In 2023, the Group’s management will take operational measures to adapt the PZU Group’s business to macroeconomic, geopolitical, market and regulatory changes and maintain the adopted path to the set ambitions.
Non-life insurance in Poland
In addition to chance events such as sudden floods, hail, torrential rain, hurricanes, cyclones, droughts, spring ground frosts, which due to the ongoing climate change are becoming more and more unpredictable and contribute to increasing claims ratio in the property insurance sector, the following hazards also exist:
- return of the COVID-19 pandemic and its socio-economic consequences, in particular deterioration of the financial standing of businesses and employees from industries affected by the restrictions and the related problems with maintaining and paying for the policies;
- high uncertainty as to the growth of new car sales, mainly in the dealership channel and financed by leasing companies, which may result in lower sales of motor insurance;
- increase in the prices of spare parts affecting claims handling expenses due to the depreciation of the Polish zloty against the euro and problems in global supply chains (the impact of sanctions against Russia and military action in Ukraine) translating into a lack of availability of components for the production of cars and limited availability of spare parts;
- uncertainty regarding the impact of the Polish Financial Supervision Authority’s recommendations on claims handling on the value of claims paid;
- demand for voluntary insurance due to a higher inflation rate, higher unemployment and a decline in employment;
- slower economic growth in Poland – the more challenging financial standing of companies may result in elevated credit risk, a higher claims ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth;
- changes in trends and behavior of client seeking customized proposals and an electronic, swift conclusion of agreements and handling insurance, forcing insurers to adapt to these new expectations rapidly;
- increase of insurance fraud as a result of the more difficult situation in numerous industries, increasing unemployment and lower employment rates; • introduction of additional regulations or financial burdens on insurance undertakings.
Life insurance market in Poland
Major risk factors include:
- inflation and its impact on the clients’ financial standing and consequently purchasing capacity as well as the real loss of value of sums insured in portfolio policies (possible need to index sums insured);
- demographic changes and the aging society and the ensuing changes in the mortality and fertility levels;
- constant price pressure in group insurance and the battle for client ownership (and client data), thereby cutting the insurer’s margins, reducing the quality of the product and fostering entry and exit obstacles for clients to overcome with independent intermediaries;
- softer conditions on the capital markets deteriorating the attractiveness of products, especially unit-linked products;
- negative effect of higher interest rates, increasing inflation and maintenance expenses (prices of energy, goods and services) on sales of mortgage/cash loans and linked insurance products;
- the aging of the population and changes in trends and behavior of client seeking customized proposals – influencing the development of new market segments;
- the emergence of new strains of the SARS-CoV2 virus or other viruses, which could result in further pandemics and their social and economic consequences, including those directly and indirectly regarding increased mortality rates;
- impact of new EIOPA regulations for the insurance market in the European Union;
- KNF decision on product intervention in the unit-linked life insurance segment, which came into effect on 1 January 2022;
- the emergence of further regulations or financial burdens on insurance companies;
- the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies.
Insurance in the Baltic States and Ukraine
In addition to chance events such as sudden floods, hail, torrential rain, hurricanes, cyclones, droughts, spring ground frosts, which due to the ongoing climate change are becoming more and more unpredictable and contribute to increasing claims ratio in the property insurance sector, the following hazards also exist:
- geopolitical tensions, particularly the ongoing Russia-Ukraine, which has a direct impact on the possibility of conducting insurance operations in Ukraine and on their results.
- slowdown of economic growth in the Baltic States and Ukraine – the more challenging financial standing of companies may result in elevated credit risk, a higher claims ratio on the financial insurance portfolio and deceleration in the pace of gross written premium growth in both motor and property insurance;
- negative effect of higher interest rates, increasing inflation and maintenance expenses (prices of energy, goods and services) on sales of mortgage/cash loans and linked insurance products;
- impact of new EIOPA regulations for the insurance market in the European Union;
- changes in trends and behavior of client seeking customized proposals and an electronic, swift conclusion of agreements and handling insurance, forcing insurers to adapt to these new expectations rapidly;
- increase in insurance fraud cases as a result of the more difficult situation in numerous industries causing growing unemployment;
- introduction of additional regulations or financial burdens on insurance undertakings.
Health
- the demand for specialized doctors exceeds the supply, which may slow down growth and affect margins;
- inflationary pressures from affiliate networks and salary pressures exerted by doctors and other personnel serving patients in medical centers may directly affect financial performance in the health area;
- wage pressure combined with an increase in demand for medical services may result in limited ability of providing these services in selected medical centers – medical personnel may prefer/accept only facilities that meet higher employee compensation expectations;
- changes in fertility, mortality, and morbidity rates, as well as the health consequences of the fact that during the pandemic treatments for certain conditions (e.g., cardiovascular and oncology) were postponed, may affect the value of sales and the claims ratios (e.g. in subscription plans or in health insurance);
- changes in trends and behaviors displayed by clients, who will start searching for customized offerings – clients’ new expectations may bring about the need to change processes and systems, which in turn may affect the bottom-line results;
- uncertainty surrounding the evolution of the pandemic and potential limitations in the operation of medical facilities may significantly affect the performance of medical centers;
- an increase in unemployment and uncertainty on the labor market may reduce sales growth of new insurance and medical subscriptions for corporate employees;
- continued pressure on the prices of group insurance products – the market for health services remains very competitive both in terms of prices and the range of available services;
- elatively high saturation of the market in larger cities and also staff shortages and lack of customer potential in smaller towns may reduce growth rates;
- potential modification of the valuation of outpatient specialist care services by the National Health Fund may cause significant changes in the financial results generated by medical centers;
- stronger and/or more aggressive policy geared at the development of the network of own facilities by competitors in the market may significantly affect the options available to patients or the competitive position of medical operators in the long term.
Investment
The condition and performance of the market for investment funds and Employee Capital Schemes will depend mainly on the following:
- the geopolitical and macroeconomic situation (including the pace of economic growth, the unemployment rate and the inflation rate in Poland and Europe) affecting the financial standing of enterprises and households;
- actions taken by central bank (Federal Reserve System – FED, European Central Bank – ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets;
- the impact of levels and exchange of interest rates announced by the National Bank of Poland on both the bond market and the whole capital market in Poland;
- absorption by the economy of the high inflation environment which will affect the rate of economic growth in Poland;
- propensity to allocate savings in investment and long-term solutions in the event of a higher inflation and greater debt servicing costs.
- the level of participation of employee capital schemes participants in the first ECS auto-enrollment process, which will take place in the first half of 2023.
The main challenges facing the pension fund market are the following:
- the economic climate on the capital market and, in particular on the Warsaw Stock Exchange, which is affected by the war in Ukraine and which affects the value of the funds’ assets, and the level of fees collected by pension fund companies for management;
- active asset allocation due to increasing interest rates;
- active participation in the work on enhancing the performance of the third pillar of the pension scheme, thus making it more attractive, and influencing the need in public awareness for accumulating additional savings for future retirement.
Banking
Major risk factors include:
- the outlook for the economy, which will affect demand for banking products and changes in the cost of risk;
- invariably an important role is played by the tax and regulatory environment, including in particular the existence of a tax on certain financial institutions, high equity requirements, contributions to Bank Guarantee Fund (BFG), costs of further adjustments to numerous regulatory solutions (e.g. MIFID II, GDPR, PSD II, MREL).
- one of the most important factors in terms of the institutional environment remains the issue of foreign currency mortgages, as well as potential rulings by the Court of Justice of the European Union, the Supreme Court or other state institutions in this regard;
- credit vacations and mortgage loans offered at 2% interest. The burden of the former was observed in Q3 2022, and this factor will remain present in 2023 as well. For each quarter of the year, borrowers will be entitled to one month of credit vacation. Mortgage loans with an interest rate of 2%, on the other hand, are a solution offered to people up to the age of 45 who do not have and have not had an apartment, house or cooperative right to an apartment or house. The maximum value of such a loan is PLN 500,000 for a single person and PLN 600,000 for a married couple or parents with a child. For 10 years of loan repayment, the government will subsidize the loan installment, and the subsidy will cover the difference between the actual interest rate and the 2% offered;
- reform of the reference index, i.e., replacing the WIBOR index with WIRON.