Letter from the Chairman of the Supervisory Board Statement

Robert Jastrzębski, Ph. D. Hab., Assoc. Prof.
Chairman of the PZU Supervisory Board

Dear Sirs,

the most important event of 2022, affecting the economic situation in the world and Poland, was Russia’s attack on Ukraine. In its aftermath, as before with the COVID-19 pandemic, the business environment has changed significantly. Households and businesses today are facing the effects of rising inflation and the actions of central banks responding to this challenge.

The PZU Group’s operations, in this uncertain environment, have been characterized by great stability and resilience. Effective risk management and a secure investment portfolio structure have allowed the company to maintain a strong capital position under the Solvency II regime. During the past year, S&P Global Ratings’ ratings for PZU and PZU Life remained unchanged at a high level of A- with a stable outlook. The Group’s good condition was also evident in stock market valuations. In 2022, shares of PZU SA, which heads the Group, rose by 21.1 percentage points above the WIG20 price index, which recorded a 20.8% year-on-year loss. After adjusting the PZU share price for dividends, the total return on PZU shares last year was 5.7%.

In 2022, the PZU Group successfully pursued its strategic goals and generated good financial results, closing this reporting period with gross premiums written of PLN 26.7 billion and net profit of PLN 3.37 billion. These results were achieved on the basis of high profitability of major insurance lines and repeatable business processes, despite operating in difficult economic and market conditions. The PZU Group confidently maintains its position as Poland’s largest insurer, actively responding to the changing needs of individual and corporate clients and providing them with a secure and solid foothold, even in a difficult macroeconomic environment.

At the same time, complementary and forward-looking areas of the rest of the PZU conglomerate have been strengthened in operational activities. In the health pillar, revenues in 2022 increased by 16.2% to nearly PLN 1.3 billion, the number of active health contracts in the Group exceeded 3.2 million, and PZU Zdrowie consistently strengthened its position as one of the leading nationwide medical operators. This is an important area not only for the PZU Group’s business, but also in social terms, as its development means greater availability of quality health services for Poles and at the same time reducing the burden on the public health sector.

It is also important to emphasize the dynamic development of the investment pillar, which is important for social reasons, as it is linked to the retirement security of hundreds of thousands of people, among other things. At the end of 2022, TFI PZU and OFE PZU were managing assets of external clients (i.e., outside the PZU Group) worth nearly PLN 41 billion. PZU TFI’s assets increased 40% y/y, due in part to the acquisition of TFI Energia. ECS assets recorded the largest increase, rising by 79% to PLN 2.4 billion

Despite the significant scale and diversification of its operations, the PZU Group is characterized by strong innovation in technology. It actively and effectively conducts processes of digitization and automation of many processes using artificial intelligence algorithms, relying both on its own solutions and sourcing the most interesting ideas from outside.

In terms of digitization of sales and service channels, the flagship solutions are the mojePZU portal and application, which allow clients to remotely purchase and manage a range of insurance, financial and health products. In 2022, further functionalities were implemented to improve the operation of this self-service platform. At the end of last December, mojePZU already had more than 3.3 million users, including more than 1.5 million who had downloaded the app. The inPZU service, which offers low-cost index funds to clients looking for attractive and safe forms of investment, is also being gradually developed. In 2022, the platform already had 117 thousand active users handling: ECS accounts, investment portfolios, PZU FIO registers, EPS and ECS registers, and IRA and IRSA products.

From the point of view of the financial result, the most important insurance segments for the PZU Group, namely group and individually continued insurance and motor third-party liability, together accounted for about 45% of premium written in 2022. For the former, their profitability, in 2020-2021, was under pressure from increased mortality due to the COVID-19 pandemic. Last year, this effect was much less pronounced, as evidenced by the 17.4% profitability generated. In contrast, the compulsory motor insurance market has long been characterized by price stagnation and margin erosion, the aftermath of a fierce competitive struggle among insurance companies.

The deteriorating profitability of MOD portfolios in 2022 was mainly due to the rising prices of spare parts and repair costs as a result of inflation, and thus significantly higher compensation and benefit costs. Meanwhile, the prices of MOD policies on the market did not reflect these changes, despite active supervision by the KNF in this regard. A factor that could change the picture in 2023 could be the ever-increasing cost of claims handling – both under the pressure of inflation and the regulations in effect since 1 November of last year, establishing a new standard for claims handling.

The financial sector, including the insurance industry, plays a very important role in the energy transition, the biggest challenge for the Polish economy in the coming years and decades. The PZU Group is aware of its responsibility in this area. In 2022, it has increased its commitment to investments supporting the transition to nearly PLN 720 million, including PLN 420 million for financing onshore wind farms. The target annual production of turbines, to the construction of which the Group has committed, should provide green electricity for over 800,000 households in Poland.

To the Management Boards of the companies that make up the PZU Group and to all their Employees, I wish, above all, calmer and more predictable operating conditions, success in achieving all the business, social and environmental goals set, and the development of attractive rates of return for Shareholders.