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Issuer’s financial results – PZU (PAS)

Annual Report 2019 > Issuer’s financial results – PZU (PAS)
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In 2019 the issuer (PZU) generated a technical result of PLN 1,405 million versus PLN 1,539 million in the preceding year, signifying a decline of 8.7% year on year. The net profit was PLN 2,651 million compared to PLN 2,712 million in 2018 (down 2.2%). Without taking into account the dividends received from PZU Życie, PZU’s net profit was PLN 1,319 million, down PLN 135 million compared to 2018.

In the individual net result items, PZU recorded:

  • higher gross written premium of PLN 13,039 million, or 0.3% in comparison with the previous year, is the outcome of lower motor insurance sales (the impact of significant price competition) and premium growth in insurance for various financial losses and damages caused by natural catastrophes. Net of the reinsurers' share and the change in the provision for unearned premiums, net earned premium was PLN 12,303 million, up 1.8% from 2018;
  • a higher level of claims and benefits in the amount of PLN 7,760 million, implying an increase of 3.2% compared to 2018. The major change was recorded in the class of insurance for damage to property caused by natural catastrophes and motor own damage partially offset by the lower loss ratio in motor TPL and other TPL;
  • increase of net investment result by PLN 71 million was chiefly the effect of the dividends received from PZU Życie being higher than a year ago and the stabilization of investment income, mainly due to modifying the strategy for managing debt portfolios from a short-term to a long-term focus;
  • higher acquisition expenses, taking into account reinsurance commission (up PLN 105 million), as the outcome of a shift in the product and sales channel mix: the multi-agency and dealer channel featuring higher commission rates have a higher share while at the same time there was a lower pace of growth in the sales of motor TPL insurance featuring lower commission rates;
  • administrative expenses up to PLN 704 million versus PLN 655 million in 2018 chiefly as a consequence of higher personnel (due to wage pressure on the market) and IT costs on the market partially curtailed by maintaining cost discipline in other areas of business.

In 2019 PZU collected gross written premium of PLN 13,039 million, i.e. 0.3% more than in 2018. They comprised mainly:

  • motor TPL insurance premiums, accounting for 39.2% of PZU’s insurance portfolio (41.5% in the prior year). In 2019 they were down 5.1% from the previous year due to the lower number of insurance policies coupled with the decline in the average premium;
  • motor own damage insurance premiums with a 24.7% share of PZU’s total gross written premium (i.e. 0.3 p.p. lower than in the corresponding period of the previous year) – slight drop (-0.6% y/y) forming the outcome of the declining average premium and the lower number of concluded insurance policies in the corporate client segment and growth in the mass client segment;
  • premiums on insurance against fire and property damage accounting for 20.7% of PZU’s premium portfolio. In 2019 their percentage of the insurance portfolio edged up 0.9 p.p., while its value was up 5.0% versus the previous year – this was the effect of the higher premiums on household and business insurance and indirect activity;
  • accident and other insurance premiums whose share totaled 9.5% (up 1.5 p.p. versus 2018). In this category of insurance PZU posted higher premium mainly in insurance for various financial risks (including GAP financial loss offered to corporate and retail clients of leasing companies) and in accident and sickness insurance driven by the development of cooperation with the PZU Group’s banks (cash loan insurance) and health insurance sales growth.

In 2019 PZU’s investment result was PLN 2,223 million compared to PLN 2,152 million in 2018.
The higher income was the effect of the dividends received from PZU Życie, adjusting the strategy for managing debt portfolios from a short-term to a long-term focus and limiting volatility in the earnings of the PZU Global Macro EUR portfolio in connection with the purchase of bonds aligned to the portfolio’s investment horizon constituting above all coverage of the liabilities taken under the issue of own bonds in EUR falling due in the middle of the current year.

In 2019 net claims and benefits and movement in PZU’s provisions totaled PLN 7,760 million, signifying 3.2% growth compared to 2018.

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

  • higher claims and benefits in motor own damage insurance as a result of the rising average payout and the higher frequency of claims in the mass segment;
  • the higher level of claims in the group of damage caused by natural catastrophes and other damage to property, including events with a high unit value and crop insurance claims – the higher than normal number of losses caused by atmospheric phenomena such as ground frost, rainfall and hail;
  • the decline in claims and benefits in third party liability insurance largely as the consequence of the considerably smaller movement in the annuity provision - in the corresponding period of 2018 the provision was increased mainly in third party liability insurance for medical entities;
  • lower loss ratio in the motor TPL portfolio as the outcome of the lower sales pace and rising claim-related inflation (in the corresponding period of 2018 the provision was increased for claims for pain and suffering).

Acquisition expenses in 2019 (net of reinsurance commissions) totaled PLN 2,489 million and were up 5.0% versus 2018.This incremental growth stemmed from the increase in direct acquisition expenses (commissions) and indirect selling expenses forming the consequence of the shift in the product and distribution channels mix (the rising share held by the multi-agency and dealer channel coupled with the simultaneously lower sales growth in motor TPL insurance featuring lower commission rates).

In 2019 PZU’s administrative expenses were PLN 704 million, i.e. up 7.4% versus the prior year. The increase in personnel costs due to the constant wage pressure on the market and in IT project-related costs partially curtailed by maintaining cost discipline in other areas of business was the major contributor to the year on year growth rate.

The balance of other technical income and expenses in 2019 was negative and stood at PLN 254 million. The deterioration in the balance versus 2018 was the outcome of of declining revenue on foreign exchange differences and the impairment to update the value of receivables.

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.

On 31 December 2019 PZU’s total balance sheet value was equal to PLN 41,596 million and was down 4.5% versus the end of 2018.

The main component of PZU’s assets were investments totaling PLN 36,660 million (down 2.4% compared to the end of 2018), which accounted for 88.1% of PZU’s total assets compared to 86.2% as at the end of the previous year. With the exclusion of investments in subsidiaries, this level of investments was 6.2% lower compared to the end of 2018. The major reason for the drop in the value of investments was the amortization of the own bond issue denominated in EUR.

PZU’s receivables were PLN 2,085 million and constituted 5.0% of assets versus PLN 2,343 million and 5.4%, respectively in 2018. The largest change was recorded in the value of other receivables from other entities (down PLN 127 million) and receivables on reinsurance, including from subordinated entities (down PLN 92.0 million versus the end of 2018). Non-current assets consisting of intangible assets, goodwill and property, plant and equipment were recognized in the balance sheet in the amount of PLN 442 million. They constituted 1.1% of assets.

As at 31 December 2019 PZU had PLN 126 million in cash (0.3% of assets) versus PLN 1,222 million a year earlier.

At the end of 2019, the main component of PZU’s equity and liabilities consisted of technical provisions. They totaled PLN 21,465 million (net), representing 51.6% of equity and liabilities. Their share in the balance sheet increased by 3.4 p.p. compared to 2018, while in terms of value they rose by PLN 467 million, in particular due to higher provisions for unpaid claims and benefits, chiefly in motor TPL and motor own damage insurance and in insurance for other damage to property.

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.

Contingent receivables totaled PLN 4,257 million, implying a decline of PLN 233 million versus last year. They comprised among others: guarantees and sureties received and other contingent receivables comprising mainly securities received in the form of a mortgage on the debtor’s assets and other contingent receivables.

The balance of contingent liabilities fell by PLN 3,471 million versus last year. This stemmed mainly from the expiry of the guarantee (extended in connection with the issue of non-subordinated bonds through PZU Finance AB) and the expiry of bondholders’ claims against PZU Finance AB, which transpired on 3 July 2019 on account of the subsidiary amortizing the entirety of the debt by virtue of these bonds.

In 2019 PZU generated a return on equity of 18.4%, or 1.3 p.p. lower than in 2018. In 2015-2019 the return on equity (ROE) was 17.7% on average.

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.


Operational efficiency ratios 2015 2016 2017 2018 2019
Gross claims and benefits ratio (simple)
(gross claims and benefits/gross written premium) x 100%
61.2% 58.8% 60.9% 60.5% 61.7%
Net claims and benefits ratio (net claims and benefits/net earned premium) x 100% 63.8% 66.7% 64.1% 62.2% 63.1%
Insurance activity expense ratio (insurance activity expenses/net earned premium) x 100% 29.4% 27.9% 25.2% 24.8% 25.6%
Acquisition expense ratio* (acquisition expenses/net earned premium) x 100% 19.9% 20.1% 19.0% 19.3% 19.9%
Administrative expense ratio (administrative expenses/net earned premium) x 100% 9.5% 7.9% 6.2% 5.4% 5.7%
Combined ratio (COR) (net claims and benefits + insurance activity expenses) / net earned premium x 100% 93.2% 94.7% 89.3% 87.0% 88.7%

* after taking into account reinsurance commissions received

Basic profitability ratios of PZU 2015 2016 2017* 2018 2019
Return on equity (ROE) (annualized net profit/average equity) x 100% 18.2% 12.8% 19.2% 19.7% 18.4%
Return on assets (ROA) (annualized net profit/average assets) x 100% 6.3% 4.3% 6.2% 6.3% 6.2%

*restated data