Issuer’s financial results – PZU (Polish GAAP)

In 2017, the issuer recorded a technical result at a level of PLN 1,218 million compared to PLN 537 million in the preceding year, which signifies an over double increase in the result year on year. Net profit was PLN 2,434 million compared to PLN 1,573 million in 2016 (up 54.7%). Without taking into account the dividends received from PZU Życie, PZU’s net profit was PLN 1,005 million and was higher by PLN 256 million compared to 2016.

In the individual net result items, PZU recorded:

• an increase in gross written premium to PLN 12,433 million, or 16.4%, compared to the previous year, mainly in motor insurance as a result of an increase in the average premium (driven by a gradual shift in the average price) and in insurance of property damage. After consideration of the reinsurers’ share and the movement in the provision for unearned premiums, net earned premium was PLN 11,181 million, up 21.4% from 2016;
• a higher level of claims and benefits totaling PLN 7,169 million, up 16.6% compared to 2016. The main change was recorded in the motor insurance group driven by growth of the insurance portfolio and in the insurance against damages caused by the forces of nature;
• the net investment result, higher by PLN 95 million, as a result of a higher dividend from PZU Życie offset by the one-off effect of realization of the result of valuation of participation units in the Universum PZU Specialist Open-end Mutual Fund (PZU Specjalistyczny Fundusz Inwestycyjny Otwarty Universum) in 2016, which until redemption of the units was captured through a change of the revaluation reserve;
• higher acquisition expenses (an increase by PLN 270 million), mainly due to an increase in direct acquisition expenses driven by the growing insurance portfolio. The additional factor that had a positive effect on acquisition expenses was the fact that, according to the requirements of the Insurance Activity Act, the rules for paying consideration to policyholders in group contracts were altered – as of 1 April 2016, these expenses are treated as administrative expenses;
• a decrease in administrative expenses to PLN 693 million compared to PLN 724 million in 2016, primarily as a result of the application of cost discipline measures both in current and in project activities.

In 2017 PZU collected gross written premium of PLN 12,433 million, i.e. 16.4% more than in 2016. They comprised mainly:

• motor TPL insurance premiums, accounting for 42.4% of PZU’s insurance portfolio (38.1% in the prior year). In 2017, their value was 29.4% higher than in the previous year, mainly as an effect of increase in the average premium as a result of the tariff changes introduced in 2016 and higher number of insurance policies;
• Motor own damage insurance premiums with a 25.3% share of PZU’s total gross written premium (i.e. 0.6 p.p. less than in the corresponding period of the previous year) - increase (+13.8% y/y) associated with a higher number of insurance and gradual introduction of increases;
• insurance against fire and property damage premiums, accounting for 19.2% of PZU’s premium portfolio. In 2017 their share in the insurance portfolio did not change, but their value was 16.7% higher in relation to the previous year – the effect of higher sales of agricultural insurance (in particular subsidized crops) and household insurance;
• accident and other insurance premiums. Their share amounted to 7.3% (a decline of 3.1 p.p. compared with 2016). This insurance category recorded a decline of the premiums on assistance insurance and various financial risks insurance, as a result of TUW PZUW being joined by several existing strategic partners and ending cooperation with a large entity (client) under an obligatory quota share inward reinsurance treaty.

In 2017, PZU’s investment activity focused on the continuation of strategic assumptions, in particular on the optimization of profitability of investment operations through greater diversification of the investment portfolio, as well as ensuring financing for the transaction of purchase of shares in Bank Pekao.

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 Open- end Mutual Fund (PZU Specjalistyczny Fundusz Inwestycyjny Otwarty Universum) in the amount of PLN 764 million, which until redemption of the units was captured through a change of the revaluation reserve.

In December 2017, the value of PZU SA’s investment portfolio was PLN 36,576 million compared to PLN 31,375 million at year end 2016. The increase in the portfolio value resulted primarily from PZU’s issue of PLN 2,250 million subordinated bonds in June 2017, higher cash flows in connection with the dynamic development of the insurance portfolio, and the investment resulted generated. Compared to the year before, the share of debt securities and other fixed income securities decreased, driven mainly by reaching the maturity of part of the bond portfolio in 2017.

In 2017 PZU did not apply hedge accounting.

In 2017, net claims and benefits and the incremental growth in PZU’s provisions totaled PLN 7,169 million, i.e. 16.6% growth compared to 2016.

The following factors contributed to the change in the net value of claims and benefits:

• higher claims and benefits in motor insurance resulting from development of the insurance portfolio and higher frequency of motor TPL losses with simultaneous increase of the average claims;
• the higher loss ratio in the group of insurance caused by the forces of nature and TPL insurance attributable largely to numerous losses caused by the forces of nature in August (Hurricane Xavier) and December (Hurricane Greg) and reporting of several large claims (inter alia under inward reinsurance with the Group companies);
• the lower level of claim in the group of insurance for property, damage including lower level of claims under crop insurance – in the corresponding period of 2016 there were numerous losses caused by frost and winterkill.

During the year, acquisition expenses (excluding reinsurance commissions) amounted to PLN 2,138 million and increased by 15.2% compared with the year before. This increase resulted predominantly from an increase in direct acquisition expenses (commissions) which were mainly the consequence of higher sales.

In 2017, PZU’s administrative expenses were at PLN 693 million, which was 4.3% lower than in the prior year. Their level was driven primarily by maintaining the cost discipline in current activities and optimization of the costs of project activity.

The balance of other technical income and expenses in 2017 was negative and stood at PLN 177 million. Compared to 2016, the company recorded a result that was PLN 8 million worse, driven by significantly higher write-offs and impairment losses. 

In 2017, the net balance of other operating income and expenses was negative and amounted to PLN 217 million compared with the also negative balance for 2016 of PLN 362 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). In 2017 revenues on account of foreign exchange differences on the loan received from PZU Finance AB (publ.) amounted to PLN 217 million compared to the 2016 cost amounting to PLN 138 million. Additionally, the level of other operating expenses was significantly impacted by the tax on assets – the resulting charge in 2017 was PLN 178 million (increase by PLN 30 million compared to 2016).

On 31 December 2017, PZU’s total balance sheet value amounted to PLN 42,388 million and was 13.6% higher as at the end of 2016.

The main component of PZU’s assets were investments which amounted to PLN 36,576 million (up 16.6% compared to the end of 2016), which accounted for 86.3% of PZU’s total balance sheet value compared to 84.1% as at the end of the previous year. With the exclusion of investments in subordinated entities, this level was 9.3% lower. The main reason behind the increase in the value of investments in subordinated entities was the acquisition of a stake representing approx. 20% of the total number of votes in Pekao in July 2017.

PZU’s receivables stood at PLN 2,315 million and accounted for 5.5% of assets. For comparison, at the end of 2016, they amounted to PLN 2,252 million (6.0% of PZU’s assets). The biggest increase was recorded in the value of receivables on direct insurance, as a result of the dynamic increase of the insurance portfolio (mainly motor insurance). Non-current assets – in the form of intangible assets, goodwill and property, plant and equipment – were disclosed in the balance sheet at PLN 463 million. They constituted 1.1% of assets.

As at 31 December 2017, PZU’s cash amounted to PLN 982 million (2.3% of assets). A year earlier, they amounted to PLN 1,148 million.

At the end of 2017, technical provisions were the main component of PZU’s equity and liabilities. They reached the amount of PLN 19,969 million, i.e. 47.1% of equity and liabilities. Their share in the balance sheet decreased by 3.0 p.p. compared to 2016, while in terms of value they rose by PLN 1,254 million, in particular due to higher provisions for unearned premiums in the group of motor insurance.

As at the end of 2016, equity amounted to PLN 13,583 million and accounted for 32.0% of equity and liabilities (down 0.5 p.p.).

Contingent receivables amounted to PLN 4,616 million, up PLN 259 million compared to the year before. They comprised among others: guarantees and sureties received, bills of exchange issued on account of granted insurance guarantees and other contingent receivables comprising mainly securities in the form of mortgage on the debtor’s assets and other contingent receivables.

The balance of contingent liabilities dropped by PLN 145 million compared to the year before. The decline was recorded mainly in the granted guarantees and sureties line item (which shows, among others, the guarantee granted to a subsidiary PZU Finance AB) and other liabilities, which show mainly liabilities on account of unpaid loan tranches.

In 2017, PZU generated a return on equity of 18.9%. ROE was up by 6.1 p.p. compared to the previous year.

In 2014 - 2017, the average return on equity (ROE) was 17.9%. 

COR (combined ratio) was one of the fundamental measures of productivity and operating efficiency of an insurance company; in PZU SA it has been maintained at a level confirming its high operating profitability in recent years.

Operational efficiency ratios are presented below.