External environment in 2014 23 2.1 Main trends in the Polish economy 24 2.2 Situation on the financial markets 25 2.3 Insurance sector compared with Europe 26 2.4 Regulations on the insurance and financial market in Poland 27 2.5 External environment in Ukraine and the Baltic States 29 2.6 Macroeconomic factors which can affect the operations of the polish insurance sector and PZU
Activities of PZU Group 35 3.1 Structure of PZU Group 36 3.2 PZU and Link4 – operations on the polish non-life insurance market 37 3.3 PZU Życie - activities on the life insurance market in Poland 43 3.4 PTE PZU – activities on the pension fund market 46 3.5. TFI PZU – activities on the investment funds market 47 3.6 Foreign operations of PZU Group in 2015 49 3.7 PZU Zdrowie – activities on the healthcare market 53 3.8 Other areas of activity 54
Organization, infrastructure and human resources 71 5.1. Sales and service channels 72 5.2. Human resources management 74
Consolidated financial results 79 6.1 Key factors affecting the financial results achieved 80 6.3 Claims and technical provisions 84 6.4 Acquisition and administrative expenses 85 6.5 Structure of assets and liabilities 85 6.6 Share of the business segments in the results 87
PZU on the capital and debt market 109 8.1 Stock and and bond markets 110 8.2 PZU’s stock prices 110
8.3 Debt financing 113 8.4 Investor relations 114 8.5 Analysts’ recommendations 117 8.6 Dividend policy 120
Appendix: Financial data, Glossary 173 4MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
Poland, by regular premium after Q3 2014 11.3 thous. FTEs in the PZU and
Ranked 1st in Poland in terms of gross written premium in non-life insurance
Thanks to its strong customer-orientation and high operational efficiency, PZU Group will continue to be the largest and the most profitable insurance group in the region. The year 2014 concluded the realisation of these goals with a strong accent.
The high return on PZU Group’s equity continues to provide reason for satisfaction. The 2014 ROE amounted to 22.6%
PZU Group to the leadership in all of its key businesses: insurance, investments and private health care. I believe that the foundations built over the recent years will make this period a success.
In early July, the next stage of Everest project was concluded and, in October, PZU opened Poland’s first own fleet of hybrid replacement cars and thus revoultionising their market.
However, the level of the collected gross written premium grew in 2014 by 2.5% from the previous year to PLN 16,884.6 million. This was another consecutive year which saw the rise of the PZU insurance sales.
The year 2014, was demanding for business operation, because insurance companies were experiencing not just the pressure of the changing economic conditions, but also were preparing for the implementation of the Solvency II directive’s requirements which will come into force on 1st January 2016.
Additionaly, the price war also played a considerable role which affected the premium level and profitability of motor
insurance, low interest rate environment, and growth of claims and benefits for the insured.
Despite these conditions, PZU Group was able to produce a profit similar to that of the previous year and increase the gross written premium from 2013 by PLN 400 million.
PZU Group’s financial results in the last year were considerably affected particularly by the declined profitability in the mass and corporate insurance segment and the simultaneous increase in the profitability of the group and individually continued insurance, as well as the higher investment net result.
At this point, I am pleased to inform you that 16 million Polish customers used the Group’s services last year. Considering the fact that a statistical Pole continues to spend on insurance five times less than an average European, the insurance industry in our country has great perspectives.
The shareholders were surely glad to learn that PZU and PZU
PZU Group businesses. I am convinced that the foundations established over the recent years will allow for the effective realisation of the new PZU 3.0 strategy. And that is what I
Number three in the open pension funds – share in OFE assets
PZU Group is the leader in both non-life and life insurance on the Polish market. Innovativeness, ethics in operation and adaptation to the increasingly demanding market conditions constitute the basis for PZU’s rapid expansion. The year 2014 saw a clear growing trend of PZU in the non-life insurance sector thanks to the changes made to customer service and the implementation of new solutions. Furthermore, PZU is planning on reaching a wider scope of clients thanks to its acquisition of the leader of the direct insurance market, i.e.
Other than the health insurance offer, the clients can also take advantage of PZU Group’s own health care centres and a chain of partner centres (approximately 1,380 in total). From year to year, PZU Group is expanding its operations in Central and
and was the largest IPO not only in the history of the Polish capital market, but also in Central and Eastern Europe since the beginning of the economic transformations, as well as throughout the whole of Europe since 2007. PZU’s shares have ended up on the accounts of 250 thousand individual investors.
PZU’s strategic investor is the State Treasury, which, at the end of 2014, held a 35.2% share of the Issuer’s share capital.
shareholders since the start of its quotation. The company has a clearly defined dividend policy. The main objective of PZU
PZU’s shareholders high dividend yields compared with other large stock market companies. A shareholder who acquired PZU’s shares from the IPO in May 2010 increased his investment by 101.3% by the end of 2014.
PZU Group satisfies the fundamental needs of 16 million customers in Poland in the area of security and stability, including 12 million customers in the area of group and individually continued life insurance.
In recent years, the relations between PZU Group and its clients have tightened. On average, the typical individual
Polish client takes advantage of 1.5 of its products. At the same time, among our Customers for whom PZU is the main insurer, the NPS (Net Promoter Score) ratio, which account for the difference in the share of promoters and critics, amounted to 7.7% in 2014, which is two times higher than the average result of the competing companies.
PZU is aiming to maintain the highest standards of service. It was the first institution in Poland to create a Voluntary Pension
Polish market. In 2014, the Group started to offer solutions unprecedented on the Polish market: direct claims handling and its own fleet of replacement cars, ecological hybrid vehicles.
Protection of property and securing third party property against damage Accident cover
• Pillar II of the pension system – open-ended pension funds
• Pillar III of the pension system (employment pension products- EPP, individual pension accounts – IKE and Individual Pension Security Accounts – IKZE)
• Health insurance • Medicine insurance • Healthcare services: general health care and additional services packages
Equity amounted to PLN 13,167.6 million as at 31st December 2014. The solvency margin at both PZU and PZU Życie significantly exceeded the average for the insurance sector
PZU’s insurance portfolio is not exposed to concentration risk. This arises from the high level of diversification of the portfolio. It largely consists of a substantial share of premiums
Combined ratio (COR) for non-life insurance 95.7% 87.8% 92.8% 95.3% 104.5%
Group insurance profit margin* 25.9% 23.0% 24.5% 21.8% n/a * ratio measured to the gross written premium of the group and individually continued insurance segment, excluding one-off effects ** Advance dividend included in the year of payment
– PZU 3.0. STRATEGY OF PZU Group FOR THE YEARS 20152020 – PZU 3.0 STRATEGY
It assumes further expansion of PZU Group until the year 2020 based on the following three strong pillars: Insurance – using two different brands (PZU and Link4), the
Group will expand its share in the Polish non-life insurance market to at least 35% by the year 2020. It will retain its position of 43% measured with the share in regular premiums on the life insurance market. Simultaneously, it will become one of the three biggest insurance companies in Central and
Furthermore, the Group will consider the possibilities of further acquisitions on prospective markets.
– is the foundation of all PZU’s activities and a prerequisite for sustainable development.
Droga na Harvard. In 2014, the Group also conducted a nationwide campaign to Stop wariatom drogowym (stop road rage). It also participates in numerous philanthropic campaigns through the PZU Foundation.
direct and straightforward communication, teamwork, and encouraged the employees to seek innovative solutions.
– employees, clients, business partners, suppliers and representatives of local communities.
The confirmation of the highest standards at PZU Group regarding CSR is PZU’s presence in the RESPECT Index of socially responsible companies dedicated to the companies listed on the WSE, as well as in the CEERIUS (CEE Responsible
Investment Universe) GLOSSARY sustainable development index on the stock exchange in Vienna.
Two consecutive quarters the PZU share in non-life insurance grew and amounted to 31.4% as of 3rd quarter 2014, compared to 31.1% in the previous year.
January 2015 28 January – publication of Strategy PZU 3.0 for 2015-2020
July 3 July – issue of five-year eurobonds for the amount of EUR 500 million. The S&P rating agency awarded the bonds with a A- rating.
March 2014 25 March – The rating agency S&P confirms A stable rating for PZU. The PZU financial strength rating is higher than Poland’s rating debts in foreign currencies.
Introduction of a modified non-motor TPL and household insurance offer (All Risk formula).
Link4: Gross written premium PLN 417.1 million (including contribution to the result of PZU Group at PLN 138.8 million) from the moment of acquisition.
Introduction of the additional rider PZU Pomoc od Serca to individual protection insurance and the Cztery Pory Roku group medicine insurance.
Maintaining the position of the leader with a TFI market share of 12.2% (share growth of 0.5 p.p.).
Maintenance of the position of leader on the Individual Pension Security Accounts (IKZE) market among the voluntary pension funds.
Setting-up of own health care chain and purchase of shares in Elvita Jaworzno III (one of southern Poland’s biggest chain of cutting edge medical offices), ORLEN Medica, and Specjalistyczna Przychodnia Przemysłowa Prof-Med.
Firm strengthening of the insurance position in Central and Eastern Europe resulting from the acquisition of new entities: Lietuvos Draudimas AB (Lithuania), AAS Balta (Latvia) and Codan Forsikring A/S (Estonia).
Estonia: The Group operates through the PZU Lietuva branch created from the merger of the branch of Lithuanian PZU entity and the acquired Codan Forsikring A/S branch. In 2014, the share of both entities in the non-life insurance market was 14.5%. The written premium collected by the newly acquired branch from the time of its acquisitions is EUR 5.3 million.
Ukraine: As the gross non-life premium has generally decreased, PZU Group collected premiums of UAH 503.9 million (growth of 24.7%). The reasons for the increased premium included the growing confidence in foreign insurance companies. After 3 quarters of 2014, PZU Ukraine held the approximate share of 4.2% of the non-life insurance market. The gross premium collected by PZU Ukraine Life amounted to UAH 154.3 million and was 28.7% higher than in 2013. The company was placed sixth on the market with a share of 7.3%.
Completed stage I of implementing the new Everest IT system for non-life insurance policies. Providing the system to 17.5 thousand end users.
At the end of 2014, employment of approximately 16.1 thousand employees calculated as FTEs. Employment increase by 18.7% during the year due to the Group’s expansion.
Extensive employee training programme. Every employee benefited from an average of 24 hours of onsite training and 7 hours of e-learning in 2014.
Dividend payment from 2013 PZU profit at PLN 4,663.0 million, including PLN 1,727.0 million from surplus capital.
Summary of consolidated financial highlights of PZU Group for 2010–2014 (PLN million)
• PZU Lithuania Life – 4.1% market share in life insurance
• PZU Życie – 42.9% market share in life insurance by regular premium
Stable growth rate of the Polish economy had a positive effect on the insurance sector, as well as on the Group’s result, which remains stable.
in 2014 compared with 1.7% in the previous year. The GDP
growth rate in 2014 remained rather stable, maintaining a level between 3.3% y/y and 3.5% y/y during the first three quarters. In the fourth quarter, the GDP dynamics dropped to 3.1% y/y.
After two years of stagnation, the domestic demand grew considerably in 2014, i.e. by 4,6%. A considerable, real increase in household income with the substantial improvement of the situation on the labour market, allowed a significant growth of consumption. The consumption growth in the household sector was 3.1% (1.1% in 2013). With the biggest growth of public consumption since 2010, the total consumption grew by 3.0% in comparison to 2013. In the face of sustained relatively favourable economic prosperity indicators, the good financial condition of enterprises benefited their investment growth during the year. The gross investments in tangible assets grew by 9.5% in 2014, the highest growth since 2007. This was also accompanied by the growing dynamics of investment loans.
The situation on the labour market improved considerably in 2014. The rate of registered unemployment in December 2014 was 11.5% compared to 13.4% at the end of the previous year. In 2014, the average monthly employment in the business sector grew by 58 thousand people and its annual dynamics grew to 1.1% y/y in December as compared to 0.3% y/y at the end of 2013.
In the light of the very low inflation, the 2014 pressure on salary increases remained relatively low. In 2014, the dynamics of average monthly remuneration in the national economy decreased to 3.4% in comparision to 3.7% in 2013. The real remunerations rose considerably with the very low inflation and the dropping consumer price index
y/y – the biggest in 6 years. It can be assessed that the real
As employment grew and unemployment dropped, the improving financial situation of households was beneficial to growing consumption. The dynamics of household consumption in the fourth quarter exceeded 3.1% y/y.
NBP reference rate – entailing reduced interest rate of bank funds. The rates remained at the level established in October 2014 for the next two months.
According to initial estimations, the State Budget deficit for 2014 was approximately PLN 30 billion, which is considerably lower than the planned PLN 47.5 billion. This deficit is also considerably lower than that of 2013, which was PLN 42.2 billion. The government believes that the entire deficit of the public finance sector will drop below 3,0% GDP in 2015 from 3.3% GDP initially assessed in 2014.
Ukrainian conflict and the sudden petroleum price drops also had significant impact on the markets. Despite the reduction of the “quantitative easing” in the USA until its complete end, the country’s treasury bonds yields declined. This was caused by moderate inflation and skilful communication between the
Fed and the market, which saw the central bank extinguish the expectations for interest rate rises in the near future. The treasury bonds yields also dropped in the Euro zone in light of the concerns with economic growth and towards the very
low inflation. Furthermore, in June 2014, the EBC announced a package of actions to ease the monetary policy and lowered the interest rates in the Euro zone. Additionally, before the end of the year there was a rising belief of the financial markets that the EBC would be forced to expand its operations over purchasing of treasury bonds of the Euro zone countries. The yields decline in Europe led to the reduction of differences between the interest rates of bonds in Germany and the socalled peripheral countries of the euro zone.
2014 was not a good year for the Polish stock exchange. The value of the broad market index, WIG, remained virtually unchanged (0.3% growth), but the index of the largest and most liquid companies, WIG20, dropped by 3.5%. In 2014, these indices fluctuated with no clear change direction.
The most important event on the currency market in 2014 was the trend of the strong appreciation of the US dollar to the euro, which resulted from the clear differences in the conducted monetary policy and the economic condition. In effect, the euro lost 12.2% to the dollar in 2014. The PLN to
USD exchange rate also changed – the dollar cost 16.4% more than at the end of 2013. The Polish currency remained rather stable in comparison to the European one, to which it lost approximately 2.8%. The currency rate of the PLN towards the
In 2013, the statistical European spent EUR 1,882.7 for insurance (density index), while the average Pole spent EUR
This indicator for Poland is slightly below half of the European
Estonia and Latvia, in which PZU operates, have a ratio of 1.7% and 1.3% accordingly, which, from the point of view of the market development, opens up huge opportunities for sales growth.
The year 2014 was a period of intense preparations aimed at the implementation of the requirements of the Solvency II
Directive, which will be enforced towards insurance companies from 1 January 2016. The new system focuses on the risk taken by insurance companies.
This means that the individual state legislators do not have to implement detailed regulations in their states. The insurance companies are obliged to obey the requirements passed at the level of the European Commission.
Commission (EU) 2015/35 dated 10 October 2014. The delegated act evolves upon numerous regulations of the
Penetration (%) the aforementioned document is a collection of technical recommendations in the scope of the calculation of capital requirements and own funds.
According to the Act’s project, there will be more capital requirements that should correspond to the specific risk profile of a given insurance company and reinsurance company. The own funds of a company have to be at a level guaranteeing the coverage of the potential losses and the required benefits for the insured and the beneficiaries. The drafted act expands the requirements in scope of the internal procedures of risk management and the disclosure obligations of the insurance companies regarding capital security and risk management.
The companies will be obliged to implement procedures associated not only with insurance risk but also credit, market, liquidity, and operating risk and to report their financial condition to the PFSA (Polish Financial Supervision Authority).
The draft also assumes changes to the current regulations concerning the obligations of the insurance companies regarding entering and performing insurance contracts.
The act shall authorise the PFSA to issue recommendations concerning specific insurance and reinsurance activity.
from unit-linked agreements and structured products, entered after into the act comes into force, within 60 days from the receipt of the first so-called anniversary information, while the surrender fee at the withdrawal cannot exceed 4%.
Individual Pension Security Account (IKZE) have been in force since 14 January 2014. The changes include, in particular: • transfer of the parts of the members’ pension rights which are expressed as Treasury bond liabilities from the Open
(ZUS) – on 3 February 2014 the bond part of the assets accumulated in OFE, of a total amount corresponding to 51.5% of the units on the account of every member of OFE
to ZUS – pensions should be paid when the particular insured reach retirement age (ultimately 67 years) in its entirety from the Social Security Fund (FUS). To this end, the funds accumulated in OFE should be transferred to
When the insured reach the age of 10 years less than retirement age the funds collected in OFE by them will be gradually transferred to ZUS to a sub-account and the new contributions will be transferred directly to ZUS. Funds on the sub-accounts at ZUS, which will pay the pension, may be inherited within 3 year-period after the insured retires; • ability of the insured to make a choice in the form of a declaration regarding the further transfer to OFEs of the contributions determined at the new level, with respect to future contributions – in the period from 1 April 2014 to 31 July 2014 the insured decided on whether the pension contribution of 2.92% is still to be transferred to OFE or to ZUS. In the absence of a declaration on the transfer of the contributions to OFE, the pension contributions are automatically recorded on a special sub-account at
(including the reduction in the charge to ZUS from 0.8% to 0.4%); • establishment of the level of contributions to the
(PTE) as at 1 July 2014; • introduction of the ban on advertising OFEs – the advertising ban is to specifically apply to the periods from 1 January to 31 July in the years in which it will be possible to make a decision to re-select ZUS/OFE (so-called
„windows”); • introduction of changes in pillar III (IKZE) – introduction of incentives for saving for retirement in the so-called third pillar. A flat-rate has been introduced for disbursements from IKZE, which amounts to 10%. The income transferred to IKZE is exempt from tax, just as before. It is possible to pay 120% of the average monthly salary in the national economy forecast for the given year, which is currently equivalent to PLN 4,495.20 into IKZE.
The act has considerable impact on the net results of PZU
Pursuant to the Act, the deadline for the insured to withdraw from the insurance agreement entered from a distance is 30 days. The consumer is not entitled to withdraw from agreements concerning travel, baggage, and similar insurance if they are established for less than 30 days.
Amendments to the Act dated 22 May 2003 on insurance agents implemented by the Act dated 9 May 2014 concerning fair access to practicing certain regulated professions (in force from 10 August 2014) – the amendments to the Act on insurance agents concern the deregulation of authorisation to perform broker and agency actions. In the strictly defined circumstances including lifting of the mandatory exams for brokers and the periodical professional training every three years for both insurance agents and brokers.
Act changes the obligation of notifying about the intention of concentration in instances of acquiring control of an entrepreneur or the property of another entrepreneur.
The Act made amendments to the regulations concerning thin capitalisation and limits the exemption of revenues acquired from investment-related life insurance – structured products.
Income from endowment insurance where the endowment benefit is based on the value of specified indices or other base values or is equal to the premium increased by the index specified in the insurance contracts taxable from 1
FATCA- Foreign Account Tax Compliance Act into the domestic legal order. FATCA is an American federal law, which aims to oppose tax evasion by both individuals and legal persons obliged to pay taxes in the United States. PZU Życie and PZU
(IGA – internetional agreement, when ratified it will allow execution of the requirements of the American FATCA Act).
On 27 June of 2014, the Supreme Court (ref. no. III CZP
Effects: increased accountability of insurance companies offering motor vehicle insurance; confirmation of the obligation of disbursement to the closest relative from the TPL
insurance of motor vehicle owners, monetary compensation for damage resulting from pain and suffering if the casualty died before 3 August 2008.
In 2014, the Ukrainian economy entered a crisis resulting from the difficult political situation, the annexation of Crimea, and the armed conflict in the east.
Office, the GDP decrease amounted to 5.3% in the third quarter. As at the end of December 2014, industrial production dropped by 10.9% in comparison to the industrial production in 2013. Inflation in December 2014 rose by 24.9% as compared to December 2013, which resulted from the administratively regulated prices and the devaluation of the
Numerous legal regulations came into force in 2014, which had impact on the Ukrainian insurance market. The most important of these include: • Changes in the Fiscal Code. Confirmed option of paying a 3% tax on the gross written premium with no need for insurance companies to switch to the general tax system; • Changed rates in the motor TPL insurance and Green Card pursuant to the decision of the Motor (Transport) Insurance
Bureau of Ukraine (MTSBU) – average rise of approximately 30% and 80% resulting from the devaluation of the UAH.
According Eurostat, the 2014 GDP growth rose by 2.9% y/y. It dropped due to the reduced export, resulting mainly from the
Russian embargo. At the beginning of 2015 Lihtuania adopted a euro.
Act concerning motor TPL insurance. The changes concern the removal of the statutory-established limit of compensation for material damage and also cover the determination of a basic insurance premium and regulation of pricing of insurance products. It is not known when the new version of the Act shall come into effect.
y/y in October 2014). The production volume in the third quarter of 2014 was higher than the year before and export
In 2014, the standing of the insurance sector in Latvia was good. The written premium of non-life insurance companies amounted to EUR 240.1 million, and grew by 6.1% as compared to the previous year.
New regulations concerning compensation for personal injury were introduced in July 2014. In motor insurance, they lifted the limits concerning compensation for damage resulting from pain and suffering.
The GDP of Estonia grew by 2.1% y/y in the 2014. The main contributor to the economic growth during the last quarter of the year was industry, which also held the biggest share in the Estonian economy. The unemployment rate was 7.4%, and was lower by 1.2 p.p. than in 2013. However, this result was significantly lower than in the previous years when the unemployment rate was 16.7% (in 2010).
Similarly to other member states, in 2014 Estonia approved new resolutions concerning the implementation of the requirements of the Solvency II Directive.
insurance came into effect regulating the possibility of vehicles approval, the total insurance sum, and the introduction of direct claims handling (with the start of 2015).
If the real GDP growth is maintained above 3% and the solid dynamics of the domestic demand continue, the conditions for insurance sales should be relatively favourable.
The deflation will likely be maintained at least until halfway through 2015 with a slight annual average drop of consumption prices. This factor will support the preservation of the relatively high remuneration dynamics and thus the purchasing power of households. According to PZU’s projections, the 2015 individual consumption growth rate should slightly accelerate as compared to the previous year.
It should also be noted that the lower fuel prices may entail a higher claims ratio of motor insurance.
Euro zone having a hard time rising from the crisis, suffering debts, and trying to avoid the deflation trap. In this situation, there is a risk of the economic growth in Poland falling below projections – although the direct impact of Ukraine’s and
The very low yields of bonds will continue to be a challenge in the context of the technical interest rate level.
Ukrainian conflict and its effects on the economic condition of the Euro zone and risk aversion level on financial markets continues to be a source of risk. The unstable situation in the
Another important risk factor for 2015 is the level of petroleum price which considerable drop in the second half of 2014, considerably affected on the both financial markets and the global economy. It is difficult to say whether the petroleum prices will rise within next year or remain at their current levels. Their dynamics may impact global inflation and economic growth, contributing to the valuation of assets on stock and obligation markets.
Inflation in % (y/y, end of the year) 1.4 (1.0) 0.7 2.4 4.6
NBP base rate in % (end of the year) 1.75 2.00 2.50 4.25 4.50
Annual average USD/PLN exchange rate 3.81 3.16 3.16 3.26 2.96 * Forcasts of 26th January 2015 Source: PZU Macroeconomic Analysis Bureau 32MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
We are strengthening the position of Polish insurance leader and expanding on the international market through acquisitions of companies and implementation of product and process innovations. We are building the assets of people who keep their savings in Poland’s biggest investment fund company and expanding our presence on the health care market.
PZU Group conducts various activities in the area of insurance and finance. In particular, PZU Group’s entities provide services in life insurance, non-life insurance, health insurance and asset management for customers within OFE and investment funds.
Group in 2014 and until the release of this report: • PZU acquired majority shares in the following companies while realising the development strategy to strengthen its position in Poland and expand internationally: Link4, AAS
• In relation to the development strategy concerning health insurance, PZU FIZ AN BIS 2 (a fund 100% owned by
PZU) acquired the shares of the following health care companies: Centrum Medyczne Medica Sp. z o.o., Prof-Med
Sp. z o.o., Elvita 3.7 PZU ZDROWIE – ACTIVITIES ON THE
• In order to manage Armatura Kraków SA more effectively, as the result of the shares squeeze-out, the number of shares held by PZU FIZ AN BIS 2 increased to 100%
and the shares of Armatura Kraków SA underwent dematerialisation on 10th March 2014. Furthermore, in scope of optimising the organisational structure, selected companies within Armatura Group have been merged. 3.8
3.2 PZU and Link4 – operations on the Polish non-life insurance market
over the first three quarters of the past 5 years. Nevertheless, the non-life insurance market in three quarters of 2014 dropped by a total of PLN 501.8 million (-2.5%) compared with the corresponding period of the previous year. The greatest impact on the lower premium was made by the drop of MTPL insurance sales (by PLN 387.5 million, -6.0% y/y) and insurance of damage caused by forces of nature and of other tangible damage (by PLN 328.8 million, -7.2%), resulting from the strong price competition effective since 2013.
Furthermore, there was a recorded drop in the motor own damage insurance (by PLN 38.2 million, -1.0%) and insurance of legal protection (by PLN 28.4 million, -31.1%). The drop of the entire market’s premium was partially compensated by the increase of financial risk insurance sales (by PLN 163.1 million,
(by PLN 58.1 million, +9,6%). After 2 years of decline (crash of the construction industry), considerable stimulation of the financial insurance market from 2013 onwards is observed.
The whole of the non-life insurance market in three quarters of 2014 generated a net profit of PLN 3.0 billion (-48.7%
Q3 2014 gross written premium of non-life insurance companies after Q3 2014 50.0 PLN billion 1.0 PLN billion 19.6 PLN billion
(employment pension products - EPP, individual pension accounts – IKE and individual pension security accounts –
We provide peace of mind and a sense of safety for 16,000,000 Customers in Poland
PZU: Insurance, Investments, Health 38MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
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] 3/2014 greatest extent by the drop in the technical result on MTPL
The drop of the technical result in MTPL insurance resulted mainly from the lower earned premium (PLN -305.8 million, i.e. -5.3%) and the increased costs of insurance activity, which resulted from the lower by 46.2% reinsurance commission and the shares in the profits of the reinsurers. Furthermore, the maintaining dropping trend of the average premium, which resulted from the strong price competition ongoing since 2013 also had negative impact on the profitability of this group.
State Treasury and local authorities constituted 45.6% of the aforementioned investment portfolio.
Non-life insurance companies, on aggregate, estimated the value of technical provisions at PLN 39.0 billion, which represented an increase of 4.4% compared with the end of
The condition of the non-life insurance sector in Poland one year before the requirements of the Solvency II Directive come into effect, i.e. on 1st January 2016, can be graded as positive. According to the quantitative survey conducted by
PFSA as at the end of 2013 (QIS2014), the solvency of capital requirements (SCR) established with the standard formula for the non-life insurance market in Poland was 231.8%.
PZU had a strong market position in motor own damage insurance (with a share of 38.1%). Meanwhile, in the case of motor insurance for corporate customers, this share was even higher, amounting to 47.6% for MTPL insurance and 42.2% for motor own damage.
After the first three quarters 2014, the share of PZU’s technical result in the market’s technical result was 68.3%, which, with a market share of 31.4% calculated using the gross written premium confirming high level of profitability of insurance.
PZU offers a wide range of non-life insurance products, including motor, property, personal, agricultural insurance, as well as general liability insurance. PZU’s product range encompassed 200 insurance products at the end of 2014.
In 2014, the changes in the offer dedicated to the mass market consisted of: • introduction of modified household insurance, other TPL, travel insurance, and accident insurance offer: ◦ the new household insurance offer allows for protection of private property under the All Risk formula. The new solution provides the clients with the most extensive insurance protection, which covers all events defined for the traditional option, including fire, flooding, destruction, breaking and entering, and all other unusual events that may occur at home; ◦ travel insurance and accident insurance received a faster and easier way of establishing agreements thanks to the intuitive product modelling and responses depending on e.g. the travel destination. Furthermore, accident insurance was expanded with a broad range of additional benefits, which definitely made the insurance more attractive (e.g. meeting the requirements of the sports market by introducing the clauses of sports agreements into the conditions); ◦ the other TPL insurance dedicated to the companies of the SME sector saw the introduction of numerous optional riders allowing for more flexible adjustment of the insurance to the needs of the client. The occupational TPL product allows for simple conclusion of
EU states; • introduction of the direct claims handling service for MTPL
PZU client, to report and handle the claim in PZU rather than the perpetrator’s insurer.
has been supporting the Polish economy in various areas, including the following: • securing investments concerning the construction and modernisation of individual railway line segments throughout the country. The realisation of such investments increased traffic capacity, connection quality, and passenger safety; • supporting the Polish energy and electrical energy industry by guaranteeing return of advance payment and proper performance of the contract for the construction of a new hard coal block in the Jaworzno Power Plant or securing the expansion of the energy transmission networks; • securing the performance of contracts for the realisation of ventures associated with the design and performance of audience sound systems in prestigious cultural venues.
PZU Group cooperated with 8 banks and 6 strategic partners in scope of protective insurance in 2014. The partners of PZU
Q3, 2014, incl. 1.6% Link4 share of PZU in corporate motor own damage insurance market share of PZU in the technical result of the market after
In 2014, PZU collected gross written premiums of PLN 8,261.8 million, which was 0.1% less than in the previous year. At the same time, its structure changed in comparison with the previous year, and therefore: • The value of MTPL insurance was PLN 2,648.5 million, which was 6.3% lower than in the previous year. This represented 32.1% of the overall portfolio, i.e. its share dropped in comparison to 2013 by 2.1 p.p. The drop in the value of MTPL insurance at PZU resulted mainly from the drop of the average premium and lower sales (strong market competition); • PZU collected PLN 2,016.3 million from motor own damage, which was 0.6% less than in the previous year. This represented 24.4% of the overall portfolio, i.e. its share remained at a similar level to that of the previous year; • The rapid growth in sales of the following types of insurance: contractual guarantees, corporate TPL, PZU
Factors, including threats and risks, which will affect the activities of the non-life insurance sector in 2015
Apart from events of a catastrophic nature (such as floods, drought and spring frost), the main factors which can affect the situation of the non-life insurance sector in 2015 include: • the potential slowdown of the economic growth in Poland resulting from the deteriorating external conditions – the
S Recommendation on good practices regarding the management of credit exposures collateralized with mortgages and the small scope of the Mieszkanie dla
long run; • price pressure from the competition arising from the declining level of motor insurance claims starting in 2013; • decisions of supreme courts in scope of monetary compensation from to the closest relative from the TPL
insurance of owners of motor vehicles for damage resulting from pain and suffering even if the victim died before 3rd
over the past 5 years. The premium collected during the three quarters of 2014 was 8.7% lower than in the corresponding period of the previous year, which means a continued decline after a series of increases ended in 2012. The rates of growth for the same periods of 2013, 2012 and 2011 were
It should be noted that the premium decline applied exclusively to the single premium (a decline of 21.2% y/y), mainly in the bancassurance channel. The dynamics for the corresponding period of 2013 were also negative at -26.2%.
Additionally, a tax on revenue from short-term endowment policies was introduced on 1st January 2015, which reduced the customer interest in such products already in the last year.
However, their share declined by 2.2 p.p. compared with 2012. Regardless, much like other EPP forms, the ones offered by life insurance companies recorded a growth of assets in 2013 (by 11.2% y/y). By the end of 2013 almost 2.4% Polish employees were covered by EPP, which means that the market still holds great growth potential.
Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Life insurance market 3/2012, data collected by PZU Życie
The total value of investments of life insurance companies at the end of the third quarter of 2014 amounted to PLN 99.5 billion, which means growth of 4.4% compared with the end of 2013.
According to the quantitative survey conducted by PFSA among the domestic insurance and reinsurance companies as at the end of 2013 (QIS2014), the solvency of capital requirements (SCR)
established with the standard formula for the life insurance market in Poland was 343.2%.
Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Rynek ubezpieczeń [Insurance Market] 3/2010 - 3/2014.
In 2014, PZU Życie adjusted its product offering to the rising customer needs, the actions taken by the competition and the changing legal situation.
The 2014 changes in the offer include the following: • individual protection insurance – in 2014, PZU Życie added the new “PZU Pomoc od Serca” additional insurance to the offer, which was positively received by the clients.
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.
The year 2014 saw rising client interest in traditional individual life and endowment insurance. Simultaneously, PZU Życie worked intensively on the adjustment of the current offering to the further decline of treasury bond profitability.
average annual decrease of gross written premium on the life insurance market after Q3 2010-2014 growth in life insurance market with regular premium after Q3 2014 growth in total technical result of life insurance companies after 3Q 2014 growth in total net result of life insurance companies after 3Q 2014
Groups: Talanx – Warta, Europa, Open Life; Aviva - Aviva TUnŻ, BZ WBK-Aviva TUnŻ; VIG – Compensa, Benefia, Polisa Życie. Source: KNF Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Rynek ubezpieczeń [Insurance Market] 3/2014
Life insurance companies - share of regular gross written premiums for 3 quarters of 2014 (%)
According to the strategic principles concerning the revitalisation of the investment offer and adjustment of the products to the client and distribution channel segments, the sales of the individual unit-linked life insurance Plan na Życie were ended as at 1st February 2014.
In 2014, PZU Życie generated a net profit of PLN 1,931.3 million in accordance with the Polish Accounting Standards.
Factors, including threats and risks, which will affect the activities of the life insurance sector in 2015
rulings in scope of unit-linked fund products; • implementation of the Solvency II requirements from
January 2016, which is based on risk evaluation and may change the operating model of selected areas of the insurance companies on the market (e.g. the pricing policy).
In December 2014, the net assets of OFEs were at a level of
PLN 149.1 billion and dropped by 50.2% with respect to the end of the previous year.
The activities of OFEs and their assets in 2014 were particularly affected by the changes made in the legal regulations. REGULATIONS ON THE INSURANCE MARKET IN
Q3, 2014 by regular premium technical margin of PZU Życie after Q3 2014 increase of net assets on the risk of policyholders after 3Q 2014 volume of investment assets of life insurance companies at the end of Q3 2014 99.5 PLN billion
The OFE PZU Złota Jesień, which is managed by PTE PZU
The main challenges for the pension funds market in 2015 are: • The reform of the pension system in Poland and the outflow of funds from OFEs; • The economic climate on the capital market and, in particular on the WSE, affecting the value of the assets of
After a good result in 2013, which saw the assets managed by domestic funds grow by almost +29.6%, the 2014 asset dynamics were three times lower and ultimately amounted to +10.6%. At the end of 2014, the assets for the entire investment fund market amounted to over PLN 209 billion in comparison to almost PLN 189 billion in December of 2013.
The slowdown of the market development dynamics is rooted mainly in the reduced popularity of funds among the clients.
Additionally, the low results of the managers and the changed preferences of the clients also contributed to the 2014 net asset value of open-ended pension funds at the end of of open-ended pension funds at the end of net assets value of mutual funds at the end of 2014 net inflow to domestic mutual funds in 2014 149.1 PLN billion 2.2 mln members 209.0 PLN billion 11.5 PLN billion
Open-ended pension funds – share in net assets; balance as at 31 December 2014 (%)
Source: KNF (www.knf.gov.pl), OFE market data: monthly statistics - December 2014.
reduction of asset growth. In 2014, the most popular products among domestic investors were those with a low risk profile –
The operations on the investment fund market in scope of PZU Group are carried out by Towarzystwo Funduszy
At the end of 2014, TFI PZU accumulated net assets of a value of PLN 25 540.9 million, which means growth of 15.0%
Simultaneously, TFI PZU remained the leader in the segment of employee pension programmes among all institutions operating on this market (not only investment funds), accumulating assets worth more than PLN 3.0 billion
(and almost PLN 1.7 billion net sales). Combined with the results of fund management, this allowed to increase the external client asset value in TFI PZU to over 6.0 billion PLN
(41.5% more than in the previous year and 83.9% more than in December 2012). Therefore, the value of external
Programmes and the takeover of five EPPs for management; • the investment results generated by the fund managers.
According to the Bank of Lithuania, the written premium of non-life insurance companies amounted to EUR 387.2 million, 1.3% higher than in the previous year.
The structure of non-life insurance in 2014 was dominated by motor insurance, which accounted for 57.6% of the gross written premiums, whereby the share of MTPL insurance was 35.0%.
Lietuvos Draudimas. The 2014 market share of this company was 30.9%. BTA was second with 14.0% and PZU Lithuania third with 13.8%.
According to the data of the Bank of Lithuania, the gross written premium of life insurance companies was EUR 215.0 million which constituted a growth of 18.6% compared to 2013. The positive dynamics concerned both the single premium (40.0%) and the regular premium (15.0%).
The structure of life insurance was dominated by insurance with investment funds representing 70.5% of the premiums.
The domestic non-life insurance market in Latvia grew by approximately EUR 14 million in 2014 and reached the total volume of EUR 240.1 million. The following forms of insurance had the greatest impact on the growth of this revenue: health by EUR 4.2 million (growth by 11,9%), property by EUR 3.3 million (7,1%), motor own damage by EUR 2.6 million (4.4%).
Latvian non-life insurance market, 5 of which held an approximate share of 75%.
Ten companies were operating in the non-life insurance sector at the end of 2014 (including 4 branches of insurance companies registered in another EU member state).
In scope of the expansion strategy and pursuant to the agreements dated 17th April 2014, PZU and PZU Lietuva acquired the following entities from Royal & Sun Alliance plc
capital. The transaction has not been ultimately settled. As a result of the transaction intangible assets in the amount of EUR 58.7 million and the goodwill in the amount of
Lithuania. The decision was conditioned by the reduction of PZU’s share in the Lithuanian motor own damage and property insurance. This decision is carried out through the sale of PZU Lietuva, which is discussed below.
The acquisition of the branch was closed on 31st October 2014. As the purchaser, PZU Lietuva paid the total price of
The transaction will be completed after the fulfilment of the following conditions: • lack of objection of the Bank of Lithuania; • approval from the Latvian, Estonian, and Lithuanian antimonopoly authorities; • completion of the process of separating assets and receivables of PZU Lithuania related to the operations carried out by the company’s branches in Latvia and
The price of the shares will amount to EUR 54 million adjusted by the differences in the net assets. The conditions precedent should be fulfilled until 30th November 2015.
In 2014, PZU Lietuva recorded a growth of the gross written premium of 2.5% compared to 2013 and reached the level of
compared to the previous year), specifically in non-life insurance. From the time it joined PZU Group, Lietuvos
compared with the previous year, as well as unit-linked life insurance (increase of 4.6%).
In 2014, PZU Lithuania occupied third place on the non-life insurance market with a market share of 13.8% (13.6% in 2013). Lietuvos Draudimas remains the Latvian leader with a share of 30.9% (31% last year).
Lithuania branch, which was opened in 2012, and AAS Balta, the market’s leader, which entered the Group in June of 2014.
The share of AAS Balta in the Latvian market was 22.9%, the total gross written premium of both entities was EUR 61.2 million, and since it entered PZU Group, AAS Balta generated the written premium of EUR 28.9 million.
W The Ukrainian insurance market recorded a considerable decline in 2014. The gross written premiums on the non-life insurance market in three quarters of 2014 was UAH 15.6 billion and was lower by 20.7% than in the corresponding period of the previous year. This decline resulted mainly from the lower non-motor premium. Financial risk insurance
recorded lower sales. The decline resulted from the lower premium for active reinsurance obtained from resident companies (from UAH 5.1 billion to UAH 3.4 billion). In scope of motor insurance, there was recorded growth in the
(-14.7%) and MTPL (-2.8%) premiums. As a result of these trends, motor premiums accounted for 30% of the value of the premium actually obtained by insurers during three quarters of 2014 (i.e. 4.4 p.p. more than in the corresponding period of the previous year).
Life insurance companies collected UAH 1.5 billion gross written premiums in three quarters of 2014, which was 12%
Within the written premium structure, 87.7% came from individual clients (18% less than in the corresponding period of 2013) with a 10% decline of the total number of insured individual clients compared to the previous year, which resulted from the unstable political, financial, and economic situation of Ukraine over the discussed period.
On the Ukrainian market, PZU Group conducts its insurance business through two companies: PZU Ukraine (in terms of non-life insurance) – “PZU Ukraine” and PrJSC IC PZU Ukraine
In 2014, the total gross value of PZU Group’s gross written premiums in non-life insurance in the Ukraine amounted to UAH 503.9 million, i.e. it was 24.7% higher than in the previous year. This increase arose from both the increase in the premium obtained through external entities (banks, travel agencies), as well as through its own distribution channels.
The written premium collected by PZU Ukraine Life in 2014 amounted to UAH 154.3 million and was 28.7% higher than in 2013. This growth was mainly achieved in the bancassurance channel as a result of sales of endowment policies.
During 2014 Ukraine’s political and economic situation has deteriorated significantly. Social unrest combined with rising regional tensions has deepened the ongoing economic crisis and has resulted in a widening of the state budget deficit, a depletion of the National Bank of Ukraine’s foreign currency reserves, a further downgrading of the Ukrainian sovereign debt credit ratings and significant depreciation of Ukrainian hryvnia.
Companies”) have made the following decisions in order to mitigate the risk: • in the scope of insurance activity, apart from standard exceptions (war, terrorism, etc.), insurance coverage does not apply to third party operations performed in violation of the law. In addition, it has been decided to temporarily suspend conclusion and renewal of non-life insurance contracts with natural and legal persons, including property that is subject to a lien or mortgage, if the contract is executed in the territory of Donetsk and Luhansk regions.
The same applies to forwarding agent and carrier liability insurance, as well as cargo insurance, if the freight lane passes through the territory of the above mentioned regions; • the regional office of PZU Ukraine in Simferopol and its customer service centre in Sevastopol are closed. In addition, four sales offices and two agencies were closed in the Donetsk and Luhansk regions; • actions have been taken to transfer part of the assets, such as cash at current accounts and bank deposits owned by the Ukrainian Companies, to selected banks operating in
The Management Board of PZU, in cooperation with the management boards of the Ukrainian Companies, constantly monitors the situation in Ukraine. As at the date of this consolidated financial statements, the Management Board of PZU assumes that the Ukrainian Companies will continue their business activity in accordance with the approved objectives. Nevertheless, a continuation of the current unstable business environment could negatively affect in the future the Ukrainian Companies’ results and financial position in a manner not currently determinable. These consolidated financial statements reflects the current assessment of the
The chain of PZU Group’s health care centres offers the following: • health care for the local population of Płock, Włocławek, and cities of Upper Silesia in scope of NFZ contracts covering general health care and ambulatory special care; • health care in company clinics for employees of Tauron
Group and PKN Orlen Group (mainly chemical plants, power plants, heat and power plants, and mines); • services in scope of additional health care packages for employees of Tauron Group and PKN Orlen Group and corporate and individual clients in Płock, Włocławek, and cities of Upper Silesia; • sanatorium and rehabilitation services in Ciechocinek and
• On 8th April 2014, PZU FIZ AN BIS 2 purchased 96.45%
• On 1st December 2014, the transaction covering the purchase of 98.82% shares of Przedsiębiorstwo Świadczeń
Wydobycie) by PZU FIZ AN BIS 2 was closed. Elvita is the owner of 57.0% shares in Przedsiębiorstwo Usług
The total cost of purchase of the aforementioned companies was PLN 81.5 million and the goodwill recognised in the consolidated financial statements amounted to PLN 29.6 million.
This company is intended to serve as the platform for the development of health care services under PZU Group. The company was created from the transformation of Ipsilon Bis
Health care market The chain of the cooperating with PZU Group’s health care centres in Poland
From June 2012, PZU Pomoc held 30% of the shares in GSU
Insured Club]. Discount, incentive and loyalty programmes addressed to the mining industry are being developed within this entity.
The statutory activities of PZU CO include conducting business regarding the provision of: • ancillary services related to insurance and pension funds; • permanent intermediation in the conclusion of insurance contracts, financial and investment contracts and assistance agreements; • Contact Centre; • Data Centre; • printing services; • IT services; • bookkeeping; • human resources and salaries.
PZU Group’s operations on the debt market are realised through PZU Finance AB in Stockholm (Sweden). The
On 3rd July 2014, PZU Finance AB emitted five-year eurobonds in the amount of EUR 500 million.DEBT FINANCING
PZU (the Albatros Guest House until the end of October, the
Ogrodowa-Inwestycje performs functions for both companies from PZU Group and external customers.
Armatura Kraków SA (Armatura Kraków) is the parent entity in the Armatura Group. The Armatura Group includes: Armatura
z o.o., Arm Property sp. z o.o. and until 31st December 2014,
Armadimp SA and Armagor SA. The Armatura Group conducts its business outside the area of financial and insurance services. It is a leading manufacturer in the plumbing and heating sector in Poland. The Armatura Group entities specialize in manufacturing of bathroom and kitchen taps, aluminium central heating radiators, a wide range of valves and sanitary ware.
In 2013 and 2014 the PZU FIZ AN BIS 2 fund acquired additionally 29,400,000 shares in the Armatura Kraków due to a minority shares squeeze-out, and redemption of own shares from the Company.
Group in the gross written premium of non-life insurance companies in Poland was established at 33.0%. This result was achieved in the conditions of the corporate insurance portfolio restructuring program aimed to ensure the profitability of such products; • maintaining the position on the life insurance market. In the third quarter of 2014, PZU Życie held a 42.9% share in the regular premium of insurance companies. The reasons for the 7.9%
growth of the regular premium in the third quarter of 2014 compared to the third quarter of 2011 included the development of product innovations; • dynamic development of asset management. In 2014,
PZU Group recorded a 162.5% growth in the assets of third party customers managed by TFI PZU compared with 2011. TFI PZU ranked the first on the market in terms of the fund-managed net asset value in 2014 with the share of 12.2%. TFI PZU was also the leader in the segment of Employee Pension Programmes among domestic investment funds; • achievement of above-average profitability. During the years 2012-2014, the average return on equity (ROE)
amounted to almost 24%, whereas the ROE of the biggest and leading global insurance companies is around 10-15%.
The PZU Strategy 2.0 also provided solid background for further organisational development, including: • innovative IT tools – The first functions of one of the world’s most advanced policy systems – the Everest system GLOSSARY – were released in November 2013.
branches, which no longer have architectural barriers, not only received a new visualization but also began to offer products of PZU Group’s entities; • cost optimisation – Thanks to the organisational changes
(including the centralisation of certain functions), automation of numerous processes, employment restructure, new distribution channels, and a new policy administration system, PZU Group was able to achieve benchmark cost effectiveness. The administrative expenses index dropped from 10.6% in 2010 to 9.3% in 2014.
FINANCIAL RESULTS OF PZU GROUP CHAPTER 6.1; • refreshing the brand – PZU Group underwent a big business transformation and started to establish the market standards, especially in scope of service.
PZU Group introduced direct claims handling for motor insurance and Poland’s first fleet of replacement cars. The new PZU is also an institution that successfully manages its customers’ funds using the competencies of the largest asset management company in
Draudimas AB, the Latvian AAS Balta, and the business of the Estonian Codan Forsikring A/S. Today PZU is not only the biggest insurance company in Poland but is also the number one on the insurance markets of Latvia and
Rate of return on equity confirms the legitimacy of the directions of development for PZU Group assumed in the PZU
2.0 strategy. The TSR index from the IPO (i.e. 12th May 2010)
Today, some things seem obvious to us. But we could only dream about them just a couple of years ago.
The strategy for the development of PZU Group until the year 2020 was created with the following assumptions concerning the condition of the Polish economy and insurance sector: • moderate economic growth pace in Poland – According to PZU’s projections, the Polish economy will develop at the approximate annual pace of 3-4% in the near future.
• low inflation – The year 2015 will record a 0.5% price growth. Then the inflation index will slowly accelerate and may reach the target assumed by the Monetary Policy
• historically low interest rates – The projections for the first years of the strategy state that the interest rates will drop to unprecedented lows. In 2015, the average annual
Polish insurance market: ◦ Non-life insurance market. It is projected to develop at the annual pace of 2.5%. Due to the low growth of vehicle numbers, the premiums for motor insurance will grow at a rather slow pace (annual average of approximately 2.3%). The price war on this market is projected to continue during the first years of the strategy (with maintenance of a low claims ratio).
Projections state that the non-motor insurance market will grow at a somewhat faster pace (2.7% annually).
(average annual pace of 2.7%). The arrangement of the single premium insurance market will result in the growth of their share unit-linked products at the expense of structured products and short-term endowments (polisolokaty); • dynamic development on the investment fund market
2. According to the PFSA data, PZU is the market leader in the mass-market category after three quarters of 2014 - 34.5% in motor own damage, 27.0% in MTPL insurance, and 47.4% in other insurance.
4. Acquisition of Link4, the leader of the Polish direct insurance market. During three quarters of 2014, it held 1.6% of the gross written premiums of the non-life insurance companies in Poland
1. 121.5% increase in the gross written premium in the individual life insurance segment compared with 2011.
2. In scope of the implementation of analytical CRM, PZU Życie developed functions allowing cross-selling operations.
2. In December 2014, the value of TFI PZU’s net assets amounted to PLN 25.5 billion which represented 12.2% of the assets of investment fund companies (maintaining the first position on the market).
III (one of southern Poland’s biggest chain of cutting edge health care offices) acquired from three companies of the Tauron Group, Centrum Medyczne Medica (acquired from PKN ORLEN), and Specjalistyczna Przychodnia Przemysłowa “Prof-Med” (acquired from Anwil).
4.3 Implementation of Strategy 2.0 for the years 2012 – 2014
Modern and integrated customer service model and effective operations 1. Implementation of direct claims handling.
(300 hybrid vehicles available throughout the country). 4. Introduction of new functions of the Everest policy system. By the end of 2014 the
2. Revitalisation and standardisation of the branches and the change in the customer service model on many levels.
3. Introduction of an e-learning training module dedicated to PZU Group. 4. Start of the next round of practices and internships in PZU Group. The campaign “Upoluj najlepszy staż w mieście” (Hunt Down the Top Internship in Town) was held.
5. Inauguration of the Menedżer 2.0 development programme which is the continuation of the “Lider 2.0” programme, addressed to the management.
8. The start of implementation of a new personnel and salary system.
4.4 Strategy of PZU Group for the years 2015-2020 – The PZU 3.0 Strategy
PZU Group entities have a common operating philosophy, which emphasises the following three basic values: • we are Fair – We play fair with our clients, employees, and shareholders. Our rules are clear and our offer is transparent and satisfies the real expectations of the clients; • we are Effective – We control the costs and make sure the processes are optimal. We offer our clients friendly service and competitive prices; • we are Innovative – We keep searching for ways to improve and continually adapt to the changing needs of the clients.
• As a result of our position on the market, we serve as “market watchdogs”. Our actions are beneficial for entire market and the clients, we actively influence market development and set high-quality standards in customer service.
Employees • PZU is a workplace which inspires the people to try their bests and enables them to keep work-life balance at the same time.
PZU I PZU ŻYCIE CHAPTER 3.2 and 3.3; • asset management – It will be the leader of the investment fund market. The objectives of Group include reaching a share of at least 11.5% in TFI assets (after exclusion of
CHAPTER 3.4 and 3.5; • health care – PZU Group plans on becoming the leading
Polish integrated health care provider and obtain the minimum revenue of PLN 650 million (including the written premium from health insurance) in 2020. PZU ZDROWIE
Non-life Life - regular premium 64MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
The areas of potential revenue growth will not be identified through the product mix, as previously, but through the outlook on the position of PZU and PZU Życie in the segments of retail clients, corporate clients, and strategic partners
Thanks to the market’s biggest product mix and experience in product development, PZU Group is able to adapt its offer to the client expectations not just in scope of product-associated demands but to use all its experience in all contact channels.
products without so-called asterisks; • increasing the flexibility and reducing response time to the actions of the competition in the scope of motor insurance prices; • revitalising the life insurance product mix for individual clients; • competing with service quality; • implementing system solutions for Customer Experience
Management; • building mutual relations (an ecosystem) to build loyalty and increase client involvement, including continuation of the assistance philosophy (and not just benefit/
The main assumptions of PZU Group’s policy in relation to the distribution and service channels include: • the universal profile of exclusive channels and intensified cooperation among the channels with a narrower and more oriented offer; • introduction of a coherent, multichannel customer service model based on clear distribution of the channels’ function, allowing focus on the most effective operations from the perspective of the channel and the client; • coherent visual identification and high service quality standards in every customer service point of PZU Group;
The most important objective of PZU Group’s investment policy until 2020 is the optimisation of investment profitability with the assumed risk appetite.
Main assumptions: • income volatility reduction (further growth of the share of portfolios with profiles near the absolute rate of return at the expense of index portfolios); • further diversification of investment portfolios (increase of corporate debt and alternative assets at the expense of treasury debt instruments); • development of investment property; • increase of the role of strategic asset allocation due to the lingering low interest rate environment.
PZU Group will use two brands – PZU and Link4 – with different positions and offers.
The strong direct Link4 brand will allow for the acquisition of new clients.
In 2020, PZU Group will operate through a digital model. It will ensure the following: • flexible adaptation of the offer to the needs of the clients
“paperwork”); • process management with strong support from systems determining the workflow.
I) at a level no lower than 250%; • maintenance of assets to cover the technical provisions in individual companies of PZU Group (i.e. PZU and PZU
and household) among clients with group life insurance or individually continued insurance; • Premium client – PZU Group will raise its share in fulfilling the insurance needs and managing the assets of such clients. Except the insurance upsale (life individual protective as well as property), the Group will offer them individual health insurance products and investment products (mainly TFI); • SME client – Despite the rising competition, the Group will maintain its high market share in the SME segment.
Group will propose increases of the sums insured in the property insurance product to the clients in this segment, especially to big clients.
The Group will increase its share in the so-called Mid-Corpo segment of non-motor insurance from approximately 13% to approximately 20%.
The operating philosophy of PZU Group on this market assumes that it will become a business partner with strong expertise for the clients and provide not just insurance products but also advise the clients at all risk management stages (especially during the determination of insurance needs). Regardless of the entity’s size, PZU Group will have an individual approach to its clients.
The main instruments to realise the assumed objectives include the following: • market introduction of product and process innovations with application of new technologies, including taking advantage of the Everest platform; • offering risk management consulting for Clients; • implementation of system solutions increasing sales effectiveness and raising the quality of customer and broker service.
During the realisation of these objectives, PZU will focus on the following: • maintaining long-term relations with the client through offers of clear and comprehensible products and clear and transparent communication concerning risk and investmentrelated costs; • seeking attractive market niches to make the offered products difficult to copy by the competition; • developing own investment product network, including start of online sales and selective use of PZU Group’s own network; • striving to provide common access to its products by expanding the external sales network in Poland (as a result of establishing cooperation with new partners and expanding cooperation with current ones); • establishing cooperation with the biggest client asset management companies as their subcontractor; • activating sales on foreign markets covering institutional investors.
Between 2015 and 2020, PZU Group will allocate over PLN 800 million to expanding health care operations, including PLN 450 million to acquisitions.
The Group considers health care business investment as a strategic option, which will be applied in instances of considerable structural reforms (additional health insurance or competition in public premium management).
PZU Group will expand its international operations through both organic development on the markets where it is already present and acquisition on prospective markets.
Eastern Europe to identify potential insurance (or optionally asset management) acquisition targets attractive from the perspective of profitability or restructuring potential.
The considered options will include acquisition of both big companies with considerable market share as well as small entities with the development potential providing an outpost for further expansion. Expansion is also possible through greenfield investments (e.g. through Link4).
PZU’s own agency network Sales through multiagencies exclusive agents multiagencies 72MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 5.1 Sales and service channels
PZU Group (PZU and PZU Życie) has the largest network of sales and service branches on the Polish market. The organization of the PZU sales network has the objective of guaranteeing sales effectiveness, while simultaneously assuring a high quality of services provided.
At the end of 2014, PZU Group distribution network included: • tied agents – PZU own agency network consisted of 9,083 tied agents, 1,703 of whom were hired in 2014. The agency channel conducts sales of mainly all types of insurance, especially motor and non-life insurance and individual insurance (life insurance); • multiagencies – 2,963 multiagencies work with PZU Group to make sales mainly to the mass market (insurance of all types is sold through this channel, especially motor insurance and property insurance), as well as individual life insurance; • insurance brokers – PZU, in particular the Corporate
Customer Division, worked with approximately 900 insurance brokers; • PZU employees – Thousands of PZU employees sold insurance at their own branch offices (primarily to corporate and group customers), which underwent a metamorphosis in 2014. They are well-advertised, in attractive locations, have no architectural barriers, and provide convenient access to all Clients.
– PZU Group cooperated with 10 banks and 6 strategic partners in scope of protective insurance in 2014. The partners of PZU Group are the leaders in their fields and have customer bases with great potential. The cooperation in scope of strategic partnerships concerned mainly the companies operating in telecommunications and energy, which were used to offer insurance of electronic equipment and assistance services.
• direct – PZU sells products to individual customers by telephone and over the Internet.
– the Operational Centre for Claims and 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/event, the model of an equal workload of individual claims handling units that is automated within the
In 2014, in the field of claim handling, new measures were introduced to improve the quality of claims handling and customer satisfaction.
The biggest innovation on the market was the start of Poland’s first direct claims handling service. Thanks to this, the clients of PZU with MTPL insurance can report and handle the vehicle damage claims when the perpetrator is insured in a different company. PZU takes care of all claims handling operations, including compensation payment, and then files for the return of the paid compensation to the insurance company of the perpetrator.
The next measure adopted to improve the customer experience was the establishment of the Organizatorzy
Assistance to Accident Victims] – Assistance Providers. They are mobile employees who conduct personal interviews with the victims. Their role is to determine the actual life situation and the needs arising from the accident that the victims suffered from, for which PZU is liable. The provided assistance includes, among others, the broadly defined assistance in organising medical, social, vocational and psychological rehabilitation. The Assistance Providers advise the victims how to adjust their housing and vehicles to meet the needs of a disabled person, as well as how to choose the proper systems that compensate for dysfunctions and disabilities. They also provide assistance in completing all the formalities connected with claims handling. They assist in obtaining the benefits and government and institutional assistance (from PFRON
Family Support Centre]). They also provide psychological support to the immediate family members of the victim, if he or she suffered death as a result of the accident.
Claims handling, for the customer, is the moment of truth in contacts with the insurer and an opportunity to check the quality of the purchased product. Satisfying his or her expectations in the claims handling process is the key to building his ties with PZU. Therefore, in 2014, extensive measures were taken to improve and shorten the process, such as the implementation of a LEAN culture and the expansion of an automatic and simplified process of claims handling.
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 24 thousand customers, the satisfaction index in 2014 was 91.5%. In turn, among the customers who experienced the claims handling process or the process of paying benefits, the NPS (Net Promoter Score)
recommendation index, which is the difference between the proportion of promoters and critics participating in the survey, was as high as 26% while 49% of consumers surveyed indicated that they are active promoters of PZU.
PZU’s research indicates that, apart from price, crucial to customer loyalty is the process of claims handling and payment of benefits. The implantation of improved claims handling procedures for TPL and property insurance further reduces the average time of claims handling in comparison to previous years.
The customer service and claims handling processes in the companies acquired in 2014 have not been adjusted to the standards of PZU and PZU Życie. In this scope, these companies are independent. Nevertheless, the service quality is receiving praise from the Clients.
– is carried out under close IT and business cooperation and is ongoing from 2013.
Bancassurance and strategic partnership Insurance brokers cooperating banks cooperating brokers 74MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
At the end of 2014, PZU Group employed approximately 16.1 thousand employees1 calculated as FTEs (including 7.96 thousand in PZU and 3.34 thousand in PZU Życie) and was 18.7% higher than a year earlier. This considerable growth of employment results from the 2014 acquisition of the companies in the Baltic States and in Poland.
In 2014, according to the assumed schedule, PZU introduced motor, home, and some property products into the system and thus successfully completed the first stage of the project.
Division implemented internal strategic initiatives, which consisted in the development of a series of activities supporting the key business initiatives, as well as an optimised technical infrastructure and related processes, specifically the following: • in scope of the integration with the newly acquired companies in Poland and the Baltic States, an analysis of
and PZU Życie announced their intention to make group redundancies, in accordance with the Act on the detailed principles of terminating employment for reasons not attributable to employees of 13 March 2003. The employment restructuring programme was carried out in the fourth quarter of 2014. Ultimately, it encompassed 643 people at PZU and
PZU Życie, while the employment downsizing applied to 171 employees of PZU and PZU Życie.
Employment at PZU Group per age 2014 data includes employment in newly acquired entities in Baltic states and Poland
The amount of additional redundancy pay depended on the length of service with PZU Group and the salary of each employee.
In 2014, the process of writing up and valuing positions at
PZU, PZU Życie, and selected companies from the Group2 was completed and its results were implemented through adjustment of individual conditions of remuneration for employees who did not fall within the ranges of projected salaries. The results of position valuing will be used in the salary system, which will take into account the competencies, skills required for a given position and market standards.
More than 300 managers participate in it; • coaching for the top management with the aim to support individual development; • other forms of training – postgraduate studies and specialized forms of professional development, language courses.
Every employee benefited from an average of 24 hours of classroom training and 7 hours of e-learning in 2014.
In addition to salaries, employees have additional benefits, such as the P Plus and Pełnia Życia [Fullness of Life] Group
In terms of employer branding, a number of activities dedicated to students were conducted. Inwestycja w
Roku [Student Project of the Year] contests, participation in job fairs, Ambasador PZU [Ambassadors of PZU] programme or the management of the fourth largest Facebook profile dedicated to career opportunities are just a few examples of activities addressed to students. In 2014, for the second time in a raw, a centralized programme of internships and traineeships dedicated to third year and higher students, as well as young graduates, was organised. Within this programme, three-month traineeships, six-month internships and nine-month internships were organized for talents, the socalled High Potentials.
However, anyone parting with the organization by mutual consent is asked for his opinion on working for PZU Group and the reasons why he decided to change employer.
In 2014, PZU Group made several wide-ranging advertising campaigns, including: • the „Rewolucja w OC” –
“możesz na nas polegać” (you can trust us) slogan. Instead of presenting the shocking effects of dangerous driving, the campaign focuses on a positive message. The educational activities are intended to encourage the passengers to react to dangerous behaviour and show how to calm the driver. The PZU blue heart was a key tool and symbol of the campaign.
– one of the most prominent Polish actors. His image reflects the peace and harmony that PZU provides its customers with.
movie. The awards included: • 3 Innovation Awards / Media Trendy awards; • 3 KTR (the Polish festival of advertising creation) awards; • The Golden Effie award for the “Mocno pomocni agenci
PZU” [Strongly Helpful PZU Agents] campaign; • The Golden Drum award at the 21st Golden Drum festival in Portoroż, Slovenia. The blue hearts of PZU won the golden award in the important “Integrated Communication
Campaigns” category, scoring victory over projects from a number of the New Europe countries.
This was the reason why one of the major marketing projects in 2014 aimed at improving the transparency of communication messages.
3,691.7 million compared with PLN 4,120.5 million in the prior year (decrease of 10.4%). Net profit attributable to the shareholders of the parent company amounted to PLN 2,967.7 million, compared with PLN 3,293.5 million in 2013 (a 9.9%
due to liquidation and withdrawal of funds from the additional part of the Guarantee Fund, partially offset by a drop in revenues from premiums and assets management); • revenue on consolidation of investment funds in 2013; • gross profit on the settlement agreement with the reinsurer on the Green Card insurance of PLN 53.2 million (PLN 73.3 million was recognized in other operating revenue and expenses).
Forsikring A/S. Since their purchase, the companies have contributed to the results of PZU Group and contributed to the increases in particular items in the operating result and assets and liabilities in comparison to 2013.
16,884.6 million compared with the previous year (higher by 2.5%) mainly due to the growth of its foreign operations and the premium collected by Link4. After accounting for the share of reinsurers and the change in provision for unearned premium, the net premium earned amounted to
higher than in 2013; • higher amount of claims and benefits. The claims and benefits amounted to PLN 11,541.7 million, which means that they increase by 3.4% compared with 2013 mainly in motor TPL insurance in relation to significantly higher level of claims provisions from previous years; • higher acquisition expenses (an increase of PLN 131.1 million) related to the changes of commission rates for motor insurance packages, an increase in the group protection portfolio and modification of the remuneration system in the Agency Network in the individual insurance segment; • increase in administrative expenses to the level of PLN
Share in profits/ (losses) of entities measured using the equity method (1.5) 1.4 - - 4,
82MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 6.2 Revenue
Group’s expansion in the Baltic states. Due to the fact that the premiums collected by the newly-acquired companies were included in PZU Group’s result only from the commencement of the consolidation (not for a full year), a further increase of this group’s share in the structure of
PZU Group’s gross written premiums is to be expected in the next period.
Fee and commission revenue comprised mainly: • asset management fee from OFE PZU Złota Jesień. It amounted to PLN 112.1 million (a drop of 33.5% compared with 2013 as a result of statutory transfer of a portion of the assets of OFEs to the Social Insurance Institution
(ZUS) corresponding to 51.5% of the units on the account of every member of OFE PZU).REGULATIONS ON THE
INSURANCE MARKET IN POLAND CHAPTER 2.4; • revenues from the liquidation and withdrawal of funds from the additional part of the Guarantee Fund in the amount of
(one-off effect); • revenue and fees from investment funds and investment fund management companies of PLN 67.9 million, i.e.
POLAND CHAPTER 2.4; • revenue from fees charged on investment contracts at the customer’s expense and risk. PZU Group earned PLN 12.3 million, i.e. 34.7% less than in the prior year on these fees.
At the same time, the results from shares portfolios were lower than in the previous year, which was caused by worse conditions on capital markets (the WIG index increased by 0.3% in 20014 compared with 8.1% in 2013) related mostly to the increased risk aversion in the face of increasing geopolitical tensions.
The increase in financial expenses is foremost due to the increased EUR FX rate with the higher level of liabilities denominated in EUR due to the issuance of own debt securities and an increase in the use of sell-buy-back transactions. Monetary market transactions were performed in order to boost effectiveness of investment activities and achieve additional margins.
2 The investment portfolio covers financial assets (including investment products), investment property and financial liabilities (negative valuation of derivative instruments and liabilities from sell-buy-back transactions).
Sell-buy-back transactions FX differences on own debt securities Interest on own debt securities Others
Investing activities of PZU Group are conducted in compliance with the statutory requirements, ensuring an appropriate degree of safety, liquidity and profitability, therefore treasury debt instruments accounted for more than 60% of the investments portfolio both as at 31 December 2014 and 31
An increase in non-treasury debt market instruments and investment property resulted from the consistently implemented investment policy aimed at ensuring greater diversification of the investment portfolio.
for about EUR 140 million; • consolidation of the assets portfolios of the newly acquired
In 2014, the balance of other net operating revenue and expenses was negative and amounted to PLN 370.1 million compared with the also negative balance for 2013 of PLN
In 2014, the net value of claims and benefits, as well as the increase in PZU Group’s technical provisions amounted to PLN
11,541.7 million, compared with 2013, the value of claims, including the change in technical provisions, was higher by 3.4%. The following factors also contributed to the increase in the net value of claims and benefits: • lower rate of conversions of long-term contracts to renewable annual contracts in type P group insurance (the effect of conversion in 2014 translated into a release of PLN
higher level of claims technical provisions related to several individually significant claims; • higher level of claims in the agricultural insurance group caused by weather conditions.
In 2014, the Group’s administration expenses were at a level of PLN 1,527.7 million, which was 8.6% higher than in the prior year. The following factors had an impact on their level: • higher costs of projects, including the strategy implementation, IT, as well as personnel costs and the costs of customer service training, with two systems coexisting simultaneously – the effect of implementing projects from previous years which will make it possible to change the philosophy of customer relations management; • an obligatory additional payments to the Guarantee Fund in the Central Securities Depository of Poland by PTE PZU
in the amount of PLN 19.5 million (a statutory change of the required level from 0.1% to 0.3% of the net assets of the open pension fund (OFE) REGULATIONS ON THE
INSURANCE MARKET IN POLAND CHAPTER 2.4; • inclusion of the administrative expenses covered by the newly-acquired insurance companies in the results of the
(financial assets and investment property). In total, these assets amounted to PLN 58,996.0 million and were 4.3%
(4.3% of the Group’s assets) and their increase was mainly caused by the start of consolidation of the newly-acquired insurance companies and applied foremost to the receivables from policyholders.
Non-current assets – in the form of intangible assets, goodwill and property, plant and equipment – were recognised in the statement of financial position at PLN 2,656.0 million. They comprised 3.9% of total assets. Their balance more than doubled in 2014 in comparison to 2013, mostly due to the start of consolidation of the newly-acquired insurance and health care companies, including: • calculation of the goodwill in the amount of PLN 777.0 million; • identification of new intangible assets, such as the trademark, present value of future profits (PVFP), relations with customers and brokers, which were previously not recorded by the companies.
As at 31 December 2014, PZU Group’s cash and cash equivalents amounted to PLN 324.0 million (0.5% of the assets). A year earlier, they amounted to PLN 569.2 million.
An increase of PLN 427.7 million in the category of assets held for sale is caused by the sale of PZU Lithuania FOREIGN
At the end of 2014, the main component of PZU Group’s equity and liabilities was technical provisions. They amounted to PLN 40,166.9 million, which represented 59.4% of total equity and liabilities. Their share in the statement of financial position did not change in comparison to the previous year, but their value increased by PLN 2,842.5 million, mainly due to: • higher claims provisions in motor insurance in the mass and corporate insurance segment; • development of the unit-linked products (sale and high investment result) and the portfolio of continued insurance; • the start of consolidation of the newly-acquired insurance companies (influence of the technical provisions of PZU
Investment contracts amounted to PLN 1,108.1 million compared with PLN 2,121.0 million as at the end of 2013.
This fall was caused, in particular, by the decrease of the level of the investment contracts value due to the subsequent tranches in short-term endowment products, mostly in the
bancassurance channel, reaching their maturity dates. In effect, their share in the structure of liabilities and equity dropped from 3.4% as at the end of 2013 to 1.6% as at the end of December 2014.
At the end of 2014, equity amounted to PLN 13,167.6 million and remained at the similar level to the one as at the end of 2013 (0.3% higher). An increase in the consolidated equity resulting from the net result for 2014 in the amount of PLN
The balance of other liabilities and provisions as at the end of 2014 amounted to PLN 13,130.1 million and included, in particular, liabilities from the sell-buy-back transactions in the amount of PLN 4,411.5 million, liabilities to participants in consolidated investment funds in the amount of PLN 856.9 million, liabilities to the policyholders in the amount of PLN
arising from the issuance of debt instruments in the amount of
PLN 2,127.5 million and dividend liabilities to the shareholders from the 2013 profit appropriation, which remained to be paid in 2015 in the amount of PLN 1,468.0 million. WWW.PZU.PL/
Under the guarantee line agreements of 2013 concluded between PZU and PZU Życie and Bank Millennium SA, the bank extended bank guarantees (bid bonds and contractual guarantees) to companies in tenders for insurance services.
The guarantee facilities are, respectively, PLN 15 and 10 million. They are valid for one year and may be extended by another. As at 31 December 2014, 79 guarantees totalling PLN
As at the end of 2014, the balance of loans taken by PZU
Armatura – PLN 83.9 million, and the SPVs established for the investment funds: PH3 Sp z o.o. SKA – PLN 62.7 million and PORTFEL PB2 Sp. z o.o. PLN 76.1 million. As at the end of 2013, the balance of loans taken by the Armatura Group amounted to PLN 88.5 million. All the loans and borrowings were granted at arm’s length. As at the end of 2014, the balance of loans incurred amounted to PLN 54.0 million and concerned the liabilities of PZU SFIO Universum.
offers this insurance to groups of employees and other formal groups (e.g. trade unions). Individuals 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; • individual life insurance. PZU provides this to individual customers. The insurance contract relates to a specific insured, subject to the assessment of the individual risk.
This group comprises protection, investment (other than investment contracts) and health insurance products; • investments - comprising investment activities in respect of PZU Group’s own funds constituting a surplus of investments over technical provisions in the key insurance companies of PZU Group (PZU and PZU Życie) increased by surplus of investment income over the risk-free rate corresponding to the value of technical provisions of PZU
In 2014, the corporate insurance segment earned an operating profit of PLN 217.1 million, which is 44.5% less than in the prior year. The acquisition of Link4 had a negative impact on the result in 2014. It contributed to the segment’s result from the moment of its acquisition and caused the increases in particular items of the operating result. After the effect of this change has been eliminated, in 2014 operating profit in the corporate segment was PLN 219.5 million.
The following factors primarily had a key impact on this segment result in 2014: • decrease in the premium earned by 6.0% despite an increase of the gross written premium by 5.2% compared with 2013. In 2014 there was an increase in the other TPL
insurance group (increased by PLN 65.6 million) as a result of acquiring several strategic clients and entering contracts for the period longer than one year. A difficult situation on the business insurance market and a decline in prices resulted in the greater inclination to enter into long-term contracts – this tendency was already observed last year.
PLN 29.5 million), which was the result of a strong price competition; • total amount of claims and benefits was PLN 964.0 million and it was PLN 109.9 million higher than in the prior year. Net claims and benefits in 2014 increased by 12.9%
decline in the net premium earned, means that the loss ratio decreased by 11.0 p.p. The increase was recorded mainly in other non-life insurance (increase in the value of claims of 16.6%) as a result of several individually significant claims, in particular, in miscellaneous financial loss insurance and in insurance covering property damage and damage caused by forces of nature. As far as motor insurance is concerned, despite a decline in the frequency of losses, the level of claims and benefits increased (by 10.6% y/y) as a result of the higher average claim payment and the increase in the technical provisions for bodily injury claims. In 2014, the loss ratio in corporate insurance amounted to 65.9% compared with 54.9% in the previous year; • decline in the investment income allocated to the segment at transfer prices. This income amounted to PLN 136,5 million and was 2.6% lower than in the previous year. This decline was caused by lower market interest rates used as the basis for calculating the income from portfolios replicating insurance liabilities; • increase in acquisition expenses by PLN 6.0 million, i.e.
indirect acquisition expenses and the inward reinsurance commission, partially offset by an increase in the deferred acquisition expenses for multiyear contracts; • increase in administrative expenses to the level of PLN
125.1 million, i.e. 8.0 %, compared with the previous year, as a result of implementation of projects aiming to change the philosophy of customer relations management and improving the key servicing processes, which in the long term are to led to higher effectiveness of the sales network.
In 2014, the operating profit in the mass-market insurance segment amounted to PLN 756.5 million (a 29.1% decrease compared with the prior year). The acquisition of Link4 had a negative impact on the result in 2014. It contributed to the segment’s result from the moment of its acquisition and caused the increases in particular items in the operating result. After the effect of this change has been eliminated, in 2014 the operating profit in the corporate segment was PLN
The following factors primarily had a key impact on this segment result in 2014: • gross written premium was PLN 6,569.5 million, i.e. it increased by 0.5 % compared with the previous year
(after excluding Link4’s share, a 1.4 % decline). In this, the motor TPL premium was lower by 1.1 % as a result of price pressure from the competition. The effect was partially offset by higher sales of insurance concerning damages caused by forces of nature (an increase of PLN
O th er s o pe ra tin g re su lts
PLN 18.8 million) – mostly household insurance because of the upsale of the basic types of risk (movable to immovable property and the other way around) and TPL insurance as additional insurance. The premium earned amounted to PLN 6,563.0 million and was 0.2% higher than in the previous year, which is the result of recognition of the premium from Link4 in the 2014 result (after excluding
Link4’s share, the premium earned declines by 1.6 p.p.); • investment income allocated at transfer prices to the massmarket insurance segment amounted to PLN 562.8 million
(1.1% increase compared with the prior year); • claims and benefits were at the level of PLN 4,363.4 million, i.e. they increased by 4.1% in relation to 2013
A deterioration of the results with respect to the previous year was brought about by higher amount of claims and benefits in the motor insurance, determined mainly by an increase in the technical provisions for bodily injury claims, including claims concerning pain and suffer claims pursuant to Article 448 of the Civil Code for the damages incurred before 3rd August 2008 (justification of the judgement of the Supreme Court of 2014 – catalogue number III CZP
2/14). What is more, the claims caused by forces of nature
(mostly frost) was higher in agricultural insurance and had a negative impact. The adverse events were partially offset by a lower level of mass claims in non-life insurance and a low level of individually significant claims; • acquisition expenses amounted to PLN 1,238.9 million, i.e. they were 8.5% higher compared with the previous year. The primary type of costs that increased were direct costs which grew mainly as a result of a change in the commission rates for motor insurance packages; • administrative expenses which amounted to PLN 617.5 million, increased by 12.9% compared with 2013. The higher costs were caused by the implementation of projects aiming to change the philosophy of customer relations management (customer centricity). The increase applies mainly to the IT and personnel costs, as well as the costs of customer service training.
What is more, a one-off event from 2013 had a significant impact on comparability of the results, the event in question being the one-off gross profit on the settlement agreement with the reinsurer on the Green Card insurance of PLN 53.2 million (of which PLN 73.3 million was recognized in the reinsurance commission and the shares in the profits).
The operating profit of the group and individually continued insurance amounted to PLN 1,761.8 million and was 9.9%
In 2014, a stable growth trend was maintained as a result of the development of group protection insurance
(an increase in the average premium and in the number of insured, including new sales), upsale of riders and an increase in the sum insured in individually continued products, the acquisition of premiums in group health insurance (new customers in outpatient insurance and development of drug products); • investment income – comprising allocated income at transfer prices and income from investment-type products
– amounted to PLN 713.3 million, i.e. it declined by 3.0%, mainly due to decline of the income allocated at transfer prices as a result of low market interest rates used as the basis for calculating income from portfolios replicating insurance liabilities; • net insurance claims and benefits amounted to PLN
4,499.4 million (a 4.6% increase). The main reason was the transfer of assets from the insurance policy of the
EPP policy of the PZU’s employees to the EPP scheme run by TFI PZU (PLN 141.3 million, offset by a change in mathematical provision – a neutral impact on the result)
Office’s (GUS) data concerning the increase of the number of deaths in Poland in January 2013; • increase in other net technical provisions amounted to PLN
70.3 million. The increase in provisions was by PLN 200.6 million lower than in the previous year. The main reason for that was the decline in the mathematical provision in the pillar III pension product (EPP) in comparison with the increase in the previous year which resulted from the transfer of assets from the PZU’s employees’ policy to the TFI PZU. Additionally, PZU Życie, in the course of the annual process of establishing the ratio of possible indexation of the sum insured by the clients of continued insurance, made a decision to lower said ratio in relation to the low market interest rates and a low level of inflation.
Moreover, 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 69.9 million were released, i.e.
they increased by 10.5%. A higher portfolio of contracts and an increase of the broker and agency channels’ share in the portfolio, and in the case of bancassurance, also changes in the contract’s terms and conditions, were the factors determining the increase in direct and indirect acquisition expenses in group protection insurance; • the segment’s administrative expenses amounted to
PLN 543.0 million and the previous year’s level was maintained; • year-on-year improvement of the result in other revenues and expenses by PLN 87.7 million was caused by lack of the
Życie financing the premium (lower promotional sales of additional insurance policies to individually continued insurance).
In 2014, the operating result of the individual life insurance segment amounted to PLN 162.8 million, i.e. it was 16.4%
higher than in the prior year. The main factors affecting the level of the segment’s operating result were: • gross written premium of PLN 1,268.6 million, i.e. 4.6%
Company’s own sale channels (high new sales and the introduction of a new additional insurance Pomoc od
MARKET IN POLAND CHAPTER 3.3) and higher than in the previous year sales of the structured product Świat Zysków; • investment income consists of income allocated at transfer prices and income from investment-type products. In the individual insurance segment the income increased y/y by
(maturity dates reached for the subsequent product tranches) and higher redemptions of unit-linked bank products (an increase of the portfolio y/y). Both these effects had a neutral impact on the result – they are offset by an adequate change in the mathematical provision. These increases were partially offset by lower than in the previous year redemptions from the individual pension accounts (IKE) and a decrease in the endowment disbursements from old policies in the individual endowment portfolio underwritten in 1990s (an expiring portfolio); • increase in other net technical provisions being lower than in the previous year. They increased by PLN 611.1 million, which was PLN 101.3 million less than in 2013. The lower increase was connected with decreased provisions in structured bank products (compared with the increase in the previous year), which was the result of lower sales of these products (compared with the previous year) and simultaneous higher disbursements related to reaching the maturity dates of the policies. A similar effect was observed in the unit-linked products; • increase in acquisition expenses. These amounted to
increased by surplus of investment income over the risk-free rate corresponding to the value of technical provisions of
PZU and PZU Życie in non-investment products. Additionally, the „Investments” segment includes income earned on other excess cash on other excess cash in PZU Group.
◦ decrease of PLN 28.8 million in fee from contributions mainly due to the statutory decrease in the rates from 3.5% to 1.75% as at February 1st 2014; Operating result in individual insurance segment
PLN 5.3 million as a result of lower net assets of OFE
PZU at the end of the fourth quarter of 2014; ◦ increase of PLN 1.9 million in revenue from the reserve account.
February 1st 2014 as well as the resignation from the additional compensation for the transfer agent due to the fulfilment of objectives related to improving the quality of provided services. The fees on premiums transferred by the Social Insurance Institution (ZUS) to OFE were lower by PLN 6.2 million due to statutory changes regarding the amount of fees and premiums. The decrease in personnel costs by PLN 1.7 million was caused by a lower level of employment and the change in the remuneration system.
Additionally, the costs of obligatory additional payments to the Guarantee Fund in the Central Securities Repository of
Ukrainian currency, the choice was made to present the data in this segment in the currency in which the companies report their results.
N et c la im s a nd be ne fit
In 2014, the non-life company paid UAH 155.5 million claims, i.e. 6.7% more than in the prior year.
197.7 million compared with UAH 160.7 million in the prior year. Their level was the result of an increase in the written premium for the property, motor and travel insurance which are characterised by higher commission charges; • increase in administrative expenses. They amounted to
UAH 106.7 million. For comparison purposes, in 2013, the administrative expenses of the segment amounted to UAH
92.4 million. A the same time, the administrative expenses ratio calculated with net premium earned improved slightly and amounted to 20.7% (a decline by 0.3 p.p. compared with the previous year).
PLN 9.3 million (from PLN 15.6 million in 2013). The lower results in this segment were caused by lower revenue on investments and deposits in non-life insurance, together with the combined ratio remaining at the similar level as in the previous year and a significant depreciation of the currency.
Due to the new companies acquired by PZU Group in this region, the data for this segment for 2014 include the data from all companies, including the newly-acquired ones.
FOREIGN OPERATIONS CHAPTER 3.6. For 2013, on the other hand, we present only the data of the companies which had been consolidated up to the end of 2013: non-life and life companies (PZU Lithuania and PZU Liethuania Life).
16.3 million in the Baltic states in 2014, compared with PLN
0.9 million of the operating profit in the prior year. The gross result was negative and amounted to minus PLN 32.1 million.
The result arose from the following factors: • increase in gross written premium. It amounted to PLN
(increased by 18.8%) In life insurance, the largest sales increase was recorded in traditional life insurance, which were higher by 30.3% compared with the previous year and in unit-linked insurance (an increase of 4.6% compared with the previous year); • increase in the net investment result. In 2014 the result amounted to PLN 14.6 million and was 124.5% higher than in the previous year; • increase in net claims and benefits. They amounted to
PLN 312.2 million, with the share of claims and benefits of the companies non-consolidated in the previous year in the total claims and benefits amounting to 42.9%. The non-life insurance company presented in the previous year, as a result of the increase in technical provisions, recorded an increase of 28.5% in the value of claims and benefits, which was foremost the result of an intense development of branches on the Latvian and Estonian market. On the other hand, in life insurance the value of claims was by 26.6% higher than in the previous year due to the increase in technical provisions (the technical rate was lowered); • increase in acquisition expenses. The respective expenses of the segment amounted to PLN 115.4 million, including
Ad m in is tr at iv e ex pe ns es o pe ra tin g re su lts
The consolidated statements present the investment contracts in accordance with the requirements of IAS 39.
PZU Group earned PLN 15.1 million of operating profit compared with PLN 11.3 million in the previous year (increase of 34.2%) on investment contracts, i.e. PZU Życie’s products which do not transfer significant 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 unitlinked products).
than the in 2013, mainly in the bancassurance unit-linked products and endowment insurance products, as the effect of lower investment level; • higher value of net claims and benefits resulting from an increase of redemptions of unit-linked products in the bancassurance channel. They amounted to PLN 1,391.7 million, i.e. they were 4.7% higher than in the previous year; • higher negative balance of net technical provisions. This amounted to PLN 1,015.5 million compared with PLN 172.3 million in the prior year. This difference arose mainly from the changes in the cover portfolio of short-term investment endowments, sold mainly through the bancassurance channel, i.e. lower sales and revenue from investing activities, together with a comparable level of endowment disbursements; • lower acquisition expenses. These amounted to PLN 16.5 million, i.e. they were 10.1% lower than in the prior year.
This was the effect of a decline in the sales volume; • lower administrative expenses. These amounted to PLN 9.7 million and declined by 14.6% compared with 2013 – the result of a decrease in the contracts portfolio; • change in the other revenues and expenses category
Return on Equity (ROE) (annualised net profit / average equity) x 100%
Return on assets (ROA) (annualised net profit / average assets) x 100%
Administrative expense ratio (administrative expenses / premium earned net of reinsurance)
2. Claims ratio net of reinsurance (net claims paid / net premium earned) × 100% 70.3% 68.7% 76.3% 68.6% 73.1%
5. Administrative expense ratio (Administrative expenses / premium earned net of reinsurance) x 100%
6. Combined ratio in non-life insurance (claims + costs of insurance activity / premium earned net of reinsurance ) x 100%
The main elements of risk management are consistent for all companies of PZU Group and implemented in a way which ensures the implementation of strategic plans of individual companies and ensure business objectives of the whole PZU
The risk management system of PZU Group is based on: • organisational structure – containing division of responsibilities and tasks performed by management bodies, committees as well as organisational units in the risk management; • the risk management process, including the methods of identification, measurement and assessment, monitoring and control, reporting risk and taking management action.
The first three are as follows: • the Supervisory Board, which oversees the risk management and assesses its adequacy and effectiveness as part of its decision-making powers defined in the company’s Articles of Association and the Supervisory
The risk appetite determines the maximal level of acceptable risk when setting individual partial risks limits and restrictions which, when exceeded, results in taking actions necessary to limit further risk growth.
These activities encompass among others risk mitigation, risk transfer, risk avoidance, specifying risk appetite, acceptance of risk tolerance levels, as well as tools which facilitate such activities, i.e. thresholds, reinsurance plans and reviews of underwriting policy.
the risk management system in PZU Group and prevents risk acceptance at a level which could pose a threat to the financial stability of individual companies or the entire PZU Group. The company’s Management Board is responsible for determining the appropriate risk level for that company, whereas the risk unit reviews the level risk appetite once a year and all the activities are coordinated at the level of the Group.
Boards of the companies and with management of such areas as finance, risk, actuary, reinsurance, investment.
Moreover, the new companies have already adopted and implemented the risk management model of PZU Group and all incidents are constantly analysed and monitored.
The main types of risks incurred by PZU Group include insurance risk, market risk, credit risk, concentration risk, operational risk and compliance risk.
It 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.
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 PZU should accept a risk for insurance and assume liability. The aim of the risk assessment
102MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 information are tailored to meet the information needs at different decision-making levels.
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 unit responsible for risk management, which identifies and assesses the market risk on this basis.
The process of identifying market risk related to insurance liabilities starts simultaneously with the process of creating an insurance product and involves identifying the relationship between the amount of cash flows associated with this product and the market risk factors. Identified market risks are assessed in terms of materiality, i.e. based on whether the materialization of a risk would be related to a loss that could affect the financial position.
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: • for the measures of exposure and sensitivity of instruments; • by using a partial internal model.
Monitoring and control of the market risk involves analysing the risk levels and the utilization of limits.
Management actions regarding market risk include, in particular: • concluding transactions to mitigate market risk, such as selling a financial instrument, closing out a derivative transaction 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; • setting market risk restrictions and limits.
Concentration risk measurement for a single entity is calculated as the product of the following two values: • the amount of exposure to this entity over the excessive concentration level; • the concentration risk ratio set for every internal rating.
Monitoring and controlling of the credit and concentration risk involve analysing the current risk level, assessing creditworthiness and determining the level of utilization of the limits set.
Management actions with respect to credit risk and concentration risk include, in particular: • setting limits of exposure to a single entity, group of entities, sectors or states; • diversifying a portfolio of financial assets and insurance, mainly with respect to the state, sector; • accepting security; • concluding transactions aimed at mitigating credit risk, such as selling a financial instrument, closing out a derivative transaction or purchasing a hedging derivative, restructuring of the granted debt; • reinsuring a financial insurance portfolio; The structure of credit and concentration risk limits for the individual issuers is determined by dedicated Committees in line with the risk tolerance.
Identification of the operational risk is carried out, in particular, by means of: • collecting and analysing information on operational risk incidents; • operational risk self-assessment.
Assessment and measurement of the operational risk is carried out by means of: • identifying the results of operational risk incidents;
• estimating the results of potential operational risk incidents which may occur in the course of business activity.
Compliance risk is assessed and measured by determining the effects of materialization of the following risks: • financial, resulting from administrative penalties, court verdicts, 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 internal regulations from the point of view of compliance, participating in the process of agreeing marketing activities; • avoiding risk through the prevention of involvement in activities which do not comply with the regulatory requirements or good market practices or which could have an adverse effect on their image.
Changes in the assumptions to the net capitalized annuities in non-life insurance (PLN million)
Mortality at 90% of the currently assumed rate (144) (141) (144) (141)
Changes in the assumptions for annuities in life insurance (PLN million)
Mortality at 90% of the currently assumed rate (12) (13) (12) (13)
Financial assets exposed to exchange risk include deposit transactions and debt instruments used to hedge payments from technical provisions denominated in foreign currencies, as well as exposures to equity instruments listed on stock exchanges other than 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.
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 of loss contract and to the consequences of large one-off losses by non-proportional excess of losscontracts protecting property, technical, marine, aviation, TPL and MTPL portfolios.
Outward reinsurance contracts concluded by PZU Życie protect PZU Życie’s portfolio against the accumulation of risks
(catastrophic treaty), protect individual policies with higher sums insured and protect the child’s serious illness group insurance portfolio.
RGA, Partner Re and Arch Re are the partners which provide reinsurance coverage to PZU Życie. Reinsurance partners have high S&P ratings, which gives PZU Życie the certainty of the reinsurer’s good financial standing.
Lietuva, PZU Ukraina and the companies acquired in the course of the year (Lietuvos Draudimas, AAS Balta, the
Estonian branch of Codan and Link4), have reinsurance coverage that matches their business profile. Every significant insurance portfolio is secured by an treaty contract, usually non-proportional. PZU coordinates the cover of the Group’s companies and in 2015 it will become the main reinsurer of the subsidiaries.
Reinsurance premium from PZU obligatory contracts as per Standard & Poor’s rating
In accordance with the Act on Insurance Activity GLOSSARY, an insurance company with its registered office on the territory of Poland is obliged to maintain its own funds at an amount of no less than the solvency margin and no less than the guarantee capital. Because of the lack of regulations defining the calculation of the solvency margin and the amount of own funds for the Group, PZU applies a ratio calculated on the basis of the unit solvency margins and own funds (using
PZU also maintains assets for covering technical reserves in excess of the required level. At the end of 2014, the assets to technical provisions ratio amounted to: 118,3% for PZU
Amount of PZU’s own funds (in PLN million) 7,981 9,506 10,956 9,192 9,593
PZU’s solvency margin coverage with own funds 585.9% 697.7% 815.3% 686.6% 716.6%
Since PZU’s debut on the Warsaw Stock Exchange in May 2010, our share price has been rising faster than the major market indices. Every year, we pay dividends to our investors. We create the value of PZU also through active communication with capital market participants. We build trust and take care of good relations.
As far as events in Poland are concerned, the biggest influence on the share prices had the reform of the pension system REGULATIONS ON THE INSURANCE MARKET IN
Evolution of PZU’s share price (%) compared to MSCI indexes (USD)
In 2014 there was still a boom on the market of Polish treasury bonds, which was in line with the general European trend. The lower inflation and the Monetary Policy Council’s decision to reduce the interest rates constituted a support for the declining yields of the Polish Treasury instruments, especially the ones at the long end of the yield curve
In the face of the events on the global markets, 2014 did not bring any spectacular profits to the stock exchange investors on WSE. The average price/profit ratio for all the shares of domestic companies from the WSE’s main market at the end of December amounted 19.7. WIG index increased of mere
* Quotations since 12 May 2010 (PZU’s IPO) Source: Reuters dividends). The companies with lower capitalisation achieved even worse results. WIG250 recorded a -18% decline compared with 2013. During 12 months of the previous year only 4 out of 11 sectoral indices recorded any increase. WIG-
Energy recorded the highest increase (by +23.6%). WIG-Food recorded the highest decrease (by -20.0%).
IPO of PZU on the Warsaw Stock Exchange on 12th May 2010 and since its debut it has been included in the WIG20 index.
With capitalization of nearly PLN 42 billion at the end of 2014,
PZU was also included in the following indices of the WSE: WIG, WIG30, WIG-Poland, RESPECT Index and WIGdiv.
Since 2012 PZU’s shares are also included in the sustainable development index CEERIUS GLOSSARY.
PZU was in the top five companies in the WIG20 index with the highest rate of return in 2014. Taking into account PLN 20 of additional dividends from the surplus capital (paid in 2013 in the form of an advance from the profit for 2013), the rate of return from the PZU shares would increase to the level of 20.3%.
During the session on 8th September 2014, the PZU’s share price exceeded the barrier of PLN 500 for the first time
It is worth noting that the price of PZU’s shares in the IPO
taking into account PLN 143.04 of the accumulated dividends was 101.3%.
PZU’s shares are characterised by a high level of liquidity. At the end of 2014, 59,8% shares were in free float. The average number of transactions per session was 2 495 (an increase by 5.3% y/y). Average daily turnover per session declined. In 2014, it was 163,5 thousand units, which means a drop by 13.1% in comparison to 2013. The highest trading volume
The PZU’s share’s good results were undoubtedly influenced by the consistency with which the Management Board of PZU
(P/BV) Market price per share / book value per share 3.19 2.95 2.64 2.07
(P/E) Market price per share / earnings per share 14.14 11.77 11.60 11.38
Capitalisation at the end of the period (PLN million) 41,954.10 38,755.75 37,735.96 26,682.86 112MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
implementation of PZU’s strategy was acquisition in 2014 insurance companies in Baltic States and Poland. After this transaction was announced (in April 2014), PZU price increased by 3.6%, which resulted in an increase in the market capitalization of PLN 1.3 billion.
High dividends (paid annualy), guaranteeing an attractive dividend rate, also had a positive impact on the share prices.
PZU paid the highest dividend to date from the profit from 2013 (PLN 54 per share).
On 3rd July 2014, PZU Finance AB (a 100% subsidiary of
EUR 99,407. Standard & Poor’s awarded these bonds a senior unsecured rating at “A-”, that is, an investment grade.
The bonds were released on the regulated market of the Irish
1 On 7th July 2014, there was a loan agreement concluded on which basis PZU Finance AB granted PZU a loan in the total amount of EUR 500 million. The loan will be paid back on 28th June 2019
Direct claims handling procedure (TPL) Signing the agreement with RSA Acquiring Orlen Medica and Prof-Med
The last day which entitled to receive the right to a dividend (in accordance with a settlement cycle T + 3)
The margin over mid-swap rate (the curve, which constitutes the average of the bid and ask curves for fixed-coupon bonds corresponding to the period of redemption of the bonds)
In order to meet the highest information governance requirements for public companies and fulfilling information needs of different groups of stakeholders, the Management Board of
PZU undertakes various investor relations activities aimed at improving transparency of the company. Therefore, PZU has consistently applied „Principles for PZU to
PZU creates value through proactive communication with capital market participants, building trust and caring for good relationships.
of the share capital) and Aviva OFE Aviva BZ WBK (5.00% of the share capital). SHARE CAPITAL AND SHAREHOLDERS OF
PZU eurobonds yield compared to Polish treasury eurobonds with matury date in 2019
Source: Reuters 114MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
The financial performance of PZU Group (for 2013, Q1 2014, 1H 2014 and Q3 2014) were presented and discussed by the Management Board of PZU during meetings with capital market analysts (all also broadcast live on the Internet).
In 2014, PZU first time presented on-line annual report with the most important events, achievements and plans.
In 2014, representatives of PZU participated in: • 3 non-deal road show in Boston (USA), Edinburgh (Great
(USA); • 13 financial conferences held abroad with global institutional investors; • 2 conferences for institutional investors in Warsaw; • a number of group, one-on-one meetings and teleconferences with investors and stock portfolio managers held in PZU office.
In 2014 PZU continued also communication activities addressed to the large group of individual investors. With them in mind, we: • participated in 2 conferences for individual investors organized in Poland by Individual Investors’ Association
Professional Investor Conference 2014 in Zakopane; • organized 4 chats with individual investors, in which the
days spent on conferences and roadshows days spent by the management on meetings with investors
Best for IR awarded to Piotr Wiśniewski who manages investor relations in PZU.
WSE magazine “Parkiet”. The survey of investor relations was conducted in the WIG30 companies by “Parkiet”,
Capital Market Hero in the second edition of this survey held by Individual Investors’ Association (SII) among its members. The association awarded companies that meet top standards in communication with individual investors and individuals who contributed to the building of knowledge of the capital market and its transparency.
495 and was higher by 11.2% compared with the beginning of the year. The maximum target price was PLN 527 and 1.4%%
in the medium and long term in the conditions of low interest rates and the effects of the implementation of Solvency II
Analysts’ forecasts towards quote of PZU shares in 2015 based on current recommendations at the end of
Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15
Sell Underperform Neutral, hold Outperform Buy PZU's share price MAX MIN Average
MIN TP PLN 395 118MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
GLOSSARY and is based on the following principles: • maintaining the own funds of PZU Group, excluding the subordinate debt, at the level not lower than 250% of the solvency margin (according to Solvency I GLOSSARY of
PZU Group, including the subordinate debt, at the level of about 400% of the solvency margin (as at the end of the financial year) in order to maintain the financial security of the Group; • maintaining assets to cover the provisions of individual companies of PZU Group at a level no lower than 110%; • obtaining an optimal financing structure by replacing the capital surplus with subordinated debt up to an amount no higher than PLN 3 billion, not to exceed a 25% own funds to cover the solvency margin as referred to in article 148 of the Insurance Activity Act GLOSSARY.
Poor’s AA rating; • providing funds for development and acquisitions in upcoming years; • no equity issues by PZU in the upcoming years.
Evolution od PZU’s share price (%) compared to selected indices * Quotations from 12 May 2010 (PZU IPO at WSE).
payment. The supervisory body recommended that the insurance companies continue their prudent dividend policy using the generated profit to enhance their capital standing.
The supervisory body recommended the dividend to be paid only by insurance companies that meet all the set financial criteria.
Given the payment made on 19th November 2013 on the account of advance payments towards the dividend expected at the end of 2013 in the amount of PLN 1,727 million, i.e.
PLN 20.00 per share, the remaining part of the dividend payable for the year which ended on 31st December 2013 amounted to PLN 2,936 million, i.e. PLN 34.00 per share.
Following the recommendation regarding dividend payment by insurance companies from profit generated in 2013, the
PZU’s standalone net profit (PLN million) 2,636.7 5,106.3 2,580.7 2,582.3 3,516.7
Dividend rate in the year (%) ** 7.0% 11.1% 5.1% 8.4% 3.1%
Divident paid by PZU from profits of 2010-2013 supervisory body issued a recommendation regarding the payment of dividend from 2014 profit. In a letter of 3rd
The supervisory authority has recommended that dividend should be paid exclusively by insurance companies that meet designated financial criteria and that the payment of dividends should be limited to a maximum of 75% of the profit generated in 2014. The coverage ratio of capital requirements after dividends should remain at a level of at least 110%.
* Dividend payment from surplus capital in the amount of PLN 20.00 per share in 2013 year 8.7 Rating
On 26th November 2013 S&P put PZU on its CreditWatch list with a negative outlook. This was related to a change in the rating methodology linking the company’s rating with the country’s long-term rating for debts in foreign currencies to the risk of which the company is particularly exposed.
In the announcement of 25th March 2014 the S&P agency confirmed PZU’s rating position at the level of A with a stable outlook. It means that PZU successfully went through the rating process based on new criteria and currently has the financial strength rating higher than the rating for Poland for debt in foreign currency.
for unsecured debt to the eurobonds issued by PZU Finance AB.
Financial strength rating A /stable/ 25th March 2014 A /CreditWatch/ 26th November
15th January Payment of the second tranche of the dividend for 2013 PLN 17 per share 17th
As a socially responsible financial institution, PZU Group includes a broad range of ethical, social and environmental issues in its business operations.
Investment Universe). CEERIUS is an index of Wiener Börse for Central and Eastern European (CEE) companies.
PZU and include mostly the following areas: • client relations - ethics of cooperation as the basis of client relations; top service standards; • social actions, including care for financial awareness and complex security; • employee relations: building performance-oriented organizational culture; • environmental impact, in particular including employee education.
implementation of direct claims handling; • customer service quality survey – PZU regularly carries out surveys examining the quality of customer service in PZU
Conclusions from the survey were used to prepare trainings in customer service quality in which 2 thousand agents and partners of PZU took part in 2014; • Client Council – an exceptional advisory body composed of
PZU customers. The Council actively supports and provides feedback to PZU in selected initiatives, concerning, among others, service quality, manners of communicating with clients, service processes, marketing materials, social actions.
• social media and customer complaints – They are actively used by the company to identify areas for improvement; • quality audits of communication with customers – The audit of spoken and written language used by PZU employees in communication with customers, which was carried out by the Plain Polish Section of the University of Wrocław, became the basis for a number of initiatives and training programmes (addressed to all employees of PZU) aimed at simplifying communications; • education activities – PZU sponsors numerous educationoriented ventures, such as Akcjonariat Obywatelski project,
people trained in agent support programs spent on the statutory tasks of the PZU Fundation donations given by PZU Group for socially-relevant purposes 6 thousand 18 PLN million 33 PLN million determined, legal purposes and refraining from further processing if not compliant with these purposes.
Availability of PZU services is another important advantage recognized by clients. Most branches are located in towns up to 15 thousand of inhabitants and materially contribute to their growth.
The purpose of initiatives which we undertake is to make all employees aware of the valid procedures and desirable attitudes regarding ethics and corporate governance.
Good Practices in PZU and compliance have been included in the obligatory training module for all new hires, as part of the popularization of knowledge in the field of compliance, including, in particular, the standards adopted in PZU.
In 2014 the implemented new version of the document under the name of “Good Practices of PZU”. It is a set of internal policies, standards and practices which guide the conduct of business by PZU Group.
Good Practice of PZU promote values (being fair, innovation and efficiency) which should guide employees of PZU Group in their everyday work. It promotes the culture of compliance with the law, ethical standards and responsibility for decisions taken. The set of values and principles of conduct is binding for all PZU employees and external entities acting on behalf of
Members of PZU Group’s Companies’ Bodies” which defines the applicable standards of conduct for the members of these bodies in the context of performing their functions.
category was granted by Compliance Association Poland, for the first time on the Polish market. The jury assessed PZU as a credible and reliable organization which is guided by ethical values and has an effective compliance system
Safety is another pillar supporting the trust in PZU. Safety regulations are included in the adopted documents, including the policies of PZU/PZU Życie which define: • behaviour that is not tolerated in PZU, and that should be treated as fraud, identifies procedures for employees to
130MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 follow if a fraud is detected, and most of all, things to do to prevent fraud; • all key issues regarding protection of information, i.e. all data of business or legal value for PZU, e.g. personal data, insurance secrecy; • principles and requirements connected with management of employees and resources protection and the protection of the PZU Group’s image.
In 2014 there were many training sessions organised which focused on providing information and raising awareness of the issues related to the broadly understood security and insurance fraud prevention.
The strategy defines the direction taken by the company in its operations and the most important objectives, but managers play a big role in cascading these aims. The annual assessment closely links performance to remuneration, allows for ongoing monitoring of the implementation of the main strategic goals, as well as team and individual goals at all levels of the organization; it provides structure and improves functioning of the company.
The process of annual assessment and quarterly goalsetting is constructed in such a way so that it can constitute an opportunity to agree on shared expectations between employees and managers, as well as to evaluate corporate competencies and plan development. Thanks to that, all employees know the criteria on which the assessment and expectations of their superiors are based. They know how their work is perceived. They take active part in the assessment, have the opportunity to share their opinions with their superiors and take responsibility for their individual development. Thanks to the development interviews, we prepared more than 33,000 planned development activities and only 25% of them are to be performed in the form of training courses.
The room is equipped with, i.a. a pool table, table football and x-box; • relaxing weekly tai-chi exercises in the office.
In 2014, both PZU and PZU Życie cooperated with hospitals, non-government organisations and media who carried out health-related projects. We carried out programmes which aimed to improve health and promote health prophylaxis, e.g.
In 2014, PZU supported voluntary rescue service with the aim of improving safety in the mountains and on the water. PZU
With development of medicine and operations of hospitals in mind, PZU and PZU Życie co-funded, among others: • the operations of Zdążyć z pomocą Foundation by providing funds for the purpose of buying equipment for Tomatis method therapy; • Polish Ultrasound Society (Polskie Towarzystwo
Royal Museum and National Museum in Kraków. 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. Thanks to cooperation with Bajka publishing house, PZU contributed to the publication of “Mazurek Dąbrowskiego – nasz hymn narodowy” (Dąbrowski’s Mazurka – Our National Anthem). In 2014, PZU assumed patronage over the celebrations of the 70th anniversary of the outbreak of the Warsaw Uprising.
PZU Group which are the element of its corporate community involvement strategy.
The aim of PZU Foundation is to promote education of children and teenagers, fostering talents and creating equal opportunities for people who are, for various reasons, disadvantaged, as well as to increase the access to cultural assets and social life, that is, a broadly understood development of civil society.
The Foundation provides financing of projects carried out by non-government organizations and institutions, which statutory objectives are coincident with the areas.
Its operations have focused on the following areas: • education – mostly supporting of initiatives that provide young people with equal opportunities of intellectual, professional and cultural development; • social care and assistance – including supporting, promoting and developing activity of disabled people; • culture and art – in particular supporting promotion of knowledge of Polish art and culture, artists, talented youth and organization of artistic events; • health care – in particular supporting initiatives.
Warsaw to be used for co-funding of historical workshops for students and teachers; • Fundacja Młodzieżowej Przedsiębiorczości (Youth Enterprise
In 2014 PZU Foundation was awarded for its support of science and education in the Popularyzator Nauki (Science
Group facing personal problems. In 2014, 16 organizations were awarded in Młodzi niepełnosprawni sprawni z PZU
PZU supported the Szlachetna Paczka [Noble Pack] project, organised by Stowarzyszenie Wiosna, for the third time.
Routes of Health was equipped with exercise facilities and information boards which include training plans tailored to the needs of different age groups of users.
contest to 53 organizations from small towns that organized trips for kids and youth to culture centres.
The campaign’s symbol is a blue heart, which, gifted by a dear person, is placed in a visible place in the car and remind drivers to drive safely. 3 million hearts were produced for the campaign. They were handed out in all offices and branches of
The campaign received awards in: • an international competition Magellan Awards 2014 in the corporate communication category, and it received the tile of the most engaging campaign of the year; • Best 25 – a ranking listing 25 best campaign of the last year in which PZU’s campaign was ranked second; • 21st Golden Drum Festival, where it received a golden statue in the integrated communication campaign category; • Mixx Awards, receiving an award in the image campaign category.
Filantropii w Polsce); • civic volunteering – 45 projects of PZU employees were implemented as part of the win in the Wolontariat to radość
What is more, PZU volunteers became engaged again in the celebrations of the Children’s Day as well as events organised on Santa Claus Day. As part of the Szlachetna Paczka project, the most active employees of PZU Group went through numerous training courses and coordinated preparation of the
Using electronic data carries and limiting the use of paper in business is an important aspect of this activity. In order to reduce power consumption, we install energy-saving lighting and heating systems. Waste management and aiming at its full recycling; • introducing hybrid cars to the fleet. The drive complies with the highest standard of combustion EURO 5 binding in the
European Union, and cars, with proper driving techniques, burn in the city about 4 l/100 km; • a choice of the new back office’s headquarters with attention to ecological aspects. Konstruktorska Business
BREEAM certificate. Categories assessed in the certificate include: air quality, energy and water consumption, low waste levels, the use of eco-friendly materials and providing good working conditions; • Employee education. Key initiatives include: campaigns regarding use of consumables, recycling, e.g. involving employees in collection of mobile phones and environmental campaigns.
3. Application of Corporate Governance Principles to Supervised institutions 4. Control system applied during preparation of the financial statements 5. Entity authorized to audit financial statements 6. Share capital and shareholders of PZU; stock held by members of its authorities 7. Statue of PZU
8. General Shareholders’ Meeting, Supervisory Board and Management Board 9. Remuneration of the members of Group’s bodies
The document accepted by the Resolution of WSE Council regarding amendments to the Good Practices of Companies
Listed on WSE of 21st November 2012 has been effective since 1st January 2013. The current contents are available on the website devoted to corporate governance of WSE- listed entities WWW.CORP-GOV.GPW.PL and on the PZU’s corporate website (www.pzu.pl) in the section dedicated to PZU’s shareholders – “Investor Relations”.
Code of Good Insurance Practices adopted on 8th June 2009 by the General Meeting of the Polish Chamber of
Insurance (“PIU”), an organization associating insurance companies operating in the Polish market is another document determining the manner of business operations and of developing relations with stakeholders. The document is available on the website: Further, stakeholder relations are based on our internal PZU
Code of Good Practices. The document is available on the website: On 22nd July 2014, Polish Financial Supervision Authority issued Corporate Governance Rules for Supervised Institutions
The following issues mentioned in section I of Good practices of companies listed on WSE defining Recommendations concerning good practices of companies listed on WSE should be emphasized: • as for the recommendation included in Section 1.5 concerning the policy of remunerating members of management and supervisory bodies, remunerations of members of the Supervisory Board are determined by the General Shareholders’ Meeting and those of the
• the policy of remunerating members of the management and supervisory bodies of PZU does not include all elements indicated in the recommendation of the
• as for the recommendation specified in Section I.9 concerning gender parity principle to be followed in the
meetings applicable in PZU allow for exercising rights from shares and protect interests of all shareholders.
December 2007 regarding partial waiver of the obligation to publish reports on corporate governance adopted on the WSE
can be found on PZU’s website. That includes the principles whose application is partial, that is: • in relation to the principle contained in § 8.4 of the
Principles, facilitating the participation of all shareholders in the General Shareholders’ Meeting i. a. by ensuring the active electronic participation in meetings; it should be emphasized that the current shareholders of PZU can follow the broadcast of the meeting, but the Company decided not to introduce the so-called e-GSM; in the assessment of
PZU, there are many technical and legal factors that could affect the proper conduct of the General Shareholders’
GLOSSARY and the Articles of Association of PZU, there is a separate function of a chairperson in the Supervisory
Act on statutory auditors GLOSSARY; the election of the chairperson of the Supervisory Board is made on the basis of their knowledge, experience and skills, which confirm that the chosen person has the competencies necessary for the proper performance of their supervising duties; the application of the criterion of independence in the case of the chairperson in accordance with the PFSA’s explanation
140MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 of the principle may raise doubts about the potential conflicts of law relating to shareholders’ rights; • in relation to the principle specified in § 49.3 of the
Good Governance Principles concerning appointment and dismissal in supervised institutions of the person heading the internal audit unit or the person heading the compliance unit, it should be noted that PZU complies with the principles specified in § 14 of the Principles fully, which means that PZU’s Management Board is the only one entitled to and responsible for management of the operations of the company; furthermore, in accordance with the provisions of the labour law, the activities related to the labour law are performed by the governing body; in view of the above, PZU adopted a solution according to which the decision about appointment and dismissal of the person heading the internal audit unit is made, taking into account the opinion of the Audit Committee of the
– there is both an internal audit unit and a compliance unit in PZU; • rules specified in Chapter 9 – Execution of Rights Resulting from Assets Acquired at Client’s Risk, as PZU offers no products which involve managing assets at client’s risk.
• 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.
Finance Division in the PZU and PZU Życie Head Offices which is shared, i.e. organized based on a personal union. PZU
Auditors as the entity authorized to audit financial statements, with whom an agreement on audit and review of financial statements will be concluded.
The work referred to above will include three subsequent financial years ending, respectively, on: 31st December 2014, 31st December 2015 and 31st December 2016 with an option to extend the agreement for further two financial years ending, respectively, on: 31st December 2017 and 31st
10.6 Share capital and shareholders of PZU; stock held by members of its authorities
The share capital of PZU is divided into 86,352,300 ordinary shares with the face value of PLN 1 each, giving right to 86,352,300 votes on the General Shareholders’ Meeting.
WBK holding 4,317,691 shares, i.e. 5.00%% of the share capital of PZU and the right to 4,317,691 votes at the General
There was one significant change in the ownership structure of blocks of PZU shares in 2014.
(“Aviva OFE”), informing that as the result of the transaction of purchase of the Company’s shares on 22nd May 2014, as at 27th May 2014, Aviva OFE increased its volume of shares held in the Company to 5.0% of PZU share capital, which constitutes 5.0% of the total votes at the General
In 2013 and 2014 no employee stock ownership plans existed in PZU.
For the purposes of voting rights restrictions, the votes of the shareholders being parent companies or subsidiaries will be added up in line with the principles specified in the Articles of
In case of any interpretation doubts with respect to the voting restrictions, Article 65.2 of the Civil Code will apply GLOSSARY.
Code and the Articles of Association of PZU, include passing resolutions concerning the following: • examination and approval of the Management’s Report, financial statements for the previous financial year and acknowledgement of the fulfilment of duties by members of the company’s authorities; • profit distribution or loss coverage; • making decisions concerning claims for redressing damage inflicted upon formation of the Company or exercising management or supervision; • disposal of the enterprise or its organized part or its lease or establishment of a limited property right; • redemption of shares or issue of bonds; • creating reserve capitals and making the decision whether to use them and if so, how; • division of the company, its combination with another company, its liquidation or dissolution; • appointing and dismissing members of the Supervisory
Meeting is required to pass resolutions relating to the following: • preference shares; • issuer’s business combination by transferring all its assets to another company; • its merger by forming a new company; • 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.
The General Shareholders’ Meeting is held: • as an Ordinary General Shareholders’ Meeting which should be held within six months from the end of each financial year; • as an Extraordinary General Shareholders’ Meeting which is convened in cases specified in the generally applicable law and the Articles of Association.
The General Shareholders’ Meetings are held in Warsaw and convened by placing an appropriate announcement on
Shareholders’ Meeting is deemed valid regardless of the number of attending shareholders or number of represented shares.
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
The General Shareholders’ Meeting may adopt resolutions regardless of the number of attending shareholders or number of represented shares. Resolutions are passed in an open ballot. The secret ballot vote is used when appointing and dismissing members of the issuer’s bodies or liquidators, in cases of their personal responsibility towards the issuer and in personal cases, except when an open ballot method is required by the applicable law, upon request
Only persons who were shareholders of the issuer 16 days before the date of the General Shareholders’ Meeting have the right to participate in the Meeting (date of registration of attendance at the Meeting). Shareholders may attend 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.
One share of PZU gives the right to a single vote at the
General Shareholders’ Meeting, including restrictions with respect to exercising the voting rights described in the
Company’s Articles of Association. The shareholder has the right to vote in a different manner under each share held.
The Supervisory Board is composed of seven to eleven members. The number of members is specified at the General
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. Furthermore, at least one member of the Supervisory Board should meet the independence criteria specified in the Articles of Association (Independent Member) concerning e.g.
Independent Member has to present a written statement that all independence criteria provided for in the Articles of
Supervisory Board of the company Waldemar Maj, the former chairman of the Supervisory Board, as well as Dariusz
Aleksandra Magaczewska – Chairperson of the Supervisory Board of PZU SA
Silesia. The President of the Management Board of the Industrial Development Agency. Aleksandra
Director of the Mining Department, she was responsible for the state aid for the mining companies.
Kraków. An academic teacher and a professor of criminal law at the Jagiellonian University and the School of Law and Public Administration in Przemyśl/Rzeszów. Since 1988, he has been a partner in one of the leading law firms specialising in business law T. Studnicki, K. Płeszka, Z.
School Programme. He has completed numerous training courses in finance and management. He has many years of experience working in middle and senior management positions, including i.a.: the Deputy Head of the Marketing Department in Polski Bank Inwestycyjny; the Deputy Head of the
Promotion and Information Department in PKO BP SA, and the Deputy CEO of Bank Pocztowy SA.
In 1973, he began working as a lecturer at the Faculty of Economics of the University of Gdańsk; since 1992 he has been professor extraordinarius. He was a visiting professor at the Centre for
Russian and East European Studies (CREES), University of Michigan, Ann Arbor (USA) in 19921995 and a lecturer at the Central European University in 1998-2001. In 1980s, he contributed to the underground political publications and published commentaries in The Wall Street Journal.
Since 1988, he has cooperated with the editorial team of the quarterly Przegląd Polityczny.
In 2004 – 2010 he served as a Member of the Monetary Policy Council of the National Bank of
Poland. From March 2010 to December 2014 he was a Member of the Economic Council to the
School of Economics (former SGPiS) and the post-graduate MBA program at the Leon Koźmiński
University. Furthermore, Dariusz Kacprzyk is a graduate of IESE – University of Navarra, Advanced
Management Program. He has worked in the banking industry for more than 25 years. He has gained knowledge and experience while holding managerial positions in leading financial institutions on the Polish market. In 2011 – 2013 he served as the CEO of Bank Gospodarstwa
Krajowego, and before that, he worked in BRE Bank SA as the Director of the Corporate
Cooperation Department while simultaneously sitting on the Bank’s Management Board’s Credit
Director of the Corporate Banking, Real Estate Financing and International Markets Division and as a Member of its Credit Committee. He also worked in Bank BPH SA and Powszechny
He is a doctor of economics and a graduate of the Warsaw School of Economics and the
Poland. Since April 2012 he has held the position of the CEO of Polskie Koleje Państwowe S.A.
In 1984, he graduated from the present Warsaw School of Economics (former SGPiS) and, in 1992, from the University of Illinois at Urbana - Champaign, USA, M.A. in the field of economics.
In 1993, he completed studies in banking, finance and capital markets at Exeter University,
Economics at RUCA. In 2002, he gained the title of Professor of Economics. He has won a number of prestigious awards, including Rector Award for Scientific Achievements (annually since 1997), Award of the Minister of Education for a book “Integracja europejska. Szansa dla Polski?”
and a book titled “Banki a gospodarstwa domowe - dynamika rozwoju”. Member of numerous scientific organizations and professional editing boards of periodicals, among others a member of Foundations of Management, the Editor in Chief of Journal of Interdiscciplinary Economics,
Yearbook on Polish European Studies, Mazovia Regional Studies, Gazeta Bankowa and a reviewer in PWE SA Warszawa editing company. A long-term Competition Jury Member of Teraz Polska
Emblem and Scientific Council Member. He gained his professional knowledge and experience working as the Head of International Business Relations Section at Management Faculty,
University of Warsaw, the Head of National Economy Unit at Management Faculty, University of
Warsaw, the Director of European Centre at University of Warsaw, the Deputy Dean in charge of foreign cooperation at Management Faculty, University of Warsaw, the Dean at Management
University of Warsaw, a Member of the Advisory Committee NewConnect at Management Board of WSE, a Member of the Foundation Council of the National Bank of Poland, the Chairman of the
Scientific Council of the National Bank of Poland. Over the years, he held positions in supervisory boards of i.a.: PTE WARTA S.A., PKO BP S.A., JSW S.A., the Chairman and the Deputy Chairman of the Supervisory Board of EUROLOT S.A.
Problems of Technology at Wrocław University of Technology. In 1998-1990, he was a student at post-graduate Foreign Trade courses at Wrocław University of Economics; from 1990 to 1991, he was a student at post-graduate Finance courses at the same University, and in the years 19901994, he participated in Ph.D. studies at Wrocław University of Technology. Moreover, in 19951997, he participated in Master of Business Administration Program at the University of Illinois at Urbana-Champaign, USA co-organized with the University of Warsaw (M.A. in Management and Marketing). Participated in a number of domestic and foreign seminars and courses on banking, finance and capital markets. In 1991, he obtained a security broker license (in 1992, he won WSE President Award for the best broker) and in 2004 obtained a license for candidates for supervisory board members in state-owned companies. In 1991-1997, he gained professional knowledge and experience working i.a. as a securities broker, the Deputy Director in a Brokerage
Office, the Managing Director in Charge of Investment Banking in Bank Gdański S.A. From 1997 to 1999, he was the Investment Banking Director in Bank of America (Poland) S.A. In 2000-2002, he was the Managing Director in charge of investment project funding and the Vice President
Capital Group. In 2008-2013, he was the Deputy CEO in charge of finance and administration in Polska Agencja Żeglugi Powietrznej, and in 2013 he temporarily acted as its CEO. Later, he served as the Deputy CEO of the Supervisory Board of Bank Gospodarstwa Krajowego, and he currently works for the WSE Capital Group as the General Director of the Polish Power
Supervisory Board Member in Metro Warszawskie sp. z o.o., and since 2013 Supervisory Board
Advisory Committee to the Chairman of the Polish Securities and Exchange Commission (present
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 President 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 the General Shareholders’
Meeting of PZU Życie concerning: an increase and decrease in the share capital, bonds issue, disposal and lease of a
• conclusion of a material agreement by the company and its related party, as understood by the Ordinance on current and periodic information, excluding standard agreements concluded by the company on an arm’s length basis as part of its operating activities; • conclusion of the agreement by the issuer with the underwriter referred to in Article 433.3 of the Code of
Resolutions of the Supervisory Board are adopted by an absolute majority of votes. In the event of a voting tie, the
Supervisory Board, however, they cannot cast votes. In specific cases, the Supervisory Board of PZU may also invite members of the management board or a supervisory board of a different company in PZU Group. Moreover, members of 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
January 2014: • Dariusz Filar – Chairman of the Committee; • Dariusz Daniluk – Member of the Committee; • Tomasz Zganiacz – Member of the Committee.
In accordance with the Regulations of the Supervisory Board, once the company’s shares are listed on a regulated market, as understood by the Act on trading in financial instruments of 29th July 2005, the Supervisory Board my appoint a Promotion and Compensation Committee.
In accordance with the Statue, detailed responsibilities and the method of appointing members of the Promotion and
If the Supervisory Board includes five members elected in a vote, the Promotion and Compensation Committee is not appointed and its tasks are carried out by the entire
As at 31st December 2014 the composition of the Committee had not changed.
According to the regulations of the Strategy Committee adopted by a resolution of the Supervisory Board of 4th
Supervisory Board with recommendations on planned investments that materially impact the company’s assets.
established the composition of the strategy committee: • Alojzy Zbigniew Nowak – Chairman of the Committee; • Dariusz Kacprzyk – Member of the Committee; • Aleksandra Magaczewska – Member of the Committee; • Maciej Piotrowski – Member of the Committee.
The President of the Management Board of the new term appointed before the end of the current term may apply to
Management Board of the new term before the end of the current term.
Management Board has been as follows: • Andrzej Klesyk - Chairman of the Board; • Przemysław Dąbrowski - Member of the Board; • Dariusz Krzewina – Member of the Board; • Tomasz Tarkowski – Member of the Board; • Ryszard Trepczyński – Member of the Board.
The current term of the Management Board of PZU started on 1 July 2011 and will last until the end of three consecutive financial years. The mandates of members of the Management
Responsible for: • corporate management; • HR; • corporate and health insurance; • administration; • logistic; • reinsurance; • bancassurance.
Responsible for: • accountancy; • planning; • controlling; • accounting operations; • tax policy; • debt collection; • actuaries.
Responsible for: • marketing; • retail insurance; • agency sales; • innovations.
Responsible for IT. Responsible for: • risk management; • security; • compliance; • reinsurance.
Życie. In the period from September 1998 to March 2000 he was the General Sales Director and from April 2000 to August 2001 a Member of the Management Board of STUnŻycie ERGO
Clients. He has been in the Management Board of PZU since March 2007 and since August 2007 he has held the position of the Chairman of the Management Board. From 1 February 2010 to 14 March 2013 Director in PZU Group. Member of the Management Board of PZU from 15 March 2013. He is in charge of corporate governance, HR, corporate insurance, administration and logistics, bancassurance and reinsurance.
From 2003 to 2007 he was a Partner and Managing Director of The Boston Consulting Group in 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. Andrzej Klesyk graduated from the Faculty of Economy of the Catholic University of Lublin. He was one of the first Poles to complete a two-year MBA course at Harvard Business School, USA. He is a member of: the Board of Trustees of the National Museum, the Programme Board of the Institute of Public Affairs, the
Geneva Association – a non-profit organisation associating eighty Board Chairmen from top world insurance companies – as well as a member of the European Advisory Board at Harvard Business
Barbara Smalska – PZU / PZU Życie Management Board Member until 31 December
Management Board of PZU from 15 March 2013. She was in charge of marketing and innovations
Przemysław Dąbrowski graduated from Warsaw University, Information Technology Department and a Post-Graduate Management Course. He graduated from MBA studies at the University of
Illinois and from the Warsaw-Illinois Executive MBA program. He has vast experience in financial management services for the insurance sector, in managing financial investments and large financial transactions. 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
Poland. In the years 2000-2001 he was the Financial Director and a Member of the Management
February 2009 he was the Planning and Controlling Director in the Head office of PZU and PZU
Rafał Grodzicki – PZU Życie Management Board Member, PZU Group Director
February 2010. He is in charge of insurance activities, foreign operations (international activities)
Przemysław Henschke – PZU Życie Management Board Member, PZU Group Director
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 of the provider. He was one of the co-founders and creators of Inteligo, where he was the IT Architect and Project Manager of the implementation and then the CIO. He also acted as the CIO in Lucas Bank, where he managed the replacement of the banking system and IT
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.
February 2012 he was appointed a Director of PZU Group. He is in charge of IT.
Tomasz Tarkowski graduated from the Faculty of Automotive and Construction Machinery
Engineering at the Warsaw University of Technology and from the Academy of Finance (formerly
Ryszard Trepczyński graduated from Warsaw School of Economics, the Management and
Head of the Debt Instruments Portfolio Management Department. From December 2002 to June 2011, he worked at Pioneer Pekao Investment Management S.A., where he successively held the positions of the Director of Debt Securities Department, Director of the Asset Management
Tobiasz Bury – PZU Życie Management Board Member, PZU Group Director
Tobiasz Bury graduated from Warsaw School of Economics, Kellogg School of Management w
Management Board of PZU Życie and a Director of PZU Group. He is in charge of mass-market insurance, management of the network of the PZU Branches, sales channels, contact centre services and post-sale support.
The Management Board exercises all management rights which have not been reserved by the provisions of law or provisions of the Statue for the General Shareholders’ Meeting or the Supervisory Board.
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 2nd October 2012 and amended with a Resolution of the
The regulations of the Management Board determine: • the scope of Management Board’s competencies and activities that require approval or confirmation by the
Management Board; • principles and organization of Board’s activities, including its meetings and decision making procedures; • rights and obligations of Board members upon dismissal.
President of the Management Board whose powers include in particular: • defining the scope of responsibility of each member of the
Resolutions of the Management Board are adopted only in the presence of the President of the Management Board or a person designated to administer the work 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 President 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
The Statue of PZU do not provide for any special rights of the
Employment contracts concluded with the Chairman and the members of the Management Board, approved by resolution of the Supervisory Board, do not include compensation for resignation or dismissal from their positions without a valid reason, or if the dismissal results from a business combination through an acquisition of the issuer.
Separate non-competition agreements regulate among others refraining from post-employment competition with PZU in exchange for damages. In 2013-2014, PZU Group companies included in consolidation did not grant any loans or similar benefits to members of their management boards, higher level managers or members of their supervisory boards.
The bonus amount depends on the performance of the business area supervised by the given Member of the
Management Board, however, the areas that affect business results have much greater impact on remuneration than the support areas.
Group were the following: • Tobiasz Bury; • Rafał Grodzicki; • Przemysław Henschke; • Sławomir Niemierka.
Tobiasz Bury 177 1 On 06 October 2014, Barbara Smalska resigned from the position as at 31 December 2014 2 Bogusław Skuza on 27 December 2013 resigned with effective date on 31 December 2013 3 On 12 March 2013, the Supervisory Board of PZU appointed Dariusz Krzewina and Barbara Smalska to the position of Members of the Management Board effective from 15 March 2013. (additionally Dariusz Krzewina and Barbara Smalska were Directors of PZU Group respectively till 14 March 2013 and from 5 January 2013 till 14 March 2013) 4 The aforementioned amount includes a bonus for 2012 as well as remuneration for performance of other functions at PZU and PZU Życie until the date of appointment as the Group’s Director 5 Amount representing the value of benefits for 2012 granted during the term of office in PZU and PZU Życie 6 Amount representing the value of benefits for 2013 granted during the term of office in PZU and PZU Życie
The Management Board of PZU represents that the entity authorized to audit financial statements - KPMG Audyt
(European Insurance and Occupational Pensions Authority) in the context of Solvency II.
PZU Capital Group there were no agreements (including those concluded after the end of the financial year), which could result in future changes in proportions of shares held by the existing shareholders.
with a total value of EUR 500 million and the interest rate of 1.425% per year. The loan is to be paid back on 28 June 2019.
On 7 July 2014 the Issuer took a loan from PZU Finance AB, as described above. The loan was granted at arm’s length.
Evaluation of financial resources management, including the ability to meet incurred liabilities and definition of possible threats and activities, undertaken or planned by the Issuer to counteract these threats
The Issuer has a very good financial position and meets all the security requirements imposed by the Act on Insurance
PZU or its direct and indirect subsidiaries with the value of at least 10% of the equity of PZU.
As at 31 December 2014, the total value of all 60,623 cases heard by courts, bodies competent to hear arbitration proceedings or public authority bodies involving PZU Group entities was PLN 3,061.7 million. The amount includes
PLN 2,518.3 million of liabilities and PLN 543.4 million of receivables of PZU Group companies, which accounted for 20.43% and 4.41% of PZU equity calculated in line with PAS, respectively.
This Management’s Report of PZU Capital Group for 2014 includes 171 pages with sequential numbers.
Basic and diluted weighted average of ordinary shares* 86,351,949 86,351,949 86,352,300 86,352,300 86,352,300
Basic and diluted PZU Group’s profit per ordinary Issuer’s share (PLN) 34.37 38.14 37.70 27.16 28.25
Basic and diluted Issuer’s profit per ordinary share (PLN) 30.53 59.13 29.89 29.90 40.73 *including shares owned by consolidated funds
Entities measured using the equity method 66,311 48,595 x x x
Unearned premium and unexpired risk reserve 5,250,103 4,540,011 4,537,167 4,521,396 4,315,675
Provisions for bonuses and discounts for the insured 2,291 2,893 4,227 7,192 6,177
Appendix: Financial data 178MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
B. Assets to cover technical provisions, total 20,755,548 118.3% x 1. Debt issued or guaranteed by the State Treasury and international organizations to which the Republic of Poland belongs 7,828,696 44.6% without limits 2. Bonds issued or guaranteed by local authorities or associations of local authorities 26,252 0.1% without limits 3. Other fixed revenue instruments 565,582 3.2% 10%
9. Bank deposits 1,368,226 7.8% without limits 11. Receivables from the State Budget 1,953 0.0% without limits 12. Tangible assets, other than property, if amortized using the prudence principle 111,520 0.6% 5%
C. Surplus (shortage) of assets covering technical provisions 3,864,359 21.8% x
4. Units or certificates in investment funds 2,889,799 58.2% bez ograniczeń
7. Receivables due to financial market transactions 138,880 2.8% bez ograniczeń
8. Receivables due to financial market transactions (151,396) (3.0%) bez ograniczeń
A. Life insurance provision where the (investment) risk is borne by the policyholder 22,693,329 100.0%
Assessment of change of the PTE's result due to OFE reform 13.5 x x x x
Change in the rates for annuity provision x x (234.2) x x
Release of provisions for employee benefits associated with termination of the Company Collective Bargaining Agreement x x 177.0 x x
Sales of shares from the AFS portfolio x x 101.0 x x
Claims arising from snowfall and flood damages x x x x (369.4)
Appendix: Financial data 182MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014 1.
2. Claims ratio net of reinsurance (net claims paid/net premium earned) × 100%
6. Combined ratio in non-life insurance (Claims + costs of insurance activity/premium earned net of reinsurance ) x 100%
Reinsurance commission and share in profits 16,192 8,022 (5,715) 12,200 101.8%
Acquisition costs ratio (including reinsurance commission)* 19.8% 18.8% 19.4% 17.3% 1.0 p.p.
Data from the profit or loss statement – mass-market insurance (non-life insurance) (PLN thousands)
Reinsurance commission and share in profits (26,506) 66,967 (15,929) (29,617) x
Data from the profit or loss statement – group and individually continued insurance (PLN thousands)
Change in the balance of other technical provisions net of reinsurance (70,328) (270,964) (848,700) (109,119) (74.0)%
Data from the profit or loss statement – Baltic states segment (PLN thousands) 2014 2013 2012 2011 % change 2014/2013
Data from the profit or loss statement – pension segment (PLN thousands) 2014 2013 2012 2011 % change 2014/2013
Act on statutory auditors – Act on statutory auditors and their self-governing body, auditing firms and on public oversight of 7th May 2009 (Journal of Laws of 2009, No. 77, item 649, as amended).
blue chip – a name for a large public company enjoying the confidence of investors and a good financial standing. Blue chip companies are characterised by high capitalization and liquidity and a relatively stable exchange rate. In Poland, the companies included in the WIG20 index can be considered blue chip companies.
CEERIUS (CEE Responsible Investment Universe) – is an index of Vienna Stock Exchange for Central and Eastern
Code of Commercial Companies – Act of 15th September 2000 – Code of Commercial Companies (Journal of Laws of 2000, No. 94, item 1037, as amended).
embedded value – an actuarial valuation method referring to the value of shareholders’ profits that will be generated by the in-force insurance contracts in an insurance company’s portfolio. This method incorporates shareholder risk arising from the uncertainty concerning the timing and amount of future expected profits.
In other words, all the publicly-traded shares that are freely available.
Ordinance of the Minister of Finance of 19th February 2009 on current and periodic information submitted by issuers 190MANAGEMENT’S REPORT OF THE PZU CAPITAL GROUP FOR 2014
outward reinsurance – reinsurance activity entailing an insurer (ceding company) yielding a portion of the executed insurance contracts to a reinsurer /reinsurers in the form of a reinsurance contract.
PFSA – Polish Financial Supervision Authority. www.knf.gov.pl profit margin in group and continued insurance in PZU
As a result of reinsurance, there is a secondary split of the risks making it possible to minimize the risks to the insurance market.
Solvency II – capital requirements for European insurance companies based on the risk undertaken. The requirements become effective on 1st January 2016.
solvency margin coverage ratio – a statutory ratio specifying the level of capital security for the business conducted by an insurer; by law, this ratio should be above
& Poor’s. An A rating means that issuers of debt instruments have a high capability of servicing their obligations giving consideration to the emergence of factors diminishing that capability.
High standards and quality of the survey are confirmed by external auditor.
TSR - 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.
unit-fund – fund related to life insurance where the investment risk is borne by the policyholders
underwriting – the process of selecting and groupifying risks declared for insurance to estimate and accept, according to suitable terms and conditions, or reject an insurance risk.
WIBOR6M – a reference interest rate on a six-month-long loan on the Polish interbank market.
Report of PZU Group purporting to reflect changes in PZU expectations or changes to events, conditions or circumstances on which any such statement was based unless the prevailing legal regulations require otherwise. PZU stipulates that forward-looking statements do not constitute a guarantee of future results and its actual financial standing, business strategy, plans and the
Additionally, this Management’s Report of PZU Group may not be treated as part of a solicitation or offer to acquire securities or make an investment. Nor does this Management’s Report of PZU Group constitute an offer or a solicitation to conduct other securities-related transactions.