Table of Contents 7.7 Reinsurance operations 138 7.8 Capital management 139
Protection against the effects of emergencies - risk valuation, premium calculation and investment, payment of claims
The registered unemployment rate at the end of 2017 was down 1.6 p.p.
The latter hikes were driven by greater demand resulting from a sharp increase in wages. Although the price increases of certain food products remain high in annual terms, in recent months more moderate price hikes and even declines in certain cases have been recorded.
in 2018. In an environment where demand has an upper hand over supply on the labor market, wages should grow more rapidly. However, manufacturers of goods and providers of services sold internationally may find it difficult to increase wages significantly without compromising their competitiveness. Part of the reason for this is that the inflation rate in major trading partners remains relatively low.
China still persists, followed by geopolitical threats such as the challenges around the North Korean nuclear program and
Nominal wage growth in national economy in % (y/y) 7.0 5.4 3.7 3.5 3.2
In the first 3 quarters of 2017, the technical result of the non-life insurance market rose PLN 1,326 million to PLN
1,507 million. The growth in the technical result in motor TPL
PZU’s technical result stated as a percentage of the overall market’s technical result is 56.4%, which when coupled with a 33.2% market share measured by gross written premium confirms the high profitability of its insurance business.
Most changes in the corporate insurance segment were associated with the regular launch of products dedicated to corporate clients administered and sold in the Everest system, with the offering extended by insurance against cyber threats.
(6.6%) increase y/y. This improved result was, to a large extent, the effect of better investment performance recorded by insurers than in the corresponding period of 2016, both in terms of investments used to cover liabilities under technical provisions and the insurance undertakings’ available funds.
Regulations pertaining to the insurance market and the financial markets in Poland; • entry into force, as of 1 October 2018, of the Insurance
REGULATIONS. Regulations pertaining to the insurance market and the financial markets in Poland; • the final shape of the new pension security system
The banks’ operating expenses (excluding depreciation and provisions) in the period under analysis increased 4.3% to
representing 32.8% of the bank’s share capital and entitling them to exercise 86,090,172 votes representing 32.8% of the total number of votes, PZU and PFR jointly exceeded the 25%
S.A. (Money Makers). The company was established in 2010 and its operations originally focused on asset management services. Alior Bank’s cooperation with its subsidiary Money
Factors, including threats and risks, which will affect the mutual funds’ operations in 2018
Mexico; • macroeconomic situation, mainly pace of economic growth and inflation path (wages inflation, if any) in developed countries; • central bank actions (FED, ECB, Bank of Japan) and pace of monetary policy tightening; • the economic climate on financial markets.
insurance grew by 18.1%. Higher gross written premium in motor insurance is attributable predominantly to increased average premiums in the market.
The share in the Estonian non-life insurance market in 2017 was 15.6% (14.5% in 2016). Accumulated gross written premium was EUR 52 million.
The decline in the total value of TFI PZU’s net assets as at the end of 2017 was mainly caused by withdrawals made by the PZU Group in various funds: PZU FIZ Forte, PZU FIZ
Coverage co-funding for covered medications on prescription purchased in any pharmacy in Poland (including in over 7,000 partner pharmacies providing cash-free Pharmaceutical Card service)
The PZU LAB team has developed methods for cooperation with the existing and prospective clients. First, the engineers identify critical installation sites, simulate critical events such as fire, flooding or explosion, and determine their consequences. Then the possible scenarios and the methods of minimizing them are discussed. This approach signifies an evolution in client relations. PZU ceases to be only a seller of insurance and becomes a risk management advisor.
Armatura Kraków SA (Armatura Kraków) is the parent company of the Armatura Group. The Armatura group includes
To attain its business objectives, PZU will substantially hone its skills in data management and mining to bolster client relations and enhance its ability to reach its clients through all available channels. This will considerably ramp up the number of products per client while making a material contribution to grow new sales.
Client relations 1 bn PLN of incremental premium from cooperating with the banks in the PZU Group 1 m clients acquired for the banks in the PZU Group 1 bn PLN in revenues of PZU Zdrowie 70% growth of new sales in group insurance to SME clients in PZU Życie
PZU will develop the best sales site in the online channel among European insurers. Transparent and straight-forward products (#5 above) will be offered through this service, while
PZU will utilize the changes ensuing from the reform of the pension system - Employee Capital Schemes in which it intends to attract a 15% market share measured by market assets.
Group will expand to PLN 65 billion, while the net result on third party asset management will hit the level of PLN 200 million.
Investments 1. TFI PZU ranked third on the market in terms of net asset value under management. At the end of 2017, the value of TFI PZU AuM amounted to PLN 19.8 billion, which accounted for 7.1% of assets collected by domestic TFI. Pekao TFI in fourth place on the market in terms of net asset value in management. At the end of 2017, the value of Pekao TFI AuM amounted to over PLN 18.4 billion, which was 6.6% of assets accumulated by national TFI.
2. S&P Global Ratings, a US-based rating agency raised PZU’s rating outlook from negative to stable. At the same time, PZU’s financial strength rating stayed at A-. This is one of the highest possible ratings for a Polish company to receive.
The business objective of Alior Bank is to maintain its innovation leadership position in Poland and to become among most innovative banks in Europe.
AAS Balta i TUW PZUW. However, their logos look similar to the corporate brand. These companies also use similar visual identification systems.
PLN 2,910 million compared to PLN 1,935 million in 2016 (up 50.4%).
The increase occurred in particular in the class of insurance against losses caused by the forces of nature, individual unit-linked products in the bancassurance channel and in motor insurance, as a result of the growing insurance portfolio; • higher acquisition expenses (a PLN 288 million increase) in both mass and corporate client segments, driven up mainly by higher sales; • the increase in administrative expenses to PLN 5,364 million from PLN 2,923 million in 2016 was associated with the commencement of consolidating Pekao and Alior Bank’s merger with the spun-off portion of BPH on 4 November 2016. Administrative expenses of the banking segment rose by PLN 2,464 million. At the same time, the administrative expenses of the insurance segments in Poland were PLN 10
compared to 2016, chiefly including motor insurance due to an increase in average premium and the quantity of policies; • premium increased in the corporate client segment by
(effect of the acquisition of the equity stake in Pekao); 2 The investment portfolio includes financial assets (including investment products net of loan receivables from clients), investment property (including the portion presented in the class of assets held for sale), the negative measurement of derivatives and liabilities under sell-buy-back transactions.
This increase was caused in particular by higher sales in the mass client and corporate client segments.
PLN 169,457 million, up by PLN 124,459 million from the end of 2016 (the share in total assets rose from 35.9% at the end of 2016 to 53.4% at the end of 2017).
LINK4 and PZU Życie) plus the surplus of income earned over the risk-free rate on investments reflecting the value of technical provisions of PZU, LINK4 and PZU Życie in insurance products, i.e. the surplus of investment income of PZU, LINK4 and PZU Życie over the income allocated at transfer prices to insurance segments. Additionally, the investment segment includes income from other free funds in the PZU Group (including consolidated mutual funds).
compared to the previous year; • increase in acquisition expenses. They stood at PLN 69 million compared to PLN 60 million in the previous year.
O pe ra tin g re su lt 16 In co m e
The operating efficiency ratios, broken down into individual segments, were presented in the ATTACHMENT.
In 2017, the result on PZU’s investment activity was PLN 1,973 million compared to PLN 1,878 million in 2016. After netting out the effect of the dividend received from PZU Życie, the net investment result was PLN 544 million compared to PLN 1,053 million the year before. The decline of the result was driven mainly by the one-off effect of the result realized in 2016 on participation units in the Universum PZU Specialist Openend Mutual Fund (PZU Specjalistyczny Fundusz Inwestycyjny
3. Insurance activity expense ratio (insurance activity expenses/net earned premium) x 100% 25.2% 27.9% 29.4% 28.5% 25.0%
Supervision over the risk management systems in each regulated entity is exercised by supervisory boards. PZU
The first three entail the following: • the Supervisory Board that supervises the risk management process and assesses its adequacy and effectiveness as part of its decision-making powers defined in a given company’s articles of association and the Supervisory Board bylaws and through the appointed Audit Committee; • the Management Board that organizes the risk management system and ensures that it operates by adopting strategies and policies and defining the appetite for risk, the risk profile and tolerance for individual categories of risk; • Committees that make decisions pertaining to mitigation of individual risks within the frameworks outlined by the appetite for risk. The committees adopt the procedures and methodologies for mitigating various risks and they accept limits to mitigate the various types of risk.
Risk monitoring and control This involves ongoing reviews of any variances from the assumed parameters, namely limits, thresholds, plans, values from the previous period, recommendations and guidelines issued.
Reporting involves communicating the level of market risk, the effects of monitoring and control to various decisionmaking levels. The frequency of each report and the scope of information provided are tailored to the information needs of each decision-making level.
Average trading value per session (PLN m) 75.6 66.8 80.3 73.9 80.9
Compared to the broad WIG market, PZU’s systematic risk expressed by the beta coefficient (PZU stock price vis-à-vis the WIG index for daily shifts) in 2017 was 1.06 or 0.12 lower than the historic high recorded in 2016 (1.18). The annualized standard deviation for daily changes in the PZU stock price declined in 2017 by 5.5 percentage points y/y and stood at 23.6%. The value of this statistic for WIG and WIG20 fell by 3.8 p.p. and 3.9 p.p., respectively, to 11.8% and 15.1%.
(PZU0719) is composed of two assimilated series (under a single ISIN code XS1082661551) with a nominal value of
1 PZU Group’s leverage ratio – quotient of debt on long-term financial liabilities (excl. banking deposits) to the sum of the following: debt on long-term financial liabilities and the PZU Group’s equity minus intangible assets, deferred acquisition expenses and deferred taxation assets carried in the PZU Group’s consolidated financial statements.
Investors’ appetite for banking assets listed in Poland was not weakened even by NBP’s statement of no plans for interest rate hikes in 2018.
On the other hand, certain factors emerged that were conducive to an upward trend in stock prices, such as a reduction in the risk associated with a currency conversion of Swiss franc-denominated loans due to the sizeable appreciation of the Polish currency or the global trend toward investment in banking assets.
(+1.3 p.p. in 2017 compared to +1.2 p.p. in 2016). The change in this group of investors was mainly due to capital inflows from North America whose share increased by 0.9 p.p.
Ratio of dividend payment to consolidated profit attributable to the parent company
On 12 October 2015, the analysts from S&P set the rating for the new issue also at A-. On 21 January 2016, in connection with the reduction of PZU’s rating (following the reduction of
2. Application of Good Practices of WSE Listed Companies 3. Application of Corporate Governance Rules for Regulated Institutions 4. System of control applied during the preparation of the financial statements 5. An auditing company that audits financial statements 6. Share capital and PZU shareholders; shares owned by members of its governing bodies 7. PZU’s Articles of Association 8. Shareholder Meeting, Supervisory Board and Management Board 9. Compensation of the members of governing bodies
Its current wording is available on the website devoted to the corporate governance of companies listed on WSE (www.corpgov. gpw.pl) and on PZU’s website (www.pzu.pl) in the section dedicated to PZU’s shareholders – Investor Relations.
Polish Chamber of Insurance (“PIU”), an organization whose members are insurance undertakings operating on the Polish market informs how PZU conducts its business operations and shapes relations with its stakeholders. This document is available on the website: Furthermore, our own code entitled Best Practices in PZU
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
Auditors in the list of entities authorized to audit financial statements under no. 3546 as the entity authorized to audit financial statements for the years 2014-2016, and on 27 April 2017, the PZU Supervisory Board exercised the option of extending this cooperation to include the years 2017 - 2018.
The scope of the concluded agreement encompasses the following in particular: • auditing PZU’s annual standalone financial statements and the PZU Group’s annual consolidated financial statements; • review of PZU’s interim standalone financial statements and the PZU Group’s interim consolidated financial statements.
Meeting resolution implementing this limitation were entitled to shares representing more than 10% of the total number of votes; • shareholders acting with the shareholders prescribed in the item above pursuant to executed agreements concerning the joint exercise of voting rights to shares.
Court Register. The Supervisory Board has the powers to approve the consolidated amended text of the Articles of
Meeting). Shareholders may attend the Shareholder Meeting and exercise the right to vote in person or through a proxy.
Supervisory Board by way of a written statement submitted to the Management Board. This right will expire if the State
On 23 March 2017, the PZU Supervisory Board decided to second PZU Supervisory Board Member Marcin Chludziński to temporarily act as the President of the PZU Management
Fałek to the position of PZU Supervisory Board Member. On 12 April 2017, Łukasz Świerżewski tendered his resignation from membership in the PZU Supervisory Board, effective as of 12 April 2017. On 12 April 2017, effective as of 12 April 2017, the PZU Extraordinary Shareholder Meeting dismissed
Economics of the University of Wroclaw. He received the degree of Doctor of Law. He was a legal advisor trainee and a court trainee and has been entered in the registry of legal advisors. A university lecturer. He has authored several dozen peer-reviewed papers on the subject of law published by Polish and international journals and has authored numerous unpublished legal opinions.
University as a lecturer. Has gained extensive experience in corporate governance in companies with a State
Members of the Management Board, PZU employees involved in the issue under consideration selected by the Management
Supervisory Board to commission the performance of specific control activities in the Company, and such commissioned control activities may be performed by an internal unit or an external entity.
As at 31 December 2017, the composition of the committee was unchanged.
President of the Management Board who defines the scope of responsibility for each member of the Management Board.
President of the PZU Management Board since 13 April 2017/ President of the PZU Życie Management Board since 23 June 2016 to 13 April 2017 management and corporate governance in the PZU Group, corporate management, internal audit, administration, strategy and development, innovation, compliance, reinsurance
PZU Management Board Member since 19 January 2016 / PZU Życie Management Board Member since 29 January 2016 mass non-life insurance (sales and sales network management, products and tariffs), corporate non-life insurance (sales and sales network management, underwriting, financial insurance), direct sales
Dystrybucyjna. She also collaborated with the team of the Public Policy Evaluation and Analysis Center. For
Some Companies without prejudice to the situations outlined in art. 4 section 3 of the aforementioned act; • variable compensation - supplementary compensation for a given financial year depending on the extent to which management objectives are attained, within the catalogue of management objectives defined pursuant to the aforementioned act, and which include, among others, growing the company’s value and improving its economic and financial ratios. The variable compensation for a given financial year may not exceed 100% of the annual fixed compensation in the previous financial year for which the amount of variable compensation due is to be calculated. In addition, a significant portion of the variable compensation is awarded in the form of deferred variable compensation.
Polfa Sp. z o.o. In 20072009, the deputy director of the Foreign Investment
Corporate governance 9.10 Diversity policy applied to the issuer’s administrative, managing and supervising bodies
The PZU Management Board represents that the entity authorized to audit financial statements – KPMG Audyt
Below is a list of the loans extended in 2017 to the issuer’s related entities: Amount date granted maturity date borrower lender
Insurance profit margin (excl. conversion effect)* 20.6% 25.8% 22.4% 25.9% 23.0%
P/BV (Price to Book Value) – multiple specifying the ratio of the market price (per share) to the book value per share
PZU, which shall aim to reflect the changes in PZU expectations or changes in events, conditions, or circumstances on which a given assumption has been made, unless provisions of the law provided otherwise. PZU stipulates that the forwardlooking statements do not constitute a guarantee as to the future results, and the company’s actual financial standing, business strategy, management plans and objectives concerning the future operations may considerably differ from those presented or implied in such statements contained in these Management Board’s report on the activity of the PZU Group and PZU. Moreover, even if the