Group is starting 2017 with a balance sheet of PLN 125 billion, which will grow considerably before the year is over, to roughly PLN 300 billion (i.e. almost three times the amount from 2015) after the acquisition of shares in Bank Pekao is finalized. Once this transaction is finalized, PZU will become the largest financial group in Central and Eastern Europe, and the leader in insurance, banking and asset management.
By taking advantage of the improving market situation, competitive advantages, and efficient sales structures, we were able to meet the market with a very well prepared offer for motor insurance. In effect, we sold over 700 thousand more MTPL insurance policies and our market share rose by 3 p.p. y/y. We also expanded the activity of TUW PZUW in the corporate insurance segment. The competitive product offer, which was prepared in the form of mutual insurance, was very well accepted by hospitals, local authorities, and state-owned companies. In effect, non-life insurance premiums grew by 20.4% y/y, to PLN 11 billion. The scale building process also includes 3 new acquisitions in the health area. We are already working with approximately 1,800 establishments and providing our products to 1.3 million clients, i.e. 300 thousand more than at the end of 2015.
2016 was not an easy year for the motor insurance business.
Poland and in Central and Eastern Europe. The Group is led by Powszechny Zakład Ubezpieczeń S.A. (PZU) – a company quoted on the Warsaw Stock Exchange. The history of the
RESPONSIBILITY. All processes – from insurance product concepts, through customer communication channels, to the activity in the scope of Corporate Social Responsibility, are designed to adapt PZU’s offer to satisfy the demands and preferences of the stakeholders. At the same time, the Group initiates actions to increase consistency of the offer. Thus,
PZU Group Strategy 2020 clearly defines and presents the goals in the area of health and investments. CHAPTER 4.5
PZU i PZU Życie employees spent on trainings about innovations 13,824 hours employees including 10.8 thous. in PZU and PZU Życie 27 thous.
(Big Data, know-how) 16 mln clients agents in Poland 1,800 in Baltic States and Ukraine outpatient clinics that PZU Zdrowie cooperates with
for Alior Bank for “Virtual Consultant” project - an artificial intelligence system supporting remote communication with clients
A considerable real economic growth rate, an increase in real household income, and a better-than-expected labor market situation created favorable conditions for the development of PZU’s business activities.
The number of persons employed in the national economy in the first three quarters of 2016 increased by 198 thousand people compared with the corresponding period of the previous year (2.4% year-on-year). On the other hand, the growth rate of average employment in the enterprise sector stabilized in the last months of 2016 – it amounted to 3.1% year-on-year in December. The number of employed persons increased also according to the LFS statistics. At the same time, the number of people employed on the basis of employment contracts also grew. The latest economic climate surveys confirm that labor demand has not decreased. However, there are growing problems with finding suitable candidates – adverse demographic trends contribute to a reduction in the number of working age people. According to the Central Statistical Office
Inflation, monetary policy, and interest rates 2016 was another year of falling consumer prices (CPI)
Furthermore, the ECB and the Fed maintained lax monetary policy and, additionally, market expectations indicated its milder than previously assessed future course. The Polish broad market index, WIG, recorded in the third quarter of 2016 a considerable increase, but WIG20 index lost in value.
dollar and decreases in stock indices in the US, markets soon returned to their starting points. This could have been a result of the first speech of Donald Trump in his new role as the
Under these circumstances, the increase in Polish treasury bond yields could have been largely a result of the increase in country risk premium, which was also connected with again in premium increase for emerging markets. It can be also attributed to the phenomenon known as „repatriation” of capital, returning to the US.
PLN exchange rate in 2016 2.3 Insurance sector in Poland and in the Baltic states compared with Europe3
European average. Central and Eastern European countries such as Estonia and Latvia, in which PZU operates, have a ratio of 1.8% and 0.9% accordingly, which, from the point of view of market development, opens up huge opportunities for sales growth.
Remuneration of Managers of Certain Companies. The Act sets the terms of setting the remuneration of members of management and supervisory bodies of the companies whose shares are held by the State Treasury.
We expect that 2017 will be better than 2016 for the growth of the Polish economy, and thus also for the insurance industry. The GDP growth can amount to approximately 3.5%.
PZU – as the parent company – influences defining strategic directions regarding both the scope of activities and the finances of the entities making up PZU Group. The companies provide mutual services both under market conditions and based on the internal cost allocation model (in the scope of the Tax Capital Group) due to the expertise of selected companies and by taking advantage of the Tax Capital Group.
(by PLN 146 million, +31.1%, including a PLN 142 million growth on direct business), which was mainly a consequence of raise in growth rate of premium from motor insurance.
PLN 113 million, -73.2%, PLN 113 million of which concerns direct business), as well as accident and illness insurance (drop by PLN 77 million, -4.5%, PLN 107 million of which concerns direct business).
Non-life insurance companies - share in gross written premium for 3 quarters of 2016 (%)
services; • in order to approach the clients’ need, online sales of the PZU Wojażer insurance were launched, which was accompanied by Spokojny Wypoczynek [Peaceful leisure]
Motor insurance is the most important group of products offered by LINK4, both in terms of the number of binding insurance contracts and the premium share in the total gross written premiums. During the previous two years, LINK4, by introducing innovative solutions made many changes to its product offer, which were intended to adapt the offer to the changing market demands and trends. In 2016, the most important activities related to the change in product offer were: • start of cooperation with PAYBACK loyalty program, which allows to collect points for purchasing LINK4 products and to pay for insurance with the points collected; motor TPL motor own damage other products motor TPL motor own damage other products
The reasons of the lower single premiums in the recent years include changes of the situation of the capital market and in the legal environment. The record low interest rates reduced the profitability of short-term endowment policies
The result of the changes taking place on the market was the rising prominence of the periodical premium over the single premium, which is PZU Życie’s competitive advantage on the market. In the first three quarters of 2016, the premium of this type was lower by PLN 122 million, i.e. 1.0% in comparison with the corresponding period of 2015, but the interim growth amounts to 1.9% since 2011.
Life insurance market – gross written premium vs. technical result (PLN million)
Accounting Standards, PZU Życie achieved technical result amounting to PLN 1,871 million and net profit of PLN 1,434 million.
The interest result grew mainly due to the banks’ adaptations in the deposit and credit policy to the environment of low interest rates. There was a strong drop of interest costs (by 9.4% y/y) with simultaneous moderate growth of revenue from interest (by 2% y/y).
The higher operating costs of banks in 2016 compared to 2015 was determined mainly by the growth of employee costs (by 2.7% to PLN 15.6 billion) and growth of general management costs associated mainly with the introduction of the tax on certain financial institutions (the so-called bank tax) on 1 February, which was partially offset with additional payment to BFG in December of 2015.
BPH and organic development combined with efficient management of the Bank’s price policy, grew annually by
Communications from Deutsche Telkom Group. Hence, the Bank extended its strategic alliance with global telecommunications operator with another market from
In 2016, according to the estimates of Analizy Online, the balance of payments and withdrawals from retail funds offered by TFI on the domestic market amounted to almost
PZU Lietuva Gyvybës Draudimas – „PZU Lithuania Life”. The acquired written premium amounted to EUR 12 million, a 14.3% growth from the previous year. The greatest sales growth was recorded in life and endowment insurance, which rose by 17.1% from 2015 The share of PZU Lithuania Life in the life insurance market was 4.8% (up from 4.4% in 2015).
Zdrowie, PZU Inwestycje, and banking sector. The process of achieving these goals was planned in a way that allows PZU to secure means for further sustainable development and providing attractive dividend in the long term. Maintaining a high return on equity ratio (ROE) is the key to the strategy’s success.
The goal of capital and dividend policy is to focus on the shareholder return. It is based on efficient capital management, maximizing return on equity for parent company shareholders (especially by maintaining security level and capital resources for strategic development realized by mergers and acquisitions), maintaining target Solvency II ratio at 200% and leverage ratio at 35% or less, and assuming that
Group. In the long-term, this approach should allow the shareholders to obtain the expected rate of return from the
Group’s own investments; • TFI PZU having a significantly higher share on the Polish market – an increase in the share in the assets of the capital market funds by at least 1 bp each year; • development by means of sector consolidation in Poland.
PZU Życie, that is, among other things, without portfolio of subsidiaries and investment products at the client’s risk, and the average annual level of WIBOR6M).
Business strategy earnings per share (EPS) will increase for PZU Group in 20172018 when the transaction is finalized.
2. The share of LINK4 in non-life insurance market amounted to 2.2% at the end of the third quarter of 2016 (an increase by 0.3 p.p. year-on-year).
6. Active presence on the insurance market since 29 February 2016, when it started its insurance business by concluding its first insurance contract, and the further dynamic development, confirmed a market share of 0.5% in the first year of operation.
3. Implementation of a new human resources and salaries system, including self-service portal for the employees, was completed – the first step towards standardization and improvement of HR processes in the whole company.
As at 31 December 2016, there were 77 dedicated T Mobile
1 Applies to selected companies from the group: PZU, TUW PZUW, Link4, PZU Życie, Alior Bank, TFI PZU, PTE PZU, Lietuvos Draudimas, branch of Lietuvos Draudimas PZU Estonia, AAS Balta, PZU Lithuania Life, Ukraine, Ukraine Life
The costs associated with payment of benefits to employees released due to employment restructuring are assessed in the budgets of PZU and PZU Życie for 2017 and will be included in the annual consolidated financial statements of PZU Group for 2017.
Group’s results. A part of remuneration subject to variations is developed on the basis of the above-mentioned factors and depends on the group of employees it concerns.
Manager 2.0] platform was a continuation and extension of stationary trainings.
PZU]), and all image activities were supported by active and creative PZU Group Ambassadors and Advisors.
“Making money isn’t hard in itself... What’s hard is to earn it doing something worth devoting one’s life to.” Carlos Ruiz Zafon, pisarz
Investment properties Equity instruments – unquoted Equity instruments – quoted Monetary market instruments Non-treasury debt securities Treasury debt securities 1, 1, 1, 2,
The balance of other liabilities and provisions at the end of 2016 amounted to PLN 5,994 million compared with PLN 4,304 million at the end of 2015. The growth concerned mainly liabilities from unsettled transactions in financial instruments in the amount of PLN 932 million.
the surplus of investment income over income allocated to insurance segments at transfer prices of PZU, LINK4, and
PLN 229 million, 26.1% less than in the corresponding period of the previous year.
+19.6% year on year) resulted mainly from the following: ◦ growth in motor insurance sales as the effect of increased average premium, which results from the changes to the average prices of insurance introduced gradually from the end of 2015, and a higher number of insurance offered by both PZU and LINK4.; ◦ upselling of additional insurance, including insurance of assistance, offered mainly in the package with motor insurance,
◦ increase in other tangible damage and general liability insurance, including in PZU Dom household insurance partially reduced by the lower sales of agricultural insurance (effect of strong market competition); • growth in the value of net claims and benefits in 2016 by 18.8%, which, with the net earned premium higher by 15.4%, is reflected in the growth of the claims ratio by 1.9 p.p. compared with 2015. The change is mainly shaped by
(25.4% year-on-year) was experienced mainly in property insurance due to establishment of a new contract with a major corporate client and in motor insurance due to the raise of insurance sums and raise of mandatory insurance rates. The life insurance premium rose by PLN 6 million
Companies from other financial market sectors are obliged to follow the standards applicable to a given sector. In internal regulations adopted by them they specify, among others, the following: • processes, methods, and procedures that enable risk measurement and management; • segregation of duties in the risk management process; • scope, terms and conditions, and frequency of reporting on risk management.
PLN 15,456 million (in 2015: PLN 13,600 million). The impact of non-recognition of collateral value on the level of impairment losses as at 31 December 2016 would amount to
Życie level concerns both the systemic operations, realized by the Compliance Bureau, and ongoing compliance risk management, for which responsible are the managers of the entities and organizational units of the Companies. Compliance risk is identified and assessed for individual internal processes of PZU and PZU Życie in line with the division of reporting responsibilities. Additionally, the Compliance Bureau identifies risks on the basis of legislative process, entries in the register of conflicts of interest, gifts, benefits and irregularities, as well as the enquiries it receives.
Compliance risk is monitored mainly through: • analysis of reports received from the managers of the entities and organizational units; • monitoring of regulatory requirements and compliance of PZU Group companies’ operation to a changing legal environment; • participation in legislative work on amending the generally applicable regulations; • participation in the activities of professional organizations; • coordination of external control processes; • coordination of fulfilling the reporting requirements arising from the stock exchange regulations (PZU) and the statutory law; • popularizing knowledge on competition and consumer protection law in PZU Group among the employees and adopting it to the fields they operate in; • monitoring of anti-trust rulings and proceedings conducted by the President of the Office of Competition and Consumer
upon drafting regulations (public consultation); • delegating representatives of PZU Group’s supervised companies to participate in committee works at supervision bodies; • conducting implementation projects for new regulations; • training employees of the Group’s companies in the field on new regulations, standards of conduct, and recommended remedial actions; • issuing opinions on internal regulations of PZU Group companies and recommending potential changes with regards to compliance with legal provisions and accepted standards of conduct; • verification of procedures and processes with regards to compliance with legal provisions and accepted standards of conduct; • advance adjustment of documentation to upcoming changes of legal requirements; • systemic supervision of PZU over realization of compliance function in PZU Group companies.
Group’s investment strategy in the scope of the management of the matching of assets and liabilities denominated in euro.
„We create the value of PZU through active communication with capital market participants.
PZU shareholding structure – key investor groups change 2016 vs 2015
• 4 October 2016 – announcement of PZU’s capital and dividend policy
On 21 January 2016, S&P lowered the financial strength rating of PZU from grade „A” to „A-” with negative outlook. The decision to lower the rating of PZU was the consequence of the decision to lower the rating of Poland and did not result from the change to the Company’s financial situation.
(Good Practices in PZU) and the adopted three main values: • we are fair – our rules are clear and our offer is transparent and satisfies the real expectations of the clients; • we are innovative – we keep searching for the ways to improve and continually adapt to the changing needs of the clients; • we are effective – we control the costs, ensure that the processes are smooth, and offer friendly customer service and competitive prices to our clients.
PZU Group. A friendly space with an inspiring atmosphere was created to provide the opportunity for realizing passions and sharing experiences. All initiatives are grassroots
– designed, planned, and realized by employees, e.g. initiatives under the “People with
also gave away over 3,500 thousand of ”niezgubki” [loseme -not] wristbands and created special application, which will both prevent the children from getting lost in crowds.
The criteria of ecology and environment protection are the main determinants of PZU Group’s decisions and actions in the range of administration, logistics, and real-estate management. PZU’s effective purchasing policy also adopts the requirement of obligatory inclusion of ethical, social, and environmental clauses in its agreements.
9.5 Selected initiatives of social responsibility of business in other companies of PZU Group
• activities to contribute to the broad concept of safety, specifically traffic safety,
As a responsible employer, the company creates a friendly workplace for its employees to let them develop and raise their qualifications. LINK4 has numerous development and motivation programs. They include events aimed to integrate the employees and their families, e.g. the company has a day for children during every winter break, a family picnic with presents for children organized every summer, and offers parents an additional day off for the first day of school and kindergarten in September. LINK4 also has a permanent place for children in its HR department, where classes such as yoga are held. Other interesting campaigns include: healthy days with seasonal fruit and “occasional gifts”. The special events held for the employees last year were accompanied by additional attractions, including a photo booth, ice cream, or hot chocolate served at the office.
In April 2016, Alior Bank once again provided support for the
– there is both an internal audit unit and a compliance unit at PZU; • rule specified in § 52.2 in the following wording: “In a supervised institution, where there is no audit unit or compliance assurance unit, and where no unit responsible for that area has been appointed, the information referred to in item 1 shall be submitted by the people responsible for fulfilling those functions.”
The work referred to above includes three subsequent financial years ending, respectively, on: 31 December 2014, 31 December 2015, and 31 December 2016, with an option to extend the agreement for further two financial years ending, respectively, on 31 December 2017 and 31 December 2018.
Neither as at the date of conveying this Management Report, nor as the date of conveying the PZU Group Management
On 8 February 2017, as of 8 February 2017 the Extraordinary
In 1993 completed studies in banking, finance and capital markets at Exeter, UK, and in 1996 economic studies at Free University of Berlin, while in 1997 in International Economics at RUCA.
France, UK, USA, Russia, China and South Korea. Further, he worked as: advisor to the Prime
President and Vice President Supervisory Board of EUROLOT S.A. Member of National Council of
Management Board who have been dismissed, resigned or cannot perform their functions for other reasons; • accepting instructions concerning votes being cast by the Company’s representatives during the General
Supervisory Board, which views relevant competencies and experience of the candidates for members of the Committee.
January 2016: • Dariusz Filar – Chairman of the Committee; • Dariusz Kacprzyk – Member of the Committee; • Paweł Kaczmarek – Member of the Committee.
Chartered Certified Accountants. For most of his career, he has been associated with the Aviva
Member of the Supervisory Boards of the companies of Ciech Group, i.e. Zakłady Chemiczne
Jagiellonian University. At HDI (the present Warta S.A.), which was a part of the Talanx Group, she coordinated the marketing team in creation and implementation of sales support campaigns.
Bartłomiej Litwińczuk – Member of the Management Board of PZU Życie and Director in PZU Group since 19 August 2016
Business Administration (MBA) at London Business School along with the dean’s award for the best graduates. He has many years of experience in financial services at home and abroad.
As at the date of preparation of this Report on the activities, the following people have been performing the role of a
including bonuses and special benefits: including bonuses and special benefits: 1) including remuneration resulting from competition prohibition clause of PLN 332 thousand 2) including remuneration resulting from competition prohibition clause of PLN 312 thousand 3) including remuneration resulting from competition prohibition clause of PLN 195 thousand 4) including remuneration resulting from competition prohibition clause of PLN 1.350 thousand 5) including remuneration resulting from competition prohibition clause of PLN 111 thousand 6) including remuneration resulting from competition prohibition clause of PLN 55 thousand 7) including remuneration resulting from competition prohibition clause of PLN 55 thousand 8) including remuneration from PZU Życie only, the amount presented in the next table 9) including remuneration resulting from competition prohibition clause of PLN 185 thousand 10) including remuneration resulting from competition prohibition clause of PLN 371 thousand 11) including remuneration resulting from competition prohibition clause of PLN 312 thousand 12) including remuneration by virtue of being an Advisor of the PZU Management Board during the period from 24/04/2016 to 31/10/2016
PZU SA, Ipsilon Bis SA, PZU Finanse Sp. z o.o., Omicron SA,
Adjusting the rate of PZU Życie calculated according to IFRS to the PAS level
Solvency II – solvency regime for European insurance companies based on the risk profile. The requirements have been effective as of 1 January 2016