PZU Życie and PZU have a long-term credit and financial rating A (by Standard & Poor's Ratings Services) with a stable rating perspective.
Compared to exchange rates at the end of 2011, the exchange rate of PLN to these key global currencies improved, with a short depreciation period in Q2. This was supported by global financial markets gaining their balance. At the end of 2012, EUR/PLN rate was lower than at the end of 2011 by 7.4%, USD/PLN rate was lower by 9.3% and CHF/PLN rate was lower by 6.8%.
At the same time, in the first three quarters of 2012, payments related to voluntary insurance of agricultural crops increased and reached PLN 455.2 million compared to PLN 183.0 million in the previous year (exceptionally high). In insurance guarantees, the underwriting result was negative and dropped by PLN 250.8 million year on year. The performance was determined by payments and linking provisions for contractual guarantees issued for the construction sector (bankruptcy of selected companies announced in 2012).
Table 4: Underwriting profit/loss on the property and personal insurance market
PZU Życie has remained the leader in the regular premium segment with market share of 42.7% at the end of Q3 2012. Further, despite a decrease in the single premium segment (by 8.6 p.p. to 14.0%), margin on banking products has increased and cooperation with banks has been extended to include Bank Millennium SA, Bank
Capital groups: Talanx - Warta, Europa, HDI, Open Life; VIG - Compensa, Benefia, Polisa Życie; Aviva - Aviva TUnŻ, BZ
Source: State Commission on Financial Market Service Regulation, Summary of insurer operations for the nine months of 2012, summary of insurers‟ operations for the nine months of 2011.
In particular, legal solutions were introduced to limit the so-called double insurance. Statutory insurance policies are not renewed for another period in the case of transferring ownership title to a vehicle, which allows terminating of an insurance contract concluded pursuant to Article 28.1 of the Act on statutory insurance,
Journal No. 113 of 2011 item 660) which came into effect on 1 January 2012 is to accelerate and make it easier for hospital patients to lodge claims arising from medical events (e.g. infections, bodily damage, health breakdown and death of a patient). The Act has introduced a new procedure of claims outside the court, in the form of motions to determine whether a medical event has taken place addressed to provincial commissions deciding on medical events. Further, it has provided that the insurer who has concluded an insurance contract with the hospital where a given medical event has occurred shall propose compensation to the aggrieved party.
Judicature also impacted the operations of PZU in 2012, among others a resolution of the Supreme Court of 17
insurance for land vehicle owners, the changes will limit access to membership for small and unreliable insurance companies.
Zakład Ubezpieczeń (a state-owned enterprise) into a joint-stock company where the State Treasury was the sole shareholder on the basis of art. 97 of the Act on insurance activities of 28 July 1990 (Journal of Laws No. 11 of 2010, item 66 as amended (“Insurance Act”).
PTE PZU manages the third largest open pension fund in Poland measured with net assets value, Otwarty
The statutory activities of PZU CO cover business in the area of the following services:  auxiliary activities related to insurance and pension and disability pension funds;
MPTE PZU SA runs the third pillar pension plans for employees of PZU and PZU CO. They include defined contribution plans, additionally supported by the employer apart from remuneration determined in employment contracts in the amount of 7% of gross remuneration.
PZU Życie holds 310.620 shares in KGJK accounting for 37.5% of its share capital and 36.7% of the total number of votes at its General Shareholders' Meeting. PKO BP SA has identical interests in the company. Share capital of
The increase in investments by PLN 3,677.9 million resulted from growing prices of debt instruments (lower market yield) and good standing of capital markets.
Prior year profit (loss) 1 743 148 2 403 000 (27.5)% Net profit (loss) 3 255 181 2 345 424 38.8% NCI 79 138 86 343 (8.3)% Total equity 14 269 269 12 869 505 10.9%
13. Share of reinsurers in technical provisions 359 318 2,3% 25%
* 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.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 5.10. Effect of one-off events on operating profit
A decrease in claims was seen in motor insurance for corporate clients. Additionally, the claims number decreased by 13.4 pp. to 65.4% as a result of:  verification of the insurance portfolio following modification of the underwriting policy through reduction in the number of unprofitable clients;  better driving conditions and smaller traffic (lower claim frequency).
Total property and personal without motor insurance 2 449 480 2 296 960 6,6%
The difference in the change of technical provisions (which increased by PLN 594.1 million compared to a drop of
In 2012, a new investment strategy was introduced, which resulted in improved profitability and reduced fluctuation of performance on investments.
The increase of investment income on equity instruments by PLN 1,398.6 million resulted from an improved standing of financial markets compared to the previous year.
The increase in share and value of other debt securities and the decrease in governmental debt securities resulted among others from adjusting their size to the new investment strategy of the PZU Group, assuming more diversified investment portfolio. Exposure to debt securities issued by governments other than the RP was amounted to 2.5% and 1.4% of investments in 2011 and 2012, respectively. Moreover, exposure to corporate and local government authorities‟ debt securities increased from 1.0% to 4.8%.
In 2012 operating profit increased from PLN 90.4 million to 98.4 million (+8.8%).
In 2012, gross written premium of PZU Lietuva increased by PLN 31.4 million (+19.1%) compared to 2011, mainly due to increase in the sales of comprehensive insurance products (by 23.8%), as well as accident and health products (increase by 39.2%).
 In 2012, regular verification of all new PZU clients commenced for compliance of their data stored in
 Comprehensive insurance tariffs in PZU DORADCA product for SME were adjusted to the risk level, in particular including flood risk.
In Q1 2012, the complementary health insurance product was introduced to the offer of PZU Życie: prescription drug insurance. The product was developed in cooperation with PELION Group and allows significant reduction of prescribed drug purchase costs.
(CC): claims handling stages” in order to optimize the amount of claims paid and recovered (recourses)
Gotówkowy, PZU Papierów Dłużnych POLONEZ and PZU Energia Medycyna Ekologia (4* in the rating);
Bank Polska SA, DM PKO BP SA;  Extending cooperation with AEGON TU na Życie SA – possibility to invest funds in PZU Energia Medycyna
As at 31 December 2012, the organizational structure of PZU and PZU Życie comprised the following units:  Head office: supporting the Management Board in the management of PZU Życie operations and coordination of operations of the PZU Group; preparing assumptions and development plans for the Company‟s operations and organization; the centre of planning and management of the Company; determining business objectives, defining strategy and coordinating its implementation;  Specialised units: specialised operating centres providing the following services for the entire Company or in a determined region of the country: Contact Centre, insurance operations unit, claims handling
In 2012, tender procedure was completed and the new policy management system by Guidewire was selected.
The logotype was selected after months of work and research. The refreshed logo refers to one used by the firm from 1952 to mid-nineties. It is simpler and more legible that the old one. Within two months of commencement of the campaign (i.e. 10 May 2012), the new visualisation with the logo was distributed to over 2,000 branches, agent offices and repair workshops. Over 1,165 templates of forms and documents received the new logo as well.
At the same time, presentation of the broad product offer of PZU was taking place, including motor, agricultural, tourist (PZU Wojażer), finance (e-myto) and PZU Niezguba insurance products. All these campaigns were carried out in TV and Internet, and in other selected media (radio, press).
In the area of HR in 2012 the Group carried out activities aimed at improving motivation, promoting team work/
At the same time, a full package of on-site courses has been developed to include: managing challenges, manager‟s CV, coaching, individual and group courses, studies and specialist forms of professional development, language courses and MBA programs. A development program for managers called Lider 2.0 was opened with the purpose to enhance key PZU managers in their roles of versatile leaders.
To sum up, staff restructuring in the years 2010-2012, PZU and PZU Życie initiated termination of employment contracts of 4,400 individuals by executing a termination agreement with them or handing them a termination notice, or if an employee rejected the new terms and conditions of employment offered by the employer.
concluded in these companies in 2003 and 2006, respectively, mainly because they needed a new remuneration system, better adjusted to market conditions and providing better incentives. Details of the negotiations are described in point 57.8 of Notes in consolidated financial statements of PZU Group.
Social care and aid area:  16 organisations were awarded in the ninth edition of the subsidy contest "Developing social activity of handicapped children and youth";  financial support was provided to 42 aggrieved individuals;  Under a partnership project, funds were granted for “Lato z Polską" initiative pursued in cooperation with Stowarzyszenie Wspólnota Polska in Warsaw, to fund insurance for approx. 2 thousand Poles spending vacation in Poland;  One-off subsidies were granted to the following organisations: o Fundacja Wspólnota Pokoleń in Warsaw, Wielofunkcyjna Placówka Opiekuńczo –
Client-orientation and high operational efficiency will allow the Group's maintaining its leadership position: it will remain the largest and most profitable insurer in the Central and Eastern Europe.
2) Line 2: risk management through specialised units and committees (established for the purpose of specific risk management) within the existing risk management framework, based on the applicable principles, methodologies and procedures. On this level, tasks related to risk identification, measurement and control, guidance development, reporting and preparing of management information on risk exposure are performed.
Limits are the key management tool aimed at maintaining of the risk position within the acceptable tolerance range. The structure of limits per market risk class and for organisational units of the Company is determined by
ALCO in a manner ensuring their compliance with the risk tolerance accepted by the Management Board. ALCO
 risk weight for internal rating;  net credit exposure weighted by maturity.
It includes in particular:  promoting of norms of conduct regarding compliance in PZU and PZU Życie,
Compliance risk monitoring is carried out in particular by: • analysis of quarterly reports received from managers of organizational units; • reviewing regulatory requirements; • participation in the work of the legislative changes in existing legal environment; • activity in professional organizations; • review of the implementation of recommendations of the Risk Office.
Mortality – 110% of the currently assumed level 119 104 119 104
The company‟s offer includes property insurance, guarantees and general TPL insurance. The company is developing new products (TPL and Motor own damage insurance) adjusted to the requirements of the Latvian market. At the same time, the company recruits employees and prepares internal procedures and IT systems.
Lietuva in Estonia. On 14 November 2012, a branch was registered in the register of entrepreneurs. The branch will launch sales at the end of the second quarter of 2013.
In 2012 PZU CO executed a number of projects developing, supporting and streamlining operational support services. The key projects have been specified below.
On 30 May 2012, General Shareholders Meeting distributed the 2011 net profit of PLN 2,582.3 million in the following manner:  PLN 1,936.9 million for dividend paid to shareholders, i.e. PLN 22.43 per share (more than originally recommended by the Management Board);  PLN 635.4 million for supplementary capital;  PLN 10.0 million to the Company‟s Social Benefits Fund.
Considering the strong competitive position and very good financial standing of the Company, the Management
The proceedings and disputes are typical and repetitive and, usually, individually they are not significant for the going concern of the PZU Group.
Disputable claims regarding revaluation of annuities in PZU Życie are recognized in other technical provisions in the amount of annual annuity amount in excess of the corresponding provision amount as determined under mathematical provisions for life insurance purposes.
In 2012, PZU or its related entity did not conclude any contract the value of which exceeded 10% of PZU's equity or in which the level of equity was not the criterion enabling proper assessment of the contract concluded - of the
Only persons who were shareholders of the Company 16 days before the date of the General Shareholders‟
Board to appoint the remaining Members of the Management Board for the new term of office before the expiry of the current term of office.
Chart 9: Organizational structure of PZU Group – segregation of duties
Przemysław Dąbrowski graduated from Warsaw University, Information Technology Department and a Post-
The Supervisory Board is composed of eleven members: The number of the Supervisory Board members is established by the General Meeting. The Supervisory Board members are appointed by the General Meeting for a joint term of office lasting for three full consecutive financial years. At least one member of the Supervisory Board must have accounting or auditing qualifications as defined in and in accordance with the provisions of the Act of 7
 make payments of interim dividends;  form and close regional branches and foreign branches.
The objective of the strategy committee is to give opinions on all documents of a strategic nature submitted to the Supervisory Board by the Management Board (in particular, the Company‟s development strategy) and presenting recommendations to the Supervisory Board concerning planned investments which have a significant effect on the Company‟s assets.
The process of closing the books and preparing financial statements is regulated by detailed schedules covering the key actions and control points as well as allocating responsibilities for timely and proper execution.
The key controls in the process of preparing financial statements comprise:  controls and regular monitoring of the quality of the input data, supported by financial systems in which data correctness rules have been defined in accordance with the internal documents of PZU regulating the principles for controlling the correctness of accounting data;  mapping of data from the source systems to the financial statements, supporting the correct presentation of data;  analytical review of financial statements by specialists in order to confront them with the knowledge of the business and the business transactions conducted;  formal review of the financial statements in order to confirm compliance with the binding legal regulations and market practice in the scope of the required disclosures.
Management report on the activities of Powszechny Zakład Ubezpieczeń Spółka Akcyjna Capital Group in 2012 obligations of the acquirers of significant packages of shares provided for in the Act on public offering and in the