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Issuer’s financial results – PZU (PAS)

PZU AR 2021 > Results > Comment on the financial results for 2021 > Issuer’s financial results – PZU (PAS)
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In 2021, the issuer (PZU) recorded a technical result of PLN 1,269 million, compared to PLN 1,533 million in 2020, a drop by 17.2%. Net profit was PLN 2,028 million, up 5.7% relative to PLN 1,919 million generated in the previous year. Disregarding the dividends received from PZU Życie, PZU’s net profit was PLN 814 million, and was by PLN 226 million, i.e. 38.5%, higher compared to 2020.

As regards the individual net result items, PZU recorded:

  • increase in gross written premium to PLN 13,389 million, or 6.8% more than in the previous year. This was due to the higher premium in insurance against fire and other damage to property (impact of the renewal of several large contracts and improved sales of crop insurance) as well as motor own damage, accident and sickness insurance. After the reinsurers’ share and change in the provision for unearned premiums, net earned premium was PLN 11,917 million and was 1.2% lower than in 2020;
  • lower level of claims and benefits - amounting to PLN 7,356 million, which means a fall by 2.2% compared to 2020. The most significant change, that is the drop in insurance against fire and other damage to property and motor third party liability insurance, was partially offset by the greater value of losses, including assistance and motor own damage insurance;
  • net investment result1 up at PLN 1,558 million (by 41.3% in comparison to 2020), as a result of improved performance reported by subsidiaries;
  • acquisition expenses higher by PLN 113 million, or 4.7%, compared to 2020, including reinsurance commissions, as a consequence of the growing insurance portfolio and the high share of bancassurance and multiagency channels in the sales structure, characterized by higher commission rates;
  • administrative expenses down by 0.3% – from PLN 725 million in 2020 to PLN 723 million in 2021, suppressed by the lower costs of protective and preventive related to the COVID-19 pandemic (compared to the initial expenses in the first year of the pandemic) and intensification of marketing activities.

In 2021, PZU collected gross written premium of PLN 13,389 million, i.e. 6.8% more than in 2020. The premium comprised mainly:

  • TPL motor insurance premiums, accounting for 35.5% of PZU’s insurance portfolio (38.3% in the prior year). Both the decrease in written premium and the diminished share in the portfolio by 2.8 p.p. were caused by intensified competition in the market, strong price pressures and the persisting limited availability of new vehicles (experienced especially in the dealership network and partly in lease agencies);
  • the MOD insurance premium with a 23.7% share of PZU’s total gross written premium (movement by 0.1 p.p. versus the previous year). Contrary to the portfolio of motor third party liability insurance, the value of written premium increased 6.4% compared to 2020, largely driven by the recovery in the financing market recorded by the lease financing sector and sales of new vehicles (primarily in dealerships);
  • premiums on insurance against fire and property damage accounting for 22.4% of PZU’s premium portfolio. Compared to 2020, their share in the insurance portfolio edged up 2.2 p.p., while their value was up 18.6%. This was a consequence of the resumption of a contract with a client operating in the fuel and energy industry in 2021, with a simultaneous increase in written premium to a total of nearly PLN 240 million and an increase in written premium in crop insurance (impact of a subsidy pool from the state budget greater than the year before). This effect was partly offset by lower premiums from mandatory insurance of farm building insurance due to the significant competition on the market and the natural erosion of the portfolio (declining number of farms);
  • premiums on ADD and other insurance, whose share in the portfolio reached 12.1%, i.e. 0.6 p.p. higher than in 2020. The premium increased mainly in accident and sickness insurance. It is a result of higher sales, offered in cooperation with PZU Group banks, cash loan insurance and mortgage loans. The increase was partially offset by a drop in group ADD insurance premiums – in the corresponding period of 2020 insurance cover against a COVID-19 infection was provided to physicians and medical personnel.

The increase in net investment result from investing activities in 2021 was largely driven by improved investment income on subordinated assets, chiefly due to the ramped up dividend income and last year’s non-recurring effect of the goodwill impairment caused by the acquisition of Alior Bank and Bank Pekao in the total amount of approximately PLN -1,155.4 million, of which PLN -797.4 million was recognized in the profit and loss account, and improved investment performance in the main portfolio, in particular as a result of the acquisition of FIZ AN SN by FIZ AN SN2 and the recognition in the profit and loss account of FIZ AN SN’s income, previously recognized in equity.

In 2021, net claims and benefits and the incremental growth in PZU’s provisions totaled PLN 7,356 million, i.e. 2.2% less than in 2020.

The following factors contributed to the change in the net value of claims and benefits:

  • significantly lower level of losses caused by natural forces and other property damage, including events of high unit value and claims under crop insurance policies – in the corresponding period of last year, the frequency of losses was higher due to adverse weather phenomena, such as ground frosts and hail, which occurred mostly at the turn of Q3 2020;
  • lower claims and benefits in motor insurance as a consequence of deterioration in the motor own damage category and a significantly lower level of claims in third party liability insurance. The movement in claims and benefits was caused by the gradual return to the pre-pandemic loss frequency and the decrease in the average loss value;
  • lower loss ratio in guarantees and insurance of various financial losses, predominantly in loss-of-profit insurance;
  • increased claims and benefits in third party liability insurance, chiefly in motor insurance (PZU Auto Pomoc).

In 2021, acquisition expenses (including reinsurance commissions) amounted to PLN 2,536 million, and increased by 4.7% in comparison to 2020, which along with a 1.2% decrease in net earned premium y/y translated into a deterioration of the acquisition expense ratio by 1.2 p.p. The change in the acquisition expense ratio was driven largely by the modification in the product and sales channel mix, including a higher share of the multiagency and bancassurance channels as well as changes in the remuneration model for fleet insurance.

In 2021, administrative expenses reached PLN 723 million, i.e. 0.3% lower than in the previous year, which alongside the drop in net earned premium by 1.2% y/y translates into a worse administrative expense ratio, by 0.1 p.p. The decrease in administrative expenses was caused mainly by the lower intervention expenses incurred in connection with the COVID-19 pandemic and the intensification of marketing activities.

The balance of other technical income and expenses in 2021 was negative and stood at PLN 195 million. The 22.1% improvement in comparison to 2020 was an outcome of a higher allowance to the prevention fund and lower impairment charge on receivables.

The balance of other operating income and expenses was also negative. It reached PLN 278 million, while the year before – when it was also negative – it stood at PLN 149 million. In 2020, the balance of other operating income included revenue from the reversal of impairment losses and provisions for future expenses in the amount of PLN 57.8 million and revenues from the reversal of the provision for co-funding of PZU Finance AB (publ.) – in 2020, the PLN 81.5 million reversal of the provision for taxation risk related to different interpretations of the provisions of the Swedish tax law pertaining to taxation on foreign exchange differences realized on repayment of loans granted in a currency other than the functional currency of the company granting the loan.

At the end of 2021, PZU’s balance sheet total was PLN 44,466 million and was 0.4% lower compared to the previous year.

The main component of PZU’s assets were investments which stood at PLN 39,251 million (down 2.4% compared to the end of 2020), which accounted for 88.3% of PZU’s total balance sheet value, compared to 90.0% as at the end of the previous year. The level of investments, excluding investments in subordinated entities, increased in connection with the achieved investment performance and net operating income, offset by the disbursement of dividends from the 2020 profit, increased by the amount transferred from supplementary capital, originally augmented by the 2019 profit.

As at the end of 2021, PZU’s receivables stood at PLN 2,404 million, and accounted for 5.4% of assets, whereas the year before they amounted to PLN 1,689 million (3.8% of assets). The biggest increases were recorded in the value of receivables on direct insurance (PLN +235 million y/y) and other receivables, including from other entities (PLN +394 million y/y), where the increase was a consequence of a higher level of receivables from outstanding investment transactions and collateral margins.

Fixed assets, in the form of intangible assets, goodwill and property, plant and equipment, were disclosed in the balance sheet at PLN 423 million (PLN -2 million y/y). They accounted for 1.0% of assets.

As at the end of 2021, PZU held cash of PLN 146 million (0.3% of assets). The year before, the corresponding value was PLN 124 million.

At the end of 2021, technical provisions were the main component of PZU’s equity and liabilities. They reached the value of PLN 22,675 million (net), which accounted for 51.0% of equity and liabilities. Their share in the balance sheet increased by 2.4 p.p. compared to 2020, while in terms of value they rose by PLN 968 million, in particular due to a higher provision for outstanding claims and benefits, mainly in the group of motor TPL insurance, general third party liability and motor own damage insurance, and a higher provision for unearned premiums, mainly in accident insurance, other damage to property and motor own damage insurance.

As at the end of 2021, equity was PLN 15,776 million and accounted for 35.5% of equity and liabilities, down 4.1 p.p. compared to yearend 2020.

Contingent receivables amounted to PLN 3,704 million, i.e. were lower by PLN 272 million (-6.8% y/y) in comparison to the previous year. They comprised among others: guarantees and sureties received, bills of exchange issued on account of granted insurance guarantees and other contingent receivables comprising mainly securities obtained in the form of a transfer of the debtor’s assets, mortgage on the debtor’s assets and other contingent receivables.

The balance of contingent liabilities was PLN 1,203 million, which represents a growth by PLN 2 million (+0.2% y/y) in comparison to 2020. This was a consequence of an increase in other contingent liabilities (PLN +19 million y/y), including liabilities due to unpaid loan tranches and lower disputed claims, not recognized by the insurer (down by PLN 17 million y/y).

Operational efficiency ratios 2017 2018 2019 2020 2021
1. Gross claims and benefits ratio (simple) (gross claims and benefits/gross written premium) x 100% 60,9% 60,5% 61,7% 63,2% 57,2%
2. Claims and benefits on own share ratio (net claims and benefits/premium earned on own share) x 100% 64,1% 62,2% 63,1% 62,4% 61,7%
3. Insurance activity expense ratio (insurance activity expenses/premium earned on own share) x 100% 25,2% 24,8% 25,6% 26,1% 27,3%
4. Acquisition expense ratio* (acquisition expenses/premium earned on own share) x 100% 19,0% 19,3% 19,9% 20,1% 21,3%
5. Administrative expense ratio (administrative expenses/premium earned on own share) x 100% 6,2% 5,4% 5,7% 6,0% 6,1%
6. Combined ratio (COR) (net claims and benefits + insurance activity expenses) / premium earned on own share) x 100% 89,3% 87,0% 88,7% 88,5% 89,1%

* having accounted for reinsurance commissions received

Basic profitability ratios of PZU 2017* 2018 2019 2020 2021
Return on equity (ROE) (annualized net profit/average equity) x 100% 19,2% 19,7% 18,4% 11,8% 12,1%
Return on assets (ROA) (annualized net profit/average assets) x 100% 6,2% 6,3% 6,2% 4,4% 4,6%

* restated data

In 2021, PZU generated a return on equity (ROE) of 12.1%, up 0.4 p.p. compared to 2020. In 2017-2021, the average return on equity (ROE) was 16.2%

1 investing activities include investment income, unrealized gains on investments, costs of investing activities, unrealized losses on investments and share in net profit (loss) of subsidiaries measured by equity method