256.8 billion.1
The increasing prices of equities on the US stock exchange (during the first 9 months of 2018) were accompanied by declines in the prices of 10-year US Treasuries, which lasted uninterruptedly until October 2018. Conversely, in the European markets, bond prices were on the increase in response to incoming data that might indicate an economic slowdown in the euro area.
PZU’s share price In 2018, PZU’s shares remained among the most liquid companies traded on the WSE. With the market capitalization of over PLN 37.9 billion as at the end of 2018, PZU was again the fourth largest company listed on the Warsaw Stock Exchange in terms of capitalization. PZU’s share in the total WSE trade value was 8.4% (ranking 4th). PZU’s equities also ranked among the top five in terms of the rate of return within the WIG20 index (10.1%), with the other 15 companies of the index having recorded losses. At the same time, PZU was the only company representing the financial industry in the WIG20 index with a positive rate of return in 2018.
The maximum price per share of PZU stock in 2018 was PLN 47.34 (at closing prices) and the minimum price was PLN 36.31. In 2017, these prices were PLN 49.06 and PLN 32.82, respectively.
Percentage of PZU held by openend pension funds (OFE) was and by TFIs
Financial strength rating and credit rating for PZU and PZU Życie awarded by S&P Global Ratings
In 2018, PZU’s stock maintained very high liquidity. The average daily spread of PZU’s stock was only 7 bps compared to 16 bps of the average spread for the 20 most liquid companies. PZU’s stock accounted for 8.4% of the total market’s trading value in PLN, having exceeded PLN 17.2 billion. The average daily trading volume of PZU’s stock in 2018 was 1.7 million shares. The largest daily turnover (of 12.4 million shares) was recorded on the falling (-1.4%) trading session of 21 September 2018. This large capital flow was associated with Poland’s reclassification from the basket of emerging markets to that of developed markets by FTSE Russel agency, which issued a favorable assessment 20 PLN
PZU share price adjusted for dividends of the developments in the Polish regulatory environment, infrastructure and quality of the capital market, and appreciated the condition of the depository and clearing system as well as the development of the derivatives market. As a result, Poland entered the group of top 25 developed global markets, having joined such countries as Germany, France, Japan, Australia and the United States. At the same time, owing to this reclassification, Poland entered the Stoxx 600 index. The session of 21 September was the last session during which investment funds (mainly passive ones) made changes in their portfolios (predominantly during the fixing of prices at the session’s close). Although it will be possible to assess the consequences of the reclassification decision only in the longer term, the immediate conclusion is that concerns about the oversupply of stocks due to the reduction of Poland’s share in the basket of developed countries versus that of developing countries were proven wrong. At the end of the 21 September session, the WIG index recorded a token increase.
Launching an innovative internet platform inPZU, offering passive funds on the online platform
Wskaźniki As at the end of 2018, PZU’s shares had a high value of the P/ BV ratio of 2.5, i.e. twice the average for European insurance companies, which according to analysts is a consequence of a high ROE at yearend 2018, it stood at 22.1%.
PZU’s total shareholder return, calculated as the stock price difference plus the value of the distributed dividend, was 10.1% as at yearend 2018 (in 2016 and 2017, it was 3.7% and 31.2%, respectively). In 2018, PZU’s performance compared to the best-suited comparative group (WIG20TR index) was significantly better than in 2017, surpassing the benchmark index in 2018 by 15.5 p.p. compared to 2.3 p.p. in 2017.
Average trading value per session (PLN m) 69.6 75.6 66.8 80.3 73.9
Average number of trades per session 3,751 3,942 4,169 3,329 2,495
Capitalization at the end of the period (PLN m) 37,908 36,406 28,677 29,377 41,967
Context in the banking sector In 2018, the WIG-Banks3 index sank 12.1% y/y, or 2.6 p.p. more than the WIG index. The deteriorating sentiment towards banks (in 2017, WIG-Banks increased 35.4% y/y, beating WIG by 12 p.p.) is a result of the market’s response to the passive “wait and see” attitude adopted by the Monetary Policy Board towards interest rate hikes. The rationale behind this behavior of the Monetary Policy Board was the low inflation rate (below the NBP target of 2.5%) and the inflation structure, not driven by growth in demand on the goods and services market but stimulated predominantly by energy prices. The decline in the valuation of banking assets in Poland was also a result of the deteriorating global sentiments: the STOXX Banks index (adjusted for dividends, EUR) decreased in 2018 by over 30%.4
generated by the banking sector surpassed those achieved in the whole of 2017.
The bank valuations were also affected by local factors related to the situation involving Getin Bank and Idea Bank. Due to their financial problems and a rapid outflow of deposits (especially in the case of Getin Bank), concerns emerged about possible corrective measures and potential involvement of other capital-rich Polish banks. It also caused concerns about a greater-than-expected increase in contributions to the Bank Guarantee Fund (BFG), which according to analysts would have to swell from approx. PLN 2 billion to PLN 3 billion per annum in order for the Fund to reach the target levels of cash until 2030 despite potential additional costs. The risk related to the conversion of loans denominated in Swiss francs continued to exist.
In 2018, Pekao distributed a dividend of PLN 7.9 per share (100% of profit), which implied a 6.1% dividend yield (calculated based on the share price at yearend 2017). The dividend yield for the WIG-Banks index was 3.4%.
to 12% (-4 p.p.). The share of foreign retail investors (in PZU) remained at a similar level to that of 2018 and stood at 1.0%.
The increase in the share of foreign investors in 2018 was due chiefly to capital inflow from North America, which in the last five years has grown by as much as 8.1 p.p.
< 0.25 m shares * Polish State Treasury – 295.2 m shares (34.2% share in capital)change 2018 v s 2017
JANUARY Presentation of „The New PZU – More Than Insurance”, update and operationalization of the PZU Group strategy for 2017-2020
FEB / MAR Extraordinary General Meeting participants in mind were broadcast live over the internet (with simultaneous translation into English). The recorded meetings are available on PZU’s website in the investor relations section at
Additionally, in 2018 PZU actively met with investors and analysts at the company’s headquarters. Approximately 50 meetings and conference calls were held with approx. 80 institutional investors and approx. 70 meetings and conference calls with analysts issuing recommendations for PZU stocks.
Activities addressed to retail investors In 2018, PZU engaged in an active dialog with retail investors, in particular by providing them with reliable and up-to-date information on the activities of PZU, the insurance industry and the Company’s financial results. In this respect, PZU implemented both communication projects (e.g. the online report, a newsletter, a factsheet, mass mailing) and took active steps to enable direct contact between investors and the Company’s representatives, including, in particular: • for the 8th time, it participated in the largest conference for retail investors from Central and Eastern Europe organized in Poland by the Polish Association of Individual Investors: the 22st Wall Street Conference in Karpacz; • held 4 chats with retail investors hosted by a Member of the PZU Management Board in charge of the PZU Group’s Finance Division each time after the publication of its quarterly financial results, and 1 chat after the publication of the #nowePZU Strategy; 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) whose purpose is to develop 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 2018, PZU received the following prizes and distinctions (among others) in this area: • First place for Tomasz Kulik, CFO of the PZU Group, in ranking of the best CFOs for investor relations in Poland in the Extel 2018 survey; • Second place for the Investor Relations team in the ranking of the best investor relations in Poland in the Extel 2018 survey; • First place in the Best Annual Report 2017 contest in the Banks and Financial Institutions category; • special prize for the best on-line annual report in the Banks and Financial Institutions category; • distinction for the best management activity report in the Banks and Financial Institutions category; • distinction for the best IFRS/IAS-compliant financial statements in the Banks and Financial Institutions category.
IR objectives in 2019 The main objectives of PZU’s investor relations function in 2019: • strengthen good relations between the PZU Management
Price variance of the recommendations from the share price at the end of 2018 (PLN 43.9)
In 2018 analysts issuing recommendations for PZU’s shares devoted considerable space in their publications to the situation on the motor insurance market in light of rising price pressure, the development of case law regarding general damages, in particular when it comes to people in a vegetative state and as a consequence of the possible profitability erosion in this insurance segment. The potential risks and threats posed to the high margin business model in group and individually continued insurance and the assessment of the impact exerted by financial market volatility on the Group’s investment performance were an equally important topic. A material issue raised especially in H1 2018 was the impact of possible Pekao and Alior Bank merger on the PZU Group’s business and results.
In 2018, PZU stock recommendations were issued by 12 domestic and international financial institutions in total. In total, sell-side analysts issued 16 recommendations, with 75% of them being positive.
JP Morgan Michał Kużawiński +48 22 441 95 34 michal.kuzawinski@jpmorgan.com michal.konarski@mdm.pl
Payment of a dividend from the 2017 profits On 28 June 2018, PZU’s Ordinary Shareholder Meeting adopted a resolution on the distribution of PZU’s net profit for the financial year ended 31 December 2017, in which it resolved to distribute the amount of PLN 2,159 million, or PLN 2.50 per share, as a dividend. The dividend record date was 12 September 2018. The dividend was paid on 3 October 2018.
In 2018 PZU had analyst coverage by Deutsche Bank. Due to changes in the structure of the research team, as of 29 August 2018 this bank ceased to issue recommendations for PZU stocks.
PZU’s dividend policy rests on the following principles: • 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; • the dividend amount proposed by PZU’s (the parent company) Management Board from a given financial year profits 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 retained (supplementary capital) for financing of organic growth and innovations as well as execution of growth initiatives; ◦ no less than 50% will be distributed to shareholders as an annual dividend;
The Polish FSA’s recommendation on dividend payments from the profits generated in 2018 On 15 January 2019 the Polish Financial Supervisory Authority took a stance on the dividend policy of insurance and reinsurance undertakings.
At the same time, KNF permitted a dividend payout equal to the entire 2018 profit provided that the capital requirement coverage (after expected dividends are deducted from own funds) as at 31 December 2018 and for the quarter when the dividend is paid, is at least 175% for insurance undertakings operating in section I and at least 150% for insurance undertakings operating in section II.
The Polish FSA also recommended that the undertakings that satisfy the above criteria, when deciding on the level of dividends, should take into account the additional capital needs within the period of twelve months from the approval date of the 2018 financial statements, which may result, among others, from changes in the market and legal environment.
Achievement of the targets in the PZU Group’s Strategy through mergers and acquisitions
* in 2013 a dividend was paid from excess capital (PLN 2 per share) Source: PZU data
Dividend paid for the year (in PLN m) ** 2,159 1,209 1,796 2,591
(b) Dividend yield during the year (%)* 5.9% 4.2% 6.1% 6.2% 7.6%
The debt issued by PZU Group consists of subordinated with a nominal value of worth PLN 2.25 billion and Eurobonds with a nominal value of EUR 850 million.
The PZU Group (through its wholly-owned subsidiary, PZU Finance AB) issued Eurobonds with a nominal value of EUR 850 million, listed on the Official List, Main Securities Market of the Irish Stock Exchange and on the Catalyst ASO WSE/Bondspot market. The listed series of the bonds (PZU0719) consists of two assimilated series (under a single ISIN code: XS1082661551) with a nominal value of EUR 500 and 350 million issued on 3 July 2014 and 16 October 2015, respectively.
The liabilities arising from the bonds are secured by a guarantee extended by PZU. The bonds bear interest at a fixed rate of 1.375% per annum. The coupon is paid once a year. The maturity date is 3 July 2019.
The Eurobond issue implemented PZU Group’s investment strategy to manage the matching of EUR assets and liabilities. The proceeds from the bond issue were aimed to increase the exposure to investments denominated in EUR, manage the FX position and optimize the cost of financing.
Alior Bank Public offerings of own bonds Pursuant to the resolution adopted by the Bank’s Supervisory Board on 23 August 2017, Alior Bank, up to 12 October 2018, held a second open bond issuance program worth a maximum of PLN 1.2 billion issued in series under the procedure anticipated in article 33 item 1 of the Bond Act according to the basic prospectus. According to the basic prospectus drafted in connection with the Second Public Issue Program, Alior Bank could issue in Poland up to 12 million unsecured bearer bonds, unsubordinated or subordinated, with a nominal value equal to PLN 100 or a multiple of that amount, with a maturity of up to 10 years from the date of issuing a given bond series, while the Bank’s Management Board was authorized to determine the terms and conditions for issuing the various series of the subordinated bonds in such a way so as to accomplish the following: • the total nominal value of all the subordinated bonds issued on the basis of the Prospectus does not surpass the amount of PLN 600 million; • the unit par value of the subordinated bonds is PLN 400 thousand.
Non-public offerings of own bonds The Bank has a program to issue own bonds worth a maximum of PLN 2 billion established by the power of the Bank’s Supervisory Board resolution of 10 August 2015. The type of bonds, the offering procedure and the specific terms and conditions for issuing the various series of the bonds issued under the Issuance Program are determined by the Bank’s Management Board in the form of resolutions. The Bank did not hold any subordinated bond issues under the Issuance Program in 2018, but it conducted one private, series L short-term ordinary bond issue.
Bank Pekao Covered bonds Under the covered bonds program established in 2010, Pekao, acting through its subsidiary Pekao Bank Hipoteczny, issues long-term debt securities secured on its loan portfolio. The issue program is limited to PLN 2 billion. Pekao Bank Hipoteczny’s covered bonds have been rated by Fitch at BBB+ with a stable outlook.
The Company’s total liabilities by virtue of covered bonds as at 31 December 2018 was PLN 1.53 billion. The liabilities by virtue of covered bonds with a maturity of up to 1 year account for 14.7%, from 1 to 3 years for 42.7%, from 3 to 5 years 13.1%) and from 5 to 10 years 29.5% of the total nominal value.
Subordinated bonds On 30 October 2017, Pekao placed its first issue of subordinated bonds with a value of PLN 1.25 billion in order to improve its capital ratios. The bonds have a 10-year maturity with an early redemption option five years after the date of issue. The bonds bear interest at a floating rate based on WIBOR6M plus a margin of 1.52%. After receiving on 21 December 2017 the Polish Financial Supervision Authority’s consent, the funds were earmarked to raise the Bank’s supplementary funds (Tier II capital).
In 2018 no changes were made to PZU’s rating or outlook, while S&P Global Ratings twice affirmed the financial strength and creditworthiness ratings for PZU (25 June and 31 October) at A- with a stable outlook.
Credit rating (long-term in local currency) A /Stable/ 12 October 2018 A- /Positive/ 13 April 2018
Financial strength rating A- /Stable/ 27 October 2017 A- /Negative/ 31 October 2016
On 16 July 2018 S&P Global Ratings introduced a new ratings category encompassing “Counterparty Rating in the event of and with respect to Moody’s Investors Service the ratings are unsolicited and they are based on publicly available information and review meetings.
On 31 December 2018 Bank Pekao’s ratings were as follows: a Forced Restructuring Process (RCR - Resolution Counterparty Rating)”.
On 15 October 2018 S&P Global Ratings affirmed Bank Pekao’s ratings and concurrently raised the Bank’s long-term rating in the category “Counterparty Rating in the event of a Forced Restructuring Process (RCR - Resolution Counterparty Rating)” from “BBB+” to “A-”. The short-term rating for liabilities under the RCR rating for the Bank was upheld at the level of “A-2”.
Rating Alior Banku On 5 September 2013, Fitch Ratings Ltd. assigned a BB rating to Alior Bank, outlook stable. On 5 February 2018, Fitch Ratings Ltd. affirmed the issuer rating for Alior Bank S.A. at BB, while it changed the outlook from stable to positive. On 30 January 2019 Fitch Ratings lowered the Alior Bank’s ratings outlook to stable.
PZU on the capital and debt markets 8.9 Calendar of PZU’s major corporate events in 2019
“I’m happy that each day at work is different. It’s great that the company is open to our proposals and looks for new solutions. People share their knowledge and are happy to cooperate. I’ll tell you about the details later. For now, apply for an internship.”
We are aware that the leader’s role is to set the highest standards for the entire industry. We fulfil this function not only by observing a number of codes but also by working continuously on their improvement. We believe that this is how we can make sagacious changes to contribute to the world that surrounds us.
Corporate governance 10. Diversity policy applied to the Issuer’s administrative, managing and supervising bodies
• exercising, in person or by proxy, voting rights during a Shareholder Meeting.
Detailed information is published on PZU’s website on PZU’s application of Corporate Governance Rules, including those rules whose application will be partial, namely: • in reference to the rule laid down in § 8 sec. 4 the
Board’s Audit Committee; the person managing the compliance cell is appointed and dismissed in an identical manner; in making these decisions, the Management Board obtains the Audit Committee’s opinions.
Furthermore, the following rules are not applicable to PZU: • the rule laid down in § 11 section 3 reading as follows: “In the event that the decision-making body makes a decision concerning a transaction with a related party, all shareholders should have access to all information required to assess the conditions on which it is implemented and its impact on a regulated institution’s standing.”
– in PZU, the Shareholder Meeting does not make decisions on transactions with related parties; • the rule laid down in § 49 section 4 reading as follows: “In a regulated institution in which there is no audit or compliance cell, the rights ensuing from sections 1-3 are vested in the persons responsible for performing these functions.” – audit and compliance cells operate in PZU; • the rule laid down in § 52 section 2 reading as follows: “In a regulated institution in which there is no audit or compliance cell or no cell responsible for this area has been designated, the information referred to in section 1 shall be conveyed by the persons responsible for performing these functions.” – audit and compliance cells operate in PZU; • the rules laid down in Chapter 9 entitled “Exercising rights from assets acquired at a client’s risk” – PZU does not offer products entailing asset management at a client’s risk.
PZU monitors changes in external regulations concerning, without limitation, the accounting policy (procedures) and reporting requirements applicable to insurance undertakings
The PZU Group Best Practices Code is a collection of ethical standards and standards of conduct to be followed by all
PZU Group employees the Best Insurance Practices comprising principles that should be followed by insurance sector companies as institutions of social trust
Corporate governance and carries out appropriate adaptation processes in these areas.
Activities within the consolidated financial reporting processes are coordinated through the organizational structure of the Finance Division in the PZU and PZU Życie Head Offices which is shared, i.e. organized based on a personal union. PZU controls all its consolidated subsidiaries through these companies’ management boards and supervisory boards.
Consolidation packages forwarded by subsidiaries are subjected to: • verification procedures by a statutory auditor scrutinizing the PZU Group’s consolidated financial statements; • analytical reviews by specialists and, in the case of consolidation packages forwarded by banks, also reconciliation with their published stock exchange disclosures.
Audit Committee The PZU Supervisory Board appoints the Audit Committee composed of at least three Supervisory Board Members. The majority of Audit Committee Members, including the Chairperson, satisfy the independence criteria defined in the Statutory Auditor Act GLOSSARY and at least one Member has knowledge and skills in the fields of accounting or audit of financial statements in accordance with the requirements provided for in the Statutory Auditor Act.
The Audit Committee Members have knowledge and skills pertaining to the insurance industry, which is construed as at least one Audit Committee Member having knowledge and skills in the field of insurance or various Audit Committee Members having knowledge of specific branches within this field.
The Audit Committee is an advisory and consultative body to the Supervisory Board of PZU and is appointed to improve the effectiveness of supervision of the correct financial reporting at PZU and the effectiveness of internal control, including internal audit and risk management, exercised by the PZU Supervisory Board.
audit of the financial statements 7,813 7,673 other assurance services 4,814 3,568
compulsory audit of the annual financial statements / consolidated financial statements 609 4,950 other assurance services, including a review of financial statements/consolidated financial statements 759 1,793 tax advisory services - -
Corporate governance 9.6 PZU’s share capital and its shareholders; shares held by members of its governing bodies
The State Treasury and the funds managed by NationaleNederlanden Powszechne Towarzystwo Emerytalne S.A. are PZU shareholders holding significant equity stakes in PZU: Nationale-Nederlanden Otwarty Fundusz Emerytalny („OFE”, Open-end Pension Fund) and Nationale-Nederlanden Dobrowolny Fundusz Emerytalny („DFE”, Voluntary Pension Fund).
Source: current report no. 42/2017 it the right to 43,456,903 votes at Shareholder Meeting. On 28 June 2018, i.e. on the date of holding the PZU SA Ordinary Shareholder Meeting, NN OFE and NN DFE held a total of 43,825,000 shares, representing 5.0751% of PZU’s share capital and giving the right to 43,825,000 votes at the Shareholder Meeting.
The PZU Management Board does not have any information about executed agreements as a result of which changes may transpire in the future in the equity stakes held by its shareholders to date.
In 2013-2018, PZU did not have any employee share programs in place.
For the purpose of limiting voting rights, the votes of shareholders among whom there is a parent or subsidiary relationship are totaled in accordance with the rules described in the Articles of Association.
In the event of doubt, the provisions regarding the restriction on voting rights are subject to interpretation according to Article 65 § 2 of the Civil Code GLOSSARY.
The Articles of Association are available on PZU’s corporate website in the “Investor relations” section www.pzu.pl/ri
The Shareholder Meeting is the body authorized to make decisions concerning issues related to the organization and operations of the Issuer. Resolutions of the Shareholder Meeting are adopted by an absolute majority of votes, except in cases provided for in the Commercial Company Code GLOSSARY or the Articles of Association.
In accordance with the Articles of Association, the Shareholder Meeting’s approval is required for: • disposal of non-current assets within the meaning of the
Accounting Act of 29 September 1994 (Journal of Laws of 2016, items 1047 and 2255) classified as intangible assets, property, plant and equipment or long-term investments, including contribution to a company or a cooperative – if the market value of those assets exceeds 5% of total assets within the meaning of the Accounting Act of 29 September 1994, determined on the basis of the most recent approved financial statements; and also handing those assets over for use to another entity for a period longer than 180 days in a calendar year based on a legal act, if the market value of the subject matter of the legal act exceeds 5% of total assets, whereas the handing over of assets for use in the case of the following: ◦ lease, rental and other agreements to hand over an asset for use to other entities against payment, the market value of the subject matter of a legal act is defined as the value of benefits for: - one year if the asset is handed over on the basis of contracts entered into for an unspecified term, - the full duration of the term of validity in the case of contracts entered into for an unspecified term,
• purchase of non-current assets within the meaning of the Accounting Act of 29 September 1994, with the value exceeding: ◦ PLN 100 million or ◦ 5% of total assets within the meaning of the Accounting
Act of 29 September 1994, determined on the basis of the most recent approved financial statements,
• subscription or acquisition of shares in another company, with the value exceeding: ◦ PLN 100 million or ◦ 10% of total assets within the meaning of the
Shareholder Meetings are held in Warsaw and convened by placing an appropriate announcement on PZU’s website in accordance with the method for providing current information specified in the Act on Public Offerings, Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies of 19 July 2005, i.e. in the form of current reports. Such announcement should be made not later than twenty-six days before the date of the Shareholder Meeting. From the date of convening the Shareholder Meeting, the announcement with materials presented to shareholders at the Shareholder Meeting are available on PZU’s corporate website in the “Investors relations” section under the “Shareholder Meeting” tab QR code relacje-inwestorskie/akcje-i-obligacje/walne-zgromadzenia. A duly convened Shareholder Meeting is deemed valid regardless of the number of attending shareholders. Resolutions are passed in an open ballot. A secret ballot is ordered in elections or on motions to dismiss members of the Issuer’s corporate bodies or liquidators, in matters concerning their personal liability to the Company as well as in other personal matters or, excluding cases when voting by open ballot ensues from a statute, at the request of at least one of the shareholders attending or represented at the Shareholder Meeting. The rights of the shareholders and the method of exercising thereof at the Shareholder Meeting are specified in the Commercial Company Code GLOSSARY and the Articles of Association. Only persons who were shareholders of the Issuer sixteen days prior to the date of the Shareholder Meeting have the right to participate in the Meeting (date of registration of attendance at the Meeting). Shareholders may attend the Shareholder Meeting and exercise the right to vote in person or through a proxy. The proxy document to participate in the Shareholder Meeting and exercise the voting right must be granted in writing or electronically. One PZU share gives the right to a single vote at the Shareholder Meeting, subject to restrictions with respect to exercising the voting rights described in the Company’s Articles of Association. A shareholder may vote differently from each of the shares held by it.
In accordance with the Commercial Company Code GLOSSARY, detailed procedures concerning participation in the Shareholder Meeting and exercising the voting rights are always presented in an announcement of the Shareholder Meeting published on the date of convening the Shareholder Meeting on PZU’s corporate website in the “Investors relations” section under the “Shareholder Meeting” tab.
Composition In accordance with the Articles of Association, the Supervisory Board is composed of seven to eleven members. The number of Supervisory Board members is specified by the Shareholder Meeting.
Corporate governance should meet the requirements set forth in Article 19 of the Act of 16 December 2016 on Rules for Managing State Property.
As at 1 January 2018, the following persons sat on the PZU Supervisory Board: • Katarzyna Lewandowska – Supervisory Board Chairwoman; • Aneta Fałek – Supervisory Board Deputy Chairwoman; • Alojzy Nowak – Supervisory Board Secretary; • Maciej Zaborowski – Supervisory Board Member; • Marcin Chludziński – Supervisory Board Member; • Bogusław Marian Banaszak – Supervisory Board Member; • Paweł Górecki – Supervisory Board Member; • Agata Górnicka – Supervisory Board Member; • Robert Śnitko – Supervisory Board Member.
On 9 March 2018 the Extraordinary Shareholder Meeting appointed Robert Jastrzębski. Accordingly, the composition of the PZU Supervisory Board was as follows: • Maciej Łopiński – Supervisory Board Chairman; • Paweł Górecki – Supervisory Board Deputy Chairman; • Alojzy Nowak – Supervisory Board Secretary; • Marcin Chludziński – Supervisory Board Member; • Agata Górnicka – Supervisory Board Member; • Robert Jastrzębski – Supervisory Board Member; • Katarzyna Lewandowska – Supervisory Board Member; • Robert Śnitko – Supervisory Board Member; • Maciej Zaborowski – Supervisory Board Member.
Company’s activity and the Management Board’s report on the activity of the PZU Group and the Company’s financial
Name and surname PZU Supervisory Board member’s period of holding office
Graduated from the Faculty of Law, Administration and Economics of the University of Wroclaw. He received the degree of Doctor of Law. He was a legal advisor trainee and a court trainee and has been entered in the registry of legal advisors. A university lecturer. He has authored several dozen peer-reviewed papers on the subject of law published by Polish and international journals and has authored numerous unpublished legal opinions. He has been an active participant of conferences organized by Polish academic centers. He specializes in the providing legal services to companies and applying administrative, fiscal and court-and-administrative procedures.
Graduate of the Faculty of Law and Administration at the University of Warsaw. In 2001 he obtained the academic degree of doctor of legal sciences in the law, and in 2009 he obtained the academic degree of a habilitated doctor. He is the author of more than 80 academic publications. Winner of awards and distinctions, including, among others, an Award from the Faculty of Law and Administration at the University of Warsaw for outstanding academic achievement. Employed since 2001 by the Faculty of Law and Administration at the University of Warsaw. Since 2015 Head of the Workshop on 20th century Polish law. Member among others of the program council of the magazine Przegląd Ustawodawstwa Gospodarczego (2010) (Business Legislation Review), editorial team of the magazine Zeszyty Naukowe Biura Analiz Sejmowych (2016) (Research Bulletin of the Parliamentary Research Office).
Graduate of the London School of Economics and Political Science, University of London, School of Oriental and African Studies, University of London, Faculty of Economics at the Radom Technical University. Holder of a Scholarship awarded by the Minister of National Education (Minister of Science and Higher Education), the United Kingdom’s Ministry of Foreign Affairs and non-governmental organizations from the United Kingdom and the United States. Ph.D. in economics obtained from the Warsaw School of Economics. Member of the International Institute for Strategic Studies.
Graduated from Warsaw School of Economics. From 1996 to 2017, an employee of the State Treasury Ministry where she gained extensive experience in exercising corporate governance in companies operating in the defense industry, operating in the coal mining industry, managing sea ports and exercising the State Treasury’s monopoly in number games and cash lotteries. From March 2017 Deputy Director of the State Treasury Department in the Prime Minister’s Office. Member of the Supervisory Board of the LOTOS S.A. Group. Acting Director of the State Treasury Department.
Resolutions of the Supervisory Board are adopted in an open ballot, except for resolutions concerning the appointment of the Chairperson, Deputy Chairperson or the Secretary of the Supervisory Board, delegation of members of the Supervisory Board to temporarily fill in for members of the Management Board and for resolutions on appointing, suspending and dismissing the President, members of the Management Board or the entire Management Board as well and making decisions to stop such suspension, which are adopted in a secret ballot. Moreover, a secret ballot may be held at the request of a member of the Supervisory Board.
Members of the Management Board, the Company’s employees relevant to the issue under consideration selected by the Management Board and other persons invited by the Supervisory Board may take part in the meetings of the Supervisory Board without the right to vote. In specific cases, the Supervisory Board may also invite members of the management board or supervisory board of other PZU Group member companies. Moreover, members of the Supervisory Board, with the consent of the Supervisory Board, may select no more than one advisor authorized to take part in the meetings of the Supervisory Board devoted to reports and financial statements and give their advice, provided that such a person adheres to the rules of confidentiality and signs a confidentiality undertaking.
At present, the following committees operate as part of the PZU Supervisory Board: • audit committee; • nomination and compensation committee; • strategy committee.
Bogusław Banaszak and Maciej Zaborowski were indicated as independent members within the meaning of Article 129 Section 3 of the Act on Statutory Auditors, Audit Firms and Public Supervision, and Marcin Chludziński was indicated as a member holding accounting or financial audit qualifications.
Alojzy Nowak and Maciej Zaborowski were indicated as independent members within the meaning of Article 129
Section 3 of the Act on Statutory Auditors, Audit Firms and Public Supervision, and Marcin Chludziński was indicated as a member holding accounting or financial audit qualifications.
In accordance with the Rules and Regulations of the Supervisory Board, once PZU’s shares are listed on a regulated market within the meaning of the Financial Instruments Trading Act of 29 July 2005, the Supervisory Board may appoint a nomination and compensation committee.
In connection with the changes in the PZU Supervisory Board, on 9 January 2018 the PZU Supervisory Board resolved that the nomination and compensation committee will be composed of 3 persons and established the following composition of the committee: • Paweł Górecki – Committee Chairman; • Agata Górnicka – Committee Member; • Katarzyna Lewandowska – Committee Member.
On 14 March 2018 the PZU Supervisory Board resolved that the nomination and compensation committee will be composed of 4 persons and simultaneously established the following composition of the committee: • Paweł Górecki – Committee Chairman; • Agata Górnicka – Committee Member; • Katarzyna Lewandowska – Committee Member; • Maciej Łopiński – Committee Member.
As at 31 December 2018, the composition of the committee was unchanged.
According to the rules and regulations of the strategy committee adopted by a resolution of the Supervisory Board of 4 April 2013, the committee is an advisory and consultative body to the Supervisory Board and is appointed to improve the effectiveness of the Supervisory Board’s oversight activities related to issuing opinions on all strategic documents presented by the Management Board (in particular, the Company’s development strategy) and providing the Supervisory Board with recommendations on planned investments that materially impact the Company’s assets.
Management Board Members, including the President of the Management Board, are appointed and dismissed by the Supervisory Board. Such appointment takes place following a recruitment procedure aimed at verifying and evaluating the qualifications of the candidates and selecting the best candidate, for a joint term of office of three consecutive full financial years. The President of the Management Board of the new term of office appointed before the current term elapses has the right to submit a motion to the Supervisory Board requesting appointment of the remaining Management Board members of the new term of office before the current term elapses.
Up to the date of publication of this report, the Management Board composition is unchanged.
The current term of office of the PZU Management Board started on 1 July 2015 and spans three full consecutive financial years. The mandates of the Management Board members will expire no later than on the date of the Shareholder Meeting approving the financial statements for the most recent full financial year of the discharge of their functions.
Group; • adoption of an annual financial plan and a report on its implementation; • acceptance of the Management Board’s report on the
• determination of premiums in compulsory and voluntary insurance and the general terms and conditions of voluntary insurance; • determination of the scope and size of outward reinsurance and the tasks for inward reinsurance; • adoption of an annual audit and control plan and a report on its implementation with conclusions; • determination of the terms and conditions of investment, prevention and sponsoring activities; • granting sureties and guarantees (excluding insurance operations) and contracting or providing credit facilities or loans by the Company (excluding credit facilities and loans granted from the Company Social Benefits Fund); • appointment of a commercial proxy.
Resolutions of the Management Board are adopted only in the presence of the President of the Management Board or a person designated to head the work of the Management Board during the President’s absence.
Resolutions of the Management Board are adopted by an absolute majority of votes; in the event of a voting tie, the
President of the PZU Management Board from 13 April 2017 / President of the PZU Życie Management Board from 23 June 2016 to 13 April 2017 management and corporate governance in the PZU Group, corporate management, strategy and development of PZU Group’s business, internal audit, compliance, reinsurance, assurbanking, innovation, management of development of digital processes, administration
Tomasz Kulik PZU Management Board Member since 14 October 2016 /PZU Życie Management Board Member since 19 October 2016 finance, actuarial, investments
Maciej Rapkiewicz PZU Management Board Member since 22 March 2016 /PZU Życie Management Board Member since 25 May 2016 risk management
Roman Pałac President of the PZU Życie Management Board since 26 April 2017 / PZU Group Director since 15 February 2016 management of the PZU branch network, health insurance, claims and benefits handling, remote channels
Bartłomiej Litwińczuk PZU Życie Management Board Member / PZU Group Director since 19 August 2016 security, legal services, HR
President of the PZU Management Board since 13 April 2017/ President of the PZU Życie Management Board since 23 June 2016 to 13 April 2017
Graduate of Universitẻ Paris I Panthẻon Sorbonne, Ecole des Hautes Etudes en Sciences Sociales (EHESS) and the Ludwig Maximilian Universität (LMU) in Munich. From 2007 to 2013, he held the position of financial advisor with Bank of America Merrill Lynch. From 2013 to 2015 he served as a Management Board Member in Boryszew SA, Director of the Automotive Sector Development Department and CEO of subsidiaries in the automotive sector. Until January 2016, he was an advisor to the CEO of PKO Bank Polski SA and Director of Corporate and Investing Banking for Germany, he was responsible for opening the first international corporate branch of PKO Bank Polski as well as for advisory and financial services for PKO Bank Polski’s top corporate clients.
PZU Management Board Member since 19 January 2016 / PZU Życie Management Board Member since 29 January 2016
PZU Management Board Member since 14 October 2016 / PZU Życie Management Board Member since 19 October 2016
He graduated from the Warsaw School of Economics. He also completed MBA studies at the University of Illinois and the Warsaw-Illinois Executive MBA program. A member of The Association of Chartered Certified Accountants (ACCA). Through most of his professional career, he was associated with the Aviva Group (former Commercial Union). Prior to his appointment to the PZU Management Board, he served as the Director of the Planning and Controlling Department. He prepared the PZU Group’s strategy for the years 2016-2020 and the PZU Group’s capital and dividend policy. Member of the TFI PZU SA Management Board in charge of finance, risk, operations and IT. In his capacity as Member of the TFI PZU SA Management Board, he was also responsible for the corporate area.