PZU Group’s activity 47 3.1 Structure of the PZU Group 48 3.2 Non-life insurance (PZU, LINK4 and TUW PZUW) 49 3.3 Life insurance (PZU Życie) 55 3.4 Banking (Bank Pekao, Alior Bank) 60 3.5 Mutual funds and Employee Capital Schemes (TFI PZU) 65 3.6 International operations 67 3.7 Medical services (Health) 69 3.8 Pension funds (PTE PZU) 72 3.9 Other operating areas 73
In pursuance of the Accounting Act requirements, the Company hereby presents a separate statement of non-financial information related to PZU Group and PZU SA. The statement was prepared in conformity with the international reporting standards of the Global Reporting Initiative (GRI Standards). Pursuant to Art. 49b.9 of the Accounting Act, the statement of nonfinancial information is available on the Company’s website at: DON’T PRINT IF YOU DON’T NEED TO
Insurance.” By basing our business on an extensive distribution network consisting of roughly 2,000 proprietary branches and offices run by tied agents and on a corporate network, activity in the banking sector and the skillful utilization of the opportunities afforded by new technologies, we strive to be present in every dimension and at every stage of life of our clients and satisfy the bulk of their needs.
Alior Bank is a universal deposit and loan bank that was established in 2008 as a start-up. In its operations it combines the principles of traditional banking with innovative solutions and consequently it sets new trends in financial services and consistently strengthens its market position.
Net profit of the PZU Group (excluding banks) Net profit of banks (Pekao and Alior Bank) attributed to PZU
Net result on investing activity including interest expenses 1,622 1,217 1,855 904 1,995
Net profit attributable to equity holders of the parent company - 181 393 654 515
NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 2,343 1,935 2,895 3,213 3,295
PZU: Patron of Culture - title conferred by the Ministry of Culture and National Heritage
Poland’s robust economic standing, growth in real household income coupled with the very strong labor market and growth in gross fixed asset capital formation form conducive conditions for PZU’s business development.
Gross Domestic Product Based on the preliminary estimates of the Central Statistical Office, in 2019 GDP increased 4.1% in real terms. Household consumption, up 3.9% from 2018, remained the main driver of economic growth. The maintained robust consumption growth was supported by an increase in employment, a decline in the rate of unemployment and higher real incomes. Also gross fixed capital formation was a major contributor to strong economic growth. Its growth rate stood at 6,9%. Consequently, the investment rate in the economy increased to 18.6% in 2019, compared to 18.2% in the previous year. Despite deterioration of the business climate in the Polish economy, the GDP growth rate was also supported by net exports, which contributed 0.8 p.p. to GDP growth in 2019. However the contribution of the change in inventory levels was negative (-0.9p.p.).
External environment penetration rates were achieved in the insurance markets of Lithuania (1.9%), Latvia (2.6%), Estonia (2.2%) and Ukraine (1.5%)9. The highest penetration rates were recorded by the United Kingdom (10.6%), Denmark (10.4%), Finland (9.9%) and the Netherlands (9.2%)10.
The most important one is the level of competition in individual product groups constituting the core of PZU Group’s business. Due to the deteriorating technical results on the non-life insurance market in Poland, increase in costs of claims processing and the necessity to comply with the price adequacy principle, probability of the return to more stable pricing policy, in particular in motor TPL insurance seems to be higher in 2020 than in the previous year. It is expected that price competition will continue at the similar level in 2020 in non-motor insurance, in life insurance products and in health insurance.
Its structure does not include mutual funds or companies in liquidation.
The total value of the investments made by non-life insurance companies at the end of Q3 2019 (excluding the investments in subsidiaries) was PLN 59,959 million, up 1.2% compared to the end of 2018.
The non-life insurance companies in total estimated their net technical provisions at PLN 55,582 million, up 4.8% versus the end of 2018.
The changes in the level and the growth rate of the life insurance market premium in recent years have been stimulated mostly by single premiums in investment products. It is worth noting that the premium contraction for the overall market year on year after the first three quarters of 2019 pertained to single premiums (down PLN 699 million, or 17.0% y/y, compared to a decline of 31.7% y/y recorded in the previous year). The single premium compound average growth rate since 2014 was -17.4%. The changes in circumstances on the capital market and in the legal environment are considered to be the underlying causes for the gross written premium on single premium business to fall in a trend over several years. Initially, the record low interest rates contributed to the decline in the yields offered by term deposits packaged as insurance products, thereby leading to heightened interest in other investment products. Additionally, a tax was introduced as of 1 January 2015 on short-term endowment insurance offering a fixed rate of return or a return based on indices; this also contributed to reducing client interest in such products and ultimately to their retraction, especially the first ones, from the offer of insurance undertakings. In subsequent years the regulatory authority’s guidelines, including guidelines regarding the level of fees incurred by clients of unit-linked products and EU directives regulating the market for these types of products and their distribution led to insurance undertakings constricting their offering of these types of products, especially in cooperation with banks. The first 3 quarters of 2018 were characterized by a rapid dip in the level of written single premium to the lowest figures in many years, followed by its stabilization at PLN 1.1-1.2 billion in each of the subsequent quarters.
Source: KNF (www.knf.gov.pl). Quarterly Bulletin. Rynek ubezpieczeń 3/2019, Rynek ubezpieczeń 3/2018, PZU Życie’s data
At the same time, PZU Życie continued to be the clear leader in the periodic premium segment. In Q1-Q3 2019, it generated 45.9% of periodic premiums written by insurance companies, signifying a small decrease (by 0.1 p.p.) in the market share in this segment. The y/y increase in gross written premium at PZU Życie in this segment was 1.3%, while the other market players taken together posted a 1.7% growth rate (with a particularly high rate of growth recorded by TUnŻ WARTA SA). One of the major factors was the rapid growth in the health and individual protection insurance portfolio. PZU Życie now has more than 2.1 million this type of policies in its portfolio. PZU’s share in just the life insurance segment (class I) for periodic premiums at the end of Q3 2019 was 62.4% when measured by value (gross written premium) and 67.3% when measured by volume (the number of agreements in force). In turn, PZU Życie’s market share in terms of the method of entering into an agreement just in the life insurance segment (class I) was 66.5% for agreements executed in group form and 39.6% for individual agreements (measured by gross written premium).
◦ expanding the range of benefits with those that are most frequently included in non-standard proposals,
Under the individually continued insurance, PZU Życie made the following changes: • launch of sales of the PZU Na Wypadek (PZU Accident
The banking sector’s own funds for capital ratios, calculated in accordance with the regulations laid down in the CRR Regulation1, totaled PLN 211.0 billion at the end of December 2019, up 3.6% from the end of December 2018.
At the end of Q3 2019, Bank Pekao was the second largest bank in Poland (in terms of the value of its assets).
Pekao TFI The Pekao Mutual Fund Company (Pekao TFI) is another member of the Pekao Group. Pekao TFI (formerly Pioneer Pekao TFI) is the longest operating mutual fund management company in Poland providing clients modern financial products, offering opportunities to invest in the largest global capital markets. For many years it has been devising savings programs, including programs affording an opportunity to put aside more money for retirement under the third voluntary retirement pillar. Pekao TFI also offers a portfolio management service and Employee Capital Schemes (ECSs). At the end of December 2019, the company had assets under management totaling PLN 21.6 billion, signifying an upswing of PLN 2.2 billion, i.e. 11.2% y/y. SECTION 3.5 MUTUAL FUNDS
The following funds recorded the largest decreases in net assets at yearend 2019: PZU FIZ Dynamiczny, PZU SFIO Universum, PZU FIZ Forte.
and efficiency of deposits made and complying with the investment risk limitation principles.
Lietuvos Draudimas continues to be the largest insurance company in Lithuania in terms of total gross written premium in non-life insurance. The company’s market share at the end of 2019 was 30.2%. Considering the recent acquisition transactions, the shares of top four players in the non-life insurance market totaled 83.2%.
In the first three quarters of 2019, PZU Ukraine collected 3.5% (up 0.1 percentage points compared to the first three quarters of 2018) of total gross written premium of the whole Ukrainian non-life insurance sector, whereas in the life insurance market PZU Ukraine Life gained an 11.3% market share (up 0.3 percentage points compared to the previous year), which gave these companies the 6th and 4th place on the non-life and life insurance markets, respectively5.
The basis for the operation of the transformed open-end pension funds will be the amended Act on Individual Retirement Security Accounts and Individual Retirement Accounts and the Act on Mutual Funds and Management of Alternative Investment Funds. The bill provides for amendments to several dozen statutes directly related to the operation of open-end pension funds and the social insurance system.
Comprehensive client picture - CRM platform supporting rapid and easy access to information concerning products and services
Metric: third party assets under management (PLN billion), net result on asset management (PLN million).
#10 Development of direct offering Initiative: Develop the best sales site in the online channel among European insurers.
In 2019, PZU started to professionally use a drone technology entailing visual material processing. The first flying missions were executed in large-scale damages using the DJI Matrice 200 drone equipped with a photo/video camera. The 3D model of the waste storage halls damaged by an extensive fire generated on the basis of photos from the drone in the PiX4DMapper photogrammetric program is a good example of its application. It made it possible to measure the actual distances, areas and volume of selected model elements. In addition, the machines located in the halls could be analyzed in 3D for identification and measurement purposes.
The company employs telematic solutions to enhance safety on Polish roads. For every motor policy purchased, it offers a free NaviExpert navigation service to its clients whereby it analyzes a driver’s driving style. Another year of the functioning of the telematic program called “Cash Back” made it possible to improve analytical algorithms and the mechanics used to reward drivers. Link4 rewards people whose driving style it considers to be smooth and safe – the reward is in the form of Polish zloty accumulated on a client’s account. At the end of the policy term drivers can receive a payout of this amount or apply it to lower the premium for a new policy. 45.5 thousand drivers, who drove 108.5 million kilometers with the app regularly turned on, took part in the telematic promotion in 2019. At the end of December 2019 the second million of zlotys in bonuses generated in the LINK4 Cash Back program was exceeded – the winner obtained a refund of PLN 1,200.
To track on a continual basis trends, changes and new developments in innovation LINK4 constantly cooperates with trend watchers and the startup community. In 2019 a decision was made to continue the cooperation with the startup accelerator organized by MIT Enterprise Forum CEE.
PZU LAB has started work on the certification of Polish industry. The certification model follows from the needs of enterprises conducting activity in Poland and wanting to compete on international markets. The objective of the certification is to increase the trust of domestic and international partners in the enterprises certified by PZU LAB, in particular in the safety of their processes and thus reliability of the products and services supply chain. The enterprise safety certification model is a unique solution in the European market.
Innovations Innovation is one of the strategic priorities of Bank Pekao. The bank has an Innovation Laboratory within its structures, which executes actions related to implementation of new solutions. The laboratory team focuses on designing innovations which will allow for improving the existing and developing new Bank Pekao products and services. The bank wants to effectively build its internal innovation structure, releasing the employees’ entrepreneur creativity. It also focuses on cooperation and partnership both with young, innovative startups and experienced technological companies, offering financial technology solutions.
Under the Digital Transformation Project, retail clients were provided with access to a new version of the electronic banking service – new Pekao24. The new service is based on the responsive technology (RWD – Responsive Web Design), which is characterized by intuitive navigation facilitating the use of the service regardless of the type of device used by the client. The service has a rich financial analysis module supporting clients in the daily management of finances, modern and intuitive interface, which supports optimization of the transaction processes performed by electronic banking users.
This segmentation is reflected in the structure of the sales network, as the sales units are specialized into, respectively: universal branches, premium branches and private banking branches.
Sales support in all distribution channels is ensured by operational and analytical Customer Relationship Management (CRM) systems.
The independent brands which joined the PZU Group in recent years are Alior (2015) and Pekao (2017). Both are the leading banks with regard to brand awareness in the category of banks according to the study by Kantar Millward Brown. At the end of December 2018, the prompted awareness of the Pekao brand was 95%2.
Financial results 6.1 Major factors contributing to the consolidated financial result
In 2019, the PZU Group generated net profit attributable to equity holders of the parent company of PLN 3,295 million compared to PLN 3,213 million in 2018 (up 2.6%).
Liabilities to customers - overn ight an d fixed -t erm deposits
◦ lower loss ratio in the portfolio of general TPL insurance and insurance for damages caused by natural catastrophes despite the occurrence of several high unit value losses in the first half of the year,
◦ higher average disbursement in motor own damage insurance; • the level of income from investments allocated to the segment according to transfer prices fell 11.5% to PLN 100 million, which was dictated in particular by the EUR/PLN exchange rate lower by 1.0% compared to the strengthening of 3.1% in the corresponding period of the previous year; • acquisition expenses (excluding reinsurance commissions) reached PLN 519 million, rising by 8.8% compared to 2018, mainly due to the higher direct acquisition expenses and changes in the mix of the portfolio and sales channels (higher percentage of non-motor insurance and the multiagency channel); • administrative expenses stayed flat, which coupled with earned premium being up 6.4% implies improvement in the administrative expense ratio by 0.3 p.p. Keeping administrative expenses at an unchanged level was possible (despite higher personnel costs stemming from the constant wage pressure on the market) thanks to maintaining cost discipline in the other cost categories.
(17.5%) to PLN 1,581 million compared to 2018 was the result of the following positive factors: ◦ constantly rising level of premiums on protection products in endowments and term insurance offered in own channels – the level of sales and premium indexation on contracts remaining in the portfolio have outpaced the level of lapses,
In 2019 the net balance of other operating income and expenses was negative and totaled PLN 387 million compared with the similarly negative balance in 2018 of PLN 447 million. Starting in mid-2014 the balance of other operating expenses was charged with the interest expense and change of the valuation on account of foreign exchange differences on the loan taken from PZU Finance AB for the total amount of EUR 850 million (EUR 500 million in July 2014 and EUR 350 million in October 2015). The repayment date of the loans was set at 28 June 2019 and on this date they were repaid. In 2019 the foreign exchange gains on the loan received from PZU Finance AB (publ.) totaled PLN 38.0 million compared to the gains of PLN 1.1 million in 2018, while the interest expenses on the loans received were PLN 29.7 million in 2019 and PLN 62.7 million in 2018.
At the end of 2019 equity was equal to PLN 14,957 million and represented 36.0% of equity and liabilities, signifying 4 p.p. growth versus the end of 2018.
Two levels are distinguished in the risk management process: • I - GROUP LEVEL – monitoring the limits and risks specific to the Group Risk management at this level is supposed to ensure that the PZU Group attains its business objectives in a safe manner appropriate to fit the scale of the risk incurred. The PZU Group provides support for the implementation of a risk management system, including the introduction of compatible mechanisms, standards and organization of an efficient operation of the internal control system (with particular emphasis on the compliance function), the risk management system (in particular in the reinsurance area) and the security management system in the PZU Group, and also monitors their ongoing application. The PZU Group’s dedicated personnel cooperates with the Management
PZU Group compliance risk operational risk market risk actuarial risk concentration risk liquidity risk credit risk model risk
The major risks to which the PZU Group is exposed include the following: actuarial risk, market risk, credit risk, concentration risk, liquidity risk, operational risk, model risk and compliance risk.
The provision of full information on compliance risk in each member of the Group is the responsibility of compliance units of these entities. These units are required to assess and measure compliance risk and take appropriate remedial actions aimed at mitigating the likelihood of realization of this risk.
Compliance risk is assessed and measured by calculating the consequences of the following types of risk materializing: • financial risks, resulting among others from administrative penalties, court judgments, decisions issued by UOKiK, contractual penalties and damages; • intangible risks pertaining to a loss of reputation, including damage to the PZU Group’s image and brand.
Main reinsurers in 2019: Hannover Re Munich Re Gen Re VIG Re Scor
Alior Bank Group data for December 2018 according to the methodology applicable before the implementation of the EBA requirements regarding IRRBB, that took place in June 2019
Source: Data taken from insurers’ reports as of Q3 2019 in the case of PZU, Ageas, Allianz, Aviva, AXA, CNP, Generali, Gjensidige, Munich Re, NN, Phoenix, RSA, Sampo, Scor, Talanx, Topdanmark, Tryg and as of H1 2019 in the case of the other insurers
PZU’s min/max share price at session closing from May 2010 to 2019
2 WIG20TR is the WIG20 adjusted for dividends trading session held on 15 March 2019, i.e. two days after PZU’s 2018 financial results were published.
Closing price on the last trading session of the year (PLN) 34.02 33.21 42.16 43.90 40.03
◦ no less than 50% is subject to payment as an annual dividend,
Payment of a dividend from the profits generated in 2018 On 24 May 2019, the PZU’s Ordinary Shareholder Meeting adopted a resolution (in accordance with PZU’s capital and dividend policy5) to distribute PZU’s net profit for the financial year ended 31 December 2018 in which it resolved to distribute profit of PLN 2,712 million in the following way: • PLN 2,418 million as a dividend payout, i.e. PLN 2.80 per share; • PLN 7 million as an allowance to the Company Social
Sustain target solvency ratios at the level of 200% for the PZU Group, PZU SA and PZU Życie SA (according to Solvency II)
As recommended by the regulatory authority, dividends should be paid only by insurance undertakings meeting certain financial criteria and ones that received a good or satisfactory score on their Test and Regulatory Assessment [Polish abbreviation: BION6 for 2018. At the same time, the dividend payout should be limited to no more than 75% of the 2019 profit, while the coverage of the capital requirement for the quarter in which the dividend was distributed should be maintained at no less than 110%.
The Polish FSA also recommended that the undertakings that satisfy the above criteria, when deciding on the level of dividends, should take into account the additional capital needs within the period of twelve months from the approval date of the 2019 financial statements, which may result, among others, from changes in the market and legal environment.
PZU SA’s standalone profit (in PLN m) 2,249 1,573 2,459 2,712 2,651
Corporate Governance Rules concerning the enabling of all shareholders to participate in the Shareholder Meeting, including by procuring the possibility of actively participating electronically in the Shareholder Meeting, it should be noted that, presently, PZU shareholders may follow the broadcast of the Shareholder Meeting, however the Issuer decided not to introduce the so-called e-Shareholder Meeting, because, in PZU’s opinion, there are a number of factors of a technological and legal nature which may affect the proper conduct of the Shareholder Meeting. Legal concerns include the possibility of identifying the shareholders and verifying their legitimacy; the risk of the occurrence of technical difficulties, e.g. with the Internet connection or possible external interference in the IT systems, may disrupt the work of the Shareholder Meeting and evince doubts concerning the efficacy of the resolutions adopted during its course; the materialization of the above risks may affect the proper application of this rule to its full extent; • in reference to the rule laid down in § 21 sec. 2. of the Corporate Governance Rules stating that the supervising body should have a separate chairperson function in charge of managing the work of the supervising body, and the selection of the chairperson of the supervising body should be accomplished on the basis of experience and team management skills while giving consideration to the criterion of independence; it should be emphasized that, in accordance with the Commercial Company Code and PZU’s Articles of Association, the chairperson function has been established in the PZU Supervisory Board; the PZU Supervisory Board’s composition and the chairperson’s function are shaped using the independence criteria in the Statutory Auditor Act; the Supervisory Board Chairperson is selected using the criterion of knowledge, experience and skills confirming the competences required to discharge duly the duties of supervision; applying the independence criterion to the chairperson according to the KNF Office’s explanation of this rule may evince doubts concerning a possible collision with the legal regulations pertaining to shareholder rights; • in respect of the rule laid down in § 49 section 3 of the Corporate Governance Rules concerning the appointment and dismissal, in a regulated institution, of the person managing the internal audit cell and the person managing the compliance cell with the consent of the supervising body or the audit committee, it should be pointed out that PZU applies the rules laid down in § 14 of the Rules to their full extent, which means that the PZU Management Board is the sole body empowered to, and responsible for, managing the Company’s activity; moreover, according to the labor law regulations, the managing body exercises labor law activities; on account of the foregoing, PZU has adopted a solution that anticipates that the selection and dismissal of the person managing the internal audit cell is accomplished while taking into account the opinion of the Supervisory Board’s audit committee; the person managing the compliance cell is appointed and dismissed in an identical manner; in making these decisions, the Management Board obtains the audit committee’s opinions.
Presently, PZU shareholders may follow the broadcast of the Shareholder Meeting. However, the Company has not elected to introduce an electronic shareholder meeting. According to PZU, there are many legal, technical and organizational factors that may affect the proper course of the Shareholder Meeting. Legal doubts pertain to the inability to identify shareholders and check their right to participate in the shareholder meeting. The risk of technical difficulties may disrupt the work of the Shareholder Meeting and evince doubts concerning the efficacy of the resolutions adopted during its course. PZU has a stable majority shareholder structure, and a large portion of the minority shareholder structure attends every shareholder meeting.
A detailed description of how these rules are applied has been set forth in the collection entitled Best Practices of WSE Listed Companies 2016 available on the Company’s website in the Investor Relations tab.
The audit committee is an advisory and consultative body to the Supervisory Board and is appointed to improve the effectiveness of the Supervisory Board’s oversight activities in respect of the correctness of financial reporting, the effectiveness of internal control system, including internal audit, and the risk management system.
Graduated from the Faculty of Law and Administration at the Warsaw University. In 2001 he was granted a doctor of juridical science degree and in 2009 a degree of habilitated Ph.D. degree. Employed since 2019 as a university professor. Authored about 100 academic publications. Recipients of awards and distinctions, including the Awards of the Department of Law and Administration of Warsaw University for outstanding scholarly achievements and the Team Award granted by the Rector of the Warsaw School of Economics. Employed since 2001 in the Department of Law and Administration at the University of Warsaw. Since 2015, Head of the Laboratory of Polish 20th Century Law and since 2019 Head of the Administration History Department. Member of the program board of the “Review of Economic Legislation” journal (2010), the editorial committee of the “Scholarly Papers of the Sejm Analysis Office” journal (2016).
Graduate of the Faculty of Economics at the University of Warsaw. Author of econometric models for predicting bankruptcies in enterprises and of a concept of early warning systems pinpointing threats to business activity. She headed the postgraduate course in Real Estate Valuation held by the Institute of Corporate and
In connection with the changes in the PZU Supervisory Board, on 27 May 2019 the PZU Supervisory Board resolved that the strategy committee would number 6 people, while simultaneously establishing the following composition of the committee: • Alojzy Nowak – Committee Chairman; • Marcin Chludziński – Committee Member; • Agata Górnicka – Committee Member; • Robert Jastrzębski – Committee Member; • Robert Śnitko – Committee Member; • Maciej Zaborowski – Committee Member.
PZU Management Board Member since 28 March 2019 / PZU Życie Management Board Member since 1 May 2019
As at 31 December 2019, the benefits for 2017 and 2018 for PZU Management Board members under the variable compensation system were awarded and paid. This payment was for the non-deferred portion of variable compensation.
Group Directors A joint management model is in place at PZU and PZU Życie. Under this model, the positions of PZU Group Directors exist, the rules governing the establishment of which and the appointment to and dismissal from which are laid down in the Organizational Rules and Regulations of these companies. According to this model, the persons discharging the functions of Management Board members at PZU Życie are at the same time employed as directors of the PZU Group at PZU and are in charge of the same business structures and areas at PZU and PZU Życie. Similarly, PZU Management Board members may be simultaneously employed as PZU Group Directors in PZU Życie.
Credits and loans extended and taken out W ramach prowadzonej działalności inwestycyjnej w 2018 roku PZU SA, PZU Życie SA oraz fundusze zarządzane przez TFI PZU SA dokonały transakcji polegających na udzieleniu finansowania dłużnego w formie pożyczek i obligacji.
Information regarding the off-balance sheet items as at the end of 2019 is set forth in Chapter 6.6 “Asset and liability structure”.
Actuarial profits and losses related to provisions for employee benefits (4) 3 4 - 1
P/BV (Price to Book Value) – multiple specifying the ratio of the market price to the book value per share