59.1 Remuneration of the entity authorized to audit financial statements
The below table presents the amounts due to entities authorised to audit financial statements of PZU paid and payable for the reporting period period, including VAT, and determined on the accrual basis.
|Type of services||1 January – 31 December 2014||1 January – 31 December 2013|
|Audit of the financial statements||714||633|
|Other assurance services||248||887|
|Tax advisory services||-||416|
1) KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp. k. is authorized to audit the 2014 financial statements.
2) Deloitte Polska Spółka z ograniczoną odpowiedzialnością sp. k. was authorized to audit the 2013 financial statements.
An agreement with KPMG Audyt sp. z o.o. sp. k. concerning the reviews and audits of the separate financial statements of PZU and the consolidated financial statements of PZU Group for the years 2014-2016, with an option to extend the agreement for the years 2017-2018, was concluded on 26 June 2014.
59.2 Employment restructuring process
On 8 September 2014 the Management Boards for PZU and PZU Życie decided to continue the process of employment restructuring and announced their intention to o carry out group redundancies, in accordance to the Act from 13 March 2013 on special principles of employment termination for reasons not related to employees (Journal of Laws No. 90 of 2003, item 844, as amended – "Act on special principles of employment termination").
On 11 September 2014, PZU, PZU Życie and the trade unions operating at these companies signed an agreement setting out the terms and conditions of employment restructuring. The final form of the document was based on the experience and solutions developed during the corresponding negotiations in previous years.
Employment restructuring was conducted during the planned period (October – November 2014) and finally encompassed 643 people within PZU and PZU Życie, while the employment downsizing applied to 171 employees.
The people who were dismissed or who did not accept the changes in the terms and conditions of employment (just as during all stages of employment restructuring, namely in 2010–2013) were offered more favourable conditions of leaving than those provided by law. The amount of additional redundancy pay depended on the length of service with PZU Group and the salary of each employee.
On 18 December 2014, the Management Board of PZU adopted a decided to commence restructuring activities related to the implementation of the new IT systems and automation of operating processes. The expected commencement of the restructuring process is planned for 2015.
As at 31 December 2013, the provision for restructuring expenses amounted to PLN 9,354 thousand.
59.3 Changes in the operation of open-end pension funds
Pursuant to the Act of 6 December 2013 amending certain other acts due to determination of the terms of payment of pension benefits out of the funds accumulated in open-end pension funds (Journal of Laws of 2013, item 1717), changes were introduced to the operation of pension funds. The new legislation have an effect on the operation of OFE PZU and PTE PZU in 2014 and in the following years.
Under the aforesaid amendments, OFE PZU has been obliged to transfer assets representing 51.5% of the accounting units recorded in the account of each OFE PZU member to the Social Insurance Institution. On 3 February 2014, OFE PZU transferred the assets corresponding to the redemption value to the Social Insurance Institution. Asset transfer to the Social Insurance Institution will have a significant effect on the revenue earned by PTE PZU on asset management, and consequently on the performance of the “Pension Insurance” segment.
The total effect of the transfer of OFE PZU assets to the Social Insurance Institution as well as other changes to the pension system on the revenue of PTE PZU in 2014 and in the following periods may not be estimated reliably, in particular due to uncertainty as to the final number of members that will continue to transfer premiums to the open-ended pension fund, the amount of such premiums and the period during which they will be transferred to OFE PZU, taking into account the method of transferring the pension entitlements of the insured from OFE PZU to the Social Insurance Institution prior to the actual payment of benefits. The Management Board of PZU is of the opinion that the aforementioned changes will not have an effect on the ability of PTE PZU to continue as a going concern in the foreseeable future.
59.4 Loan and capital injection granted to PZU Lietuva
On 25 September 2014, a subordinated loan agreement was concluded between PZU and PZU Lietuva covering the amount of EUR 46,000 thousand. The purpose of the loan was to provide funds for the acquisition of the Codan Branch and to meet the requirements specified by the Lithuanian supervisory authority in the scope of the minimum solvency margin (prior to and following the acquisition of Codan’s assets, the solvency margin amounted to at least 120%). The loan was granted for a minimum of five years and the agreement did not specify the maximum duration of the loan. According to the Lithuanian law, a subordinated loan may be granted for a minimum of five years. The interest rate on the loan was determined on an arm’s length basis (3-month EURIBOR rate increased by a margin of 340 bps.)
Under the agreement, a portion of the loan and the accrued interest (including not less than EUR 37,000 thousand) was converted in order to acquire the newly issued shares of PZU Lietuva. On 24 October 2014, the Extraordinary Shareholders’ Meeting of PZU Lietuva resolved to increase the share capital of PZU Lietuva by LTL 86,000 thousand through the issuance of 860,000 ordinary shares with the nominal value of LTL 100 each and the share issuance price of LTL 150 per share. The total value of the newly issued shares amounted to LTL 129,000 (approximately EUR 37,361 thousand).
On the same day, an agreement was signed between PZU Lietuva and PZU concerning the acquisition of newly issued shares.
The loan, as a transaction between companies within the Group, is eliminated in the process of drawing up consolidated financial statements and does not affect its structure.
59.5 Loan granted to Link4
On 12 September 2014, a subordinated loan agreement was concluded between PZU and Link4 covering the amount of PLN 30,000 thousand. The loan should be paid on 15 September 2019 or the following working day, whereas an early repayment is possible only in case of liquidation of Link4 or with the consent of the Polish Financial Supervision Authority.
The interest rate on the loan was determined on an arm’s length basis (WIBOR 6M rate increased by a margin of 350 bps.)
The loan, as a transaction between companies within PZU Group, is eliminated in the process of drawing up consolidated financial statements and does not affect its structure.
59.6 Inspection of the office of the Polish Financial Supervision Authority in PZU Życie
During the period between 12 August and 3 October 2014 the Polish Financial Supervision Authority conducted an inspection at PZU Życie. The inspection covered PZU Życie’s operations and its financial status in respect of:
- organisation and management;
- investment policy;
- technical provisions;
- fulfilment of benefits.
Until the date of signing the consolidated financial statements PZU Życie has not received the inspection report.
59.7 Situation in Ukraine
During 2014 Ukraine’s political and economic situation has deteriorated significantly. Social unrest combined with rising regional tensions has deepened the ongoing economic crisis and has resulted in a widening of the state budget deficit, a depletion of the National Bank of Ukraine’s foreign currency reserves, a further downgrading of the Ukrainian sovereign debt credit ratings and significant depreciation of Ukrainian hryvnia.
In connection with this volatile situation the management boards of PZU Ukraine and PZU Ukraine Life Insurance (hereinafter collectively referred to as the “Ukrainian Companies”) have made the following decisions in order to mitigate the risk:
- in the scope of insurance activity, apart from standard exceptions (war, terrorism, etc.), insurance coverage does not apply to third party operations performed in violation of the law. In addition, it has been decided to temporarily suspend conclusion and renewal of non-life insurance contracts with natural and legal persons, including property that is subject to a lien or mortgage, if the contract is executed in the territory of Donetsk and Luhansk regions. The same applies to forwarding agent and carrier liability insurance, as well as cargo insurance, if the freight lane passes through the territory of the above mentioned regions;
- the regional office of PZU Ukraine in Simferopol and its customer service centre in Sevastopol are closed. In addition, four sales offices and two agencies were closed in the Donetsk and Luhansk regions;
- actions have been taken to transfer part of the assets, such as cash at current accounts and bank deposits owned by the Ukrainian Companies, to selected banks operating in Ukraine. The main criterion applied when making the above selection is whether a given institution has a trustworthy foreign majority shareholder.
Both in 2014 and early 2015, the Ukrainian Companies realised their sales plans approved by the Supervisory Board.
The Management Board of PZU, in cooperation with the management boards of the Ukrainian Companies, constantly monitors the situation in Ukraine. As at the date of this consolidated financial statements, the Management Board of PZU assumes that the Ukrainian Companies will continue their business activity in accordance with the approved objectives. Nevertheless, a continuation of the current unstable business environment could negatively affect in the future the Ukrainian Companies’ results and financial position in a manner not currently determinable. These consolidated financial statements reflects the current assessment of the Management Board of PZU in this respect.
59.8 Revenue from the exchange of goods and services
Neither in 2014, nor in 2013 PZU Group did not obtain any revenues from the exchange of goods and services.
59.9 Events after the financial year
59.9.1. The sale of PZU Lietuva shares
On 2 February 2015, a share sales agreement for the sale of PZU Lietuva shares was signed, under which Gjensidige Forsikring ASA with the registered office in Oslo (Norway) acquired 1,761,941 ordinary registered shares with the nominal value of LTL 100 (EUR 28,96) each, representing a total of 99.879% of the share capital of PZU Lietuva.
The share of sales is conditional on the meeting of the following conditions precedent:
- the lack of objection of the Bank of Lithuania regarding the purchase of shares in PZU Lietuva by the purchaser;
- consent of the Latvian and Estonia antitrust authorities or a written confirmation that such consent is not required;
- consent of the Lithuanian Competition Council;
- completion of the process of separating assets and liabilities of PZU Lietuva related to the operations carried out by the branches of PZU Lietuva in Latvia and Estonia to PZU Group;
- obtaining the consent of the Bank of Lithuania on the early repayment by PZU Lietuva of a subordinated loan granted to PZU Lietuva by PZU;
- consent of the Norwegian Financial Supervision Authority for the purchase of the shares in PZU Lietuva by the purchaser;
- waiver of the preemptive right by the minority shareholder of PZU Lietuva (holding 0.121% of the share capital) in relation to the shares of PZU Lietuva in favour of PZU;
- consent of the Lithuanian government commission for the purchase of the shares in PZU Lietuva by the purchaser or a written confirmation that such consent is not required.
The above mentioned conditions should be met on 30 November 2015.
The price of the shares of PZU Lietuva amounts to EUR 54,000 thousand and the estimated amount of compensation constituting the difference between the estimated value of net assets and the notional value of net assets, as well as the as well as 4 payments made every 6 months, each in the amount of 1.5% of the amount of excess capital calculated as the difference between the actual equity of PZU Lietuva determined in accordance with the requirements of the Bank of Lithuania and the required PZU Lietuva capital calculated in accordance with the provisions of law and regulations binding PZU Lietuva.
59.9.2. Purchasing of Aquaform SA shares
On 15 January 2015, a share sales agreement for the sale of Aquaform SA shares was concluded between Saniku SA and Shower Star B.V. (Sellers) and Armatura Kraków SA and Armatoora SA (Buyer). Pursuant to that agreement, Armatura Kraków SA and Armatoora SA purchased 8,421,053 shares in the Aquaform SA company, with a nominal value of PLN 0.38 per share.
The purchase price consists of a fixed price of EUR 5,300 thousand and an additional price which constitutes 6.5% of the total sales value exceeding EUR 24,000 thousand obtained by Aquaform SA on markets in Germany, Austria, Switzerland, France, the Netherlands and Luxembourg in the years 2015-2017.
The total share of Armatura Kraków SA and Armatoora SA in the share capital of Aquaform SA amounts to 84.21%, which translates into 84.21% votes in the Shareholders' Meeting.
59.9.3. Administrative proceedings conducted by the Office of Competition and Consumer Protection
On 30 January 2015 PZU Życie received notice dated 26 January 2015 informing that administrative proceeding has been started, concerning practices that infringe the collective interest of consumers.
59.9.4. Settlement of the acquisition of shares of Link4
On 11 March 2014, the final settlement of acquisition of Link4 shares was prepared, which was described in the Note 188.8.131.52. As a result of difference between the final value of net assets and the notional value, RSA paid to PZU abovementioned difference amounted to EUR 2,070 thousand. The final purchase price amounted EUR 91,816 thousand.