Table of content 2.1. Key economic trends and economic growth ............................................................................. 7 2.3. Monetary policy, interest rates, inflation .................................................................................. 8 2.4. Labor market and consumption .............................................................................................. 8 2.6. The impact of macroeconomic factors on the insurance sector .................................................. 9 2.7. Insurance and pension market vs. market shares of PZU Group companies ................................ 9 2.8. Regulatory environment of the PZU Group ............................................................................ 18 2.9. Macroeconomic factors that will affect the activities of PZU Group in 2013 ............................... 23 3. PZU Group organisation description ...................................................................................... 23 3.1. Organisation of the PZU Group ............................................................................................. 23 3.3. Changes in the organization of the PZU Group ....................................................................... 32
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 7. Risk factors which may affect financial performance in the following periods ............................ 55 7.1. Property and personal insurance .......................................................................................... 55 8. Management Board‟s position concerning previous performance projections............................. 56
PZU GROUP ACTIVITIES IN 2012 ......................................................................................................... 57 9. Activities, key developments and achievements of the major PZU Group Companies ................. 57 9.2. Property, personal and life insurance .................................................................................... 57 9.9. Key developments and implementation of the strategy ........................................................... 72 9.10. Corporate social responsibility activities in 2012 ..................................................................... 75 11.4. Organizational structure and responsibilities in the risk management process ........................... 80 11.7. Key risk related events in 2012 ............................................................................................ 88 12. Other selected PZU Group companies – directions for development and performance ............... 88
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 13. Shares or rights to shares held by members of management or supervisory bodies of PZU as at the date of the annual report ...................................................................................................................... 90 14.1. Remuneration of members of management and supervisory bodies of PZU Group .................... 91 14.2. Issues, redemption and repayment of debt and equity securities ............................................. 91 14.3. Employee stock ownership plan ........................................................................................... 91 14.4. Price of PZU‟s shares ........................................................................................................... 91 14.8. Main reinsurance contracts binding in 2012 ........................................................................... 97 14.9. Executed and terminated credit facility agreements ............................................................... 97 14.10. Originated loans, including those to the issuer‟s related parties ............................................... 98 14.11. Guarantees and sureties extended and received with respect to credit facilities and loans, including those granted to the issuer‟s related parties ............................................................ 98 14.12. Evaluation of financial resources management including the ability to repay liabilities and definition of possible threats and activities, undertaken or planned by the issuer to counteract 14.13. Proceedings before court, body competent to hear arbitration proceedings or a public authority 14.14. Information on significant contracts concluded ...................................................................... 99 14.16. Seasonal or cyclical business ................................................................................................ 99 14.17. Significant events after the end of the reporting period .......................................................... 99 14.19. Information on agreements significant for the activities of PZU Group, including those concluded between the shareholders ................................................................................................... 99 14.20. Cooperation with international public institutions ................................................................... 99 14.21. Agreements on audit and review of financial statements ...................................................... 100
REPRESENTATIONS OF THE MANAGEMENT BOARD OF PZU ............................................................. 100 15. Representation concerning corporate governance ................................................................ 100 15.2. The General Meeting and shareholder rights ....................................................................... 101 15.3. The Issuer‟s management and supervisory bodies and their committees ................................ 103 15.4. Discussion of the main features of the internal control and risk management systems applied in the issuer's enterprise in respect of the process of preparation of financial statements and consolidated financial statements ....................................................................................... 115 15.5. The list of PZU shareholders directly or indirectly holding significant packages of shares ......... 116 15.6. Holders of any securities which give special controlling rights, including a description of those
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 15.7. Restriction on execution of voting rights ............................................................................. 117 15.8. Restriction concerning transferring of ownership rights to securities ...................................... 118 15.9. The principles for amending the Articles of association of PZU .............................................. 118 15.10. Changes in the Articles of association of PZU ....................................................................... 118 16. The truth and fairness of the presented financial statements ................................................ 119 17. Election of the registered audit company ............................................................................ 119
Supervision Authority, PFSA) whose a large offer includes insurance and financial products.
PZU Group operates in the four key areas:  Property and personal insurance offered by Powszechny Zakład Ubezpieczeń Spółka Akcyjna („PZU”,
PZU is a leader on the property and personal insurance market in Poland in terms of gross written premium (its share amounted to 32.3% at the end of Q3 2012). Motor insurance, both for individuals and corporate clients are the key product group offered by PZU.
PZU Życie is a leader on the life insurance market in Poland in terms of gross written premium (its share amounted to 26.5% at the end of Q3 2012). Group and individual life insurance is the key product group offered by PZU Życie.
PTE PZU manages OFE PZU Złota Jesień, which at the end of 2012 was the third largest in terms of the number of members (2.2 million members) and of net assets (PLN 36.3 billion) among open pension funds in Poland.
 pension plans, including Employee Pension Plans and Individual Pension Accounts.
At the end of 2012, net value of investment funds managed by TFI PZU amounted to PLN 15.3 billion (the first place in the market).
Labour market deterioration, slowing growth in disposable income and low savings rate contributed to slowdown in individual consumption seen in 2012, to -0.5% compared to 2.5% in 2011. At the same time, investments in fixed assets increased by mere 0.6% compared to 9.0% a year before. Investment slowdown (in the second half of 2012, the growth was negative) resulted from limited infrastructural investment related to EURO 2012 and infrastructural construction industry problems on the one hand, and limited investments in enterprises arising from their negative response to the economic slowdown on the other hand. Change in the level of inventory in 2012 had a negative impact on GDP. In these circumstances, net export was decisive for economic growth. Its
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 growth slowed down due to recession in the Eurozone, but the volume of net export increased despite the recession mentioned. Compared to poor domestic demand import adjustment was higher: import volume dropped compared to 2011.
In the middle of 2012, the debt crisis in Eurozone increased again. In subsequent months, global financial markets gained balance again, mostly thanks to measures undertaken by the European Central Bank (EBC).
Readiness to intervene on the bonds market declared by EBC in H2 2012 and arrangements regarding remodeling of the financial architecture in the Eurozone (banking union) clearly reduced the probability of currency union‟s disintegration. At the same time, in the U.S. quantitative easing was continued in monetary policy. Reduced tension on the financial market, accommodative monetary policy of key central banks and the economic improvement projected for 2013 contributed to growth of the world‟s stock exchange indexes. In 2012, stock prices in Poland increased as well. WIG index grew by 26.2%, while WIG20 by 20.4%.
The average annual inflation remained relatively high, although it dropped to 3.7% compared to 4.3% at the end of 2011. Its reduction was propelled by economic slowdown (at the end of 2012, net inflation rate was 1.4% y-oy compared to 3.1% y-o-y in the previous year). The increase in food and fuel prices and the exhausted impact of
Faced with the high inflation in the first months of 2012, Monetary Policy Council increased interest rates by 25 base points in May. Having obtained data that confirmed significant economic slowdown and the inflationary pressure being lower than expected, MPC signalled the possibility to ease its policy in September, and in
Following the increase in May 2012, in the period from September to the end of 2012, WIBOR clearly dropped by about 100 base points, while interest rates of the central bank decreased by 50 base points in the same period.
The economic slowdown in 2012 was accompanied with a deteriorated labour market standing. The average employment in the enterprise sector in December 2012 was 0.5% lower than in December 2011. The average employment in the entire economy in Q3 2012 dropped by 0.1% year on year. The registered unemployment rate increased to 13.4% at the end of 2012 compared to 12.5% at the end of 2011. Therefore, the nominal growth in
The labour market deterioration and actual drop in remuneration did not support increase in individual consumption especially that the savings rate in households was very low, and consumer loans reduced. In 2012, individual consumption grew by mere 0.5% and its drop in the second half of the year had a decisive impact on the average (an increase by 0.1% in Q3 2012 and according to initial estimates, a drop by 1% in Q4 year on year).
On the other hand, an increase in the prices of stock and bonds in 2012 positively impacted investment income of insurance companies.
2.7. Insurance and pension market vs. market shares of PZU Group companies 2.7.1. Insurance market in total
The market of property and personal insurance market in Poland expressed as gross written premium saw an average annual increase of 7.2% over last four years. During the first three quarters of 2012, the total market growth was PLN 0.8 billion year on year, mainly thanks to increased sales of TPL motor policies (by PLN 411.8 million), in particular as a result of an increase in corporate tariffs and other non-motor insurance products, including mainly other third-party liability products (by PLN 242. 1 million, i.e. + 21.6% year on year). At the same time, the entire market of property and personal insurance saw a slowdown compared to the previous year (+4.2% vs. 12.9%). The decrease resulted mainly from significant slowdown in motor own damage insurance (-0.8% y-o-y for the first three quarters of 2012 compared to +12.8% in 2011) and a reduced growth in motor third-party liability insurance (+6.4% compared to +14.0%, respectively). The changes resulted mainly 1 The newest data published by Polish Financial Supervision Authority (PFSA) as at the date of the Report
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 from the halted growth in the number of policies for individuals in motor own damage insurance during last two years.
The total value of investments of companies providing other personal and property insurance (excluding shares in controlled entities) amounted to PLN 40.2 billion at the end of Q3 2012 and increased by 7.7% from the end of 2011. At the end of Q3 2012, most of these investments consisted of securities issued or guaranteed by the State
TPL motor insurance 2 231 6 860 4 629 2 141 6 448 4 307 Other products 2 535 8 642 6 107 2 375 8 217 5 842 TOTAL 6 374 19 758 13 384 6 217 18 956 12 739
Table 3: PZU share in gross written premium – property and personal insurance
TPL motor insurance 32.5% 33.2% Other products 29.3% 28.9% TOTAL 32.3% 32.8%
respectively in 2012 compared to 2011) with a certain decrease in market share. At the same time, PZU
maintained a high gross written premium – based market position: 49.3% for TPL and 43.3% for motor own damage insurance in the corporate sector at the end of Q3 2012.
At the end of Q3 2012, the share of PZU net performance in the market net result (without dividend from PZU
Życie) amounted to 62.6%, which, with the gross written premium-based market share of 32.3% confirms high yield of the insurance business and effective capital management.
Capital groups: Allianz - Allianz, Euler Hermes; Ergo Hestia - Ergo Hestia, MTU; Talanx - Warta, Europa, HDI; VIG -
Compensa, Benefia, Interrisk, PZM (on 31 July 2012 Interrisk and PZM combined)
Source: Polish Financial Supervision Authority - “Biuletyn Kwartalny. Rynek ubezpieczeń 3/2012, Rynek ubezpieczeń 3/2011
+10.6% year on year, which is a solid growth compared to overall dynamics at the end of Q3 2011 and 2010, of
Chart 2: Share of largest property and other personal insurers in Poland 17,8% PZU
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 year[1]. Development of this insurance channel resulted in a 24.7% growth in the group insurance compared to 9.8% during the comparable period in the previous year. Further, the regular premium underlying the competitive advantage of PZU Życie, increased by 6.4% at the end of Q3 2012, compared to + 1.4% at the end of Q3 2011. At the same time, during the discussed period, the amount of PLN 4.5 billion of periodic premium was collected in the market of unit-linked insurance, which constituted a growth of 12.0%. Good standing of capital markets supported development of insurance with element of investment.
During the three quarters of 2012, insurance companies paid the total of PLN 18.7 billion claims, out of which life insurance payments (class I) with a one-off premium, in particular related to short-term investment contracts, accounted for PLN 12.5 billion.
The total underwriting profit/loss increased by PLN 125.1 million (+4.8%), mainly thanks to improved profitability of accidental and illness class V insurance (so-called additions) – performance improvement by PLN 137.0 million
(+ PLN 326.8 million). Excluding PZU Życie, the market saw a drop of PLN 68.8 million (-6.3%).
Table 5: Life insurance market – gross written premium and underwriting profit/loss
Table 7: Position of OFE PZU in the pension insurance market in Poland
At the end of 2012, OFE PZU had about 2,223 thousand members constituting 13.9% of the general number of open pension funds members and gives PFE PZU the third place in the market in this respect. Drop in the market share experienced by the largest three funds: ING OFE (-0.2 p.p.), OFE PZU (-0.4 p.p.) and Aviva OFE (-0.5 p.p.)
The law allows correspondence as the only manner to conclude agreements with open pension funds, which has significantly reduced the number of people changing pension funds (a decrease by 79% compared to 2011) and limited the number of individuals who join the funds the first time upon their own decision (a drop by 62%
Chart 4: Share of the largest life insurers in Poland in regular premium
PLN 36,282 million giving it the third place among the market players in terms of asset value.
The year 2012 was marked with changes in the structure of assets by market segment. Debt, stock and nonpublic asset funds had the highest market share. The sales balance of the funds for the entire 2012 was positive and amounted to PLN 19 billion.
* Assets of the funds are presented in aggregate figures, mainly with respect to non-public asset funds, and also other classes
The increase in the value of assets resulted among others with good standing of the stock market and Polish treasury bond market and reduced bank deposits yield (including liquidation of overnight deposits). Another reason was introduction of a new investment strategy in the PZU Group, resulting in an increase in assets managed by TFI PZU from PLN 5.37 billion to PLN 15.36 billion due to non-cash or cash contribution of PZU
The share of the five largest investment funds measured in net AUM amounted to 42.6% at the end of December
According to the State Commission on Financial Market Service Regulation, as at 30 September 2012, the insurance market in Ukraine included 448 insurance companies (including 384 property insurers), out of which over 100 had foreign capital.2
Table 10: Structure of the gross written premium for property and personal insurance in Ukraine
TPL motor insurance 12,7% 10,8% Motor own damage insurance 17,9% 16,9%
Total property and personal without motor insurance 67,6% 70,8% Total 100,0% 100,0%
In 2012, insurance market was stagnant. This resulted mostly from the standing of the national economy and policy of banks regarding loans. Insurance market is directly related to the loan market, since almost 40% of motor insurance market was based on the instalment purchase method. 3
Insurance claims on the market amounted to UAH 3.9 billion, which meant a 14.5% increase year on year.
The scope of reinsurance decreased more than twofold, reaching the level of UAH 2.0 billion (UAH 4.7 billion for the nine months of 2011).
Market concentration was fairly high: 20% of the largest property insurers collected approx. 51.4% of gross written premium on (53.9% for the nine months of 2011). The top fifty insurers accounted for 77.8% of market
through regional offices); 60% collected through brokers and partners (including 53% through banking institutions, 8% through multi-agents, 38% through non-financial agents and just 1% through brokers). 6
Analysis of performance per insurance class draws attention to premium value increase: 3 Association of Ukrainian Insurance Companies 4 State Commission on Finance Service Market Regulation, “Summary of the insurance business for the nine months of 2012”
 in TPL by 11.9% (from LTL 256.3 million to LTL 286.9 million);  in motor TPL by 9.0% (from LTL 390.0 million to LTL 425.0 million);  in accident and health insurance by 9.1% (from LTL 104.2 million to LTL 113.9 million).
In 2012, the structure of personal and property insurance was dominated by motor insurance, accounting for 58.6% of gross written premium, with the share of vehicle owners of 35.0% and of Motor own damage insurance of 23.6%. Property insurance was the second largest segment with the total contribution to gross written premium of 19.3%. Accident and health insurance with the share of 9.4% is the third most popular class in property and personal insurance measured by written premium.
In 2012, there were 15 insurance companies in Lithuania operating in property and personal insurance (including ten branches of companies registered in other EU member states). In terms of total gross written premium for other property and personal insurance, Lietuvos Draudimas with market share of 31.3% is the largest in
2.8. Regulatory environment of the PZU Group 2.8.1. Regulations regarding the Polish insurance market
Below please find key legal regulations regarding insurance that came into effect or were published in 2012 and could contribute to changes in the scope of business or organisation of the PZU Group.
The information should include among others the premium amount and instruction regarding termination of the existing policy, as well as the form, manner and deadline of submitting a notice, as well as describing effects of both the notice and its lack. Further, if a policy is renewed pursuant to Article 28.1 of the Act on statutory insurance, the insurer should send to the insured a document confirming that the insurance contract has been concluded within 14 days of the conclusion date.
The principle includes property and life insurance. At the same time, the provision requiring that such statements and notifications are made in writing and delivered by registered mail with receipt confirmation has been deleted.
Effects of the Act on the PZU Group:  Imposing additional obligations on PZU related to sending information regarding terms of insurance for the subsequent years and confirmations that insurance contracts have been concluded to clients, and the related increase in operating expenses;  Clients can terminate insurance contracts if double insurance occurs; in such cases, premiums cannot be claimed from them;  The number of drivers without TPL policies may increase following modification of termination conditions and the fact that a policy is not renewed if a car is sold;  Operating problems since clients may submit statements or notifications regarding their insurance contracts in any form, since they are binding for PZU if delivered to a relevant agent.
Journal of 2012 item 742) has released therapeutic entities running hospital business from the obligation to conclude additional insurance contracts against patients‟ claims arising from medical events until 1 January 2014.
December 2011 (Law Journal No. 293, item 1729) came into effect on 1 January 2012 and has defined the detailed scope of statutory TPL insurance for entities carrying out therapeutic business with regard to damages arising from therapeutic performances or neglect in providing such performances against the law, and the minimum guarantee amount.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 patient‟s death, not more than PLN 1,200 thousand in relation to all medical events in the insurance period). The
Effects of the act for PZU Group: May result in an increased number of claims arising from therapeutic insurance and a growth in the total claims paid, among others due to the simplified claim procedure.
Act of 14 December 2012 amending the act on insurance activities of 22 May 2003 (Law Journal of 2013 item 53) came into effect on 29 January 2013 and has implemented changes arising from the decision of the European Court of Justice of 1 March 2011 in the case C-236/09 Test-Achats. In the decision, the European
 the risk of lower sales in the group of clients whose premium amount will grow significantly, compensated with an increase in sales in the group of clients whose premium will be reduced
The amendment will affect mainly PZU Życie, a subsidiary of PZU. The new wording of the act allows insurers'
Ministry of Finance published draft assumptions for the new insurance activity act that will among others introduce to Polish law regulations of European directive Solvency II provisions to the Polish law with regard to solvency requirements (Directive of the European Parliament and Council 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). The effective date of these amendments is unknown at the moment.
According to the draft act, capital requirements will grow to correspond with specific risk profiles of an insurer or reinsurer. Own funds of the entities should reach a level to ensure coverage of potential losses with fulfilling performances regarding policy holders and beneficiaries due at a given moment. The draft extends requirements regarding internal risk management procedures and increases information obligations of insurers with regard to capital security and risk management. Further, insurers will be obliged to implement not only management procedures related to insurance risk, but also those regarding credit, market, liquidity and operational risk, and to present their supervisory bodies with financial standing reports. The draft projects certain changes in the existing regulations on insurer‟s obligations regarding conclusion and performance of insurance contracts.
PZU has actively participated in consulting processes in the industry and carried out compliance activities.
Effects of the projected act for PZU Group: It will introduce material changes to operations and financial management of insurers and reinsurers, which will necessitate a number of organisational changes and significant expenses, which are hard to estimate in the current stage of the legislation process. Due to transitional provisions of the new act, the expenses may be distributed over time.
Effects of the act for the PZU Group: The procedure of requesting information on health of the insured or potential insured has been simplified: the scope of obligatory identification data of the person in question has been limited.
Protection, including those regarding assistance service related provisions in accident insurance.
Effects for the PZU Group: It necessitated revision of Terms and Conditions and modification of relevant provisions.
Act of 25 March 2011 amending certain acts related to operation of the social security system (Law
 Tax allowance for holders of voluntary individual pension insurance accounts have been introduced;  Savings on voluntary pension accounts held by investment funds, broker houses, life insurers, banks and voluntary pension funds have been permitted;  Acquisition ban has been introduced with regard to open pension funds.
Since 1 January 2012 Ukrainian insurers have been obliged to transit to International Financial Reporting
According to the Act on Lithuanian Bank No. 99-1957; No. 28-890, No. 54-1830 since 11 June 2012, sum assured in statutory TPL insurance for owners of motor vehicles have increased. At present, the sum assured regarding personal damage is EUR 5 million and for property damage, EUR 1 million. The increase of sum assured has resulted from implementation of EU regulations.
On 12 September 2012, Resolution No. N-40 of 13 April 2004 on calculation of the solvency margin was amended. The change will come into force on 1 January 2013.
On 28 March 2012, the Bank of Lithuania approved Resolution No. 03-73 regarding the amount and method of calculating payments to cover costs of supervision of insurance companies. The amount was reduced from 0.35% to 0.16% of the annual gross written premium.
2.9. Macroeconomic factors that will affect the activities of PZU Group in 2013
Only the second half of the year may see a more significant growth in GDP.
Reduced uncertainly on financial markets due to mitigation of the Eurozone disintegration risk is certainly a good sign. In 2012, it was still relatively high, which caused strong fluctuations in prices of financial assets and complicated the allocation process in asset management. Since the European Central Bank declared contingent intervention on the secondary bonds market (OMT program), the standing of the financial markets in Eurozone has improved visibly, which gives hope for the region to gradually get its economic problems under control.
Therefore, the risk of disorder on the Polish financial market has diminished as well.
Negative financial performance of insurance companies, whose portfolios are dominated by bonds, may impact the low level of interest rates. Prices of bonds increased significantly in 2012, at year-end hitting the record level.
Possibilities of further growth in their prices have been limited, with growing risk of decrease, especially if the global economic growth accelerates in 2013 3. PZU Group organisation description 3.1. Organisation of the PZU Group
In the period from 1 January to 31 December 2012, the scope of activities of the major PZU Group companies did not change substantially.
% of voting rights held directly or indirectly by PZU Business 31 Decembe 31 Decem 31 Decemb
Warsaw 30.11.2001 100,00% 100,00% 100,00% 100,00% Auxiliary activities related to insurance and pension funds
Warsaw 15.09.2004 100,00% 100,00% 100,00% 100,00% Purchasing, using, leasing and selling properties 9 Armatura Kraków SA
Kraków 10.02.2009 63,83% 63,83% 63,83% 63,83% Use of free cash flows, development investment projects
Warsaw 31.01.1996 90,00% 90,00% 90,00% 90,00% The Company does not carry out any operations.
3) Resolution of the Extraordinary Shareholder Meeting of 19 July 2012 commenced the liquidation procedure as of 1 August 4) Resolution of the Extraordinary Shareholder Meeting of 8 March 2012 commenced the liquidation procedure as of 16 March 3.2. PZU Group enitites
PZU‟s core business is conducting insurance and directly related activities in respect of section II insurance –
Moreover, in 2012 and 2011 PZU permits for insurance activities with respect to one or more insurance class were not withdrawn and no receivership was established.
Based on NACE classification, the core business of PTE PZU includes pension fund.
Fundusz Emerytalny PZU „Złota Jesień” („OFE PZU”). Further, PTE PZU manages Dobrowolny Fundusz Emerytalny
PZU („DFE PZU”), the first of the type that commenced its operations as an entity managed by a universal pension fund and reached the position of a leader in the segment of voluntary pension insurance.
The PZU Group conducts activities on the Baltic markets in the area of property and life insurance via two
The PZU Group conducts activities on the Ukrainian market in the area of property and life insurance via two companies:  PZU Ukraine – property and personal insurance;  PrJSC IC PZU Ukraine Life – life insurance.
TFI PZU offers investment products and services for both retail and institutional clients, including additional savings programs under Pillar III of the social insurance program, which include:  IKE (Individual Pension Accounts);  Specialized Investment Programs;  PPE (Employee Pension Plans);
PZU AM manages selected asset portfolios of PZU, PZU Życie companies and provides management services in respect of investment portfolios managed by TFI PZU on the basis of art. 46 clause 1 of the Act of 27 May 2004 on Investment Funds (Journal of Laws No. 234 of 2011, item 1391 as amended) and assets of Employee Pension
PZU CO is a company servicing PZU Group entities, included in the Tax Capital Group (details in Section 14.7).
In 1998-2008 its business operations included purchase and sales of real property, services related to construction, development and management of real property, as well as office space lease.
In 2008 PZU and PZU Życie commenced restructuring program of the company. The purpose of the program was to reduce operating expenses of PZU and PZU Życie through elimination of VAT on leases of office space in PZU
Tower building (then owned by the present Tower Inwestycje Sp. z o.o.).
Gate building) co-owned by PZU and PZU Życie and the sale of City Gate building (then owned by the present
Tower Inwestycje Sp. z o.o.) to Ogrodowa – Inwestycje Sp. z o.o.
At present, business operations of Tower Inwestycje includes mainly investing of free cash. In 2012, the Company provided only security management services on behalf of its customers. Since 2013 the Company has provided accounting and HR and payroll services for PZU Group companies (PZU AM, PZU TFI).
PZU Życie in cooperation with PKO BP SA has initiated the process of selling shares in KGJK. For this purpose, in
GSU Pomoc Górniczy Klub Ubezpieczonych SA (formerly Nadwiślańska Agencja Ubezpieczeniowa SA) was established on 3 February 1999, among others by PZU Życie, in order to act as an agent selling insurance products of the PZU Group in plants and mines owned by former Nadwiślańska Spółka Węglowa SA (at present
Following the transaction, PZU Pomoc SA became the holder of 36,000 registered shares in that company, accounting for 30% of its share capital and 30% of votes at the General Shareholders‟ Meeting. Górnośląska
In June 2012, the company‟s GSM passed a resolution changing its By-Laws and the name to GSU Pomoc
Górniczy Klub Ubezpieczonych SA, as well as change in the scope of its business operations.
The following transaction had no impact on the net assets and profit/loss of the PZU Group. Presentation, classification and measurement of the assets in the consolidated financial statements of the PZU Group have not changed, either, since:  The PZU Specjalistyczny Fundusz Inwestycyjny Otwarty Dłużny fund has been consolidated using the full method since 30 June 2011;  The PZU Fundusz Inwestycyjny Zamknięty Akcji fund has been consolidated using the full method since
On 22 December 2011 PZU Ukraine and PZU Ukraine Life concluded an agreement on the sale of Inter-Risk company with Powszechna Kasa Oszczędności BP SA (“PKO BP SA”) for the total amount of PLN 2,500 thousand.
5. Comments to the consolidated financial performance of the PZU Group
(PLN 15,279.3 million in 2011). The increase by PLN 963.9 million (+6.3%) year on year resulted from the growth in sales, especially of life insurance products (+10.4%). Key product lines that saw growth in 2012 include:  individual insurance (including unit-linked and structured products) with a single premium (+ PLN 492.6 million) mainly in bancassurance channel;  group cover insurance and continued individual insurance with regular premium (+ PLN 223.8 million), mainly due to additional sales of extra insurance and increasing the sum insured in individually continued products, as well as development of classic cover group insurance (P type);  accident insurance and other TPL insurance (+ PLN 198.5. million), in particular obligatory accident insurance for hospitals and TPL for medical entities in the corporate insurance segment
 TPL motor insurance (+ PLN 70 million) including the mass segment (+ PLN 80.7 million).
At the same time, Motor own damage insurance saw a decrease (-PLN 143.1 million), on the one hand, due to a reduced number of new cars registered, on the other hand as a result of restrictive underwriting policy in the corporate client segment, where the Motor own damage insurance premium dropped by PLN 100.1 million.
Gross written premiums among segments: consolidation adjustment (2 293) (4 941) (53.6)% Gross written premiums 16 243 131 15 279 262 6.3%
The increase resulted from change of technical rate related to the reduced bonds yield, decrease in future yield of assets covering provisions and increase in forecasted annuities growth (concern PZU).
Following the above changes, the one-off provision increase took place for:  mathematical provisions in group and continued insurance segment by PLN 798.6 million, including the effect of technical rate adjustment in the consolidated financial statements prepared in line with
The following factors contributed to a reduction in claims:  in motor insurance, reduced frequency of claims due to improved road conditions and less traffic (among others, fuel price drop);  in property insurance, the low scale of individual claims with substantial payments; Claims handling costs decreased by PLN 34. 1 million (-4.9%) as a result of implementing a program optimising claims handling processes, in particular based on the standardised claim handling procedure performed in one of nine claims handling centres and aligning employee costs to volumes handled (lower frequency of claims in motor insurance).
In 2012 acquisition costs grew by PLN 38.4 thousand (+2.0%) versus 2011. The increase resulted mainly from changes in sales in the life insurance segment arising from:  an increase in commissions paid on cover group insurance in relation to portfolio growth, high sales of new policies during 2012 and increasing share of premium collected through the broker channel;  rapid growth in sales of investment products through the banking channel, in particular in relation to unit-linked products with high acquisition costs.
An increase in administrative expenses by PLN 56.4 million (+ 4.1%) resulted mainly from project activities aimed at a change of the PZU Group image. The total costs of image campaigns in 2012 charged to administrative expenses amounts to PLN 34.4 million. Further, in 2012 work was commenced to introduce a new policy system for property insurance (more details in section 9.6).
Group could complete another stage of employment restructuring and enter a subsequent one at the end of 2012
Further, under fixed cost optimisation plan, lease, cleaning and protection expenses were reduced through revision of some related agreements, as well as costs of phone calls following IP implementation.
In 2012 the balance of other operating revenue and expenses increased by PLN 243.8 million year on year
(as described in section 9.8);  reorganisation and restructuring costs being lower than the year before (PLN 10.8 million in 2012 vs.
Net profit/loss on investing activities 3 704 729 1 593 826 132,4%
Weighted average basic and diluted number of ordinary shares 86 352 300 86 352 300 -
Basic and diluted PZU Group earnings per ordinary share (in PLN) 37,68 27,14 38,8%
Net cash generated by operating activities 1 228 357 1 587 572 (22,6%)
Net cash used in financing activities (1 747 114) (1 485 832) 17,6%
The increase resulted mostly from very high investment income (+ PLN 2,110.9 million, i.e. +132.4%) resulting from an increase in the price of debt instruments (treasury bond yield drop) and good standing of capital markets.
Negative impact on the net profit came from an increase in technical provisions arising from a change in technical interest rates, whose total effect on the gross profit accounted to PLN (1,032.8) million.
The equity increase of PLN 1,068.4 million resulted from accumulation of a portion of net profit generated in 2011 and reduction of the dividend payment ration to 75% (in line with recommendations of PFSA; more details in
The provision increase effect was netted off with introduction of a new individual continuation option.
In 2012, provisions for employee benefits of PLN 177.0 million were released following termination of the Collective Labour Agreement (details in section 9.8).
The increase of PLN 247.8 million in the deferred tax provision compared to the end of 2011 resulted from good performance on investment activities (higher prices of investments). For investment insurance, the increase in provision constitutes amount deductible upon calculation of current tax liability, while unrealised investment income are not taxable, and therefore the deferred tax provision has been recognised.
The increase in other liabilities compared to 31 December 2011 by PLN 630.2 million resulted in particular from higher liabilities to credit institutions due to sell-buy-back transactions and transactions unsettled as at the balance sheet date.
PZU Group has a solid capital base which significantly exceeds the related capital requirements.
The solvency margin and own funds were calculated in accordance with PAS and requirements included in
Ordinance of the Minister of Finance of 28 November 2003 on calculation of the solvency margin and minimum capital and reserves required for insurance sections and classes (Dz. U. No. 211 of 2003 item 2060 as amended).
(assets for provision coverage/technical provisions) x 100%* Solvency margin (in PLN million) 1 343.8 1 338.8 5,0 Equity to required solvency margin ratio 815.3% 686.6% 128.7 p.p. Guarantee fund (in PLN million) 447.9 446.3 1,7 Equity to guarantee fund ratio 2445.9% 2059.8% 386.1 p.p. * Gross technical provisions less estimated recourses and recoveries.
List of assets that cover the technical provision under Polish GAAP as at 31 December 2012 is presented in Table 20. Requirements regarding the coverage of the technical provisions with assets are determined in Article 154 and 155 of the Act on insurance activity. At the end of 2012, the coverage ratio was 126.1% (127% at the end
Table 21: Calculation of own funds to cover the required solvency margin of PZU Życie (as per PAS)
List of assets that cover the technical provision as per PAS as at 31 December 2012 is presented in Table 22.
Requirements regarding the coverage of the technical provisions with assets are determined in Article 154 and 155 of the Act on insurance activity. At the end of 2012, the coverage ratio was 115.1% (106.9% at the end of
6. Other variable income securities 1 303 040 5,9% No limits * The ceiling is the maximum coverage of technical provisions regarding aggregated receivables from cedents, reinsurers, policy holders, insurance agents and reinsurers‟ share in the technical provisions.
Technical rates have been decreased both in property and personal insurance and in life insurance. The change in the technical rate resulted mainly from the decrease in treasury bonds yield.
Following implementation of the new investment strategy, quoted shares from the available for sale portfolio whose remeasurement effects had been charged to revaluation reserve in previous years, were sold. Gross profit on the transaction amounted to PLN 101.0 million.
SA), have been consolidated using the full method in the consolidated financial statements of the PZU Group.
The reason for the consolidation of the Armatura Group is the fact that its consolidated financial data have exceeded the materiality thresholds adopted by the PZU Group for the purposes of the consolidated financial reporting.
As at 31 December 2011, PZU held 1,530 shares in International Claims Handling Centre SA in liquidation (“ICH
On 16 March 2012, ICH Centre was put in liquidation. The decision to liquidate the company resulted from takeover of its operations by PZU. ICH Centre SA discontinued its statutory operations (i.e. Green Card claims handling services) effective from the beginning of 2011. As at 31 December 2012, the liquidation was in progress.
It is projected to be completed and the company deleted from the register of entrepreneurs in Q2 2013.
6. Comments to segment reporting 6.1. Corporate insurance: personal and property insurance
Table 23: Gross written premium in the corporate insurance segment (property and personal insurance)
(+ PLN 57.9 million, mainly resulting from an increase in sum assured).
Acquisition costs in the corporate insurance segment increased by 8.1% year on year, mainly due to their reduction in 2011 (impact on comparative data) as a result of early recognition of deferred acquisition costs on motor insurance in 2010.
The share of total commissions in gross written premium dropped, in particular due to a lower share of commissions in the premium in the broker channel, where often increases in sum insured is not accompanied with the corresponding increase in commission paid, and due to introduction of a new product with lower commission rates (accidental insurance for hospitals).
194.4 million, respectively. Its increase resulted from improved profitability of Motor own damage insurance thanks to the underwriting policy pursued for a number of years and the general claim decrease trend observed on the market, partly offset by deteriorated performance in the financial insurance segment due to the series of bankruptcies in the construction industry. The one-off effect of the technical rate reduction and the projected increase of annuities contributed to the performance decrease by PLN 21.4 million. Excluding this effect, operating profit increased by PLN 44.6 million year on year (+22.9%).
Table 25: Gross written premium in the mass insurance segment (property and personal insurance)
Insurance against fire and other damage to property 1 424 459 1 337 996 6,5%
October 2012 with regard to statutory insurance of subsidized crops;  Increase in sales of PZU DOM Plus products, better adjusted to market needs (with extended scope of insurance risks);  Decrease in written premium in Motor own damage insurance, among others due to reduced sales of new and second-hand cars to individuals.
Both in 2012 and 2011, substantial claims were lodged in agricultural insurance, resulting from natural reasons
In 2012 and 2011 investment income allocated in accordance to transfer prices to the mass insurance segment amounted to PLN 537.0 million and PLN 542.5 million, respectively.
Acquisition costs in the mass insurance segment decreased by 1.7% despite growing sales due to reduction in indirect expenses. At the same time, direct acquisition expenses increased due to higher sales and growing share of more expensive distribution channels (including broker, agency and multi-agency channel).
An increase in administrative expenses in 2012 (+ PLN 39.4 million) compared to 2011 resulted from project activity aimed at optimization of service processes, among others by implementing of a new product system and building of a positive image of the PZU Group.
(reduced number of claims due to absence of large claims). At the same time, the one-off effect of the technical rate reduction and projected growth in annuities contributed to the reduction of profit by PLN 212.8 million.
Operating profit calculated without this effect increased by PLN 439.0 million (+ 76.6%) year on year.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 6.3. Group and individually continued life insurance
The gross written premium increase by PLN 185.0 million (+3.0%) resulted mainly from:  development in protection group insurance (increase in the average premium and the number of insured, including rapid growth of new sales);  upselling and increase in the sum insured in individually continued products;  premium collected in group health insurance (new clients and new prescription drug insurance introduced in the offer);  commenced cooperation with ING on the sale of a new structured product;  continued cooperation with bank agents on sales of cover insurance: during 2012, the highest growth in sales was seen in insurance of debtors offered in cooperation with Bank Millennium SA.
Operating profit (loss) excluding the effect of conversion and technical rate change*
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 payments in short-term endowment products in the bancassurance channel was seen (netted off with a change in the mathematical reserve as well). Despite group and continued individual protection insurance premium increase, the net value of claims remained similar to 2011.
The difference in the change in technical provisions (an increase by PLN 739.6 million) resulted mostly from additional provisions recognised at the end of 2012 in the amount of PLN 408.5 million due to the one-off effect of the technical rate decrease. Additional factors were:  lower pace of converting multi-year policies into one-year renewable ones in P type group insurance (the conversion effect in IAS (the conversion effect8 in 2012 translated into release of PLN 220.4 million provisions, which was PLN 210.2 million less than during 2011)
Investment income comprises income allocated in accordance with transfer prices and income generated on investment products. In the group and individually continued insurance segment, investment income increased by PLN 298.1 million due to reduced revenue in investment products, due to an improved standing of financial markets. Income allocated in accordance with transfer prices remained flat.
In 2012, acquisition costs in the group and individually continued insurance segment amounted to PLN 317.7 million (increase by 14.4%, i.e. PLN 40.0 million). The change resulted mainly from:  an increase in commissions paid on cover group insurance in relation to portfolio growth, high sales of new policies during 2012 and increasing share of premium collected through the broker channel;  an increase in indirect acquisition costs, among others remuneration in the sales network related to winning new clients in group insurance (modification and working with the portfolio).
In 2012 the operating profit in the group and individually continued insurance segment decreased by PLN 406.7 million (-22.9%) mostly due to the one-off effect of the technical rate decrease and a reduced effect of converting long-term contracts to renewable ones in the P-type group insurance. Without these elements, the operating profit increased by PLN 212.0 million (+15.7%) year on year.
Written premium by payment type - individual insurance 8 The conversion effect based on data prepared in accordance with PAS
Millennium SA in November 2011;  good performance on sales of a structured product in cooperation with Citibank Handlowy;  very high payments to accounts of an individual pension account product (IKE) made at year end;  continuous development of a savings and investment product with a cover component and regular premium called “Plan na Życie”, introduced to the offer in 2010.
PLN 133.9 million in the same period of 2011) resulted mostly from high sales of investment products in the bancassurance channel (the unit-linked products offered in cooperation with Bank Millennium SA and the structured product offered in cooperation with Citibank) and from significant improvement in investment performance, which translated into an increase in provisions for unit-linked products (by PLN 591.5 million). Also, a slowdown in the expiry of the portfolio of old endowment policies concluded in the nineties and lower endowment level in "Świat Zysków" structured product contributed to a higher growth of the mathematical provision.
Investment income comprises income allocated in accordance with transfer prices and income generated on investment products. In the individual insurance segment they increased by PLN 149.5 million mainly due to an increase in revenue related to investment products due to improvement on financial markets. Income allocated in accordance with transfer prices remained flat.
Życie over that allocated based on transfer prices to insurance segments (corporate, mass, group, individually continued and individual segment) and investment contracts. The income grew by PLN 1,409.5 million and reached PLN 1,525.2 million.
Insurance business segments (PZU and PZU Życie) 1 966 510 1 556 010 26.4%
A drop in market interest rates by PLN 765.6 million contributed to the improved performance on debt instruments.
Profit/loss on investing activities 9 The income includes „Investment income” in the investment segment, classified as external transactions
Investment activity of the PZU Group complies with statutory requirements ensuring an appropriate level of security, liquidity and profitability. Debt securities issued by State Treasury accounted for more than 65% of the investment portfolio10 both as at the end of 2012 and 2011.
An increase in the share and value of equity instruments resulted among others from good standing of financial markets.
In 2012 and 2011, revenue from commissions and fees (“Revenue from core business of non-insurance entities”)
in the pension insurance segment amounted to PLN 199.2 million and PLN 231.6 million, respectively.
The decrease by PLN 32.5 million (-14%) resulted in particular from:  PLN 37.5 million (-50.4%) drop in revenue from premium fees arising from the statutory reduction of premiums transferred by Social Security Institution (ZUS) to open pension funds from 7.3% to 2.3%;  PLN 6.4 million (+4.4%) increase in the management fee arising from the growth in assets of OFE PZU;  PLN 1.5 million growth in revenue from the reserve account;  PLN 2.8 million drop in other revenue of the funds (in 2011, a revenue arising from a refund received from the Guarantee Fund was recorded of PLN 2.6 million; such a transaction did not occur in 2012).
Administrative expenses of PTE PZU increased by PLN 19.9 million (+27.2%), mainly due to a growth in the costs of keeping fund membership records by PLN 28.4 million (+117.8%), including additional fee for the transfer agent for provision of agreed quality level of services. Reduction of premiums transferred to open pension funds resulted in a drop in fees charged by ZUS by PLN 7.9 million (-48.5%).
Compared to the end of 2011, the number of OFE PZU members increased by 7.9 thousand, i.e. 0.4%, while the total number of members rose by 2.9%.
At the end of 2012, the total net assets of all open pension funds amounted to PLN 269,596.5 million and increased by 20% compared to the end of 2011. During this period, the assets of OFE PZU increased by 18.9% to
PLN 36,282.4 million. The above rise was mainly driven by the level of premiums received from the Social
OFE PZU with PLN 1,067.0 million in premiums, which is over 47.2% less than in 2011. Such a significant drop results from the statutory reduction in the amount of premiums transferred by ZUS to open pension funds since
Table 7: Performance of the Ukrainian segment (property and personal insurance)
Administrative expenses increased by PLN 1.6 million (+5.9%), mostly due to the increase of UAH/PLN exchange rate from 0.3716 as at 31 December 2011 to 0.4001 as at 31 December 2012 (by 7.7%). Administrative expenses in the original currency (UAH) decreased by 1.6% compared to 2011 due to continued tight cost control policy.
Increase in operating profit by PLN 11 million resulted mostly from positive changes in net premium earned
In 2012 acquisition costs grew by PLN 9 million (+22.4%) versus 2011. The increase resulted mainly from changes in the portfolio structure regarding sales of motor and property insurance (increased share of products and distribution channels with higher commissions).
Administrative expenses increased by PLN 3.8 million (+25.3%) mainly as a result of establishing foreign branches (Latvia, Estonia) and rebranding.
Investment contract accounting is based on the deposit method. In consequence, investment contract volumes are not classified as revenue in accordance with IFRS.
Data from the income statement: investment contracts 1 January - 31
Investment income in the investment contract segment increased by PLN 205.3 million as a result of improved standing of financial markets.
The decrease in technical provisions by PLN 1,171.5 million (PLN 1,098.7 million more than in 2011) resulted from a significant drop in the volume of sales of short-term investment products compared to the previous year, accompanied in an increase in endowment payments from these products.
Law Journal No. 16 of 1964, item 93 as amended), which may require an increase in the value of TPL
motor insurance provisions;  risk of growth in the number and value of claims and victims related to the Act on group claims of 17
December 2009 (Law Journal No. 7 of 2010, item 44 as amended);  stronger position of insurance brokers, which may result in increased acquisition costs;  the VAT Act of 11 March 2004 (Law Journal No. 54 of 2004, item 535 as amended) lacking a precise definition of exemptions regarding e.g. insurance or medical services;  unknown date and scope of implementation of Solvency II which may impact the capital requirement level in the PZU Group;  changes in regulations applicable to banks, which may result in a reduced number of mortgage loans granted and debtor insurance policies.
 legal or regulatory changes in business terms, i.e. amendments to the Act on insurance activity, PFSA
Key risks that can affect the performance of PTE PZU in 2013:  continued unemployment rate growth, which reduces number of members joining open pension funds;  low pace of pay increase affecting growth of premiums paid by pension fund members;  changes in the financial brokerage, reduced growth in popularity of independent financial advisory services thus limiting the number of sales channels;  volatile yield of treasury securities, depending on the standing of Polish and EU economies; an increase in yield of these securities may result in a reduced value of investments managed by PZU PTE;  situation in the capital market in 2013, in particular at the Warsaw Stock Exchange – a portion of the investment income of OFE PZU depends on the market trends, which translates into value of assets and fees charged by PTE PZU for management services.
Key risks that can affect the investment performance in 2013:  volatile yield of treasury securities, depending on the standing of Polish and EU economies; an increase in yield of these securities may result in a reduced value of investments;  situation in the capital market in 2013, in particular on the Warsaw Stock Exchange – a portion of the investment income of companies is conditional on market trends. Further, attractiveness of equity products offered by PZU depends on the standing of capital markets;  changes in the financial brokerage, reduced growth in popularity of independent financial advisory services thus limiting the number of sales channels and reduced interest in equity instruments purchased for savings purposes.
Standard & Poor's Ratings Services on 16 July 2009) at the A level with a stable rating outlook. On 23 July 2012
This is one of the highest ratings assigned to polish companies. Long-term credit rating in the local currency for
Poland as at the date of the report is A with a stable outlook.
Credit rating A /stable/ 23 July 2011 A /stable/ 22 July 2011 9.2. Property, personal and life insurance 9.2.1. Insurance products
PZU offers a wide range of personal and property insurance, in particular motor, property, personal agricultural and other TPL insurance. At the end of 2012 the Company‟s offer included over 200 insurance products. Motor insurance constitutes the most important product group offered by PZU, both in terms of the number of binding insurance contracts and the share of gross written premium in the total gross written premium of PZU.
In 2012 PZU activities focused on improving the profitability of the corporate insurance portfolio and pro-sales activities in the retail mass segment.
 Following amendment of the Act on statutory insurance, Insurance Guarantee Fund, Polish Office of
 In relation to European Commission guidelines regarding EU Directive on Sex Equality, PZU withdrew from its offer a product whose premium amount depends on sex: individual insurance of daily hospital performance.
 Pursuant to amendments of legal acts (the package of health acts), in 2012 a new offer of statutory and voluntary insurance products addressed to medical entities was introduced.
 In property insurance segment, the profitability and portfolio quality improvement measures included maintaining a key role of underwriting through: o selective sales of policies, including entities from industries characterised with high number of claims o continued improvement and specialization of selection, classification and risk assessment process o common use of additional clauses and other technical and insurance restrictions that modify the scope of insurance.
 In mid-2012, the Management Board of PZU suspended sales of guarantees to construction companies due to the crisis and bankruptcies on construction market. Since then, the Company has only sold contract guarantees in other industries. The decision has resulted in a substantial reduction of written premium in this product compared to the previous year.
 In 2012, written premium related to bank loan insurance increased, mostly in relation to insurance of the entire portfolio of mortgage loans originated by PKO BP. At the end of 2012, a new framework insurance agreement regarding repayment of mortgage loans was concluded with ING Bank Śląski SA.
 In 2012 the Company continued cooperation with the existing partners, i.e. leading banks in the Polish market, to include PKO BP SA, ING Bank Śląski SA, Bank Millennium SA, BGŻ SA. Special insurance products added to bank ones were launched: insurance programs to payment cards, insurance of buildings and residential premises added to mortgage loans.
P Plus contract has had the continuation title since 1 January 2012;  changes in the group employee P Plus insurance dedicated to SME – PZU Ochrona Plus (among others continuation guarantee was added to the additional insurance offer in all cover packages).
In individual insurance, extending the offer of PZU Życie by a new product, Individual Pension Insurance Account
(IKZE) was the key success of 2012. IKZE is a product allowing voluntary pension savings and a tax relief in annual tax returns. Holders of IKZE may deduct payments to the pension account from their tax base. Up to 4%
“Świat Zysków” structured product, based on diversified investment strategies and allowing risk diversification in own investment portfolio, which have become an important element of investment offer of PZU Życie. In relation to frequent changes on financial markets, investment strategies proposed under the “Świat Zysków”
product have been subject to continuous changes to ensure the best match with current needs of clients.
Therefore, the number of subscriptions carried out increased to 12, compared to 6 in 2011. Further, the duration of each subscription was reduced. The product has been included to the standing offer of PZU Życie and its regular issues are planned.
When discussing changes in the product offer caused by external factors, the broad process of adjusting to guidelines issued by EU Court of Justice, carried out both by PZU Życie and other EU insurers, is to be highlighted. Following the changes, tariffs were modified, as well as general terms of most products offered.
In 2012, the main focus in the investment sector was on the unit-linked and structured products. The existing policy regarding policies combined with investment products was continued. Their distribution has been progressively restricted. The offer included only one product offered in cooperation with Bank Millennium, and one campaign carried out in cooperation with PKO BP. Modifications were introduced to many products to incorporate the guidance on bancassurance investment insurance issued by supervisory bodies.
Bank Millennium met strong interest of both sellers and clients. Other unit-linked products offered in cooperation with this bank were withdrawn. In the second half of the year, when working on modification of two group unitlinked products offered in cooperation with Deutsche Bank PBC, sales improved significantly, but the Management
Board decided to withdraw them in light of doubts expressed by supervising bodies.
In the second half of the year, a group structured product offered in cooperation with ING Bank Śląski was launched. The launch was stopped after the first subscription, though, due to doubts raised in relation to the group form of insurance.
In the cover insurance segment, in 2012 cooperation was established with Idea Expert SA (former PDK SA)
According to the Act on insurance activity, general terms should be delivered to the policy holder prior to concluding an agreement.
According to Management Board Regulations adopted in PZU, statutory and voluntary insurance tariffs and general terms of voluntary insurance are determined in the form of resolutions.
Insurance contracts exceeding 25% of the total of TPNR and equity
During 12 months ended 31 December 2012, PZU nor PZU Życie did not conclude an insurance agreement whose sum insured with regard to a single risk net of reinsurance would exceed 25% of the total of technical provisions and equity.
 Multi-agents: o 2,51112 agents cooperating with a number of offices and selling mostly to mass clients; o in this channel, all sorts of policies are sold, with special focus on motor and property insurance.
 PZU employees: o About 470 employees working in own PZU offices sell insurance in particular to corporate clients.
 Bancassurance: o In 2012, PZU cooperated with 9 banks and 3 strategic partners holding large client bases or maintaining mass payments (telecoms, airlines); o In this channel, sales of property insurance are limited to policies linked to bank products or basic services provided by the key strategic partner.
 Exclusive agents o As at the end of 2012, sales of individual and group life insurance were performed through the network of nearly 2.2 thousand exclusive agents and 167 Sales Team Managers supervised by Sales Directors in 36 Agency Sales Units grouped in five regions.
 Bancassurance o A network of banks that cooperate with the company distributing a broad game of investment and cover products.
For a few years, PZU has undertaken measures aimed at reduction of broadly understood insurance crime. For this purpose, among others analyses of relations among data in PZU operating systems and Information Centre of
Insurance Guarantee Fund are carried out. Further, cost estimates are verified based on standardised procedures aimed at inefficiency reduction.
and to reduce the risk of future loss, among others by providing CC Function underwriting unit with relevant information; Pilot of simplified claims handling procedure for crops to allow reducing the handling of the related claims to about 10 days.
The following measures were taken with regard to personal claims handling:  Free Rehabilitation Program involving cooperation on diagnostic and rehabilitation services with medical entities around the country has been extended;  Automated communication with providers of diagnostic services in TPL and accidental insurance was introduced. At present, data with all 4 providers are extended on an automated (systemic) basis;  Mass correspondence service managed by claims handling system was introduced.
Motor own damage insurance;  in PZU Życie, by approx. 0.4 day and amounted to 4.6 days.
Dobrowolny Fundusz Emerytalny PZU established by PTE PZU. PTE PZU is among the market pioneers permitted by PFSA to carry out this sort of business activity (a decision of 22 November 2011 permitting the establishing of
Dobrowolny Fundusz Emerytalny PZU “DFE PZU”), thus accepting its by-laws. The fund managed by PTE PZU
As at the end of 2012, TFI PZU had 25 funds and sub-funds in its offer, out of which 16 are offered also to clients outside the PZU Group. In 2012 five new closed funds were established, out of which two (PZU FIZ Medyczny and PZU FIZ Forte) are offered to external clients.
At the end of 2012, the total net assets of funds managed by TFI PZU amounted to PLN 15,363.5 million
(increase by 186.9% year on year). In terms of assets value, PZU TFI held the first place in the market with the share of 10.54%. Among others, the increase resulted from:  Introduction of a new investment strategy in the PZU Group, resulting in an increase in assets managed by TFI PZU from PLN 5.37 billion to PLN 15.36 billion due to non-cash or cash contribution of PZU
Most funds obtained by TIF PZU include assets of PZU Group companies (at the end of December 2012, 78.5% of assets in all funds and sub-funds managed by TFI PZU). They include both portfolios of PZU and PZU Życie used to cover technical provisions and money collected with unit-linked investment insurance. For the latter, clients can select funds from the broad offer of TFI PZU.
o In 2012, the existing network was revitalized and cooperation established with new distributors.
ordering system;  Commencement of work on PZU Investor loyalty program;  TFI PZU participating in a number of initiatives, such as Asset Management Forum, Private Banking 2012
Conference, European Economic Congress - Katowice 2012, Economic Forum in Krynica, V Investment
Forum in Tarnów, Listed Companies Management Congress, Retail Banking Congress;  Advertising campaign held in Internet and promoting the remote registration via the Internet platform and IVR;  Enhancing the image of TFI PZU in press, including a large promotion campaign in December 2012;  Obtaining a very good rating from an independent analytics company Analizy Online for PZU
Niepublicznych BIS 1 commenced their operations;  Closed investment funds PZU FIZ Medyczny and PZU FIZ Forte commenced their operations and certificates were issued;  Employee Pension Plan was implemented in: o GRUPA PHN, o PGNiG Energia Oddział Obrotu Energią, o Zakłady Azotowe w Tarnowie-Mościcach S.A. (at present Azoty Group), o ZAK S.A. (at present Azoty Group), o Totalizator Sportowy Sp. z o.o.
 Winning new distributors: BRE WM SA, Deutsche Bank SA, DM BOŚ SA, DM PKO BP SA;  Winning key partners in subscribing investment certificates during issues: CDM Pekao SA, Raiffeisen
A portion of operations is carried out via subsidiaries (for instance PZU Pomoc – claims handling and PZU Asset
PZU Group employees, as well as training with the use of modern e-Learning technologies;  The process of securing workstations used by PZU Group management thus significantly improving safety of key data; the process has been continued for other mobile devices used by PZU Group employees;  WAN acceleration project was completed and resulted in material speed-up of its operation and rationalized used of infrastructure and capacity;  VoIP phone system was put into operation for all PZU Group employees, which reduced operating expenses and improved the service quality;  Internal processes were refined in accordance with international ITIL standards, which included implementation of IT hardware and software management principles.
In 2012, the image campaign was the key task, with the objective to communicate that PZU had been transformed into a modern, client-oriented company.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 knowledge in the area of insurance, finance, sales, modern technologies or management participating in individual and group training programs.
cooperation and new initiatives among staff and building positive employer image. Additionally, strategic objectives of the PZU Group were linked to remuneration system at all levels of the organization thanks to changing performance management system and defining a new incentive scheme.
DNA of an employee and of a PZU Leader was developed as the basis of the annual employee performance assessment. In order to strengthen “genes” in the DNA, employees and managers can select courses offered by the HR function.
Entry and exit mechanisms were introduced in the organisation. The orientation process for new hires assumes building involvement and loyalty based on the climate of openness and cooperation. Each individual leaving the organisation upon mutual agreement is asked to express an opinion regarding his/her work in PZU and motives underlying the decision to change employer. The recruitment period (at present 28 days) was reduced.
Leaders. Its objective is to develop initiatives that improve employee commitment in five areas: “People: our greatest asset”, “Pay for performance”, “Grow with PZU”, “Client First”, “PZU Ambassadors”.
Further, PZU participated in a series of initiatives addressed to young talents, among others Writing with
Knowledge and PZU Ambassador. These activities improve the value of PZU brand as a good employer (the fifth place in the third edition of Antal International survey “Employers of choice 2012 as seen by professionals and managers”).
On 29 December 2009 the Management Board of PZU and PZU Życie published an implementation plan of the restructuring program for 2010-2012.
Staff restructuring and optimization in the years 2010-2012 was carried out in accordance with the provisions of the Act of 13 March 2003 on special principles applicable to termination of employment contracts for reasons other than through the fault of employees (Journal of Laws No. 90 of 2003, item 844 as amended) as a part of group layoffs and individual redundancies based on the Act in question. Every intention of group layoffs was consulted with the trade unions operating in the companies and applicable District Employment Agency was informed of initiation of the group layoff procedure in line with the Act of 13 March 2003.
In 2010 the changes affected 6,045 employees, out of which 2,439 were given termination documents. In 2011, changes related to group layoffs affected 1,943 employees, out of which termination of employment process was initiated for 1,276 people. In the same year employment was terminated with 75 persons under individual layoffs for reasons not related to these individuals. The costs of redundancies were charged to the restructuring provision.
On 24 July 2012 PZU, PZU Życie and their trade unions concluded an agreement concerning the terms and conditions of staff restructuring. The final version of the document was based on experience gained and solutions developed during similar negotiations in previous years.
In all restructuring stages (i.e. in 2010-2012), individuals who were laid off or refused to accept the proposed change of employment terms were offered more favourable terms of leaving the company than projected by relevant legal regulations (Act on special principles of employment termination for reasons not related to employees). The amount of additional redundancy pay on each stage was different; at the same time the redundancy package depended on the salary of each employee and their time of employment at the PZU Group.
As of 31 December 2012 the provision for restructuring costs amounted to PLN 9,841 thousand (vs. PLN 112,956 thousand as at 31 December 2011), which implied a decrease in the provision of PLN 103,115 thousand
On 27 December 2012, the Management Boards of PZU and PZU Życie announced assumptions of the restructuring plan for 2013 to include mainly claim adjustment and finance areas, as well as auxiliary functions, but to much lower extent. On 13 February 2013, the Management Board of PZU Życie announced the plan to carry out group layoff. The restructuring action shall take from March to June 2013. It will include up to 3,145 employees of PZU and PZU Życie, with the estimated employment reduction level up to 630 people, what constitute 5.5% of employees in both companies.
Table 16: PZU and PZU Życie - employment * total headcount in FTE thousand, without exclusions - as at 31 December of a given year
On 28 February 2012, Management Boards of PZU and PZU Życie terminated Collective Labour Agreements (CLA)
The proposed principles of remuneration system implemented in 2012 included:  New bonus rules to be introduced in Q4 2012: the monthly bonus up to 25% of the base pay to be replaced with a quarterly bonus up to 30% of the quarterly base pay (directly linked to performance);  Maintaining other employee benefits (retirement benefit and jubilee bonus) only to the extent determined in the Labour Code. As a consequence: o retirement benefits have been limited to one-month salary, i.e. the level determined in the
The results of implemented solutions did not significantly affect remuneration and other employee benefits costs in 2012, except release of provision for employee benefits (retirement severance pay and jubilee bonuses) where amount of PLN 177.0 million was included in other operating revenue.
Maintaining yield of assets 1. Underwriting profit/loss (excluding the technical rate change) increased by PLN 439.0 2. According to FSA, for the first three quarters of 2012, market no. 1 in personal insurance (33.4%), comprehensive and TPL motor insurance (27.4%) and in other 3. A new mass sales management model was implemented with focus on improved efficiency of multi-channel distribution management.
Development of life insurance 1. Works on a new strategy for individual life insurance were started due to the change in market situation (including a number of documents issued by the Office of Competition and Consumer Protection and the Insurance Ombudsman).
Building a position in investments 1. At the end of 2012, TFI PZU won the first place in terms of value of managed assets according to IZFA (10.5% share in net assets due to transfer to funds).
Maintaining the leading position and yield in life insurance 1. Stable increase in gross written premium and underwriting profit (YoY) in basic types of insurance (“P” type).
4. Concentration of selected activities in the SME segment which resulted in a 10%
increase in sales in the segment (in number of the insured) in 2012 versus 2011.
2. A 17.2% increase in the number of risks in group health insurance Y/Y.
3. Further improvement and development of the outpatient medical care offer for institutional clients, including further development of a network of service providers and streamlining operations of TPA.
4. Market launch of a new product – prescription drug insurance.
Regaining market position with yield maintained 1. Underwriting profit/loss increased (excluding the technical rate change) by PLN 44.6 2. According to FSA, for the first three quarters of 2012, market no. 1 in corporate and other insurance in terms of Motor own damage insurance (43.3%) and in Motor TPL
Objective Measures undertaken in 2012 partner with a strong expert position, not only selling insurance policies, but also providing clients with advisory support.
4. Work on developing of a shared system of cooperation with brokers was completed.
5. Verification of tariffs for yield and sales was performed, as well as verification of calculation tools.
Efficient capital and investment policy 1. Financial and credit rating of PZU and PZU Życie according to Standard & Poor‟s on the A level (with the stable rating outlook for both companies) is the highest rating granted to Polish companies.
2. Work was performed to prepare the PZU Group to fulfil Solvency II regulatory requirements.
New international expansion model: PZU International 1. Developing business in Baltic countries: PZU is present in Lithuania; in Latvia, first sales of policies took place in December 2012; in Estonia sales is planned for
Social Responsibility 1. Since January 2012, PZU has been included in the Respect Index of socially responsible companies.
4. In 2012, PZU and PZU Życie assigned the total of PLN 16.8 million for charity.
3. The structures of managing the existing offices in the PZU Group were unified and the process of front-office staff unification commenced in order to provide comprehensive services to customers in the life and property segment in all offices.
5. Work aimed at optimization of claims handling area continued, to include:  progressing centralisation and optimisation of claims handling; initiating remote employment solutions as an alternative for office work;  implementing Assistance order handling platform and a platform allowing communication with seasonal liquidator under E-szkoda platform development;  mass printing service was implemented;  claims handling for selected insurance was optimized and took the form of phone service thanks to implementation of a simplified process for transport losses.
1. In 2012, implementation of DSP product system for property insurance was commenced (described in point 9.6).
3. The second implementation stage of the shared ERP-class system in PZU and PZU
2. Employee and performance assessment was implemented. In Q4 2012, for the first time employees were assigned quarterly targets and made accountable for them.
4. A training platform was successfully implemented and e-learning commenced, which translated into improved training efficiency through: substantial reduction of organizational costs, time savings, ability to adjust the training date to the current position / workload, training being available for any number of participants, ability to monitor training outcome.
PZU applies ethical and corporate social responsibility principles presented in item 15.1.
 cooperation with the Misie Ratują Dzieci association in therapeutic and psychological assistance to children who become accident victims;  Bezpieczna Flota (Safe Fleet) program addressed to selected fleet drivers was continued;  in liaison with Disabled Driver Assistance Association the Auto Mobility Centrum program was pursued, aimed at eliminating mobility barriers for handicapped persons through allowing their safe driving in properly adapted cars;  organizing contests for intellectually handicapped persons in liaison with Olimpiady Specjalne Polska;  improving safety in Łazienki Królewskie Museum through extended technical security systems in facilities, personal and property guard in the Museum.
PZU acted as a sponsor and patron of various cultural and sport events – both local and countrywide. The key activities in this area include:  close cooperation with the Royal Castle in Warsaw and National Museum in Kraków, Nowe Sukiennice
In 2012, PZU Foundation performed a number of programs in cooperation with other institutions and NGO‟s and granted subsidies of nearly PLN 7 million. Its operations focus on the following areas:  Education: in particular supporting initiatives that provide young people with equal opportunities of intellectual, professional and cultural development;  Social care and aid: in particular supporting, promoting and developing activities of handicapped people;  Culture and art: in particular, supporting cultural institutions in the form of obtaining new collections for them and providing support for organisations of Poles in Eastern Europe;  Healthcare: subsidising initiatives focused on broadly defined health protection.
Education area:  The ninth edition of competition for grants entitled “Enriching education in rural areas” took place, with 19 projects awarded;  The following organizations were granted subsidies under partnership programs: o Fundacja Edukacyjnej Przedsiębiorczości in Łódź in the form of scholarships for young people from rural areas and small towns and those for students of Humanities; o Polska Fundacja Dzieci i Młodzieży in Warsaw in the form of subsidy to the project
“Przedsiębiorczość”; o Fundacja ABC XXI – Cała Polska czyta dzieciom in Warsaw for a writing competition for a contemporary book for children named from Astrid Lindgren;  Further, one-off subsidies were granted to the following organisations: o Fundacja Harcerstwa Drugiego Tysiąclecia in Warsaw, Fundacja Tygodnika Polityka in
Fundacja Tęczowy Dom in Warsaw, Fundacja Dzieło Nowego Tysiąclecia in Warsaw,
Fundacja Szkoły Społecznej in Wesoła, Caritas Diecezji Warszawsko – Praskiej i
Culture and art area:  subsidy for Fundacja Pomoc Polakom na Wschodzie in Warsaw – continuing support of radio programs broadcast by the Polish station in Vilnius;  In this class, subsidies from financial reserves were granted to the following organisations: o Fundacja Dobroczynności i Wsparcia Rozgłośni Radiowej „Znad Wilii” in Vilnius, Muzeum
Healthcare area:  Subsidy was granted to Polska Unia Onkologii in Warsaw for training of medical personnel in psychology of cancer;  One-off subsidies for health projects were granted to the following organisations: o Fundacja Amicic Cordis in Warsaw, Fundacja Gajusz in Łódź, Stowarzyszenie Na Rzecz
According to the Strategy for the years 2012-2014, in the years to come, the operating model of the PZU Group will be transformed from one aligned with product lines to one aligned to client segments. These activities will allow better understanding of client needs and appropriate response to these needs. Plans for the years to come include also further optimisation of PZU Group‟s operations.
Profitable maintaing the market share on the property and personal insurance 1. Maintain the existing market share in motor and property insurance segment.
3. Further development of the mass sales area, among others in the form of developing key distribution channels.
3. Active further sale of group insurance products related to health and the medicines.
Rebuildig market position while maintaining yield 1. Transforming PZU into a business partner with a strong expert position, acting not only as an insurer, but also as client advisor.
2. Maintaining the existing market position in motor insurance and increasing market share in other insurance.
2. Further strengthening of PZU position as an employer of choice through another edition of the internship program.
The risk appetite is defined in the form of limits approved by the Management Board or a relevant committee.
The limits determined in PZU and PZU Życie are not allocated to organisational units on lower levels of their organisational structure.
The risk management structure is based on four competency levels. The first three include: 1) Supervisory Board, which supervises the risk management process, assesses its efficiency and adequacy in relation to decisions determined in the By-laws of PZU and PZU Życie and internal regulations regarding operation of the Supervisory Board; 2) Management Board, which organises and ensures operation of the risk management system through determining strategies, policies, risk appetite for each risk class; 3) The Committees (ALCO, Credit Risk Committee) which make decisions on limited level of each risk within the framework determined by the risk appetite. The Committees adopt mitigation procedures and methods for each risks and accept risk limits for every type of risk.
Chart 6: Risk management organisational structure: roles and tasks 11.5. Risk types
Insurance risk in PZU and PZU Życie is the risk of loss or unfavourable value change of insurance liabilities related to incorrect valuation and provision-related assumptions. Insurance risk is the key risk PZU and PZU Życie is exposed to.
Assessment of insurance risk involves recognition of the level of threat or a group of threats on which a possible loss occurrence depends and analysis of risk elements in a manner allowing a decision to include the risk in an insurance policy and accept the related liability. The scope of insurance cover, the determined premium amount, and in financial insurance, also the collateral level accepted, are included in the insurance risk assessment.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 o reduce loss value;  reinsure the largest and most probable risks, to include: Insurance risk is measured in PZU based on:  analysis of selected ratios;  scenario method: analysis of impairment caused by a determined change in risk factors;  factor method: a simplified version of the scenario method reduced to one scenario per risk factor;  statistical data;  exposure and sensitivity measures;  expert knowledge of Company employees.
Insurance risk in the Company is managed especially through:  determining tolerance to the risk and its monitoring;  business decisions and sales plans;  calculation and monitoring of the adequacy of technical provisions;  tariff strategy, current estimate monitoring and premium adequacy assessment;  process of assessment, measuring and acceptance of insurance risk;  using risk mitigating tools, in particular reinsurance and prevention.
In circumstances indicating unfavourable changes in insurance liabilities or financial losses arising from fluctuation in occurrence, frequency and scale of insured events and from volatility in claim payments, PZU and PZU Życie initiates measures aimed at:  withdrawal of a given product from sale;  modification of tariffs;  modification of Company‟s responsibility scope in individual products;  introducing new exclusions in general insurance terms and conditions;  modification of underwriting principles;  establishing co-insurance programs;  establishing reinsurance programs.
Insurance risk in the Company is limited through:  defining liability periods in general terms and conditions;  defining liability exclusions in general terms and conditions;  establishing reinsurance programs;  appropriate tariff policy;  application of a relevant provision calculating methodology;  underwriting procedure;  business decisions and sales plans;  prevention.
Market risk identification involves recognition of actual and potential sources of this risk. It is carried out for all types of instruments, both these with already accepted risk and the planned ones.
Identification of market risk related to assets starts at the moment of deciding to commence transactions with a given type of financial instruments. Entities deciding to commence transactions with a given type of instruments
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 prepare its description to include in particular risk factors and submit it to the Risk Office, which identifies market risk based on the description. Market risk identification related to insurance liabilities commences along with creation of an insurance product and linked to identification of relationships between cash flows generated by the product and market risk factors.
Identified market risks are assessed for materiality, i.e. whether risk materialisation may involve a loss that will impact the financial standing of the Company.
Market risk monitoring is double-tracked: internally in organisational units in charge of operational market risk management and independently by the Risk Office. Market risk monitoring involves analysis of risk level and the use of pre-determined limits. The monitoring is carried out in daily or monthly cycles, adequately to the defined limits.
Management measures regarding market risk involve in particular:  transactions aimed at its mitigation, i.e. sales of financial instruments, closures of derivatives, purchases of hedging derivatives;  diversification of asset portfolio, in particular for a market risk class, instruments maturity, exposure concentration in one entity, geographical concentration;  investing in highly liquid debt instruments;  establishing market risk restrictions and limits.
PZU and PZU Życie define credit risk as the risk of loss or unfavourable change of the financial standing resulting from fluctuations of reliability and creditworthiness of issuers of securities, counterparties and debtors, which materialises in their failure to perform or an increase in credit spread.
Concentration risk per entity is measured as a product of two figures:  exposure to that entity over the concentration limit;  concentration risk ratio determined for each internal rating.
The total concentration risk measure of PZU and PZU Życie is the total of risks of individual entities. For related parties, concentration risk is calculated as total for all of them.
Monitoring of credit risk and concentration involves analysis of risk level, creditworthiness and the use of determined limits.
Monitoring is carried out in cycles:  monthly for exposure arising from financial insurance;  every six months for exposures of Reinsurance Office;  daily for other exposure limits;  monthly for VaR limits.
Management measures regarding credit and concentration risk involve in particular:  transactions aimed at their mitigation, i.e. sales of financial instruments, closures of derivatives, purchases of hedging derivatives;  accepting collateral;  reinsurance of financial insurance risk portfolio;  diversification of asset and financial insurance portfolio, in particular for a market risk class, instruments maturity, exposure concentration in one entity, geographical concentration;  determining limits of exposure to an entity, group, sector, state.
The PZU Group14 identifies and assesses operational risk by way of collecting and analyzing information about this risk type for the following areas: safety, HR, IT and legal. Consequently, the Group is able to assess threats resulting from operational risk.
In order to mitigate operational risk PZU Group16 applies the following solutions: • Update and optimization of processes and procedures; • Change of check points, reconciliation and validation structure; • Automation of controls; • Emergency plans; • Monitoring and analysis of security incidents; • Analysis of staff turnover and steps taken to mitigate the risk in this area such as: staff selection, training and incentive systems; PZU Group excluding Armatura Group 14
Companies in the PZU Group 16 manage operational risk in line with the guidelines defined by the PZU Group and taking into account the type and scale of a particular company.
PZU PTE) to ensure correct operation of the key processes in an event of a failure.
Życie, its employees or entities acting on its behalf fail to comply with legal regulations, internal rules and accepted norms of conduct, including ethical standards.
In the process of compliance risk management coordinating role is fully owned Risk Office.
Identification and evaluation (measurement) of the risk of non-compliance are performed by organizational units in charge of PZU and PZU Życie and additionally, on their own by the Risk Office. Identification and assessment of compliance risk is realized for each internal process set out in the insurance Classifier, by those who direct organizational units, according to the segregation of responsibility for reporting. In addition, the Risk Office identifies compliance risks arising from information included in register for the reports of conflicts of interest, gifts and benefits and deficiencies, as well as affecting queries.
Evaluation and measurement of the risk of non-compliance are made by determining the effects of the materializing the risk, including:  financial, resulting from: o administrative penalties; o judicial decisions; o agreements penalties; o compensation.
The table below summarizes the results of the analysis of the sensitivity of net profit and equity on changes in interest rate risk, currency risk and price risk of equity instruments. The analysis does not take into account the effect on net profit and equity of changes the in investment valuation, which are taken into account when calculating the amount of provisions.
Financial assets exposed to FX risk include deposit transactions and debt securities that hedge outlays for technical provisions denominated in foreign currencies, exposure to equity instruments listed at other exchanges than WSE, investment units, certificates and derivatives denominated in foreign currencies, as well as financial assets denominated in foreign currencies of companies included in consolidation. Decrease in sensitivity to exchange rate risk at the end of 2012 compared to 2011, was mainly caused by the use of derivatives to hedge currency risk.
Capitalized value of annuity claims – property and personal insurance - PZU
Presented below is an analysis of sensitivity of the net profit/loss and equity to changes in the assumptions used while calculating the provision for capitalized value of annuity claims. The analysis does not present the effects of changes in the measurement of investments on the net financial profit/loss or equity which are taken into consideration while determining the value of the provision.
Technical interest rate – rise by 0.5 p.p. 397 348 397 348
Table 20: Sensitivity of provisions for contracts for insurance and investment with DPF
Effect of changes in the assumptions on net profit/loss net profit/loss
Additionally, Note 7.5.1.1 to the consolidated financial statements of the PZU Group for 2012 presents sensitivity analysis concerning catastrophe risk.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 11.7. Key risk related events in 2012
In March 2012, as a part of optimisation and concentration of the decision making process, Credit Risk Committee took over competences of the following committees that were subsequently liquidated:  Committee in Charge of Financial Insurance and PZU Guarantees, whose key task involved determining strategy and system of limits in the financial insurance and guarantee segment;  Investment Committee in charge of determining exposure limits for non-banking entities.
In 2012, PZU SA developed Risk Strategy for 2012-2014 with the following key objectives:  adjusting the PZU Group to the requirements of Solvency II;  unifying the system of concepts, risk measuring and reporting in the PZU Group;  building risk map.
In 2012, a strategic project related to adjusting PZU to Solvency II requirements was commenced. Project work follows the accepted timeline. PZU has been cooperating with Polish Financial Supervision Authority when preparing to implementation of the Directive, in particular participates in all quantity surveys.
In 2012, PZU Lietuva advanced to the second position in the Lithuanian insurance market. In 2012 the key objective of the company was to further increase the profitability of motor insurance and corporate property insurance. The Company has grown sales by 18.2% versus 6.6% growth of the entire market.
In December 2012 the entity sold its first policy with the premium of EUR 26.4 thousand.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 12.2. PZU Ukraine
In line with adopted assumptions, in 2012 PZU AM provided services solely to the PZU Group companies including
In line with the assumptions in 2012 PZU AM started managing new investment portfolios (PZU FIZ Medyczny; FIZ Sektora Nieruchomości 3; PZU FIZ Forte; PZU FIZ AN BIS 1; PZU FIZ AN BIS 2).
In the area of agency sales support the following projects were launched:  distribution of the Individual Pension Account product for PTE PZU;  cross-selling of group property insurance for PZU; In the area of operations and IT projects supporting operational processes:  opening a new Contact Centre location in Bydgoszcz for the needs of PZU and PZU ŻYCIE;  providing services related to the Individual Pension Account product for PTE PZU and PZU ŻYCIE.
13. Shares or rights to shares held by members of management or supervisory bodies of PZU as at the date of the annual report
Table 21: Shares or rights to shares held by members of management or supervisory bodies of PZU
3 Przemysław Henschke (Director of the PZU Group since 1 February 2012)
4 Sławomir Niemierka (Director of the PZU Group since 19 March 2012)
5 Barbara Smalska (Director of the PZU Group since 5 February 2013)
Supervisory Board 1 Marzena Piszczek (Supervisory Board Member until 30 May 2012)
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 14. Other information 14.1. Remuneration of members of management and supervisory bodies of PZU Group
Detailed information regarding remuneration of members of management and supervisory bodies of PZU is presented in Note 55.1. to the Consolidated Financial Statements of PZU Group.
During the 12-month period ended 31 December 2012, PZU did not conclude agreements with members of its management bodies that would include compensation for their resigning or dismissal from the position without a valid reason, or if they are dismissed as a result of combination through acquisition. Members of the Management Board in PZU have concluded standard no-competition agreements which oblige them to refrain from activities competitive to that of their employer for the period defined in the contract following termination of employment.
In 2012 and 2011 no employee stock ownership plans occurred in PZU.
(since 1 February 2012) and WIGdiv (since 24 September 2012). On 24 December 2012, PZU was included also in CEERIUS (CEE Responsible Investment Universe) sustainable development index. CEERIUS is an index developed by Wiener Börse for Central and Eastern Europe. It includes leading companies from the region, which meet quality criteria related to social and ecological aspects of their operations.
tr a d in g v o lu m e (
Chart 7: Changes in the prices of PZU in 2012 compared to WIG20 31.12.2011 = 100%
Closing price on the last trading day in the year PLN
At the last session in 2012, the closing price of PZU shares was PLN 437.00, i.e. 41.4% higher than on the last day of December 2011 (PLN 309.00). At the same time, WIG20 and WIG gained 20.5% and 26.2%, respectively.
In the first half of 2012 changes in the price of PZU shares did not materially differ from stock exchange index changes, in the second half of the year, their price significantly exceeded the market level.
In 2012, the prices of PZU shares dropped 110 times at the closing, increased 130 times, and remained flat 9 times. The highest closing price (PLN 437.20) was reached on 21 December 2012, while the lowest was seen on 5 June (PLN 292.10). The average market price of PZU shares in 2012 was PLN 346.02 and was PLN 3.38 lower than in 2011. Average daily turnover of PZU shares in 2012 amounted to 211,993 shares and the highest level
Dividend policy of PZU has been determined by the Resolution of the Management Board of 11 May 2011 providing that: 1. the basis for the dividend paid by PZU for a given financial year will be the consolidated profit/loss of the PZU Group in accordance with International Financial Reporting Standards (IFRS); 2. Dividend amount:  cannot be lower than 50% and higher than 100% of the net profit presented in the consolidated financial statements prepared in line with IFRS;  cannot be higher than the separate net profit of PZU in line with PAS;  cannot lead to a reduction of the equity of PZU below the amount corresponding to 250% of the solvency margin;  cannot lead to a reduction in the financial strength of the PZU Group below the level corresponding to the AA rating of Standard & Poor‟s;  should consider additional capital needs of PZU in the twelve months following approval of the consolidated financial statements of the PZU Group for a given year by the Management Board of
Resolution on the dividend policy came into effect as at the effective date of articles referred to in Article 311 of the Directive of the European Parliament and the Council 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).
Polish Financial Supervision Authority with recommendations regarding limiting the dividend payment to maximum 75% of profit generated for 2011 with the capital requirement ratio following its payment of at least 110% and including additional capital needs within 12 months of the date of approving the 2011 financial statements, including those arising from investment concentration.
(described in detail in the recommendation). The companies meeting these criteria should limit dividend payment to the maximum of 75% of profit generated in 2012, with the capital requirement coverage ratio following the payment of at least 110%. At the same time, the recommendation allowed using the entire 2012 profit for dividend payment with the capital requirement coverage ratio of at least 160% following its payment for class I
companies, or of at least 200% for class II companies (as at 31 December 2012), and if following the latest stress tests for all surveyed risk types the capital requirement coverage ratio was at least 110%, and the coverage of technical provisions with assets amounted to at least 100%.
In 2012 an Ordinary General Shareholders‟ Meeting was held on 30 May and an Extraordinary Shareholders‟
The financial performance of PZU was presented after each quarter-end and discussed by the Management Board of the Company at meetings with capital market analysts. The meetings, similarly to the General Shareholders'
In 2012 PZU representatives participated in three Non-Deal Road shows in Europe and the United States, organized after publishing information about the Group's performance for 6 months of the year and at year-end, in 12 financial conferences organized abroad and attended by global investors, in 5 conferences held in Poland and numerous group meetings, one-on-one meetings and conference calls with investors and share portfolio managers held at PZU premises. In 2012 PZU organized over 240 meetings with nearly 400 institutional investors and nearly 120 meetings with analysts issuing recommendations concerning PZU shares.
 WallStreet in Zakopane, the largest meeting of private investors in CEE organized by Stowarzyszenie
After issuing information concerning PZU performance in 2011, and after the end of 3 and 6-month periods, the PZU Group also organized 4 chats with a Member of the Management Board of PZU and the CFO for private investors.
In 2012 PZU still actively participated in the program “10 in 10 – Communicate effectively”. It is an original project initiated by Stowarzyszenie Inwestorów Indywidualnych aimed at creating high standards of communication between listed companies and private investors.
Since its IPO, PZU has been partnering and actively participating in Akcjonariat Obywatelski project. Akcjonariat
Investor relations activities carried out in 2012 have been appreciated by investors and analysts and capital market institutions.
contest organized by the Instytut Rachunkowości i Podatków. The PZU Group took the third place in the contest in the category of banks and financial institutions for its Annual Report for the year 2011.
On 27 September 2011, a new Tax Group agreement was signed between the PZU Group companies, comprising 9 companies: PZU, PZU Życie, TFI PZU, PZU AM, PZU CO, PZU Pomoc SA, Ipsilon BIS SA, Ogrodowa-Inwestycje
Sp. z o.o., Ipsilon Sp. z o.o. The PGK was established for the period of three years from 1 January 2012 to 31
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 14.8. Main reinsurance contracts binding in 2012
In 2012 reinsurance coverage of the PZU Group SA secured insurance activities of the Group, reducing the risk of catastrophic events which could have a negative impact of the financial position of insurance companies.
The main partners granting obligatory reinsurance protection to PZU in 2011 are the following reinsurers: Swiss
Re, Hannover Re, Scor, Endurance, Lloyd‟s. PZU‟s reinsurance partners have high ratings according to S&P, which ensures certainty of a good financial standing of the reinsurers to the Company.
PZU‟s activities in the scope of inward reinsurance are one of the support measures to PZU Lietuva and PZU
Partners providing PZU Życie with reinsurance coverage were: RGA, Gen Re, Arch Re and Lloyd‟s. Reinsurance partners of PZU Życie have high S&P‟s ratings, which ensure good financial positions of the Company‟s reinsurers.
Table 24: Concluded and terminated credit facility agreements in the PZU Group
Credit facility/loan granted, rolled over or increased during the financial year
In 2012 neither PZU nor subsidiaries granted any security of a credit facility/loan or guarantees - to one entity or a subsidiary of such an entity - if the total value of the existing sureties or guarantees constituted the equivalent of at least 10% of the equity of PZU.
14.12. Evaluation of financial resources management including the ability to repay liabilities and definition of possible threats and activities, undertaken or planned by the issuer to counteract these threats
14.13. Proceedings before court, body competent to hear arbitration proceedings or a public authority body
During the 12-month period ended 31 December 2012, PZU did not conclude any related party transactions which could be considered significant (individually or jointly) and would be concluded on non-arm‟s length basis.
During the period from 1 January 2013 to the date of preparing this report on the activities, the PZU Group did not enter into any business combination transactions.
14.19. Information on agreements significant for the activities of PZU Group, including those concluded between the shareholders
In 2012 and 2011 PZU Group entities did not cooperate with any international public institutions.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 14.21. Agreements on audit and review of financial statements
The Supervisory Board of PZU selected Deloitte Audyt Sp. z o.o. as an entity authorized to audit financial statements of the PZU Group in two consecutive financial years 2012 and 2013.
Since the date the Company‟s shares have been admitted to trading on a regulated market PZU has followed the corporate governance rules laid down in “Good practices of companies listed on WSE” adopted by the Council of Giełda Papierów Wartościowych w Warszawie S.A.
The document is the code of conduct for insurance companies specifying their relationships with customers, insurance intermediaries, supervisory body and the Insurance Ombudsman as well as the media; governing the relationships between the insurers and setting standards of operations of insurance companies which participate in public trading in securities. The document is available on the website of PIU:  Good Practices at PZU. The document emphasizes the role of ethical standards applicable to all aspects of PZU operations, presenting sound business practices at PZU. It promotes the culture of compliance with the law, decision making based on ethical standards and responsibility for decisions taken.
 The social report of PZU. This is the first report concerning sustainable development and social activity of the Company, which has been prepared based on the guidance and standards of Global Reporting
with respect to corporate governance principles set forth in part I of “Good practices of companies listed on
WSE”, in accordance with the resolution of the Management Board of WSE dated 11 December 2007.
“Recommendations concerning good practices of companies listed on WSE" should be emphasised:  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 Management Board are set based on a resolution of the Supervisory Board.
 The policy of remunerating members of the management and supervisory bodies of PZU does not include all elements indicated in the recommendation of the European Commission of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC), supplemented by recommendation of EC of 30 April 2009 (2009/385/EC). Moreover, PZU did not present a declaration presenting remuneration policy on its corporate website. The decision concerning future compliance with the said rule will be taken by the Supervisory Board and the General Shareholders‟
 As for the recommendation specified in Section I.9 concerning gender parity principle to be followed in the Company's management and supervisory bodies, PZU has always pursued the policy of appointing competent, creative, experienced and educated people to the Company's bodies. The composition of the
Management and Supervisory Board is determined based on a decision of the Supervisory Board or a
General Shareholders‟ Meeting, respectively and other factors, such as sex, are not taken into account.
The General Shareholders‟ Meeting is the highest body of the Company. The general operational principles and the rights of the General Shareholders‟ Meeting have been determined by the Code of Commercial Companies and the By-laws. The By-laws are available at the PZU‟s corporate website (www.pzu.pl) in its section dedicated to PZU's shareholders in "Investors relations" tab: "Company".
The General Shareholders‟ Meeting is a body authorized to take decisions concerning issues related to organization and operations of the Company. Resolutions of the General Shareholders‟ Meeting are adopted by an
Shareholders‟ Meeting relating to preference shares and the Company‟s business combination by transferring all its assets to another company or a 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 share capital by redemption of a portion of shares without a similar capital increase require a 90% majority of the votes cast.
The most significant competencies of the General Shareholders‟ Meeting, apart from those specified in the
Commercial Companies Code and the By-laws of PZU include passing resolutions concerning, in particular, the following:  examination and approval of a management board report on the company‟s activities, financial statements for the previous financial year and acknowledgment of the fulfilment of duties by members of the company‟s authorities;  profit distribution or loss coverage;  taking 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 taking the decision whether to use them and if so, how;  taking the decision concerning division of the Company, its combination with a different company, its liquidation or dissemination of the Company;  appointing and dismissing members of the Supervisory Board, subject to the right granted to the State
Treasury to appoint and dismiss one member of the Supervisory Board;  establishing the rules of remunerating members of the Supervisory Board;  acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct exceeding the equivalent of a gross amount of EUR 30,000,000 (thirty million euro).
The General Shareholders‟ Meeting is convened in the form of the Ordinary Shareholders‟ Meeting, which should be held within six months after the end of each financial year of the Company and the Extraordinary
Shareholders‟ Meeting, which is convened in cases specified in the generally applicable law and the By-laws. The
A General Shareholders‟ Meeting is called by placing an appropriate announcement on the Company website in accordance with the method of providing current information specified in the Act on public offering, conditions governing the introduction of financial instruments to organized trading, and public companies of 19 July 2005
(Journal of Laws of 2005, No. 184, item 1539 as amended "Act on public offering"), i.e. in the form of current reports. Such announcement should be made not later than 26 days before the date of the General Shareholders‟
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 an open ballot is required by applicable law, upon request of any shareholder present or represented at the
During the General Shareholders‟ Meeting each shareholder may provide resolution drafts concerning items on the agenda.
In line with the Code of Commercial Companies, detailed procedures concerning participation in the General
Shareholders‟ Meeting published on the date of convening the Shareholders‟ Meeting at the PZU‟s corporate website (www.pzu.pl) in its section dedicated to PZU's shareholders in "Investors relations" in tab: "General
In accordance with PZU‟s Articles of Association, the Management Board is composed of three to seven members appointed for a joint term of office which covers three full consecutive financial years. The members of the
Management Board, including the Chairman, are appointed and dismissed by the Supervisory Board, and additionally, the Management Board Members are appointed and dismissed by the Supervisory Board on a motion tabled by the Chairman of the Management Board. The Chairman of the Management Board for the new term of office who is appointed before the expiry of the current term of office may submit a motion to the Supervisory
 Andrzej Klesyk - Chairman of the Management Board of PZU;  Przemysław Dąbrowski - Board Member of PZU;  Bogusław Skuza - Board Member of PZU;  Tomasz Tarkowski – Board Member of PZU;  Ryszard Trepczyński - Board Member of PZU.
Information about experience and competences of the Management Board of PZU and PZU Życie has been presented below: Andrzej Klesyk - Chairman of the Board of PZU
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.
He is a member of The Geneva Association – a non-profit organisation associating 80 Board Chairmen from top world insurance companies. He represents PZU at annual meetings of the World Economic Forum in Davos and the meetings of the Institute of International Finance in Washington.
Controlling Director in the Head office of PZU and PZU Życie and in March 2009 he was appointed the Information
Management Director in the Head office of PZU and PZU Życie. He has been a Member of the Management Board of PZU Życie since January 2010. He has held the position of a Member of the Management Board of PZU since
December 2010. Przemysław Dąbrowski is in charge of the Financial Division.
Trade Faculty. He has vast experience in the financial sector, in particular in insurance. In the years 1979-1985 he worked in the Claims Handling Department of TUiR Warta SA. From 1985 to 1991 he was the General
In the years 1998-2000 he held the position of the Deputy Chairman of the Management Board of Towarzystwo
Ubezpieczeń Życiowych i Emerytalnych Petrus SA and the Chairman of the Management Board of Fiat Ubezpieczenia SA. From 2000 to 2008 he was the Chairman of the Management Board of Skandia Życie
In the years 2002-2005 he worked in the claims handling function as the Head of the Technical Department in the Claims Handling Office. From 2006 to 2007 he was a Director of the Claims Handling Centre and a Cliams
Board of PZU Ukraine, where he supervised the claims handling, product management and risk assessment departments. Tomasz Tarkowski was a Member of the Supervisory Board of SOS Service Ukraine, a subsidiary of
PZU Ukraine, responsible for assistance services. Since February 2011 he has been a Director of the PZU Group in the Head office of PZU SA and the Proxy of the Management Board of PZU Życie in charge of Claims Handling. He has held the position of a Member of the Management Board of PZU since April 2011 and the position of a
Member of the Management Board of PZU Życie - since July 2011. He is in charge of claims handling and assistance functions.
Department. Since the beginning of his professional career he was focused on the capital market. He has vast experience in developing and implementing investment strategies, drawing up investment policies and managing large and diverse asset portfolios. He participated in building management structures for strategic allocation of assets, liquidity and investment risk. In 1994-1006 he worked as a broker in the Capital Transactions Centre of Bank Handlowy w Warszawie SA. In the years 1996 – 2002 he was employed in the Financial Investment
Office of PZU Życie – initially as an Asset Manager and subsequently as the Head of the Debt Instruments
Portfolio Management Department. From December 2002 to June 2011 he worked at Pioneer Pekao Investment
Director and Director of the Insurance Office. From September 1997 to September 1998 he was a Member of the Management Board of PZU Życie. In the period from September 1998 to March 2000 he was the General
Życie since March 2007 and since August 2007 he has held the position of the Chairman of the Management
Rafał Grodzicki – Member of the Board of PZU Życie, Director of the PZU Group
Rafał Grodzicki graduated from Warsaw School of Economics. He has extensive management experience in the banking and insurance sector gained in numerous Polish and foreign institutions. He joined the PZU Group in
He graduated from Warsaw University of Technology. He has more than 20 years of experience in financial services for the IT industry. He worked as a technology provider (as a Project Manager and an advisor) and also represented clients (IT Architect, CIO). His first important engagement was the implementation project for handlobank, which he managed as a Project Manager of the provider. He was one of the co-founders and creators of Inteligo, where he was the IT Architect and Project Manager of the implementation and then the CIO.
reorganization in the Credit Agricole Group in Poland. The next stage in his career was the launch of Polbank EFG, where he acted as a CIO responsible for the IT structure implementation in the Polish branch and he co-designed universal IT infrastructure for the CEE as a part of the EFG Group. After the launch of Polbank in 2007 he supported Management Boards and CIOs of top banks and insurance companies from Europe and the Middle East as a strategic advisor at McKinsey. He focused on optimization of operations and IT costs, supported reorganization projects, developing IT strategies and architecture and streamlining communication and mutual understanding between the Business and the IT functions. Later, as the Group CIO in Banque Audi, one of the top banking groups operating in the Middle East and headquartered in Beirut, he developed an IT
Finance. For many years he worked in the National Bank of Poland - the General Inspectorate of Banking
Sławomir Niemierka joined the PZU Group in 2008 as a Managing Director in charge of Audit. On 19 March 2012 he was appointed a Member of the Management Board of PZU Życie. He was appointed a Director of the PZU
Barbara Smalska – Member of the Board of PZU Życie, Director of the PZU Group
Barbara Smalska studied particle physics and holds a PhD of Warsaw University, the Physics Department and the Institute of Deutsches Elektronen Synchrotron (DESY) in Hamburg. In the years 2002-2008 she worked at the Warsaw office of the The Boston Consulting Group. As a strategic advisor to top Polish banks, insurance and telecommunication companies she specialized in business strategies, operational models, distribution strategy, organization and activation of the sales network – in particular in the consumer and SME sectors. She joined the PZU Group in 2008 and worked as a Director of the Product Management Office, Managing Director in charge of Mass Client Sector and Managing Director in charge of Marketing and Individual Products. She joined the Management Board of PZU Życie on 1 February 2013. On 5 February 2013 she was appointed a Director of the PZU Group in charge of marketing and mass sales.
Witold Jaworski (Member of the Board of PZU until 27 December 2012)
Witold Jaworski has vast experience in managing insurance products and sales. In the period from February 1998 to March 2001 he worked for McKinsey & Company and from May 2004 to December 2012 – for the PZU Group.
From 14 December 2007 to 27 December 2012 he held the position of a Member of the Management Board of PZU. As a Board Member of PZU he was responsible for network management, mass client segment, sales, product management and marketing.
The Management Board exercises all the rights in the scope of managing the Company, which are not reserved by the provisions of the law or the provisions of the Statute to the General Meeting or the Supervisory Board.
The Management Board enacts its rules and regulations which are approved by the Supervisory Board. The operations of the Management Board are directed by the Chairman of the Management Board who establishes the scope of responsibilities for individual Board Members. The resolutions of the Management Board are passed only in the presence of the Chairman of the Management Board or a person appointed to direct the work of the
Management Board in his absence, and if at least one half of the Management Board Members are present at the meeting. The resolutions of the Management Board are passed by an absolute majority of votes and if the number of votes is equal, the Chairman of the Board has the casting vote. The Management Board, on the approval of the Chairman of the Board, may pass resolutions by circulation, in a written or electronic form (i.e.
using remote means of communication and using a qualified electronic signature). The Statute also provides for the possibility of holding Management Board meetings using means of direct communication over a distance. Two
Members of the Management Board acting jointly or one Member acting jointly with a proxy are authorized to represent the Company.
The rules and regulations of the Management Board regulate: (i) the scope of competencies of the Management
Board and the scope of actions requiring permission or approval by the Supervisory Board; (ii) the competencies of the Chairman of the Board and of the remaining Board Members; (iii) the rules and organization of the work of the Management Board, including organization of meetings and the procedure for making decisions; and (iv) the rights and obligations of the resigning Board Members.
In accordance with the rules and regulations of the Management Board, the following issues in particular require a resolution of the Management Board:
 adopting a long-term plan for the Company‟s development and its functioning;  adopting a plan for the operations and development of the PZU Group;  adopting an annual financial plan and a report on its execution;  adopting the financial statements for the prior financial year and the Directors' Report of the Company;  adopting the proposition concerning appropriation of profit or covering loss;  establishing a tariff for compulsory and voluntary insurance contributions and the general terms and conditions for voluntary insurance;  establishing the scope and size of outward reinsurance and tasks in the scope of inward reinsurance;  adopting the annual audit and control plan and report on its execution including conclusions;  establishing the principles for investment, prevention and sponsorship activities;  granting warranties and guarantees (excluding those which constitute insurance procedures) and drawing and granting loans and borrowings by the Company (excluding loans and borrowings granted from the
The Chairman of the Management Board makes decisions in the form of directives and official orders. The remaining Board Members direct the Company‟s activities within the scope of responsibilities established by the
May 2009 on registered auditors and their self-government, entities authorized to audit financial statements and on public supervision (Journal of Laws No. 649 of 2009, item 77, “the Act on registered auditors”). Additionally, at least one member of the Supervisory Board should meet all the independence criteria specified in the Statute (the
Independent Member) concerning, among others, professional relations or kinship, in particular with members of management and supervisory bodies of the Issuer and the PZU Group companies. The Independent Member is obliged to submit a written statement to the Company concerning his meeting all the independence criteria provided for in the Statute and inform PZU of ceasing to meet those criteria. Moreover, the Statute grants the
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 statement submitted to the Management Board, if the share of the State Treasury in the Company drops below 50% of all of the Issuer‟s shares. The right shall expire on the State Treasury ceasing to be a shareholder in PZU.
On 30 May 2012 Krzysztof Dresler resigned from the position of a Member of PZU Supervisory Board.
Board Members stating that the Supervisory Board consisted of nine people.
The Shareholders Meeting dismissed Marzena Piszczek from the Supervisory Board, and at the same time appointed the following people as its members: Tomasz Zganiacz, Maciej Piotrowski, Włodzimierz Kiciński and
According to above mentioned, from 30 May 2012 the composition of the Supervisory Board is as follows:  Zbigniew Ćwiąkalski Deputy Chairman of the Board;  Dariusz Daniluk Member of the Board;  Zbigniew Derdziuk Member of the Board;  Dariusz Filar Member of the Board;  Włodzimierz Kiciński Member of the Board;  Waldemar Maj Member of the Board;  Alojzy Nowak Member of the Board;  Maciej Piotrowski Member of the Board;  Tomasz Zganiacz Member of the Board.
On 28 June 2012 the Supervisory Board of PZU was constituted. Waldemar Maj took the position of the
Members and the entire Management Board as well as making decisions on ceasing any such suspension;  granting approval for the transfer of a whole or part of the insurance portfolio;  accepting the Management Board‟s motions concerning the purchase, taking up or selling of shares in companies and concerning the Company‟s participation in other entities – the Supervisory Board may specify up to what amount and on what terms and in what mode the Management Board can perform the aforementioned actions without the obligation to obtain the Supervisory Board's approval;  delegating members of the Supervisory Board to temporarily perform the duties of the Management Board members who were dismissed, resigned or are unable to perform their duties for other reasons;  accepting instructions concerning the execution of the voting rights by the Company‟s representatives at the
Supervisory Board may delegate its members to independently perform specific supervision tasks and appoint temporary commissions for this purpose. The scope of duties of a delegated member of the Supervisory Board and of a commission is specified in a resolution of the Supervisory Board.
Statute, the resolutions of the Supervisory Board are passed in an open ballot, except for the resolutions concerning the delegation of Supervisory Board members to temporarily perform the functions of the
On 9 October 2012, the Supervisory Board adopted new Rules of the Supervisory Board of PZU.
Regulations of the Supervisory Board, apart from appointing the Audit Committee and Nominations and Remuneration Committee mentioned in Articles of Association, in order to properly perform its supervisory duties the Supervisory Board may appoint other permanent advisory and consultative committees with competencies, in a composition, and with work procedures established in the rules and regulations of a given committee enacted by the Supervisory Board. The Rules and Regulations of the Supervisory Board provide for the possibility of the Supervisory Board and the committees appointed by it availing themselves of the services of experts and advisory firms. Members of the
Management Board competent in the matters discussed at the meeting may participate, among others, in the Supervisory Board's meetings without a voting right. The Supervisory Board of PZU may also invite to a joint meeting for a specific purpose members of the management and supervisory bodies of other PZU Group companies. Moreover, members of the Supervisory Board are entitled, on the approval of the Supervisory Board, to select not more than one advisor authorized to participate with an advisory vote in meetings of the Supervisory Board devoted to financial reports and financial statements, provided that such persons maintain confidentiality and sign a statement of obligation to maintain confidentiality.
Board, the audit committee is an advisory and consultative body to the Supervisory Board and is appointed in order to increase the effectiveness of the supervisory activities performed by the Supervisory Board in the scope of examining the correctness of financial reporting, the effectiveness of internal control, including the internal audit and risk management system. Moreover, the audit committee may apply to the Supervisory Board to commission the performance of specified control activities in the Company, and the controls commissioned may be performed by an internal unit or an external company.
The audit committee was appointed by a resolution of the Supervisory Board on 3 June 2008. As at 31 December 2012 the audit committee was composed of the following persons: Marzena Piszczek (Chairman of the committee), Dariusz Filar (member of the committee) and Dariusz Daniluk (member of the committee). Dariusz
Filar was indicated by the Supervisory Board as an independent member having accounting / audit qualifications as defined in Art. 86 clause 4 of the Act on Registered Auditors.
On 30 May 2012 Annual General Meeting of PZU dismissed Marzena Piszczek from the position of the Member of
Committee of the Supervisory Board of PZU. As at 28 June 2012, the Audit Committee consisted of: Dariusz Filar
(Committee Chairman), Tomasz Zganiacz (Committee Member) and Dariusz Daniluk (Committee Member).
(member of the committee), Zbigniew Derdziuk (member of the committee), Dariusz Filar (member of the committee). As at 31 December 2012, the composition of the nominations and remuneration committee had not changed. Due to the dismiss of Marzena Piszczek from the position of the Member of the Supervisory Board by the General Assembly at the meeting of the Supervisory Board of PZU on 28 June 2012, it was agreed that the
(member of the committee). As at 31 December 2011, the composition of the strategy committee had not changed. As at 1 January 2012, the composition of the strategy committee had not changed. As on 30 June 2012
Supervisory Board of PZU dated 28 June 2012. As at 31 January 2012 the composition of the Strategy Committee had not changed.
As at 1 January 2012, the following persons were PZU Group Directors:  Dariusz Krzewina,
On 5 February 2013, the Management Board of PZU appointed Barbara Smalska as PZU Group Director.
The elements enabling proper performance of the process are: the accounting policies adopted by the
In accordance with the Statute of PZU, the Supervisory Board of PZU appoints an audit committee composed of three members, including at least one member with accounting or auditing qualifications as defined in and in accordance with the requirements of the Act on registered auditors. The audit committee is an advisory and consultative body to the Supervisory Board of PZU and is appointed in order to increase the effectiveness of the supervisory activities performed by the Supervisory Board of PZU within the scope of examining the correctness of the financial reporting of PZU, the effectiveness of internal controls, including the internal audit and risk management system.
In the case of all the consolidated subsidiaries, PZU performs control functions through the Management and
Following acquisition of shares in transactions settled on the Warsaw Stock Exchange on 1 February 2013, ING
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 4,281,972 shares constituting 4.9587% of the share capital of the Company and the same share in the total number of votes in the General Shareholders‟ Meeting.
Consequently, as at 7 February 2013 the shareholding structure of PZU, including shareholders entitled to less than 5% votes in the General Shareholders‟ Meeting of PZU was the following: Table 25: Shareholding structure – as at 7 February 2013
The Management Board of PZU is not aware of any contracts concluded as a result of which changes might occur in the future in the proportions of shares held by the current shareholders. In 2012 and 2011 PZU did not acquire any treasury shares.
PZU did not issue any securities that would give special controlling rights to the shareholders.
In accordance with the Statute of PZU, the shareholders' voting rights have been restricted so that, at the
The above restriction of the voting rights does not apply to: 1. shareholders who on the date of passing the resolution of the General Meeting introducing the restriction had rights from shares representing more than 10% of the total number of votes at the Company; 2. shareholders acting with the shareholders referred to in point 1 on the basis of concluded agreements concerning the joint execution of voting rights from shares.
The articles of association of PZU do not introduce any restrictions concerning the transfer of ownership rights to securities issued by the Company.
15.9. The principles for amending the Articles of association of PZU
Amending the Statute of PZU lies within the competencies of the General Meeting and requires passing a resolution by a majority of three fourth of the votes, obtaining approval from the PFSA in the cases indicated in the Act on insurance activities and entry in the National Court Register. The Statute of PZU provides for the
The changes were made in provisions determining competences of the Company‟s bodies with respect to approving acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct.
In accordance with Article 393.4 of the Code of Commercial Companies acquisition or disposal of a real property, perpetual usufruct or share in the real property (perpetual usufruct) must be approved by the general shareholders‟ meeting, unless the By-laws determine otherwise. Before introducing the amendments in question, the By-laws of PZU included provisions assuming that the Supervisory Board was authorized to approve the acquisition or disposal of a real property, perpetual usufruct or share in the real property or in perpetual usufruct with the value not exceeding the equivalent of EUR 3.0 million (Article 25.2.12 of the By-laws). According to the previous version, the general shareholders‟ meeting was authorized to take decisions in this respect. This implied that any acquisition or disposal of a real property, perpetual usufruct or share in the real property (or in perpetual usufruct) required the approval of the General Shareholders' Meeting of PZU, irrespective of the transaction amount. Moreover, if the transaction value exceeded the equivalent of EUR 3.0 million the transaction had to be approved by the Supervisory Board. At the same time, the By-laws did not clearly define whether the threshold was the net or the gross value.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 interpretation differences which might occur in case it was unclear whether the transaction value was a net or a gross amount.
On 14 March 2012 the Supervisory Board of PZU adopted resolution No. URN/11/2012 approving unified amended By-laws of PZU.
Changes in the By-laws were connected with:  The change in law related to acquisition activities for the benefit of open pension funds managed by
Consequently, Article 5.2.1 of PZU‟s By-laws had to be removed;  Due to the IPO of shares of PZU and listing PZU shares on the Warsaw Stock Exchange registered shares dematerialized under the Act on trading in financial instruments of 29 July 2005 were transformed into bearer shares as of the dematerialization date. At present the share capital is composed of registered and bearer shares, hence certain amendments had to be introduced to Article 6.1 of the By-laws of PZU
On 28 June 2012 the Supervisory Board of PZU adopted resolution No. URN/40/2012 on unified By-laws of PZU.
The District Court for the capital city of Warsaw registered the changes in the By-laws of PZU on 18 July 2012.
To the best knowledge of the Management Board of PZU, the consolidated financial statements of the PZU Group and the comparative figures have been prepared in accordance with the binding accounting policies and they give a true, fair and clear view of the financial position of the Group and its results, and the Directors‟ Report of the
The Management Board of PZU declares that a registered audit company Deloitte Polska Spółka z ograniczoną
odpowiedzialności Sp.k. - performing the audit of the consolidated financial statements of the PZU Group has been elected in accordance with the binding regulations and that the registered audit company and the registered auditors performing the audit met the conditions required for issuing an objective and independent opinion on the audited consolidated financial statements, in accordance with the binding regulations of the law and professional standards.