Capital management

The PZU Group endeavors to manage capital effectively and maximize the rate of return on equity for the parent company’s shareholders, in particular by maintaining the level of security and retaining capital resources for strategic growth objectives through acquisitions.

On 3 October 2016, the PZU Supervisory Board adopted a resolution to approve the PZU Group’s Capital and Dividend Policy for 2016-2020. The introduction of the Policy follows from implementation, as of 1 January 2016, of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (“Solvency II”), as amended, the Insurance and Reinsurance Activity Act of 11 September 2015 and the expiration of the PZU Group’s Capital and Dividend Policy for 2013-2015 updated in May 2014.

The capital management policy rests on the following principles:

• the PZU Group’s capital management (including excess capital) is conducted at the level of PZU as the parent company;
• sustain target solvency ratios at the level of 200% for the

PZU Group, PZU and PZU Życie (according to Solvency II);

• maintain the PZU Group’s financial leverage ratio at a level no higher than 0.35;
• ensure funds for growth and acquisitions in the coming years;
• PZU will not issue any new shares for the duration of this Policy.

As at the end of Q3 2017, the estimated solvency ratio (calculated according to the standard Solvency II equation) was 237.3% and remained above the average solvency ratio for European insurance groups.

As a result of the acquisition of Pekao, the PZU Group’s solvency ratio calculated for Tier 1 capital decreased as at the end of June 2017. To counteract this decrease, on 30 June 2017 PZU SA issued subordinated bonds with a nominal value of PLN 2.25 billion. Section 8.2 Debt financing of PZU, Bank Pekao and Alior Bank.

In Bank Pekao and Alior Bank, the capital adequacy ratio and the Tier 1 ratio were computed on the basis of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR Regulation) and also the various types of risk identified in the Internal Capital Adequacy Assessment Process (ICAAP).