LETTER FROM THE CHAIRPERSON OF THE SUPERVISORY BOARD 6 1 BRIEF DESCRIPTION OF THE PZU GROUP 8 2 THE EXTERNAL ENVIRONMENT IN 2013 14 2.1 The main trends in the Polish economy 14 2.2 The situation on the financial markets 15 2.3 The insurance sector compared with Europe 16 2.4 Regulations on the insurance market in Poland 17 2.5 External environment in the Ukraine and the Baltic States 19 2.6 Macroeconomic factors, which can affect the operations of the Polish insurance sector and the PZU Group’s activities in 2014 22 3 ACTIVITIES OF THE PZU GROUP 24 3.1 Structure of the PZU Group 24 3.2 PZU – operations on the Polish non-life insurance market 25 3.3 PZU Życie – activities on the life insurance market in Poland 30 3.4 PTE PZU – activities on the pension funds market 34 3.5 TFI PZU – activities on the investment fund market 36 3.7 Other areas of activity 41 5 ORGANIZATION, INFRASTRUCTURE AND HUMAN RESOURCES 52 5.1 Organizational and functional structure 52 5.2 Sales and service channels 52 5.3 Human resource management 54 6 CONSOLIDATED FINANCIAL RESULTS 59 6.1 Key factors affecting the financial results achieved 59 6.3 Claims and technical provisions 63 6.4 Acquisition costs and administrative expenses 63 6.5 Structure of assets and liabilities 64 6.6 Share of the industry segments in the results 65 7.1 Objective of risk management 76 7.2 Risk management system 76 7.3 Appetite for risk 77 7.4 Risk management process 77 7.6 Sensitivity to risk 83
On behalf of the Management Boards of the PZU Group companies, I hereby present the consolidated financial statements for 2013.
The PZU Group has had another successful year. We have made numerous changes in a short time and are continuing to build a new quality of organization based on the Company’s long-term strategy. These changes have reinforced the firm’s high market position in the insurance industry in Central and Eastern Europe and have enabled new markets and business areas to be opened. The PZU Group’s objective is consistently to continue its profitable growth and maintain its leading position on the Polish insurance services market.
in this period was 24.1 % which means growth of 0.1 p.p. compared with the previous year. This success is the result of the consistently pursued strategy, which emphasizes total shareholders return. The unique mobilization and determination enabled us to achieve the business objectives in the situation of an economic downturn and a slow-down in the growth of individual consumption.
Many factors contributed to such a good result, including an increase in written gross premiums arising from the high rate of growth of sales of certain products, as well as the lack of major catastrophic and natural claims in agriculture. The maintenance of discipline in fixed costs, which is a result of several years of restructuring, was of particular significance.
PZU’s and PZU Życie’s financial strength rating and credit rating awarded by Standard & Poor’s remained at the “A” level.
Dear Sirs, 2013 was another successive year which ended with the best financial result for PZU since the IPO, and the maintenance of the highest rating for Polish companies.
PZU has maintained a high rating. Standard & Poor’s confirmed PZU’s and PZU Życie’s financial strength at the “A” level for both companies, is which confirmation of PZU’s very strong capital position and an expression of market confidence in the strategy pursued by the
Estonia. It has already gained a significant position there. For instance, it collected 13.6% gross written premiums in non-life insurance in Lithuania in 2013 and has therefore taken third place on that market.
The event, which became an additional catalyst for change and PZU’s offensive turn towards modernity, was its IPO in 2010. The value of the offer was almost 8.1bn zlotys and was the largest public offering (IPO)
PZU has been distributing the profit generated to its shareholders since the start of its presence on the WSE.
PZU has a clearly defined dividend policy. The main objective of the PZU Group’s equity and dividend policy for the years 2013–2015, which was adopted in August 2013, is to reduce the cost of capital by optimizing the balance sheet structure through the conversion of equity to cheaper debt capital, while maintaining a high level of security and development funding. The dividends paid out of the profits for 2010–2012 gave
PZU’s shareholders high dividend yields compared with other large companies listed on the regulated market.
First position on the non-life insurance market, with a 31.1% market share.
First place on the life insurance market in regular premiums - share of
PZU’s customers have access to the largest sales and service system among Polish insurers. It includes 412 branches, 8.4 thousand agents and electronic distribution channels (helpline, Internet). The PZU
Group also has an efficient claims handling system. It is also implementing a modern IT system, with a view to building closer relationships with the multi-million group of its customers.
* ratio measured to the gross written premium of the group and individually continued insurance segment, excluding one-off effects ** excluding the dividend paid on 26 November 2009 as an advance towards the dividend expected at the end of the 2009 financial year of PLN 12,749,917k (PLN 147.69 per share) *** change in the ABC indirect cost allocation model from 2010
Group is one of the most profitable financial institutions in Poland.
activities undertaken in support of the business objectives apply to the following areas: Customer relations – ethics in cooperation as the basis of customer relations, high standards of service; Activities for the community and hence concern for financial awareness and comprehensive safety; Employee relations – development of a results-oriented organizational structure; Environmental impact, especially in terms of educating employees in this area.
Investment Universe) sustainable development index on the stock exchange in Vienna.
Both PZU and PZU Życie have had a Standard&Poor’s rating at the “A” level since 2009. This is the one of highest possible rating awarded to companies in Poland.
Market leader with a share of 31.1% and 38.1% on the motor insurance market (after 3 quarters of 2013).
Extension of strategic cooperation with companies which have large customer databases.
Stable growth in group and continued insurance premiums of 0.8 % y/y, because of an increasing number of insured, as well as a rise in the average premium, additionally supported by additional sales of profitable riders.
Development of group health insurance (introduction of additional medical consultations and innovative products – Antibiotic drug insurance). The healthcare services provider, PZU Pomoc [PZU Assistance]
Employment restructuring and a decline in the number of employees – 2.9% decline in employment in
Return on capital 24.1% – an increase of 0.1 p.p. compared with 2012.
Acceptance of a new dividend policy and payment of an advance towards dividends from the profit for 2013. Overall, PLN 4.3bn was paid to shareholders.
Maintenance of solvency ratios which are higher than the average for the sector.
However, starting from the third quarter, domestic demand gradually started to recover. In the light of the real growth in income and symptoms of the improvement on the labour market, the stagnation of individual consumption was finally interrupted, the rate of which can be estimated at around 2.0% y/y in the last quarter of 2013.1 Investments in fixed assets also started to increase in the third quarter. The turnaround 1 PZU’s estimate in the declining trend of investments can be evidence of a noticeable improvement in the outlook for demand and the financial situation in companies.
The situation improved gradually in 2013 on the main markets for Polish exports, which remained competitive.
December). The seasonal increase in the rate of unemployment recorded in the last months of last year was the lowest in six years. As a result, its level in
In the light of the increased rate of unemployment and low inflation, employers did not feel any pressure on salary increases in 2013. The average rate of increase in monthly salaries in the national economy weakened to 3.4% compared with 3.7% in the previous year.
The reduction in inflation was encouraged by both supply as well as demand factors. The regulated prices of natural gas were reduced at the beginning of the year, while electricity prices remained stable. Food prices rose more slowly than in 2012. Given the relatively weak global economic growth, world prices of commodities and fuels also encouraged the maintenance of low inflation. Simultaneously, there was no demand or pay pressure on price rises. Net inflation (excluding food and energy prices) declined in 2013 to an annual average of 1.2% compared with
In these circumstances, the Monetary Policy Council continued the cycle of reductions in NBP (National Bank of Poland) interest rates, which started in early 2013, by 25 basis points per month. In March, the Council made a surprising decision to increase the scale of reductions to 50 basis points, simultaneously suggesting the possible end of the cycle of easing monetary policy.
MPC, after which, in July, with the reference rate reduced to 2.5%, the end of the cycle of easing monetary policy was announced. In September, the
November meeting, this period was extended at least until the middle of 2014. In March 2014 the Monetary
WIBOR 6M rate declined in 2013 was approximately 140 basis points.
In 2013, the budget deficit proved to be clearly higher than the deficit of PLN 30.4bn recorded in 2012. It was initially planned to be PLN 35.6bn, but worse tax revenues than expected in conditions of an economic downturn forced the government to amend the Budget
Act in September 2013. The planned deficit was increased to PLN 51.6bn. In January 2014, the Ministry of Finance initially reported that the deficit for 2013 amounted to approximately PLN 42.5bn.
Poland had no problems whatsoever in obtaining debt financing – 25% of borrowing needs planned for 2014 had been financed at the end of 2013. After January 2014, it was already 53%.
was sealed in June by the announcement of the reduction in the “quantitative easing” in that country.
2013 was not unambiguously successful for the Polish stock exchange. Although the value of the broad market index, WIG, rose by 8.1%, the index of the largest and most liquid companies, WIG20, dropped by 7.0%. Such an unusual situation last took place in 2002. The decline in the WIG20 index could have been the result of concerns about the outflow of foreign institutional investors in response to the turnaround in monetary policy in the US. Likewise the uncertainty as to the scale of further investments of Open-ended
In 2013, the gradient of the Polish treasury bond yield curve clearly steepened. The difference between the yields of 10-year and 1-year treasuries increased by approximately 100 basis points. An important factor in the decline in the yields of shorter maturity instruments was lowering in 2013. For 1-year instruments, this decline amounted to approximately 40 basis points.
Up to the middle of 2013, the zloty was weakening against the euro and the US dollar. However, in the second half of the year, the Polish currency strengthened, despite announcements of the reduction in the “quantitative easing” in the US, reinforcing the risk of the outflow of capital from emerging markets.
Finally, over the whole of 2013, the zloty weakened against the euro, although more strongly compared with the end of 2012 (1.4%) than in monthly terms (0.3%).
compared with the end of 2012). Additionally, the zloty strengthened by 0.2% against the Swiss franc compared with the end of 2012.
PZU Życie. At the same time, the new wording of the
Act still allows insurance companies to apply the criterion of gender in the calculation of insurance premiums and benefits, but only on condition that it does not lead to a differentiation in insurance premiums and benefits of individual people.
Insurance Guarantee Fund 1.3% (an increase of 0.3 p.p.) of the gross written premiums in a given calendar year on Motor third party liability insurance (later
The Ministry of Finance published a further draft of the assumptions to the new Act on Insurance Activity in
3 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II),
Consequences for the PZU Group: The above supervisory recommendations, which were implemented in 2013, had no effect on the level of sales of insurance products through bancassurance channels.
The Act on the amendment to certain Acts in connection with the specification of the principles of paying out pensions from the funds collected in open-ended pension funds of 6 December 2013, which has been in force since 1 February 2014, while some of the provisions, including those regarding the Individual
Pension Security Account (IKZE) have been in force since 14 January 2014. The changes include, in particular:  the transfer of the parts of the pension rights of the members which are expressed as Treasury bond liabilities from the Open-ended Pension
(ZUS) – the bond part of the assets accumulated in the OFE, of a total amount corresponding to 51.5% of the units on the account of every member of the OFE as at 31 January 2013, was transferred to ZUS on 3 February 2014. After the redemption of the bonds (with effect from 4 February 2014), these funds were recorded on sub-accounts at
OFE and the method of transferring pension rights of those insured with the OFE to ZUS –
pensions should be paid when the insured reach retirement age (ultimately 67 years) in whole from the Social Security Fund (FUS). To this end, the funds accumulated in the OFE should be transferred to the FUS. They will be indexed according to the rules to date. Funds collected in the OFE by the insured when he reaches an age of 10 years less than retirement age will be
gradually transferred to ZUS to a sub-account and the new contribution will be transferred to
Fund will need to specify the objective and principles of the investment policy, as well as the quantifiable benchmark in the annual information for its members;  a change in the system of fees and commissions charged by the pension funds –
– the advertising ban is to apply after the passage of 14 days from the date of publication of the Act until 31 July 2014 and in the periods from 1 January to 31 July in the years in which it will be possible to make a decision to reselect ZUS/OFE (so-called “windows”);  the introduction of changes in pillar III (IKZE) –
(IKZE), which amounts to 10%. The income, which will be transferred to the IKZE will be exempt from tax, just as previously. It will be possible to pay 120% of the average monthly salary in the national economy forecast for the given year, which is currently equivalent to
Even though the Act entered into force in 2014, work on it, and then its adoption, had an impact on the situation on the Polish capital market at the end of 2.5 External environment in the Ukraine and the
(GDP growth at a level of 0% based on the preliminary data from the statistical office). The difficult situation arose from both the unstable political situation contributing to fading investments and the still poor climate on foreign markets, including the continuously deteriorating access to the Russian market. Only the positive rate of growth of retail sales (9.5% increase in turnover compared with 2012) had a positive impact on
 Introduction of a green card. In order to stabilize the Ukrainian Green Card market and confirm Ukraine’s status as a full member of the
Together with the introduction of the new mechanism, for 6 months of 2013, the average period in which the payment of settled claims was made declined threefold (from 60 to 20 days).
Regulation approved on 18 April 2013 “On the approval of the order of registering insurance agents conducting business with regard to obligatory TPL insurance on land transport,”
have the right to conduct business as an intermediary in Motor third party liability, provided they register with the MTSBU. The
EUR 1.5m to EUR 10m (the equivalent in hryvni), whereby this requirement will not apply to existing insurance companies.
In 2013, the Baltic States were among the fastest economically developing countries of the European
Lithuania was good. The gross written premium of nonlife insurance companies was LTL 1.3bn and increased
The Act on Insurance was amended in Lithuania on 19 December 2013, the provisions of which have been in force since 1 January 2014. The main amendments applied to:  equalizing the declarations of will of the party to the insurance contract in electronic form, in the form of a fax or via other telecommunications devices with a declaration made in written form;  the regulation of the matter of processing the personal data of the policyholder, the person paying the premium, without their consent, except for detailed personal data;  the regulation of the consequences of the failure to perform the obligation to pay the insurance premium on a specified date under an insurance agreement (in non-life insurance), under which the insurance agreement expires, if the premium is not paid within 30 days
(previously 15 days) from the date on which the notice of default on the payment term is sent.
In life insurance, the regulation is only amended with respect to the payment term of the premium after the notice is sent;  expansion of the scope of the insurer’s rights with regard to collecting personal data when handling claims;  the detailing of the principles regarding automatic renewals of insurance agreements, according to which their quantity is not limited;  the award of rights to a state institution to adjudicate on the matter of the funds
Act, under which, when calculating the level of the premium and the insurance benefit, insurance companies do not have the right to take into account the gender of the insured, which can affect the insurance risk.
In 2013, the Bank of Lithuania:  adopted a resolution on the level of costs of supervision over insurance companies. The amendment has been in force since 1 January 2013. According to the resolution the level of the charge was raised from 0.16% to 0.182%
In the light of the recovering domestic demand and good export prospects, companies should increase capital expenditure. It is expected that public investments using funding from the European Union will also start in the second half of 2014.
Constitution to a significant extent, the reduction in public debt arising from the redemption of the treasury 4 PZU’s estimate bonds transferred by the OFE to ZUS could prove ineffective. In this situation, the government may be required to take steps to increase the restrictiveness of fiscal policy.
Simultaneously, the changes in the OFE are a source of uncertainty for the financial markets in Poland. They can result in an increase in volatility. The risk for the stock market is the question of how many Poles will decide to remain with the OFE. The scale of the potential reduction in demand for shares from pension funds, which are a major player on this market, depends on this.
US could promote the outflow of capital from “emerging markets” in 2014 and, consequently, may cause disturbances on the financial markets of these countries. The most dynamic and financially stable economies – which include Poland – will have a chance of avoiding such problems. Even so, it seems inevitable that bond yields will rise over the coming two years, while the volatility of prices on the Polish financial market can intensify periodically.
Increase in nominal salaries in the national economy in % (y/y)
By performing control functions in the supervisory authorities of the companies, PZU – as the parent company – makes key decisions regarding both the scope of activities and the finances of the entities making up the Group. PZU’s capital ties with the companies additionally strengthen the business bonds, whereby these transactions are conducted on an arm’s length basis.
 On 23 December 2013, PZU FIZ AN BIS 2 concluded a final agreement on the acquisition of 948,370 shares in EMC from the new issue at a nominal value of PLN 4 per share and an issue price of PLN 19.50 per share. The total purchase price for the acquisition of the new issue was PLN 18,493k. Because the increase in the capital had not been registered by 31 December 2013, the amount was disclosed in receivables in the financial statements.
Niepublicznych BIS 2 sold 310,620 shares in an associated company, Kolejka Gondolowa
Jaworzyna Krynicka (KGJK), representing 37.525% of its share capital, for PLN 24,850k.
As a result of the settlement of this transaction, the PZU Group does not hold any shares in
227.0m, +41.1% year-on-year). The increase of premiums for the whole of the market was possible despite the decline in sales of MTPL insurance (by PLN 384. 4m, -5.6% year-on-year) and auto casco insurance
Groups: Allianz – Allianz, Euler Hermes; Ergo Hestia – Ergo Hestia, MTU; Talanx – Warta, Europa, HDI; VIG – Compensa, Benefia, Inter-Risk Source: KNF Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Rynek ubezpieczeń [Insurance Market] 3/2013
The whole of the non-life insurance market in 3 quarters of 2013 generated a net profit of PLN 5.8bn
(+100.2% compared with the same period of the previous year). Excluding the dividend from PZU Życie
The technical result of the non-life insurance market, which largely omits income on investments and deposits, increased by PLN 696.5m, i.e. by 97.9% yearon -year, to a level of PLN 1.4bn. This change was affected to the greatest extent by the increase in the technical result on insurance covering damage caused by the forces of nature and other property damage (by
Source: PFSA (www.knf.gov.pl). Biuletyn Kwartalny [Quarterly Bulletin]. Rynek ubezpieczeń [Insurance market] 3/2013, Rynek ubezpieczeń 3/2012, PZU’s data
guarantees issued for the construction sector as a result of the bankruptcy of selected companies. A
Non-life insurance companies, on aggregate, estimated the value of technical provisions at PLN 36.5bn, which represented an increase of 6.5% compared with the end of 2012.
Over the past years, PZU has been managing approximately 1/3 of the non-life insurance market.
PZU has been pursuing a corporate insurance portfolio restructuring programme for several years in order to maintain profitability. These measures have resulted in a significant improvement in PZU’s technical results for
TPL and auto casco insurance in the corporate customer segment (the Combined Operating Ratio5 fell respectively by 2.0 p.p. and 5.4 p.p. in the period of three quarters of 2013 compared with the same period of 2012), with a decline in the market share. Overall, the technical result in non-life insurance increased by
PLN 696.5m, i.e. 97.9%, of which PZU’s result alone was PLN 516.9m, or 82.0% higher.
After the first three quarters 2013, the share of PZU’s net result to the market’s net result (excluding dividends from PZU Życie) was 58.6%, which, with a market share of 31.1% calculated using the gross written premium, confirms the high level of profitability 5 The quotient of the sum of settled claims and costs of insurance activity, and the premium earned
PZU offers a wide range of non-life insurance products, including motor, property, personal, agricultural insurance, as well as TPL insurance. PZU’s product range encompassed 200 insurance products at the end of 2013. Motor insurance is the most important group of products offered by PZU, both in terms of the number of valid insurance contracts, as well as the share of the premium to the total value of gross written premiums.
In 2013, the changes in the offer dedicated to the mass market consisted of:  the introduction of changes in the TPL and auto casco insurance tariffs for individual customers and SMEs on 1 May 2013, in order to adapt to the market conditions;  the definition of general terms and conditions of motor insurance and the wide range of scales of motor insurance premiums for the mass market customer and entrepreneur with a small fleet, as well as for non-life insurance (PZU Dom –
“Przeglądarka UFG” [UFG Browser] enabling verification of customer statements about their claims history in motor insurance at the time of sale;  the introduction of changes into the offering of obligatory subsidized crop insurance in the spring season, in order to improve profitability.
While improving the offer for corporate customers in 2013, PZU simultaneously took into account the need to increase the profitability of cooperation with this customer segment. The Company assumed most of all:  Modified the existing tariff premiums for auto casco and TPL insurance. This change arose from the increasing competition in motor insurance for corporate customers and involved the adjustment of premiums to market conditions while maintaining a safe technical result in these products. In addition, it changed the limit of the number of vehicles designating the size of a fleet of vehicles, on which, among other things, the level of the premium depends.
 In TPL insurance, it consistently used tools to assess the risk and tailor the insurance terms and conditions and the quotation rules to the level of risk accepted for insurance. However, in TPL medical insurance, it more frequently used medical risk assessments (medical visits to hospitals, questionnaires).
risk assessment criteria. Sales of guarantees to smaller companies operating in sectors related to construction were still subject to strong restrictions.
 Signed a low down payment insurance contract with mBank Hipoteczny S.A.
Furthermore, the Company continued to work on the launch of new products intended for corporate customers, such as insurance of the risk related to making lease payments until the establishment of the mortgage, insurance of the risk of paying a lease with regard to absence of the lessor’s down-payment and portfolio non-life insurance.
In 2013, the Company also tightened its cooperation with trading partners with large customer databases or supporting mass payments (including electricity companies and large retail chains). And so, within the framework of the strategic partnership, it introduced new types of insurance, such as insurance of electronic equipment (telephone, laptop), home fittings, hospitalization, TPL in private life and Dom Assistance
2,827.2m, which was 4.5% lower than in the previous year. This represented 34.2% of the overall portfolio, i.e. its share remained at a similar level to that of 2012. The drop in the value of MTPL insurance at PZU resulted mainly from lower sale of new cars and increasing competition in the market, which led to a fall in prices of policies. The increase in the number of motor insurance policies for corporate customers did not fill the gaps after the drop in prices of policies.
In 2013, PZU settled gross claims and benefits amounting to PLN 4,301.9m, which was 5.0% less than in the previous year.
In 2013, PZU generated a net profit of PLN 5,106.3m, of which PLN 3,842.9m was from the dividend from PZU
Factors, which will affect the activities of the non-life insurance sector in 2014
The better financial standing of households can lead to an increase in sales of motor policies (as a result of higher new car sales), higher sales of mortgage loans and the related borrower insurance, as well as an increased demand for other non-life insurance. Additionally, the improvement in the financial standing of businesses can result in a decline in credit risk and a reduction in the level of claims in the financial insurance portfolio.
 Price pressure from the competition arising from a decline in the level of motor insurance claims in 2013.
The source of the exceptional rate of growth of the single premium and group insurance for the first three quarters of 2012, which constituted the high base for the same period of the following year, was the prohibition to benefit from the gap in the tax regulations regarding the lack of application of the flatrate tax on overnight deposits and the resulting increase in interest in single premium insurance, mainly in the bancassurance channel (the so-called deposit policies).
of great importance to the revenues obtained by insurance comapanies from the market.
The result of the changes taking place on the market is the return to the relative primacy of the regular premium over the single premium, which is PZU Życie’s competitive advantage on the market.
The expected changes in the law introducing taxation on deposit policies and their lower yield because of low interest rates on the market have contributed to the continued declining trend in sales of these products, thereby generating greater interest in investment risk borne by the customer. These changes significantly contributed to the 31.3% year-on-year decline in the written premiums in life insurance (group I) and the 6.2% year-on-year increase in written premiums related to unit-linked life insurance, despite the decline in income from investments in this insurance group by as much as 25.6% year-on-year. This is a quantifiable effect of the search by customers of insurance companies to fill the market gap after the withdrawal of the deposit policies from the market.
The gradual increase in the attractiveness of employee pension programmes (EPP) should be noted on the life insurance market. The increase in the premium collected by life insurance companies from the EPP for three quarters was 10.7% year-on-year in 2013.
Simultaneously, the share of life insurance companies in the premiums paid within the EPP, increased from 32.8% in 2009 to 33.2% in 2012. At the end of 2012, just 2.3% of Polish workers were covered by EPPs, which is why the market has huge growth potential.
The total technical result of life insurance companies achieved during three quarters of 2013 was
PLN 389.5m (14.3%) lower than in the corresponding period of the previous year, mainly because of the lower profitability of life insurance – a decline of PLN 326.7
During this period, life insurance companies generated a net result at a level of PLN 2.3bn, which constituted a decline of 10.7% (PLN -278.7m), mainly due to the poorer results on investment activities.
Despite the poorer climate on the capital market and the increase in treasury bond yields, the value of investments of life insurance companies increased slightly with respect to the previous year. The total value of investments of life insurance companies at the end of the third quarter of 2013 amounted to
PLN 95.6bn, which means growth of 1.3% compared with the end of 2012. In particular, the higher premium contributed to an increase in the net assets of life insurance, if the investment risk is borne by the policyholder (increase of 6.7% to PLN 48.1bn).
Source: PFSA (www.knf.gov.pl). Biuletyn Kwartalny [Quarterly Bulletin]. Rynek ubezpieczeń [Insurance Market] 3/2012, PZU Życie’s data
Simultaneously, PZU Życie continued to remain the decisive leader in the regularly paid premium segment.
PZU Życie’s technical result constituted the majority of the result obtained by all life insurance companies. This is evidenced by the high profitability of the products offered. The margin in PZU Życie’s technical result on a written premium was more than three times higher than the margin obtained by all the other companies offering life insurance together (20.1% compared with 5.8%).
The changes in the offering of group insurance and individually continued insurance introduced in 2013 consisted of:  protection insurance - changes were introduced into the general terms and conditions of insurance and marketing materials, in order to simplify the language, remove provisions which could give rise to doubts in interpretation and adapt them to the changing provisions of the law.
 drug insurance - the offering was made more flexible through the introduction of the ability to create different variantso with a variable sum insured and a variable amount of co-payment by the patient. Furthermore, a new PZU
Life insurance companies - share of the gross written premium for 3 quarters of 2013 (in %)
Simultaneously, PZU Życie actively worked towards attracting new customers for group insurance. Because the number of employment establishments operating in the public sector placing orders for insurance services in the tender procedure is increasing, the Company entered many – successfully completed – tenders for group insurance.
In 2013, PZU Życie offered an individual unit-linked life insurance product named Plan na Życie [Plan for Life].
In the case of structured products sold through the bancassurance channel, in 2013, the Company, in collaboration with Bank Handlowy, conducted two, subscriptions of Indywidualne Inwestycyjne
Currency Investment Programme] (a unit-linked type product with a single premium) sold through Millennium
The situation on the life insurance market in 2014 will primarily be affected by:  The expected acceleration in the growth rate in
Poland, affecting the financial condition of both households and business entities.
 The economic climate on the capital markets, which is difficult to predict and which determines the attractiveness of unit-linked insurance products.
 Changes in the legal regulations, especially regarding voluntary health insurance and the
Institution draws the allocation on the last working day of January and July of each year.
General pension companies are also included in the group of entities which are entitled to operate individual pension security accounts (IKZE). In 2013, there was not much interest in these accounts from future
(PTE PZU), is one of the largest players on the pension funds market in Poland. At the end of 2013, OFE PZU
At the end of 2013, DFE PZU held 84.4k IKZE accounts, in which assets worth PLN 5.8m were kept. As a result, it maintained its position as one of the leaders in the voluntary pension funds segment, while the rate of return in 2013 was 32.7%.
In connection with the review of the pension system, the Company actively participated in the work on the draft amendments to the Act. It conducted these activities through the Chamber of Commerce of Pension
Employers, LEWIATAN. Remarks of key importance to the pension insurance scheme in Poland were reported through these institutions, including those which had the objective of ensuring safety and protection of the funds held on the accounts of members of the Openended Pension Funds and improving the effectiveness of operation of pillar II of the obligatory pension insurance. New solutions were also proposed in order to increase the effectiveness of pillar III (i.e. IKE and
Because of the changes in the rules on the functioning of open-ended pension funds, in 2013, PTE PZU held an awareness campaign addressed to the members of OFE
customer awareness of their need to make a decision on the matter of transferring pension contributions.
Open-ended Pension Funds - share of net assets as at 31/12/2013 (in %)
 The continued high level of unemployment, which affects the number of members joining the OFE.
 The low rate of salary growth, which adversely affects the rate of growth of contributions paid by the members of the pension funds.
 Changes on the financial intermediation market, slow-down in the growth of popularity of independent financial advisory services and, therefore, a reduction in the number of sales channels.
The structure of assets changed on the Polish investment fund market because of the trends described earlier. The share of non-public asset funds with respect to the total value of assets increased (to 19.7%) at the expense of debt instrument funds (drop to a level of 23.1%).
TFI PZU SA (TFI PZU) conducts activities on the investment fund market within the PZU Group. It offers products and services to both mass market and institutional customers, including additional investment/savings programmes within pillar III of the social insurance system, including Individual Pension
In 2013 the Company launched a new product onto the market (through the network of PZU branches) which was based on the Portfel PZU Święty Spokój [PZU Peace of Mind Portfolio] and loyalty programme and the PZU
Paweł Kowalski – received the prize of the newspaper, Gazeta Giełdy PARKIET, “Złoty
Portfel” [Golden Portfolio] for the very good investment results in 2012.
Factors, which will affect the activities of investment funds in 2014
liability insurance (86.7%). In the case of motor insurance, the increase in the premium collected was relatively small and amounted to 6.9% in the case of auto casco insurance and 3.1% for MTPL insurance. As a result of these trends, motor insurance premiums accounted for 29.5% of the value of the premium actually obtained by insurers during three quarters of 2013 (i.e. 1.4 p.p. less than in the corresponding period of the previous year). The decline in the growth of the written premium in motor insurance compared with previous years arose from the expiry of loan agreements on the purchase of cars concluded in 2007 and the lower sales of new car loans.
Substantial growth (of 64%) in premiums for endowment policies was recorded in 2013, which were concluded for a term of 10 years as a result of the expiry of this portfolio.
In 2013, the insurance market in Ukraine was primarily characterized by the application by some companies of price dumping, a high level of costs related to the sale of insurance products, liquidity problems of some insurance companies, low growth on the classical insurance market, the use of insurance operations for tax evasion, as well as the continued low level of popularity of insurance services among the public and a moderate level of confidence in the effectiveness of insurance.
On the Ukrainian market, the PZU Group conducts its insurance business through two companies: PZU
In 2013, the total gross value of the PZU Group’s gross written premiums in non-life insurance in the Ukraine amounted to UAH 404.2m, i.e. it was 13.7% higher than in the previous year. This increase arose from both the increase in the premium obtained through external entities (i.e. banks, travel agencies, etc.), as well as through its own distribution channels. Travel insurance, Green Cards, corporate non-life insurance and motor insurance played a particularly important role in the growth in written premiums.
During three quarters of 2013, PZU Ukraine had obtained 3.3% of the gross written premium on the
Ukrainian non-life insurance sector, which gave it twelfth place on the market. However, the leader had a 6.6% share of the market.
On the life insurance market, PZU Ukraine Life held seventh place after three quarters of 2013, with a market share of 4.7% (the leader’s share was 22.2%).
According to the Lithuanian central bank’s data, the gross written premium of non-life insurance companies was LTL 1.3bn and increased by 8.7% compared with the previous year. The market grew primarily as a result of:  the 10.4% increase in MTPL insurance premiums;  the 7.1% increase in auto casco insurance premiums;  the 9.0% increase in accident and health insurance premiums.
Second position was taken by non-life insurance with a 19.3% share of the premiums.
Lithuania at the end of 2013 (including 9 branches of insurance companies registered in another EU member
The structure of life insurance was dominated by unitlinked type insurance, representing 70.1% of the value of the premium. Traditional life insurance accounted for 23.7% of the total premium.
Nine companies were operating in the life insurance sector at the end of 2013 (including 4 branches of insurance companies registered in another EU member state). The Lithuanian life insurance market is highly concentrated. At the end of December 2013, the share of total gross written premiums of the three largest life insurance companies amounted to 62.5%.
Over three quarters of 2013, non-life insurance companies obtained a gross written premium of EUR
insurance (31.5%) and auto casco insurance (28.8%), as well as non-life insurance (16.5%) accounted for the largest share of the product structure.
Latvia in terms of gross written premiums was BTA, which had a 26.4% market share. The next places were taken by Gjensidige (18.1%), Balta (18.1%) and
(including 5 branches of insurance companies registered in another member state). The largest insurance company in terms of total gross written premiums was
in 2012), while the share of auto casco insurance declined slightly from 20.3% to 20.2%. However, the share of non-life insurance increased in the insurance portfolio (from 15.1% to 16.8%).
compared with the previous year, as well as unit-linked insurance (increase of 5.3% year-on-year).
In 2013, PZU Lithuania occupied third place on the nonlife insurance market with a market share of 13.6%
In 2013, PZU’s activity in Latvia and Estonia was still in the start-up phase and, therefore:  the Latvian branch, PZU Lietuva, which was opened on 15 October 2012, sold its first policy in December 2012. In 2013, the office prepared additional products (MTPL insurance and auto casco insurance), which were adapted to the requirements of the Latvian market.
Up to the end of December 2012, PZU AM had been managing PZU’s and PZU Życie’s selected asset portfolios, as well as providing investment portfolio management services for investment funds managed by
PZU Group’s investment areas involving the establishment of TFI PZU, the main asset management vehicle, as of 1 January 2013, PZU AM’s role in managing the PZU and PZU Życie asset portfolios, as well as the investment portfolios of investment funds, was reduced.
With effect from 1 February 2014, as a result of the conclusion of an agreement terminating the contract for the management of the assets of the Słoneczna Jesień
Employee Pension Fund and the entry into force of the amendments to the statutes of the Słoneczna Jesień
The core activities of PZU Pomoc SA (PZU Pomoc) are, in particular:  organizing assistance type services involving the provision of assistance to the customer;  renting and leasing motor vehicles;  conducting on-line auctions and e-commerce;  managing loyalty programmes;  managing post-accident property;  activities in medical support.
handling processes in the PZU Group). From June 2012, PZU Pomoc held 30% of the shares in GSU
PZU (the Albatros Guest House, the Polanica Hotel and the Karłów Hotel).
Ogrodowa-Inwestycje performs functions for both companies from the PZU Group and external customers.
Kraków has been consolidated in the PZU Group’s consolidated financial statements since 1 January 2011.
The decision to start consolidating the Company was made by the Management Board of PZU because the thresholds of materiality had been exceeded.
PZU FIZ AN BIS 2 as a result of the contribution of shares in exchange for the allocation of investment certificates to PZU Życie.
In 2013, the PZU FIZ AN BIS 2 fund acquired:  15,229,960 shares in Armatura Kraków as a result of a call announced on 30 August 2013; after this transaction was cleared, on 28 October 2013, the PZU Group held 66,829,960 shares, representing 82.51% of the share capital.
 5,816,287 shares as a result of a squeeze out of minority shareholders announced on 16 January 2014; after this transaction was cleared, from 23 January 2014, the PZU Group held 80,941,825 shares in Armatura Kraków, representing 99.93% of the share capital. The
Authority agreed to the return of the Company’s shares to the form of a document (elimination of the dematerialization of the shares) on 10 March 2014.
PZU’s and PZU CO’s employees. These are programmes with specified premiums, which are additionally paid for by the employer in excess of the salary specified in the employment contract, constituting 7% of the gross salary.
Tower Inwestycje Sp. z o.o. (formerly PZU Tower) was established in 1998 as a special purpose vehicle of the
Based on an analysis of the needs of the individual segments, PZU is tightening relations with its customers, providing them with products and services tailored to their needs via a multi-channel, integrated system of sales and service. The new business philosophy emphasizes the organizational unity of the PZU
Group, which operates by customer segment and actively manages its relations with customers to retain them for the long term;  improving operational efficiency.
By maintaining the position of the preferred employer, the PZU Group is building a resultsoriented organizational culture;  making use of the high level of recognition of
In addition to market expansion, investing activities will ensure a high level of efficiency of the PZU Group’s operations. A new investment policy and investment portfolio re-modelling are being implemented. The PZU
The PZU Group’s main financial objective is to maintain a high return on equity (ROE).
In 2014, the PZU Group will focus on:  The mass market, as well as small and medium sized enterprises: actions will be taken to maintain PZU’s current position on the market of motor and non-life insurance. A new policy system for handling motor, home and some non-life insurance products will be implemented in the non-life insurance company by the end of 2014. As a result, it should be able to actively manage customer relations in the future and better adjust its product offering to customer needs. Moreover, special attention will be paid to offering attractive savings and investment products to mass-market customers, in particular in the area of long-term saving.
Actions will also be taken to strengthen relations with the insured through the offering of the Klub PZU Pomoc w Życiu [PZU Help in
 Corporate customers: professionalism and quality of service are the primary factors determining the choice of insurer by corporate customers. Therefore, PZU will support its customers in the development of their businesses, inter alia, by developing consulting services on risk engineering. Activities to maintain PZU’s position on the market will take into account the need to maintain adequate profitability of non-life insurance, especially motor insurance.
 IT and operations: PZU will primarily concentrate on the implementation of its new product system for non-life products - the
Everest project. PZU will introduce motor, home and some property products into the system (for 11.5 thousand end users) by the end of 2014.
3. Sales campaigns were conducted on the basis of the sales support tool to which new functionality was added (analytical CRM).
5. A new PZU sales management model was implemented. It involved preparing new job specifications for the employees in the sales area, training and creating new Sales Areas.
Investments sector 1. According to the Chamber of Fund and Asset Management (IZFA), TFI PZU ranked first among 38 investment fund companies in terms of the net asset value of the funds managed. In December 2013, the value of TFI PZU’s assets was PLN 22,217m, which represented 11.8% of the assets of investment fund companies.
2. 85.6% growth in the assets of third party customers managed by TFI PZU compared with 3. With assets of more than PLN 2.2bn, TFI PZU has remained the market leader in the employee pension programme segment among the domestic investment fund companies.
Profitable maintenance of the leadership position in life insurance 1. Operating profit, excluding the conversion effect in the group and continued insurance segment for 2013, was 9.4% higher than in 2011.
2. 39.6% increase in the number of risks in group health insurance compared with 2011.
3. Work continued on the launch of a new product – the Antybiotyk [Antibiotic] riders to the
Effective capital and investment policy 1. PZU’s and PZU Życie’s financial strength rating and credit rating awarded by
Standard&Poor ‘s at the “A“ level - one of the highest ratings awarded to companies in
3. Work aimed at preparing the PZU Group for complying with the regulatory requirements related to the Solvency II Directive continued.
3. In 2013, PZU participated in the privatization process of Croatia Osiguranje. The Croatian
Ministry of Finance announced its acceptance of the offer from the Croatian company Adris in December 2013.
Social Responsibility 1. Programmes supporting public safety, health protection and an active lifestyle were conducted.
5. For the second time in a row, the PZU Group won the main prize in the “Philanthropy
Branches, which are uniform throughout the PZU Group, was continued. 85 Branches operating as part of the new model have been opened since the beginning of the project.
3. Critical systems and business applications at the PZU Group were included in the monitoring, which enabled the elimination of the risk of long-term failure and the simultaneous reduction in downtime of critical systems.
committed employees / resultsoriented culture 1. An extensive training programme was made available to all PZU and PZU Życie employees
(PLUS). It focuses on the development of key competencies of employees. Construction of a system for offering training courses tailored to the needs of the employees started in the second quarter of 2013.
4. A survey of PZU Group employee commitment was held (87.0% of the employees submitted responses during the survey).
3. In 2013, the PZU brand was valued at more than PLN 2.3bn (the fourth most valuable
This applied, in particular, to the objectives that have not yet reached a sufficient rate, such as the development of health insurance. Long-term objectives regarding the improvement of the PZU Group’s operating model were also defined in the revised
2. Development of protection, savings and investment products, including, in particular, long-term savings products.
3. Further development in the area of mass-market sales, among other things, by developing basic distribution channels.
Profitable maintenance of the leadership position in life insurance 1. Maintenance of the profitable position of leader in group life insurance.
Regaining market position while maintaining profitability 1. Transformation of the PZU Group into a business partner with a strong expert position that is not only an entity selling insurance but also a customer advisor.
2. Rebuilding the market position in motor insurance and increasing the market share in the non-motor business.
2. PZU Inwestycje’s operations are consistent with the positioning of the PZU brand
51 SPRAWOZDANIE ZARZĄDU Z DZIAŁALNOŚCI GRUPY KAPITAŁOWEJ POWSZECHNEGO ZAKŁADU UBEZPIECZEŃ SPÓŁKI AKCYJNEJ W 2013 ROKU
Europe 1. The objective of the PZU Group is to become the largest and the most profitable insurer in Central and Eastern Europe.
Middle-office: a modern and integrated customer service model 1. Implementation of a new customer service model, which assumes an integrated contact channel structure, which is compliant with customer expectations and, specifically, further construction of a network of modern sales and service branch offices.
2. Further optimization in the area of claims handling and benefits.
1. Continuation of activities related to the introduction of a new policy system into the PZU
PZU and PZU Życie, divisions and functional areas coordinating specific functions, such as marketing, management of sales in individual customer segments, claims handling, management of the network of offices, operations division, finance division, HR division, investment division, as well as divisions and functional areas responsible for support functions, are distinguished.
Territorial coordination is implemented by the field structures (regional branches and appropriate structures of the functional divisions, including specialized units).
Programmes. In 2013, the PZU Group worked with 9 banks and 4 strategic partners with large customer databases or partners supporting mass payments, including telecommunications companies and airlines. Sales of non-life insurance through this channel mainly applies to insurance connected to a banking product or the strategic partner’s basic service.
PZU’s customers can file claims:  Via the Internet – the E-likwidacja [E-loss adjustment] system;  by telephone via the hotline;  personally at a selected Branch or garage belonging to the PZU Repair Network;  in writing (sent by post, e-mail or fax).
Benefits. Since the process is based mainly on electronic information and there is no connection of the servicing with the place of residence of the insured /
The quality of the claims handling process at PZU is very highly assessed by customers – according to PZU’s survey on a sample of more than 20k customers, the satisfaction index in 2013 was 91%. In turn, among the customers who experienced the claims handling process or the process of paying benefits, the NPS (Net
while 50% of consumers surveyed indicated that they are active promoters of PZU.
In 2012, PZU made a strategic decision to implement a new IT system for non-life products. Because of the importance of this project to the functioning of the organization, this project was given the name Everest.
The implementation of the new IT system will enable the transformation of PZU and will improve the conditions for the proper management of customer relationships. By automating many processes, the new
Full implementation of the new policy system is planned by the middle of 2016.
– further processes were being implemented in the area of insurance bookkeeping for PZU and
PZU Group were included in the monitoring, which enabled the elimination of the risk of long-term failure and the simultaneous reduction in downtime of critical systems.
As at 31 December 2013, employment in the PZU Group in FTEs was 11.2k and was 2.9% lower than a year earlier.
December 2012 by the Boards of PZU and PZU Życie, which was to mainly encompass the areas of claims handling and finance and, to a much lesser extent, support functions (administration, logistics, IT).
Employment restructuring was planned for the period from 18 March to 15 June 2013. The restructuring was supposed to have encompassed 3.1k people at PZU and
PZU Życie, whereby it was estimated that employment downsizing would apply to 630 employees of PZU and
On 28 February 2013, PZU, PZU Życie and the trade unions operating at these companies signed an agreement setting out the terms and conditions of employment restructuring. The final form of the document was based on the experience and solutions developed during the corresponding negotiations in prior years.
Employment at PZU and PZU Życie by level of education (in %)
31/12/2013 31/12/2012 31/12/2011 31/12/2010 31/12/2009 * Data in thousands of FTEs. all employees with no exceptions – as at 31 December of the given year
Employment restructuring was conducted during the planned period and finally encompassed 2.2k people at
The people who were dismissed or who did not accept the changes in the terms and conditions of employment
PLN 39,568k (throughout the whole of 2012: PLN 75,862k), while the unused part of the provision of
PZU employee DNA and PZU Leader DNA, which were created in 2012, were used in this appraisal.
since 2012. Its objective is to improve the efficiency of the whole organization, in accordance with the slogan
Every programme contains a dozen or so training modules, which develop all the new skills implemented in the organization, such as, for instance, team management, personal effectiveness and building customer relationships.
 Leader 2.0 programme, the aim of which is to strengthen key managers at PZU in the role of all-round leaders. 300 managers participate in it.
 Other forms of training: postgraduate studies and specialized forms of professional development, language courses and MBA
In addition, two projects were inaugurated as a part of the development of the new organizational culture:  TOP 30, which involves the selection of 30 Change Leaders. Its objective is to develop initiatives to raise the commitment of employees in 5 areas: People – the most
In addition to salaries, employees have additional benefits, such as the P Plus and Pełnia Życia [Fullness of Life] Group Employee Insurance, an Employee
pisane [Written with knowledge] competition, participation in job fairs and PZU Ambassador programme are just some of the examples of activities addressed to students. A new, centralized programme of internships and traineeships dedicated to third year and higher students, as well as young graduates, started in 2013. Within this programme, three-month traineeships, six-month internships and nine-month internships are organized for talents, the so-called High
PZU also has mechanisms for entry into and exit from the organization. The assumption to the process of introducing a new employee is to build commitment and loyalty in an atmosphere of openness and cooperation.
However, anyone parting with the organization by mutual consent is asked for his opinion on working for
It demonstrated problem-free claims handling and particularly helpful experts and loss adjusters.
PZU campaign, which had the objective of positioning the PZU Group as a desirable employer.
The PZU Group conducted an indicator campaign throughout the whole of 2013, the objective of which was to promote the most attractive products / services from various business areas and the resulting customer benefits. It was simultaneously building PZU’s image (It is a modern company; It is a customer-friendly company; It is the company for me; It is a trustworthy company). Animated advertising slogans also had the purpose of strongly reinforcing PZU’s corporate identity.
(digital communications channel addressed to customers located away from home), radio and television.
An important element of the marketing support of sales conducted by agents was the regular communication in the form of a newsletter dedicated to them and the development of standards of exposure for promotional materials (leaflets, posters, shop window stickers, etc.).
lower than in 2012, mainly because of the decline in prices of treasuries compared with the prior year, when the prices for these securities were high. This decline was partly o f f s et by the one-off income on consolidation of investment funds of PLN 172.8m, which was included in the net result on investing activities.
 Maintenance of cost discipline in the area of administrative and acquisition expenses. These amounted to PLN 3,422.4m in total and, because of the lower administrative expenses, were at the same level as in 2012.
O p e ra ti n g r e su lt f o r
compared with the prior year. The value of agricultural insurance increased primarily as a result of the increase in sums insured in obligatory farm building insurance.
 Accident insurance (NNW) and other types of cover. Their share amounted to 5.1%, namely a decline of 0.3 p.p. compared with 2012. In
Fee and commission income comprised mainly:  Income on the management of the Złota Jesień
Insurance Institution (ZUS) to the open-ended pension funds (OFE) increased from 2.3% to 2.8% of the base contribution.
 Income and fees from investment funds and investment fund management companies of
 Income from fees charged on investment contracts at the customer’s expense and risk.
In 2013, the PZU Group’s result on investments amounted to PLN 2,488.1m compared with
In December 2013 the value of the PZU Group’s investments portfolio7 amounted to PLN 50,801.6m compared with PLN 50,017.6m as at the end of 2012.
Investing activities of the PZU Group are conducted in compliance with the statutory requirements, ensuring an appropriate degree of safety, liquidity and profitability.
As at the end of 2013, the PZU Group had made significant commitments to debt and equity instruments of such companies as: Polkomtel, Azoty Group, EMC
Osiguranje. The Croatian Ministry of Finance announced the process of selling its shares in the largest Croatian insurer. After the non-binding offers were placed, PZU was one of two bidders admitted to the second stage of the proceedings. In December 2013, the Croatian Ministry of Finance published information on the acceptance of the Adris bid.
PLN 30.7m. The following factors had an impact on this result:  One-off income from conclusion of a settlement with the reinsurer (the one-off impact on other operating income in 2013 was PLN +73.3m, the total impact on profit before tax was
PLN +53.2m). The settlement agreement related to the settlement of Green Card reinsurance commissions, which were adjusted for 2011, while the result for that period was reduced by PLN 91.8m.
 Net income from restructuring activities (release of provisions – net + PLN 18.6m in 2013 compared with additional provisions of
(retirement and long-service benefits) of PLN 177.0m were released in 2012 because of the termination of the
Additional provisions of PLN 1,032.8m were established in 2012 because of the decline in the technical rates.
The following factors also contributed to the decline in the net value of claims and benefits:  a low level of damage related to the negative effects of overwintering, a lack of frost and floods in the summer in agricultural insurance, whereas in the years 2011-2012, a high level of claims was recorded in this respect which led to negative returns on this product;  the lack of need to establish additional provisions for claims in financial insurance with regard to contract guarantees; in 2012, because of a slump in the construction industry, it had been necessary to establish additional provisions for contract guarantees and the resulting change in the process of risk acceptance and valuation;  the maintenance of a low loss ratio in motor insurance due to improved road conditions and lower traffic intensity (low loss frequency);  a lower increase in technical provisions for unitlinked products as a result of deteriorating investment activity results, which, with a simultaneous drop in investment income, had no impact on the PZU Group’s results;  a lower increase in the technical provisions in continued protection insurance as a result of modifying the product, which affected the amount of technical provisions established upon the insured’s transfer to the individually continued phase;  optimization of the claims handling processes.
On the other hand, the following contributed to the increase in the net value of claims and benefits:  a lower rate of conversions of long-term contracts to renewable annual contracts in type
P group insurance (the effect of conversion in 2013 translated into a release of
PLN 2,015.9m and increased by 0.8% compared with 2012. This increase was mainly the result of:  the rapid increase in sales of investment products through the bancassurance channel, specifically of the unit-linked product characterized by high acquisition expenses;  an increase in the share of the more expensive distribution channels in sales of insurance cover to the mass-market customer and changes in commission rates for selected product groups;  the start of consolidation of life insurance companies in Lithuania and Ukraine –
At the same time, a decline in acquisition expenses was recorded in the corporate segment (lower commissions paid as a result of negative sales growth) and a decline in indirect acquisition expenses (such as personnel costs).
Everest Platform (implementation of the first part of the pilot programme in November 6.5 Structure of assets and liabilities
The key components of the Group’s assets were investments (financial assets and investment property).
In total, these assets amounted to PLN 56,163.5m and were 10.2% higher than at the end of the prior year.
They represented 90.1% of the Group’s total assets compared with 91.2% at the end of 2012. The increase in the value of investments was especially due to the inclusion of subordinated entities, including investment funds, in the consolidation (the effect of discontinuation of applying the materiality criterion to determine the list of consolidated subsidiaries as of 1 January 2013) and positive cash flows from operating activities (higher written premiums and a lower level of claims paid).
The PZU Group’s receivables, including receivables from insurance contracts, amounted to PLN 2,665.0m, i.e.
they represented 4.3% of total assets. In comparison, at the end of 2012, they amounted to PLN 1,835.8m
(3.3% of the Group’s assets), while their increase arose from the security sales transactions which had not been settled as at the balance sheet date.
They amounted to PLN 37,324.4m, which represented 59.9% of total equity and liabilities. Their share in the balance sheet declined by 3.4 p.p. compared with 2012.
Investment contracts amounted to PLN 2,121.0m compared with PLN 2,299.1m as at the end of 2012.
In 2013, PZU paid out PLN 4,291.7m to shareholders in the form of a dividend.
The balance of cash and cash equivalents as at the end of 2013 increased by PLN 417.4m compared with the prior year, mainly as a result of lower claims disbursements. Moreover, in 2013 buy-and-sell-back transactions and trading in debt instruments increased almost 1.5 times (as a result of the redemption of a large portion of the HTM portfolio).
Millennium SA, the bank grants bank guarantees (both as tender deposits and performance bonds) to PZU in tenders for insurance services. The guarantee facility is
PLN 15m. It is open for one year and it may be every year renewed for another year. 72 guarantees were open, as at 31 December 2013, for a total amount of
Życie in tenders for insurance services. The guarantee facility is PLN 10m, it is open for one year and may be renewed every year for another year. 12 guarantees were open as at 31 December 2013, for a total amount of PLN 0.5m, under the guarantee facility which is available from 7 October 2013 to 6 October 2014.
PLN 76.1m. As at the end of 2012, the balance of loans incurred by the Armatura Group amounted to PLN
76.5m. All the loans and borrowings were granted at arm’s length.
For management purposes, the PZU Group has been divided into the following industry segments:  Corporate insurance (non-life). This segment encompasses a wide range of non-life insurance,general liability and motor insurance, which are adapted to customer needs and, with individually valued risks, offered by PZU to large business entities.
 Mass-market insurance (non-life). This segment comprises property, accident, general liability and motor insurance. PZU provides the insurance to individuals and entities from the
(e.g. trade unions). People who have a legal relationship with the policyholder (for instance an employer or a trade union) may enroll in the insurance; and individually continued insurance in which the policyholder acquired the right to individual continuation during the group phase.
It includes the following types of insurance: protection, investment (which however are not investment contracts) and health insurance.
 Investments. This comprises investment activity conducted with the PZU Group’s own funds, defined as the surplus of investments over technical provisions in the leading companies of the PZU Group (PZU and PZU
 Baltic States. Non-life and life insurance products provided by PZU Lietuva in Lithuania.
 Investment contracts. These include PZU Życie products which do not result in a transfer of significant insurance risk and do not satisfy the definition of an insurance contract. They include some products with a guaranteed rate of return and some products in the form of a unit-linked policy.
In 2013, the corporate insurance segment earned an operating profit of PLN 391.5m, which is 80.0% more than in the prior year. Additionally, in 2012, one-off factors in the form of changes in technical rates had a negative impact on the result. After the effect of this change has been eliminated, in 2012 operating profit in the corporate segment was PLN 238.9m.
The following factors primarily had a key impact on this segment result in 2013:  A drop in gross written premium. It amounted to PLN 1,740.2m, i.e. it was 5.4% lower than in the prior year. In particular, the average policy value dropped (by approximately 11%), which led to a decline in the value of motor insurance
N e t cl a im s a n d b e n e fi ts
insurance was also recorded, as a result of the verification of the insurance portfolio and the reduction in the number of unprofitable customers, as well as the smaller frequency of claims (more favourable road conditions and lower traffic intensity). Moreover, in 2012 PZU
paid substantial claims as a result of a large number of bankruptcies in the construction industry, including those relating to contract guarantees. Furthermore, the value of claims and benefits included the one-off effect of the reduction in the technical rate in the form of an increase in the value of capitalized annuities provisions of PLN 21.4m. In 2013, the loss ratio in corporate insurance amounted to 54.9% compared with 66.5% in the prior year.
 An increase in investment income allocated to the segment at transfer prices. This income amounted to PLN 140.0m and was 10.0%
 An increase in administrative expenses. They amounted to PLN 115.8m, i.e. they increased by 7.6% compared with the prior year. They included a portion of the costs related to the implementation of the new product system.
 Income from investments allocated at transfer prices to the mass-market insurance segment amounted to PLN 556.8m (a 3.7% increase compared with the prior year).
 Claims and benefits, as well as provisions, which were at a level of PLN 4,193.0m, dropped by 2.5% compared with 2012. The substantially lower level of disbursements in agricultural insurance (absence of the negative impact of overwintering, frost, lower flood, rain and hail claims), a smaller number of high unit value claims in property covers and a lower loss frequency in MTPL insurance contributed to the better result that in the prior year. At the same time, PZU paid more auto casco claims.
PLN 212.8m. In 2013, the loss ratio amounted to 64.0%, i.e. it decreased by 2.0 p.p.
PLN 1,141.5m, i.e. a level similar to that of the prior year.
PLN 546.9m, declined by 3.8% compared with 2012. The main reason for the decline was employment reorganization and restructuring.
Green Card cover at the amount of PLN 53.2m, because of the operating activities in the mass-market insurance segment (partial reversal of the adjustment of the estimates with the reinsurer which reduced the result in 2011).
 Income from investing activities – comprising income allocated according to transfer prices and income from investment-type products –
amounted to PLN 735.2m, i.e. it declined by 23.0%. This was the effect of unfavourable financial market conditions and, specifically, the increase in instrument yields and a drop in riskfree rates (for allocated income).
 The increase in other net technical provisions amounted to PLN 271.0m. The increase in technical provisions was PLN 577.7m lower than in the prior year, when one-off additional provisions of PLN 408.5m were established as a result of a decrease in technical rates.
Moreover, the following factors had an impact on the amount level the provisions: a smaller increase in technical provisions in unit-linked products (as a result of significantly lower results on investing activities than in 2012) and in continued protection cover (the effect of modification of the product affecting the amount of provisions established at the time of transfer of the insured to the individually continued cover) and a decline in technical provisions in short-term endowment products as a result of a drop in their sales through the bancassurance channel. The lower rate of conversion of long-term contracts into annual renewable contracts in type P group cover also affected the level of these provisions. As a result, provisions of PLN 127.1m were released, i.e. PLN 93.3m less than in 2012.
 Acquisition expenses amounted to PLN 322.8m, i.e. they increased by 1.6%. The main factors for their increase were the higher direct and indirect acquisition expenses in type P group protection insurance as a result of increased sales of policies (of which an increasingly larger portion was acquired through brokers and agency channel), as well as the increase in commissions in group protection insurance in
the bancassurance channel, as a result of an increase in sales of policies.
 Administrative expenses in the segment amounted to PLN 545.7m. Their almost 6%
 The increase in net claims and benefits which amounted to PLN 626.6m, i.e. they increased by 3.6% compared with 2012. This increase was due to higher disbursements on endowments in structured products (both though the Group’s own and through the bancassurance channel)
and higher redemptions of unit-linked products in the bancassurance channel. Endowment disbursements from old policies underwritten in the 1990s were lower.
This increase was partly offset by a lower increase in provisions on unit-linked products through the traditional channel (due to a lower result on investing activities) and maintainance of assumptions concerning future claims payments in the annuity portfolio (these assumptions were changed in 2012 what, because of the change of technical provisions, had a negative impact on 2012 financial result; O p e ra ti n g r e su lt f o r
C h a n g e i n p ro v is io n s
increase compared with the prior year). The rapid expansion of sales of investment products through the bancassurance channel, specifically of the unit-linked product characterized by high acquisition expenses, was the reason for this increase.
 Acquisition expenses amounted to PLN 16.8m, i.e. they were 17.0% lower than in the prior year. This was primarily a result of a decline in commission income.
PLN 77.9m, i.e. were 16.2% lower than in the prior year. In particular, the costs of maintaining pension fund registers declined (by
PLN 13.5m) due to lower in 2013 additional fee for Transfer Agent in respect of ensuring a certain level of service while in 2012 the salary was accrued for the first time for two years, 2011 and 2012. Additional payments to the
In 2013, the Ukraine segment earned an operating profit of PLN 15.7m, compared with PLN 10.4m in the prior year.
This segment earned PLN 24.4m in this respect, which is 37.4% more than in 2012. The increase in returns on liquid financial instruments (deposits, bonds) and an increase in liquid assets had a positive impact on this income.
In 2012, this segment only included the amount of non-life claims. In 2013, the non-life company disbursed PLN 56.6m claims, i.e. 5.1%
more than in the prior year. An improvement in the loss ratio was noted (from 52.3% to 45.1%), which was a result of reducing the sales of popular medical insurance which was exposed to a high loss ratio, and balancing the portfolio with a high-yield non-life insurance portfolio. The amount of claims in the life insurance company was PLN 24.2m, i.e. it increased by 33.5% compared with the prior year. At the same time, the operating profit margin improved (from 5.3% to 11.2%).
PLN 28.0m in the prior year. In 2013, they comprised PLN 20.3m of the life insurance company’s acquisition expenses. Their level was the result of high costs of “new business”
 An increase in administrative expenses. They amounted to PLN 35.9m, and included administrative expenses of the consolidated life insurance company of PLN 6.1m. For comparison purposes, in 2012, the administrative expenses of the segment amounted to PLN 28.5m.
O p e ra ti n g r e su lt f o r 2 In co m e
PZU Group involving the discontinuation of the materiality principle, as of 1 January 2013, the company offering life insurance started to be included in the consolidation. Therefore, the data for this segment for 2013 includes the data of two companies, while the data for 2012 only includes the data of the non-life company which had been consolidated until this time.
PLN 31.8m of the life insurance company, which had not been consolidated in 2012. For comparison purposes, in 2012, the written premium in the segment amounted to
PLN 195.7m. The premium increased in the non-life segment mainly as a result of increased sales of non-life insurance (an increase of 28.7%), auto casco insurance (an increase of 15.5%) and MTPL insurance (an increase of 8.1.%). In life insurance, the largest sales increase was recorded in traditional life insurance, which increased by 61.2% compared with the previous year and in unit-linked insurance (an increase of 5.3% year-on-year).
PLN 6.5m and was 34.2% lower than in the previous year, mainly as a result of unfavourable conditions on the capital markets.
 An increase in administrative expenses. These expenses amounted to PLN 26.5m and included the administrative expenses of the life insurance company of PLN 2.8m. Costs related to the development of branches on the Latvian and
Investment contracts are accounted for under the deposit method. Consequently, the transaction volumes from investment contracts do not constitute revenues according to IFRS.
The PZU Group earned PLN 11.3m of operating profit compared with PLN 1.1m in the prior year (increase of 953.9%) 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 some unit-linked products).
lower than in the prior year. In particular, sales of short-term endowment products dropped
 Lower administrative expenses. These amounted to PLN 11.4m and declined by 28.8%
The PZU Group improved its profitability in 2013. In particular, the high return on equity should be noted.
C h a n g e i n t h e b a la n ce o f p ro v is io n s
One of the key operating ratios of an insurance company is the combined ratio (COR), which is calculated for the non-life sector (Sector II) because of its specific nature.
The consistent improvement in the PZU Group’s combined ratio (for non-life insurance) in successive years arises, among others, from the correct matching of prices and insurance cover offered, the ability to maintain cost discipline (reduction in fixed costs in connection with releasing provisions from previous years, reduction in IT costs following from contract renegotiation and consistent management of remuneration costs for insurance intermediaries).
Return on equity (ROE) (net profit/loss y/y /average equity) x 100% 24.1% 24.0% 18.3% 20.3% 24.0%
Return on sales (net profit (loss)/ gross written premium) x 100%
(gross claims paid / gross written premium) x 100% 67.9% 76.2% 67.9% 75.2% 65.9%
(net claims paid / net premium earned) × 100% 68.7% 76.3% 68.6% 73.1% 65.1%
(insurance activity expense / net premium earned) × 100% 21.1% 21.5% 22.5% 24.0% 25.2%
(acquisition expenses / net premium earned) × 100% 12.4% 12.5% 13.2% 13.4% 12.7%
(administrative expenses / net premium earned) x 100% 8.7% 9.0% 9.3% 10.6% 12.5%
and PZU Życie pursue their business goals, monitor and manage their investment and insurance portfolios and operational risk safely, adequately to the scale of the risks incurred. The risk management strategies are an integral part of the management process in place at
Board, the Supervisory Board, and the appropriate Committees, including the level of the appetite for risk;  the processes of identifying, measuring and assessing, monitoring and controlling, reporting and managing actions with respect to the individual risks;  the risk management organizational structure, in which the Management Board, the
The risk management organizational structure is based on four competence levels (the same in both companies).
Supervisory Board rules and regulations;  the Management Board, which organizes the
risk management system and ensures its functionality through approving the Strategy and policies and defining the appetite for risk, the risk profile and tolerance for individual categories of risk;  the Committees (ALCO and CRC), 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.
The fourth level of responsibility is related to the operating level, at which the risk management activities are divided among the three lines of defence:  the first line of defence - ongoing risk management at the business unit and organizational unit level and decision-making as part of the risk management process. The managers are responsible for implementing an effective risk management system in the areas of the Company’s operations they supervise; in particular, they are responsible for design and effective operation of risk identification and monitoring measures, which are integral components of the processes guaranteeing adequate response to the risks as they arise;  the second line of defence - risk management by specialized units responsible for risk identification, monitoring and reporting and controlling the limits. Within the second line of defence, the units which play an important role in the process are the Risk Department, the
The appetite for risk, risk profile and risk tolerance limits reflect the strategic plans of the PZU Group, thereby ensuring adequacy and effectiveness of the risk management system and preventing acceptance of risk levels which could jeopardize the financial stability of the PZU Group.
 Appetite for risk. Appetite for risk was defined as the level of risk which the PZU Group is prepared to accept while pursuing its business objectives. The level of the appetite for risk is defined as the minimum capital requirement coverage ratio.
It consists of the following elements:  Identification. The process of risk identification starts with the idea of creating an insurance product, acquiring a financial instrument or changing an operating process, as well as at the any other event takes place which could potentially create a risk for the PZU Group. The process lasts until the liabilities, receivables or activities relating to such an event expire. Risk
identification involves identifying the actual and potential sources of risk and estimating the materiality of the potential impact of such risks on the PZU Group’s financial position.
 Risk monitoring and control. This involves ongoing reviews of any variances from the assumed parameters, namely limits, thresholds, plans, values from the previous period, recommendations and guidelines issued, which are performed by dedicated units. The monitoring process also involves risk measurement through the calculation and analysis of risk.
(daily / weekly) on changes in the specific areas that affect the level of risk at the PZU Group and the extent to which the levels of market risk are utilized.
The PZU Group prepares the following risk reports for:  Management Board members - quarterly and monthly information by portfolio and business line on the levels of insurance, market, credit, concentration and operational risk;  ALCO members - weekly information on the level of market risk and current information on exceeded market limits;  the Credit Risk Committee - weekly and monthly information on the market, credit and concentration risk levels and current information on exceeded market, credit and concentration limits;  the Supervisory Board - quarterly information on key indicators of the level of insurance, market, credit, concentration and operational risk;  The other units report on the levels of risk related to their activities in accordance with the applicable internal regulations.
Management actions relating to individual risk categories are defined in the internal regulations of the
Insurance risk is the risk of a loss or an adverse change in the value of insurance liabilities as a result of
improper assumptions regarding valuation and the establishment of provisions. The insurance risk management process starts with the idea of creating an insurance product, while insurance risk assessment involves recognizing the degree of exposure or a group of exposures related to the possibility of incurring a loss and analysing the risk elements in order to make a decision on whether the PZU Group should accept a risk for insurance and assume liability. The insurance risk analysis takes into account the scope of insurance cover granted, the amount of the premium and (in financial insurance) the level of security.
The insurance risk assessment also involves actions relating to:  prevention, involving insurance risk management aimed at: o reducing the frequency of losses; o reducing the extent of the losses;  reinsurance of risks of the greatest amount and exposure.
This is a risk of a loss or an adverse change in the financial situation, which directly or indirectly arises from fluctuations and changes in market prices of assets, liabilities and financial instruments.
The identification of market risk involves recognizing the actual and potential sources of such risk. In the case of assets, the market risk identification process begins when a decision is made to commence transactions on a given type of financial instrument. The units which decide to start transactions on a given type of financial instrument prepare a description of the instrument, including, in particular, a description of the risk factors, and submit it to the Risk Department, which identifies and assesses the market risk on this basis.
The PZU Group measures market risk using the following measures of risk:  VaR;  exposure and sensitivity measures;  accumulated monthly loss.
The following stages of the market risk measurement process can be distinguished:  collection of information on assets and liabilities that generate market risk;  calculation of the value of the risk.
The risk measurement is performed:  daily - to measure exposures and sensitivity of instruments contained in the Kondor+ transaction system;  monthly - using a partial internal model.
Management actions regarding market risk include, in particular:  concluding transactions to mitigate market risk, such as selling a financial instrument, closing a derivative and purchasing a hedging derivative;  diversifying the portfolio of assets, in particular with respect to market risk categories, maturities of instruments, concentration of exposure in one entity, geographical concentration;  investing in highly liquid instruments;  setting market risk restrictions and limits.
The setting of limits is the main management tool for maintaining risk positions within acceptable risk tolerance levels. The structure of limits for the individual market risk categories and the PZU Group organizational units is defined by ALCO taking into account the risk tolerance defined by the Management
This is the risk of incurring a loss or an adverse change in the financial situation to which the PZU Group is exposed, which arises from changes in credibility and creditworthiness of issuers of securities, business partners and any debtors, as a result of which the business partner may fail to meet its obligations or the credit spread could increase.
Credit risk measurement with respect to a single entity is estimated as the sum of single exposures, calculated as the product of the following two values:  risk weight for internal rating;
The total concentration risk at the PZU Group is measured as the sum of concentration risks of individual entities. In the case of related entities, concentration risk is specified for all related entities cumulatively.
Monitoring is conducted in the following cycles:  monthly - for financial insurance exposures;  half-yearly - for Reinsurance Department exposures;  daily - for other exposure limits;  monthly - for VaR limits.
Operational risk management has the purpose of optimizing the level of operational risk and operating efficiency in the PZU Group’s operations, leading to a reduction of losses and costs arising from such risks and ensuring adequate and effective controls, with the use of appropriate organizational, procedural and technical solutions. The level of operational risk is identified and assessed by the PZU Group by collecting and analysing information on this risk for the security, human resources, IT and legal areas. The scale of exposure to operational risk can be determined in this way.
CO and PZU PTE) have implemented and tested business continuity plans securing the correct operation
of the processes of key importance to these companies in the case of failure.
At the PZU Group, compliance risk is managed on the basis of the Compliance Policy and the Methodology of
The demarcation of responsibilities with respect to systemic and ongoing compliance risk management is based on the above-mentioned regulations. Ongoing management of compliance risk relating to specific processes is the responsibility of the managers of the individual organizational areas and units within the PZU
The Management Boards are responsible for making strategic decisions regarding compliance risk and accepting risk levels in this area.
Compliance risk identification, assessment and measurement are performed by the managers of the
Classification by the managers of organizational units, in line with the demarcation of reporting responsibilities.
Compliance risk is assessed and measured by determining the effects of materialization of the following risks:  financial, resulting from administrative penalties, court verdicts, contractual penalties, damages etc.
Management actions taken in response to the compliance risk comprise in particular:  acceptance of risk, e.g. in connection with legal or regulatory changes;  mitigation of risk, including adjustment of procedures and processes to regulatory requirements, issuing opinions and drafting
The following table presents the results of the analysis of the sensitivity of the net financial result and equity to changes in interest rate risk, exchange risk and equity instruments price risk.
WSE, investment fund units and certificates in foreign currencies, exposures to derivatives denominated in foreign currencies and financial assets of consolidated entities denominated in foreign currencies.
A sensitivity analysis is presented below of the net result and equity to changes in the assumptions used to calculate the capitalized annuities. The analysis does not take into account the impact of changes in valuation of the deposits taken into consideration in calculation of the reserve on the net financial result and equity.
Reinsurance cover in the PZU Group secures the insurance activity, reducing the consequences of the occurrence of catastrophic phenomena which could adversely affect the financial standing of insurance companies. This task was performed through obligatory reinsurance contracts supplemented with optional reinsurance contracts.
PZU uses the reinsurance contracts it concludes to mitigate its exposure to catastrophic losses (e.g. flood, hurricane) among other things through a catastrophic non-proportional excess loss contract and to the consequences of large one-off losses in nonproportional reinsurance contracts protecting property, technical, marine, aviation, TPL and MTPL portfolios.
Impact of changes in assumptions on the net financial result equity
Changes in the assumptions to the net capitalized annuities in non-life insurance (in PLN million)
Changes in the assumptions for annuities in life insurance (in PLN million)
Changes in the assumptions for reserves for insurance contracts and investment contracts with DPF in life insurance, excluding annuity insurance (in PLN million)
Scor, Endurance and Lloyd’s. PZU’s reinsurance partners have high S&P/AM Best ratings, which gives the Company the certainty of the reinsurer’s good financial standing.
PZU’s activity in the area of inward reinsurance constitutes one of the elements of its support for PZU
Company the certainty that the reinsurer has a good financial standing.
The PZU Group has a solid capital base, which is much higher than the capital requirements and the average values for the insurance sector in Poland.
PZU applies a ratio calculated on the basis of the unit solvency margins and own funds (using Solvency I
PZU and PZU Życie’s unit solvency margins and own funds were calculated on the basis of Polish GAAP and the requirements of the Regulation of 28 November 2003 on the method of calculating the solvency margin and the minimum amount of guarantee capital for insurance categories and groups (Journal of Laws no.
The capital requirement calculation model will be changed when Solvency II enters into force.
Reinsurance premium on PZU obligatory contracts according to Standard & Poor's rating
May 2010. The Company is among the largest listed with WSE and has been included in WIG20 since its
WIGdiva, as well as CEERIUS sustainable development index (CEE Responsible Investment Universe). CEERIUS
performance for 2012, its stock prices have been much higher than those of other WSE blue chips. The trend lasted until the end of 2013. The closing price from the last session in 2013 amounted to PLN 448.95, which was a growth by 2.7% compared to the closing price of 31 December 2012 of PLN 437.00. In the same time,
In 2013, the price of PZU stock was materially influenced by, among others, investors’ behavior on global financial markets, very good financial performance and attractive dividend policy adopted by the Management Board of the Company, reflected in valuation and recommendations of stock market analysts.
At the end of 2013, the market valuation of PZU Group was PLN 38,768m. The price/book value ratio was 2.95, making PZU one of the best-valued companies in the financial market listed with WSE.
Total shareholder return (market price of shares at end of period - market price of shares at the beginning of the period + dividend paid in the period) / market price of shares at beginning of period 8.2 Investor relations
Board of PZU undertakes various investor relations activities aimed at improving transparency in PZU.
Participants”, the Management Board's declaration adopted in 2012. It is available at PZU website in investor relations tab.
PZU creates value through active communication with capital market participants, building trust and caring for good relationships.
The financial performance of PZU Group (for 2012, Q1 2013, 1H 2013 and Q3 2013) were presented and discussed by the Management Board during meetings with capital market analysts. The meetings, similarly to the General Shareholders' Meetings, were broadcast live on the Internet.
In 2013, representatives of PZU participated in:  three non-deal roadshow in Europe and the U.S. organized following the publication of
Poland;  a number of group, one-on-one meetings and teleconferences with investors and stock portfolio managers held in PZU office. In 2013
PZU organized 180 meetings with nearly 300 institutional investors and nearly 120 meetings with analysts issuing recommendations concerning PZU shares.
Undertaken communication activities were addressed to thousands private investors. PZU especially for them:  participated in two conferences for individual investors organized in Poland by Individual
Conference in Karpacz, the largest meeting of individual investors in Central and Eastern
Władysławowo;  organized four chats with individual investors, hosted by a PZU Management Board Member in charge of Finance Division in PZU Group after publication of 2012 financial performance and the results for Q1 and 1H of 2013;  participated in 10 na 10 – Komunikuj się
Communication) meeting aimed at creating of high communication standards for listed companies to reach individual investors.
Since its IPO, PZU has been partnering and actively participating in Akcjonariat Obywatelski project.
Akcjonariat Obywatelski is an initiative for private investors started by the Ministry of Treasury during the IPO of listed entities: PZU, Tauron Polska Energia and Giełda Papierów Wartościowych w Warszawie.
Recognition won in 2013 in this respect included:  In EXTEl survey performed first time in 2013 for
o Piotr Wiśniewski, RI Head in PZU, was ranked fourth in IR Professional Best for
Individual Investors' Association among its members. The purpose of the survey is to look for companies that meet top standards in communication with investors and individuals who contribute to the building of knowledge of the capital market and its transparency.
 PZU won also Spółka przyjazna inwestorom certificate (Investor Friendly Company). It has been recognized as an entity maintaining high reliability of its information policy and protecting the rights of investors through a committee manned by representatives of Individual
is the only financial institutions to be recognized for Useful Value of Annual Report. The Best
The median of target prices from recommendations valid at the end of 2013 was PLN 445 and was 5.0%
PLN 3 bn. Consequently, ROE will remain high and the Total Shareholder Return will increase.
Group of ca. 400% and solvency margin coverage with own funds excluding subordinated debt of at least 250%; o equity level corresponding to Standard &
In the next few years the Management Board does not intend to increase the share capital through the issue of shares.
In December 2012, all insurance companies operating on the Polish market received a Recommendation of the Head of Polish Financial Supervision Authority regarding restrictions on dividend payment. It recommended a prudent dividend policy and using profits generated in 2012 to enhance capital standing of the companies. Further, it recommended that only companies meeting specific criteria (detailed in the Recommendation) might consider dividend payment. Insurance companies meeting the specified criteria should limit dividend payment to the maximum of 75% of the 2012 profit maintaining the capital requirement coverage ratio after dividend of at least 110%. At the same time, the Recommendation allowed payment of dividend amounting to 100% of 2012 profit if the capital requirement coverage ratio after dividend is higher than 160% for section I companies or 200%
for section II companies (as at 31 December 2012) and if the newest stress tests carried out for all tested risk types indicated the capital requirement coverage ratio of at least 110% and the ratio of covering technical provisions with relevant assets of at least 100%.
According to the Resolution on distribution of the net profit for the year ended 31 December 2012, 23 August 2013 was the dividend date, while 12 September 2013 was the payment date.
PZU adopted a resolution concerning the advance payment of dividend expected at the end of the 2013 financial year of PLN 1,727,046,000, i.e. PLN 20.00 per share. The advance was paid from profit generated during the six months ended 30 June 2013 in the amount of PLN 4,679,913,000, recognized in the separate financial statements of PZU for this period prepared in accordance with Polish Accounting
Following the Recommendation regarding dividend payment by insurance companies from profit generated in 2012, the supervisory body issued a recommendation regarding the payment of dividend from 2013 profit. In a letter of 11 December 2013 the supervisory body recommended that the insurance companies continue their prudent dividend policy using the generated profit to enhance their capital standing. At the same time, when deciding on the dividend amount, the insurance companies should include additional capital needs within the 12 months of the date of approving 2013 financial statements, among others arising from the growth of costs caused by changes in market and legal conditions and capital needs arising from the necessity to achieve compliance with Solvency II.
December 2013 for all tested risk types indicated the capital requirements coverage ratio of at least 110% and the ratio of covering the technical provisions with relevant assets of at least 100%.
Insurance companies meeting the above criteria should limit dividend payment to the maximum of 75% of the 2013 profit maintaining the capital requirement coverage ratio after dividend of at least 110%. At the same time, the supervisory body allows using the entire 2013 profit for dividend payment if the coverage of capital requirements after dividend remains higher than the one determined in point 4 and the criterion determined in point 5 is met as at 31
By the date of preparing this Report on the activities of
PZU Group, the Management Board had not adopted a resolution concerning distribution of profit for 2013.
PZU and PZU Życie results from an analysis of the financial information, competitive position, management and corporate strategy as well as country financial situation. It also includes outlook, i.e.
an assessment of the future position of the Company in the event of specific circumstances.
As at the date of the report, both companies had financial strength rating and the credit rating on the A level. This is the top S&P rating available for a Polish company.
As at the date of this Report, long-term credit rating in the local currency as at the date of the report was
Net profit of PZU (in PLN mln) 5 106.3 2 580.7 2 582.3
Percentage of net profit of PZU Group paid as dividend nd 78.8 82.6
Dividend per share (in PLN) 49.70** 22.43 26.00 * Dividend payable per share in the year when dividend was paid / market price per share on the last day of quoting in the year when dividend was paid ** In 2013, an advance dividend was paid from 2013 profit of PLN 20 per share.
Neg. This is related to a change in the rating methodology linking the company’s rating with the country rating for debts in foreign currencies to the risk of which the company is particularly exposed.
9 CORPORATE SOCIAL RESPONSIBILITY As a socially responsible financial institution, PZU
includes a broad range of ethical, social and environmental issues in its business operations.
The top standards adopted by the PZU Group with regard to CSR are confirmed by its presence in
In 2013, PZU published its sustainable development report entitled PZU 2.0 Zmieniamy się na dobre, including actions and performance on social responsibility of PZU and PZU Życie for 2011-2012.
The report was prepared on B+ level based on GRI G3 guidance using the supplement for the finance industry.
Ethics, regarding the firm as a whole and individual employees, is the foundation of all activities performed by PZU and the prerequisite of sustainable development. Both formal documents (Good Practices in
PZU, New Security Policy) and values adopted by the Group are the benchmark for all ethical issues.
In 2013, the satisfaction ratio of loss handling clients was 91% (the survey included a sample of approx. 20,000 people). The Mystery
 Education activities. The Company sponsors a number of educational initiatives, including: Akcjonariat Obywatelski, Akademia Liderów
PZU takes utmost care for safety of entrusted and processed data. Therefore, Personal Data Protection
The purpose of measures we undertake is to make all employees aware of the valid procedures and desirable attitudes regarding ethics and corporate governance.
The document emphasizes the role of ethical standards applicable to all aspects of PZU operations and describes the best business practices. It promotes the culture of compliance with the law, ethical standards and responsibility for decisions taken. The set of values and principles is binding for all PZU employees and all external entities acting on behalf of PZU, e.g.
PZU has developed additional regulations for members of its management and supervisory boards in the form of a document entitled Ethical principles.
Safety regulations are included in the adopted documents, including Information Security Policy for
PZU SA / PZU Życie SA and in Fraud Preventing Policy for PZU SA /PZU Życie SA.
The first paper regulates all key issues regarding protection of information, i.e. all data of business or legal value for PZU, e.g. personal data, insurance secrecy.
In 2011-2013, training and information campaigns were carried out regarding security, insurance fraud and corruption prevention.
By signing the Chart, PZU committed to equal treatment of its employees, diversity management, as well as active prevention of discrimination and mobbing at work.
Employee Council activities, confidential surveys allowing feedback to a superior and the Intranet platform PZU24.
Supported by PZU Foundation and using the prevention fund, we get strongly involved with social issues.
As in previous years, in 2013 PZU carried out preventive actions to improve public safety and mitigate various risks:  We have commenced cooperation with the Warsaw Marathon Foundation on the 35th
As the largest Polish insurance company, we cared for conservation of Polish cultural heritage supporting Royal
Museum in Kraków with Sukiennice, its key branch. As the Polish culture patron, we actively participated in the organization of the Night of Museums, preparing special PZU guest zones offering non-standard promotion of art and culture. We supported the celebration of the 400th anniversary of Słowacki
In 2013, PZU Foundation spent PLN 12/7 mln for its statutory operations.
in the form of scholarship for students of science and arts from rural areas and small towns;  Polska Fundacja Dzieci i Młodzieży in Warsaw, supporting the project Świetlica Moje Miejsce in
At the same time, as in previous years, the Foundation cooperated with organizations supporting Poles abroad, to include: Fundacja Pomoc Polakom na Wschodzie,
Wolontariat to radość działania. Other three projects were non-competition employee initiatives performed in
Warsaw, Poznań and Tarnów. Further, PZU volunteers got involved in events related to the Children Day in
Chairman of the PZU Management Board, became a member of Volunteer CEO Coalition and according to its idea held workshops for students of Warsaw School of Economics active in Academic Business Incubators.
We cooperated with Polityka Weekly organizing a series of debates focused on important social issues and participated in meetings and reports of ThinkTank.
European Strategy, which resulted in a series of debates for PZU management staff regarding among others pension systems and the role of Poland in Europe.
A relationship established with Kurhaus Publishing, a publication entitled Szkoła Liderów was launched on the market with an introduction by Andrzej Klesyk. As in previous years, PZU co-organized Forbes Ball during which prestigious awards called Milestones are granted to biggest authorities in culture, business, politics, sports and social initiatives. PZU experts participated in foreign events, such as Lider Conference Zagreb and
PZU 2.0 Strategy considers environmental impact management a factor building the organizational value.
The document was accepted by WSE Council on 4 July 2007 and has undergone several modification since then. The contents of Good practices of companies listed on WSE are available on the website devoted to corporate governance of WSE-listed entities (www.corpgov. gpw.pl) and on the Company's website
Good Practices of Companies Listed on WSE have been effective since 1 January 2013 accepted by the Resolution of WSE Council regarding amendments thereto of 21 November 2012.
The following issues mentioned in section I of Good practices of companies listed on WSE defining
 The policy of remunerating members of the management and supervisory bodies of PZU
does not include all elements indicated in the recommendation of the European
The decision concerning future compliance with the said rule will be taken by the Supervisory
 With regard to the recommendation referred to in Section IV.12, regarding enabling shareholders’ participation in general meetings using IT tools to allow mutual real-time communication and participating in discussions during the meeting for shareholders who are physically absent at the meeting venue, please note that in our opinion, there are a number of 8 Ordinance of the Minister of Finance of 19 February 2009 on current and periodic information submitted by issuers of securities and conditions for recognizing as equivalent information required by the laws of a non-member state.
technical and legal factors that may affect the course of a general meeting, and therefore the appropriate application of the above rule.
Article 29.3 of the Regulations of WSE with respect to corporate governance principles set forth in Section I of
Accounting Office) and central units operating based on applicable regulations. PZU Finance Division is supervised by a Member of the Management Board of
The elements which facilitate completing the process are the accounting principles (policy), the chart of accounts with a commentary and other detailed internal regulations approved by the Management Board of PZU
The reporting process is controlled by appropriately qualified, skilled and experienced staff.
The key controls during preparation of the financial statements include:  controls and permanent monitoring of the quality of input data, supported by the financial systems with defined rules of data correctness, in accordance with the PZU internal regulations concerning the control of correctness of the accounting data;  data mapping from the source systems to financial statements supporting appropriate presentation of data;  analytical review of financial statements by specialists to compare them with the business knowledge and business transactions;  formal review of the financial statements to confirm compliance with the valid legal regulations and market practice in terms of required disclosures.
Board of PZU appoints an Audit Committee composed of three members, with at least one of them qualified in accounting or auditing as understood by the Act on statutory auditors. The Audit Committee is an advisory and consultative body to the Supervisory Board of PZU
and is appointed to improve the effectiveness of the supervision of the correctness of financial reporting of PZU, effectiveness of internal control, including internal audit and risk management, exercised by the Supervisory Board of PZU.
Committee reviews interim separate and consolidated financial statements of PZU and audits its annual separate and consolidated financial statements.
Offices which is shared, i.e. organized based on a personal union and with persons important for financial reporting of the majority of consolidated entities with their registered office in Poland, employed for a FTE fraction. PZU controls all the consolidated subsidiaries through Management Boards and
Consolidated financial reporting is governed by a number of internal regulations concerning the accounting principles (policy) adopted by the PZU
Group and applied accounting standards, as well as detailed schedules including the key activities and control points with assigned liability for timely and correct completion.
Warsaw, Al. Jana Pawła II 19, entered on the list of entities authorized to audit financial statements under no. 73 by the National Chamber of Statutory Auditors as the entity authorized to audit:  annual financial statements of PZU;  annual consolidated financial statements of the PZU Group; and to review:  interim separate financial statements of PZU;  interim consolidated financial statements of the PZU Group.
The entity has been appointed for two subsequent financial years, i.e. 2012 and 2013.
PZU was replaced by an audit of the separate financial statements of PZU.
Warsaw, entered on the list of entities authorized to audit financial statements under no. 3546 by the National Chamber of Statutory Auditors as the entity authorized to audit financial statements, with whom an agreement on audit and review of financial statements will be concluded.
The scope of the agreement will include:  audit of annual separate financial statements of
Former cooperation of PZU with KPMG Audyt included mostly tax advisory services.
Fee of the entity authorized to audit financial statements 1 January - 31 a) statutory audit of annual separate/consolidated financial statements 633 633 b) other attestation services including review of separate/consolidated financial statements 887 519 c) tax advisory services 416 377
the general meeting was the only shareholder of the Company with a significant block of shares.
In 2012 and 2013 no employee stock ownership plans existed in PZU.
In line with the PZU’s By-laws the voting right of the shareholders was restricted in a way that none of them can exercise more than 10% of the total number of votes at PZU at the date of the general meeting, with the reservation that for the purpose of determining obligations of parties acquiring material blocks of shares provided for in the Act on public offering and the Act on insurance activity, such voting restrictions are considered non-existent. The restrictions do not apply to:  Shareholders who held shares entitling to more than 10% in the total number of votes in the Company as at the date of adopting a resolution of the General Shareholders’
Meeting;  Shareholders co-acting with shareholders defined in item 1 based on agreements concerning joint voting rights attached to the shares.
In case of any interpretation doubts with respect to the voting restrictions, Article 65.2 of the Civil Code will apply.
In line with the PZU’s By-laws, the above voting restrictions will expire starting from the moment when a share of a shareholder who, at the date of adopting a resolution of the Shareholders’ Meeting introducing the restriction held shares entitling him to more 10% in the total number of votes in the Company, drops below 5% of the share capital.
Shares or rights to shares held by members of management or supervisory bodies and Group Directors of PZU
Group Directors 2 Dariusz Krzewina (Director until 14 March 2013) 0 0 X
The General Shareholders’ Meeting is a body authorized to make decisions concerning issues related to the organization and operations of the Company.
Resolutions of the General Shareholders’ Meeting are adopted by an absolute majority of votes, except for cases specified in the Code of Commercial Companies or the By-laws.
In accordance with the By-laws, a majority of three fourths of votes is required to pass resolutions on the following:  amendments in the By-laws;  a decrease in the share capital;  disposal of the enterprise or its organized part or its lease or establishment of a limited property right.
 dissolving the Company (also as a result of moving its seat or the head office abroad);  its liquidation, transformation or reduction in the share capital through redemption of a portion of shares without a similar capital increase.
Meeting which is convened in cases specified in the generally applicable law and the By-laws.
Shareholders’ Meeting. From the date of convening the General Shareholders' Meeting the announcement with materials presented to shareholders at the General
The General Shareholders’ Meeting is opened by the Chairman of the Deputy Chairman of the Supervisory Board and then the Chairman of the Shareholders’ Meeting is elected. In the absence of the Chairman and Deputy Chairman of the Supervisory
Only persons who were shareholders of the Company 16 days before the date of the General Shareholders’
Meeting and exercise the right to vote personally or through a proxy. The power of attorney to participate in the General Shareholders’ Meeting and to exercise the voting right may be granted in writing or in an electronic form.
During the General Shareholders’ Meeting each shareholder may provide resolution drafts concerning items on the agenda.
In accordance with the Code of Commercial Companies, detailed procedures concerning participation in the General Shareholders’ Meeting and exercising the voting rights are always presented in an announcement of the General Shareholders’ Meeting published on the date of convening the Shareholders’
Meeting on PZU’s corporate website (www.pzu.pl), section "Investors relations", tab "General Shareholders’
The Supervisory Board is composed of seven to eleven members. The number of members is specified at the General Shareholders’ Meeting.
Members of the Supervisory Board are appointed by the General Shareholders’ Meeting for a shared term which includes three consecutive full financial years.
At least one member of the Supervisory Board must be qualified in accounting or auditing, as understood by the Act on statutory auditors and their self-governing body, auditing firms and on public oversight of 7 May 2009. Furthermore, at least one member of the Supervisory Board should meet the independence criteria specified in the By-laws (Independent Member)
PZU started on 30 June 2011 and will end after the lapse of three financial years. The mandates of members of the Supervisory Board expire not later than on the date of the General Shareholders’ Meeting approving the financial statements for the last full financial year of their term, i.e. on the date of the General Shareholders’ Meeting in 2015.
Graduated from the Faculty of Technical Physics and Applied Mathematics of the Technical University of Warsaw, obtained ScD from the Institute of Physics of the Polish Academy of Sciences and MBA from Harvard Business School, U.S.A. Awarded with the Officer’s Cross of the Order of Polonia Restituta. In 1981-1991 he was junior lecturer and assistant professor at the Institute of Physics of the Polish Academy of Sciences, postdoctoral fellow at the Kamerlingh Onnes Laboratorium in Leiden, the Netherlands. From 191 to 1994 he was adviser to the Minister of Finance; Chairman of the Management Board of the Foundation for the Development of the Financial System; Chairman of the Supervisory Board of Bank Gdański S.A.
U.S.A.). From 2000 to 2002 he was senior associate in the U.S. strategic advisory firm McKinsey & Company in Warsaw. In 2002 he was appointed Chairman of the Management Board of AmerBank S.A./DZ Bank Polska S.A. and held the position until 2004 when he became
Currently, he is Member of the Supervisory Boards of PZU and Ciech SA, and the founding Partner of Metropolitan Capital Solutions Sp. z o.o.
Until 2009, before he became Chairman of the listed development company Triton Development S.A., Mr. Tomasz Zganiacz was Deputy
Engineering of the University of Warsaw, and was a participant in the National Investment Funds programme.
University, University in Rzeszów, and the School of Law and Public Administration in Przemyśl. Since 1988, h has been partner in one of the leading law firms specialising in business law T. Studnicki, K. Płeszka, Z. Ćwiąkalski, J. Górski, sp. k. He is deputy Chairman of the Supervisory Board of the International Airport in Kraków. He was Member of the Supervisory Board of Bank Przemysłowo-Handlowy in
Kraków, and from 16 November 2007 to 21 January 2009, he served as the Minister of Justice – Attorney General in PM Donald Tusk’s
He has graduated from the Faculty of Law and Administration of the University of Warsaw; he has completed post-graduate studies in
European Community Law and Economics at the University of Warsaw, and international finance and banking at the University of
Committee of the European Central Bank. His publications cover banking law, banking supervision and regulations regarding financial institutions. In 2008-2011 he was undersecretary of state in the Ministry of Finance. From 2008 to April 20th 2011 he was a member of the Polish Financial Supervision Commission. From 2009 he was appointed Chairman of the Council of the Bank Guarantee Fund. In 2011 –
2013 he served as Chairman of Bank Gospodarstwa Krajowego. Since January 2014, he has been Chairman of the Management Board of
Trade Trans Sp. z o.o., a leading transport company in the PKP Cargo S.A. Capital Group.
Gruppen Consulting Group. He has completed numerous training courses in finance and management. He has many years of experience working in middle and senior management positions, including Director of the Office of Analysis and Strategic Planning in Telewizja Polska
Totalizator Sportowy sp. z o.o., PKO BP SA, OBOP, Postdata SA, Winuel SA.
He was born in Gdynia on August 18th, 1950. He began working as a lecturer at the Faculty of Economics of the University of Gdansk; since 1992 he has been professor extraordinarius. He was visiting professor at the Center for Russian and East European Studies (CREES),
University of Michigan, Ann Arbor (USA) in 1992-1995 and lecturer at the Central European University in 1998-2001.
In 1986 graduated from Foreign Trade Faculty of the present Warsaw School of Economics and in 1989 from Mechanical and Technological
Economic Cooperation Bank and International Investment Bank in Moscow, Wielkopolski Bank Rolniczy S.A. in Kalisz, Nordea Polska
Since 1998 a member of Supervisory Regulatory Committee in Association of Polish Banks, in 1991 member of the Polish delegation negotiating with the Paris Club, and in 1991-1994 member of the Polish delegation negotiating with the London Club. In 1997-1998 representative of banks with foreign capital in Association of Polish Banks and in 1997-1999 member of the Program Council in Fundacja na rzecz Kredytu Hipotecznego. In 1999-2002 Chairman in Banking Card Issuer Council, and in 2009-2011 member of Managing Committee for
New European Market (Poland, Russia Baltic States) in the Nordea Group.
University of Berlin, while in 1997 in International Economics at RUCA. In 2002 gained the title of Professor of Economics.
Interdiscciplinary Economics (editor in chief), Yearbook on Polish European Studies, Mazovia Regional Studies, Gazeta Bankowa and a reviewer in PWE SA Warszawa editing company. A long-term committee member of Teraz Polska Award and scientific council member of
He gained his professional experience working as head of International Business Relations Section at Management Faculty, University of
Warsaw, Deputy Dean in charge of foreign cooperation at Management Faculty, University of Warsaw, dean at Management Faculty,
University of Warsaw, and also in France, UK, U.S., Russia, China and Korea.
Further, he worked as: advisor to the Prime Minister, to the Minister of Agriculture, President of University Sports Association at University of Warsaw, member of the advisory committee NewConnect at Management Board of Warsaw Stock Exchange, member of the Foundation
Council of the National Bank of Poland, chairman of the Scientific Council of the National Bank of Poland.
He held positions in supervisory boards of various institutions, to include: PTE WARTA S.A., PKO BP S.A., JSW S.A., Chairman and Deputy
In 1991-1997 gained professional experience working as securities broker, deputy director in a Broker Office, managing director in charge of investment banking in Bank Gdański S.A. From 1997 to 1999 was an investment banking director in Bank of America (Poland) S.A. In 20002002 was a managing director in charge of investment project funding and Vice President Global corporate & investment banking in Bank of
America (Poland) S.A., then from 2002 to 2007 held the following positions: Management Board Chairman in TP Invest Sp. z o.o. and
Metro Warszawskie sp. z o.o., and since 2013 Supervisory Board Member in Enea Wytwarzanie SA.
Board concerning profit distribution or loss coverage;  presenting the General Shareholders’ Meeting with a written report on the results of the review described above and submitting a brief annual assessment of the situation of the Company including internal controls and key risk management and an annual report on the work of the Supervisory Board;  concluding, terminating and amending the agreements with members of the Management Board and setting the terms and conditions of remuneration and the amount of remuneration;  appointing, suspending and dismissing the Chairman of the Management Board, members of the Management Board or the entire Management Board, as well as making decision to stop the suspension;  agreeing to transfer the entire or portion of the insurance portfolio;  accepting motions of the Management Board concerning acquisition, assumption or disposal of shares in companies, as well as the Company’s participation in other entities the Supervisory Board may specify the amount, terms and conditions and the way in which the Management Board may carry out the activities without the acceptance of the Supervisory Board;  delegating members of the Supervisory Board to temporarily perform the functions of members of the Management Board who have been dismissed, resigned or cannot perform their functions for other reasons;  accepting instructions concerning votes being cast by the Company’s representatives during general shareholders’ meeting of PZU Życie
concerning: an increase and decrease in the share capital, bonds issue, disposal and lease of a PZU Życie enterprise or establishment of a usufruct right, division of PZU Życie, combination of PZU Życie with a different company, liquidation or termination of PZU
Życie;  selection of the entity authorized to audit the financial statements which will audit the annual financial statements of the Company;  wording of the consolidated amended By-laws;  approval of the long-term plans for the development of the Company and annual financial plans drafted by the Management
Moreover, the Supervisory Board grants consent to:  acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct exceeding the equivalent of EUR 3m.
The Supervisory Board adopts the Regulations of the Supervisory Board specifying its organization and the manner of performing activities. The regulations of the Supervisory Board were adopted by its Resolution of 9 October 2012 and specify its composition and the way in which its members are appointed, the tasks and the scope of its activities and the manner of calling the Supervisory Board and conducting debates.
Board and the committee is specified in a resolution of the Supervisory Board.
Resolutions of the Supervisory Board are adopted by an absolute majority of votes. In the event of a voting tie, the Chairman of the Supervisory Board has the casting vote. The resolutions of the Supervisory
In accordance with the By-laws, the resolutions of the Supervisory Board are adopted in an open ballot, except for resolutions concerning appointment of the chairman, Deputy Chairman and 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 with respect to appointing, suspending and dismissing the Chairman of the Management Board, members of the Management Board or the entire Management
The Supervisory Board appoints the Chairman and the Deputy Chairman of the Supervisory Board from its
members and it may also select the Secretary of the Supervisory Board.
Board, apart from appointing the audit committee and promotion and compensation Committee, provided for in the By-laws to properly perform its supervision, the Supervisory Board may appoint other permanent advisory and consultative committees whose competencies, composition and way of work is specified by regulations adopted by the Supervisory Board.
The regulations of the Supervisory Board stipulate that the Supervisory Board and the appointed committees may use the services of experts and advisory companies.
Board of PZU may also invite members of the management board or a supervisory board of a different company in the PZU Group. Moreover, members of the Supervisory Board, upon consent of the Supervisory Board, may select one advisor authorized to take part in the meetings of the Supervisory Board devoted to reports and financial statements, and give their advice, provided that such person respects confidentiality and signs a confidentiality statement.
At present, the following committees function as part of the Supervisory Board of PZU SA:  Audit Committee
Board, the Audit Committee is an advisory and consultative body to the Supervisory Board and is appointed to improve the effectiveness of the supervision of the correctness of financial reporting, effectiveness of internal control, including internal audit and risk management, exercised by the Supervisory
The Supervisory Board appointed the Audit Committee on 3 June 2008. Composition of the Audit Committee as at 1 January 2013:  Dariusz Filar – Chairman
Board includes five members elected in a vote, the Promotion and Compensation Committee is not
The Committee is dissolved once five members of the Supervisory Board are elected in a vote in groups and its rights are then taken by the entire Supervisory
Board (in particular, the Company development strategy) and presenting the Supervisory Board with recommendations on planned investments that materially impact the Company’s assets.
Management Board of PZU as at 1 January 2013:  Andrzej Klesyk – Chairman
appointed Dariusz Krzewina and Barbara Smalska to the positions of Members of the Management Board effective from 15 March 2013. Consequently, the Management Board of PZU was composed of:
On 27 December 2013, Bogusław Skuza resigned from the position of a Member of the Management Board of
started on 1 July 2011 and will last until the end of three consecutive financial years. The mandates of members of the Management Board expire not later than on the date of the General Shareholders’ Meeting approving the financial statements for the last full financial year of their term.
Information about experience and responsibilities of the Management Board of PZU and PZU Życie has been presented below.
Warsaw, where he collaborated with PZU in performing insurance projects. Created and managed
Inteligo, a pioneer Internet banking project. Managed a team creating Handlobank, the consumer banking division of Bank Handlowy w Warszawie SA. From 1993 to 2000 he worked in the London branch of McKinsey. In 1991 Andrzej Klesyk went to the USA, where he worked for Kidder, Peabody and Coopers & Lybrand, New York.
Forum in Davos and the meetings of the Institute of International Finance in Washington.
Dariusz Krzewina graduated from the Economy and Sociology Department of the University of Łódź
Życie as a Sales Department Head, Deputy Director and Director of the Insurance Office. From
Group. Since 15 March 2013, Management Board Member in PZU in charge of group and health insurance, administration.
Barbara Smalska studied particle physics and holds a PhD of Warsaw University, the Physics
Department and the Institute of Deutsches Elektronen Synchrotron (DESY) in Hamburg. In the years 2002-2008 she worked at the Warsaw office of the The Boston Consulting Group. As a strategic advisor to top Polish banks, insurance and telecommunication companies she specialized in business strategies, operational models, distribution strategy, organization and activation of the sales network –
Managing Director in charge of Marketing and Individual Products. She joined the Management Board of PZU Życie on 1 February 2013. On 5 February 2013 she was appointed a Director of the PZU Group and held the position until 14 March 2013. Since 15 March 2013, Management Board Member in PZU
He has knowledge and experience in accounting, tax and actuarial issues.
He started his professional career in 1993. From 1993 to 1998 he worked at Whirlpool Polska Sp. z o.o. as an analyst and financial controller. In 1998-2000 he was the Treasurer at AIG Poland. In the years 2000-2001 he was the Financial Director and a Member of the Management Board of
Deputy Head in the Head office of PZU and PZU Życie. From November 2008 to February 2009 he was the Planning and Controlling Director in the Head office of PZU and PZU Życie and in March 2009 he was appointed the Information Management Director in the Head office of PZU and PZU Życie. He has been a Member of the Management Board of PZU Życie since January 2010. He has held the position of a Member of the Management Board of PZU since December 2010. Przemysław Dąbrowski is in charge of the Financial Division.
He graduated from Warsaw University of Technology. He has more than 20 years of experience in financial services for the IT industry. He worked as a technology provider (as a Project Manager and an advisor) and also represented clients (IT Architect, CIO). His first important engagement was the implementation project for Handlobank, which he managed as a Project Manager of the provider.
He was one of the co-founders and creators of Inteligo, where he was the IT Architect and Project
Poland. The next stage in his career was the launch of Polbank EFG, where he acted as a CIO
infrastructure for the CEE as a part of the EFG Group. After the launch of Polbank in 2007 he supported Management Boards and CIOs of top banks and insurance companies from Europe and the Middle East as a strategic advisor at McKinsey. He focused on optimization of operations and IT
costs, supported reorganization projects, developing IT strategies and architecture and streamlining communication and mutual understanding between the Business and the IT functions. Later, as the Group CIO in Banque Audi, one of the top banking groups operating in the Middle East and headquartered in Beirut, he developed an IT strategy and architecture for the group and started the implementation. Przemysław Henschke joined the Management Board of PZU Życie on 3 February 2012. On 7 February 2012 he was appointed a Director of the PZU Group in charge of the IT function.
Sławomir Niemierka – Member of the Management Board of PZU Życie, Director of the PZU Group
Bogusław Skuza graduated from the University of Gdańsk, the Economy of Transport Department,
Board of Marsh & McLennan Polska Sp. z o.o. In the years 1998-2000 he held the position of the Deputy Chairman of the Management Board of Towarzystwo Ubezpieczeń Życiowych i
Chamber. Since 2009 he has been a Member of Good Practices Council at the Polish Insurance
Insurance and Banking). He also completed an Advanced Management Program at IESE Business
Department. Since the beginning of his professional career he was focused on the capital market. He has vast experience in developing and implementing investment strategies, drawing up investment policies and managing large and diverse asset portfolios. He participated in building management structures for strategic allocation of assets, liquidity and investment risk. In 1994-1006 he worked as a broker in the Capital Transactions Centre of Bank Handlowy w Warszawie SA. In the years 1996 –
December 2002 to June 2011 he worked at Pioneer Pekao Investment Management S.A., first as a Director of Debt Securities Department, Director of the Asset Management Department, and since
Życie S.A. Since May 2010, he acted as Director Managing the Network in PZU Group and Head of the Network Division in the Group. On this position, he was in charge of the network of branches in
PZU SA and PZU Życie SA and of client service in the network and in the Client Center of the PZU
Since 16 January 2014 he has been PZU Group Director in charge of the Network Division.
The Management Board adopts its regulations which are approved by the Supervisory Board. The regulations of the Management Board were adopted by the Management Board on 2 October 2012 and amended with a Resolution of the Board of 2 April 2013 and approved by a resolution of the Supervisory Board
(excluding credit facilities and loans given from the Company’s Social Benefits Fund);  appointment of a commercial representation.
In accordance with the regulations, meetings of the Management Board are held at least once a fortnight.
The work of the Management Board is administered by the Chairman of the Management Board whose powers include in particular:  defining the scope of responsibility of each member of the Management Board;  calling meetings of the Management Board;  setting the agenda of the meeting of the Management Board;  applying to the Supervisory Board for appointing and dismissing members of the Management Board;  designating a person to administer the work of the Management Board during the absence of the Chairman.
The work of the Management Board is administered by the Chairman of the Management Board who defines the scope of responsibility of each member of the Management Board.
Resolutions of the Management Board are adopted only in the presence of the Chairman of the Management
Resolutions of the Management Board are adopted by an absolute majority of votes and in the event of a voting tie, the Chairman of the Management Board has the casting vote. The Management Board, upon consent of the Chairman, may adopt resolutions in writing, on paper or in an e-form (i.e. using means of distant communication and a qualified electronic signature). The by-laws also provide that the meetings of the Management Board may be held using means of direct distant communication.
Contracts concluded with high level managers (PZU Group Directors), out of which:
Companies. The positions of Group Directors are established based on Organizational Regulations of
As at 1 January 2012 Group Directors of the PZU Capital
Directors in the PZU Group as at 31 December 2013:  Rafał Grodzicki
 The Management Board of PZU declares that to the best of their knowledge, the annual financial statements and comparable data of the PZU Group have been prepared in accordance with the applicable accounting principles and provide a true, fair and clear view of the economic and financial position and the financial profit or loss of the Group and the Report on activities of the PZU Group presents a true picture of its development and achievements, including a description of the main risks and threats.
 The Management Board of PZU represents that the entity authorized to audit financial statements -
 In 2013 and 2012 the PZU Group companies did not cooperate with any international public institutions.
 By the date of preparing this Report on the Activities of the PZU Group, there were no agreements (including those concluded after the end of the reporting period), which could result in future changes in proportions of shares held by the existing shareholders.
 During the period from 1 January 2013 to the date of preparing this Report, the PZU Group did not enter into any business combination transactions.
Evaluation of financial resources management including the ability to repay liabilities and definition of possible threats and activities, undertaken or planned by the issuer to counteract these threats
 The financial position of the Issuer is very good. It meets all the security requirements imposed by the Act on Insurance Activity and the Polish Financial
confirms that the Issuer has a strong business position, high levels of equity and is a competitive entity in the insurance market.
 In 2013 and by the date of preparation of the report on the activities, the PZU Group did not take part in any proceedings before court, body competent to hear arbitration proceedings or public authority body concerning liabilities or receivables of PZU or its direct and indirect subsidiaries with the value of at least 10%
 As at 31 December 2013 the total value of all 61,616 cases heard by courts, bodies competent to hear arbitration proceedings or public authority bodies involving the PZU Group entities was PLN 2,545.8m.
PLN 577.8m of receivables of the PZU Group companies, which accounted for 16.05% and 4.71% of the equity of PZU calculated in line with PAS, respectively.
This Report on the Activities of the PZU Capital Group for 2013 includes 139 pages with sequential numbers.
Net profit/loss on investing activities 2 488 068 3 704 729 1 593 826 2 777 774 3 469 001
* Since 2010, the model of ABC indirect costs allocation has been changed
8. Real property or its part, excluding property or its part used for internal purposes 75 643 0.5% 25%
15. Share of reinsurers in technical provisions 239 086 1.5% 25%
1. Securities issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 2. Bonds issued or guaranteed by local authorities or associations of local authorities 11. Fixed assets, other than real estate, if depreciated using the prudence principle
C. Surplus (shortage) of assets covering technical provisions 3 634 922 15.8%
Operating profit (loss) excluding one-off events 391 481 332 131 194 351 17.9%
Operating profit (loss) excluding one-off events 1 014 071 1 012 448 665 201 0.2%
Data from the income statement – group and individually continued insurance
Data from the income statement – investment contracts * ratios calculated with gross premium written
Investment result – investment segment 2013 2012 2011 % change 13/12
Data from the income statement – pension segment 2013 2012 2011 % change 13/12