Home | PZU in 2014 | External environment in 2014

External environment in 2014

Stable growth rate of the Polish economy had a positive effect on the insurance sector, as well as on the Group’s result, which remains stable.

Main trends in the Polish economy

A considerable, real increase in household income with the substantial improvement of the situation on the labour market, allowed a significant growth of consumption. The GDP growth rate in 2014 remained rather stable, maintaining a level between 3.1% y/y and 3.5% y/y.

Gross Domestic Product

According to the initial assessment of the CSO (Central Statistical Office), the real GDP in Poland increased by 3.3% in 2014 compared with 1.7% in the previous year. The GDP growth rate in 2014 remained rather stable, maintaining a level between 3.3% y/y and 3.5% y/y during the first three quarters. In the fourth quarter, the GDP dynamics dropped to 3.1% y/y.

Despite the issues concerning export to the eastern markets and the relatively weak economic condition in the Euro zone states, the export dynamics improved. The declining export to Russia and Ukraine was offset by the growing export to other markets.

After two years of stagnation, the domestic demand grew considerably in 2014, i.e. by 4,6%. A considerable, real increase in household income with the substantial improvement of the situation on the labour market, allowed a significant growth of consumption. The consumption growth in the household sector was 3.1% (1.1% in 2013). With the biggest growth of public consumption since 2010, the total consumption grew by 3.0% in comparison to 2013. In the face of sustained relatively favourable economic prosperity indicators, the good financial condition of enterprises benefited their investment growth during the year. The gross investments in tangible assets grew by 9.5% in 2014, the highest growth since 2007. This was also accompanied by the growing dynamics of investment loans.

The stimulation of the domestic demand resulted in a significant growth of import. In effect, with the negative consequences of the Russian-Ukrainian conflict on the Polish export, the impact of net export on the GDP growth was clearly negative in 2014. However, it should be highlighted that despite the issues concerning export to the eastern markets and the relatively weak economic condition in the Euro zone states, the export dynamics improved. The declining export to Russia and Ukraine was compensated by the growing export to other markets.

GBP growth composition in 2008 - 2014

The labour market and consumption

The situation on the labour market improved considerably in 2014. The rate of registered unemployment in December 2014 was 11.5% compared to 13.4% at the end of the previous year. In 2014, the average monthly employment in the business sector grew by 58 thousand people and its annual dynamics grew to 1.1% y/y in December as compared to 0.3% y/y at the end of 2013.

In the light of the very low inflation, the 2014 pressure on salary increases remained relatively low. In 2014, the dynamics of average monthly remuneration in the national  economy decreased to 3.4% in comparision to 3.7% in 2013. The real remunerations rose considerably with the very low inflation and the dropping consumer price index (CPI) in the second half of the year. With consideration of the price changes, the average monthly remuneration in the  national economy was 3.4% in 2014 in comparison to 2.8% the year before. The average monthly real dynamics of the remuneration fund in the business sector in 2014 was 4.5% y/y – the biggest in 6 years. It can be assessed that the real gross disposable income growth in 2014 was considerably higher than in 2013. The consumer financial condition indicators also systematically improved.

As employment grew and unemployment dropped, the improving financial situation of households was beneficial to growing consumption. The dynamics of household consumption in the fourth quarter exceeded 3.1% y/y.

Inflation, monetary policy and interest rates

In 2014, the annual average consumer price index (CPI) did not change in comparison to the 0.9% growth in 2013. The annual consumption index has remained negative from July 2014, reaching -1.0% y/y in December.

Such strong inflation decrease in 2014 resulted mainly from supply factors – primarily the dropping global petroleum prices and the visibly dropping food prices. At the same time, the demand and remuneration pressure on price growth continued to be very weak with the import of low inflation from abroad. Net inflation (CPI excluding food and energy prices) declined to an annual average of 0.6% compared with 1.2% in 2013.

NBP reference rate remained at 2.5% until September 2014. In the first half of the year, the Monetary Policy Council announced that the interest rates would likely be maintained at the same level, but abandoned any form of forward guidance at the July session as the interest rates remained the same. In October, the Monetary Policy Council lowered the reference rate by 50 base points to 2.0%. Additionally, the Council narrowed down the interest rate corridor and set its bottom limit – the rate of interest on the deposits placed by banks in the NBP – at 1%, simultaneously lowering the top limit – the rate of Lombard credit – by 1 percentage point to 3.0%. The promissory note rediscount rate was reduced correspondingly to the reference rate – by 0.5% to 2.25%.

Furthermore, the interest rate for the obligatory provision funds, which had previously constituted 0.9% of the NBP rediscount rate, was bound with the same coefficient to the NBP reference rate – entailing reduced interest rate of bank funds. The rates remained at the level established in October 2014 for the next two months.

Public finance

According to initial estimations, the State Budget deficit for 2014 was approximately PLN 30 billion, which is considerably lower than the planned PLN 47.5 billion. This deficit is also considerably lower than that of 2013, which was PLN 42.2
billion. The government believes that the entire deficit of the public finance sector will drop below 3,0% GDP in 2015 from 3.3% GDP initially assessed in 2014.

Poland had no problems in obtaining debt financing – 30% of borrowing needs planned for 2015 had been financed at the end of 2014.

Situation on the financial markets

In the face of Russian-Ukrainian conflict and decline in oil prices, financial markets observed significant uncertainty. Both in the Euro zone and the USA the treasury bonds yields dropped. Nevertheless the USA stock market saw a much more significant growth trend than the Euro zone.

The main trends of the global financial markets were strongly associated with the development of the economic situation in the USA and the Euro zone and with their central banks – the Federal Reserve and the European Central Bank. The Russian- Ukrainian conflict and the sudden petroleum price drops also had significant impact on the markets. Despite the reduction of the “quantitative easing” in the USA until its complete end, the country’s treasury bonds yields declined. This was caused by moderate inflation and skilful communication between the Fed and the market, which saw the central bank extinguish the expectations for interest rate rises in the near future. The treasury bonds yields also dropped in the Euro zone in light of the concerns with economic growth and towards the very low inflation. Furthermore, in June 2014, the EBC announced a package of actions to ease the monetary policy and lowered the interest rates in the Euro zone. Additionally, before the end of the year there was a rising belief of the financial markets that the EBC would be forced to expand its operations over purchasing of treasury bonds of the Euro zone countries. The yields decline in Europe led to the reduction of differences between the interest rates of bonds in Germany and the socalled peripheral countries of the euro zone.

The USA stock market saw a much more significant growth trend than the Euro zone, especially in the second half of 2014 – which was a reflection of the relative condition of the economies of the two regions and the impact of the Russian- Ukrainian conflict on Western Europe.

Russian-Ukrainian conflict affected the growth of stock indices. Also the inflation index was also considerably lower than expected.

2014 was not a good year for the Polish stock exchange. The value of the broad market index, WIG, remained virtually unchanged (0.3% growth), but the index of the largest and most liquid companies, WIG20, dropped by 3.5%. In 2014, these indices fluctuated with no clear change direction. The markets began to observe considerable uncertainty – especially in the second half of the year with the escalation of the Russian-Ukrainian conflict. The inflation index was also considerably lower than commonly expected. Additionally, the operating changes of open pension funds entailed the reduction of stock price support from pension funds.

In 2014 Polish treasury bond yield curve clearly dropped, especially concerning bonds with longer maturity periods. The difference between the yields of 10-year and 1-year treasuries dropped by approximately 100 basis points. The declining yields in Poland were corresponding to the European trend. This was also influenced by the strong drop of the inflation rate in Poland. The 2014 lowering of the NBP reference rate in 2013 was an important factor in the decline in the yields of shorter maturity instruments. For 1-year instruments, this decline amounted to approximately 90 basis points. The 5-year and 10-year bond yields dropped in 2014 by 120 and 150 basis points respectively.

The most important event on the currency market in 2014 was the trend of the strong appreciation of the US dollar to the euro, which resulted from the clear differences in the conducted monetary policy and the economic condition. In effect, the euro lost 12.2% to the dollar in 2014. The PLN to USD exchange rate also changed – the dollar cost 16.4% more than at the end of 2013. The Polish currency remained rather stable in comparison to the European one, to which it lost approximately 2.8%. The currency rate of the PLN towards the Swiss frank dropped by 4.8%.

bond

PLN

Penetration (%) 

Insurance sector compared with Europe

The average Pole spends 5 times less on insurance than the average European resident. In 2013 the average Pole spent EUR 361.8 (i.e. PLN 1,503.1).

In 2013, the statistical European spent EUR 1,882.7 for insurance (density index), while the average Pole spent EUR 361.8 (i.e. PLN 1,503.1), 5 times less. Almost 60% of the premiums of the average European and 54% of the average Pole are paid towards life insurance.

From the point of view of the market development, lower penetration ratio, opens up huge opportunities for sales growth.

Analysing the level of premium compared with GDP (penetration ratio), Poland lays below the European average.
This indicator for Poland is slightly below half of the European Central and Eastern European countries, such as Estonia and Latvia, in which PZU operates, have a ratio of 1.7% and 1.3% accordingly, which, from the point of view of the market development, opens up huge opportunities for sales growth.

Regulations regarding the insurance market and financial markets in Poland

The year 2014 was a period of intense preparations aimed at the implementation of the requirements of the Solvency II Directive, which will be enforced towards insurance companies from 1 January 2016. The document is a collection of technical recommendations in the scope of the calculation of capital requirements and own funds.

The year 2014 was a period of intense preparations aimed at the implementation of the requirements of the Solvency II, Directive, which will be enforced towards insurance companies from 1 January 2016. The new system focuses on the risk taken by insurance companies.

On 11 March 2014, the European Parliament passed the so called Omnibus II Directive, which modifies the regulations of the Solvency II Directive (2009/138/EC concerning the taking-up and pursuit of the insurance and reinsurance business). One of the key elements was the authorisation of the European Commission to pass legally binding acts of the so-called level 2 and 3 in scope of the Solvency II system. This means that the individual state legislators do not have to implement detailed regulations in their states. The insurance companies are obliged to obey the requirements passed at the level of the European Commission.

An important document in the Solvency II system is the level 2 delegated act, i.e. the Delegated Resolution of the Commission (EU) 2015/35 dated 10 October 2014. The delegated act evolves upon numerous regulations of the Solvency II Directive, which will be enforced from 1 January 2016 and partially already from 1 April 2015. Furthermore, Penetration (%) the aforementioned document is a collection of technical recommendations in the scope of the calculation of capital requirements and own funds.

In January 2015, the EIOPA (European Insurance and Occupational Pensions Authority) published the first set of recommendations, i.e. the level 3 documents.

There is also ongoing work on the draft of the Act on Insurance Activity in connection with the implementation of Solvency II.

According to the Act’s project, there will be more capital requirements that should correspond to the specific risk profile of a given insurance company and reinsurance company. The own funds of a company have to be at a level guaranteeing the coverage of the potential losses and the required benefits for the insured and the beneficiaries. The drafted act expands the requirements in scope of the internal procedures of risk management and the disclosure obligations of the insurance companies regarding capital security and risk management. The companies will be obliged to implement procedures associated not only with insurance risk but also credit, market, liquidity, and operating risk and to report their financial condition to the PFSA (Polish Financial Supervision Authority). The draft also assumes changes to the current regulations concerning the obligations of the insurance companies regarding entering and performing insurance contracts. The act shall authorise the PFSA to issue recommendations concerning specific insurance and reinsurance activity.

The new regulations focus on the risks borne by insurers. According to the Act’s project, there will be more capital requirements that should correspond to the specific risk profile of a given insurance company and reinsurance company.

Furthermore, the act refers to the remuneration for insurance agents and surrender fees for unit-linked products and structured products. While setting the remuneration of the agent, an insurance company should follow the rule of even expense distribution of insurance agent’s commission over time. The act provides the right to withdraw (apart from the right to withdraw provided for in the Civil Code) from unit-linked agreements and structured products, entered after into the act comes into force, within 60 days from the receipt of the first so-called anniversary information, while the surrender fee at the withdrawal cannot exceed 4%

In 2014, PFSA released recommendations concerning flood risk management in the insurance sector, insurance distribution, motor insurance claims handling, outwards reinsurance/ retrocession, IT management and ICT security.
The recommendations fall under the “comply or explain” rule. Institutions under supervision may not follow the Principles but if the company fails to implement any of the principles, either permanently or incidentally, it is obliged to inform the market of this fact and justify reasons for non-implementation of a given principle.

Other than the work on implementing the requirements of the Solvency II Directive, there was also work on other regulations, which had or will have impact on the operations of PZU Group. Some of them are listed below:

The Act on the amendment to certain Acts in connection with the specification of the principles of paying out pensions from the funds collected in open pension funds of 6 December 2013, which has been in force since 1 February 2014, while some of the  provisions, including those regarding the Individual Pension Security Account (IKZE) have been in force since 14 January 2014. The changes include, in particular:

  • transfer of the parts of the members’ pension rights whichare expressed as Treasury bond liabilities from the OpenPension Funds (OFE) to the Social Insurance Institution(ZUS) – on 3 February 2014 the bond part of the assetsaccumulated in OFE, of a total amount corresponding to51.5% of the units on the account of every member of OFE as at 31 January 2014, was transferred to ZUS. After theredemption of the bonds (effective from 4 February 2014),these funds will be recorded on sub-accounts at ZUS on31 March 2015, where they will to be indexed andinherited, just as the remaining funds on these subaccounts.Additionally, from 3 February 2014, pensionfunds must not invest in both treasury debt instrumentsand debt instruments guaranteed by the Treasury, as wellas in instruments issued by the governments of other OECD states;
     
  •  specification of the principles of paying pensions fromthe funds accumulated in OFE and the method oftransferring pension rights of those insured with OFEto ZUS – pensions should be paid when the particularinsured reach retirement age (ultimately 67 years) in itsentirety from the Social Security Fund (FUS). To this end,the funds accumulated in OFE should be transferred to FUS. They will be indexed according to the current rules. When the insured reach the age of 10 years less thanretirement age the funds collected in OFE by them will begradually transferred to ZUS to a sub-account and the newcontributions will be transferred directly to ZUS. Funds onthe sub-accounts at ZUS, which will pay the pension, maybe inherited within 3 year-period after the insured retires;
     
  •  ability of the insured to make a choice in the form of adeclaration regarding the further transfer to OFEs of the contributions determined at the new level, with respect tofuture contributions – in the period from 1 April 2014 to31 July 2014 the insured decided on whether the pensioncontribution of 2.92% is still to be transferred to OFE orto ZUS. In the absence of a declaration on the transferof the contributions to OFE, the pension contributionsare automatically recorded on a special sub-account at ZUS. The decision on whether to choose OFE or remainin ZUS was not final. The insured will receive successiveopportunities to change their decision in four-year intervals;
     
  • establishment of new investment rules by OFE – thegradual reduction in the minimum limit of OFE’s exposureto shares. A substantial proportion of the concentration limits was eliminated. Every OFE needs to specify the objective and principles of the investment policy, as well as the quantifiable benchmark in the annual information for its members;

     
  • change in the system of fees and commissions charged by the pension funds – the fees charged by OFEs on the contributions have been reduced from 3.5% to 1.75% (including the reduction in the charge to ZUS from 0.8% to 0.4%);
     
  • establishment of the level of contributions to the Guarantee Fund – 0.3% of the net asset value of OFE is transferred to the Guarantee Fund administered by CSDP (Central Securities Depository of Poland), while the fundsaccumulated to date on the additional part of the Fundhave been transferred to the OFE managing companies(PTE) as at 1 July 2014;
     
  • introduction of the ban on advertising OFEs – theadvertising ban is to specifically apply to the periodsfrom 1 January to 31 July in the years in which it will bepossible to make a decision to re-select ZUS/OFE (so-called„windows”);
     
  • introduction of changes in pillar III (IKZE) – introductionof incentives for saving for retirement in the so-called third pillar. A flat-rate has been introduced for disbursements from IKZE, which amounts to 10%. The income transferredto IKZE is exempt from tax, just as before. It is possibleto pay 120% of the average monthly salary in the national economy forecast for the given year, which is currently equivalent to PLN 4,495.20 into IKZE.

The Act dated 30 May 2014 concerning consumer rights (valid from 25 December 2014)

Pursuant to the Act, the deadline for the insured to withdraw from the insurance agreement entered from a distance is 30 days. The consumer is not entitled to withdraw from agreements concerning travel, baggage, and similar insurance if they are established for less than 30 days.

Every action made for purposes of direct marketing (sales) through telephone, computer, mobile devices, and other similar devices requires prior consent of the client – an individual or a legal person.

Amendments to the Act dated 22 May 2003 on insurance agents implemented by the Act dated 9 May 2014 concerning fair access to practicing certain regulated professions (in force from 10 August 2014) – the amendments to the Act on insurance agents concern the deregulation of authorisation to perform broker and agency actions. In the strictly defined circumstances including lifting of the mandatory exams for brokers and the periodical professional training every three years for both insurance agents and brokers.

The Act dated 10 June 2014 on amending the Act on competition and consumer protection and the Code of Civil Procedures.

The Act comes into effect on 18 January 2015 and introduces several changes to the Polish anti-monopoly law aimed to strengthen the domestic system of competition and consumer protection. The Act aims to improve the detection of competition limitation, enhance the effectiveness of detection and prosecution of entrepreneurs entering illegal agreements, and strengthen the position of the weaker market players. The Act changes the obligation of notifying about the intention of concentration in instances of acquiring control of an entrepreneur or the property of another entrepreneur.

The Act dated 29 August 2014 on amending the Act on corporate income tax, the Act on personal income tax, and several other acts.

The Act made amendments to the regulations concerning thin capitalisation and limits the exemption of revenues acquired from investment-related life insurance – structured products. Income from endowment insurance where the endowment benefit is based on the value of specified indices or other base values or is equal to the premium increased by the index specified in the insurance contracts taxable from 1 January 2015. Tax does not apply to income from endowment insurance for which a technical rate is applied to establish the technical provision in the life insurance category. The Act simplifies the calculation of taxable income from insurance premium investment as the difference between the benefit amount and the premium paid to the insurance company.

There is ongoing work on regulations implementing the FATCA- Foreign Account Tax Compliance Act into the domestic legal order. FATCA is an American federal law, which aims to oppose tax evasion by both individuals and legal persons obliged to pay taxes in the United States. PZU Życie and PZU TFI are implementing procedural and IT solutions aimed to satisfy the requirements of the Intergovernmental Agreement (IGA – internetional agreement, when ratified it will allow execution of the requirements of the American FATCA Act).

Jurisdiction and the Abusive Clauses Register

On 27 June of 2014, the Supreme Court (ref. no. III CZP 2/14) confirmed that pursuant to Article 448 of the Civil Code GLOSSARY the closest relative is entitled to compensation from the TPL insurance of motor vehicle owners for damage resulting from the pain and suffering if the casualty died before 3rd August 2008 and if there was actual relation between the casualty and the claimant, a mental and emotional bond.

Effects: increased accountability of insurance companies offering motor vehicle insurance; confirmation of the obligation of disbursement to the closest relative from the TPL insurance of motor vehicle owners, monetary compensation for damage resulting from pain and suffering if the casualty died before 3 August 2008.

External Environment in Ukraine and the Baltic States

In 2014 years due to the difficult political situation the Ukrainian economy plunged into crisis what resulted in trade exchange deterioration.

Ukraine

In 2014, the Ukrainian economy entered a crisis resulting from the difficult political situation, the annexation of Crimea, and the armed conflict in the east.

According to the data of the Ukrainian Central Statistical Office, the GDP decrease amounted to 5.3% in the third quarter. As at the end of December 2014, industrial production dropped by 10.9% in comparison to the industrial production in 2013. Inflation in December 2014 rose by 24.9% as compared to December 2013, which resulted from the administratively regulated prices and the devaluation of the Ukrainian hryvnia. The period of three quarters recorded a positive foreign trade balance (USD 4.3 billion), which resulted from the 25.1% drop in import (with a simultaneous 9.1% drop in export).

Despite the political and economic turmoil in Europe, the economies of the Baltic States, i.e.: Lithuania, Latvia, and Estonia have been able to maintain its stable economic growth.

The negative results recorded by the Ukrainian economy and the political situation as well as the drop of the real revenue of the society had a negative impact on the results of the insurance sector. The gross written premiums in the non-life insurance market in the period of three quarters of 2014 was UAH 15.6 billion and was lower by 20.7% than in the premiums corresponding period of the previous year. Life insurance companies collected UAH 1.5 billion gross written premiums in three quarters of 2014, which was 12% less than in the corresponding period of 2013.

Numerous legal regulations came into force in 2014, which had impact on the Ukrainian insurance market. The most important of these include:

  • Changes in the Fiscal Code. Confirmed option of paying a 3% tax on the gross written premium with no need for insurance companies to switch to the general tax system;
  • Changed rates in the motor TPL insurance and Green Card pursuant to the decision of the Motor (Transport) Insurance Bureau of Ukraine (MTSBU) – average rise of approximately 30% and 80% resulting from the devaluation of the UAH.

Lithuania

Despite the political and economic turmoil in Europe, Lithuania has been able to maintain its stable economic growth. According Eurostat, the 2014 GDP growth rose by 2.9% y/y. It dropped due to the reduced export, resulting mainly from the Russian embargo. At the beginning of 2015 Lihtuania adopted a euro.

Despite the economic growth in Lithuania, the prices of non-life insurance presented a dropping tendency due to the offers of big discounts. With relatively high profitability, insurance companies attempted to increase market share. The total gross written premium of non-life insurance companies amounted to EUR 387.2 million, 1.3% higher than in the previous year.

In 2014, the Lithuanian FSA approved several new resolutions concerning the requirements of Solvency II Directive to be implemented.

Furthermore, there is ongoing work on the new version of the Act concerning motor TPL insurance. The changes concern the removal of the statutory-established limit of compensation for material damage and also cover the determination of a basic insurance premium and regulation of pricing of insurance products. It is not known when the new version of the Act shall come into effect.

Latvia

Despite the Ukrainian crisis and the mutual sanctions between of the Russia and the European Union, the Latvian economy recorded a GDP growth of 2.4% y/y. The main growth accelerator was the domestic consumption (increased by 4.7% y/y in October 2014). The production volume in the third quarter of 2014 was higher than the year before and export reached EUR 1 billion for the first time in the country’s history in October 2014.

The situation on the labour market improved as well. The real unemployment level dropped to 8.2% (in October 2014) and is half that of the 2008 financial crisis. The general purchasing power of the society also grew because of the growth of average revenue, considerable increase of the minimum salary, and the indexation of pensions. The purchasing power of the society is expected to continue to grow in the next year.

Latvia followed in the footsteps of Estonia and introduced the euro currency in 2014. The euro introduction was calm and successful, it only raised inflation by 0.1-0.2 p.p.

In 2014, the standing of the insurance sector in Latvia was good. The written premium of non-life insurance companies amounted to EUR 240.1 million, and grew by 6.1% as compared to the previous year.

In 2014, the regulative community focused on the preparations for the implementation of the Solvency II Directive in 2016. New regulations concerning compensation for personal injury were introduced in July 2014. In motor insurance, they lifted the limits concerning compensation for damage resulting from pain and suffering.

Estonia

The GDP of Estonia grew by 2.1% y/y in the 2014. The main contributor to the economic growth during the last quarter of the year was industry, which also held the biggest share in the Estonian economy. The unemployment rate was 7.4%, and was lower by 1.2 p.p. than in 2013. However, this result was significantly lower than in the previous years when the unemployment rate was 16.7% (in 2010).

In 2014, the consumer price index (CPI) dropped by 0.1% in comparison to 2013. This was mainly caused by the decrease in the prices of the electronics equipment purchased by households.

The Estonian insurance sector grew rapidly in 2014. The gross written premium of non-life insurance companies amounted to EUR 261.4 million, 7.0% higher than in 2013.

Similarly to other member states, in 2014 Estonia approved new resolutions concerning the implementation of the requirements of the Solvency II Directive.

In October 2014 the amendments to the act on motor TPL insurance came into effect regulating the possibility of vehicles approval, the total insurance sum, and the introduction of direct claims handling (with the start of 2015).

Macroeconomic factors, which can affect the operations of the Polish insurance sector

According to forecast the 2015 GDP growth will be similar to that of the last year i.e. 3%. Much like in 2014, the main factors of economic growth will be consumption and investment growth. The conditions for insurance sales should be relatively favourable.

The deflation will likely be maintained at least until halfway through 2015 with a slight annual average drop of consumption prices. This factor will support the preservation of the relatively high remuneration dynamics and thus the purchasing power of households. According to PZU’s projections, the 2015 individual consumption growth rate should slightly accelerate as compared to the previous year. However, it is difficult to project the consequences of the maintaining price drop for a longer period as the mechanisms weakening economic growth and having unfavourable impact on the insurance market in this situation cannot be excluded. It should also be noted that the lower fuel prices may entail a higher claims ratio of motor insurance.

According to PZU’s projections, the 2015 individual consumption growth rate should slightly accelerate as compared to the previous year.

The prospects of the economic growth in Poland considerably depend on the future situation in the Euro zone. The potential escalation of the Russian-Ukrainian crisis and the associated sanctions create a considerable threat to the economy of the Euro zone having a hard time rising from the crisis, suffering debts, and trying to avoid the deflation trap. In this situation, there is a risk of the economic growth in Poland falling below projections – although the direct impact of Ukraine’s and Russia’s economic problems on the dynamics of the Polish economy has thus far been limited and should remain as such.

The very low yields of bonds will continue to be a challenge in the context of the technical interest rate level.

The operations and investment result of PZU Group may also suffer from the effects of the unstable financial markets, which may have several potential sources in 2015. The first is the perspective of the economic growth in Poland, Europe, and the USA, which forms investment demand, particularly on the stock market. The recent years since the outbreak of the global financial crisis also show the significant impact of the monetary policy of the central banks on the dynamics of the financial markets. The most important thing in 2015 will be the investors’ collection of “quantitative ease” in the euro zone and its stimulation of the real economy and inflation expectations. Moment and scope of the potential tightening of the US monetary policy constitute the risk, which may entail a certain capital outflow from emerging markets.

Another risk factor is the PLN FX rate, which has been increasingly volatile as of late. A weakening of the Polish currency can be unfavourable to insurance operations e.g. by raising the prices of car replacement parts.

Geopolitical factors will also have considerable impact on the financial markets in 2015, as they had in 2014. The Russian- Ukrainian conflict and its effects on the economic condition of the Euro zone and risk aversion level on financial markets continues to be a source of risk. The unstable situation in the Middle East continues as a result of, but not limited to, the new threat presented by the Islamic States.

Another important risk factor for 2015 is the level of petroleum price which considerable drop in the second half of 2014, considerably affected on the both financial markets and the global economy. It is difficult to say whether the petroleum prices will rise within next year or remain at their current levels. Their dynamics may impact global inflation and economic growth, contributing to the valuation of assets on stock and obligation markets.

Forecasts for the Polish economy2015*2014201320122011
Real GDP growth in % (y/y) 3.4 3.3 1.7 1.8 4.8
Increase in individual consumption in % (y/y) 3.3 3.1 1.1 1.0 3.0
Increase in gross expenditure on tangible assets in % (y/y) 7.0 9.5 0.9 -1.5 9.3
Inflation in % (y/y, end of the year) 1.4 -1.0 0.7 2.4 4.6
Increase in nominal salaries in the national economy in % (y/y) 4.2 3.4 3.7 3.7 5.6
Rate of unemployment in % (end of the year) 10.5 11.5 13.4 13.4 12.5
NBP base rate in % (end of the year) 1.75 2.00 2.50 4.25 4.50
Annual average EUR/PLN exchange rate 4.20 4.19 4.20 4.19 4.12
Annual average USD/PLN exchange rate 3.81 3.16 3.16 3.26 2.96

* Forcasts of 26th January 2015
Source: PZU Macroeconomic Analysis Bureau