Life insurance market (PZU Życie)

Market situation

After the first three quarters of 2016, the life insurance market in Poland measured by the gross written premium amounted to PLN 17,813 million, which means that it has declined by an annual average of 6.2% over the past 5 years. The premium collected during the first three quarters of 2016 was simultaneously lower by 14.5% than in the corresponding period of the previous year, which is a continued decline after a series of increases that ended in 2012, stimulated mainly by the single premium in investment products.

The gross written premium of life insurance companies in Poland (PLN million)

Source: PFSA (www.knf.gov.pl). Quarterly Bulletin. Insurance market 3/2016, Insurance market 3/2015, Insurance market 3/2014, Insurance market 3/2013, Insurance market 3/2012

It should be noted that the premium decline year-on-year applied mainly to the single premium (a decline of PLN 2,893 million, i.e. 34.1% year-on-year, and from 2012, which was a record year in this matter, it has been a decline of PLN 9,773 million, i.e. 63.6%), mainly in the bancassurance channel. The dynamics for the corresponding period of 2014 were also negative at -5.0%.

The reasons of the lower single premiums in the recent years include changes of the situation of the capital market and in the legal environment. The record low interest rates reduced the profitability of short-term endowment policies (the so-called polisolokaty) thereby generating greater interest in other investment products. Additionally, a tax on revenue from short-term endowment products with fixed rate of return and index-based return was introduced on 1 January 2015, which also reduced customer interest in such products and, eventually, led to removing them – especially the former – from the offer of insurers. In the last year, the further guidelines of the supervisory body and, once again, the situation on the financial market and related to it decrease of client’s interest in this form of saving led to a considerable reduction of sales of the unit-linked products – a year-on-year decline of PLN 2,603 million, i.e. 25.5%.

The result of the changes taking place on the market was the rising prominence of the periodical premium over the single premium, which is PZU Życie’s competitive advantage on the market. In the first three quarters of 2016, the premium of this type was lower by PLN 122 million, i.e. 1.0% in comparison with the corresponding period of 2015, but the interim growth amounts to 1.9% since 2011.

Life insurance market – gross written premium (PLN million)

Source: PFSA (www.knf.gov.pl), Quarterly Bulletin. Insurance market 3/2016, Insurance market 3/2015, data of PZU Życie

The total technical result achieved by life insurance companies in the first three quarters of 2016 was higher by PLN 50 million (2.4%) than in the corresponding period of 2015 and amounted to PLN 2,174 million. The improved performance is the effect of higher profitability, recorded especially in accident and illness insurance (class V) – year-on-year increase in the result by PLN 68 million (5.6%, mainly the influence of decrease in acquisition costs along with simultaneous growth in revenues).

During this period, life insurance companies generated the net result of PLN 1,745 million, which constituted a year-on-year drop of 26.3% (by PLN 622 million). This drop results mainly from the investment results of insurers, concerning mainly excess funds of these companies, which were lower than in the corresponding period of 2015. In addition, it is also a result of the introduction of the tax on financial institutions, the so-called financial institution tax, which is in effect from February 2016.

The value of investments of life insurance companies at the end of the third quarter of 2016 was PLN 41,466 million, which means a drop by 0.7% compared with the end of 2015. Meanwhile, positive result on investments contributed to increasing the net unit-linked assets (1.5% growth to PLN 56,270 million).

PZU Życie’s activities

PZU Życie SA (PZU Życie) operates on the Polish life insurance market within PZU Group. The Company offers a wide range of life insurance products, which, for management purposes, are reported and analyzed by three segments: group and individually continued insurance, individual insurance, and investment contracts.

Life insurance companies - share in periodical gross written premium for 3 quarters of 2016 (in %)

Source: PFSA Quarterly Bulletin. Insurance market 3/2016

PZU Życie collected 33.7% of the gross written premium of all life insurance companies in the first three quarters of 2016, which means a substantial growth in comparison with last year’s market share (+4.5 p.p.). The main reason was the lower than market average share in the company’s portfolio of the single payment premium, of which the written premium dropped significantly.

At the same time, PZU Życie continued to remain the unquestionable leader in the periodical premium segment. During the first three quarters of 2016, it obtained 45.0% of such premiums of all insurance companies, which means a growth of share in this market segment by 1.1 p.p. in comparison with the previous year and the biggest share in the market since 2010. The annual dynamics of the gross written premium of PZU Życie in this segment amounted to 1.5%, with the negative dynamics of other market participants at a level of -2.9%. One of the main factors was dynamic development of health insurance portfolio. PZU Życie insures around 1,3 million Poles with the products of this kind. In 2016, for the first time PFSA published data which make it possible to show in a form of a matrix PZU’s share exclusively in the life insurance segment (class I) for the periodical premium, and after Q3 2016 the share amounted to 67.1%. For the same group of risks, the share in the market, taking into account the way of concluding the agreement, was 66.7% for group agreements and 38.9% for individual agreements during the analyzed period.

Life insurance market – gross written premium vs. technical result (PLN million)

Source: PFSA (www.knf.gov.pl). Quarterly Bulletin. Insurance market 3/2016, Insurance market 3/2015, data of PZU Życie

PZU Życie’s technical result constituted the majority of the result achieved by all life insurance companies. This is the evidence of the high profitability of the products offered. PZU Życie’s technical result margin on gross written premium was more than two times higher than the margin obtained by all other companies offering life insurance in total (20.0% compared with 8.2%).

In the face of the risks related to civilization diseases and loss of income source in difficult life situations, PZU Życie consistently extends its offer of protection insurance in both individual and group insurance. In addition, in connection with the amendment to the Act on Insurance and Reinsurance Activity, life insurance products offered by PZU Życie SA from 1 January 2016 were adjusted to the new legal requirements.

Since 1 January 2016, the following have been introduced in the group and individually-continued (protection) insurance:

• modified additional group insurance in case of surgical operation. The main changes in the revitalized version of the product include updating the List of Surgical Operations on the basis of the International Classification of Medical Procedures (ICD-9) and increasing the number of surgery classes from 3 to 5. The new version of the product, like the previous one, does not include the condition that the surgery has to be performed in hospital, which makes PZU stand out positively in comparison with the competition;
• additional group insurance in case of surgical operation Plus – the insurance is an addition to the insurance in case of surgical operation mentioned above. The scope of the insurance covers the performance of: surgical operation under general anesthesia, surgical operation during a stay in hospital which lasts longer than 14 days, continuously, or surgical operation related to heart attack/stroke/ malignant cancer. Payment of the benefit will happen also if the surgery (included in the List of Surgical Operations) is performed outside the territory of Poland. The product is an innovation on the market – no insurer has in its offer the option to expand the classic addition in case of surgical operation with the events mentioned above;
• additional group insurance in case of child death caused by a personal accident and in case of death of the insured’s parent and death of a parent of the insured’s spouse caused by a personal accident. The current offer of PZU Życie includes the products in case of death of the insured’s child, parents or in-laws. The introduction of the insurances increasing the benefit paid in case of death of the persons mentioned above due to a personal accident is the answer to clients’ expectations, which allows for the option to adjust the offer to better suit their needs; 
• insurance in case of death of the insured caused by traffic accident, which is an addition to individually continued insurance;
• in the area of the additional insurance in case of permanent health impairment of the insured caused by a personal accident (for the clients of individual continuation), concluding the agreements with benefits higher than previously (even up to 8% of the insurance sum for 1% of the permanent health impairment) has been made possible.

In 2016, in scope of health products, the product offer of PZU Życie was adapted to current and future market needs and expanded with innovative service solutions. Changes in the product offer include the following:

• launching pilot outpatient care insurance for small enterprises, the so-called SOHO clients (small office/home office), who run their businesses on their own or hire no more than one employee. The offer is available in two scopes: in sponsored version and with co-payment for medical services. The product permits access to medical consultations and diagnostic investigation;
• implementing the new offer of group insurance for children and youth aged 6–16 who take part in team sports. The offer addresses the needs concerning orthopedic supplies and treatment related to fracture, dislocation, sprain or rupture of joints and ligaments, as well as injuries to muscles and tendons. Besides medical consultations, the catalogue of medical services covers diagnostics, orthopedic supplies, rehabilitation, and surgeries;
• starting the sales of the new product, „Z Miłości do Zdrowia” [For the love of health]. This individual product was created as an answer to changing preferences of the clients and in the face of the risk of serious civilization diseases. It allows PZU Życie to provide comprehensive medical and diagnostic care, rehabilitation, psychological support, and help of a caregiver in case of such diseases as cancer, stroke, or heart attack.

Moreover, there was a number of service changes, which include:

• monitoring and controlling the quality of service in medical establishments by regular testing the satisfaction of the patients, introducing the analysis of Customer Satisfaction Score and Net Promoter Score, as well as performing a Mystery Shopping test (for the main health care providers it is -80% on the scale of client service). The indicators will be used to verify the assumptions of quality scoring, thus supporting the process of guiding the patients to the best medical establishments;
• expanding the network of medical establishments available to health insurance clients to the amount of approximately 1,800, with simultaneous optimization and control of purchase costs of medical benefits;
• increasing the number of pharmacies supporting medicine insurance in a non-cash form (medicine card) from 4,270 to 6,125 as at 1 January 2017.

In 2016, in the area of investment-type insurance the following changes, among others, were made:

• from 1 April 2016, in connection with the amendment to the Act on Insurance and Reinsurance Activity, a detailed analysis of the client’s needs in unit-linked and structured insurance is conducted, on the basis of which the client receives appropriate recommendations;
• implementation of new unit-linked insurance with single premium, Program Inwestycyjny WORLD [WORLD Investment Program] performed in cooperation with Millenium Bank. Due to the above, the sales of the Multicurrency Investment Program were discontinued;
• implementation of a new unit-linked insurance with single premium, Multi Kapitał [Multicapital], performed in cooperation with Alior Bank, with sales starting on 2 January 2017;
• removal of a short-term life and endowment insurance „Pewny Zysk” [Sure profit] from the offer from 1 June 2016 due to declining market conditions, including lingering historically lowest interest rates and, resulting from that, low attractiveness of the products to the clients.

Furthermore, there were 10 Świat Zysków subscriptions, which were very popular among structured insurance clients. Individual subscriptions offered diverse investment strategies, which adapted to the changing market conditions. Besides the payout of the guaranteed capital, certain closed subscriptions concluded with a payout of the profit.

The bank channel saw continuation of the cooperation with two banks – Millenium Bank and PKO Bank Polski S.A. – in the scope of protection life insurance. Insurance offered to borrowers secures the payment of a credit/mortgage granted by the bank in case of borrower’s death.

In whole 2016, in accordance with Polish Accounting Standards, PZU Życie collected gross written premiums of PLN 8,034 million, which was 0.4% less than in the previous year. The vast majority of the Company’s premium was from periodical premium products. It represented 91.7% of the gross written premiums (as opposed to 89.9% in the previous year). It primarily included the written premium from group insurance and individually continued insurance, which had more than 11 million customers in Poland.

During the same reporting period, in accordance with Polish Accounting Standards, PZU Życie achieved technical result amounting to PLN 1,871 million and net profit of PLN 1,434 million.

The gross written premium of PZU Życie (PLN million)

Factors, including risks and dangers, which will impact the activities in the life insurance sector in 2017

The situation on the life insurance market in 2017 will primarily be affected by:

• prospect of higher inflation and faster economic development favoring growth of government bond yields, which in the long term is beneficial for PZU Group, although in the short term, it may adversely affect the investment income;
• potentially serious effects of unpredictable political decisions or election results in key European Union countries, which may considerably alter perspectives of individual asset classes on financial markets;
• declined business climate on the capital markets reducing attractiveness of products, especially unit-linked ones;
• change of previous rates of mortality, fertility, and morbidity;
• emerging role of so-called insurance claim companies into claims filed in previous years;
• no precisely established range of exemptions concerning e.g. insurance services or medical services in the amended Act on VAT;
• changes on the individual insurance market caused by modifications to products in accordance with Council Directive 2004/113/EC and the judgment of the Court of Justice of the European Union (judgment in case C-236/09 (Test-Achats), of 1 March 2011) with potential considerable impact on the value of new sales and the technical result;
• bill of the law on insurance distribution – adaptation of insurance companies to new regulations resulting from the need to implement into the domestic legal order the provisions of the Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (EU Official Journal L 26 of 02.02.2016, p. 19) so-called IDD.