The main types of risk to which the PZU Group is exposed includes credit risk (in particular risk related to bank credit portfolio), actuarial risk, market risk (in particular interest rate risk, foreign exchange risk, and risk related to financial instruments and commodities), liquidity risk, concentration risk, operational risk, compliance risk and models risk.
In 2022, moderate increase in risk was recorded in some areas, in particular capital adequacy and regulatory risk, credit risk and interest rate risk. The 2022 interest rate increase reflected negatively on the level of solvency ratios as valuations of debt securities owned by the PZU Group dropped; however, it is yet to translate into material deterioration of credit quality of PZU Group’s bank portfolio. In 2022, there was a moderate increase in credits costs, which , stems from a significant rise of the NBP reference rate due to higher inflation and slower economic growth. Furthermore, the KNF (the Polish Financial Supervision Authority) issued its recommendations on higher requirements applied to examine the client’s creditworthiness, consequently limiting sales. Also, banks were burdened with additional regulatory fees (introduction of credit holiday, additional premium for the Borrower Support Fund, premium for the Commercial Bank Protection System) and increased reserves on account of a growing number of lawsuits and settlements pertaining to Swiss franc loans. These factors have a negative impact on financial results of banks, and in the long term may limit the capital base and business development in the future.
When managing the various risk types, the PZU Group identifies, measures and monitors risk concentration. To meet the regulatory obligations imposed on groups identified as financial conglomerates, a model to manage significant risk concentration in the PZU Financial Conglomerate was implemented by the PZU Group in 2020 in keeping with the requirements of the Supplementary Oversight Act. Regulated subsidiaries monitor and submit regular reports to the leading entity in the financial conglomerate (PZU) on the measures and data supporting identification of risk concentrations. In the case of identification of an excessive risk concentration, appropriate management actions are implemented on the level of the given entity or the whole financial conglomerate.
In 2022, initiatives were continued to improve the identification, measurement, assessment and monitoring of the risks associated with sustainable development, in particular with climate changes. The main risks in this area are transition risks and physical risks, which are managed as part of individual risk categories specified below in this consolidated financial statements.
In 2022, initiatives were continued to improve the identification, measurement, assessment and monitoring of the risks associated with sustainable development, in particular with climate changes. The main risks in this area are transition risks and physical risks1, which are managed as part of individual risk categories specified below in this consolidated financial statements.
1) According to the European Commission guidance for non-financial reporting, transition risks refer to the transition of the economy to a lowcarbon and climate-resilient future. Physical risk on the other hand entails financial losses stemming from the physical consequences of climate change and encompasses acute (e.g. storms, fires) and long-term risk (rising sea level).