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PZU and Link4 – operations on the Polish non-life insurance market

PZU offers a wide range of non-life insurance products, including motor, property, personal, agricultural insurance, as well as general liability insurance. PZU’s product range encompassed 200 insurance products at the end of 2014.

Situation on the market

The non-life insurance market in Poland measured by the gross written premium grew by an annual average of 3.7% over the first three quarters of the past 5 years.

Nevertheless, the non-life insurance market in 2014 dropped by a total of PLN 350 million (-1.3%) compared with the corresponding period of the previous year. The greatest impact on the lower premium was made by the drop of MTPL insurance sales (by PLN 487.3 million, -5.7% y/y) and insurance of damage caused by forces of nature and of other tangible damage (by PLN 259.3 million, -4.3%), resulting from the strong price competition effective since 2013.

The greatest impact on the lower premium was made by the drop of MTPL insurance sales and insurance of damage caused by forces of nature and of other tangible damage, resulting from the strong price competition effective since 2013.

Furthermore, there was a recorded drop in the motor own damage insurance (by PLN 61.9 million, -1.2%) and insurance of legal protection (by PLN 46.6 million, -36.9%). The drop of the entire market’s premium was partially compensated by the increase of financial risk insurance sales (by PLN 251.2 million, +24,5%) and insurance of credits and insurance guarantees (by PLN 25.1 million, +3%). After 2 years of decline (crash of the construction industry), considerable stimulation of the financial insurance market from 2013 onwards is observed.

The whole of the non-life insurance market in three quarters of 2014 generated a net profit of PLN 3.7 billion (-40% compared with the same period of the previous year). The technical result of the non-life insurance market, which largely does not include income on investments and deposits, dropped by PLN 512.6 million, i.e. by 40.5% to the level of PLN 752 million. This change was affected to the greatest extent by the drop in the technical result on MTPL insurance (PLN -437.5 million), other tangible damage (PLN -108.6 million for direct business), motor own damage (PLN -243.8 million).

Gross written premium - non-life insurance companies in Poland (PLN million)

Non-life insurance companies - share in gross written premium (%)

The drop of the technical result in MTPL insurance resulted mainly from the lower earned premium (PLN -429.6 million, i.e. -5.6%) and the increased costs of insurance activity, which resulted from the lower by 44.9% reinsurance commission and the shares in the profits of the reinsurers. Furthermore, the maintaining dropping trend of the average premium, which resulted from the strong price competition ongoing since 2013 also had negative impact on the profitability of this group.

The total value of investments and deposits of the non-life insurance companies (excluding investments in subsidiaries) was PLN 50.6 billion, which was a 9.4% increase since the end of 2013. The instruments issued or guaranteed by the State Treasury and local authorities constituted 45.6% of the aforementioned investment portfolio.

Non-life insurance market - gross written premium (PLN million)

 20142013
 PZUMarketMarket without PZU*PZUMarketMarket without PZU
Motor own damage 2,011 5,259 3,248 2,028 5,340 3,312
MTPL 2,634 8,072 5,437 2,827 8,605 5,778
Other products 3,617 12,922 9,306 3,418 12,654 9,236
TOTAL 8,262 26,253 17,991 8,273 26,599 18,325

*including Link4 which has a different business model than PZU
Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Life insurance market 4/2014, data collected by PZU

Non-life insurance companies, on aggregate, estimated the value of technical provisions at PLN 39.8 billion, which represented an increase of 6.7% compared with the end of 2013.

The Solvency II project - non-life insurance

The condition of the non-life insurance sector in Poland one year before the requirements of the Solvency II Directive come into effect, i.e. on 1st January 2016, can be graded as positive. According to the quantitative survey conducted by PFSA as at the end of 2013 (QIS2014), the solvency of capital requirements (SCR) established with the standard formula for the non-life insurance market in Poland was 231.8%.

PZU’s activities

Within PZU Group, activities on the non-life insurance market in Poland are conducted by the parent company in the Group, i.e. PZU nad Link4.


Over the past years, PZU has been managing approximately 1/3 of the non-life insurance market. In 2014, PZU had a 31.5% share of the non-life insurance market compared with 31.1% in 2013.

PZU had a strong market position in motor own damage insurance (with a share of 38.2%). Meanwhile, in the case of motor insurance for corporate customers, this share was even higher, amounting to 47.6% for MTPL insurance and 42.5% for motor own damage.

In 2014, the share of PZU’s technical result in the market’s technical result was 75%, which, with a market share of 31.5% calculated using the gross written premium confirming high level of profitability of insurance.

PZU offers a wide range of non-life insurance products, including motor, property, personal, agricultural insurance, as well as general liability insurance. PZU’s product range encompassed 200 insurance products at the end of 2014. Motor insurance is the most important group of products offered by PZU, both in terms of the number of valid insurance contracts, as well as the share of the premium to the total value of gross written premiums.

In 2014, PZU made changes to its product offering, with customers in mind, which included basic categories of insurance products addressed to all customer segments.

In 2014, the changes in the offer dedicated to the mass market consisted of:

  • introduction of modified household insurance, other TPL, travel insurance, and accident insurance offer:
     
    • the new household insurance offer allows for protection of private property under the All Risk formula. The new solution provides the clients with the most extensive insurance protection, which covers all events defined for the traditional option, including fire, flooding, destruction, breaking and entering, and all other unusual events that may occur at home;
    • travel insurance and accident insurance received a faster and easier way of establishing agreements thanks to the intuitive product modelling and responses depending on e.g. the travel destination. Furthermore, accident insurance was expanded with a broad range of additional benefits, which definitely made the insurance more attractive (e.g. meeting the requirements of the sports market by introducing the clauses of sports agreements into the conditions);
    • the other TPL insurance dedicated to the companies of the SME sector saw the introduction of numerous optional riders allowing for more flexible adjustment of the insurance to the needs of the client. The occupational TPL product allows for simple conclusion of voluntary TPL insurance for several types of professional activity. There is also the option of including the mandatory TPL insurance in scope of a single policy;
    • the scope of the carrier TPL insurance was expanded considerably by additional riders, including the longawaited cabotage transport insurance in Germany and EU states;
       
  • introduction of the direct claims handling service for MTPL insurance, a free-of-charge service allowing the MTPL client of PZU, who is the victim of an accident caused by a non- PZU client, to report and handle the claim in PZU rather than the perpetrator’s insurer.

Non-life insurance market - technical results (PLN million)

 20142013
Technical resultsPZUMarketMarket without PZUPZUMarketMarket without PZU
Motor own damage 163 240 77 274 484 210
MTPL -281 -803 -523 95 -316 -411
Other products 628 1,316 204 693 1,162 469
TOTAL 510 752 242 1,062 1,330 268

Source: KNF (www.knf.gov.pl). Biuletyn Kwartalny [PFSA Quarterly Bulletin]. Life insurance market 4/2014, data collected by PZU

The Corporate Client Division underwent considerable business transformation in 2014. Changes were made to the organisational structure, the operating model, and there was implementation of several sales tools aimed to improve the effectiveness of the sales network in the long run. These operations were conducted when the corporate insurance market was experiencing a difficult situation which saw the decline of the average price in key business lines. Nevertheless, the structures oriented towards the development of the so-called medium and big corporate business were able to increase the premium.

In terms of financial insurance for corporate customers, PZU has been supporting the Polish economy in various areas, including the following:

  • securing investments concerning the construction and modernisation of individual railway line segments throughout the country. The realisation of such investments increased traffic capacity, connection quality, and passenger safety;
  • supporting the Polish energy and electrical energy industry by guaranteeing return of advance payment and proper performance of the contract for the construction of a new hard coal block in the Jaworzno Power Plant or securing the expansion of the energy transmission networks;
  • securing the performance of contracts for the realisation of ventures associated with the design and performance of audience sound systems in prestigious cultural venues.

During the year, following the analysis of the economic situation, the conditions of guarantees sales to smaller companies operating in sectors related to construction calmed down.

PZU Group cooperated with 8 banks and 6 strategic partners in scope of protective insurance in 2014. The partners of PZU Group are the leaders in their fields and have customer bases with great potential. The cooperation in scope of strategic partnerships concerned mainly the companies operating in telecommunications and energy, which were used to offer insurance of electronic equipment and assistance services.

The sales of protective property insurance in scope of the bancassurance channel covered mainly the insurance of buildings, structures, household, and payment card insurance.

PZU gross written premium (PLN million)

In 2014, PZU collected gross written premiums of PLN 8,261.8 million, which was 0.1% less than in the previous year. At the same time, its structure changed in comparison with the previous year, and therefore:

  • The value of MTPL insurance was PLN 2,648.5 million, which was 6.3% lower than in the previous year. This represented 32.1% of the overall portfolio, i.e. its share dropped in comparison to 2013 by 2.1 p.p. The drop in the value of MTPL insurance at PZU resulted mainly from the drop of the average premium and lower sales (strong market competition);
  • PZU collected PLN 2,016.3 million from motor own damage, which was 0.6% less than in the previous year. This represented 24.4% of the overall portfolio, i.e. its share remained at a similar level to that of the previous year;
  • The rapid growth in sales of the following types of insurance: contractual guarantees, corporate TPL, PZU DOM contributed to the 5% growth in written premiums from non-motor products. As a result, the share of gross premiums from non-motor insurance to the total premium increased to a level of 43.5% (41.3% in 2013).

In 2014, PZU paid gross claims and benefits amounting to PLN 4,427.3 million, which was 2.9% more than in the previous year.

In 2014, PZU generated a net profit of PLN 2,636.7 million in accordance with the Polish Accounting Standards, of which PLN 2,060.0 million was from the dividend from PZU Życie.

Activities of Link4

In scope of PZU Group’s development strategy assuming the strengthening of PZU’s position in Poland and international expansion, PZU signed the agreement for the acquisition of Link4 shares on 17th April 2014. The transaction of the acquisition of Link4 shares was closed on 15th September 2014 and final settlement of the transaction on 11 march 2015, as the purchaser, PZU paid the total price of EUR 91,816.0 thousand.

Link4 is the leader of the Polish direct insurance market and offers a wide range of non-life insurance, which covers motor insurance, property insurance, personal insurance, and TPL insurance.

Motor insurance is the most important group of products offered by Link4, both in terms of the number of binding insurance contracts, as well as the premium share in the total gross written premiums.

Link4 cooperated with banks and several strategic partners in scope of protective insurance in 2014. The sales of nonlife insurance in the bancassurance channel covered mainly the insurance of buildings, structures, and residences, motor insurance, and travel insurance.

In 2014, Link4 collected a gross written premium of PLN 417.1 million (within the written premium of PZU Group of PLN 138.8 million, i.e. from the time of the purchase), most of which is composed of motor insurance as follows:

  • the value of MTPL insurance was PLN 262.5 million, which composes 62.9% of the entire portfolio;
  • the value of the motor own damage premium was PLN 77.5 million, which composes 18.6% of the entire insurance portfolio.

Factors, including threats and risks, which will affect the activities of the non-life insurance sector in 2015. Apart from events of a catastrophic nature (such as floods, drought and spring frost), the main factors which can affect the situation of the non-life insurance sector in 2015 include:

  • the potential slowdown of the economic growth in Poland resulting from the deteriorating external conditions – the Russian-Ukrainian conflict and the slowdown of economic growth in the euro zone and in Germany. In consequence, the worse financial standing of households can lead to a decline in sales of motor policies (as a result of lower new car sales), lower sales of mortgages and the related mortgage related insurance, as well as lower demand for other property insurance. The worse financial standing of businesses can result in a growth in credit risk and an increase in the level of claims in the financial insurance portfolio;
  • the reduction in the development of mortgage campaigns as a result of the stricter requirements of S Recommendation on good practices regarding the management of credit exposures collateralized with mortgages and the small scope of the Mieszkanie dla Młodych (Flat for the Young) Programme. There are plans to amend the Mieszkanie dla Młodych programme in 2015, which will aim to increase the contributions and thus increase the programme’s popularity, which could influence the increase of mortgage related insurance sales in the long run;
  • price pressure from the competition arising from the declining level of motor insurance claims starting in 2013;
  • decisions of supreme courts in scope of monetary compensation from to the closest relative from the TPL insurance of owners of motor vehicles for damage resulting from pain and suffering even if the victim died before 3rd August 2008;
  • implementation of the Solvency II requirements from January 2016, which is based on risk evaluation and may change the operating model of selected areas of the insurance companies on the market (e.g. the tariff policy).