PZU Group, 1Q2018: record sales of insurance and net profit exceeding PLN 1 billion

The PZU Group opened 2018 with record sales of insurance, Q1 GWP amounting to PLN 5.83 billion (EUR 1.38 billion), which is the best result in the Group's history. The consolidated quarterly net profit of the PZU Group once again exceeded PLN 1 billion (EUR 237.6 million).

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).
Pawel SUROWKA, president of PZU SA: "Never before in the history of the PZU Group we recorded such a high level of premiums written in the first quarter. What's more, the PZU Group's net profit once again exceeded PLN 1 billion and is the highest consolidated result in the first quarter in our history. These results reflect the growing role of banks in the Group's results, but above all, the solid foundations of our core business - more than half of the net result is profit from insurance activities. Such good results provide the basis for sharing them with shareholders. As part of the #nowePZU strategy, we committed ourselves to investors that we will share a profit that is not necessary to finance our dynamic growth. Today, we keep our promise and recommend paying out dividends in the amount of PLN 2.5 per share."

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.
The results in this period were adversely affected by:

  • 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.
The y-o-y comparability of results and balance sheet total was significantly influenced by the inclusion of PEKAO in the structure of the PZU Group in June 2017. The balance sheet total increased mainly over PLN 191 billion compared to the same period last year, and non-controlling shares reached PLN 22.8 billion (as at March 31, 2018). PEKAO contributed PLN 563 million to the operating result of the banking operations segment in the first quarter of 2018.

Dues

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 costs

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.

Investments

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.

Profit

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.

Equity capital

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.

ROE

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)

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