CEO Letter to Shareholders

Annual Report 2017 > CEO Letter to Shareholders
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Dear Shareholders,

On behalf of the Management Boards of the PZU Group companies, I hereby convey to you our activity report for 2017.

2017 was an exceptionally intensive period for the financial markets. Investors focused their attention on central banks which kept applying an accommodative monetary policy in an environment of weak inflation. In connection with moderate geopolitical risk, this contributed to growth in all asset classes on global markets.

The robust conditions on developed markets supported valuations on emerging markets where Poland was one of the largest beneficiaries. WIG20 ranked in the top five fastest-growing European stock market indices. Accounting for 8% of the overall Polish stock market’s trading volume, PZU was one of the main companies driving this growth to the greatest degree. PZU’s market value at the end of 2017 had grown by PLN 7.7 billion y/y to PLN 36.4 billion.

Such a great expression of trust in PZU’s shares serves as confirmation for the directions we have taken and the initiatives we are pursuing. In 2017 we placed great emphasis on developing our insurance and banking business and on introducing innovative tools in client service and management. We have implemented important growth initiatives in health and investments. We have set the bar high for our competition, by setting trends and strengthening our position as the largest insurer in Poland, simultaneously contributing to greater stability and enhancing the financial standing of the Polish economy.

The most important transaction last year was the finalization of the acquisition of a 32.8% equity stake in Bank Pekao SA jointly with the Polish Development Fund for a total amount of PLN 10.6 billion. It was one of the largest undertakings of its type in Europe in recent years. This strategic investment has enabled PZU to become the largest financial group in Poland and Central and Eastern Europe.

After finalizing this equity stake acquisition, PZU faced the challenge of adapting to new conditions in a fashion that will not only enable it to achieve its ambitious objectives within the next several years but also build a rock-solid foundation to construct an entrenched technological advantage over the long-run. The gradual change in the insurer’s model (chiefly involved in the valuation and transfer of risk) toward the model of an advisory and service company (operating on the basis of technological know-how) constituted the basis for this transformation.

Investments in foundations to guarantee PZU’s growth, taking care of its client base and maintaining cost discipline mean that we are capable of effectively managing our capital and generating a high level of earnings while offering the highest standards of service. In 2017 we once again posted an above average, doubledigit increase in gross written premium (+13.0%) totaling PLN 22.8 billion and a record-breaking net profit of PLN 4.2 billion (+78.3% y/y).

Taking advantage of the conducive environment and the very strong economic standing, we secured PLN 2.25 billion in a private subordinated bond issue. It was the largest issue of this type of bonds in the history of the Polish financial sector and at the same time the first issue in Poland complying with Solvency II requirements.

The analysts of the American S&P Global Ratings agency also appreciated the systematic improvement in the PZU Group’s financial condition. In October 2017 they raised PZU’s rating outlook from negative to stable.

The year has also elapsed under the motto of innovation and new technology. The Witello Fund established by PZU to support the building of an ecosystem facilitating the development of Polish entrepreneurship and investments in Polish startups that over time will augment the potential of innovative solutions that may be used directly in the PZU Group will provide material support in this area. In 2017 Witelo entered into agreements with some of the best VC funds in the world: Atomico, Evolution Equity Partners and DN Capital. It is worth emphasizing that Evolution Equity Partners undertook to open an office in Poland (on top of the offices they already have in Switzerland and New York).

Thanks to that, the Polish cybersecurity sector has an opportunity to become one of the key competence centers in the world. The new office will be opened in cooperation with PZU. Entrusting funds to VC funds, we have certainty that we will attain our objective of supporting innovative projects in our country. This is an important element of the strategy, namely to make PZU the most innovative group in Central and Eastern Europe.

In 2017 the PZU Group became a member of Lloyd’s and closely collaborates with the Argenta Syndicate. Thanks to this investment we received a prestigious certificate entitled „Member of Lloyd’s”. In this fashion PZU has become a global player.

Presence on Lloyd’s market means more than prestige; it means access to international brokers and the ability to take advantage of the knowledge of the world’s best underwriters and risk engineers.

In 2018 challenges await us that are related to the strategic ambitions we have embraced. Some of them are as follows:
radically simplifying our product offering and converting our sales network into a general sales network, investing in database integration to give us a full picture of our clients, cross selling and a loyalty program. Tightening cooperation with the Pekao and Alior banks is also an important issue whereby we will be able to devise comprehensive financial solutions responding to the needs of clients and in various areas and at various life stages.

In conjunction with the ongoing pursuit of these strategic avenues, PZU will retain its position as one of the most stable and profitable financial groups in Europe that will be able to generate an ROE in excess of 22% and pay an attractive dividend while keeping its Solvency II solvency ratio at a minimum level of 200%.

I would like to thank all our employees and agents for the above average commitment to building the #newPZU and the Supervisory Board for their trust and effective cooperation.

Paweł Surówka,

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