Key factors affecting the achieved financial results

In 2016, PZU Group achieved gross profit at the level of PLN 3,031 million compared with PLN 2,944 million in the prior year (up by 3.0%). Net profit attributable to the shareholders of the parent company amounted to PLN 1,947 million, compared with PLN 2,343 million in 2015 (down by 16.9%).

Excluding one-off events1 the net result declined by 8.9% compared with the last year. The operating profit for 2016 amounted to PLN 3,034 million, up by PLN 94 million from the result for 2015.

The main reasons for the change were the following:

• growth of the motor insurance gross written premium in mass client and corporate client segments resulting from growth of the average premium and number of insurances and increase in group and individually continued insurance, specifically in Health;
• decreased profitability in the corporate insurance segment resulting from higher claims ratio;
• higher profitability in the group and individually continued insurance segment associated mainly with increased insurance portfolio and decreased claims ratio of protection products;
• profitability in the mass client insurance segment at a similar level to the previous year – increased claims ratio in agriculture insurance resulting from a number of claims caused by force majeure (adverse effects of wintering) compensated with increased net premium earned;
• lower net investment result (excluding banking activity) mainly due to decline in share prices of Azoty Group from the long-term shares portfolio;
• introduction of the tax on financial institutions effective as of 2016;
• decrease of administrative expenses in insurance activity segments in Poland due to maintenance of cost discipline.

The year on year comparable results and total assets wereconsiderably influenced by the start of the consolidation of Alior Bank in December of 2015 and Alior Bank’s purchase of a specific segment of Bank BPH covering its core activity.

The year on year comparable results and total assets were considerably influenced by the start of the consolidation of Alior Bank in December of 2015 and Alior Bank’s purchase of a specific segment of Bank BPH covering its core activity. The banking segment contributed to the operating result of PZU Group in 2016 with the amount of PLN 691 million. The total assets of PZU Group rose by approximately PLN 20 billion and the minority shares increased by almost PLN 2 billion (as at 31 December 2016) mainly due to the consolidation of Alior Bank with the separated part of Bank BPH, which took place on 4 November 2016.

Within particular items of the operating result, PZU Group recorded:

• growth of the gross written premium to PLN 20,219 million. The premium was higher by 10.1% than in the previous year, mainly in motor insurance in mass client and corporate client segments resulting from growth of the average premium and number of insurances and increase in group and individually continued insurance, specifically in Health. After accounting for the share of reinsurers and the change in provision for unearned premium, the net premium earned amounted to PLN 18,625 million, which was 7.1% higher than in 2015;
• higher net investment result thanks to the revenue on investments generated by the banking activity – the launch of the consolidation of Alior Bank and merger of Alior Bank with separated part of BPH. Net investment result amounted to PLN 3,587 million and was 106.3% higher than in 2015. With exception of banking activity, the level of net investment result was lower than in the corresponding period of the previous year, mainly due to decline in share prices of Azoty Group from the long-term shares portfolio and negative exchange differences of own debt securities offset by increase of assets denominated in EUR and by the improved result on quoted equity instruments, specifically the improved financial condition of WSE;
• increase in interest-bearing costs to PLN 773 million, compared with PLN 117 million achieved in the previous year, mainly caused by the launch of the consolidation of Alior Bank, the merger of Alior Bank with core activity of BPH, and the issuance of own debt instruments amounting to EUR 350 million in October 2015;
• higher amount of claims and benefits. These amounted to PLN 12,732 million, i.e. they were 7.4% higher than in 2015. The growth applied mainly to the subsidized crop and livestock insurances in the mass client segment in H12016, as an effect of a number of claims caused by force of nature (adverse effects of wintering);
• higher acquisition costs (growth by PLN 237 million) in both mass and corporate client segment related mainly to higher sales;
• increase of the administrative expenses to PLN 2,843 million, in comparison with PLN 1,658 million in 2015, resulted from the launch of the consolidation of Alior Bank and the merger of Alior Bank with separated part of BPH. At the same time, a drop in administrative expenses by PLN 26 million, compared with the previous year, was recorded in the insurance activity segments in Poland;
• higher negative balance of other net operating income and expenses amounting to PLN 740 million, mainly as a result of the launch of the consolidation of Alior Bank, merger with separated part BPH, and introduction of the tax on financial institutions – PZU Group was encumbered (both in its insurance and banking activity) with this tax in the amount of PLN 395 million in 2016.

Operating result of PZU Group in 2016 (PLN million)

1 One-off events consist of: effect of long-term insurance contracts into annual renewable contracts in type P group, claims in agricultural insurance higher than the average during the most recent 3 years, update of assumptions concerning future payments applied in the calculation of reserves, profit from the bargain acquisition of the separated part of Bank BPH, the cost of restructuring provision in Alior Bank, and for the previous year - result on the sale of PZU Lithuania, impact on the profit and loss account due to consolidation of Alior Bank.