Financial liquidity risk means the possibility of losing the capacity to settle, on an ongoing basis, the PZU Group’s liabilities to its clients or business partners. The aim of the liquidity risk management system is to maintain the capacity of fulfilling the entity’s liabilities on an ongoing basis. Liquidity risk is managed separately for the insurance part and the bancassurance part.

The risk identification involves analysis of the possibility of occurrence of unfavorable events, in particular:

  • shortage of liquid cash to satisfy current needs;
  • lack of liquidity of financial instruments held;
  •  the structural mismatch between the maturity of assets and liabilities.

Risk assessment and measurement are carried out by estimating the shortage of cash to pay for liabilities. The risk estimate and measurement is carried out from the following perspectives:

  • liquidity gaps (static, long-term financial liquidity risk) – by monitoring a mismatch of net cash flows resulting from insurance contracts executed until the balance sheet date and inflows from assets to cover insurance liabilities in each period, based on a projection of cash flows prepared for a given date;
  •  potential shortage of financial funds (medium-term financial liquidity risk) – through analysis of historical and expected cash flows from the operating activity;
  • stress tests (medium-term financial liquidity risk) – by estimating the possibility of selling the portfolio of financial investments in a short period to satisfy liabilities arising from the occurrence of insurable events, including extraordinary ones;
  • current statements of estimates (short-term financial liquidity risk) – by monitoring demand for cash reported by business units of a given insurance undertaking in the PZU Group by the date defined in regulations which are in force in that entity.

The banks in the PZU Group employ the liquidity risk management metrics stemming from sector regulations, including Recommendation P issued by the KNF.

To manage the liquidity of the banks in the PZU Group, liquidity ratios are used for different periods ranging from 7 days, to a month, to 12 months and to above 12 months.

Within management of liquidity risk, banks in the PZU Group also perform analyses of the maturity profile over a longer term, depending to a large extent on the adopted assumptions about development of future cash flows connected with items of assets and equity and liabilities. The assumptions take into consideration:

  •  stability of equity and liabilities with indefinite maturities (e.g. current accounts, cancellations and renewals of deposits, level of their concentration);
  • possibility of shortening the maturity period for specific items of assets (e.g. mortgage loans with an early repayment option);
  • possibility of selling items of assets (liquidity portfolio).

Monitoring and controlling financial liquidity risk involve analyzing the utilization of the defined limits.

Reporting involves communicating the level of financial liquidity to various decision-making levels. The frequency of each report and the scope of information provided therein are tailored to the information needs at each decision-making level.

The following measures aim to reduce financial liquidity risk:

  • maintaining cash in a separate liquidity portfolio at a level consistent with the limits for the portfolio value;
  • maintaining sufficient cash in a foreign currency in portfolios of investments earmarked for satisfying insurance liabilities denominated in the given foreign currency;
  • provisions of the Agreement on managing portfolios of financial instruments entered into between TFI PZU and PZU regarding limitation of the time for withdrawing cash from the portfolios managed by TFI PZU to at most 3 days after a request for cash is filed;
  • posiadanie otwartych linii kredytowych w bankach lub/i możliwość dokonywania transakcji typu sell-buy-back na
  • keeping open credit facilities in banks and/or the possibility of performing sell-buy-back transactions on treasury securities, including those held until maturity;
  • centralization of management of portfolios/funds by TFI PZU;
  • limits of liquidity ratios in the banks belonging to the PZU Group.

In the second half of 2022, PZU Group banks recorded improved liquidity ratios. Increase in liquidity measures largely resulted from higher volume of term deposits while simultaneously decreasing dynamics of loans granted, and improving assessment of derivative and debt instruments.

In the second half f 2022, liquidity ratios of both banks stabilized, and remain above internal and regulatory minima.

The impact of the current environment pandemic on the liquidity risk of the PZU Group’s insurance segment in 2022 should be classified as low. This liquidity was maintained at a required level, and there were no grounds to take extraordinary management actions in terms of liquidity risk. As part of routine management actions regarding liquidity risk, the PZU Group constantly monitored the level of available liquid funds and the current utilization of liquidity limits.

Risk exposure

XLS

Carrying amount of debt instruments, by maturity 31 December 2022 31 December 2021
up to 1
year		 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Over
5 years		 Total up to 1
year		 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Over
5 years		 Total
Loan receivables from clients 59 360 24 681 18 591 15 672 12 756 81 633 212 693 57 099 23 423 22 287 15 964 14 715 81 520 215 008
Investment (deposit) debt instruments 45 154 22 794 15 139 15 149 12 602 36 641 147 479 27 775 12 735 19 666 14 508 14 113 41 978 130 775
Measured at amortized cost 36 872 14 623 11 010 6 602 9 254 27 693 106 054 17 075 7 471 12 266 10 264 6 055 30 139 83 270
Debt securities 26 814 13 331 10 291 5 395 8 959 26 856 91 646 11 702 7 382 10 707 9 623 4 999 29 770 74 183
Government securities 12 948 11 881 9 491 3 608 8 082 22 621 68 631 10 954 6 646 9 880 8 863 3 257 25 759 65 359
Other 13 866 1 450 800 1 787 877 4 235 23 015 748 736 827 760 1 742 4 011 8 824
Buy-sell-back transactions 7 071 – – – – – 7 071 4 117 – – – – – 4 117
Term deposits with credit institutions 2 981 36 18 14 8 11 3 068 1 253 78 32 17 4 – 1 384
Loans 6 1 256 701 1 193 287 826 4 269 3 11 1 527 624 1 052 369 3 586
Measured at fair value through other comprehensive income 7 907 7 581 3 858 8 212 3 084 8 314 38 956 10 304 4 997 6 948 3 886 7 775 11 129 45 039
Government securities 3 521 5 783 2 711 6 896 2 428 6 223 27 562 6 915 3 378 5 061 2 715 6 333 7 918 32 320
Other 4 386 1 798 1 147 1 316 656 2 091 11 394 3 389 1 619 1 887 1 171 1 442 3 211 12 719
Measured at fair value through profit or loss 375 590 271 335 264 634 2 469 396 267 452 358 283 710 2 466
Government securities 251 509 252 317 259 624 2 212 257 255 375 344 266 686 2 183
Other 124 81 19 18 5 10 257 139 12 77 14 17 24 283
Total 104 514 47 475 33 730 30 821 25 358 118 274 360 172 84 874 36 158 41 953 30 472 28 828 123 498 345 783

The following table presents future undiscounted cash flow from assets and liabilities.

XLS

Liquidity risk 31 grudnia 2022 31 grudnia 2021
Up to 1
year		 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years 5 – 10 years Over
10 years		 Total Up to 1
year		 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years 5 – 10 years Over
10 years		 Total
Assets 157 463 55 303 37 311 33 425 25 005 68 437 71 898 448 842 133 769 41 893 38 749 29 351 24 195 66 431 63 082 397 470
Cash and cash equivalents 10 394 497 345 273 239 767 3 445 15 960 6 437 220 156 123 104 363 2 044 9 447
Receivables 5 592 4 059 258 218 324 2 191 – 12 642 4 362 2 446 113 286 289 1 698 220 9 414
Loan receivables from clients 61 009 36 378 25 851 20 316 15 829 41 894 51 225 252 502 54 652 29 503 28 480 20 340 14 182 41 260 45 621 234 038
Debt securities 69 804 12 819 9 894 11 369 8 244 22 920 16 935 151 985 62 441 9 304 8 335 7 846 8 591 22 784 15 142 134 443
Loans 505 1 548 963 1 249 369 664 293 5 591 214 242 1 519 717 1 029 326 55 4 102
Buy-sell-back transactions 7 075 – – – – – – 7 075 4 117 – – – – – – 4 117
Term deposits with credit institutions 3 084 2 – – – 1 – 3 087 1 546 178 146 39 – – – 1 909
Liabilities -160 871 -21 963 -15 368 -10 364 -12 695 -29 321 -114 697 -365 279 -150 158 -16 389 -11 552 -9 319 -6 853 -26 640 -118 559 -339 470
Technical provisions -9 327 -3 729 -2 608 -1 941 -1 489 -5 799 -24 343 -49 236 -9 568 -3 239 -2 446 -1 858 -1 496 -5 411 -22 803 -46 821
Lease liabilities -184 -163 -201 -159 -131 -427 -654 -1 919 -199 -136 -91 -145 -84 -207 -658 -1 520
Other liabilities -151 360 -18 071 -12 559 -8 264 -11 075 -23 095 -89 700 -314 124 -140 391 -13 014 -9 015 -7 316 -5 273 -21 022 -95 098 -291 129
Gap -3 408 33 340 21 943 23 061 12 310 39 116 -42 799 83 563 -16 389 25 504 27 197 20 032 17 342 39 791 -55 477 58 000

The following table presents future undiscounted cash flows from banks’ off-balance sheet liabilities (by contractual terms).

XLS

Off-balance sheet liabilities granted 31 December 2022 31 grudnia 2021
up to 1 month 1 – 3 months 3 months
to 1 year		 1 – 5 years over 5 years Total up to 1 month 1 – 3 months 3 months
to 1 year		 1 – 5 years over 5 years Total
Financing 66 767 – – – – 66 767 50 499 – – – – 50 499
Guarantees 12 727 – – – – 12 727 14 269 – – – – 14 269
Total 79 494 – – – – 79 494 64 768 – – – – 64 768
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