PZU Group, 1Q2018: record sales of insurance and net profit exceeding PLN 1 billion
The Management Board of PZU recommends payment of a dividend for 2017 in the amount of PLN 2.5 per share.
The key accomplishments of PZU in Q1 may be summarized as follows:
- Increase in gross written premium by 1.1% y-o-y to PLN 5.83 billion.
- Increase of market share in Poland in property insurance from direct activity by 0.3 pp y-o-y to 35.7% and in life insurance with periodic premium by 0.7 pp y-o-y to 45.8% (data as at the end of December 2017).
- High cost discipline. Decrease in the administrative expenses ratio of insurance companies of the PZU Group in Poland by 0.8 pp y-o-y to 6.3%.
- Maintaining high profitability in non-life insurance in Poland, despite additional provisions for claims for redress.
- Improving the profitability of life insurance in group policies and individually continued policies by 2.8 pp y-o-y to 16.6%.
- Increase in the consolidated net profit of the PZU Group by 3.6% y-o-y to PLN 1.04 billion.
- Profitability of equity "ROE" for the parent company - 17.6% (with a net profit of PLN 640 million for the parent).
Detailed summary of PZU results in Q1 2018
Positive impact on the PZU Group's financial results in the first quarter of 2018 were in particular:
- an increase in gross written premium in the motor insurance group in the mass and corporate client segment as well as an increase in the premium in foreign companies, in particular in the motor insurance group;
- higher profitability in the segment of mass and non-motor corporate insurance, mainly as a result of improving the profitability of the insurance portfolio of damage caused by natural disasters and other material damages;
- increase in profitability in group and individually continued insurance in relation to the previous year due to the lower frequency of claims;
- better results in the banking business segment at ALIOR Bank due to high sales of credit products supported by favorable economic conditions and low interest rates.
- decrease in profitability in the mass insurance segment - the effect of revaluation of provisions in property insurance against claims for compensation;
- lower result on listed capital instruments, in particular due to the economic situation on the WSE.
After Q1 2018, the PZU Group collected PLN 5,831 million gross premiums, ie 1.1% more than in the corresponding period of the previous year, including a PLN 60 million increase in premiums in foreign companies, mainly from motor insurance in the Baltic States. After taking into account the reinsurers' share and the change in premium reserves, the net premium earned amounted to PLN 5 458 million and was 7.6% higher than in the corresponding period of the previous year.
Compensations and benefits
In Q1 2018, net claims and benefits (including changes in technical provisions) reached PLN 3,626 million and were 2.3% lower than in the corresponding period of the previous year. In protective insurance, the lower level of benefits resulted from the decrease in the frequency of claims.
In turn, the increase in net claims and benefits (mainly in the motor insurance group in the corporate and mass client segments) was affected by the addition of provisions for claims for compensation for pain caused by the vegetative state of a person injured in an accident.
Administrative and acquisition costs
The Group's administrative expenses in the first quarter of 2018 amounted to PLN 1,615 million compared to PLN 865 million in the corresponding period of 2017. The increase resulted mainly from the beginning of PEKAO consolidation in June 2017. The administrative expenses of the banking operations segment increased by PLN 769 million y-o-y. At the same time, administrative expenses in segments of insurance activity in Poland were lower by PLN 17 million compared to the same period of the previous year. Their change resulted from the lower costs of project and current activities.
Acquisition expenses in the first quarter of 2018 increased by PLN 57 million in relation to the corresponding period of the previous year, mainly due to higher direct acquisition costs in the mass and corporate customer segment as a consequence of the growing portfolio and changes in the product mix.
Interest expenses after the first quarter of 2018 amounted to PLN 499 million and were higher by PLN 327 million compared to the same period last year. The increase mainly related to interest on time and current deposits on banking operations and interest on issued own debt securities mainly in connection with the issue of bonds subordinated by PZU for the amount of PLN 2 250 million in June 2017.
Income from investment activity (including investment contracts, i.e. contracts that do not contain significant insurance risk) in Q1 2018 and Q1 2017 amounted to PLN 2,474 million and PLN 1 679 million, respectively. The achieved result is the effect of an increase in income from investments generated on banking operations due to the commencement of PEKAO consolidation and a decrease in the result on investing activities, excluding banking operations.
The consolidated net profit reached the level of PLN 1,043 million and was higher by 3.6% than the net result for the corresponding period of the previous year. Net profit attributable to equity holders of the parent amounted to PLN 640 million compared to PLN 940 million in the first quarter of 2017. The difference is caused by drops on the WSE in the first quarter of 2018. The WIG index decreased by 8.4% against an increase of 11.9% in the same period last year. The second reason was the revaluation of reserves in property insurance against claims for compensation for vegetative states in connection with the recent ruling of the Supreme Court.
As at 31 March 2018, consolidated equity reached PLN 37,630 million and was 107.8% higher than in the corresponding period of 2017. The increase in consolidated equity related to non-controlling interests, which mainly in connection with the start of consolidation of PEKAO in the first half of 2017 reached PLN 22,753 million. In relation to consolidated equity, as at December 31, 2017, the capital increased by PLN 29 million, and their change was caused by the net result generated in the first quarter of 2018 and the inclusion in the capitals of the effects of the implementation of IFRS 9.
In the first quarter of 2018, the return on equity attributable to the parent company amounted to 17.6%. The ROE was lower by 10.3 pp than in the corresponding period of the previous year.
Solvency II Solvency II
As at the end of December 2017, the solvency ratio (calculated according to the standard formula of Solvency II) amounted to 211% and remained above the average solvency ratio for insurance groups in Europe.
1 EUR = 4.2085 Zlots - PLN (March 31st, 2018)