PZU Group, 2017: GWP and net profit exceeding all previous records
PZU's market share in its home market reached 35.8% for the property insurance direct activity, increasing by 0.5 pp y-o-y, while on the life insurance side it reached 45.8%, increasing by 0.8pp last year.
"It was an excellent year for PZU. The sale realized in 2017 exceeded the level of PLN 22.8 billion and is thus the highest ever achieved by the PZU group. At the same time, we achieved the highest net result in our history of PLN 4.2 billion. We have therefore pushed all our previous records," stated Pawel SUROWKA, president of PZU SA.
"For the second year in a row, the PZU Group has recorded an above-average two-digit (+ 13.0%) increase in the written premium. At the same time, the number of active policies in motor third party liability insurance increased by 0.2 million to 9.1 million. The investment result has positively contributed to the result of the Group, which increased by 52.4 % to PLN 1,855 billion (excluding banking operations), which was the result of, among others, significant improvement on equity portfolios as well as obtaining high-margin corporate exposures. In line with the strategic assumptions, the increase in GWP was carried out in conditions of high cost discipline (the administrative expenses in insurance segments in Poland fell by 1.1 pp y-o-y to 7.0%) and care for the quality of the risks acquired. The COR index decreased by 5.6 pp. Y-o-y to 89.3%. As a result, the consolidated result of the Group increased by 78.3% y-o-y to PLN 4,2 billion. Such a good profitability, with a strongly growing portfolio, is a confirmation of high operational efficiency and improvement of management structures efficiency in the use of the business scale. We also like to keep the profitability of life insurance in group policies and individually continued over 20%. Comparability of data y-o-y was also due to the beginning of consolidation of Pekao Bank since June 7, 2017," explained Tomasz KULIK, CFO of the PZU Group.
Detailed summary of PZU results in 2017
The following elements had a positive impact on the financial results of the PZU Group in 2017:
- increase in GWP in the motor insurance group, both in the mass and corporate client segments, mainly as a consequence of the increase in the average premium and the number of policies and in individual life insurance, in particular unit-linked products in the banking channel;
- high profitability of the motor insurance portfolio and increase in non-life segment property insurance, which is mainly related to lower loss ratio in agricultural insurance (in the previous year, numerous damages caused by natural forces - negative effects of wintering);
- better results in the banking business segment due to the high sales by Alior Bank of loan products supported by favorable economic conditions;
- higher investment income, in particular as a result of a better business climate on the WSE (including a higher valuation of the Azoty Group's block of shares).
The Group's profitability was negatively impacted by:
- lower profitability in the corporate property insurance segment, mainly in the non-motor insurance group due to the notification of several claims with a high unit value;
- decrease in profitability in group and individually continued insurance (y-o-y), as a result of higher loss ratio of protection products related to the increase in deaths in the first quarter of 2017 (confirmed by GUS data on mortality in the entire population) and lack of one-time update factor in 2016 assumptions regarding future payments of benefits used to calculate provisions.
The comparability of results and balance sheet total y-o-y was significantly influenced by the beginning of Pekao consolidation in June 2017. As a result of this transaction, the PZU Group was transformed from the insurance group into a financial one. The balance sheet total increased mainly by this title by over PLN 192 billion compared to the same period last year (to PLN 317 billion), and non-controlling interests reached PLN 23.0 billion (as at December 31, 2017). Pekao contributed PLN 1 502 million to the PZU Group's operating result and PLN 1 750 million from the segment of banking operations since the consolidation began in June 2017.
GWP: In 2017, the PZU Group collected PLN 22,847 million gross premiums, i.e. 13.0% more than in the corresponding period of the previous year. This is to a large extent the result of higher sales of motor insurance in both segments (+ PLN 1.6 billion). The premium in the individual insurance segment also increased by PLN 490 million, mainly due to the higher sales of unit-linked products in the banking channel. In addition, the increase in premiums written by PLN 234 million was recorded by foreign companies. After taking into account the share of reinsurers and the change in premium reserves, the net earned premium was PLN 21,354 million and was 14.7% higher than in 2016.
Compensations and benefits: the net value of claims and benefits and the increase in PZU Group reserves amounted to PLN 14,941 million, an increase of 17.3% compared to the same period last year, which is related, among others, with an increase in the scale of operations. The increase concerned in particular the group of insurance for damage caused by natural disasters, individual unit-linked products in the bancassurance channel and motor insurance.
Administrative and acquisition costs: The Group's administrative expenses in 2017 amounted to PLN 5,364 million in relation to PLN 2,923 million in the corresponding period of 2016. The increase resulted mainly from the beginning of Pekao's consolidation and the merger (November 4, 2016) of Alior Bank with a separate BPH business. The administrative costs of the banking segment increased by PLN 2,464 million. At the same time, administrative expenses in segments of insurance activity in Poland were at a level lower by PLN 10 million compared to the previous year. Their change resulted from a drop in the costs of project activities partly compensated by higher costs in bancassurance insurance as a result of changes in the rules for remunerating policyholders in group contracts.
Acquisition costs in 2017 increased by PLN 288 million compared to the same period of the previous year. This increase was in particular the result of higher sales in the mass and corporate customer segment.
Profit: In 2017, the PZU Group generated a gross result of PLN 5,526 million compared to PLN 2,988 million in the previous year (an increase of 84.9%). Net profit amounted to PLN 4,233,000 and was higher by PLN 1,859 million than the result from 2016. Net profit attributable to equity holders of the parent amounted to PLN 2,910 million compared to PLN 1,935 million in 2016 (up by 50.4%).
Excluding one-off events, the net result increased by 97.5% compared to last year (2). The operating profit for 2017 amounted to PLN 5,510 million and was higher by PLN 2,519 million in relation to the result for 2016.
In 2017, the return on equity attributable to the parent company amounted to 21.1%. ROE was higher by 6.2 pp than in the corresponding period of the previous year, mainly due to improved insurance and investment performance.
Solvency II Solvency
According to the state at the end of the third quarter of 2017, after finalizing the acquisition of the Bank Pekao block, the solvency ratio (calculated according to the standard formula Solvency II) was 237% and remained above the average solvency ratio for insurance groups in Europe.
(1) The net result on investing activities includes net investment income, net result on realization and impairment losses on investments and net change in the fair value of assets and liabilities measured at fair value.
(2) Non-recurring events include: the effect of conversion of multi-annual contracts into renewable annual contracts in type P group insurance, higher than the average for the last 3 years, the level of damage caused by atmospheric phenomena (storms) and in the comparative period higher than the average of the last 3 years of damages in agricultural insurance, updating assumptions regarding future payments used to calculate provisions, profit from the bargain purchase of a separated part of BPH, the cost of the restructuring provision at Alior Bank.