CEO Letter to Shareholders

Together with the Management Boards of the Companies that make up the PZU Group, I am providing you with the Annual Report for 2023. This was a period in which we operated under conditions of gradual recovery from the pandemic crisis, but still under pressure from the consequences of the war in Ukraine. We also must not forget about long-term trends, such as climate change, demographics, labor market transformations and technological advances, which also bring great challenges. Polish entrepreneurs in this environment have demonstrated exceptional flexibility, adaptability and even expansion. This can be seen in the performance of our economy, especially against the economies of the EU countries that form the Eurozone.

The main driver of growth was non-life insurance, where revenues rose 11.4% year-on-year to PLN 16.1 billion. This was driven primarily by revenue growth in non-motor insurance and the MOD segment. Sales growth was accompanied by high profitability achieved in key business lines. The Combined Ratio (COR) for non-life insurance in Poland was 85.3% and the operating margin in group and individually continued life insurance was 21.9%.

In the structure of revenue growth, noteworthy is the growing role of mutual insurance, which, in the PZU Group, is the domain of TUW PZUW. In less than four years, the its membership has doubled, and there are now more than 600 members. In 2023, PZU also acquired Polski Gaz TUW and Polski Gaz TUW na Życie, and this will allow PZU to increase its premiums written in this area, and at the same time, the values of the funds accumulated by EPS (Employee Pension Schemes) participants and managed by the Group.

An important component of the PZU Group’s performance generated in 2023 was the profit earned on its investment portfolio, which rose to PLN 2.5 billion, up 12.1% year-on-year. This was mainly influenced by the level of interest rates, favorable from the point of view of the performance on interest-bearing instruments.

The performance on banking operations was another positive factor. The contribution of Pekao and Alior banks to the PZU Group’s profit attributable to the equity holders of the Parent Company was more than three times higher than in 2022, amounting to nearly PLN 2 billion (vs. PLN 580 million a year earlier).

An important development for the PZU Group in 2023 was changing the accounting standard, from IFRS4 to IFRS17. For external stakeholders, this was mainly visible in the structure and content of the reporting documents. Internally, however, the implementation of IFRS17 has meant many changes in analytical and planning areas. These changes coincided with dynamic changes in the macroeconomic environment, particularly in relation to inflation and the response of central banks. As a consequence of these events, it was necessary to revise the PZU Group’s strategy and set new or update some of the existing metrics.

Today, the PZU Group is already in the final year of implementing its Strategy for 2021–2024. As such, our priority will be to work on preparing new strategic goals and ambitions, the implementation of which will contribute to building the Group’s value, taking into account the principles of sustainable development.

The PZU Group has consistently strengthened its leadership position in key financial market segments, doing so in accordance with the principles of sustainable development. The Group incorporates environmental, social and governance factors in all aspects of its operations and treats these factors equally.

In 2023, this was mainly manifested in supplier outreach activities, expanded ESG assessment of corporate clients, increased involvement of the PZU Group in climateenergy transition processes, rapid progress toward achieving climate neutrality for its own emissions, and numerous initiatives and programs to improve the quality of life for clients and employees. Continuing to do so will be key to keep the fundamental values of growth over the long term, while maintaining balance at the level of committed equity. In the shorter term, this will be another factor stabilizing the effectiveness of the PZU Group’s business model.

Risks originating from global events and trends still exist and could lead to further economic shocks. In this respect, high capital security remains paramount, in particular maintaining the Solvency II ratio at no less than 200%. Analysis of ESG risks in elements of the value chain is also gradually being expanded, including assessments of clients, suppliers, investments and products. This allows the PZU Group to identify and manage processes in accordance with the principles of sustainable development.

The PZU Group retains great potential for growth and further value creation. Given the scale of its operations and its position as a leader in the financial sector in Poland, crucial to its stability, all activities it undertakes must be carried out with a safe risk margin. We will do our utmost to ensure that the PZU Group continues to enjoy a high level of trust from shareholders, clients and other stakeholders, as well as to provide them with certain benefits that are above standard in the market.