Major factors contributing to the consolidated financial result

In 2019, the PZU Group generated net profit attributable to equity holders of the parent company of PLN 3,295 million compared to PLN 3,213 million in 2018 (up 2.6%).

The result before tax was PLN 7,080 million compared with PLN 7,086 million in the previous year (down 0.1%). Net profit was PLN 5,185 million, i.e. PLN 183 million below the result in 2018. Operating profit in 2019 was PLN 7,084 million, down PLN 3 million compared to the result in 2018.

The net result fell by 1.5% compared to last year, net of non-recurring events¹.

Operating profit was driven in particular by the following factors:

• record-breaking gross written premium of PLN 24,191 million, including rapid sales expansion in international companies, the rising level of premium generated on protection products offered in own channels and the bancassurance channel in life insurance in Poland, the development of investment products in the bancassurance channel and the portfolio of group health products. Higher premium in the non-motor business, including insurance against fire and other damage to property in non-life insurance in Poland;
• higher result on listed equities, among others due to better conditions on the Warsaw Stock Exchange;
• dip in profitability in the mass insurance segment – effect of the higher loss ratio in insurance against fire and other damage to property as a result of the above-average number of losses caused by atmospheric phenomena;
• higher insurance result in the corporate insurance segment, including improved profitability in the motor TPL insurance class;
• higher result on individual insurance due to the expanding portfolio of high-margin protection insurance, in both own channels and bancassurance channels;
• lower profitability in group and individually continued insurance with a growing health insurance portfolio as a result of an increase in the loss ratio of certain risks in the group protection portfolio and an increase in operating expenses;
• higher profitability in international companies due to the dynamic growth of sales and substantially higher investment income;
• squeezed results in the banking segment due to, among others, higher contributions to the Bank Guarantee Fund and the unfavorable impact of the CJEU judgment on consumer loans.

 In the individual operating result items, the PZU Group posted:

• 3.1% gross written premium growth up to PLN 24,191 million. This growth pertained chiefly to investment and protection insurance sold in cooperation with banks, sales growth in international companies and higher sales of insurance against fire and other damage to property in the corporate insurance segment, including the insurance acquired in Q4 2019 under inward reinsurance in the form of a high unit value insurance agreement. Net of reinsurers' share and the movement in the provision for unearned premiums, net earned premium was PLN 23,090 million, up 3.3% from 2018;
• increase in investment income after factoring in interest expenses. In 2019 and 2018 this figure was PLN 9,211 million and PLN 7,849 million, respectively. Investment income rose both on banking activity and net of banking activity. The growth in the result in banking activity was driven in particular by the development in the sales of credit products at Bank Pekao and Alior Bank, among others thanks to the favorable economic climate and the low level of interest rates. This effect was partly offset by the unfavorable impact of the CJEU judgment. Investment income excluding banking activity increased primarily thanks to a higher result earned on listed equity instruments. Improved market conditions on the Warsaw Stock Exchange Better contributed to this outcome as the WIG index edged up 0.3% in 2019 while it posted a 9.5% drop in the corresponding period of the previous year. Favorable market conditions on the WSE also translated into the investment results in the portfolio of assets used as coverage for investment products that do not exert any influence on the PZU Group’s total net result as they are offset by higher provisions for claims and benefits paid;
• higher level of claims and benefits paid. They totaled PLN 15,695 million, which means a 7.8% increase compared with 2018. This growth was present in particular in life insurance due to the higher investment income in most unit-linked product portfolios versus last year’s negative performance (this effect does not exert any influence on the PZU Group’s total net result as higher provisions for claims and benefits paid offset the movement in the net result on investing activity in the portfolio of assets covering investment products). Additionally, the higher level of claims and benefits paid in insurance against fire and other damage to property was a result of the above-average number of losses caused by atmospheric phenomena;
• higher acquisition expenses (up PLN 233 million) in the mass and corporate client segments alike. This upward movement was due in particular to the shift in PZU’s sales channel mix, sales development and the changing portfolio mix in the mass and corporate segments leading to non-motor products taking a higher percentage;
• lower administrative expenses of PLN 6,606 million versus PLN 6,609 million in the corresponding period of 2018. The banking segment’s administrative expenses (net of the adjustments made to the fair value measurement of assets and liabilities) dropped by PLN 139 million in conjunction with both banks maintaining cost discipline and Alior Bank reversing a portion of its provision for deferred payroll costs. At the same time, the administrative expenses in the insurance activity segments in Poland were up PLN 96 million versus last year’s figures. This change largely resulted from higher personnel costs in connection with the wage pressure on the market;
• higher negative balance of other operating income and expenses of PLN 2,832 million. This change was chiefly due to higher fees in the Bank Guarantee Fund, the adverse impact exerted by the CJEU judgment concerning consumer loans (The Court ruled that in the event of premature loan amortization a consumer is entitled to a reduction of all the costs forming part of the overall cost of the loan). and the higher level of the levy on financial institutions as the taxable asset base expanded (the tax rates did not change). The fees to the Bank Guarantee Fund shot up from PLN 372 million in 2018 to PLN 611 in 2019, a provision was established for disputed claims and prospective liabilities in connection with the adverse impact exerted by the CJEU judgment on consumer loans and mortgage loans in CHF totaling PLN 294 million, while the PZU Group’s financial institutions tax charge (insurance and banking activity combined) was PLN 1,134 million in 2019 versus PLN 1,092 million in 2018.

Operating result of the PZU Group in 2019 (in PLN m)

                                             *excluding interest costs

¹ Non-recurring events include the effect of converting long-term policies into yearly renewable term business in type P group insurance, provision for the reimbursement of fees on the premature amortization of consumer loans before 11 September 2019 and in the comparable period a non-recurring effect of setting up additional provisions in non-life insurance to cover the claims regarding pain and suffering by the vegetative state.