For the insurance business, 2017 was a year of adaptation to EU regulations, which increased protection of customers and equipped the regulator with powers and resources to effectively control and enforce compliance with the established rules:
The Insurance Distribution Act of 15 December 2017 implements into Polish law the provisions of the Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (Insurance Distribution Directive, or IDD). The act increases the protection of customers concluding insurance agreements, which entails imposing additional requirements on entities offering insurance, mainly reporting obligations. The new rules are supported by strict administrative sanctions applied in the event of breaches of sales obligations and rules. The regulatory authority may impose fines on an insurance undertaking in the amount up to PLN 21,827,500 for specified violations or 5% of the gross written premium reported in the most recent financial statements for the financial year, or twice the amount of benefits obtained or twice the amount of losses avoided as a result of the violation, if they can be determined.
Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs). The Regulation requires that a key information document (KID) on an insurance- based investment product must be drawn up and provided to the client. Violations of the Regulation are punishable by severe administrative sanctions. In the solutions adopted in the Act of 29 September 2017 amending the Financial Market Supervision Act and the Insurance and Reinsurance Activity Act, which is used to apply the said regulation, the regulatory authority may impose fines in the amount up to PLN 21,569,000 or 3% of net revenues on the sale of goods and services and financial operations, and, in the case of an insurance undertakings, 3% of the gross written premiums reported in the most recent financial statements for the financial year as approved by the approving body, or twice the amount of benefits obtained or losses avoided as a result of the violation, if they can be determined.
On 3 January 2018, provisions of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments came into effect. They imposed new obligations on financial market entities in respect of, among others, protection of investors, market transparency and corporate governance. The new regulations force changes in the market infrastructure and envisage a number of new powers for the regulators.
Implementation of MiFID II into the national legal system is proposed in the Bill amending the Financial Instruments Trading Act of 29 July 2005 and certain other acts. The bill was submitted to the Council of Ministers for consideration in December 2017. The provisions implementing the MiFID II and Delegated Directives are expected to come into effect at the turn of March and April 2018.
Act of 10 February 2017 amending the Financial Instruments Trading Act and certain other acts. The purpose of the amendment is to implement Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive, MAD) and adapt the Polish legal order to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation, MAR). The EU legislation introduces an utterly new regime for the handling of confidential information in public companies; its main element is a uniform definition of confidential information.
Act of 21 April 2017 on actions for damages caused by infringements of the competition law. The Act implements Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union. The provisions of the act aim to improve effectiveness of action pursuing claims by all those affected by anti-competitive practices.
The Act of 14 December 2017 amending the Insurance and Reinsurance Activity Act, which served the purpose of adapting the Polish law to the EU regulations relating to insurance and reinsurance business. The amendments concern in particular: the operations of internal insurance and reinsurance undertakings, large risks co-insurance contracts concluded by domestic insurance undertakings where the risks are located in the territory of other EU member states, and large risks co-insurance contracts concluded by foreign insurance undertakings where the risks are located in the territory of Poland.
In addition to the implementation of EU regulations, a number of changes were introduced in Polish law that have impacted or will impact the functioning of the PZU Group. Some of those changes are presented below:
Regulation issued by the Minister of Development and Finance of 9 December 2016 on entities authorized to audit financial statements auditing the solvency and financial condition reports of insurance and reinsurance undertakings. It sets out in particular the scope of audit of the solvency and financial condition report of an insurance or reinsurance undertaking, defines disclosure requirements for a statutory auditor’s report.
On 1 January 2017, the provisions implementing the Act on Rules for Managing State Property came into effect. The Act abolished the State Treasury Ministry. Most of the Ministry’s powers were transferred to the Prime Minister. The Act distinguished a category of companies of significant importance for the state economy, subject to special governance by the Prime Minister. Pursuant to the Act, the Council for companies with State Treasury shareholding and state legal persons was established as an advisory body providing the Prime Minister with comprehensive and professional support in the area of coordination of corporate governance, which includes issuing opinions on candidates for members of corporate bodies of companies with State Treasury shareholding and state legal persons.
The Act of 11 May 2017 on Statutory Auditors, Audit Firms and Public Supervision, which aims to strengthen the objectivity and independence of audit firms and statutory auditors and to reduce conflicts of interest between statutory auditors and audit firms on the one hand and audited firms on the other. The Act assumes, among other things, that audit firms will not be able to provide simultaneously tax advisory services to the same clients. At the same time, the Act has created a special list of Public Interest Units (JZP) which includes public companies and financial market institutions burdened with specific obligations. A new model of public supervision over audit firms has also been proposed.
Act of 8 December 2017 on the Supreme Court. Among the various legal solutions introduced by the Act, there is a new appeal measure: an extraordinary petition. The Act stipulates that in a situation where the conditions specified in the Act are satisfied, the filing of an extraordinary petition will be possible against a final non-appealable ruling terminating the proceedings in the case, provided that it is necessary to ensure the rule of law and social justice.
On 1 July 2017, due to the entry into force of the Act of 1 December 2016 amending the VAT Act and Certain Other Acts, exemptions were removed regarding services forming an element of insurance and financial services. As a result of the amendments, services provided by third parties to insurance undertakings are no longer covered by the exemption. Among such services are claims handling services provided separately and not constituting an insurance service or an insurance brokerage service.
In connection with the entry into force of the Act of 9 June 2016 on the Rules for Setting the Compensation of Persons Managing Certain Companies, governing the methods of determining remuneration payable to members of managerial and supervisory bodies in companies with a State Treasury shareholding, in 2017 the Ordinary Shareholder Meeting of PZU SA adopted solutions delineating, in particular, the boundaries for fixed and variable portions of remuneration payable to Management Board members and setting the rules of correspondence between the variable portion of such remuneration and the degree of achievement of management objectives, including improvements in economic and financial indicators.
Drafted legal regulations that may have a significant impact on the PZU Group’s business
Legislative work is underway to adapt the provisions of Polish law to Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, also known as the General Data Protection Regulation, hereinafter referred to as the “GDPR”. These new provisions of law will enter into force on 25 May 2018 and will apply to all entities involved in the processing of personal data as part of their business. The new regulations introduce a number of changes and broaden the scope of responsibility of data controllers and data processors. The purpose of these changes is to ensure transparency of information transmitted to the person providing the data and to govern issues related to the right to remove certain data from the database at the request of their provider. These new regulations are also intended to provide natural persons and regulatory authorities with effective tools to react properly to any breaches of the Regulation. In the operations of insurance and reinsurance undertakings, the new regulations will affect processes involving the processing of personal data, both from the legal perspective and in terms of IT systems, and will cover the majority of processes and areas of insurance activity, most notably sales and client service, on-line services, cross-selling, underwriting, marketing, CRM, counteracting insurance fraud and IT systems supporting business processes.
Legislative work is underway on the draft Regulation of the Minister of Investments and Development on the Current and Periodic Information Transmitted by Securities Issuers and the Conditions for Recognizing the Information Required by the Regulations of a Non-Member State as Equivalent. The draft Regulation introduces, without limitation, changes to the list of events subject to current reporting, modifies the management board’s statement and adds a statement by the supervisory board in periodic reports.
Employee Capital Accumulation Plans (ECAP – PPK in Polish)
In mid 2018, the government presented a bill for social consultation within the framework of planned pension reform. It calls for introducing Employee Capital Accumulation Plans (ECAP in English or PPK in Polish). ECAP is the newly proposed solution in the pension security system under which employers will be obligated to conduct capital accumulation plans for employees’ retirement. It will be launched on 1 January 2019 and it will sequentially apply to companies employing more than 250 persons, small and medium enterprises and public finance sector units. Every employer will have an obligation to establish an ECAP and offer enrollment in it to its employees while employee participation is not mandatory. Employees may retract their enrollment in the plan at any time.
Under ECAPs the base contribution will be made by employers (1.5%) and employees (2.0%). The state is supposed to make an additional contribution to ECAPS in the form of a welcome contribution of PLN 250 plus an annual subsidy of PLN 240. In addition, employees and employers will also have the opportunity to remit an additional contribution. Employees will be able to pay an additional 2%, while employers will be able to pay an additional 2.5%. ECAP assets will be managed by Mutual Fund Investment Companies (TFI) with which a given employer will enter an agreement to run an ECAP. In the PZU Group, the asset manager role will be played by TFI PZU on the basis of the newly-established Umbrella Fund consisting of defined date sub-funds and specialized sub-fund clones from the TFI’s current offer.